The Hidden Cost of Gov't Protection

Think about what happens if we don’t understand relative risk — if we don’t explicitly measure the cost of acting versus not acting.

Let me give you a sense of what that means: the human toll of not acting.

A seven-year delay in beta blockers — from the time they were approved in Europe to when they were approved in the U.S. — may have killed about 119,000 people. Likewise, the 3½-year delay in approving IL-2 may have killed about 25,000 people.

These are approximate numbers, and they’re debatable, but they begin to give you an idea of what happens if you don’t act.

A global alliance for tuberculosis drug development has less and less pharma participation because it doesn’t make sense for pharma at these hurdle rates to invest a lot of money in a third-world disease.

So what’s beginning to happen is not only do you have more and more TB, but you’re also getting more and more antibiotic resistance to TB in places like Russian prisons. That is a real problem if you have things called… airplanes.

Malaria is killing a kid about every 30 seconds. But again, it doesn’t make sense for pharma to focus on third-world diseases. So the military, not pharma, is funding malaria research vaccines because we’re putting our troops in a lot of places where malaria is endemic.

When you’re talking about the international AIDS vaccine, again, it becomes a Gates initiative — a public initiative, as opposed to a pharma initiative, because what we’ve done is raise those hurdle rates so high that it just does not make sense, given the risks and profit profile, for a business to invest in this stuff.

Over the last 25 years, less than 1% of the last 1,300 drugs approved went to treat tropical diseases. So there is a real human cost to saying, “We’re going to be 99.9% careful on this stuff. We’re going to make it very difficult to bring medicines to market.”

Since no one explicitly measures these costs, it is conceivable that the FDA’s hats are not as white as most people assume. It’s possible that those people who ride in as white hat regulators, because they are protecting you, because they are protecting the public interest, may be unintentionally causing some real problems.

If you punish entire industries, if you try to make industries afraid of innovation, then it’s much harder to measure the consequences of what you’re not doing, and when you do that, you can do some really stupid things.

There is a real cost to not acting, and at this point, we don’t know what that crossover point is. The difference between regulation that’s just right and entrepreneurship that’s just right is when the regulation saves as many people as might have been hurt.

For a lot of stuff that we are going to face as we and our kids age, it is really important that we have citizens asking what happens if we don’t do something. What happens if we don’t build a bridge, what happens if we don’t build the infrastructure, what happens if we don’t put in a subway, what happens if we don’t put in the high-speed rail?

Because if we don’t question the cost of not acting, we’re going to focus on only one part of the equation and really going to hurt ourselves in this process.

If we get this right, there is an enormous amount of productivity locked up in the U.S. economy, an enormous amount of entrepreneurship, an enormous amount of research that hasn’t come to market.

I think we could increase the GDP of this country in a very substantial way… if we simply start taking a little more responsibility for our actions, if we allow entrepreneurs a little more room…and if we force regulators to answer the question “What happened because you chose not to allow something?” as well as “What are the costs of having allowed something?”

Thank you.


Juan Enriquez

The Daily Reckoning