Poverty Changes

£14,000 is quite a large amount of money. Enough for 70,000 Freddos, a decade’s worth of holidays, two new Nissan Pixo’s, several thousand potatoes or a gold standard racing pigeon. However, if you’re trying to live off just that amount in modern Britain, it quickly seems quite a lot smaller. Half of that could easily disappear on rent, whilst the average British family will spend a further £4,000 on food (significantly greater than the European average, for one reason or another). Then we must factor in tax, work-related expenses, various repair bills, a TV license, utility & heating bills, petrol money and other transport expenses, and it quickly becomes apparent that trying to live on this amount will require some careful budgeting. Still, not to worry too much though; it’s certainly possible to keep the body and soul of a medium sized family together on £14k a year, if not absolutely comfortably, and in any case 70% of British families have an annual income in excess of this amount. It might not be a vast amount to live on, but it should be about enough.

However, there’s a reason I quoted £14,000 specifically in the figure above, because I recently saw another statistic saying that if one’s income is above 14 grand a year, you are one of the top 4% richest people on planet Earth. Or, to put it another way, if you were on that income, and were then to select somebody totally at random from our species, then 24 times out of 25 you would be richer than them.

Now, this slightly shocking fact, as well as being a timely reminder as to the prevalence of poverty amongst fellow members of our species, to me raises an interesting question; if £14,000 is only just about enough to let one’s life operate properly in modern Britain, how on earth does the vast majority of the world manage to survive at all on significantly less than this? More than 70% of the Chinese population (in 2008, admittedly; the rate of Chinese poverty is decreasing at a staggering rate thanks to its booming economy) live on less than $5 a day, and 35 years ago more than 80% were considered to be in absolute poverty. How does this work? How does most of the rest of the world physically survive?

The obvious starting point is the one stating that much of it barely does. Despite the last few decades of massive improvement in the living standards and poverty levels in the world in general,  the World Bank estimates that some 20% of the world’s populace is living below the absolute poverty line of surviving on less than $1.50 per person per day, or £365 a year (down from around 45% in the early 1980s- Bob Geldof’s message has packed a powerful punch). This is the generally accepted marker for being less than what a person can physically keep body and soul together on, and having such a huge proportion of people living below this marker tends to drag down the global average. Poverty is something that the last quarter of the century has seen a definitive effort on the part of humanity to reduce, but it’s still a truly vast issue across the globe.

However, the main contributing factor to me behind how a seemingly meagre amount of money in the first world would be considered bountiful wealth in the third is simply down to how economics works. We in the west are currently enjoying the fruits of two centuries of free-market capitalism, which has fundamentally changed the way our civilisation functions. When we as a race first came up with the concept of civilisation, of pooling and exchanging skills and resources for the betterment of the collective, this was largely confined to the local community, or at least to the small-scale. Farmers provided for those living in the surrounding twenty miles or so, as did brewers, hunters, and all other such ‘small businessmen’, as they would be called today. The concept of a country provided security from invasion and legal support on a larger scale, but that was about it; any international trade was generally conducted between kings and noblemen, and was very much small scale.

However, since the days of the British Empire and the Industrial Revolution, business has got steadily bigger and bigger. It started out with international trade between the colonies, and the rich untapped resources the European imperial powers found there, moved on to the industrial scale manufacture of goods, and then the high-intensity sale of consumer products to the general population. Now we have vast multinational companies organising long, exhaustive chains of supply, manufacture and retail, and our society has become firmly rooted in this intense selling international economy. Without constantly selling vast quantities of stuff to one another, the western world as we know it simply would not exist.

This process causes many side effects, but one is of particular interest; everything becomes more expensive. To summarise very simply, the basic principle of capitalism involves workers putting in work and skill to increase the value of something; that something then gets sold, and the worker then gets some of the difference between cost of materials and cost of sale as a reward for their effort. For this to work, then one’s reward for putting in your effort must be enough to purchase the stuff needed to keep you alive; capitalism rests on the principle of our bodies being X% efficient at turning the food we eat into the energy we can use to work. If business is successful, then the workers of a company (here the term ‘workers’ covers everyone from factory floor to management) will gain money in the long term, enabling them to spend more money. This means that the market increases in size, and people can either sell more goods or start selling them for a higher price, so goods become worth more, so the people making those goods start getting more money, and so on.

The net result of this is that in an ‘expensive’ economy, everyone has a relatively high income and high expenditure, because all goods, taxes, land, utilities etc. cost quite a lot; but, for all practical purposes, this results in a remarkably similar situation to a ‘cheap’ economy, where the full force of western capitalism hasn’t quite taken hold yet- for, whilst the people residing there have less money, the stuff that is there costs less having not been through the corporation wringer. So, why would we find it tricky to live on less money than the top 4% of the world’s population? Blame the Industrial Revolution.

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Big Pharma

The pharmaceutical industry is (some might say amazingly) the second largest on the planet, worth over 600 billion dollars in sales every year and acting as the force behind the cutting edge of science that continues to push the science of medicine onwards as a field- and while we may never develop a cure for everything you can be damn sure that the modern medical world will have given it a good shot. In fact the pharmaceutical industry is in quite an unusual position in this regard, forming the only part of the medicinal public service, and indeed any major public service, that is privatised the world over.

The reason for this is quite simply one of practicality; the sheer amount of startup capital required to develop even one new drug, let alone form a public service of this R&D, would feature in the hundreds of millions of dollars, something that no government would be willing to set aside for a small immediate gain. All modern companies in the ‘big pharma’ demographic were formed many decades ago on the basis of a surprise cheap discovery or suchlike, and are now so big that they are the only people capable of fronting such a big initial investment. There are a few organisations (the National Institute of Health, the Royal Society, universities) who conduct such research away from the private sectors, but they are small in number and are also very old institutions.

Many people, in a slightly different field, have voiced the opinion that people whose primary concern is profit are those we should least be putting in charge of our healthcare and wellbeing (although I’m not about to get into that argument now), and a similar argument has been raised concerning private pharmaceutical companies. However, that is not to say that a profit driven approach is necessarily a bad thing for medicine, for without it many of the ‘minor’ drugs that have greatly improved the overall healthcare environment would not exist. I, for example, suffer from irritable bowel syndrome, a far from life threatening but nonetheless annoying and inconvenient condition that has been greatly helped by a drug called mebeverine hydrochloride. If all medicine focused on the greater good of ‘solving’ life-threatening illnesses, a potentially futile task anyway, this drug would never have been developed and I would be even more hateful to my fragile digestive system. In the western world, motivated-by-profit makes a lot of sense when trying to make life just that bit more comfortable. Oh, and they also make the drugs that, y’know, save your life every time you’re in hospital.

Now, normally at this point in any ‘balanced argument/opinion piece’ thing on this blog, I try to come up with another point to try and keep each side of the argument at an about equal 500 words. However, this time I’m going to break that rule, and jump straight into the reverse argument straight away. Why? Because I can genuinely think of no more good stuff to say about big pharma.

If I may just digress a little; in the UK & USA (I think, anyway) a patent for a drug or medicine lasts for 10 years, on the basis that these little capsules can be very valuable things and it wouldn’t do to let people hang onto the sole rights to make them for ages. This means that just about every really vital lifesaving drug in medicinal use today, given the time it takes for an experimental treatment to become commonplace, now exists outside its patent and is now manufactured by either the lowest bidder or, in a surprisingly high number of cases, the health service itself (the UK, for instance, is currently trying to become self-sufficient in morphine poppies to prevent it from having to import from Afghanistan or whatever), so these costs are kept relatively low by market forces. This therefore means that during their 10-year grace period, drugs companies will do absolutely everything they can to extort cash out of their product; when the antihistamine drug loratadine (another drug I use relatively regularly, it being used to combat colds) was passing through the last two years of its patent, its market price was quadrupled by the company making it; they had been trying to get the market hooked onto using it before jacking up the prices in order to wring out as much cash as possible. This behaviour is not untypical for a huge number of drugs, many of which deal with serious illness rather than being semi-irrelevant cures for the snuffles.

So far, so much normal corporate behaviour. Reaching this point, we must now turn to consider some practices of the big pharma industry that would make Rupert Murdoch think twice. Drugs companies, for example, have a reputation for setting up price fixing networks, many of which have been worth several hundred million dollars. One, featuring what were technically food supplements businesses, subsidiaries of the pharmaceutical industry, later set the world record for the largest fines levied in criminal history- this a record that persists despite the fact that the cost of producing the actual drugs themselves (at least physically) rarely exceeds a couple of pence per capsule, hundreds of times less than their asking price.

“Oh, but they need to make heavy profits because of the cost of R&D to make all their new drugs”. Good point, well made and entirely true, and it would also be valid if the numbers behind it didn’t stack up. In the USA, the National Institute of Health last year had a total budget of $23 billion, whilst all the drug companies in the US collectively spent $32 billion on R&D. This might seem at first glance like the private sector has won this particular moral battle; but remember that the American drug industry generated $289 billion in 2006, and accounting for inflation (and the fact that pharmaceutical profits tend to stay high despite the current economic situation affecting other industries) we can approximate that only around 10% of company turnover is, on average, spent on R&D. Even accounting for manufacturing costs, salaries and such, the vast majority of that turnover goes into profit, making the pharmaceutical industry the most profitable on the planet.

I know that health is an industry, I know money must be made, I know it’s all necessary for innovation. I also know that I promised not to go into my Views here. But a drug is not like an iPhone, or a pair of designer jeans; it’s the health of millions at stake, the lives of billions, and the quality of life of the whole world. It’s not something to be played around with and treated like some generic commodity with no value beyond a number. Profits might need to be made, but nobody said there had to be 12 figures of them.