Free-trade agreements aren't about freer trade

You may think spin-doctoring and economics are worlds apart, but they combine in that relatively modern invention the "free-trade agreement" – the granddaddy of which, the Trans-Pacific Partnership, is presently receiving CPR from the lips of our own heroic lifesaver, Malcolm Turnbull.

It's not surprising many punters assume something called a "free-trade agreement" must be a Good Thing. Economists have been preaching the virtues of free trade ever since David Ricardo discovered the magic of "comparative advantage" in 1815.

Nor is it surprising the governments that put much work into negotiating free-trade agreements – and the business lobbyists who use them to win concessions for their industry clients – want us to believe they'll do wonders for "jobs and growth".

What is surprising is that so many economists – even the otherwise-smart The Economist magazine - assume something called a free-trade agreement is a cause they should be supporting.

Why's that surprising? Because you can't make something virtuous just by giving it a holy name. When you look behind the spin doctors' label you find "free trade" is covering up a lot of special deals that may or may not be good for the economy.

This is the conclusion I draw from the paper, What Do Trade Agreements Really Do? by a leading US expert on trade and globalisation, Professor Dani Rodrik, of Harvard, written for America's National Bureau of Economic Research.

Rodrik quotes a survey of 37 leading American economists, in which almost all agreed that freer trade was better than protection against imports, and were in equal agreement that the North American Free-Trade Agreement (NAFTA) to eliminate tariff (import duty) barriers between the United States, Canada and Mexico, begun in 1994, had left US citizens better off on average.

Their strong support for freer trade is no surprise. One of the economics profession's greatest contributions to human wellbeing is its demonstration that protection leaves us worse off, even though common sense tells us the reverse.

And that, just as we all benefit from specialising in a particular occupation we're good at, then exchanging goods and services with people in other specialties, so further "gains from trade" can be reaped by extending specialisation and exchange beyond our borders to producers in other countries.

What surprised and appalled Rodrik was the economists' equal certainty that NAFTA – a 2000-page document with numerous exceptions and qualifications negotiated between three countries and their business lobby groups – had been a great success.

He says recent research suggests the deal "produced minute net efficiency gains for the US economy while severely depressing wages of those groups and communities most directly affected by Mexican competition".

So there's a huge gap between what economic theory tells us about the benefits of free trade and the consequences of highly flawed, politically compromised deals between a few countries.

Rodrik says trade agreements, like free trade itself, create winners and losers. How can economists be so certain the gains to the winners far exceed the losses to the losers - and that the winners have compensated the losers?

He thinks economists automatically support trade agreements because they assume such deals are about reducing protection and making trade freer, which must be a good thing overall.

What many economists don't realise is that the international battle to eliminate tariffs and import quotas has largely been won (though less so for the agricultural products of interest to our farmers).

This means so-called free-trade agreements are much more about issues that aren't the focus of economists' simple trade theory: "regulatory standards, health and safety rules, investment, banking and finance, intellectual property, labour, the environment and many other subjects besides".

International agreements in such new areas produce economic consequences that are far more ambiguous than is the case of lowering traditional border barriers, Rodrik says, naming four components of agreements that are worrying.

First, intellectual property. Since the early 1990s, the US has been pushing for its laws protecting patents, copyrights and trademarks to be copied and policed by other governments (including ours). The US just happens to be a huge exporter of intellectual property – in the form of pharmaceuticals, software, hardware, music, movies and much else.

Tighter policing of US IP monopoly restrictions pits rich countries against poor countries. And though free trade is supposed to benefit both sides, with IP the rich countries' gains are largely the poor countries' losses. (Rich Australia, however, is a huge net importer of IP).

Second, restrictions on a country's ability to manage cross-border capital flows. The US, which has world-dominating financial markets, always pushes for unrestricted inflows and outflows of financial capital, even though a string of financial crises has convinced economists it's a good thing for less-developed economies to retain some controls.

Third, "investor-state dispute settlement procedures". These were first developed to protect US multinationals from having their businesses expropriated by tin-pot governments.

Now, however, they allow foreign investors – but not local investors – to sue host governments in special arbitration tribunals and seek damages for regulatory, tax and other policy changes merely because those changes reduced their profits.

How, exactly, is this good for economic efficiency, jobs and growth?

Finally, harmonisation of regulations. Here the notion is that ensuring countries have the same regulations governing protection of the environment, working conditions, food, health and safety, and so forth makes it easier for foreign investment and trade to grow.

Trouble is, there's no natural benchmark that allows us to judge whether the regulatory standard you're harmonising with – probably America's - is inadequate, excessive or protectionist.

Rodrik concludes that "trade agreements are the result of rent-seeking, self-interested behaviour on the part of politically well-connected firms – international banks, pharmaceutical companies, multinational firms" (not to mention our farm lobby).

They may result in greater mutually beneficial trade, but they're just as likely to redistribute income from the poor to the rich under the guise of "free trade".

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Abbott's choice: competition v cronies

It's still too soon to tell whether Tony Abbott's government is pro-market or pro-business, but so far the evidence for the latter stacks higher than that for the former.

The difference turns on whether the pollies want markets where effective competition ensures benefits to consumers are maximised and excessive profits minimised, or markets where government intervenes to limit competition - often under the cover of claiming to be protecting jobs - and makes life easier for favoured businesses.

Will we see more rent-seeking or less under Abbott, more of what The Economist calls "crony capitalism"?

Will firms or industries with rival interests do better from government regulation if they're more generous donors to party coffers?

Abbott and his ministers' intemperate attacks on the Australian National University for its decision to "divest" itself of a few million mining company shares for environmental or ethical reasons are a worrying sign.

Investors shouldn't enjoy freedom to choose where they invest, regardless of their reasons? ANU is different from the rest of us even though its investment funds come largely from private donations and bequests? This from a government keen to complete the de facto privatisation of universities?

What is ANU's offence? Bringing ethical considerations into investment? Or sounding like it believes climate change is real and we should be doing something real about it?

Abbott attacked ANU's decision as "stupid" and believes "coal is good for humanity, coal is good for prosperity, coal is an essential part of our economic future".

If ever there was an industry whose early decline could be confidently predicted - as it is being by hard-headed investors and bankers the world over - it's steaming coal.

Yet Abbott seems keen to change the rules of the formerly supposed bipartisan renewable energy target in ways that, by breaking long-standing commitments to the renewables industry, would cost it billions and blight the future of its employees, all to provide the government's coal and electricity industry mates with temporary relief from the inevitable.

The biggest problem with governments "picking winners" is that they quickly regress to picking losers, helping industries against which technology and other forces have shifted to resist the market's pressure for change that would - almost invariably - make consumers and the economy better off.

The proposals of the recent draft report of Professor Ian Harper's competition policy review could do much to strengthen the market's ability to deliver benefits to consumers and roll back decades of accumulated rent-seeking and crony capitalism.

The enthusiasm with which the Abbott government takes up those proposals will tell us much about its choice between being pro market forces or pro certain generous business donors to party funds.

A particular area where sound competitive principles have been secondary to special pleading from various interests is the regulation of intellectual property, such as patents, copyright, trademarks and plant breeder rights. Harper says our intellectual property regime is a priority for review.

IP isn't God-given, it's a government intervention in the market to limit competition with owners of the patents and so forth for a limited period. It's a response to market failure where the "public goods" characteristics of IP would otherwise generate too little monetary incentive for people to come up with the new knowledge and ideas that benefit us all.

In other words, it's a delicate trade-off between government-granted monopolies to encourage innovation, and competition to keep prices and excess profits down.

This makes it ripe for rent-seeking: pressuring politicians to extend the monopoly periods retrospectively (despite the lack of public benefit), to allow loopholes that permit phoney "ever-greening" of drug patents that would otherwise expire, to limit poor countries' access to life-saving drugs at realistic prices and to ignore blatant gaming of IP laws by two-bit operators that have never created anything.

Most of these excesses are at their worst in the United States with its easily bought legislature. The information revolution has made IP one of America's chief export earners. And the free-trade preaching Yanks have made advancing the interest of their IP exporters their chief priority in trade negotiations such as the present Trans Pacific Partnership deal.

As always, we have a tendency to give the Yanks whatever they want. Trouble is, as Harper points out, Australia is and always will be (and should be, given our comparative advantage in world trade) a net importer of intellectual property.

Abbott has a further temptation to be less than vigilant in pursuing Team Australia's best interests: his chief media cheerleader, News Corp, happens to be the twin brother of a primary beneficiary of the Yanks' efforts to advance the interests of their IP exporters, 21st Century Fox.

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Trans-Pacific Partnership: we pay more for longer

According to someone called Oscar Ameringer, politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other. However, when Tony Abbott spoke at the Business Council's 30th anniversary dinner last week, he was very much in protecting-big-business mode.

"On election night, not quite three months ago, I declared that Australia is under new management and once more open for business," he told the captains of industry. "My business - the business of government - should be making it easier for you to do your business because government doesn't create prosperity, business does.

"Governments' job is to make it easier for good businesses to do their best ... that's why almost everything we've done over the past three months has been to make it easier for Australians to do business."

It's possible, of course, that Abbott didn't really mean all that. Perhaps he was just greasing up business people because they were who he happened to be speaking to. Maybe next week he'll tell a bunch of consumers he's doing it all for them.

It's too early to tell just whose interests the Abbott government is seeking to advance. Maybe it doesn't yet know itself.

But I get a bit twitchy when I hear politicians running the line that what's good for General Motors is good for America.

I worry when I hear allegations that Australia bugged the cabinet room of a friendly nation not in the national interest but in the interest of a particular Australian company. Then that one of the politicians at the time has since become an adviser to the company.

I confess to being concerned about what deal Trade Minister Andrew Robb is doing in our name at the Trans-Pacific Partnership negotiations in Singapore this week.

The partnership is a trade treaty the US wants with 11 other Pacific rim countries: Canada and Mexico, Chile and Peru, Australia and New Zealand, Japan and Malaysia, Singapore, Brunei and Vietnam.

The US has been negotiating the treaty since 2006 in what it has insisted be complete secrecy. Although it has no doubt been consulting with its own big companies, and it's a safe bet our business lobby groups have been briefed about the contents of the treaty and have advised our government on their views and goals, the rest of us aren't meant to know what's going on.

Parliament will have to be told the content of the done deal before it votes to ratify any treaty the government has agreed to, but that's all. It's "need to know" and you, dear voter, don't need to know. Leave it to the adults.

Well, not quite. Last month one of the draft treaty's 29 chapters, on intellectual property, was published by WikiLeaks.

This week one country's detailed description of the state of negotiations was leaked. So we know a fair bit about what we're not supposed to know. And what we know isn't terribly reassuring.

What I know about the US government's approach to trade agreements - which doesn't seem to have changed since the deceptively named free-trade agreement we made with it in 2004 - is that its primary objective is to make the world a kinder, safer place for America's chief export, intellectual property: patents, copyright and trademarks - in the form of pharmaceuticals, films, books, software, music and much else.

To this end, the length of copyright would be extended beyond the 70 years to which it has already been extended, and copyright infringement would be made a criminal offence. It would be made easier for pharmaceutical companies to artificially extend the life of their patents and frustrate the activities of others wishing to produce generic versions.

It is clear this would greatly benefit America's big entertainment, software and drug companies.
What's equally clear is that it has no economic justification, being simple "rent-seeking"; government intervention in markets to enhance the profits of particular companies.Rupert Murdoch's 21st Century Fox would be a prime beneficiary.

Since Australia is a net importer of intellectual property, our government ought to be in no doubt the Americans' demands are contrary to our economic interests.

The leaks reveal many dubious demands by the US, but none more so than its promotion of "investor-state dispute settlement" provisions, which would allow foreign companies to pursue legal actions against our government in foreign tribunals if, for example, it were to introduce policies they considered contrary to their interests.

This would give foreign companies an advantage local companies didn't have. The Productivity Commission found such provisions offered few benefits, but considerable policy and financials risks. The former Labor government had a blanket ban on agreeing to such clauses, but Robb's approach is more flexible.

Why would any country agree to such unreasonable demands? Because, in exchange, the Americans are holding out the promise of greatly enhanced access to their markets - in our case, for sugar and beef.

So what we're not supposed to know is that, if the rest of us get sold out, it will all be in aid of Australian farmers. The trouble with running the economy to benefit business is you end up harming some to help others.

But not to worry. The leaks suggest agreement on the treaty is a long way off.

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We risk letting lawyers stifle innovation

If our business people, economists and politicians are genuine in their desire to lift our productivity, rather than just moan about the Fair Work Act, they'll put reform of the regulation of intellectual property high on their to-do list.

Unfortunately, the minor changes to intellectual property regulation put through Parliament last week, to the accompaniment of great self-congratulation by the Gillard government, suggest the professed true believers in productivity improvement just don't get it.

If we're really concerned to encourage invention, innovation and creativity, nothing could be more central than the way we regulate intellectual property. But I get the feeling a lot of people have lost sight of what we're doing and why we're doing it.

So let's start with the basics. When governments grant patent or copyright protection they are intervening in the market to give particular individuals or businesses a monopoly over the commercial exploitation of that idea for up to 20 years.

When you've got a monopoly you're able to charge higher prices than if you had competitors selling access to the same idea. So why on earth would a government grant such favours?

Well, the rationale is to increase the monetary incentive for people to come up with inventions, innovations and creations that benefit the community. If I dreamt up some new thing, but other people were immediately able to copy it and compete with me, I wouldn't get much reward for my effort and ingenuity.

In which case, people like me won't be trying very hard to come up with new ideas. So the government grants inventors and creators a temporary monopoly over their idea to encourage more good ideas.

The point to grasp is that this approach involves a trade-off. The government imposes a cost on the community by effectively allowing rights-holders to overcharge for their products, but it does so in return for the greater benefits this brings to the community.

This suggests, first, that governments should never grant rights or enhanced rights to individuals and firms unless it's clear the granting of those rights leaves the community better off. Second, governments should always be checking to ensure the benefits to the public from the protection of intellectual property exceed the costs to the public of that protection.

Were the public costs ever to exceed the public benefits, the entire economic justification for the artificial creation of property rights would evaporate. It would be a classic instance not of "market failure" but "government failure".

The reason reform of intellectual property should be high on the productivity promoters' to-do list is that we seem to be drifting ever closer to the point where its costs exceed its benefits. That seems particularly true in the United States - and we look to be going the same way.

The US plays a pivotal role in the globe's intellectual property. It's at the frontier of technological change and creativity, and is a net exporter of intellectual property to every country in the world. Increasingly, intellectual property, designs for new machines, pharmaceuticals, electronic gadgets, films, TV shows, books, recordings and much else, is the main thing the US sells the world.

These days, making the world a safer, more profitable place for American intellectual property is the main objective of US trade policy - as we found when we negotiated the misnamed free-trade agreement with the US in 2004. We were pressured to make our laws fit with the Americans', and we'll get more pressure to become more like them in all future trade negotiations.

So what's the problem? Much of it is that the whole area has been taken over by lawyers. It's become hellishly legalistic, complicated, loophole-ridden and expensive. In the process, the lawyers have lost sight of the economic object of the exercise. It's become an area of endless battles between businesses arguing over their rights.

The other part of it is that powerful industry groups have taken to lobbying politicians to change the law in ways that advance their interests without benefit to the public. And US businesses increasingly engage in game-playing in the hope of ripping each other off.

American pollies are often persuaded to extend the life of intellectual property protection retrospectively, which obviously does nothing to encourage innovation in the past.

The patent system has been extended to cover software (which was already copyright) and even business methods. It's too easy to get a patent - you can get them for very obvious ideas - and patents can be too broad, covering yet-unthought-of uses.

You can get a patent for something that's very similar to someone else's patent. But because they're handed out so easily, you often don't know whether a patent is valid - whether his patent beats your patent - unless you spend between $5 million and $7 million battling it out in court. The high cost of litigation means big businesses regularly intimidate small businesses.

This problem of "fuzzy boundaries" to patents is so bad some businesses make a living as 'patent trolls' buying up dodgy patents, then threatening to sue legitimate patent-holders. The victim pays what amounts to protection money to avoid the higher cost of a court battle.

You've no doubt heard of the huge patent battle between Apple and Samsung being fought in courts around the world. Which side has the legitimate patents for tablet technology?

Pharmaceutical companies use a trick called "evergreening" to stop their patents expiring, which would have allowed competition from generic drug producers to slash the prices they can get for their drugs.

The owners of intellectual property rights often attempt to use them to protect themselves from losing business to firms developing more innovative ways of doing things.

Just as undesirable, researchers trying to develop better products can be held back by the prohibitions or high costs imposed by existing patent holders (some of which may not be legit).

It's got so bad in the US that, according to the calculations of a leading academic campaigner for patent reform, James Bessen, of Boston University school of law, for all US patents bar those for chemicals and pharmaceuticals, earnings from their patents are more than exceeded by the cost of litigation to protect those patents. He calls this a "patent tax".

If he's right, the intellectual property system has degenerated to the point where it's actually inhibiting innovation. We're being forced to pay higher prices, but getting nothing in return.

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Coles and Woolies loom as Big Tobacco's rivals

What do the big foreign-owned mining companies have in common with the big foreign-owned purveyors of cancer sticks? A lot of money to con punters and pressure pollies, and a lot of weak arguments.

One argument the two industries have in common is that the resource super-profits tax and the plain packaging of cigarettes lack any proof they will work and have never been adopted anywhere in the world. Great argument: it has not been done before, therefore you shouldn't do it.

This is the poor little stupid Australia argument. We should always merely follow the lead of other countries because we're not smart enough to dream up anything good ourselves. Its logic is foolproof: if it has never been done before there's no evidence it works, and if we never try it there never will be.

But if the idea's so unlikely to work, why are the global giants fighting so hard to stop it being tried? Why not leave the stupid Aussies to stew in their own juice? Perhaps because the rest of the world is watching our ''experimental legislation'' and if it works - as it's most likely to - other, bigger countries will copy it.

The big miners claimed the supposedly retrospective introduction of the super-profits tax would increase Australia's ''sovereign risk''. The big tobacco-pushers claim plain packaging would rob them of their brands and infringe ''international trademark and intellectual property laws''.

They've claimed they'll contest the issue to the fullest extent of the law - this I do believe - and are crying bitter tears over the ''billions of dollars'' this will cost taxpayers in legal fees and compensation to the injured companies.

From what the experts say, however, the companies' legal case seems weak. About the only people convinced they'll succeed in this are from the libertarian Institute of Public Affairs. (If the institute isn't receiving tax-deductible donations from the tobacco industry, I'll be happy to record its denial.)

Libertarians are tireless fighters for private property. They're willing to pay taxes pretty much only to the extent they're necessary to finance government actions to protect private property from being stolen or overrun by foreign invaders.

But I find it curious the institute is so ready to extend its attitude towards the protection of physical property to the protection of intellectual property such as patents, copyright and trademarks. Protection of intellectual property involves much more overt intervention in the market. It's the nanny state creating monopolies and conferring them on private firms.

This intervention can be justified only by acknowledging the existence of market failure (something libertarians are usually most reluctant to do) and then being satisfied the intervention won't make matters worse.

You're actually giving some firms a licence to charge higher prices (by constraining their competitors from copying them) and recent history is full of instances of industries successfully lobbying the nanny state to extend intellectual property rights in ways that benefit the rights-holders at the expense of the public interest.

Yet another argument put up by tobacco companies is that plain packaging will backfire and lead to increased smoking because taking away the companies' distinctive branding (though not their brand names) will lead to greater price competition. Lower prices would lead to higher consumption, which would defeat the object of the exercise and actually increase smoking rates among young people. (Just why this would be a bad thing the companies don't explain. Cigarettes aren't bad for you, are they?)

I suppose when you're fighting to defeat some government measure it's always handy to have some argument it would be counterproductive, but this is a strange argument for them to be running. If there were an outbreak of price competition in response to plain packaging, the government could fix the problem easily by increasing its tobacco excise and forcing the retail price back up to where it was. This would be a nice outcome. The extra tax revenue would, in effect, be coming from the companies, leaving smokers no more out of pocket than before the new arrangement.

Though in these circumstances industries on the make usually lay it on pretty thick, the companies have made no attempt to claim the price war would send them broke, oblige them to lay off thousands of workers or move to China. This is a tacit admission that their degree of profitability - on their own admission, fattened by the ability branding gives them to charge higher prices - is so great it would survive a price war.

After examining the companies' rates of return relative to competitive norms, Dr Richard Denniss, executive director of the Australia Institute, estimates about half their profits - $500 million a year - flows from the premium prices charged for ''branded'' tobacco.

The companies say they fear the increased price competition would come from illegally imported tobacco, with smuggling ''spiralling out of control''. But Denniss thinks it's more likely to be the reactions of the big two supermarket chains the companies are worried about.

At present, the ban on tobacco advertising effectively protects the established players from having to compete with new entrants to the market. Apart from starting a price war, advertising would be the only way you could draw smokers' attention to your arrival in the market. (This is advertising doing what it suits economists to assume it always does: not using allusions and illusions to entice people to buy, but merely informing potential purchasers of your availability and price.)

But when plain packaging robs the established players of their last legal form of marketing, it would be a lot easier for Coles and Woolworths to enter the market with their own cheaper, imported no-frills brands.

Being done over by Coles and Woolies? Couldn't happen to a nicer bunch of blokes.

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Bitter pill when politicians swallow big pharma's spin

Politicians always profess great sympathy for people struggling to keep up with the cost of living but often fail to put that sympathy into practice. Economists like to divide the economy into consumers on one side and producers on the other. They believe the economy should be run for the benefit of consumers, not producers. The consumer is supposed to be king.

Ostensibly, pollies think the same. But they're always doing deals with producers that allow them to charge higher prices at their customers' expense.

Why would politicians do such a thing? Because the producers are usually better organised. They have more to gain from a higher price - or lose from a lower price - than individual consumers have to lose or gain. Consumers are amateurs; producers are professionals and they put a lot of effort into lobbying governments.

But there's another factor. Every voter with a job is a producer as well as a consumer. Politicians care about jobs. And when producers offer to create new jobs - or, more likely, threaten to sack workers if they don't get what they want - the pollies usually play ball. They're easily conned.

Consider the case of pharmaceuticals. When a drug company - usually a big American or European corporation - discovers and develops a new medicine, it is granted a patent that amounts to a 20-year monopoly on the production of the medicine. If the medicine is highly effective, the monopoly allows the company to charge a very high price.

The standard justification for patents is that, by holding off competitors, they allow the company a period of grace in which to recover its research and development costs and make a big profit, thus encouraging more invention, to the benefit of society.

This explains why pharmaceuticals are so expensive in the United States. But the companies are prevented from charging such high prices in Australia by the operation of our pharmaceutical benefits scheme.

Under the scheme most drugs are, in effect, bought by the federal government, then sold to patients at heavily subsidised prices. This makes the government a "monopsonist" - a single buyer - and so gives it the ability to beat down the prices the drug companies are able to charge.

This explains why patented pharmaceuticals are so much cheaper in places such as Australia and Canada than they are in the US. The Aussie taxpayer benefits, as does the patient required to pay a smaller out-of-pocket contribution towards the cost of the drug.

Great stuff. But here's where the story gets bad. When a drug's patent expires, any drug company is allowed to start producing that drug in competition with the former patent holder. They can't appropriate the drug's trade name, of course, so they're known as generics. Generics are tightly regulated to ensure they're just as effective as the drug being copied.

So when a drug comes off patent and a lot of cheaper generics come onto the market, you'd expect the price of the trade-name drug to fall sharply. That's what happens in the US and in many other countries, but not in Australia. Why not? Because our pharmaceutical benefits scheme goes easy on the former patent holders. It drops the price by a bit, not a lot.

And it leaves it up to the prescribing doctor - and sometimes the patient talking to the chemist - to say whether a generic may be substituted. Many doctors and patients have an irrational attachment to the brand name, even though it's a lot dearer.

Last year the Rudd government proudly announced it had cut a new and tougher deal with the drug companies, represented by Medicines Australia, which would save the taxpayer $1.9 billion over five years.

The patents of a lot of expensive drugs will expire in the next few years. The deal involved cutting the prices of these drugs by 16 per cent and cutting the prices of generic drugs by 2 or 5 per cent from the start of this year.

But a health economist at the University of Sydney, associate professor Philip Clarke, and his colleague Edmund Fitzgerald, argue the deal still leaves our off-patent and generic drug prices much higher than they are in most developed countries. They quote the example of statins, the cholesterol-lowering drugs, where the patents of the various types have expired or soon will. Statins account for about 16 per cent of the total cost of the pharmaceutical benefits scheme.

They surveyed the wholesale price of Simvastatin 40mg in 10 developed countries and found our price was the highest: 50 per cent more than the next highest country and more than four times greater than the average price.

The lowest price was in New Zealand, which stages competitive tenders between the drug companies. Its price is just a fraction of our wholesale price of $1 a tablet. And even in the US, chains such as Kmart Pharmacy sell that statin for $15 for 90 tablets.

Clarke and Fitzgerald estimate that, compared with prices in England and Canada, the Rudd government's deal with the industry lobby will cost taxpayers and consumers $1.7 billion more over its five-year term. And that's just for the statin group of drugs.

The saving would be even greater, no doubt, if the government were game to take a firmer line on the prescribing habits of doctors.

Why would a government that professes to care so much about our cost of living cut such an expensive deal with the drug producers? Because, in practice, it gives a higher priority to maintaining an industry that makes the actual pills in Australia.

And the largely foreign-owned drug companies have conned it into believing that, unless it forces Australian consumers to paying much higher prices for off-patent drugs than people in other countries pay, the local industry will curl up and die.

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