Hostility to Business

September 4, 1961

Growing signs of hostility to business on the part of prominent members of the Kennedy Administration culminated in the indictment on Aug. 17 of three of the nation’s largest manufacturers of antibiotics and three of their top executives on criminal antitrust charges. The defendants were accused of maintaining unreasonably high and noncompetitive prices, and of monopolizing production and distribution of the drugs.

The legal guilt or innocence of the defendants must be determined by the courts. But something may be said about the curious ideas of the Administration concerning what constitutes “noncompetitive” pricing. Unless identical or equivalent products are offered at the same price, the overpriced product cannot be competitively sold. Yet the Federal government seems to regard such equality of pricing as a prima facie sign of conspiratorial price-fixing.

An even broader question is raised by the existing anti-monopoly laws themselves. Apart from the specific wisdom of some of these laws, it is the first requirement of the ideal of the Rule of Law that laws ought not to discriminate between groups or persons. Equality before the law means that whatever is permitted to A is permitted to B, and whatever is forbidden to A is forbidden to B.

DOUBLE STANDARD

But for the anti-monopoly laws there is a flagrant double standard. Labor unions are not only permitted to do what is forbidden to businessmen, but employers are compelled by Federal law to deal with these labor monopolies. Unions are in practice even allowed to enforce their demands by physical intimidation and violence, to prevent others from taking the jobs their members have voluntarily vacated. The country’s farmers for decades have not only been permitted to engage in monopolistic price-fixing; they had done so with government help, and even under government coercion. Not so long ago the coal industry was forced to fix minimum prices by Federal law. Before that all industry was forced to fix prices under the NRA code.

It would be hard to think of an industry that, in the last twenty years, has conferred a greater boon on the American people, and on humanity, than the American drug industry. It has made an enormous and unmatched contribution to relief from disease and pain, and to the prolongation of human life. Yet instead of winning praise and gratitude for this, it has only aroused the animosity of the politicians. Last week my colleague Raymond Moley discussed the extraordinarily one-sided investigation that the Kefauver Senate subcommittee has conducted for several years against the industry, with hearings published in 26 volumes comprising 16,505 pages. He also discusses this week some questions of prices and profits in the drug business. I should like to supplement this with some considerations that apply also to the role that profits play in business generally.

BENEFICIENT INDUSTRY

Ignoring the hundreds of thousands of lives that the American drug industry has prolonged or made more worth living, Senator Kefauver concentrates on the suspicion that the companies may have overpriced their drugs by excessive markups. The drug industry has replied that the average person spends no more of his health dollar, and a smaller portion of his income, for drugs today than he did in 1929.

It is true that the drug industry in recent years has made higher profit margins than most industries. This has been fortunate for the country. It has provided the funds for research to develop new and better drugs. It has led to the expansion of the industry. It has attracted more firms into it. The research has brought down some prices sensationally. The competition has also brought down prices. In a free system, the cure for high prices is high prices.

The political hostility to the drug business, the attempt to treat the heads of the big drug companies like common criminals, and put them in jail, because their pricing policies may not conform with the naïve preconceived ideas of politicians, must threaten the growth and potential usefulness of one of America’s most beneficient industries.