Insurance, Negative Externalities and Psychoactives
Written by enadmin7 on June 22, 2013
This morning, Sydney Morning Herald Health Editor Amy Corderoy’s article ‘Nation’s $7b drug splurge‘ was published.
Black markets are notoriously difficult to estimate economically. Participants in the market have an incentive to not tell the truth regarding their consumption, because to tell the truth may mean that one is considered a criminal. The average consumer of an illicit drug in Australia is not problematic, is well educated and works. They (we) are exactly like you… normal people. With one difference. A taste for alternative psychoactives.
Prohibition of this market is intended to drive down demand by hurting supply chains. This is why we hear constant reports from Australian police agencies regarding illicit drug seizures. The illusion for those who do not participate in the market is that somehow a reduction on supply means that people will just think, “Oh well, can’t have what I want, guess I’ll give up.” The other part of that illusion is that a supply chain disruption actually disrupts supply.
$1.1 billion per year was spent in 2010-2011 on drug law enforcement. Our National Drug Strategy aims to, “achieve a balance between harm-reduction, demand-reduction and supply reduction measures to reduce the harmful effects of drugs in Australia.” Core to these aims is often an assumption – that reduction of consumption is desirable always.
This is an unclear assumption. We know and accept that there are benefits to some responsible alcohol consumption – social benefits and apparent health benefits. Of course we want to aim to reduce the harms associated with alcohol and improve our overall relationship with this substance but we accept that there is some acceptable level of consumption. Perhaps we sometimes forget that it is not up to us to decide what an acceptable level of consumption for another is… and then we extrapolate our own personal feelings toward what is a ‘good’ level of consumption and apply it to others. This is the kind of social cognitive error we make often: “You should see and understand the world as I do.”
Negative Externalities:
There’s some jargon for you! Basically a negative externality is something that occurs when some economic transaction affects a non participating outside party. Industrial air pollution is the easiest example of this. Air is a common resource, something which we all share. Some industries create pollution which may negatively affect people’s health. Because the industry does not have to pay for the health costs incurred by the individual, this is considered a negative externality. There are positive externalities too, which work in the opposite direction.
The market for psychoactives has plenty of negative externalities. Alcohol and tobacco companies do not pay the full cost of the negative health effects people incur due to their consumption of these products. These industries do not seem to consider it their ethical responsibility to take care of these negative externalities, distancing themselves from consumers who do develop problems. This is usually the sort of thing we then expect the government to look after, through taxation of the product and funding of health initiatives. Of course there are positive externalities of these products too. The subjective positives are often questionable. The positives of tobacco seem to lie only in the perception of the consumer. This becomes a sort of chicken and egg problem – Does the consumer enjoy the product because their body has a physiological addiction? Or do they enjoy it because they are actively making a free choice every time they consume?
The concept of addiction seems to have these chicken-egg type problems. Although the potential for addiction exists within us all and most of us have probably overdone something before, addiction to illicit substances is often seen in a very different light. The academic discussion regarding addiction seems largely separate from the average person’s perception of addiction.
The anti-drug organisation Drug Free Australia have a piece published on their website by Adelaide Centre for Bioethics and Culture Director Gregory Pike entitled, “The Debate on Drug Law Reform.” Under the section ‘Understanding Addiction’, Dr. Pike writes, “The complex nature of addiction makes it difficult to categorise individuals as simply being addicted or not. To a certain extent, addiction occurs on a continuum and harm can increase along a sliding scale.”
Yet in the language used by some of Australia’s staunchest anti-drug proponents, this nuance is lost. People’s preferences are considered ill-informed if they include a preference for a currently illicit substance, as these substances are considered by Drug Free Australia as only and always harmful.
“Drug Free Australia will continue to strive for pro health alternatives to illicit drugs and to ensure that harm prevention is not only a household catch phrase, but a reality, put into good practice, throughout our country.”
The nuanced nature of addiction shows the spectra of negative and positive externalities from illicit drug consumption. A well informed consumer can form preferences less likely to end in a negative and this should be and often is the focus of harm reduction. Drinking a few beers or glasses of wine with friends on the weekend is unlikely to result in harm, because the consumption is done in a responsible and informed manner. Sharing a pot of mushroom tea with friends on the weekend is even less likely to result in harm – especially if consumers are informed.
Insurance:
Good quality information can certainly help to reduce the potential for harm, but it can not reduce the potential to zero. Our response to the potentials for harms from a product is to buy insurance. This means the producer of a product has very little responsibility over the potentials for harm, unless the harm is quite obvious as is the case with clearly faulty or needlessly dangerous products.
All other harms associated with a product are considered our responsibility and hence the need for insurance. Yet products such as the legal psychoactives have a direct physiological relationship with us as well as a mental one. Firms are aware of the self-selling properties of some products, such and alcohol and tobacco but also foods with high sugar and fat content and caffeinated beverages of all sorts. Products or services with this self-selling property do so largely through desirable interactions with our nervous system. Firms are able to mobilise resources in order to make something more self-selling, whether through manufactured desire (brand awareness, good marketing etc.) or chemical manipulation (add something to a product to make it more ‘moreish’). They have an incentive to do this as they are pursuing profit. Generally firms have had no obligation to inform the consumer of the harm potential associated with their product. As governments end up paying for most of these harms, they have an incentive to reduce the harms.
This is a disconnect. Governments and industry fight over who pays for the responsibility while both pursue opposite goals. Much the same thing occurs within a black market except black market ‘firms'(?) have even less incentive toward responsible practice and even more incentive toward profit pursuit.
Let me propose an idea. These industries and products are not going away, no matter how much some sectors of the community would like to think they will. Can consumers of psychoactives be made to feel more responsible for other consumers by including the cost of treatment and harm reduction in to the price of the good? Just like with insurance, except the product which can cause harm also funds the treatment and harm reduction initiatives. The negative externality associated with the product is brought into the price of the product and thus is no longer an externality. Of course, this would need to be carefully set up. The organisations providing care would need to be independent from the organisation that sells the product, but funded by it. The costs would need to be measured regularly to insure they are covered in the price. Good information about the product would need to be considered a higher priority than schmicko advertising campaigns with barely dressed ladies and motorbike riding hunks trying to tell us to drink vodka or whatever. But, wouldn’t this mean you could possibly have a self regulating industry that reduces its harms and pays for those it causes? Possibly also fostering a new relationship with psychoactives that aims to increase personal responsibility and a communal responsibility for those who fall.
All we’d be left with then is positive externalities. And isn’t it always better to have some positive left-overs than nasty ones?
Reader's opinions
Comments are closed.
Continue reading
Psychedelic Frontier On June 24, 2013 at 04:44
Great article Nick! I love this part: “We extrapolate our own personal feelings toward what is a ‘good’ level of consumption and apply it to others. This is the kind of social cognitive error we make often: ‘You should see and understand the world as I do.'”
It’s so true, and people don’t even realize they are making such broad and unwarranted generalizations. Oppression by accident! It just goes without saying, apparently, that drugs are bad. Well… some drugs.
The language is obviously skewed: Drug Free Australia? That would be an Australia without medicines of any kind. No aspirin, no anesthetics, no antibiotics. Not to mention no caffeine, no alcohol, and no tobacco. Is that really what the anti-drug champions desire? If not, then why do they choose such ambiguous language to rally behind? Probably because honest language would reveal the ignorance in their arbitrary, groundless classification scheme.
And I like your idea of an industry helping to fund its own solutions and minimize its negative effects. Though I have yet to think through all the implications.