How Capitalism Turned America Soviet
Why Americans Ended Up Choosing Between Their Money or Their Lives
One of my fondest — and earliest — memories is about the spring days I'd spend with my grandfather. My tiny hand in his big one, we'd go to the front lawn, where there was a putting green, and, shooting a few holes, he'd teach me about his struggles. The earthquake, the war, exile. Politics, economics, law. I'd soak it all in, wide-eyed, as best I could, just a little boy. And then, retreating to his bedroom, I'd watch as he was given a shot of insulin. Even then, the contrast struck me — the strong, noble, civilized man, who was also, just a few steps away, the frail, vulnerable human being.
So why is that my grandfather, in one of the world's poorest and most war-torn countries, could afford insulin — but Americans today can't? They are rationing it — but isn't rationing basics something people in poor countries do? And yet Americans are rationing many things — though they might not know it. Chemotherapy — or the mortgage? That life-saving surgery — or my kids' college? Interest payments — or healthcare and a roof over our heads? All this is rationing, too. What other society can you think of recently which collapsed because people were left so poor they had to ration the very basics of life — even while the rich grew ultra-rich? The Soviet Union. America has turned Soviet, my friends. And capitalism is why. How ironic. How funny. How strange. Or is it?
Let me use the example of insulin to illustrate how capitalism ends with Soviet-style poverty and rationing — not with glorious riches, as American economists and thinkers have blithely assumed, and thus assuming away the very question they should have been asking: what is it that leads people to higher standards of living?
Insulin was discovered in the early 1900s. The researchers who discovered quickly sold its patent for $3, one for each of them, to the University of Toronto. Why? They were afraid, ironically enough, that it would be patented by someone else, and hoarded, otherwise. The University then licensed it to drug companies — royalty-free, and to patent any improvements on the original formulation.
(Notice at this point that all this was predicated on a kind of naive model of capitalism already — we'll license it, they'll make it, markets will set prices, and everyone will have insulin. Nobody seemed to think much at this point about whether this was a good arrangement — for example, history might have been very different if they'd set a ceiling, saying that prices couldn't increase faster than inflation. The assumption was that capitalism, moderated just a little bit, would give everyone cheap, plentiful insulin. But that is not what happened at all. )
In 1971, a vial of insulin cost $2. Today, it costs somewhere between $2–300. Do you know how much it costs to make one? Maybe $5, if that. That's a stunning, crazy-making increase — every bit the kind of hyperinflation that American thinkers scorn poor countries like Venezuela for. Only when it happens to Americans, nobody seems to notice — or care. The result is that Americans can't afford insulin — so they must ration it. Even if they have Medicare, because it falls into "coverage gaps", or insurance because the "deductibles" are so high. I'll return to those points. Let's come back to the price of insulin. Why did it skyrocket? What does it tell us about capitalism?
Well, what happened wasn't that companies said: "Hey! Let's give everyone cheap, affordable, plentiful insulin!" Instead, they began to make "improved" formulas, precisely so they could patent them all over again. Now, insulin is a natural hormone — you can't really "improve" it. Hence, even today, some diabetics complain that natural, not synthetic, insulin is the best they have had — the problem is that they can't get it anymore, because it is not "profitable" — which is an inaccurate way to say that it is not as profitable as the "improved" varieties. Everytime that a patent is about to expire, the drug companies "improve" insulin again, patent the new formula, stop producing the old one and hike up the price. Bang! Insulin skyrockets by two orders of magnitude in a few decades.
Now, what has really happened here? It is what American economists deride as "central planning." They assume that capitalism is like a fairy tale — left to its own devices, markets will match supply and demand through prices, which nobody plans. But in the real world, capitalism does not operate like that at all. It is made of the corporation, in which managers and CEOs hold meetings, and form "strategies" for the next year, quarter, decade, which is to say: they plan.
Capitalism is made up of corporations, and corporations do central planning, too. If you've ever worked in one, that's mostly all they do. The difference is that unlike, say the NHS, or any kind of social institutions, corporations have precisely zero interest in planning for the public interest — they are only planning for their own private interest, by any means available to them. In other words, capitalism, just like socialism, is made of central planning, too. The idea that we can have an economy where no one plans anything at all — we are all just mindless robots — is just what it sounds like: a fairy tale.
So the drug companies did what corporations do — they centrally planned. So what were they planning? They weren't planning to give people cheap, affordable, plentiful insulin. Instead, they made a plan — a clever and cunning one — to boost their profits, by building a perpetual system of monopolies. What else would they do? Why would they have any reason not to? Capitalists have no interest in letting markets dictate the terms of either supply or demand to them. They are not obeying prices — they are trying to set them. This is the second fairy tale of capitalism — that capitalists are nobly and virtuously interested in giving people greater benefits, instead of maximizing their own gains. In the real world, capitalism is aggressively interested in profit-maximizing it relentlessly, every single quarter, day, second, more, more, more. Whether it gives you something genuinely better is often completely irrelevant to it.
So now something very strange began to happen. More "competition" and "innovation" didn't yield lower prices — it yielded higher prices, year after year. New forms of insulin never got cheaper. All those new products, competing on the market, never lowered the price one penny. So here is the third part of the capitalist fairy tale: it says that competition and innovation will force capitalist to sell products just above marginal cost. But in the real world, those forces can be easily harnessed to maximize profits, too, just as they often are — whether in education, finance, media, or, of course, healthcare — because what capitalists are not competing for, all too often, is to create or offer anything of genuine value, but only to accrue their own advantage.
Hence, the fourth part of the capitalist fairy tale — capitalism is naturally made of millions of little, humble good guys. It isn't — naturally, it tends towards winner-take-all situations, monopolies, and to keep it operating on a human scale requires constant vigilance. Mom-and-pop capitalism is indeed a desirable thing, the kind that keeps my neighborhood abuzz with restaurants and bars and cafes. But that is a delicate and precarious thing, which we should never assume will magically arise and sustain itself — especially not when people's lives are involved. The example of insulin shows to us very clearly the natural tendency of capitalism towards monopoly.
And that brings to me the fifth part of the fairy tale. Could insulin ever have been made by an army of brave and virtuous home-brewers, fulfilling the capitalist myth of perfect competition, amongst thousands or millions of capitalists? Of course not. It was labour and capital intensive to harvest insulin from animal organs — and so only already massive corporations had the resources to do it, hence the University of Toronto licensed it to them royalty free. But just because a corporation has the resources to create things of public benefit does not mean that it will give those things to people at anything resembling a fair, efficient, or reasonable price, or even keep creating them at all, instead of lowering their quality, year after year. In fact, it will be quite happy taking away everything people have in exchange for the lowest quality version they can provide of a thing. Hence, only corporations had the capital and labour to produce insulin a large scale — and they turned that advantage into a system of monopolies which has lasted for over a century, but only yielded lower and lower quality insulin, at skyrocketing eye-watering prices.
That's where America is now. Thanks to capitalism allowed to do what capitalism does, the logical culmination isn't mass prosperity and abundance, but a new kind of poverty, in which people ration things which are forever in shortage, but don't need to be. People are charged crazy-making, absurd, predatory prices for the basics of life — healthcare, education, food, energy, finance, housing — all of which could easily be provided in affordable plenitude, but under capitalism, can't and won't be. Result? The average American is broke. 80% living paycheck to paycheck. 70% without even $1000 for an emergency. Guess where else life ended up this way? The Soviet Union. The average person began to live like a person in a much poorer country — while those who controlled the monopolies grew unimaginably wealthy. Rationing, poverty, downward mobility. Frustration, resentment, rage. Progress stalled. Society broke.
And that brings me to the real point. The story of insulin could have gone another way, too. Imagine that the University of Toronto, instead of licensing insulin royalty-free to corporations, because only they had the capital and labour to harvest it, instead had gone to the Canadian government. And said: "We have made a discovery that will change human history. We'd like you to invest in an organization which will supply insulin to the world. It won't maximize profits. It will just break even. We won't own it — it will be owned by every Canadian. And what it will really maximize is a supply of affordable, plentiful, high-quality insulin, for the world, forevermore. It will cost you as much, maybe as a good hospital or two."
Now imagine what the benefits might have been. The world would have thanked Canada, of course. But more than that, Canada would have been a vastly richer society. That organization I'm imagining might literally be owned by every Canadian, in the form of non-traceable shares, and pay them a dividend. What would it be worth today? How much would that dividend have grown to? But I'm not just talking about financial riches. Canada would have built something even more ground-breaking than insulin. A kind of public corporation for the world. And having pioneered how to really build such a thing, manage it, run it, it might have then built more. It could have maybe built the world's first economy of public corporations, not private ones.
Maybe you think that's a fairy tale, too. Me? I think the real fairy tales are the ones we're told about capitalism. I think the future is going to be a great deal like the paragraph above — and the countries, people, societies, and cities which do such things will be the most prosperous ones of all.
Remember my grandfather? Not just how he could afford insulin in one of the world's poorest countries — but many Americans can't? I mean that combination of strength and fragility. That, too, is what we must form into our institutions. So that they respect it in us. That strange mixture of things we call humanity. And the problem, my friends, is that capitalism has none, and so it costs us our own.
Umair
September 2018
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