Industry Policy to Set the Market Free: Drug Pricing and the Factor (f) Program

Abstract

The Factor (f) program was introduced in 1987 by Australia's then Labor Government as a means of encouraging investments by globally oriented pharmaceutical companies. Until 1999, Factor (f) payments to a select number of firms will amount in total to around A$1 billion, making this scheme the largest ever administered by the Department of Industry. This article demonstrates that the early objective of strategic bargaining with business could not be sustained, and that Factor (f) has had the dynamic effect of weakening the capacity of state agencies to influence sectoral governance arrangements. The scheme has contributed to the process of commodification which has been the predominant trend within the Australian pharmaceutical sector in the past decade. Indeed, the experience of Factor (f) suggests that strategic industry policy in certain circumstances is compatible with neo-liberalism.