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The extreme short-termism of capitalism that stifles innovation is missing from the analysis. Right now we are seeing an overinvestment in Sillicon Valley and

The extreme short-termism of capitalism that stifles innovation is missing from the analysis. Right now we are seeing an overinvestment in Sillicon Valley and an underinvestment in Biotech. The money is flowing to ad-selling services like Google and Facebook, and to intermediaries like Uber and friends, but biotech startups are funded below replacement rates. The development pipeline is drying up, it's not that the IP wasn't there, it's just not getting funded. Locust investors like Valeant don't help either. (Their business model is to buy up companies and then immediately divest of R&D.) Any money in biotech goes to cancer instead of antibacterials, because the price points of cancer medicines are highest. The future was in the news last week: superbugs spread through colonoscopy procedures in LA. We'll see more of that in the coming years, but there is no alternative funding model within sight.

yummyfajitas 12y ago
Investment in biotech is low because the returns are low, not because of a high discount rate. It's getting harder to discover new drugs and get them through the FDA gauntlet. Most of the low hanging fruit has been found, and additional fruit won't necessarily pass comparative effectiveness without huge (and expensive) trials. After it makes it to market you are subject to political risks - price controls, lawsuits over side effects too small to find in clinical trials, etc. It's hardly clear that the valley is even a good short term investment. Most tech companies focus heavily on growth, not profits. Why do you believe that biotech has higher long term returns than the valley?
- HarryHirsch 12y ago
  Why do you believe that biotech has higher long term returns than the valley? That's precisely the problem. Within my lifetime the current antibiotics will become useless, we will be where we were before 1937 (discovery of sulfanilamide), physicians will be as good as they always were at prognosis, but helpless in the face of bacterial infections. The apocalypse is coming, and capitalism is no tool against it.
  - CamperBob2 12y ago
    Within my lifetime the current antibiotics will become useless Also, bananas will be extinct by 2008, and there won't be enough oil or food.
  - yummyfajitas 12y ago
    The issue of fewer drug targets than in the past is not something that any economic system can solve. That's just chemistry. As for the rest of it, it's true that capitalism can't fix the FDA or foreign price controls. Lets hope Charlie Stross is right and the capitalists can take over the government and fix this.
    - angersock 12y ago
      So, that's being too nice--recall that market forces are what have led to the overprescription of these medications and also the creation of the environments (hospitals) in which they flourish and mutate.
      - yummyfajitas 12y ago
        Yes, we would likely be better off with a Pigouvian tax on antibiotics - that's the economist solution. Unfortunately, neither the capitalistic system nor the democratic process has any real way to get us there.
        HarryHirsch 12y ago
        Pigouvian tax on antibiotics - that's the economist solution The Swedes and British manage extremely well with national guidelines that physicians actually adhere too. In some disciplines there is no alternatives to the technocrats.
    - craigyk 12y ago
      Heh, the takeaway I've gotten from some of Stross's novels is that AI makes "capitalism" indistinguishable, at least from the point of human beings, from a centrally-planned managed economy. So there could be a future in which AI's become sufficiently advanced at serving human needs that we all live as komrades in a utopian communist society.
- hga 12y ago
  "additional fruit won't necessarily pass comparative effectiveness without huge (and expensive) trials" Ah, that may explain the statistic I recently saw that Phase III trials are taking up 90% of the budget necessary to bring a new drug to market.
  - protomyth 12y ago
    Think of a study that needs 3 lab test per day for each of the participants. These tests aren't cheap and a multi-year study with a couple of hundred participants with shipping costs (overnight) for the samples. It does ring up quite a bill.
    - hga 12y ago
      Plus, oh, finding and keeping enough people in the study willing to get 1-3 blood draws a day??? Yow. I thought that by Phase III safety was pretty well established and you'd be looking for efficacy endpoints, surrogate or real. Emphasis on endpoint ... but I guess not. But ... if vague memory serves, from the overview of some Phase III trials, maybe not the first one, I remember more like hundreds of participants. Maybe not quite a thousand, but a lot.
      - protomyth 12y ago
        They don't have to be blood samples. I remember one which was blood, urine, and stool each day. Also, each sample might have multiple tests performed. Its a pretty interesting logistical problem.
- dragonwriter 12y ago
  > Investment in biotech is low because the returns are low As I understand, investment in biotech is low because the time to realize returns is long, not because the returns are low (even after adjusting for time). The time it takes to bring a product from concept to market in biotech is virtually an eternity by Silicon Valley standards.
  - protomyth 12y ago
    Also, the long term cash outlay for a drug that might have side effects discovered long after the patents run out. It is a very chancy business with a lot of failures per success. There are much better things to investment in.
SideburnsOfDoom 12y ago
> The extreme short-termism of capitalism that stifles innovation is missing from the analysis What would that add? Civilisations don't have to innovate. In fact, the people on top may be perfectly happy with stagnation and the status quo.
itg 12y ago
"underinvestment in Biotech" have you looked at biotech IPO's as of late. I would say the complete opposite.
Kiro 12y ago
Stifles innovation compared to what? I don't think there's any system that stimulates innovation more than capitalism.
- TheOtherHobbes 12y ago
  Of course there isn't. Capitalism guarantees no such system is allowed to exist. But capitalism is based on jam today and famine tomorrow. This works just fine for people - as long as they're not thinking straight. Intelligent resource allocation understands that famine ten years from now is a bad thing and should be avoided, even if it means lower short-term profits. Any system that thinks ahead like that would be much more innovative than capitalism, because it would be able to make long term plans and invest in long term projects with pay-off times measured in decades or even centuries - something capitalism is manifestly unable to do. It would also be better at avoiding the usual capitalist kooky idiocies like poisoned water tables, avoidable drought, accidental anti-terraforming, and the rest.
- xioxox 12y ago
  Public funding of science and universities stimulates more innovation. The stuff you see from companies took years of research in universities before they pushed it the last few yards.
murbard2 12y ago
The market's horizon depends on the world's population time preference and risk aversion as a whole, not on the whims of venture capitalist. Why? Because arbitrage. If the world as a whole has a low rate of time preference and risk aversion, investments will flow towards high potential long term projects rather than short term ones. But what if you're a greedy, myopic VC with high time preference who wants to make money now? That doesn't affect too much how you will value deals. What you care about is how much money you will make at the exit, which will depend on the equity valuation at that point. And that valuation, depends on the global investment's community risk aversion and risk preference. Facebook trades at a P/E ratio of 71, meaning the equity is worth 71 years of current earnings. Netflix has a P/E of 116. Think that's shorts-sighted? Ultimately, investments come from two sources, money saved and invested by individuals, and banks. If it were only the first, you could say that the type of investments you see reflect the society you have. As a whole, society picks taxi cabs now rather than maybe some pharmaceutical product later. It's not capitalism, it's human nature. Banks complicate the picture, since they turn their deposits into loans of various maturity. The rates on these loans are ultimately tied to central bank policies. However, these policies generally attempt to keep rates low, so as to stimulate "productive" investments. In addition, various bail-out guarantees tend to artificially increase the amount of risk taking. So there you have it. Capitalism by itself merely represents the time preference and risk preference of the population as a whole, and central banks tend to make it more risk taking and longer terms than investors would actually prefer.
- username223 12y ago
  > And that valuation, depends on the global investment's community risk aversion and risk preference. > > Facebook trades at a P/E ratio of 71, meaning the equity is worth 71 years of current earnings. Netflix has a P/E of 116. Think that's shorts-sighted? Most humans aren't trading on earnings, but on market psychology, believing they can sell to a greater fool in the future. And most trades aren't even made by humans, but by HFT algorithms trying to win massively-leveraged short-term bets for a fraction of a percent. The Facebook and Netflix P/E ratios have very little to do with long-term earnings.
  - 12y ago
nosuchthing 12y ago
It seems detrimental that large scale organizations are short sighted to 4 month (quarterly), annual, and 2-4 year (election) cycles. Asphalt is cheap yet requires high maintenance and degrades quickly - rather than a larger initial investment in concrete which lasts 4 times as long.

yummyfajitas 12y ago

Investment in biotech is low because the returns are low, not because of a high discount rate. It's getting harder to discover new drugs and get them through the FDA gauntlet. Most of the low hanging fruit has been found, and additional fruit won't necessarily pass comparative effectiveness without huge (and expensive) trials. After it makes it to market you are subject to political risks - price controls, lawsuits over side effects too small to find in clinical trials, etc. It's hardly clear that the valley is even a good short term investment. Most tech companies focus heavily on growth, not profits. Why do you believe that biotech has higher long term returns than the valley?

HarryHirsch 12y ago
Why do you believe that biotech has higher long term returns than the valley? That's precisely the problem. Within my lifetime the current antibiotics will become useless, we will be where we were before 1937 (discovery of sulfanilamide), physicians will be as good as they always were at prognosis, but helpless in the face of bacterial infections. The apocalypse is coming, and capitalism is no tool against it.
- CamperBob2 12y ago
  Within my lifetime the current antibiotics will become useless Also, bananas will be extinct by 2008, and there won't be enough oil or food.
- yummyfajitas 12y ago
  The issue of fewer drug targets than in the past is not something that any economic system can solve. That's just chemistry. As for the rest of it, it's true that capitalism can't fix the FDA or foreign price controls. Lets hope Charlie Stross is right and the capitalists can take over the government and fix this.
  - angersock 12y ago
    So, that's being too nice--recall that market forces are what have led to the overprescription of these medications and also the creation of the environments (hospitals) in which they flourish and mutate.
    - yummyfajitas 12y ago
      Yes, we would likely be better off with a Pigouvian tax on antibiotics - that's the economist solution. Unfortunately, neither the capitalistic system nor the democratic process has any real way to get us there.
      - HarryHirsch 12y ago
        Pigouvian tax on antibiotics - that's the economist solution The Swedes and British manage extremely well with national guidelines that physicians actually adhere too. In some disciplines there is no alternatives to the technocrats.
  - craigyk 12y ago
    Heh, the takeaway I've gotten from some of Stross's novels is that AI makes "capitalism" indistinguishable, at least from the point of human beings, from a centrally-planned managed economy. So there could be a future in which AI's become sufficiently advanced at serving human needs that we all live as komrades in a utopian communist society.
hga 12y ago
"additional fruit won't necessarily pass comparative effectiveness without huge (and expensive) trials" Ah, that may explain the statistic I recently saw that Phase III trials are taking up 90% of the budget necessary to bring a new drug to market.
- protomyth 12y ago
  Think of a study that needs 3 lab test per day for each of the participants. These tests aren't cheap and a multi-year study with a couple of hundred participants with shipping costs (overnight) for the samples. It does ring up quite a bill.
  - hga 12y ago
    Plus, oh, finding and keeping enough people in the study willing to get 1-3 blood draws a day??? Yow. I thought that by Phase III safety was pretty well established and you'd be looking for efficacy endpoints, surrogate or real. Emphasis on endpoint ... but I guess not. But ... if vague memory serves, from the overview of some Phase III trials, maybe not the first one, I remember more like hundreds of participants. Maybe not quite a thousand, but a lot.
    - protomyth 12y ago
      They don't have to be blood samples. I remember one which was blood, urine, and stool each day. Also, each sample might have multiple tests performed. Its a pretty interesting logistical problem.
dragonwriter 12y ago
> Investment in biotech is low because the returns are low As I understand, investment in biotech is low because the time to realize returns is long, not because the returns are low (even after adjusting for time). The time it takes to bring a product from concept to market in biotech is virtually an eternity by Silicon Valley standards.
- protomyth 12y ago
  Also, the long term cash outlay for a drug that might have side effects discovered long after the patents run out. It is a very chancy business with a lot of failures per success. There are much better things to investment in.

SideburnsOfDoom 12y ago

> The extreme short-termism of capitalism that stifles innovation is missing from the analysis What would that add? Civilisations don't have to innovate. In fact, the people on top may be perfectly happy with stagnation and the status quo.

itg 12y ago

"underinvestment in Biotech" have you looked at biotech IPO's as of late. I would say the complete opposite.

Kiro 12y ago

Stifles innovation compared to what? I don't think there's any system that stimulates innovation more than capitalism.

TheOtherHobbes 12y ago
Of course there isn't. Capitalism guarantees no such system is allowed to exist. But capitalism is based on jam today and famine tomorrow. This works just fine for people - as long as they're not thinking straight. Intelligent resource allocation understands that famine ten years from now is a bad thing and should be avoided, even if it means lower short-term profits. Any system that thinks ahead like that would be much more innovative than capitalism, because it would be able to make long term plans and invest in long term projects with pay-off times measured in decades or even centuries - something capitalism is manifestly unable to do. It would also be better at avoiding the usual capitalist kooky idiocies like poisoned water tables, avoidable drought, accidental anti-terraforming, and the rest.
xioxox 12y ago
Public funding of science and universities stimulates more innovation. The stuff you see from companies took years of research in universities before they pushed it the last few yards.

murbard2 12y ago

The market's horizon depends on the world's population time preference and risk aversion as a whole, not on the whims of venture capitalist. Why? Because arbitrage. If the world as a whole has a low rate of time preference and risk aversion, investments will flow towards high potential long term projects rather than short term ones. But what if you're a greedy, myopic VC with high time preference who wants to make money now? That doesn't affect too much how you will value deals. What you care about is how much money you will make at the exit, which will depend on the equity valuation at that point. And that valuation, depends on the global investment's community risk aversion and risk preference. Facebook trades at a P/E ratio of 71, meaning the equity is worth 71 years of current earnings. Netflix has a P/E of 116. Think that's shorts-sighted? Ultimately, investments come from two sources, money saved and invested by individuals, and banks. If it were only the first, you could say that the type of investments you see reflect the society you have. As a whole, society picks taxi cabs now rather than maybe some pharmaceutical product later. It's not capitalism, it's human nature. Banks complicate the picture, since they turn their deposits into loans of various maturity. The rates on these loans are ultimately tied to central bank policies. However, these policies generally attempt to keep rates low, so as to stimulate "productive" investments. In addition, various bail-out guarantees tend to artificially increase the amount of risk taking. So there you have it. Capitalism by itself merely represents the time preference and risk preference of the population as a whole, and central banks tend to make it more risk taking and longer terms than investors would actually prefer.

username223 12y ago
> And that valuation, depends on the global investment's community risk aversion and risk preference. > > Facebook trades at a P/E ratio of 71, meaning the equity is worth 71 years of current earnings. Netflix has a P/E of 116. Think that's shorts-sighted? Most humans aren't trading on earnings, but on market psychology, believing they can sell to a greater fool in the future. And most trades aren't even made by humans, but by HFT algorithms trying to win massively-leveraged short-term bets for a fraction of a percent. The Facebook and Netflix P/E ratios have very little to do with long-term earnings.
- 12y ago

nosuchthing 12y ago

It seems detrimental that large scale organizations are short sighted to 4 month (quarterly), annual, and 2-4 year (election) cycles. Asphalt is cheap yet requires high maintenance and degrades quickly - rather than a larger initial investment in concrete which lasts 4 times as long.