Economists like to talk about how businesses make money by “adding value” to a chain of production. They rarely talk about how businesses can behave like parasites by siphoning away the “free” wealth of the commons. A case in point: Prolacta Bioscience of Monrovia, California, which buys breast milk from hospitals for $2 an ounce, which in turn receives it as donations from nursing mothers. Prolacta does some quality-control lab work and minor modifications to the milk, then re-sells it to hospitals for $26 to $43 an ounce. Quite an impressive markup!
As reported by Maura Lerner of the Minneapolis Star-Tribune, the University of Minnesota Medical Center decided to bypass nonprofit milk banks and instead sell donated breast milk to Prolacta Bioscience, a for-profit biotech company. Lerner writes:
For years, some nursing mothers have donated excess milk to nonprofit milk banks. Those centers typically supply it to hospitals for about $3.50 or $4 an ounce.
But the university’s hospital decided to open the state’s first milk bank in collaboration with a for-profit company. Prolacta re-engineers breast milk to ensure that every ounce has a precise number of calories and nutrients.
Skeptics wonder whether the high-tech treatment, and the high prices, are necessary. “Nonprofit banks have been providing milk for many, many years … [and] the babies have thrived on it,” said Mary Rose Tully, past president of the Human Milk Banking Association of North America, a network of nonprofits. “When you introduce a profit motive, you’re introducing a whole different ballgame,” Tully said.
Buy low, sell high. They say that’s how you succeed in business. But if you’re looking for cost-efficiency and value-added service, sharing pools are the real prizewinners. A nonprofit milk bank charges one-tenth as much as Prolacta and an informal sharing pool can provide milk for “free.” Even assuming any differences in “quality” between natural and “treated” milk, the value of the milk being generated by commons is at least $20 to $30 an ounce – but the market is capturing, and monetizing, all of that value.
But the whole point here is that price is not equivalent to value. Volunteers want to help preemie babies by donating breast milk. Period. They surely don’t appreciate a company profiteering from their goodwill – while adding economic hardships to the mothers who need the milk. In this case, the donating mothers were not told that their milk was being sold at a huge markup. One can imagine that blood donors would feel the same resentment if their blood was being used as the “free” feedstock for a profit-making blood supplier.
This is an issue that eludes so many economists: many commons rely on a hidden social currency that has no cash equivalents. Introduce money and that currency will disappear. Honor that currency (as volunteer blood banks do), and it will grow. Markets are not the only way to generate value. A properly constituted commons can often out-perform the market, economically and in other ways.