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relative mix of generic versus brand-name

higher prices in Canada, cap the number of

Pharmaceutical

pills sold there,134 or even exit its market than

drugs, and the consumption patterns of their

price controls

citizens. The extent to which prices are lower

reduce their prices to any great degree in the

in other

United States.135 With other foreign markets

abroad reflects one critical fact: "The United

States is the last free market for pharmaceu-

even less remunerative than that of Canada,

industrialized

ticals; other developed nations control drug

pricing restrictions tied to sales overseas

countries result in

prices, as in Japan, Canada, and France, or

would most likely cause companies to sacri-

drug company profits, as in England. So

fice those markets or at least cut back on

reduced access to

Americans typically pay higher prices for new

sales there in order to protect their primary

new medicines,

medications than people anywhere else in the

source of profit, the U.S. market, which

unnecessary pain,

developed world."131

accounts for about 40 percent of global sales.

On the surface, this situation seems

Such a policy would help no one: overseas

and premature

unfair, if not arbitrary, to many Americans.

customers would pay more for less quantity

death.

As Bill McArthur, a physician formerly with

and lower quality, U.S. manufacturers would

the Fraser Institute admits: "In effect,

lose sales and revenue, and Americans would

[Canada] must steal U.S. research and devel-

bear an even greater relative burden of

opment to maintain itself."132 Even so, resi-

reduced spending on global R&D.136

dents of other nations, like Canada, find

To the extent that such legislative initia-

their access to pharmaceuticals, especially

tives lowered prices, they would cut compa-

new, more effective products, to be highly

nies' incentive to invest in new drug develop-

restricted.133

ment, limiting production of and access to

But attempting to flatten prices is not the

new, life-saving compounds. If Washington

answer. A uniform international price would

joined other countries in confiscating the

be impossible to maintain. Exchange rate

wealth of drugmakers, companies would have

vagaries would quickly create radical price

little choice but to continue providing their

divergences in many cases. Trying to main-

existing wares for less. Firms would not, how-

tain uniformity would not only be adminis-

ever, have the same incentive to make new

tratively difficult; it would be economically

medicines: unless someone pays for the devel-

opment of drugs, no one will develop them.137

suicidal, since no business can ignore the eco-

nomic conditions of the market within

Europe has managed as well as it has

which it is selling.

because it, like Canada, can free ride to some

Moreover, U.S. citizens are not paying

degree off of the United States. Even so, phar-

higher prices to subsidize foreign consumers.

maceutical price controls in other industrial-

Pharmaceutical companies are profit-maxi-

ized countries result in reduced access to new

mizing businesses that base their prices on

medicines, unnecessary pain, and premature

death.138 There are no less-regulated foreign

local supply and demand. As long as they can

cover the marginal cost of selling an addi-

markets for innovative drugs off of which

tional pill overseas, they will do so. But they

Americans can free ride, a situation that

will not keep selling at a loss in another coun-

makes proposals for new restrictions particu-

try no matter how abundant their primary

larly dangerous.

market (in the United States) remains. They

Any form of price control reduces the

are under no long-term obligation to sell

incentive to invest. For example, public

their drug products to anyone. And if drug-

attacks on drugmakers accompanied the

makers could charge more in the United

Clinton administration's 1993 proposal to

States, they would do so, irrespective of for-

allow HHS bureaucrats to set prices of new

eign opportunities.

breakthrough drugs. The real annual rate of

Because the Canadian market is only

increase in industry R&D spending fell from

about 6 percent of that of the United States,

9 percent that year to about one-third as

drugmakers would be more likely to charge

much, just over 3 percent in 1994, and 4 per-

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