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Advertising is good medicine

By Wayne Dunn
web posted September 10, 2001

Imagine that you spent years of research and millions of investors' dollars developing an idea that could save or prolong hundreds of thousands of lives. You put your product on the market and advertise.

But a few weeks later, various columnists and "talking heads" begin deriding you for it. Advertising, they say, harms consumers by raising the cost of the product they so desperately need (a product which wouldn't exist had you not created it). Soon there's a movement afoot to prevent you from advertising -- in the name of "the public good," of course.

Unfair? That's exactly what's currently happening to drug companies.

The main fallacy of the anti-drug-advertising crowd is based on the premise that an individual (or group of individuals, i.e., a company) has a moral obligation to be charitable, e.g., to sell cheaply the product of his mind. Well, if your moral code demands charity, fine. Go invent a new lifesaving drug and simply give it away. No one will stop you. You certainly have the right to be generous with your own goods, but not with your neighbor's, even if he's the CEO of a pharmaceutical corporation.

Another fallacy lies in believing that advertising is something other than what it is: a form of speech. If you judge that it's to your self-interest to spend money to promote the product of your mind, so be it. No one should be able to forcibly compel you to act contrary to your own judgment -- or to use the power of government to do it.

This is not some complicated medical issue requiring months of exhaustive analysis of the intricate details of how drugs are made; it's a basic issue of individual rights requiring a firm grasp of the concept "freedom." Freedom means that each individual is at liberty to chart his own course in life and reap the effects of his own actions. And that includes individuals who run drug companies and whose job it is to increase their companies' profitability.

At this point, this article could end. One is either for free speech or one is not. One either believes in individual liberties or one does not. But there are a few ancillary falsehoods I will address:

"Advertising raises a product's cost." The expense of advertising actually lowers the product's cost, in the long run, just as the expense of electricity and machines used in the product's manufacture results in the finished good being more, not less, affordable. Would a handmade car be less or more expensive than one mass produced, even though the costs associated with operating a modern automobile factory, i.e., the raw materials, electric bill, labor, etc., is reflected in the latter car's price? Obviously, the cost of a handmade car, such as the ostentatious Morgan, which one never sees advertised, far exceeds that of the typical car that rolls off an assembly line and is advertised heavily.

Certainly the cost of advertising drugs is passed on to the drugs' consumers, just as the cost of advertising cars is passed on to the cars' buyers. But the purpose of advertising is to expand the customer base by informing more people of the product's existence and virtues. The more consumers a company attracts to its product, the more it sells. The more it sells, the less money it must make per unit sold in order to be profitable. Advertising generally attracts more customers, which might allow the company to charge less in anticipation of making more money through increased volume.

But regardless, there shouldn't be a law that restricts a company from charging anything it wishes, even if it slaps a million-dollar price tag per tiny vial of much needed medicine. If the cost proved too prohibitive, the company would go broke waiting on its first sale. Reality would demand it lower the price to accommodate at least enough consumers to allow it to turn a profit.

"Corporations advertise drugs solely to increase their profits." Absolutely! The fallacy is not in that statement, but in the ethical implications commonly attached to such a statement. It's true that drug companies seek profits. All companies do. That's how they remain in existence. But how do they earn profits? By producing things that people desire to purchase. If the drugs weren't valuable, people would eventually stop buying them (or never start).

But it's not true that advertising drugs solely benefits the drug companies, even if that's the advertisers' sole purpose. Advertising is a way of making people aware of a product. And such awareness can have a positive impact not only on the company's bottom line, but also, in the case of medicines, on those suffering illness. One who sees a drug commercial and believes the drug could relieve his ailment may then decide to make a doctor's appointment to obtain a prescription. The doctor, of course, can then determine whether the desired drug is appropriate or another treatment is required. In fact, those who might otherwise suffer in silence might be spurred, after seeing such an ad, to seek medical attention that results in saving their lives.

"Even some doctors think drug advertisements should be banned." So what? No one, no matter how many degrees he has, has a right to restrict someone else's freedom of speech. Perhaps these doctors, due to the government only recently easing restrictions of prescription drug advertising, are disconcerted by the recent influx of patients inquiring about some new pill they saw on TV. So what? If the drug is unsuitable for the patient, then the doctor shouldn't prescribe it to him. But it's generally better that a patient investigate a potentially effective drug now than languish until his doctor finally reads about it weeks or months later in a medical journal.

"Medicine is so expensive because drug companies are so greedy." Wrong. A new drug is so expensive for some of the same reasons any new invention may be: because its maker is trying to recoup the initial investment, i.e., the cost of years or decades of research and development that led to its creation. If investors -- the ones who made the drug possible in the first place -- aren't convinced the company is striving to promote the new drug, they're less likely to support the company's future endeavors.

But apart from the above, the fact that the government is so active in the area of medicine actually makes drugs and privately-funded medical research of all natures more expensive to consumers by making it riskier for investors. What "greedy," "money-grubbing" venture capitalist would want to sink millions of his own dollars into such a long-term undertaking as developing a new disease-curing drug, when at any moment the government could arbitrarily declare the entire field off-limits or impose some regulation that throws a monkey-wrench into the whole works? Once a drug has been approved for market, companies have learned from experience to snatch profits as fast as they can before some pressure group tries to have the drug yanked off the shelves -- or, as has recently been the case, tries to restrict advertising. Therefore, the possibility or reality of government intervention, not corporate "greed," is fundamentally what increases the cost to consumers.

"Drug companies are more concerned with short-term profits than they are with curing diseases." Huh? Talk about a false dichotomy. The absolute surest way for a company to shower itself with short-term (and long-term) profits is to cure a disease! But the idea that corporations tend to be short-ranged does contain a modicum of validity only because the government's interloping into every aspect of medicine has made long-range thinking and planning next to impossible. Why attempt to project ten years out, when the government might sink your plans next quarter?

"More government programs are needed to help people pay for prescription drugs." The government already undermines market forces and thereby raises the cost of medicine with existing programs such as Medicare and Medicaid. New or expanded programs would only make things worse.

Understand that a drug company is a seller who's out to make as much money as possible on the drugs it creates. While a patient is a buyer who hopes to pay as little as possible for the drugs he needs. Enter the government as a "disinterested" third party. It pays for all (or a significant portion), let's says, of the drugs participants in some state-run handout program require. Now, in this situation, the consumer needs medicine, but he is less concerned with its price than he would be if he were paying out of his own pocket; thus, he has much less interest (if any) in bargain shopping. In fact, he's probably permitted to purchase medicine only from certain providers, regardless of whether a cheaper option is available. The seller is also aware that the buyer isn't as price-conscious as he would be if he, not the government, were picking up all or most of the tab. If the buyer isn't worried about getting a good value for his money, you can bet the seller isn't worried about giving him one.

In a free market, the seller cannot price his product outside everyone's ability to purchase it, and he's constantly under pressure to lower its price. But when the government guarantees payment, then the seller has every incentive to increase his price, while the buyer has no incentive to get him to decrease it.

(Incidentally, a policy-holder's health insurance company, unlike the government, does not thwart market forces, although the buyer, the policy-holding patient, may not personally be "bargain shopping." The insurance company, in this case, is the buyer and has a vested interest in steering its policy-holders toward less costly options, thus exposing drug companies, the sellers, to market forces.)

"A drug company has a monopoly on any new drug it creates and thus may charge anything it wants." This is a half-truth conjoined with a false premise. The false premise is that such a "monopoly" is immoral and should somehow be prohibited. A creator does and should have patent protection on his creation. Without patenting, a company would never spend time and money developing a drug only to be "rewarded" by everyone else cashing in on its hard work. Each company would wait for someone else to complete the onerous task of researching and testing a drug and then all would pounce on the formula. Thus, without patent protection, there would be no incentive to invent or create anything new and complex.

The half-truth of the assertion is that drug companies are able to charge anything they want. As previously discussed, in a free market they could charge no more than a profitable number of consumers could pay. The statement does, however, contain a smattering of truth only because of the Welfare State's usurpation of the free market. In our current system, to the degree the government acts as a third party, drug companies are able to charge higher prices than they would under a completely market-driven system. And with the government ever-poised to goose-step into the health care industry at the whim of the latest squealing pressure group or rhetoric-spouting politician, companies understand they must grab as much profits as possible as quickly as possible.

Advertising, of prescription drugs or anything else, is a form of free speech that should never be restricted, unless it's fraudulent. And the cost of advertising, which apparently miffs so many, is a pittance compared to the cost stemming from the government's short-circuiting of the free market by asserting itself into the health care system in a thousand ways, both great and small. But the right answer is not to ban advertising, but to recognize that every individual has a right to his own life and may set whatever terms he desires upon the creations of his own mind and the products of his own efforts. ESR

Wayne Dunn is the creator/editor of "The Rational View,"an online periodical at www.rationalview.com. This is his first contribution to Enter Stage Right.

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