REGULATION AND OVERSIGHT:
Despite what some might tell you, I am not against all regulation and oversight. That would be foolishly optimistic in a
societal and economic system that has humans participating in it. Where there are humans there is greed and
where there is greed, there is the opportunity for things to get out of
control. And that contributes to the
imbalances we have in wealth in our country. The “haves and have nots” mentioned in previous blogs.
There are literally thousands of laws that provide for
government regulation of business and commerce and literally hundreds of
agencies to oversee and enforce those laws.
Some are more effective than others.
Some provide protections for normal citizens that serve viable
purpose. Some are simply stumbling
blocks that impose excessive and unnecessary regulation that stifle growth and
increase cost to the taxpayers. And still others are a combination of the two.
An example of legislation that has provided unnecessary
regulation is Dodd-Frank and Sarbanes- Oxley.
Dodd-Frank was legislation enacted after the banking crisis of 2008
where greed created a collapse of financial markets. Among the core objectives of both the
Dodd-Frank Act and the global regulatory reform effort are: enhancing
regulators' ability to monitor and address threats to financial stability and
strengthening both the prudential oversight and resolvability of systemically
important financial institutions (SIFIs).
The problem is this regulation was so far over the top that it choked
off economic growth and regulated the industry, not just banking, to the
ground. This is an example of legislation
that needs to be repealed and/or revised to be more practical, less burdensome
and less costly.
Sarbanes Oxley was legislation that was supposed to guarantee
organizational integrity within corporations.
It is an example of one of the most invasive, overreaching and costly
overreactions in recent memory. It has cost
American business billions of dollars in unnecessary paperwork and
oversight. A friend of mine who was the
President and CEO of a $ 450 million dollar building materials company with nearly 20,000 employees estimated the
cost to his bottom line was over a million dollars a year just to handle the
paperwork requirements for compliance and it didn’t improve organizational
integrity one bit; in fact, it set them back in that regard. This is legislation that should be repealed
immediately.
A government regulatory body that is somewhere in the middle
is the US Food and Drug Administration (FDA); a division of the Department of
Health and Human Services. This
organization, among other things, sets standards for and monitors the safety of
food and drugs in the United States. It
has a budget of over $ 15 billion dollars and over 15,000 employees. The work this organization does in securing
food safety is admirable, given the limited number of inspectors, and their
standards are reasonable. Their drug arm
is much less effective.
The FDA has testing standards for new drugs that are
excessive. The process by which a
pharmaceutical company must apply for FDA approval can take up to ten years and
requires everything from animal to human trials, numerous lab tests and
systemic reviews that cost hundreds of million dollars per drug. Some of the drugs still under review have
been available and have been working effectively and safely in other countries
for years before they are approved and made available to Americans living in
the United States. To recover the
expense of this excessive testing prior to approval, pharmaceutical companies
must charge more for their drug in the US, sometimes three to four times what
they can afford to make them available for in other countries. To incentivize the pharmaceutical companies
to complete this rigorous testing procedure and compensate them after approval,
the US grants extended patent protection which allows the drug companies to
maintain excessively high prices, without competition from generic
manufacturers, for up to seventeen years.
In addition, it makes drugs that are approved in other countries but
still under review in the US illegal to be brought into our country even though
online availability exists and is prevalent.
It would be easy to assume that this system has produced a
safety net for drugs introduced in the US that exceeds that of other countries,
but that is just not the case. In fact,
since 1962 when the FDA’s powers were substantially increased, the number of
deaths from not having a drug in a timely manner exceeds by millions the number
of deaths caused by faulty drugs of any kind; a death rate that is exceedingly
low comparatively speaking. This needs
to be changed and drug companies should not receive patent protection and make
excessive profits that exceeds their approval costs by billions of dollars per
drug per year over excessive periods of time.
In my opinion, the guiding principal for regulation, and new
legislation that produces new regulation, is a thorough cost benefit analysis
that matches a real benefit to the impact it produces and keep government out
of the free marketplace as much as possible. It's called Free Enterprise. More on that later.
I welcome any comments you might have on this subject.
