What To Do When Problems Are More Profitable Than Solutions

In 2021 drug giant Pfizer made around $37 billion from the Covid vaccine. While some accused the company of profiteering, others were happy to have a vaccine that returned society to some kind of normality.

During the pandemic, there was clear alignment between the company and society, but that isn’t always the case. Indeed, research from the University of Southampton highlights that problems are often more profitable than solutions.

Wider interests

This notion that companies aren’t always inclined to pursue endeavors that are in the wider interests of society is something known as the “paradox of incentives”. This suggests that sometimes companies are more likely to align themselves behind problems than they are to find solutions to them.

Indeed, pretty much every problem facing the world is likely to have companies who happen to benefit from the problem’s existence. A prime example is the Russian invasion of Ukraine, which has imposed huge economic consequences on much of the world, but has yielded rich rewards for the arms industry.

In the context of Covid, the research found out just how negative this approach can be to society, but also how things could be improved in the coming years.

Aligning incentives

For instance, it tends to help when the rewards given to CEOs and other executives are limited, especially when those rewards are linked to the profits of their firm. The researchers suggest that such performance-related incentives can encourage executives to put profits above the public interest.

They also argue that greater transparency around government research subsidies would be beneficial, especially when those lead to new vaccines and other medicines. This would help to ensure that taxpayer-funded knowledge would be made more accessible.

Indeed, if pharma companies were more transparent and open in this way, it would also support companies in developing countries to manufacture vaccines at a much lower rate and thus ensure that the poorest segments of society get the same protection as the wealthiest.

Ultimately, however, the researchers believe that for the paradox of incentives to be overcome it is likely to require a rethink of capitalism itself. As that is unlikely to happen any time soon, they suggest that awareness of the paradox of incentives and the impact it has on our lives is a good first step.

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