Tuesday, April 19, 2016

Capitalism, Patents and Healthcare.

I am a strong believer in capitalism who also realizes the need for government intervention in healthcare.   How can I reconcile such apparently divergent views?

The United State's of America does NOT use capitalism in it's healthcare system - and never has.  

Wikipedia list six separate characteristics of Capitalism:

  1. Private Property
  2. Capital Accumulation
  3. Wage Labor
  4. Voluntary Exchange
  5. Price System
  6. Competitive Market
If you don't have those features, it's not capitalism.   Socialism is famous for preventing capital accumulation via taxes and the competitive market via regulating prices.  Communism goes further, wanting to get rid of the rest, but even the Soviets at their height claimed that was an ideal utopia they aspired to, rather than something they could implement.

But Capitalism predates Communism by more than 100 years.  Lets' compare it to Mercantilism, the system we had before Capitalism.

In Mercantilism, there was Private Property, Capital Accumulation, Wage Labor and a Price System.  They did not have really have Voluntary Exchanges, nor a Competitive Market.  Specifically, they had government control of exchanges - what you could buy and sell was strictly controlled.   They were known for banning the importing of many protected goods and the export of gold.  They also were known for monopolies.   Lots and lots of monopolies created by the government, given to favored people.    Queen Elizabeth of England granted monopolies on everything from coal to wine.

In Elizabethan England, under Mercantilism, they called these monopolies "patents of monopoly".

Yes, that's right, patents are not part of Capitalism.   Patents restrict people from engaging in business, which directly prevents a competitive market. They are a hold over from Mercantilism.    If you are defend the concept of patents, you are not a pure Capitalist, you are at least partly a Mercantlist.

Why do we still have patents?   We needed a way to incentivize invention, so we took the old concept of a patent, reworked it, and now they only apply to things you invent, rather than any old thing the government wanted you to have a monopoly on.

Capitalism is a pretty strong systems.  It is more than robust enough to handle some flecks of impurity.  Patents have always been a problem for Capitalists, but it's something we can usually live with.

As long as we keep the other five characteristics of Capitalism, it works well enough.

But that brings us to Health Care.   Here, we don't just have patents on medicines, techniques, and devices.  If you don't buy necessary health care or you die.  That's involuntary, not voluntary.  No different from putting a gun to your head - or ordering people to buy this or go to jail.

Notice how hospitals don't list prices?  Name one other business where that happens.  I can't think of any.  The reason is simple:  you have to pay or you die.  It's not a voluntary exchange, and they know it, so they don't even bother to tell you the cost till after it's done.

Still, it would be mostly OK, as long as we didn't also have the patents and other restraints on free trade.   If there was open market, where you could get the stuff you need to live from multiple sources, the free market would keep the price down.  When you take away both the voluntary exchanges and the patents, there is no free market - that's Mercantilism, not Capitalism.

Which   is why the US has such a problem with Healthcare - we don't use capitalism, we use a mercantile system.  That's not something new that Obama created, it's been that way for more than a hundred years.

I'm not saying we have to get rid of patents* - and by it's very nature, we can't make health care "voluntary".  (Note, we could at least require hospitals to list prices and stick to them).   But we can recognize that system is not capitalist, and that it requires government intervention in this case, because we have already intervened to help out the suppliers (by enforcing patents, among other things).  We need to counter the aid to the suppliers by also helping out the patients.

Price limits are a totally reasonable method.   We don't want to do it directly, so we chosen let the insurance industry negotiate the prices, rather than have government legislate it.  But that means everyone has to have insurance to do the price negotiating for them.  If you don't want to let the government legislate the prices, you have to require that all people have insurance to do the negotiating for them.  Or we could simply rule that the government sets prices if you don't have insurance. 

Health care is not and never has been a free market.  That's why we need consumer protections and pro-patient regulations, on top of the many pro-business regulations such as patents.**

*Note 1:  I am also not saying we can't get rid of patents - a bounty system could be established by the government rewarding innovation might work.  So could a set 10% royalty systems where anyone would be allowed to sell patented objects as long as they paid a 10% royalty would also work.

**Note 2:, I do know that not all health care involves patents, but  the far majority of medical care is involuntary, rather than voluntary, and even without patents there are other issues with the competitiveness of the market (see hospital prices mentioned above, one sided information, limited providers with barriers against entry) that similar issues apply throughout the entire industry, not just patented medicine.