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Wednesday, January 10, 2024

Rare Diseases May Be Unprofitable to Treat, but That Doesn’t Mean Government Intervention Will Help

The market doesn’t allow us to treat every disease, but is that really a valid criticism of economic freedom?

Image Credit: International Maize and Wheat Improvement Center - Flickr | CC BY-NC-SA 2.0 DEED

What is an orphan drug? It is one that will address a disease that negatively impacts only a few people. Why is the orphan drug perennially in the news? This is because it can be and is used to constitute a very serious complaint about free enterprise; it is one of the best sticks with which to beat up on laissez-faire capitalism. To wit, profit-seeking entrepreneurs have little or no incentive to engage in research and development to satisfy desperate potential customers. There are too few of them. The profits are simply not there. They lie elsewhere, in the direction of maladies suffered by millions of people, such as cancer, stroke, heart disease, kidney failure, etc. Solve those, or significantly reduce their severity, and you can write your own ticket. Save the lives of just a few patients? There’s no gold in them thar hills.

Is this a valid criticism of economic freedom? Does it constitute a legitimate critique of the free marketplace? In a word: No.

For one thing, new drugs or ameliorations are sometimes discovered accidentally. This was the case for penicillin, which has saved innumerable lives. Such a phenomenon is no respecter of numbers of patients to be made better, or profits to be earned. It functions more like a (blessed) lightning bolt; it is impossible to determine who will be helped most.

For another, this topic exemplifies a basic functioning of economics: whenever you impose costs on others, even totally innocently, you typically have to pay for them yourself. If you are 7′6″ and weigh 300 pounds (you are not fat!), you cannot purchase off-the-rack clothing. You are just too big. Instead, you must rely upon a far more expensive tailor to cater to your special needs. Ditto if you wear size 19 shoes. They, too, must be specially made for you, at greater expense. These cost more too, since they cannot profitably be mass-produced like the more statistically “normal” sizes. If you live in a town of 30 people somewhere in the middle of the Alaskan tundra, groceries, fuel, building supplies, and just about everything else will be far pricier, since it is so difficult to bring these items to you and your neighbors. Nor can the costs be spread over many people, since there are so few of you.

You can see where we are going with this. If there are five sufferers from the XYZ disease, the remuneration from producing a medicine to address it will be very limited. Here, apart from accidental discoveries, you will either have to pay much more for a cure, or do without. (You can always hope that an extremely wealthy man will contract this ailment, instead of a poor one.) But even those who alleviate the more common ailments often do not do as well as they otherwise might in this medical sweepstake. The government, in its infinite wisdom, will likely take a very harsh look at a medical breakthrough that garners vast profits. Likely as not, they will brand this as “profiteering” and heavily tax the proceeds.

Will matters improve if state intervention into the free market is further introduced? Not likely. There can be only so much money spent on medical R&D. We also need food, clothing, shelter, recreation, etc. Will the government shift resources from cancer research, to possibly save millions of people, to the study of XYZ, which afflicts fewer than a dozen folks? Not likely. There are far more voters suffering from the former than the latter. If matters are left to the private sector, at least sufferers have the option of paying more, to divert research in their direction. In any case, government medical research will not merely likely, but actually, be marred by affirmative action, in which scientists are chosen on the basis of pigment and plumbing, not on the ability to get the job done.

Both private and public entities will nevertheless gain in terms of goodwill for addressing the plight of the XYZ patients. But which gains relatively more? Presumably, the former. They can advertise their virtue and turn that goodwill into cold hard cash for research of this sort and for their other products. They can do so and gain, right away. In contrast, politicians can start bragging immediately, but cannot “cash in” perhaps for four long years or so. Nor will this be the only issue to come up during their reelection campaigns. Then, too, all that we know about the inefficiencies and pitfalls of central planning will apply to this sector of the economy as well. Do we really want to rely, for advancing medical knowledge, on the economic system employed in East Germany and North Korea?

No, orphan drugs cannot correctly be used as a cudgel to undermine free enterprise. Is the free-enterprise system perfect? No, too many human beings are involved in it. But it is the best option we have to address this or indeed virtually any other economic challenge with which we are confronted.


  • Walter Edward Block is an American economist and anarcho-capitalist theorist who holds the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at the J. A. Butt School of Business at Loyola University New Orleans. He is a member of the FEE Faculty Network.