Is It Capitalism at Work or “Gouging” or Both?

Last updated on: September 24, 2015 at 8:14 am by Roger E. Olson

Is It Capitalism at Work or “Gouging” or Both? 2015-09-24T08:14:14-05:00 Roger E. Olson

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Current news reports (September 23/24, 2015) are pointing an accusing finger at a pharmaceutical company’s CEO for suddenly increasing the price of a medicine it manufactures and sells–from about $15 per pill to about $700 per pill. (The details vary, of course, because what price is charged can depend on the retailer.) Apparently, from reports I have seen on network news and read, this medicine has no competition; there is no generic or less expensive version or viable alternative. So, people who have come to depend on it for healthy, pain-free living will now have to pay about $700 per pill (give or take a few dollars). Or their insurance company will have to pay that for it. (All that is based on news reports which, I realize, may not deliver perfectly correct facts. So what I am saying here bears the necessary caveat “Insofar as news reports are correct.”)

I saw the CEO in question interviewed on prime time network news. He smirked and dodged and basically communicated that it is his company’s business to gain as much profit as possible and that, if they have decided this is what is best for business, who else’s business is that?

Within our present, reining capitalist system, he’s right. In fact, one could make an argument that, based on civil laws governing publicly held (by investors who own shares) corporations he and his board of directors are obliged to charge as much as possible for their product so long as that truly benefits the shareholders. He would be breaking civil laws by compassionately charging less than would make the most profit the shareholders. (Of course, many corporations do offer “special pricing” for people unable to afford the product, but they are only able to do that to increase public sympathy for the company that will predictably redound to the benefit of the shareholders.)

People are accusing the CEO of “gouging.” But, within a truly Free Market economy, what’s wrong with that? Doesn’t our capitalist system encourage it? Isn’t he doing what the system not only encourages but requires? What public traded corporation (owned by shareholders) intentionally charges less than it can for its products? Wouldn’t a CEO who did that be fired by the board of directors? Couldn’t he even be charged under civil law with undermining the interests of shareholders?

Many people (including the interviewer I saw on prime time major network news) will wag their fingers in the CEO’s face and some will even shake their fists at him–especially people who need that medicine and now can’t afford it. And many insurance companies will protest–especially self-insured organizations. But on what grounds? Moral grounds? But where is compassion built into or encouraged by our capitalist system except insofar as it can demonstrably increase profits (e.g., through creating a sympathetic attitude toward it that results in people investing and buying its products)?

Obviously, the CEO (and, I assume, his board of directors) believes pricing the pill at about $700 (more or less) is in the company’s shareholders’ best interests. What else should matter–given the nature of capitalism which requires that a corporation owned by investors and publicly traded must seek the highest profit possible for its investors? To ask the CEO to compassionately keep the price low or to lower it is to ask him NOT to engage in the very economic system our country (the USA) is built on.

I understand protesting the system (which I have done here), but I do not understand accusing a corporate CEO of doing wrong (“gouging”) when he is simply looking out for the investors–which is apparently what this CEO must be doing. (Otherwise the board of directors would fire him which they haven’t. And, otherwise he could be accused of breaking civil law.)

My own “gut reaction” to the CEO’s decision and action was and is moral revulsion, but how can I feel moral revulsion at him without feeling moral revulsion at the system that encourages, perhaps even requires, what he did?

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