Pharmaceutical and Credit Card Companies: Campaign Contributions and Suicide Pills
From 1991 (when I left a VP job in PR at Aetna), I've done a lot of consulting work and applied for two jobs, neither of which I really wanted, and have continued to do my business book summaries (7500 words, nearly every month) for AudioTech Business Books, an Illinois company.
I had a good deal of success in my business career (Phillips Petroleum, Gulf Oil, Aetna, as well as consulting jobs for Merck and Lilly, among others) but an academic in business is a polar bear in Miami.
However, academics (writers, political scientists, economists, even an art history major or two) can bring a perspective that can be very valuable to business. Even a great company like Merck (now facing the Vioxx scandal) tends to go merrily down the track without being aware what huge political boulders lie ahead.
The pharmaceutical companies have to do something they might find painful: keep reminding people that all medications, even the greatest ones, have side effects. Aspirin, one of the greatest drugs, can be harmful to certain people, even though it's a life-saver for many. On balance, drug makers really don't want to put stern warnings out about their drugs, because they don't really feel comfortable discouraging individuals from using their products.
Yet prescription drugs are a special kind of product. Misused, they can kill people. Thus, ethical companies have to provide very clear information to people who use ethical pharmaceuticals. Also, they need to report customers -- sometimes very good customers, including doctors and pharmacists -- who are providing drugs to the wrong people.
In terms of pricing, the pharmaceutical industry often seems short-sighted. I've pointed out how how one marginally superior diabetes drug, Avandia(R), costs up to 20 times as much as a generic alternative (Metformin). What's the rationale for this practice, one that's not unique in the drug industry?
Gouging people on price irritates them. It makes them receptive to politicians who volunteer to punish industries that are -- or appear to be -- offending. Also, it induces consumers to vote against politicians who are too cozy with certain industries. Companies that mistreat consumers are monuments to tunnel vision.
For example, today in Washington, DC: the credit card providers are being beaten about the head and shoulders for marketing practices that they should have been smart enough to question -- and that have damaged the companies' long-term futures.
If they'd had more people around (like me? like you?) not afraid to speak up, they could have avoided some of the problems they're facing. Recently, Citibank unilaterally did away with its "universal default" policy, a very good move because it was accelerating bankruptcies, which were not exactly good for the company. (Note: "Universal default" refers to the practice where, if you're late on paying one company, all your credit card providers will raise your interest rates.)
Making people who are having trouble paying pay more is counter-intuitive, to say the least. It's a form of economic sadism.
One member of our family is a slow-learner with a part-time minimum wage job. However, she regularly receives notifications from banks that she's been "pre-approved" for additional credit cards. Have such companies collectively lost their minds? She's not a good risk, and they should know that simple fact. There's something very wrong with their business model, which seems to consist of getting as many customers as possible, regardless of their ability to pay debts.
Banks shouldn't charge interest rates (30%-plus at times) similar to those we associate with loan sharks and La Cosa Nostra operatives. They can make plenty of money by charging rates no more than double (or at most, triple) what they pay savings depositors.
My father once told me that companies should "charge what the market will bear." But when the market consists of consumers who are also voters, companies need to know what the market -- and the political system -- will tolerate.
Campaign contributions to pro-business elected officials are all well and good, but not when they come attached to a (political) suicide pill. Politicans who associate them with companies that large numbers of voters find offensive will have a hard time staying in office.
Right now, the amount of credit card debt in the U.S. is $850 billion -- and rising rapidly. Even without an economic downturn, a lot of Americans are going to have trouble paying off this mountain of debt. When that happens, a howl of pain from the banking industry won't exactly be the appropriate response. As George Bush the Elder might have said, "it wouldn't be prudent."
People in business are smarter than they sometimes act. But like all us, they get led into temptation (as Jesus noted). They've been known to forget William F. Buckley's observation that "Self-control is the most exhilarating of pleasures."
WFB may or may not be right on that point, but it is worthy of consideration in its larger meaning that we should try to do the right thing, which of course isn't always the thing that produces the greatest short-term economic benefit.