Why government directed and paid for pharmaceutical research will never work

There is, as we all know, a considerable campaign out there to insist that the private sector should be excised from the pharmaceutical drug development system. Groups like Global Justice Now march around insisting that it’s evil that capitalists make money here. Vastly more sensible people like the American economist Dean Baker suggest that government should both pay for and direct such research. That way that patent system - and the high costs of that first 10 years of drug deployment - could be avoided.

Our first line of defence of the current system is that changing who pays the costs doesn’t in fact change the costs themselves. If it costs $1 to $2 billion to develop and gain a licence for a new drug - which it does - then that’s what it costs to develop a new drug. Taxpayers can pay this through the prices of drugs after the capitalists have funded it or they - we - can pay it upfront under the direction of the politicians.

It’s not entirely necessary to buy into our core conviction that politcians are useless, counterproductive even, at allocating capital to think that perhaps that second system might not be all that much of an improvement upon the first and extant one.

But there’s another argument, a clinching one:

The UK government ordered the jab, under development by Valneva, in 2020. However, after rolling out vaccines by Pfizer, Moderna and AstraZeneca, it scrapped that order in September last year. Valneva said ministers had thrown it “under the bus” when the €1.4 billion deal was pulled. Shares in the company, which is listed on Nasdaq in the US as well as in Paris, fell more than 45 per cent.

Now it has emerged that the terminated agreement cost taxpayers €253.3 million (£214 million) in non-refundable payments that the government had already made. In results for 2021, Valneva revealed that revenues had risen by 216 per cent to €348.1 million, which included that €253.3 million relating to the terminated UK Covid vaccine deal.

The expense comes after the government was condemned after admitting that £10 billion of spending on PPE had been written off. Hundreds of millions were wasted on unusable equipment that had passed its expiry date, while taxpayers paid extra in the scramble for masks and gowns at the start of the pandemic. It has also been criticised for failing to stem fraud in Covid loan schemes.

Wes Streeting, the shadow health secretary, said the Valneva expense was “yet another example of wasteful and careless spending” by the government. “The Tories have already lost billions of taxpayers’ money to fraud and waste during the pandemic,” he said. “The British public are paying the price... in higher taxes.”

Yes, OK, Wes is the definition of student politics promoted beyond ability or experience but still. This is the problem with any government funded and directed development process. There will be mistakes, there will be errors. Not in the sense of damn, that was a bad decision to make, but damn, well, that one didn’t work out, did it? Because that’s how development does work out.

The entire world of R&D is to explore the universe of what can be done and see where that coincides with what we’d like to have done. It is, by definition, a process of trial and error. The error is not just an inevitable part of the process it’s an important one too.

So, wrap that all up into politics and any politician who does make such an error - recall, we’d actually like them to make error in this field, find out things that don’t work as well as those that do - will be attacked and possibly defenestrated for having done so. Which kills off that exploration mission that is the mission itself.

The capitalists shrug, say damn that one didn’t work and look around for the next mistake to make. Politics does not, will not and cannot work that way. Therefore politics isn’t the right way to manage this process.

Of course, not allowing Wes Streeting near any decision is one way to deal with this but we would remind that the National Union of Students does still exist and there’ll be another Wes along every year.

Politics never will give pharma development room to make those mistakes therefore politics cannot drive pharma development.

We should indeed take Terry Pratchett seriously

The Financial Times tells us that we should take Terry (Sir Pterry that is) Pratchett seriously as a commentator on this real world around us. The fantasy elements are just there to disguise the pointed nature of the observations on this real world out here.

Pratchett thus combines the social commentary of Boz, the machinations of Machiavelli, the political theory of Mill and the philosophy of Arendt, and all that with wizards, jokes and a grim reaper who could “murder a curry”. Wisdom, humanity and serious social commentary. That sounds like something serious people could do with taking seriously.

The politics of Mill, yes, but there’s also a substantial leavening of the economics of Smith and Ricardo. Even of Mancur Olson as well - the roving bandits live appallingly badly as do their victims, those subject to an enlightened but stationary one do very well indeed. That enlightened nature allowing folk to do their own thing, without interference, to work, invent and trade as they wish.

Throughout that Pratchettian universe it is laissez faire that makes the populace richer. Not an entire “do nothing” order, but one that contains enough order to allow markets and capitalism to flourish. The peace, easy taxes and tolerable administration of justice thing, with that emphasis on both easy and tolerable.

Yes, perhaps people should take this all more seriously.

We’d also point out that - with so many of us here having experience of how this specific industry works - “The Truth” is the best satire on newspapers since Evelyn Waugh’s “Scoop”. Whether Piers M. actually sat for the word portrait of C.M.O.T D. we’re not sure but we do find it explains a lot to think of it that way.

However amusing the concept, let us take Christine Lagarde seriously for a moment

Ms. Lagarde tells us that:

Britain’s inflation problems are worse because Brexit has drained the UK workforce, Christine Lagarde said as the European Central Bank stuck to its ultra-loose monetary stance.

“I don't want to take a political stand, but I think that there was a lot of non-UK labour force that eventually had to leave the United Kingdom, which has not been totally replaced,” the ECB president said.

“The shortage of work is actually having a bearing on the forces of the labour market in the UK.”

The absence of that EU workforce is leading to wage push inflation in the UK that is. As we pointed out elsewhere some time ago:

Brexit is about to give us a problem with this, though. Karl Marx was right: wages won’t rise when there’s spare labour available, his “reserve army” of the unemployed. The capitalist doesn’t have to increase pay to gain more workers if there’s a squad of the starving eager to labour for a crust. But if there are no unemployed, labour must be tempted away from other employers, and one’s own workers have to be pampered so they do not leave. When capitalists compete for the labour they profit from, wages rise.

Britain’s reserve army of workers now resides in Wroclaw, Vilnius, Brno, the cities of eastern Europe. The Polish plumbers of lore did flood in and when the work dried up they ebbed away again. The net effect of Brexit will be that British wages rise as the labour force shrinks and employers have to compete for the sweat of hand and brow.

If a lack of that free movement of EU labour leads to higher wages now, then the presence of that EU labour must have led to lower wages then. It is not just possible but mandatory in politics to have it both ways but reality doesn’t work that way.

See what joys we can uncover from, however amusingly, taking Ms. Lagarde seriously.

Do note though what the point is. It is not that immigration lowers wages for the incomers bring with them their demand as well as their labour. It’s that temporary immigration does, that creation of the reserve army outside the economy.

We'd just like to point out that we did tell you so

Crowing about having been right can be an unattractive behaviour. Pointing out that one was right is a duty of course:

Lockdowns prevented just 0.2 per cent of deaths in comparison with simply trusting people to do the right thing, a new study suggests.

Researchers from Johns Hopkins University, in the US, Lund University, in Sweden and the Centre for Political Studies, in Denmark, said the costs to society far outweighed the benefits and called for lockdown to be “rejected out of hand” as a future pandemic policy.

The finding being, in this new study, that once people know what will help then they mostly do what will help:

“We think that most people don’t want to get sick or infect their neighbours, so if you just give people the proper knowledge they do the right thing to take care of themselves, and others, and so that’s why lockdowns don’t work.

“In general, we should trust that people can make the right decisions, so the key thing is to educate them and tell them when the infection rates are high and when it’s dangerous to go out and how to protect yourself.

Rational adult humans act humanely, rationally and in adult fashion. Surprise!

As we pointed out way back at the start of all of this:

…an important point here, for this is an example of a pernicious worldview. That we, the people, are only able to cope if we are told what to do, what we may do. All must be decided and enforced by the clever people in power and nothing left to ordinary folks to get on with.

…

Be adult, be responsible, and the best of British to you.

As we say, crowing about having told you so can be unattractive but we did tell you so. Informing the people is somewhere between useful and necessary, trusting the people just plain damn well works. This has implications for an awful lot more of society than just pandemics of course - education, charity, the economy itself….

How does anyone think politics works?

The Guardian is most put out. Those in government have a discretionary pot of money to allocate and they’re using that discretion to send the money to those who voted for them:

Some of the wealthiest parts of England, including areas represented by government ministers, have so far been allocated 10 times more money per capita than the poorest under Boris Johnson’s “levelling up” agenda, Guardian analysis has found.

Quite why this should be a surprise to anyone entirely floors us.

It’s possible to take the 30,000 foot view here and insist that this is merely democracy happening. During the Blair years (or The Brown Terror, to taste) there was a significant reallocation of the proceeds of the uniform business rate. Richer, Tory voting areas ended up sending lots of that revenue off to poorer, Labour voting areas. Then came election time, those who promised to reverse this were elected and reverse it they did. Much of the more recent whining about cuts in council grants is a result of this process - the reversal of that subsidy across areas.

In that 30,000 foot view this is also what is supposed to happen. Folk get elected, do something, the electorate observes and considers and votes in the other lot to reverse it. Well, it is the people who are supposed to decide, right?

It’s also possible to take a more cynical view - although we prefer the marker “realistic” here. How does anyone think politics works? Votes are bought by promising nice things paid for with other peoples’ money. So, those who win elections will use other peoples’ money to reward their voters.

Shrug.

As to what we do about it, less government is the only possible answer. The incentives here are such that anyone who gains the power to benefit those who elect them to power will do so. That simply is how the game will be played whatever else anyone says about it. So, the only way to stop the bribery is to stop the ability to bribe.

If there never are discretionary pots to allocate, reallocations from voting block to voting block, then the voters cannot be bribed by those promises and revenue streams, can they?

Or, as is obviously true, and also so often true, minarchy is the solution to this problem.

A cost of living crisis is coming

Many households in Britain will face increased costs in the coming months. For some it will constitute a cost of living crisis. While the causes of this are many and varied, most of them fall into one of two categories: they have either been caused directly by government, or they could have been prevented by government.

One of the biggest increases will be for energy. Gas and electricity bills are set to go up by huge amounts. Gas is relatively clean compared to the coal it replaces, yet the government has cowed to an economically illiterate climate lobby that chants “fossil fuel” without regard to the role gas could play in bridging the energy gap until solar and wind become sufficiently plentiful and cheap. There is a wealth of gas under our feet, yet the government has effectively banned hydraulic fracturing by setting an impossibly low limit on underground tremors that barely register. If that limit were raised, and alternative technologies were encouraged to extract the gas, the energy shortage would cease and the prices would fall.

Energy bills on retail sources were capped for consumers, while wholesale prices went unchecked. Inevitably, as the wholesale prices rose and producers were unable to pass them on, many went bankrupt, reducing both supply and choice. The price cap has led to increased energy prices, and the sensible solution would be to scrap it. The commitment to Net Zero Carbon is set to bring prohibitive cost and price increases, and the decision to require gas boilers to be replaced by fuel pumps will cost thousands per household.

Government could do much to facilitate the development of the new small-scale nuclear reactors, but again it seems too afraid of the anti-nuclear lobby to take a bold initiative. Nuclear is a renewable and non-polluting source of energy as far as climate is concerned.

The climate levy imposed on businesses in pursuit of a green agenda has increased the cost of the energy they use, and this has been passed on to their customers by way of increased prices. This has hit transport businesses hard. And although train companies are exempt from the levy, rail fares are set to increase faster than inflation, hitting commuters and other passengers.

Increases in the Living Wage have increased labour costs for businesses, costs that are being passed on to their customers by way of higher prices. This is particularly so in sectors such as hospitality that use minimum wage labour to keep costs down.

Tax increases are contributing significantly to household spending. Thresholds are not being fully indexed, dragging more people into higher tax brackets. The threshold salary that starts university loan repayment has been frozen, meaning more people will pay on lower real incomes. Steep rises in Council Tax are also on the way. And the 1.25% Health & Social Care Levy announced for April will hit the pay packets of quite modest wage-earners. If the government needs more money, it should borrow, rather than tax. Borrowing can be repaid out of booming growth, whereas tax increases will stunt that growth.

The government’s backtrack on its proposed housebuilding reforms have meant that housing will continue to be in short supply, raising prices and mortgages. There is a soaring demand for rental properties with a shrinking supply of suitable ones. This has pushed up the rent costs that for young people in cities constitute a large part of their budget.

The list goes on. Telephone charges are going up, and rises are on the way for TV and broadband. And everyone who shops in a supermarket has seen prices going up at much more than the published rate of inflation. Some of this is obvious as people have to pay more than they did before, but added to it are the concealed rises where the price stays the same, but for a reduced size or quantity. And the very low-priced supermarket specials such as beans at 10p a tin seem harder to find.

This coming crisis is bad news for households, and therefore bad news for the government that presides over it. Yet the solution is not difficult. They should stop doing the fashionable things that attract praise from obsessive NGOs and their acolytes, but which impose heavy costs on ordinary citizens. They should instead do what they were elected to do.

It's so difficult to get Polly Toynbee to understand

One of the little difficulties of life is that some folk just have knee jerk reactions. Take this from Polly Toynbee about health and social care:

Here’s how the Northumbrian plan works: Mackey’s trust has bid for social care contracts from local authorities that would usually be awarded to private providers. The NHS foundation will seamlessly integrate domiciliary care within the health service. Mackey plans to build care homes to take over residential contracts too, if he can raise the capital. Here is a smooth transition without bottlenecks between the two sectors, with health and social care funded from the same budget, with every incentive to stop people needing a hospital bed and to get them home quicker when they do.

Polly would expect us to think this is a disaster - see, this is going against the privatisation and contracting that the neoliberals insist upon!

We, those neoliberals insisting upon the privatisation and the contracting, insist that this is the point, the very purpose.

We don’t know - the government doesn't, the health trusts don’t and obviously Polly doesn't - know what the finest method of organising, in detail, this cooperation across health and social care is. Clearly there needs to be cooperation here. But between whom and how?

Which is what markets allow. The competition part of markets is the ability to choose whom to cooperate with. Further, in what manner will that cooperation take place?

So, in order for us to find out what is the best method of cooperation across these related fields we need to have markets so that the necessary experiments can be done to work out who should be cooperating with each other and how? If it turns out to be the health trusts doing it internally then fine, if it turns out not to be then also fine.

The entire point of markets and contracting is to set up the system so that we can find out. We are in a discovery process and that can only work if different people are conducting different experiments and thus illuminating the problem from different angles.

Now we do have our own kneejerk here which is that we think integration under a centralised bureaucracy is unlikely to end up being the efficient or even equitable solution but we are willing to be pleasantly surprised by the outcome. For this is the entire purpose and point of the system. What is it that actually - on the ground, provably, reliably and copyably - works? Great, so let’s then go do more of that then.

It’s the finding out which justifies markets.

Largely because it's an insane idea

Perhaps we should have a list of companies that cannot be altered. As with our list of, umm, listed buildings:

His comments got me thinking. Why has the UK been able to introduce a listing system to protect buildings, but is so reluctant to use similar measures elsewhere in the economy?

Largely because it’s an insane idea.

It is indeed possible to say that certain physical things must be kept as they are. We might think that the current listed building system goes too far - Brutalism is something we’d be glad to see the back of for example, not something to preserve unless it’s as an example of what we never again let the authorities do to us - or even not far enough, but that is about physical things.

Trying to apply the same idea to businesses to be grossly guilty of reification. To treat something abstract as if it were concrete as in that Brutalist architecture.

A business isn’t though a real thing, it’s just a legal wrapper for those real things.

One example used here is Derby County, the football club. There are certain real things here. The skills of the players for example, the stadium. Properly quantifying the fans’ support would be like nailing jelly to the wall but there’s no doubt that it’s still a real thing. And yet “Derby County Football Club” isn’t a thing. It’s a wrapper, an arrangement, between those real things. As such it’s not something to be preserved, it’s something to allow to adapt to any changing relationships between those things.

This is true of Rolls Royce, Vodafone and the sweet shop on the corner. The real things are the real assets, whatever they are, and slapping a preservation order upon them may or may not be justified. To treat as rigid and worthy of preservation the relationship between these realities, the legal form of how they combine, is to entirely miss the point of what the business is.

Preserve pieces of reality by all means if that’s what floats boats, but the preservation of a particular set of contractual relationships is nonsense.

Nuclear Power: The Government’s Commitment Issues

Vicar: She’s a lovely girl but do you have commitment issues?

Groom to be: I can’t say I do.

Yes, I know it is an old joke but it captures Downing Street’s lack of commitment to nuclear power. Back in 2008, the government noticed that nuclear power was essential to a zero carbon future but all extant and planned nuclear power plants would reach the ends of their lives and need to be decommissioned before the lost capacity could be replaced. The current (January 2022, National Audit Office) estimate is that the seven advanced gas-cooled reactors (AGRs) and one pressurised water reactor (PWR) need to be decommissioned by 2028.  

By 2008, Sizewell was identified as one of the eight locations which had been given the “go-ahead” for construction. John Hutton, then Business Secretary, said he hoped the first one would be completed "well before 2020". Hinkley Point C (the first on account of being the only one of the eight to make it into actual construction) is now expected to be operational in 2025 (maybe). It will supply 3.2GW or 7% of UK current needs, and perhaps 3.5% of 2050 needs if carbon zero is achieved by then, i.e. current non-electric energy sources such as fossil fuels for transport and domestic heating are converted to electricity.

Moving still with the speed of a hobbled tortoise, November 2012 saw Sizewell confirmed as a possibility and proposals were received from EDF. By 2018, the government’s list of seven new nuclear power stations was down to two: Hinkley Point C and Wylfa, but that was promptly cancelled. Last October, it was resurrected but only as a possibility.  No commitment has been made. Two others had been cancelled and three, including Sizewell C, were only for discussion.

Four years on, we were assured the Sizewell C decision would finally be taken in April 2022.  Vain hope: an expert team has since asked for a six-week extension to prepare a report.

The Business Secretary, Kwasi Kwarteng, granted their request and push back their deadline to 25 February” with further time for departmental consideration. On 27th January, Mr  Kwarteng told the House of Commons that the government had acquired an option on the land and were giving EDF more money to help the project along: “However, I am clear that this agreement does not represent a Government decision that the Sizewell C project will progress.” A decision should be made before the end of this Parliament, i.e. 16 years after the government identified Sizewell C as an immediate replacement for the decommissioning reactors.  Sizewell C is similar to Hinkley Point C, i.e. same output and fewer construction problems. However, it uses the same design as the Chinese reactor at Taishan which has recently been shut down because of damage to the fuel rods. This should cause Mr Kwarteng a certain amount of soul-searching.

The truth is that recent governments, other than the Scottish one, have proclaimed commitment to nuclear but vacillated and procrastinated, basically because successive short-sighted Chancellors have refused, unlike the French, to provide the moolah. The Nuclear Energy (Financing) Bill (2021-22) went through its Commons stages during the past month.  It is not easy to understand and few MPs probably did. The Treasury likes it because it relieves them of paying for nuclear power stations such as Sizewell C. Instead, users will have to reimburse the City investors by paying far higher prices, i.e. fat margins, than should have been available from government utility financing. It is like the Private Finance Initiative, only worse. Transferring public capital expenditure in this way rips off the taxpayer/end user. The Treasury dresses it up in all kinds of clever language (read the Bill) and calls it the Resource Allocation Model or RAB.  RAB actually stands for Robbing the Average Bloke.

The government’s dilly dallying over nuclear power and its financing scam are only two of the problems.  The third is its complete failure to estimate how much nuclear sourced electricity we will need and how that should be generated. 24th January 2022 may not be a typical day but it is not that untypical either.  According to the National Grid, 60% of our electricity then came from fossil fuels, 11.6% from nuclear, 9% from imports and 5% from renewable (wind and hydro). Dropping from the current nuclear output, to Hinkley plus Sizewell C, halves nuclear provision and if fossil fuels are taken out, renewables and imports would have to supply a steady 95% which is never going to happen. And it gets worse: these figures exclude fossil fuels not used to generate electricity, e.g. transport fuel and gas heating. And Nicola Sturgeon, the First Minister of Never Never Land, insists that they can achieve zero carbon with no nuclear electricity at all.  As a purist, she presumably rules out importing electricity from countries, like England and France, which use nuclear to produce their exports. Carbon capture and storage can fill some of the gaps but certainly not all of it, or not at affordable prices.

In short, a sane nuclear power policy needs careful calculation of our future needs and a commitment to following the example of the USA, Canada and China and embracing modern, cheap Generation IV advanced nuclear reactors (including but not confined to molten salt reactors) since they are the only way the British taxpayers will get the electricity they need at prices they can afford. Saying “I do” would not then be that difficult. 

Never forget, markets can be changed by altering demand, not just supply

Matthew Syed suggests that Anglo Saxon capitalism is corrupt:

Twenty-five ministers from the coalition government took up jobs in sectors they had regulated, including Ed Davey and Chris Huhne at energy companies, and Nick Clegg at Facebook.

As to why this is so:

Most economists now accept that this labyrinthine web of retrospective inducement has had a chilling effect on capitalism. By dangling the carrot of future employment, giant corporations influence ministers in the here and now. This happens in myriad ways, but the most pernicious relates to the companies’ desire to protect themselves from the challenge of new ideas and competitors. They work with compliant politicians to introduce regulations, subsidies and bailouts that act as barriers to entry, stifling the free market.

We leave the truth or not of the specific assertion to the individual as we agree that the revolving door does have its problems. So, how do we solve this?

The Syed solution is to ban ministers from such future employment for 7 years - well beyond the time period where their Rolodex and contacts would have any influence. In return, ministerial salaries should jump by perhaps fourfold.

We would propose something different - for yes, markets like this can be altered by changing the possible supply of people willing to do governance for future economic gain. But they can also be changed by altering the demand for people willing to consider future employment options while governing now.

Which is to have governance not worth influencing in this manner in the first place. If government does not take to itself the power to “introduce regulations, subsidies and bailouts that act as barriers to entry, stifling the free market” then why would a company try to buy it? If political experience, previous political power, were worth nothing then perhaps the employment prospects of Ed Davey, Chris Huhne and Nick Clegg would be rather different - difficult for them and possibly highly amusing for the rest of us. One of them would seem suited to the job of pitchman for speed limiters for example.

That is, return to that classically liberal heyday of little interference in markets other than the most general rule setting - don’t poison the customers, that sort of thing - and we’ve solved the problem. No one would demand the services of retired politicians - nor trail rewards to those in office - because such influence and attentions would be worth nothing.

It’s possible to be more blunt about it. If government is able to influence who makes a profit then those desirous of profit will buy government. The solution is not to change the supply of those who can sell profit making opportunities, it is to change the demand for the services by abolishing the ability.

A free market economy doesn’t have room for corruption in it. So, if we desire to end corruption let us free the economy.