Production of "low value products" is difficult to motivate in capitalist economies, but the task can be accomplished when viewed from a broadly-defined economic perspective. The key negative aspect at issue is the fact that "low value products" detract from a company's "bottom line" profits. A company's economic value is diluted both directly and indirectly when "low value products" are under consideration. Genetic engineering is seriously confronted with these conflicts of interest. The technical aspects of genetic engineering are forced to a secondary level as economic considerations force themselves to the forefront of this debate.
The direct impact of "low value products" is by definition limited profitability without exponentially large sales figures. The indirect impact is that the low value products divert resources away from investment in high value products at all stages of research, development, production and marketing. Economically, the problem facing low value products is production costs rising above the product's selling price. In some manufacturing contexts, the largest component of the production cost structure is expenditure on labor. This situation may not consistently exist in terms of genetically engineered products, but does illuminate an interesting angle of the situation. The low selling price of the product is not necessarily the most problematic as the situation can also be considered one of high labor costs. In other words, supply side characteristics are perhaps the more viable sources of a solution than demand side manipulation. Altering individual consumer behavior is much more daunting than changing market supply motivation.
The highest hurdle in this situation is getting management and creditors to look beyond the bottom line in favor of the societal benefits that their low value products are capable of producing. In the case of developing countries, there is a plausible scenario for motivating production of low value products with societal benefits. In the majority of developing nations, prevailing wages are significantly less than those of developed economies. Allowing a company based in a wealthy economy to build a facility in the developing nation may be incentive enough to promote the production of low value products. This construction on foreign soil is a significant advantage for a number of reasons: 1) Costs-to-Market are significantly reduced. Transportation to vendors becomes less expensive. 2) Labor costs are decreased. Cheap labor reduces the cost component and could allow for profit making at lower selling prices. In extreme cases, the cost reduction may transform a low value product in domestic markets into a high value product in foreign markets. From here economies of scale may allow production on such a large scale that it also reduces the cost per unit in domestic markets to boost domestic profits. Under these circumstances, the developing country benefits from the products produced, but also from the jobs created to undertake the production efforts.
As was evidenced in Biology 4, genetic engineering gets extremely complicated very quickly. This high degree of complication would require a cost in the form of investment in the human capital working in these foreign production facilities. High development costs could overwhelm the production cost savings previously discussed. Technical training and educational scholarships are needed to produce a successful venture into foreign markets. This commitment to education needs time to realize its full benefit. "Earnings, low at first because of training investments, rise quickly as new skills are acquired." (Ehrenberg & Smith, p. 298) In the context of genetic engineering this ascension of the learning curve needs to be understood as a characteristic of productive research. In other words, the most profound results will require research to build upon research over a period of years. This time parameter was alluded to by Dr. Tom Jack in his discussion of the progress of research being continuously refined to produce incrementally higher quality products (specifically, tomatoes).
Up to this point, the discussion has focused on market-created incentives to producing low value products, but substantial government-created incentive programs are also feasible. This government intervention is probably the more conventional form of motivation to promote social welfare. Prompting companies to invest in low value products are strategies involving tax breaks, government subsidy, and market control rights.
Tax breaks and government subsidies are fairly straightforward in strategy. Their presence allows for more of the selling price to go directly to the producer in the form of profit. The issue of market and property rights is more intriguing. Government contracts assign property rights to products and markets as appropriate. These rights can be exploited by the winning firm in the form of a profitable "legal" monopoly, or the rights can be sold to realize immediate profit in times of high competition for access to the market. A derivation of a trending toward equilibrium and ideal social welfare was awarded the Nobel Prize in economics and provides a thought-provoking perspective. It rests on some theoretical assumptions beyond the scope of this paper which limit its practicality, but it is widely cited in public economics literature and is called the Coase Theorem after its author.
The government regulated monopoly arrangement has been employed in such areas as electricity production, phone services, and early railroad service. Extending the experiment to such areas as pharmaceutical production and health care provision is worth consideration for the potential incentives provided by a simulated monopoly. Research and production of low value products will still not be attractive from an individual profit standpoint, but considered as a requisite to being granted "monopoly" rights which allow for complimentary marketing with higher value products (for which their patents would otherwise be expired), it will be a worthwhile enterprise.
Extending the life of patents would allow for a longer time period for the costs of low value research and development to be recouped by being the exclusive product on the market and therefore the recipient of all sales revenue. In a similar context, easing the product approval regulations would allow for shorter time-to-market and incur less testing costs which would increase "bottom line" attractiveness. However, cutting costs in this area for incentive purposes would increase the risk of unsafe products getting to consumers and is not worth the health risks.
Even in the presence of incentive programs, time and patience is essential in low product production especially in a developed economy. In a developed economy like the United States, creditors can afford to be impatient because their resource are in demand from borrowers with more immediately forthcoming returns. A relevant example is the unfortunate failure of a recent endeavor to produce educational medical videos accessible by the general public.
Time Life's loss of patience with their venture into production and sale of a medical video series hosted by Dr. C. Everett Koop was a loss of the benefits of educational communications technology to the indifferent steamroller of American capitalism. The problems facing the project were discussed in class by Dr. Koop as well as from a broad summary perspective in the account in the Wall Street Journal on February 13, 1997. "In retrospect, Mr. Green [CEO of the failed project] says the venture would have succeeded -- with more patience and money. 'We didn't lose, the clock just ran out,' he says. 'We didn't spend too much, we just didn't raise enough.'" (Pollock, A1)
The medical video venture faced a daunting set of obstacles. Sales of a low value product were its sole revenue source. In order to make the profit margin attractive, the company tried to turn its low value product into a high value product by charging a disproportionately high price considering the purchasing constraints on its target consumer groups. "Moreover, the retail price would be quite steep -- $19.95 per tape. Would people walking into pharmacies to fill $10 prescriptions add an item costing twice that much to their bill?" (Pollock, A10) The answer revealed itself to be a resounding 'no'. Amplifying this problem was the high initial costs that needed to be recovered. Expensive set-up and production immediately constricted the project's short term profit potential which essentially prevented satisfactory progress before the end of the project's "grace period" for establishing a market for itself.
The imperative for the promise of financial reward to motivate a concern for social welfare can justifiably foster a cynical attitude. The highly respected Dr. Koop astutely cautions against the unfavorable social consequences produced if a moral responsibility to educate and promote health is not protected. He correctly asks succeeding generations to beware of economics over-ruling ethics (as described in the Biology 4 class lecture of 13 February 1997). The attraction of financial rewards is extremely difficult to ignore. Therefore, the challenge is how best to parallel monetary reward with moral responsibilities. The developing capitalism in Poland is failing to meet this challenge as "Today, every Polish doctor faces a terrible choice: Be an idealist and practice in penury, or turn into an opportunist or, worse, a shake-down artist." (Newman, A1)
Let's hope that this type of failure is the exception and not the rule for the future. There is no easy solution. Successfully motivating scrutiny away from the bottom line and toward the social welfare of low value products is a very difficult task. A solution will likely require a mix of incentive programs applied to each country's unique set of sociopolitical protocols and perpetually modified to meet the changing dynamics of society and technology.
Modern Labor Economics: Theory and Public Policy. New York: HarperCollins College Publishers, 1994 (5th Edition).
Public Finance. Chicago: Irwin Publishers, 1995 (4th Edition).