Drug prices and corporate profits

Recently at a reunion of college friends we fell into a discussion about drug prices. One of us voiced the common complaint that drug prices are too high, and unfair. I countered with the standard free market argument that the high prices are needed to cover development costs; that if pharmaceutical company profits are out of line, the market will respond.
What is the free market response to high profits? The pharmaceutical companies’ products are protected from competition by patent laws. Competitors can’t simply copy a product and produce it at a lower cost.
The proof of the argument might lie in the numbers. Are pharmaceutical companies more profitable than other US companies? The numbers tell you they are. I compared gross profit margins for the S&P 500 versus gross profit margins for the top ten US pharmaceutical companies, for the quarter ending June 30, 2015.

S&P 500 39.36%
Top 10 US pharmaceuticals 72.04%

Taking S&P 500 financial results as a stand-in for an average US corporation, the gross profit margin of the top ten US pharmaceutical companies is 83% higher than the average. The following table lists the top ten US pharmaceutical companies with their gross profit margins for the quarter ending 6/30/15.

Pharmaceutical profits

Bottom line
Do patent laws need to be loosened to allow more competition? Right now pharmaceutical products are protected, and producers have the freedom to charge high prices. The result is that industry profits are nearly double the norm.

Educators aren’t really trying to help

There’s a problem with education in the US. We spend more than anyone else and get bad results. Then, teachers and their supporters ask for more money while at the same time blocking efforts to make spending more effective. Adding further insult, the education profession is silent on how to improve results in US schools.

Funding is already high
Americans have a solid record of lavish funding for education. A US Department of Education report covering the 2004-5 school year points out, incredibly, that US taxpayers spend more on education than defence: ‘the United States is a world leader in education investment’. The same report provides a helpful chart showing how education spending in the 90s zoomed.

US education spending

In 2011 the University of Southern California school of education compared total annual per-pupil spending among 12 countries. The US exceeded its nearest competitor by 33%.

world education spending

Learning is not happening
Unfortunately, while outspending everyone else, the results are not great. We’ve all heard the horror stories: after 12 years of education kids leave high school unable to write a check or calculate their taxes. According to a CBS News story on New York City schools, “nearly 80 percent of those who graduate from city high schools arrived at City University’s community college system without having mastered the skills to do college-level work.” Of course, it’s not just New York City. A CBS News source in Minnesota reported “A recent study shows that as many as 40 percent of public high school students who enter a public college or university has to take at least one remedial course in reading, writing or math.”

In summary, according to a report from USC’s Rossier School of Education, “The U.S. is the clear leader in total annual spending, but ranks 9th in Science performance and 10th in Math.”

Teachers want more
It may seem that throwing money at the problem is the wrong thing to do, but that’s what education advocates propose. Here’s what the National Education Association says: ‘All of our students, regardless of their zip code, deserve the tools, resources and time to learn. This means resourcing all schools so kids have one-on-one instruction, inviting classrooms, and a well-rounded curriculum.’

I think we’ve all noticed that teachers are better organized around the topics of more pay and less work than on improving classroom effectiveness. Research using US Dept of Labor data shows that when frequency of government work stoppages is ranked by occupation, teachers outrank their nearest competitors better than two to one.

Don’t measure my work!
It’s a basic in management that to improve something you first have to measure it. This is the last thing teachers want. Teachers oppose student testing, and they oppose using test scores in making personnel decisions like setting salaries and hiring/firing; and they do this without offering usable alternatives. We all want to improve education outcomes, at least we all say we want to; but how do we move forward without measuring results and then using that data to make appropriate changes?

Randi Weingarten, president of the American Federation of Teachers, opposes student testing and has encouraged parents to opt out, sabotaging school districts’ efforts to measure instructional effectiveness and student achievement. She was quoted: “Using test scores to measure teacher effectiveness fosters a tendency to focus not on learning but on improving test scores.” Fine, and using money as a measure of value causes us to focus on the wrong things, too.

This is the NEA position on testing:

Testing takes time from learning. NEA supports less federally-mandated testing to free up time and resources, diminish “teaching to the test,” and allow educators to focus on what is most important: instilling a love of learning in their students…In addition, NEA believes it is essential to decouple high-stakes testing and accountability.

The point of testing is to measure performance. If you oppose testing without offering an alternative, you’re failing to participate honestly in solving the problem.

How to do QA?
How do we perform quality assurance in education? No one seems to have a better answer than testing. Clearly there’s a problem with education in the US. Some of our best universities offer degrees in education: Harvard, Stanford, Columbia, Johns Hopkins and so on. The failure to find fixes to the problems of education in the US is an indictment of the profession. Is it possible these universities offer degree programs in education only because there’s a line of willing buyers (financed by loans from the government that they may not pay back) waiting to plunk down thousands of dollars in tuition?

Degree holders in education, and the faculty at education schools in US colleges and universities have to ask themselves what value they’re providing. How can you call yourself a social scientist if you can’t solve problems and identify best practices?

The bottom line
It’s not exactly DISHONEST to ask for more money while going out on strike and resisting efforts to improve, but it is hypocritical.
Asking for more money while refusing to cooperate in making funding effective shows the naked self-interest at play. The failure to find solutions over the course of decades proves the intellectual bankruptcy of the education profession in the US. Educators can deny the reality, but their actions and their failures speak louder than their words.