It's not that I think that private companies wouldn't like to cut innovation. But in the presence of even rudimentary competition, they can't. Monopolies are not innovative, whether they are public or private.

Advocates of this policy have a number of rejoinders to this, notably that NIH funding is responsible for a lot of innovation. This is true, but theoretical innovation is not the same thing as product innovation. We tend to think of innovation as a matter of a mad scientist somewhere making a Brilliant Discovery!!! but in fact, innovation is more often a matter of small steps towards perfection. Wal-Mart's revolution in supply chain management has been one of the most powerful factors influencing American productivity in recent decades. Yes, it was enabled by the computer revolution--but computers, by themselves, did not give Wal-Mart the idea of treating trucks like mobile warehouses, much less the expertise to do it.

In the case of pharma, what an NIH or academic researcher does is very, very different from what a pharma researcher does. They are no more interchangeable than theoretical physicists and civil engineers. An academic identifies targets. A pharma researcher finds out whether those targets can be activated with a molecule. Then he finds out whether that molecule can be made to reach the target. Is it small enough to be orally dosed? (Unless the disease you're after is fairly fatal, inability to orally dose is pretty much a drug-killer). Can it be made reliably? Can it be made cost-effectively? Can you scale production? It's not a viable drug if it takes one guy three weeks with a bunsen burner to knock out 3 doses.

Once you've produced a drug, found out that it's active on your targets, and produced more than a few milligrams of the stuff, you have to put it into animals, then people. Does your drug do anything in animal studies? Does it do too much, like, say, killing the patient? How about humans? Oral dosing is just the start. Does your drug actually get somewhere after it's swallowed, or do the stomach/liver chew it up? Is there any way to wrap it in a protective package long enough to let it reach its target? Do clinical trials show efficacy compared to placebo, or other drugs? How big is the market (in other words, how many people want it, how badly, and how much of an improvement is your drug)?

This is the stuff academic pharma doesn't do, and as you can see, without it, you don't have a drug; you have a theory. What the NIH does is supremely valuable. But so is all that "useless" effort at the pharmas.

Now, maybe government institutions could be made to produce innovations; I certainly think it's worth trying Dean Baker's suggestion that we should let the government try to set up an alternate scheme for drug discovery. Prizes also seem promising. But I want to see them work first, not after we've permanently broken the system. The one industry where the government is the sole buyer, defense, does not have an encouraging record of cost-effective, innovative procurement.