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 This is an example of legislation that needs to be repealed and/or revised to be more practical, less burdensome and less costly.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 This is legislation that should be repealed immediately.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.