Tutorial on the Regulation of the Pharmaceutical Industry

The pharmaceutical market place is not entirely a free market. The extreme demand for lifesaving products can make standard economic assumptions inoperable. Therefore, regulatory mechanisms have emerged to protect patients and to provide patients access to affordable medications. There are three aspects of pharmaceutical operations in the U.S. that are regulated by the government:

Two Visions for Healthcare

It is clear that the U.S. cannot continue its current course in which healthcare costs are more than 17% of GDP and outcomes are significantly behind the rest of the world. It is also clear that Americans are an optimistic people with a firm belief in the idea of progress, which manifests itself in technological and business innovation. The two visions for healthcare that were presented at the Forbes Healthcare Summit are almost caricatures, however. There is opportunity for creative individuals and institutions. Technology has not been applied evenly in healthcare. While the U.S. can be proud of its innovations in high-technology procedures, its adoption of information technology is not even at the level of the pizza industry. Both visions emerged as a result of economic incentives, one to increase revenue, as was the case in Texas, and one to reduce costs, as was the case in upstate New York. The question now is how do we shift the incentives to create the proper mix of outcomes, cost, and risk?

Mr. Trump and the Global Circus

Just what is the crazy-like-a-fox President-elect of the U.S. up to? His antics would make P.T. Barnum blush with admiration. Mr. Trump has created a spectacle of showmanship on a scale unequaled at any place and at any time in the past. His millions of voters are more Pavlovian than a 50-dog act. And his detractors are as puzzled as they are livid. Let’s step back and take a look at the history leading up to this circus. Perhaps this can provide us with some hint on what to do next, before the lions are released into the cage with us.

The Decline and Fall of Globalization

To understand what happened in the recent US Presidential election, we have to go back to the early 1980s. At that time the overall global social mood shot upward, probably as a consequence of growing international financial integration that tended to undermine the age-old paradigm of “international diversification”. As the social mood became ever more positive, feelings that “everyone is a potential friend” grew stronger and drove events toward increasing interdependence, trade, and cooperation. It’s no accident that the European Union was formed during this period, along with the World Economic Forum in Davos. This story is graphically shown in the diagram below, where we see globalization totally flat until the mid ‘80s, where it exploded until around 2008.

Some Modest Proposals

I am a social-media whore. I am awake after midnight fascinated by what people might say next. Now that Mr. Trump won the Presidential election, the future no longer seems to be constrained by civilized precedent. Any proposal is now taken to be credible; even the dismantling of the extremely popular Medicare is on the table.

Landscape and Extreme Events

To understand extreme events (X-events) and how they occur, we first have to understand the way events, in general, take place. A good picture for this process is to imagine that you are walking in the mountains, where the landscape consists of hills, valleys, mountain peaks, plateaus, and flat, lowland terrain. At any moment, you occupy a position in this landscape. The event of immediate concern is where you will be at the next moment. Unless you happen to be standing on the edge of a cliff or on the top of a sharp mountain peak, your next step will not change your position much. But if you are near the edge of a cliff or on a mountain peak, even the smallest step in the wrong direction will change your life dramatically and very likely not for the better. In fact, such a small step for a man (or woman) may well be the last step. So there are two kinds of locations, or points, here in this mountainous terrain: an ordinary point, from which a small step doesn’t change your situation much at all, and a critical point, where even a minor step in the wrong direction can lead to a major discontinuity in your life.


Conventional wisdom has it that political trends are a key determinant of the stock market’s gyrations. As an election approaches, commentators endlessly debate the effect the outcome of the election will have on stock prices. Investors weigh up which candidates will influence the market to move up or down. Statements like, “If Jones is elected, it will be good for the market, but Smith’s election will cause stocks to tank” are common.

Personal Resilience

The first item on the road to a measure of resilience is to remember that resilience is a context-dependent systemic property. It depends on the type of extreme event (X-event) you want to be resilient against. This point must be kept uppermost in mind, since it does no good to build resilience against a terrorist bombing when what happens is a hurricane or an Internet crash. So to set the stage for our Four As resilience measure, let’s assume we want to be resilient to an Inter- net failure. So that’s our target X-event. But even that’s not enough. We have to specify a few more details about the failure before we start measuring how well our protection is working. These details include whether it’s a purely in-house IT failure of a server or some other part of the local information-processing infrastructure or the failure goes outside your own organization. In the latter case, we then must ask if it’s local in the sense that the failure rests in your local ISP or if it’s global in the sense that the failure extends beyond simply your own provider. We can further subdivide the problem. But this is probably enough to get the general idea, which is that you have to have a very good idea of what you’re trying to be resilient against before you can even begin to put protection in place.

Planning for the Unimaginable

One of the threads running through this book is the notion that there can be no human progress without X-events. Of course, here we are speaking of the kind of “progress” that’s revolutionary in character, not evolutionary. This is progress in which visible, meaningful change happens rapidly enough that we can often see the change taking place before our very eyes. The argument we’ve given for the claim that X-events are a necessary condition for this type of progress is that revolutionary change requires that existing social, economic, and/or political structures that have outlived their usefulness be swept away. But if there is anything the power structures in modern society—mostly politicians, banks, and megacorporations— want, it is to maintain the status quo. So the only thing that can overcome that sort of power-induced stasis is an “act of god,” i.e., an X-event, some- thing that the existing power structure is powerless to prevent.

Let’s not focus on the elimination of risk

In his book The Edge of Disaster, security expert Stephen Flynn speaks of a panoply of threats to our safety and well-being: a breakdown in the power grid, stoppages in the global food supply chain, a chemical accident in a major urban area, damage to urban water supplies, and so forth. In Flynn’s world of terror, the most likely threat is a terrorist attack that pushes panicked legislators to overreact by doing something stupid, such as tearing up the Bill of Rights!

What is Resilience?

In the summer of 1973, one of us (JC) took a position as one of the first scientists at the International Institute for Applied Systems Analysis (IIASA), located at a former hunting palace of the Austrian Empress Maria Theresa, just a few miles south of Vienna in the village of Laxenburg, Austria. IIASA was a joint venture of the US National Academy of Sciences and the Soviet Academy of Sciences, with several junior partners, the countries of eastern and western Europe, along with Canada and Japan. The research structure of the Institute was set up along the lines you’d find in a university, except that the “depart- ments” had names like Energy, Urban Studies, Water Resources, Methodology, and so forth, reflecting the fact that IIASA was set up to study questions common to the industrialized countries of the world.

Over the Edge of the Technology Cliff

In the latter half of the twentieth century, two of the highest-flying tech firms were Wang Laboratories, manufacturer of word processors, and Research in Motion (RIM), a Canadian company that produced the famed Blackberry, which took the world of cell phones and electronic email by storm. It’s instructive to look at the timeline of these two companies, both in terms of technology and revenues, to see how things can go very badly very quickly for a company operating in a fast-changing environment.