The Ebola crisis reveals how useless the FDA is

If you're worried about the Ebola crisis, don't worry. Government bureaucrats are on the case!

Not exactly reassuring given that the bureaucratic incompetence of the World Health Organization is what allowed the breakout to get so big to begin with. And the U.S. government's own efforts so far are far from reassuring.

But don't worry: The FDA is on it. The organization recently fast-tracked two types of Ebola tests for use. And other experimental treatments have been used with governmental blessing, with encouraging results. This begs an admittedly simplistic pair of questions: If these treatments are safe, why weren't they already approved? If they are not safe, why approve them now?

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Many people have criticized the FDA over the years for its uselessness. Tort laws and regulations and fear of scandal are by themselves very useful at giving drug and medical companies a very strong incentive to market only safe drugs and remedies. (Not to mention that general principle of a competitive marketplace, which is that in general and overall, you will do better with a good product than with a shoddy product.)

There is simply no reason for the FDA to exist, other than some obscurantist fear of drugs and supposedly evil drug companies.

But the FDA is not just useless. It is actively harmful. The biotech industry has a phrase for this government obstruction: Eroom's Law. "Eroom" is "Moore" backwards. The reference is to the well-known Moore's Law, which dictates that computer chips get better and cheaper over time at an astronomic rate.

Just like Moore's Law presides over our astonishingly vital information technology, its opposite, Eroom's Law, lords over the biotech industry and holds it back. And Eroom's Law is largely based on organizations like the FDA, which demand ever-more rigorous standards to bring drugs to market. The FDA obstructs not only private industry profit, but vital progress that could prevent public health disasters.

Over and over again, across industries, we see great innovations spring forth not from large institutions with multibillion-dollar projects, but from small teams of mavericks. This is true in music, science, and technology. Because the barriers to entry in information technology are so low, small teams of people can bring innovation to the market and become large companies. This in turn attracts VC funding to the field, as capital chases innovation, and creative destruction, as old incumbents are destroyed.

The opposite happens in the pharma sector. There is huge concentration among a handful of global giants, who alone have the resources to pursue multibillion-dollar drugs that will face a years-long, massively expensive regulatory obstacle course with no guaranteed victory at the end. Instead of becoming giants in their own rights, like Google and Facebook in IT, biotech startups can only hope to be bought on the cheap by existing giants. In turn, this means that less capital and talent enters in the field, as the potential for industry-changing success is basically zero.

The original "Google" of biotech, Genentech, founded in 1976, was acquired by the Swiss giant Roche in 2009, signaling the end of an era. There is no longer a "Google" or "Facebook" of biotech.

The worst thing about this whole affair is that it creates a self-fulfilling prophecy. Since only large companies can embark on the multibillion-dollar process of getting a new drug to market, people say, "It costs billions of dollars to create a new drug anyway, so it wouldn't make a difference if we let in new entrants." The history of other sectors strongly suggests that this is exactly backwards. Remove the red tape, and the rules change.

Ebola is a very visible killer, but there is a lot of reason to think that the FDA is a much deadlier silent killer. It's time to stop the epidemic.