Why Are Drug Prices High?

Canadians now spend $34 billion per year on pharmaceuticals. That is almost a thousand dollars for every man, woman and child— considerably more than most citizens of other OECD countries spend on comparable or better drug plans. In New Zealand, for example, a national drug formulary aggressively pursues the most cost effective drugs and negotiates the best obtainable prices.  Even countries such as France, Italy and Spain spend less than Canadians do for the same basket of drugs.  According to a recent study conducted by several experts on drug policy published in the Canadian Medical Association Journal, Canadians could save $8 billion dollars per year on prescription drugs  (well over 20% of our total costs) if we had a single–payer system of pharmacare.  More people would be covered—thereby making drug policy more consistent with the basic principle of universal medicare– and administrative costs would be lower.  Economies would be realized through three different mechanisms: the benefits of bulk purchasing; the negotiation of lower prices; and the substitution of generic drugs for more expensive brands.  So why hasn’t it happened?

It almost did. In 2004, B.C. ‘s Liberal premier Gordon Campbell, Alberta’s Conservative premier Ralph Klein, and Saskatchewan NDP premier Lorne Calvert all agreed that the federal government was more able than the provinces to finance a national pharmaceutical plan. All of the other premiers readily agreed (with Quebec premier Jean Charest of course insisting on the right of Quebec to opt out and run its own parallel plan). Unfortunately,  the new Liberal prime minister, Paul Martin , had too much on his plate and too little time to deliver it. The death blow came when Stephen Harper’s Conservative government was elected in 2006, and began its policy of implementing targeted tax cuts rather than “expensive” social programs. But what if the “expensive social program” actually saved billions per year by lowering drug costs? Let’s just say that Stephen Harper did not enter politics to save medicare, but rather something closer to the opposite.

The Conservatives’ role in driving up drug prices was not just due to this act of omission, but also to a considerable act of commission that came a few years later with the negotiation of the Canada-European Trade Agreement  (CETA).  Canada needs to encourage investment in research, development and manufacturing, but that neither explains nor justifies our history of higher prices.  Remember when Brian Mulroney first  angered seniors by improving patent protection for drugs and making generic drugs more expensive, way back in 1987? At that time, the pharmaceutical industry promised to spend 10% of sales revenues on R&D in exchange for higher prices. What happened? Research spending has been well below 10% since 2002.  How can we be confident that drug companies will serve consumers any better under CETA?

Mark Crawford is a political scientist and former public servant who teaches at Athabasca University.


The Debate About the Debates

“Pick your battles” is a wise adage for life, especially in the intensely competitive and adversarial arena that is politics. That is why we have a certain tolerance and even admiration for leaders who display this wisdom in their campaign strategies.

But what if that campaign seems never-ending,  and the battles avoided include major issues of the day and time- worn avenues of democratic accountability?  I am referring of course to the prime minister’s recent decision to not attend the traditional debates put on by the consortium of Canada’s major broadcasting networks.  These debates have become known as “the” debates and one the key focal points of the election campaign: in 2011 the first English-language debate drew 10 million viewers.  The only problem, from Mr. Harper’s perspective, is that he can’t control them. And that is why he prefers to have a Google/Globe and Mail debate on the economy in Calgary and a Munk debate on national security in Toronto instead. Smaller, more fragmented audiences looking at debates focusing on his preferred agenda, in his preferred context, suits him better.

By pulling out of the traditional consortium debates, the government has cleverly conflated two issues: one is that the idea of a broadcasting consortium effectively monopolizing and determining the debate format is no longer acceptable; the other is that it is acceptable for the government to unilaterally change the rules 5 months before an election. The government pretends that the former consideration legitimates the latter; it does not. All it suggests is that we should supplement the broadcasters’ debate with others, and then agree after the election to establish a Debates Commission to set the rules for the following election.

Perhaps the prime minister’s audacity wouldn’t seem so bad if it weren’t part of an even larger pattern of audacity that has characterized his entire tenure in power. We don’t have First Ministers’ conferences anymore, even though healthcare reform and battling climate change are of immense concern to Canadians and require a very high level of federal-provincial coordination. We don’t have wide open press conferences anymore either.  Instead, we now have personal attack ads between elections, prorogations of parliament whenever a government is in danger of losing a vote of confidence, and omnibus budget implementation bills as the primary vehicle for unpopular measures that are neither budgetary nor about mere implementation.  All of this has become simply routine.

If Mr. Harper is rewarded with another majority and becomes the most successful Conservative PM of modern times, his behavior will become the template for Conservatives, the unspoken political playbook for all politicians, and the ‘new normal’ for all young and immigrant Canadians, and even for a large number of older Canadians who don’t bother to remember the honour system that once was.  Is this the role model we want for politics in the future?

Mark Crawford teaches politics at Athabasca University.

The REAL PRoblem with Jim Prentice’s 2015 Budget

We should all welcome Premier Prentice’s commitment to getting off the energy-revenue roller-coaster and his plans to replenish Alberta’s savings. But two things bothered me about  the premier’s pre-budget TV broadcast and Finance Minister’s speech last week.  First, he gave sketch of Alberta political history that commended Premier Lougheed for creating the Alberta Heritage Trust and Premier Klein for his “financial rigour” and implied that Alberta’s fiscal problems were created elsewhere by less responsible politicians. This does not accord with my observations. Ed Stelmach was committed to correcting the infrastructure deficit that was hugely evident in the mid 2000s. He also tried to correct the problem of royalty rates that were 20% too low according to several expert studies. These were problems he inherited from the Klein government and from nowhere else.  Alison Redford , like Stelmach suffered from a lack of support in caucus and a fear of the Wildrose Alliance; she was likewise incapable of following through on a corrective strategy because a proper corrective strategy means confronting the uncomfortable truth that conservatism (of the kind exemplified by Ralph Klein) is the problem.

The second thing that bothers me about the Prentice government’s approach is that, when I look at the factors that made an energy revenue savings strategy work in Alaska and Norway , what really stands out is presence of bi-partisan support in the former and formal all-party agreement in the latter.  Could even the Wildrose Alliance sign a declaration committing to restoring the Alberta Heritage Trust, while agreeing to disagree about whether those savings should come from reduced spending  rather than increased taxes?  The Government should strive to get all parties in the Legislature to commit to such a proposition; but since this is Alberta (and there will always only be one party in power) it simply does not bother.

Instead of trying to pander to people like Lorne Gunter, Prentice should have the courage to point out why they are wrong.  Stelmach and Redford weren’t the problem; they failed to correct the problem created by Ralph Klein and Stockwell Day. The latter increased our dependency on the nonrenewable energy-revenue roller-coaster and created an infrastructure deficit. Gunter focuses on the least-meaningful stats (total spending) and ignores the most meaningful ones (spending in relation to GDP, spending per-capita).  There should be an intelligent consensus that a substantial proportion of non-renewable energy revenue be saved — then people on the left and right can argue about whether those savings should come from spending cuts or tax increases. Government economists advised Prentice that going too hard in either direction at this time  could push a fragile economy into recession, and he was wise to listen to them. Another thing to bear in mind is that counter-cyclical funding for infrastructure and for higher education is a smart thing to do, especially if you  happen to live in a province that has a below average participation rate in higher education and at a time when interest rates are historically low.

By catering to Klein’s personal popularity, and  by failing to gain all-party consensus for the idea of committing at least 25% of energy revenue to replenishing the Heritage Trust Fund, Prentice may be failing to entrench Alberta’s collective commitment to saving.  That means that the policy could change when some future leader decides that it is politically more expedient to offer tax cuts instead.  In other words, history may be doomed to repeat itself.

Why The NDP Got it Right on Bill C-51

I cannot recall any  party ever getting  elected nationally by bragging about the number and quality of its lawyers.  Nevertheless, the record of our current government has been a perfect illustration of what the lack of legal knowledge and procedural values can lead to: the waste of time and money that went into legislation that was bound to be struck down, as evidenced by the  Supreme Court’s reversal of the Onsite Clinic closure; the Court’s unanimous rejection of several criminal justice reforms that obviously violated the Charter; and the incredible mess that was the Fair Elections Act (since when does a government respond to something like the Robo-Calls scandal  by going after the referee? Since Stephen Harper became prime minister, I guess).

The latest example is Bill C-51, The Anti-Terrorism Act, which goes way beyond what is needed to update our existing security legislation. It has faced mounting criticism from former Supreme Court justices, law professors who have specialized in national security matters, and the Canadian Bar Association. The 8 days allotted to this bill for parliamentary scrutiny is totally inadequate for what is really an omnibus bill affecting every aspect national security. (And will the Government please let the Privacy Commissioner, Mr. Daniel Therrien, speak to the Parliamentary Committee on Bill C-51? Is that really too much to ask?)  And of course the recent exchange in Question Period, in which the Leader of the Opposition Thomas Mulcair simply asked whether the government had gone through the process of sending a letter to the U.N. justifying incursions into Syria under Article 51 of the UN Charter, caught the prime minister flat-footed. It is further evidence of government’s lack of legal acumen.

The Liberals showed a lack of courage in not opposing this bill on principle, but just weakly saying they would amend it later.  Although C-51 initially had 82% support in the polls, that was obviously because people had only seen  the  title of the bill and not its contents. After all, who isn’t against terrorism? It is revealing that the Liberals’ only distinguished jurist, MP and McGill Law Professor Irwin Cotler, has abstained from voting on this bill, just as he was missing in action last October when the Liberals voted against the ISIL mission.

If the NDP got C-51 right, it was primarily because of the lawyers in its caucus: Craig Scott (Osgoode Hall law professor), Murray Rankin (Q.C. for his courtroom work in B.C. in constitutional litigation), Thomas Mulcair, Linda Duncan, Eve Peclet, Don Davies, and Justice critic Francoise Boivin.  I know, you don’t like lawyers. But when it comes to keeping government from enacting overly-broad laws that needlessly impinge upon our civil liberties, they are indispensable. This federal government has few accomplished lawyers, and it shows.  The Liberals have one or two, and they were no-shows. The NDP  has several, and that shows, but more importantly, they have the integrity and moral backbone needed to take on lop-sided opinion polls in an election year.

Conservatives’ Un-Economic Economic Policy

“A surplus is not there to look at. A surplus is there to provide benefits to Canadians,” a defiant federal Finance Minister Joe Oliver told reporters on January 16, in the face of news that plunging oil prices were spoiling the government’s plans to announce major retroactive tax cuts  before the 2015 fall election.  But the deer-in–the headlights quality of this week’s scrambling and face-saving is uncomfortably reminiscent of another budgetary misfire nearly six and one-half years ago.

That was the infamous budget update of November 27, 2008. With the world economy in freefall from the financial crisis (itself largely a by-product of conservative economic ideas) , all the government could think of doing was attacking  public servants and cutting $26 million in voter subsidies in a petty stab at their political opponents. This, according to the Globe and Mail’s Lawrence Martin, embarrassed even then-Finance Minister Jim Flaherty, who  “lacked his customary cocky air.” Indeed. Now it is Joe Oliver’s turn to eat some humble pie.

But what makes these events telling indicators of the government’s true economic performance  is not its failures to predict the future – after all, it is often impossible to predict when a financial bubble will burst, or when oil prices will crash.  Rather, it is what these events tell us about the misplaced priorities of the government and the political motivation behind them.  Placing so many of the government’s eggs in the oil sands basket made us even more vulnerable to price downturns;  privileging corporate tax cuts did not prevent either the Target Store layoffs or the oil patch layoffs.  Raiding the EI surplus, closing down veterans’ offices, eliminating the old Child Tax Credit, abandoning the idea of a national pharmacare plan (even though bulk purchasing and a national formulary are the most economic ways of bringing drug prices down), failing to get an aboriginal education bill through,  and even raiding the Old Age Supplement , all so we can have  a so-called “surplus”, which they could then “give” to us,  is largely just a phoney fiscal shell-game designed to trick us into thinking that we have gained more than we have lost.  Ignoring the true costs of fossil fuel production to the environment have damaged our international reputation, making  the marketing and transportation of our oil exports more difficult, not less. An aggressive pipeline strategy has backfired, sparking the Idle No More movement among First Nations and strengthening protestors against Keystone XL in the United States. Mindless pro-business strategies like rushing into income trusts,  rapidly expanding the Temporary Foreign Worker program, and  de-regulating railways have all backfired spectacularly, with the resultant rush to damage control often sparking complaints about over-correction from the very same business sectors that these policies were designed to help in the first place.

Bragging about having created over a million net new jobs since the Recession is a pathetic piece of arithmetic spin. Since we have technically been out of recession since the summer of 2009—5 and one half years ago– bragging about that total is a bit like discussing fractions by only discussing the numerator and not mentioning the denominator. Our record of job creation turns out to be around 200,000 annually, a smaller number than the number of people entering the labour force, a smaller number than the amount of immigrants entering Canada, and a smaller number than the number of people reaching retirement age.

Former PBO Kevin Page recently called the government’s persistent assertions that it can cut funding without reducing services “delusional”, and challenged the government to produce a realistic plan that can actually achieve that result.  If economic management is our government’s strongest suit, then we clearly need a new tailor.

Conservatives are Making Our Tax Structure More Regressive and Less Accountable

Our federal government is addicted to tax expenditures—and the shell games that can be played  with them.  By “tax expenditures” economists mean government spending through the tax code. Some of the biggest and most popular examples of tax expenditures include RRSP deductions (currently about $33 billion/year), Pension Income Splitting ($10.8 billion); charitable donations ($8.5 billion) and Child Care Expense Deductions  or CCED ($4.1 billion).  Clearly, they have a role to play in a balanced system of taxation.   But in Canada, tax expenditures take almost as much out of the revenue pie as taxes do: in 2010, they cost $172 billion compared to $191.5 billion taken in tax revenue.

Spending through the tax system has a number of advantages, but they are mostly political. Since tax expenditures are regarded as “off budget” they are often seen as free benefits, especially to those who are best situated to take advantage of them.  At election time, it can seem like the government is giving something without taking anything.  That, of course, is highly misleading. What the government is taking is revenue that could be allocated to public services. Its income-splitting plan, for example, dispenses billions to middle–class families, but it does so at the expense of child care for the young, mental health spending for veterans, and home care for the aged.  For the cost of the government’s Family Tax Proposal, we could raise the CCED from $7,000 to $12,000.  Queen’s Law Professor Kathleen Lahey points out that  Canada is spending $20 billion to subsidize unpaid work in the household—that’s almost twice what an affordable national childcare program would cost.

One wonders whether this government, if it is re-elected, plans health care by tax credit as well. After all, it has been shown that in the United States the subsidization of private health insurance through the tax code made efforts to bring about a universal health care program more difficult (and we all know where our government gets most of its ideas from).  The same process can work in reverse: as Canada’s federal government caps health transfers to the provinces at what it knows is half the rate at which health costs are growing, and provinces are forced to either raise taxes or de-list services, the feds can ease that painful transition with tax credits for private healthcare.

Before we reach that point, two things must be done. First, we should try to replace tax expenditures with proper public programs, especially where basic needs of children and the poor are concerned. Second, where we do choose to keep tax expenditures, they should be integrated with departmental spending and therefore included in departmental reports and estimates.    We cannot expect progressive government from the Conservatives, but greater transparency and accountability is never too much to ask from anyone.

Laurie Hawn’s “Round-Up”

I find it truly remarkable:  in the aftermath of last week’s  tragic  attacks in Montreal and Ottawa,  Edmonton Centre MP Laurie Hawn  issued the statement  that we should “round up” everyone on the government’s watch list:

http://www.edmontonsun.com/2014/10/23/edmonton-mp-laurie-hawn-round-up-everyone-on-the-terror-watch-list .

Laurie’s  talk of “rounding up” people  is not just an unfortunate choice of words, in the light of Canada’s shameful “round-ups”  of Japanese Canadians under the auspices of the War Measures Act in 1942 and  of law-abiding separatists and student radicals during the October crisis in 1970. It is an actual reflection of the Conservative attitude that, in Stephen Harper’s words, “our laws and police powers in the areas of surveillance, detention and arrest ..need to be much strengthened …work which is already underway will be expedited. ” This is not the view of security experts , including the prime minister’s own former legal advisor, Prof. Benjamin Perrin, who stated on CBC radio on October 27  that government already has all of the tools it needs and simply needs to resource and implement them properly. But then, this is not a government that has shown a very high regard, either for expert opinion or for the CBC!

In related news, I was glad to see that Justin Bourque will be serving an unusually harsh sentence for the premeditated murders of three RCMP officers in Moncton. (Even if  forcing the judge to hand down a sentence of 75 years without parole gives him little incentive for rehabilitation.) But I have just one question: why is he not a “terrorist”? Because he is a right-wing survivalist who hates cops ( and not a Muslim),  and acts  alone, he gets treated as just a deranged individual.  But if he is channeling extreme Islamist propaganda instead of extreme American conservatism, and acts alone, like Martin Couture-Rouleau or Michael Zehaf-Bibeau, he attracts the terrorist label, which is then used to justify a more extensive surveillance state and increased police powers.  It makes you think….or at least it should.