Pfizer's Bid for AstraZeneca

A huge US pharmaceuticals company, Pfizer, wants to buy a huge UK pharmaceuticals company, AstraZeneca, for £63bn, possibly more. Is there a side to take in the battle? Or is it more revealing to consider what each company represents?

Consider these points:

- Both companies operate in markets heavily protected by patents that keep the prices of proprietary drugs high.

- Both companies have lucrative deals with public sector purchasers of their drugs, financed by taxation.

- Both market many branded drugs whose effect is little different from generic and much cheaper products (eg Pfizer's Anadin is basically a combination of aspirin and caffeine, but at a price that roughly equals a regular aspirin plus a cup of coffee at Starbucks).

- Both operate in a sector that is infamous for producing research on the efficacy of medicines that is biased by deliberately distorted evidence (see the valuable work by Dr Ben Goldacre, in Bad Pharma and elsewhere).

In the UK, opponents of the Pfizer takeover argue that it buys up other companies rather than investing in new pharmaceuticals research itself, and that it cuts back research operations. In Sweden, home of the Astra part of AstraZeneca, there are opponents of the Pfizer bid too. But they need to take account of AstraZeneca's actions before they press their case.

Zeneca is an offshoot of the former British monopolist, Imperial Chemical Industries, and its takeover of Astra in 1999 also led to a shift of corporate power and decision making to the UK from Sweden. Like Pfizer, AstraZeneca has also been involved in many takeovers of other companies to boost its ownership of pharmaceutical products. It has not been immune from the high cost of research, which, for example, led it to close research facilities, most recently in Loughborough in December 2011 with the loss of 1,200 jobs.

For every jobs-related worry on the European side about the deal, there is an equal concern in the US. However, while understandable, to get a more grounded view as to what is happening one needs to see the bigger picture of the economics of imperialism today.

Take tax. Pfizer admits that a key factor in its bid for AstraZeneca is the tax regime in the UK that it can use to boost its corporate profitability. On the bid being accepted, the formal corporate location will probably be changed to the UK, something that has led British Prime Minster Cameron to be favourable, despite other UK opposition. It is probably only this tax deal that stops Pfizer, like many other corporations, from otherwise using the alternative infamous 'Double Irish' or 'Dutch sandwich' tax tricks to achieve the same result by locating elsewhere.

Corporations, and their owners, always want to avoid tax. But the more significant point is that scientific ingenuity is used under capitalism as a means for private appropriation not social gain, something exacerbated by the power of monopolistic corporations. This would be true even if the corporate executives were not, on the whole, a bunch of useless bastards.

Tony Norfield, 10 May 2014

US rate of profit, 1948-2012

The charts below show some measures of the rate of profit for US corporations from 1948 to 2012. There are many ways to construct such measures from official data, but, as noted in my review of Lapavitsas's book on financialisation (6 January on this blog), none of them can expect to come very close to a Marxist view of the rate of profit. Apart from the usual issues of whether the data are accurate (and even if they measured what was necessary, the data are often revised), the domestic profits recorded by US corporations will also reflect the surplus value accrued from trade links with other countries. Profits from foreign investment can, in principle, be deducted from total profits, as is done here. However, that still leaves out a key source of profit for companies like Apple and Wal-Mart that get their commodities produced in poor countries.

Given such limitations, I do not think that it makes much sense to spend a lot of time making amendments to the available data for profitability and I have chosen a relatively simple measure of the profit rate. This is the total domestic US corporate profits in a year divided by the average of domestic fixed assets at the start and end of the year. In addition, I have shown the pre-tax and post-tax rate of profit, and also given measures of fixed assets on a current cost and on a historical cost basis. The pre-tax profit rate is higher than the post-tax measure, because even the US government has not managed to make taxes negative for corporations. The historical cost (HC) of fixed assets is lower than the current cost (CC) measure, given inflation, so the rate of profit measured against HC fixed assets will be higher than the rate of profit measured against CC fixed assets. This is dull stuff, but these things obviously have an impact on the profitability curve.

Here are two charts showing the four measures:

Data sources: US Bureau of Economic Analysis, National Income and Product Accounts, Tables 6.17 and 6.19 line 2. BEA Fixed Assets Accounts, Tables 6.1 and 6.3 line 2.

In the case of each measure, there was some rise into the mid-1990s from the post-1945 low point seen in the early 1980s. But by 2000-2001 the rate of profit was back down again close to the post-war lows. This decline preceded the 9/11 attacks, although it was exacerbated by them. There was then a sharp rise in recorded profitability in the next five years up to 2006. This rise was helped by much lower interest rates and a credit-fuelled rise in spending, capped by an accumulation of toxic assets that were not recognised as being a problem. The crisis from 2007-08 pushed profits lower, but the rate of profit measures increased again into 2012. This latter rise was largely on the back of higher profits for manufacturing and for the finance sector. In the former case, a further reduction in financing costs will have helped, while, for the latter, wider lending margins and the Fed's generosity in buying toxic assets have been a big boost. Far from the higher 2012 profit rates signalling that the world (or even the US) is OK, they reflect an economy that still requires a zero rate policy from the central bank and which is still engulfed in debt.


Tony Norfield, 3 February 2014

Tea Party Antecedents

The US ‘Tea Party’ takes its name from the famous ‘Boston Tea Party’ of 1773, when hundreds of crates of Indian tea on British ships were dumped into Boston harbour by American colonial rebels. However, a common misunderstanding is that this event was a protest about high taxes. It was not. The reason for the anger was that the British had actually cut the tax on imported tea. This meant that American smugglers and merchants dealing in tea supplied by Dutch ships were going to be put out of business because their product would soon be selling at a higher price than the new imports of Indian tea!

It is true that the American settlers were also indignant about rules being changed without consulting them – ‘no taxation without representation’ - and about to whom the British would give legal rights for importing tea. Yet the relevant point is that the claimed forebears of today’s ‘Tea Party’ in the US Congress were smugglers and dealers threatened by changes in the global economy. It is this that makes the name more apt than its members will realise.

Back in the late 18^th century, history was on their side. Today’s tide of reaction will find success much more elusive as the US struggles over its own bankruptcy.[1]

Tony Norfield, 1 August 2011

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[1] See ‘The Real US Debt Crisis’, 26 July 2011 on this blog for details. The article ‘Anti-Bank Populism’, 5 July 2011, also explains how the build up of debt was due to the crisis of low profitability.