Friday, January 13, 2006

McSurgery

International economists like to distinguish between “tradeable” and “nontradeable” goods. Tradeable goods are those that can be obtained in other countries, and whose flows are subject to the various theories of international trade. Nontradeables must be produced domestically for technological reasons. The classic example is haircuts: no matter how much transportation costs fall, how globalized we become, haircuts are always bought from a domestic producer.

But one clear effect of globalization – the reaction of producers to falling transport costs – is to convert nontradeables into tradeables. And one of the most interesting manifestations of this phenomenon is the globalization of medicine. Medicine was once a quintessentially nontradeable good. You drove to the family doctor, and then he might have sent some X-rays to be developed on the other side of town. If things were bad enough, your doctor admitted you to a hospital nearby.

But no more. Increasingly MRIs are sent over the Internet to be read overnight in India, so that they are ready to be interpreted by the physician in the U.S. in the morning. Surgery clinics in places like Thailand now cater to Westerners who (if they are Americans) don’t want to pay very high out-of-pocket fees or (if they are Europeans or Canadians) don’t want to be on the waiting list for months or years. The medical care is state-of-the-art, English is the language of interaction, the Westerners can afford to pay a lot, and everyone is satisfied.

This raises the possibility that soon medical care will be a brand-name enterprise, with global medical brands every bit as recognizable as those for athletic shoes, accounting or fast food. One could easily imagine the Mayo Clinic or the M.D. Anderson Cancer Center having a location (or a franchise) in Paris, Shanghai or Dubai. Indeed, another of America’s well-known medical brands, the Cleveland Clinic, has already taken baby steps in this direction, moving out of Cleveland to establish two clinics in Florida.

Medicine is tailor-made for the brand name. The economic theory of brands says that they help consumers save search costs. If you are in a city you don’t know and you have the choice of Applebee’s or Joe’s, with Applebee’s you know what you are going to get. If you have a high tolerance for culinary risk and/or a lot of time to look into it, you may prefer to take a flyer on Joe’s. But if you want a known quantity you stick with the brand name. This is why, as long as their use is adequately policed by the owner, trademarks (unlike patents and copyrights) never expire. With the latter two there is a tradeoff between the need to encourage innovation by outlawing cheap copying of a breakthrough that was expensive to develop and the undesirability of legalized monopoly. But trademarks are capable of performing their function of conveying useful information about product traits forever. Brands are most likely when there is uncertainty about the quality of the product, and obviously medical care, which most patients know little about, is a good that has this feature in spades. And it is still true that the reputation of some of the American clinical medical brands is unrivaled.

I predict that these major brands will ultimately be established worldwide, both to serve foreign markets and medical tourists coming from the home countries. That many Indians who have made it big in high technology in the U.S. have gone home is well-known. The huge representation of South Asians in American medicine may yet spur a return of physicians home to establish American medical franchises there. The tricks will be, first, to maintain brand quality and, second, to try to keep rich-country residents paying rich-country prices, because local clinics in Thailand, India, Mexico and so on will compete on the basis of price. The interesting question will be whether these developing-country clinics can establish their own brand identities, in the way some Chinese car companies (e.g., the Chinese car maker Chery) are trying to do in Western markets. But I would expect to see a Mayo Clinic Bangalore ere long, and some compelling Indian brand penetrating the U.S. clinical market soon after.

3 Comments:

Anonymous judson said...

Interesting, just so you know M. D. Anderson already has branches in Orlando, and Spain. Branching out already...

1:02 AM  
Anonymous Joe Chrysler said...

Hi, my name is Joe Chrysler and I'm inolved in a High School debate league. I would like to quote you in my debates but I'm having a little bit of trouble finding out your credentials. I noticed that you were the Assistance Professor of Economics at Wright Stat University. I read your article "Measuring Bad Governance" on the Cato Institute website but it didn't tell me much about your level of expertise in global issues except the note about your occupation at Wright State. If possible, could you please post some more details in your profile? The topic for the debates this year is U.S. Official Development Assistance to Venezuela, Argentina, and Colombia. I find your research very helpful.

11:20 AM  
Blogger Evan said...

Hi Joe,

I am the author of this blog. As you note, I am an economics professor who has published some empirical work on global economic growth. ODA is a mistake because most of it is stolen.

Long ago I was a high-school debater myself, and so would be happy to help you. E-mail me if you like, at unalienable@yahoo.com.

1:05 PM  

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