Tuesday, March 09, 2004

An Enthymeme

In the heyday of the old Soviet regime, Gosplan was the agency that managed the entire economy. Since Gosplan couldn’t evaluate the performance of a firm by looking at its balance sheet—Communism wasn’t about profits—it measured physical output instead. The results were predictable. The manager of the glassworks made very, very thin glass indeed because he was rewarded for putting out the most square meters of windowpane. The same mechanism guaranteed that steel beams would be immensely heavy in order to increase the total number of tons produced by a plant. Unfortunately, similar idiocies can and do occur in capitalist economies. An example:

American drug companies spend an enormous amount of money developing new drugs in order to increase their profits. Because their priorities are set by the market and the market reflects the buying power of people with money, this way of organizing things ensures that baldness will be a more attractive target for research dollars than, say, multi-drug resistant tuberculosis. Even ignoring this obvious fact, however, and focusing on the response to any given disease, the current system automatically misallocates research money because a huge proportion of research is conducted to match existing and effective drugs with related equivalents that aren’t covered by the same patent. Of course, the variants may be somewhat better than the originals or at least have more amusing side effects; but most of the time they are only sought as a way of making money to make money. The President of Pfizer is gaming the system no less than the commissars who ran the steel mills of Magnitogorsk. Because we’re a much wealthier nation than the USSR ever was, we’ve been able to tolerate this and many other built in inefficiencies with less obvious strain. That may be changing. After all, the Soviets were also able to compete globally for many decades with an economy distorted by ideology; eventually they paid the price.

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