Free Markets vs Socialism
“Economics is the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.” There are two important fundamentals outlined in the scholastic definition of Economics; resources are scarce and how resources are distributed is a product of choice. In all developed societies, access to resources is determined by volume of money (which itself is a scarce resource).
The United States in currently operating under an imperfect competitive market structure, with large shares of the economy falling under an oligopoly structure. In an oligopoly, there are a few, large firms (large enough to affect pricing) that offer substitute products. For example, the majority of the cellular phone market is dominated by Apple or Samsung, both of which offer cutting edge technologically advanced cellular phones that differ only in their design and operating systems. For all intents and purposes, they both do exactly the same things, provide access to the cellular networks, provide web browsers, provide access to an app market, and store your personal data. Now, there are other companies in the market as well, but they are generally too small to affect the price of the market.
We have this market because we provide patent protections to industry to incentivize innovation. If with every release of the iPhone, a host of other companies could acquire the plans and build their own, Apple would be disadvantaged because of the sunk costs of research and development. These sunk costs would not be factored into the pricing of the iPhone that was manufactured by the other companies, allowing them to price Apple’s genuine product out of the market.
We see this even more evidently in our pharmaceutical industry, where approximately 58% of global pharmaceutical research and development takes place in the United States (only one other country eclipses 10%, Japan at 16%). Two of the highest profile government run healthcare countries, the UK and Canada, come in at 7% and 1% respectively. There are probably a lot of things we could do to offset the cost of pharmaceuticals, none of which include a government takeover of the healthcare industry, but we can leave that for another day. The main point is that the country with no price controls, utilizing a nearer free market option, and providing patent protection for innovation has incentivized pharmaceutical research and development to a level not even closely contested.
Even in an oligopoly, market efficiencies are far more maximized than in a socialist system. An oligopoly is a form of competitive market, and as such Apple and Samsung are consistently working to provide better and better technology at price points conducive to increasing their market share. It should be obvious, that every cellular phone sold by Apple or Samsung, after surpassing the sunk and fixed costs of brining the phone to market, goes directly to profit (less the variable costs associated with production of one additional unit). But this is precisely why competitive markets, even imperfectly competitive markets, are so efficient. Apple and Samsung are more than willing to invest $14.7 billion and $15.2 billion (respectively) into research and development of new technologies because they own the fruits of those investments in the form of profits.
In a socialist system, the community (more generally, in practice, the government) owns the means of production and distribution. This, in practice, means that Apple no longer owns its own profits. The government can set the price of an iPhone, arbitrarily, without concern for fixed, sunk, or variable costs of production. If this price falls below the actual costs associated with production, the iPhone will not be produced, unless the government forces production. Even then, research and development will cease. Apple will continue to produce ever lowering quality iPhones in an effort to bring costs in line with the dictated price points.
In your standard supply and demand graph, one can see that having an artificially low-price leads to great inefficiencies in the market. The demand at the lower price far outweighs the supply leading to shortages in supply. In the cellular phone industry, this supply shortage may not be pleasant, but it also likely won’t be catastrophic. You can see, however, how a shortage in the supply of healthcare may not be as easily absorbed.
When you factor in price controls, for people who have made significant financial investments to acquire the requisite skills and certifications necessary to become a doctor coupled with surging demand for access to doctors by 27 million people, it is a recipe for disaster. I am not trying to be hyperbolic, I only highlight that the incentive to become a doctor, to invest the time, money, and energy required for the profession, will be disincentivized under a, “Medicare for all,” style plan. If doctors no longer own the fruits of their labor, if their earning potentials are capped by a government pay scale, we will find it difficult to recruit new doctors (not impossible, just much more difficult). Our university pipeline for new doctors will begin to shrink as the demand for access to doctors spikes dramatically. Without a market mechanism to allow for the increased demand and shrinking supply, in the form of market pricing, the system will likely be unable to rectify itself and the problem of long wait times and rationed care become necessary.
While government run healthcare may succeed (or at least not fail abjectly) in places like Canada (population 38 million) or England (population 56 million), it is a whole other matter to institute that policy on a country of 330 million. More importantly, England was running a deficit of only about a ~$52 billion and Canada was running a deficit of approximately ~$19 billion annually. In the US, our budget deficit is approximately ~$1.0 trillion, without the burden of government funded healthcare.
And don’t forget, one reason we have higher healthcare costs in the US is price caps in Medicare, Medicaid, unpaid medical bills by uninsured, and our robust pharmaceutical research and development that benefits the world. It is my belief that socialized medicine in the United States would not only have a negative impact on our own access to healthcare, but would have a dramatic impact on the availability of new drugs brought to market.
