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Ok, at the moment, I’m forced to leave Disneyland and shiny new cars and be serious about a matter I feel very strongly about. An article in nearly every Canadian newspaper recently headlined that a Fraser Institute study concluded (this is a “conclusion” so it has to be right...) “Canada’s Internet Pharmacy Business with the USA [is] Threatening Canadian Supplies.” Does anyone really believe this in this day and age? Let’s analyze what we are saying about commodities and manufactured items, by looking at some that we know are in short supply.

Oil in short supply? Ok we can believe that. Yes, oil is a finite resource, and it’s affected by matters like war and cartels, etc. Of course there can be natural disasters like hurricanes that wipe out off-shore oil rigs, or a shortage in supplies like one that occured a decade ago when micro chips for power components were interrupted with the devastating effects of the 1995 Kobe, Japan earthquake disaster that wiped out thousands of lives, as well as a major manufacturer of the electronic chips; or, the more recent shortage of surf board core foam when the materials used to produced the foam forced a California/EPA shut down of Clark Foam, the worlds largest supplier of surf board blanks. Here are a few real shortages driven by governmental, economic and natural forces.

These all share several common factors -- short term effects, drivers of change in supply chain, no false economies existed in the past or future of expanding supply. These companies and markets are all open markets where a capital advantage was taken in a free market economy. By virtue of a natural advantage, strong management, and/or market niches, these entities and companies have built a supply source that positioned them to affect the supply through their world dominance (like the big pharmaceutical giants). But these shortages had real factors behind them, not pure business and free market conditions.

Medications in short supply? Other than the patents surrounding the R&D and manufacture of medications, the supply controls of pharmaceutical companies are affected by only one thing: the willingness of those companies to manufacture enough supply. Are there really risks to “real” shortages anywhere in making pills?

Let’s set forth a challenge to find out. Give the generic guys the opportunity to manufacture the patent-protected meds for a few weeks and see if a “shortage” still exists. I can tell you for certain, given this scenario, whose stock to sell short on the market and whose to buy!

I’d like to believe that the world recognizes that this is not a supply issue so much as an industry transition issue, based on the information age and technology’s amazing effect on global capitalism and true free market economies. How the pharmaceutical industry "protects" their profit margins and the share price of their stock is more of an issue than whether they can manufacture enough medications to meet the market demand at the market prices. Look at the struggles of GM and Ford: if free markets can push these giants into transition, why shouldn't the technology-based free market of "Internet Pharmacy" drive the pharmaceutical industry to efficiency like Japan auto makers continue to drive the transportation industry into building more affordable and better cars? This is a factor of globalization and we can all benefit from embracing the challenges and adapting to the opportunities.

The real issue is, should this be a central government issue (a la the USSR) or a free market issue, a la more innovative business models. Don’t get me wrong, profits are economic drivers -- and I am an ardent supporter of profits -- but entrepreneurial profits are the best. Innovation is what adds value to society -- not protected bureaucracies, corporate, government or otherwise, that hamper free markets.

Hank McKinnell, Chairman and CEO of giant pharmaceutical manufacturer, Pfizer, Inc., notes clearly in his book, “A Call to Action”, that Canadian meds are lower cost solely because of government controls. In this section of the book, page 64 to be exact, Mr. McKinnell states that “price controls are ultimately destructive to the quest for lower costs.” The theory he uses is that Canada, Europe and other countries, by imposing price controls, force higher prices on the United States; he states, “I call for price controls to be lifted in Canada and elsewhere. Let’s work to keep price controls out of the United States and to tear them down around the world.”

Ok, Deal! Oh and one more thing, let’s do a little revision on the patent controls too, let’s democratize the R&D process that the pharmaceutical companies hang their hats on -- perhaps take some of the concepts set forth by professor Eric Von Hippel, in his book “Democratizing Innovation” and create a more solid environment for inventing and building critical medications. Who knows, we may even find a better way to get to the end result -- effective medications and health solutions -- faster.

From a business perspective, let’s take a solid accounting of actual hard R&D costs, give every pharmaceutical company or consortium a solid 5, 10, (pick a number) to one return on investment for that R&D (or like the government does in Canada for scientific research and development - provide a grant for a percentage of labor costs and other expenditures to support the high cost of innovation), and let the manufacturing, distribution and sales be done by other companies after the invention. Perhaps a royalty system; I don’t have the exact numbers, but if you look at the pharma profit margins, there’s plenty in there to account for a fair profit and return on investment in R&D, returns anyone would envy. Of course, should we then again regulate the free market with mandated returns? Probably not.

You see, you can’t have one “fair market factor” around price, without another “fair market factor” around production. Production is solely protected by patents. To have a truly free market, what is needed? A better business model. Not one that just favors the big guys and keeps pushing this factor of price setting freedom by their current model onto the consumers and health care system. This is not an easy answer, but a half answer; “stop price controls or supplies will suffer" is a false, no-answer response to this challenging question around human rights to access to health care and business profits.

As much as I love Disneyland and marvel at the beauty of engineering in a shiny new car, and I feel grateful to live in a country and world where these things are attainable, I spend much of my time dealing with these difficult questions. Seniors and people my parents’ age are in need of medications, and someday soon, we baby boomers will be there as well. So if we can hold this world together, our children will discover the virtues of capitalism through the technological change we are building today -- where a clean, healthy and safe environment is possible, even better than we have it, than our parents had it. It’s not all “Disney” -- some challenges just have to be faced.