An Alternative To The FDA

Abigail Hall Blanco Research fellow, Independent Institute
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Everyone wants safe products, and since 1906 the American people have relied on the Food and Drug Administration (FDA) to provide such assurance. But the FDA may not be all that we think it is. Maybe we can do better.

Every year the agency implements new regulations on products we consume every day. While people most likely associate it with the regulation of food and prescription and nonprescription drugs, the agency has its hand in a host of other areas. Medical devices from tongue depressors to surgical implants fall under its authority. Products like microwave ovens, lamps, makeup, nail polish, perfume, livestock feed, and even pet food are regulated by the agency. The FDA describes its own regulatory authority as “very broad.”

But many analysts point out that the organization creates serious problems. For example, the approval process for new drugs is notoriously slow, gives big drug companies an edge, reduces innovation, and increases drug prices. Many life-saving drugs never make it to market.

The FDA’s track record for safety is likewise questionable. The agency has recalled dozens of drugs after approving them, some of which had been on the market for over 50 years.

There’s an alternative. Instead of relying on a clunky bureaucracy, let’s leave the product safety to competing private firms. The marketplace should determine what products are best for consumers.

Many people may find this idea unsettling. Consider, however, that independent rating agencies are used today for a variety of products and services, from food and medication to charities. Take tuna, for example. In response to consumer concern about dolphins and other sea life, tuna producers voluntarily sought out independent firms to certify that their products were doing no harm. Firms that passed the test were allowed to place the rating agency’s logo on their products. Concerned consumers could then buy the products found safe for dolphins. This prompted other manufacturers to follow suit.

Competitive private rating agencies would not only be less expensive; they also would outperform their slow government counterpart, which has no competition. The agency itself faces no penalties for putting its seal of approval on products that turn out to be dangerous. Individuals in the agency, however, may lose their jobs if they approve unsafe products. This means that FDA personnel face an incentive to be too cautious. Many safe products may be delayed or never make it to market at all. The FDA faces no strong incentives to improve it methods. Since it is funded by taxpayer dollars, the FDA won’t lose revenue or customers for doing a poor job. It may even gain revenue if Congress tries to address the problems by increasing appropriations!

In contrast, independent rating agencies are not monopolies; they face competitive pressures from rival agencies. Since their reputations are based on their credibility, they face strong incentives to be rigorous and reasonably cautious in their product testing. If a firm puts its seal on a product that turns out to be harmful to consumers, its reputation will suffer. Consumers will no longer buy their products, and manufacturers are more likely to seek out other firms. Consumers also could sue a company if its certified products fail to live up to expectations.

These firms don’t just want to be careful; they want to be fast. If a rating agency is slow in evaluating a product or delays putting a safe product on the market, it will lose business. Unlike the FDA, private rating agencies face incentives to keep bad products off the market and to get good products on the market. Put simply, they profit by doing so.

Under the current system, individuals must rely on a government bureaucracy to make decisions about what they put in their bodies. A dying cancer patient, for example, may be prevented from taking an experimental drug because of FDA regulations. An individual who prefers some types of fish, meats, fruit, and cheeses cannot buy them because the government prohibits it. But in a system of independent competitive rating agencies, individuals armed with information would be free to choose whether or not to consume a product. It’s time to reconsider the FDA. It’s time to let the market work.

Abigail R. Hall is an Independent Institute Research Fellow (Independent.org) and an Assistant Professor of Economics at the University of Tampa.