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Rentier capitalism is profoundly risk-averse

Summary:
The following article is based on my speech notes for a presentation to University College London’s Global Business School for Health on 22nd February 2022. The webinar was titled: Health Innovation through Capital and Private Equity Markets webinar. The question panellists were asked to address was this: “….whether capital and private equity markets are actually driving forward better and sustainable health innovation?” I argued that private capital and private equity markets – far from driving forward sustainable health innovation – are contributing to rising rates of mortality from preventable diseases worldwide. The most egregious case of this failure of private capital to support sustainable health innovation was made stark by the COVID19 pandemic. My case rests on the experience

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The following article is based on my speech notes for a presentation to University College London’s Global Business School for Health on 22nd February 2022. The webinar was titled: Health Innovation through Capital and Private Equity Markets webinar.

The question panellists were asked to address was this: “….whether capital and private equity markets are actually driving forward better and sustainable health innovation?”

I argued that private capital and private equity markets – far from driving forward sustainable health innovation – are contributing to rising rates of mortality from preventable diseases worldwide. The most egregious case of this failure of private capital to support sustainable health innovation was made stark by the COVID19 pandemic.

My case rests on the experience of COVID19 in Africa, and more specifically the experience of the innovative and publicly financed South African Centre for Epidemic Response and Innovation, to which I will refer below.

But first the wider context:  21st century capitalism bears little resemblance to the capitalism that fired the Industrial Revolution, or indeed to the more recent Thatcher/Reagan model of capitalism. Key sectors of today’s new hyper-capitalism are profoundly risk averse.

And, as Prof. Susan K. Sell argues: “economic power has shifted from the mainstays of the real economy (commodity producers and traders) to the controllers of global value chains who own intangibles such as intellectual property and financial instruments.” [i]

Intangibles, – especially IP – now have an outsized role in the global market economy – 

Collecting rent on existing and often publicly financed, intangible assets is far more profitable than investing in the making, manufacturing and trading of commodities and goods. 

The key difference between the value of the trade in commodities and manufactured goods – and the trade in Intellectual Property is this: IP prices are under-written by taxpayers.

Unlike commodities and manufactured goods, IP prices are not subject to market forces of ‘supply and demand’.  Instead prices of intellectual property are protected and enforced by the strong, and in the case of the US, the long arm of both national and international law.

A second feature of today’s capitalism is the prioritisation of rents, profits and capital gains over the expansion of investment, innovation and employment. The low levels of investment since the Great Financial Crisis of 2007-9 have in turn constrained innovation.

The third is the pursuit of competitiveness – not competition – in global markets. In other words, states tolerate oligopolies at home to ensure competitiveness abroad.  Think of Apple and Amazon, Pfizer and Moderna, Alibaba and Samsung Electronics…

The consequences of this modern form of rentier capitalism include an increase in economic concentration; the creation of oligopolies; obscene levels of inequality and a reduction in competition at national and global levels. 

The absence of competition, combined with the above mentioned underwhelming levels of private and public investment since 2007-9’ p coupled with private risk aversion, limits the possibility of experiment and innovation in healthcare. This is because collecting rents on existing and taxpayer-funded assets is the core business of every capitalist pharmaceutical company and its investors.  And that core business – to control and capitalize on intangible assets and thereby to maximise shareholder value and generate large rents –is achieved I argue, at the expense of the state (i.e. taxpayers) and of health innovation.

This level of global protection was negotiated after extensive lobbying during the Uruguay Round of the General Agreement on Tariffs and Trade in 1986-94. It was during that round that US trade policy was deliberately linked to intellectual property standards under the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS).  The leading lobbyists for that linkage were of course the bosses of Big Pharma.  

As John Braithwaite and Peter Drahos have argued in their book, Global Business Regulation

“The US strategy of linking trade policy to intellectual property can be credited to senior management at Pfizer, who in the early 1980s, mobilized corporations in the United States and made maximizing intellectual property privileges the number one priority of trade policy in the United States. [ii]

Thanks to this form of protectionism and its powerful enforcement mechanisms,  21st century capitalism bears a closer resemblance to the Soviet-led centrally planned economies of Eastern Europe. For, as Professor Kunibert Raffer has argued, it is the most basic precondition for the functioning of the free market mechanism that economic decisions must be accompanied by (co)responsibility: whoever takes economic decisions must also carry financial risks. [iii] If this link is severed – as it was in the Centrally Planned Economies of the former East – Soviet-style capitalism is the result.

Hiding behind the the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS)  system, global pharmaceutical corporations work hard to avoid risk while maximising capital gains and profits. They do so by being parasitic on the state – or more accurately – on taxpayers.

During the global pandemic four areas of risk were ‘de-risked’ [iv] for private investors in big pharma –

  • Pre-Clinical Investment and Scientific Risk
  • Human Testing Risks Related to Safety and Efficacy:
  • Manufacturing Investment and Risk
  • Market Risk  

In the US – in addition to decades of government funding for research prior to the pandemic, US taxpayers added significantly more support during the pandemic to further accelerate vaccine development and capacity. The Congressional Budget Office estimated that the Biomedical Research and Development Authority (BARDA) alone has spent $19.3 billion on COVID-19 vaccine development. In addition, Lisa Cornish projected $39.5 billion in US spending. [v]

We have to look to publicly-financed institutions, like the South African Centre for Epidemic Response and Innovation for the kind of risk-taking and innovation that supposedly drives ‘free market’ capitalism. .

First a declaration of interest: I am South-African born, and most of my family still live in South Africa. To date, SA has only been able to fully vaccinate 24% of its population. Malawi and Zambia have fully vaccinated a mere 3% of their people. However, thanks to previous epidemics notably HIV, the South African Centre for Epidemic Response and Innovation and its state-of-the-art Genomics Centre at the Faculty of Health and Medical Sciences at Stellenbosch University – is one of the most innovative in the world.

The centre is funded by the South African government, the university and by charitable foundations. Professor Tulio de Oliveira, CEO of the Centre, and his team have produced the best science on COVID19. They were the scientists who first alerted the World Health Organization and other authorities to the new Omicron variant.

Using over a hundred samples from over thirty clinics in Gauteng, Johannesburg – SA’s global transport hub – they started genotyping, and quickly analyzed the mutation of the virus. They linked all the data with the P.C.R. dropout, the increase of cases in South Africa and the positivity rate and began to see it might be a very suddenly emerging variant.

It took about thirty-six hours to launch their findings – from the time they discovered the variant and then confirmed its existence to key ministers and the President,  before going public.

Almost at once, global pharmaceutical companies began effortlessly to make billions of dollars in profits from the South African discovery of Omicron.

Moderna’s shares skyrocketed after the South African announcement and settled at $310.61/share on Wednesday 1 Decemebr, 2021, up nearly 14% from Wednesday 24 November – the day before the announcement. Pfizer’s shares rose by 7.41%.

 Moderna’s CEO, Stephane Bancel, personally became more than $824m richer in the week after the announcement, with the value of his shares rising from $6,052,522,978 to $6,876,528,630. [vi] He sold off 10,000 shares for $319 each on 26 November, the day after the variant was announced, cashing out $3.19 million.

Bancel has refused to share the recipe for Moderna’s vaccine with the World Health Organisation to help scale-up manufacturing of mRNA vaccines through its new hub in South Africa where WHO scientists are now trying to reverse-engineer the vaccine.

Last week, the WHO announced that six African countries—Egypt, Kenya, Nigeria, Senegal, South Africa, and Tunisia—will be the first recipients of mRNA technology from the Cape Town hub, which expects safety trials for the new mRNA vaccine to begin later this year.

But in the absence of an IP waiver, the burgeoning tech-transfer initiative could face legal challenges from pharmaceutical giants.

Moderna has thus far refused to cooperate with the WHO’s mRNA hub, which is currently working with facilities in Argentina and Brazil in an effort to further expand vaccine production capacity across the Global South.

Prof. De Oliviera – CEO of the South African Centre for Epidemic Response and Innovation told the BBC recently and I quote that:  

Global “companies refuse to share the IP even after they made billions of dollars from our discoveries…. We have been persistent…we have decided to go to open data …especially Moderna…and managed to develop the full proof of concept similar to Moderna… …the production of vaccine …could be approved in to 2024…but if we had the IP of the other vaccines…that process would take only two years.”

“In SA” he said  “we have not given up.”

To conclude, and as Tim Bierley of Global Justice Now has argued: [vii]

“Pharmaceutical companies knew that grotesque levels of vaccine inequality would create prime conditions for new variants to emerge. They let Covid-19 spread unabated in low and middle-income countries. And now the same pharma execs and shareholders are making a killing from a crisis they helped to create. It’s utterly obscene.”

Despite the millions of deaths from COVID 19, still the big pharma companies continue to hide behind the protectionism of the long arm of international law….and refuse to share the largely taxpayer-financed recipe for vaccines.  That is bad for innovation in health, and bad for millions of people and their families dying of preventable diseases…

As Professor Mariana Mazzucato Professor in the Economics of Innovation and Public Value at UCL has argued in her book: The Entrepreneurial State,

“risk-taking by government agencies has nurtured almost all of the key technological advances of the last hundred years.” [viii]

And risk-taking by governments – not private capital – have led to the most important health innovations of the recent past.

Thank you.


[i] Sell, S.K. What COVID-19 Reveals About Twenty-First Century Capitalism: Adversity and Opportunity. Development 63, 150–156 (2020). https://doi.org/10.1057/s41301-020-00263-z

[ii] John Braithwaite and Peter Drahos, 2000, Chapter 7, Global Business Regulation. https://blackwells.co.uk/bookshop/product/Global-Business-Regulation-by-John-Braithwaite-Peter-Drahos/9780521784993

[iii] Kunibert Raffer What’s Good for the United States is Good for the World: Advocating an International Chapter Nine Insolvency. Published in: Bruno Kreisky Forum for International Dialogue (ed), From Cancún to Vienna. International Development in a New World, Vienna 1993, pp.64-74.

[iv] ‘De-risking’ is a concept developed by Professor Daniela Gabor in her 2021 article on “The Wall St Consensus”. https://onlinelibrary.wiley.com/doi/abs/10.1111/dech.12645. The term was used by Jim Yong Kim, President World Bank Group in 2017: ‘….we have to start by asking routinely whether private capital, rather than government funding or donor aid, can finance a project. If the conditions are not right for private investment, we need to work with our partners to de-risk projects, sectors, and entire countries’

[v]  Richard Frank et al. “It Was The Government That Produced COVID-19 Vaccine Success“, Health Affairs Blog, May 14, 2021. DOI: 10.1377/hblog20210512.191448

[vi] Global Justice Now, 7 December, 2021: Omicron variant made $10 billion in a week for Moderna and Pfizer shareholders. https://www.globaljustice.org.uk/news/omicron-variant-made-10-billion-in-a-week-for-top-moderna-and-pfizer-shareholders/

[vii]  Tim Bierley, as above: https://www.globaljustice.org.uk/news/omicron-variant-made-10-billion-in-a-week-for-top-moderna-and-pfizer-shareholders/

[viii] Mariana Mazzucato, 2013. The Entrepreneurial State: Debunking Public vs. Private Sector Myths.  https://marianamazzucato.com/books/the-entrepreneurial-state

Ann Pettifor
I’m Ann Pettifor, author and analyst of the global financial system, and co-author of The Green New Deal (2008). I predicted an Anglo-American debt-deflationary crisis back in 2003, and in September, 2006 published The Coming First World Debt Crisis (Palgrave). I am known for my work on the sovereign debts of low income countries and for leading an international movement for the cancellation of debts, Jubilee 2000.

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