The Ethics of Business and Price Rises in the Pharmaceutical Industry

Philosophy 6: Ethical Issues in Business Midterm Essay Chase Novak Dr. Parker Need or Greed? New Protocol: How Drug’s Rebirth as Treatment for Cancer Fueled Price Rises Immanuel Kant-Kantian Deontology John Locke- The Justification of Private Property Adam Smith-Benefits of the Profit Motive

Milton Friedman- The Social Responsibility of Business Is to Increase Its Profits Thesis: An examination of the case study New Protocol: How Drug’s Rebirth as Treatment for Cancer Fueled Price Rises relies heavily on a keen understanding of the social and economic implications of a capitalist system, and once taken into account it is clear that Celgene Corp. is justified in raising prices based on the business market philosophies asserted by Adam Smith, Milton Friedman, Emanuel Kant, and John Locke. Word Count: 1690

Perhaps the most difficult situation in business arises when the indigent desire the product being sold. Political pressure is often put on the company to lower prices in order to accommodate the less fortunate consumer, however, this is in direct conflict with the company’s paramount goal of making the largest profit possible. Issues are increasingly complex given the supply-demand aspects of society and the incentive for production. For these reasons approaches to business that emphasize profit over availability can indeed help society in many ways.

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Upon the question of ethics one must view the entire market as a whole and the benefits of competition when deciding a fair price. An examination of the case study New Protocol: How Drug’s Rebirth as Treatment for Cancer Fueled Price Rises relies heavily on a keen understanding of the social and economic implications of a capitalist system, and once taken into account it is clear that Celgene Corp. is justified in raising prices based on the business market philosophies asserted by Adam Smith, Milton Friedman, Emanuel Kant, and John Locke.

Celgene’s decision to raise prices is complex and though at first glance may appear to be fueled by greed it is in fact a necessary and beneficial step in Celgene’s continued production of the medicine thalidomide along with researching other medical advances. Celgene Corp. ’s decision to incrementally raise prices is justified by Adam Smith’s free market philosophy in which he describes competitive production as the main force behind societal development and improvement. Though there has been little affect to the cost of production for thalidomide, the nature of free market production dictated the rise in price.

This, according to Smith is a natural element of the free market, “As every individual […] endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value, every individual necessarily labors to render the annual revenue of the society as great as he can” (Donaldson, 167). In this quotation, Smith is explaining how every individual’s personal strive for success, in the form of production, helps to improve society as a whole.

If each individual’s ultimate goal is to increase their wealth, and if increased wealth is sought through improved production, then the competition for wealth will undoubtedly result in improved production. Improved production can mean either cheaper manufacturing, resulting in lower costs for the consumer, or a better product, which will also help society. Smith continues on to say that this competition is self-perpetuating and that the profit made off of production is reinvested to further improve manufacturing. Evidence of this can be observed in the Celgene Corp. aising of prices on thalidomide which resulted in, “The ability to […] fund the pharmaceutical industry’s research and development programs, which bring new medicines to patients” (Donaldson, 151). This can be further proven by the fact that Celgene’s R&D department uses almost half of the company’s revenue (Donaldson, 154). In this example, Celgene is able to provide consumers with newer and more effective medication as a result of its competitive pricing of thalidomide. Though many critics of Celgene would call the corporation’s decision to raise prices a genuinely greedy and selfish act, Smith sees nothing wrong with such a move.

On this issue Smith states that an individuals self-centered motives often improve society: “By pursuing his own interests he frequently promotes that of the society more effectually than when he really intends to promote it” (Donaldson, 167). Given Celgene’s perceived self-centered actions, Smith would note that this type of free market behavior is positive and is guided by an “invisible hand” which helps such behavior to be beneficial to society as a whole. The next philosopher to be examined would argue that the “invisible hand” that Smith speaks of is indeed separate from the political realm.

Milton Friedman continues with Smith’s line of logic as he asserts that the chief concern of the businessman must be to make a profit under socially acceptable means and that the defining of “social responsibilities” must be left in the political sphere. Celgene’s chief executive, John Jackson, was the primary force behind the company’s decision to raise prices. Jackson’s actions are perfectly ethical according to Friedman who writes, “What does it mean to say that the corporate executive has a “social responsibility” in his capacity as a businessman?

If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers” (Donaldson, 35). Jackson answers to a board that represents the stockholders of the company and it is his ethical obligation to them to make a profit. Celgene was losing money until 2002, which obviously necessitated an increase in price (Donaldson, 153). Jackson’s move to incrementally increase the price of thalidomide was not unethical because he has an obligation to stockholders to deliver a profit.

Furthermore, Friedman asserts that it is not the corporate executive’s job to act as a moral entrepreneur as he is ill fit to do so. Friedman stresses that calls for executives to act “socially responsible” are unethical as socially impactful decisions, such as price adjustment, must be left up to publically elected officials with knowledge of the social and economic implications of such actions (Donaldson, 36). Friedman makes a vital point as it explains that the social responsibility falls on the public and its publically elected officials to enforce social justices through legislature.

Therefore if the public desired Celgene to lower prices of thalidomide then it must require it to do so through law. Furthermore since no law exists requiring Celgene to sell thalidomide at a certain price, then Celgene is perfectly ethical and justified in raising its prices. If executives like Johnson adjusted prices according to their personal beliefs then huge portions of society would be heavily affected by such decisions and thus the public should reserve the right to solve such social dilemmas through democratic means in the form of law.

Emanuel Kant’s philosophy of the “categorical imperative” also works to ethically justify the pricing of thalidomide by expressing the need for a universal standard of ethical practice. Though Kant would most likely desire a socialist utopia or at least complete universal healthcare, neither is realistic in the present day. In a Kantian society individuals would want free healthcare for everyone. No ethical issues would be in question if everyone received their entire healthcare for free.

The result is a derived understanding of his categorical imperative, which explains a desired scenario in which on party acts onto another party in the same manner he himself wishes to be treated (Donaldson, 112). In this sense, under a capitalist system, Celgene is responding to the market by acting accordingly and raising its prices to increase production. The most basic element of ethics lies in John Locke’s philosophical explanation of product ownership and it works to prove Celgene’s right to raise its prices.

At the very heart of business is the ownership of a private property which one elects to sell for a profit. According to Locke, God made the earth for man to exploit for his personal needs and thus it is logical that some men will not have common ownership of the land (Donaldson, 158). Locke’s philosophy on private property explains that man has the right to own property and that he alone can chose how to use his property. Using this justification, Celgene’s ownership of thalidomide entitles them to price it at any rate it sees reasonable.

Moreover this justification is ethical because it comprises the sole force behind production. If corporations like Celgene cannot retain the right to ask for their own price for the products that they produce then there exists no incentive to produce. As a society we cannot force companies to produce essential information, technology, or medicine without an incentive. That is not how society works. Rather, our society is functions under an incentive-based system, which uses competition to provoke the best and brightest to produce the most important products for society’s use.

If Celgene was made to sell their products at a price convenient for the consumer but crippling to the manufacturer then production would decline and society would falter. Thus to ensure continued production and quality corporations such as Celgene must be allowed to conduct business according to their best interests with regard to price. Society hinges on the expectation that companies will provide the food, goods, and medicine that it requires to function, however, certain elements must be in place in order to ensure the continued production of such commodities.

As explained by Adam Smith, Milton Friedman, Emanuel Kant, and John Locke, society is improved by a free market system in which revenue from production is poured back into production to result in the overall improvement of society as a whole. Though some may see a raise in price as unfair, one must view such circumstances from the standpoint of the corporation, as business is a constant back-and-forth between the consumer and producer.

The overarching ethical theme of the case study focuses on the need to provide the medical sector with the necessary profits to continue its research and development programs in the efforts of advancing the entire field for the betterment of society. This is surely an ethical endeavor. Works Cited: Donaldson, Thomas, and Patricia Hogue. Werhane. Ethical Issues in Business a Philosophical Approach. Upper Saddle River (N. J. ): Prentice Hall, 2008. Print.

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