We’ve pointed to Mariana Mazzucato’s umm, interesting views on government aid to research before here. She seems not to have grasped the most basic concept underlying the very existence of such aid in the first place. But here she is wading in on what should be done about the Pfizer takeover offer for AstraZeneca:
Pfizer wants to buy AstroZeneca, a British firm, to cuts its high overheads and especially to pay the lower UK tax rate (20%) – the cheap way the UK attracts “capital”– rather than the 40% US tax rate
Given that the US rate is 35% we might assume that Ms. Mazzucato’s command of the facts is somewhat lacking.
And what is happening to big pharma’s research and development? In the name of “open innovation” – the admission that most of their knowledge comes from small biotech and large public labs – big pharma have been closing down their own R&D (reducing total numbers of researchers), as well as moving the remaining ones to be close to those labs. Big pharma is no longer in the innovation business, using its own resources to fund the high-risk ideas, most of which will fail. It has become more risk-averse and prefers to focus on the D of R&D and please shareholders. Mergers and acquisition strategies reduce expensive overheads and costs (of which research infrastructure is the highest).
And there is another, umm, mis-statement of the facts. It’s the D in R&D that is the expensive and risky part of drug development. You’ll not have much change out of $300 million (at the least!) for running a series of Phase II and Phase III trials of a new drug. And yes, drugs do indeed fail to get approved even after such tests, let alone during them. That’s actually the function that big pharma performs in the current system: having the financial beef to be able to pay for this very expensive and high failure rate stage. She’s simply got things the wrong way around here.
But we can and should go further for she’s entirely garbling the whole point of having government contribute to the provision of public goods:
Government could also retain a golden share of the intellectual property rights (patents) which public research produces, and/or make sure that the prices of the new drugs reflect how the taxpayer paid for the most high-risk research.
Sigh. The entire point, the only point, to having government subsidise basic research is because basic research is a public good. That is, the results (ie, we know that heroin cures pain, Hurrah!) are non-rivalrous and non-excludable. This means that they are also extremely difficult to make any money out of. So, we assume that this difficulty with making a profit will lead to less innovation and research than we might like there to be. Great, so, government steps in to correct this possible market failure.
But you can’t then go around demanding that government gets a cut of the profits when the only reason government is there in the first place is because it’s dang hard to make profits out of this research. If it’s easy to make profits then government doesn’t need to fund it: the only reason for the government funding is that profits are hard to capture.
We can also think of this another way. The reason we have government is so that we can gain these public goods that we can only have through government. So to complain that government is producing public goods without any reward is near lunatic: that’s just government doing what government is there to do. It’s like complaining that your umbrella keeps the rain off you. Yes, what else do you want it to do for you, cook your tea or something?