Venezuela & DC — Price Controls From The Barrel Of A Gun
I was checking in to see the latest news from Venezuela, and saw how Chavez is using the threat of nationalization to bring down steel prices:
Ternium SA, the only maker of flat- steel products in Venezuela, agreed to sell its goods at a discount in the South American country, warding off a threatened nationalization by President Hugo Chavez.
As part of the three-year agreement, Ternium’s Siderurgica del Orinoco SA unit will offer discounts ranging from 2 percent to 4 percent for certain programs and some businesses, Ternium said today in a statement. The company also agreed to transfer operations of a port on the Orinoco River to the government and invest $500 million in its Venezuelan facilities through 2012.
The deal comes three months after Chavez threatened to nationalize the unit, claiming that the company charged too much for steel while buying electricity and other resources at a discount. Luxembourg-based Ternium holds a 60 percent stake in Sidor, as the unit is known, while the government and workers at the steel mill each own 20 percent.
Now, I’m known for criticizing Chavez. And there should be no exception here. His threats of nationalization erode foreign investment, and will eventually destroy the country.
Yet I’m often criticized for focusing too much on Venezuela, and not enough here at home. So lest I be taken to task for considering the beam in Venezuela’s eye, I should bring up a mote in our own.
The District of Columbia was concerned about “excessive” drug prices… So they decided to threaten drug companies with arbitrary lawsuits based upon prices for drugs in other nations:
The controls, signed into law in October 2005, allow residents to sue a drug company if the wholesale price of a patented drug is 30 percent higher than the drug’s price in Canada, Germany, Australia or the United Kingdom.
“In the District’s judgment, patents enable pharmaceutical companies to wield too much market power, charging prices that are ‘excessive’ for patented drugs,” the panel wrote. “The Act is a clear attempt to restrain those excessive prices, in effect diminishing the reward to patentees in order to provide greater benefit to District drug consumers.”
Luckily for freedom’s sake, the law was just struck down in court. But that doesn’t make it’s biggest proponent, Council Member David Catania very happy. His comments suggest a quite different understanding of property than I might hold:
A three-judge appellate panel concluded that the D.C. Council and mayor might have had noble intentions with the pricing law but that it improperly usurps Congress’s power and interferes with the decisions it made in passing the federal patent law. That law allows drugmakers to maintain a monopoly — and a pricing advantage — for years after they patent a new drug.
“This may be a worthy undertaking on the part of the District government, but it is contrary to the goals established by Congress in the patent laws,” the judges continued. “The District has thus seen fit to change federal patent policy within its borders.”
Catania yesterday called the ruling “extreme in its scope” and said he will discuss appealing it with the D.C. attorney general.
“It implies that patents would ban any legislation that affects the ability of patent holders to charge whatever they please, which is absurd,” Catania said. “The Supreme Court has already upheld legislation that mandates price discounts to participate in Medicaid formularies. And no one has argued that states cannot enforce antitrust and other rules that limit monopoly prices of drugs indirectly — although the full logical thrust of the opinion would do just that.”
You see, to David Catania, drugs are not owned by pharmaceutical companies, and they have no right to decide what to charge. Drugs are owned by “the public”, and David Catania will set a “fair” price for those drugs.
Property rights are under assault from Caracas to DC. Those who believe property is communally owned, and who would rather give power to the government than the market to provide goods, are quick to reach for their sidearm in to force companies to bend to their will. They do this without an understanding of economics, or the incentives to produce, because the short-term incentive to gain power trumps the long-term goals of ensuring Venezuela has access to steel or that the world has access to newly-developed drugs.
I criticize Venezuela, because Chavez is a brash, unapologetic example of socialism in action. I often highlight Venezuela, because the changes we see in that country are a wonderful case study in what will happen if we allow socialism to further take hold here in the US. But the case in DC shows that we are facing the same pressures here, and never should our willingness to criticize Chavez allow us to forget that while we are using him as an example, the fight needs to be centered here at home.