Europe free-rides on America

Americans pay for medical innovation, especially pharmaceuticals, and are taken advantage of by Europeans. American consumers are first-users that pay for the development of new technology, which the rest of the world after a while gets for closer to production cost (which is very low for most drugs). The same is true for other spending on medicine that involves innovation, such as dialysis technology, invented by a European but commercialized in the U.S. Swedish dialysis firm Gambro has two thirds of its sales in the U.S.

To give a simple example: Albania has a life expectancy close to as Western Europe (77.6 years). They spend very little on health care. But even Albania can buy generic heart medicine – that is better than anything you could have had in 1995 – for almost free. Not in a hundred years could Albania have developed this on their own: They free ride on the rest of the world.

Western Europe does not free-ride quite as much as Albania, but certainly bear less of their full share of the costs. Even though Europe has a much larger population than the U.S, all of Europe accounted for a smaller share of global pharmaceutical sales than the U.S, which alone accounted for 41% of the world market in 2005, despite having only 4% of world population.

According to this study 57% of European pharmaceutical profits was made in the U.S market, whereas only 24% of American pharmaceutical profits were made in the European market.

The regulated European system pays for less of the cost of medicine, but gets get the same drugs. Drugs in the American free market system costs much more. Consumers in both places get the same quality drugs, but Americans pay much more, and bear the burden of development.

Does this mean the U.S should copy the same system? No. If America stops paying for innovation there is no one to free-ride on. Unfair but true.

The irony is that Europeans root for America to move towards socialized medicine, which would harm them massively. This suggests that ideology is stronger than self-interest, especially regarding abstract concepts.

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