Atlas’ Thugs: Profit-Seeking Has Become Rent-Seeking

Mytheos Holt
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Posted: Jun 06, 2016 11:36 AM
Atlas’ Thugs: Profit-Seeking Has Become Rent-Seeking

Last month, news came down the pike from the Harvard Business Review that should bring despair to the hearts of any honest defender of capitalism.

As reported by American Enterprise Institute (AEI) blogger James Pethokoukis, the Harvard story, authored by Boston University economist James Bessen, found that growing corporate profitability is increasingly coming from investments not in benevolent, market-friendly costs such as research and development, but rather in augmented lobbying to shut out competition. In short, it is now more profitable to use Washington to stop people from building something new than to actually build it yourself.

If a more devastating indictment of the Obama economy and its culture of cronyist favor-seeking exists, it is hard to imagine. A world where well-heeled “men in Washington” dictate which businesses do and don’t get to survive is not one where wealth, opportunity, or a functioning economy can continue to be realities for the vast majority of people. Indeed, it has more in common with a feudal system of patronage than with anything recognizable as capitalist or American. And like feudal patronage, it serves only to protect the already powerful at the expense of everyone else, whether they are entrepreneurs, taxpayers, or the economically vulnerable.

Not that this news should be surprising. One could have deduced it purely by observing the recent behavior of the pharmaceutical industry, which perhaps more than any other has been adept at playing this Washingtonian game of thrones. Some facts:

Between 2009 and 2011, pharma spent enough money to more or less write Obamacare based on their dictates. That figure totaled close to $1 billion on lobbying on the US alone. Meanwhile, the industry’s spending on research and development has become dwarfed by its advertising budget.

Despite widespread discontent with the industry’s price gouging behavior, the salaries of health care CEOs continue to rise. Witness the eight health care CEOs recently listed in a New York Times feature on the 50 highest paid chief executives, all of whom commanded salaries of greater than $20 million per year.

The only regulation that the industry seems interested in fighting is not one that stops them from developing new drugs or improving their services, but rather one that bars them from bleeding health providers and consumers for more money. I refer to the 340B drug discount program signed into law by President George H. W. Bush, which requires all pharmaceutical companies who sell their drugs to Medicaid and Medicare Part B patients to offer discounts to health providers that treat tons of poor people. The drug industry hates that the program generates $4.5 billion annually in savings for providers – even though 340B does demonstrable good helping the underserved get access to medications and clinical services.

In a free market, all of the previous facts would never have become reality. But thanks to the obfuscation, lies, and thuggish tyranny of the “most transparent administration in history,” they are sadly an inevitable outcome. As Republican nominee Donald Trump is fond of observing, businesses that figure out how to manipulate a broken system are simply doing their jobs, and pharma has proven particularly adept at gaming our current system of lobbyist-driven profits. And because they’re so good it, they are unfortunately committed to preserving their advantage.

Therefore, while we may be tempted to savage Big Pharma for their cynicism, really, their predatory behavior is simply a symptom of our broken American politics. Shame on Washington for its spinelessness and stupidity in permitting our free market economy to be so perverted, and let’s hope the hard work of reverting to precisely that free market economy begins soon.