December 02, 2004

private-sector obeisance

I'm no economist. To my layperson's mind, an article in this week's New England Journal of Medicine ($$) demonstrates how our nation's irrational fondness for the private sector can cloud our thinking and lead to obfuscatory doublespeak.

But I'm not an economist. Perhaps someone more well-versed in the subtleties of the dismal science can help me out. Seriously!

The article addresses the shortage of vaccines, both the episodic shortages exemplified by this season's flu vaccine debacle, as well as the more chronic shortages of childhood vaccines. The authors acknowledge that there are many reasons for vaccine shortages, but they emphasize the limited number of suppliers as the major target for reform efforts.

Although it is not obvious why a greater number of suppliers would necessarily result in fewer vaccine shortages (there is nothing beyond the bald assertion that this is so), the authors focus on reducing barriers to entry and increasing the incentives for private vaccine producers. They dredge up a 2003 Institute of Medicine report on financing vaccines, and they write:

An alternative that was proposed in the 2003 Institute of Medicine (IOM) report Financing Vaccines in the 21st Century attempts to find a balance that limits governmental intervention while ensuring market stability. The IOM report identified the large and growing government share of the vaccine market (55 percent of childhood vaccines) as a key disincentive for investment and market entry. It consequently recommended elimination of the Vaccines for Children program in order to remove the government from the business of directly purchasing vaccines. Because research and development are driven by anticipated profits, the IOM report recommended that the government subsidize the costs of vaccines to further stimulate private investment in the field [internal cites omitted].
I'm no economist, but this seems kind of goofy. Why would it make any difference whether the government is purchasing vaccines, or subsidizing the costs of producing them? Why couldn't the government merely increase the price it pays for vaccines, if what it wants is to encourage more private firms to enter the market? Either way, the government is providing money to private firms to produce vaccines, and the real issue is whether the government is providing enough.

My suspicion is that the major difference between "purchasing" and "subsidizing" is psychological. "Purchasing" carries connotations of direct government control of markets, and in this country, the idea is a major risk factor for anxiety disorders and interrupted sleep. "Subsidies," on the other hand, have that "public-private partnership" ring to them, which usually implies some scheme or another to privatize what the government is perfectly capable of doing on its own, as well as or better than the private sector.

The authors of the article are not blind to the indispensibility of government for any reasonable vaccine program:

Vaccines have strong spillover effects for instance, since they prevent the spread of contagious diseases, they benefit those who are not vaccinated as well as those who are. Consequently, some people will avoid the cost and inconvenience of getting vaccinated and rely on others to maintain community protection. Such products tend to be underused unless the government promotes them. Thus, subsidization has a clear economic rationale.
Even so, this being America, any proposal for government subsidies has to tout its eminent reasonableness by simultaneously emphasizing its iron resolve to "remove government from the business of directly purchasing vaccines."

It all sounds pretty goofy to me. But hey, I'm no economist.

Posted by Carey at December 2, 2004 10:36 PM