Pfizer’s move to acquire British-based pharma company AstraZeneca has proven that too many in the political world don’t have a clue how markets work; don’t know how innovation takes place; and don’t understand how economic growth is achieved.
The U.K. Parliament has grilled Pfizer CEO Ian Read, asking him to make promises about the future. Senator Ron Wyden (D-OR), chair of the U.S. Senate Finance Committee, is asking if the deal finally yields enough proof to justify new corporate tax policy that would close certain “loopholes.”
On both sides of the Atlantic, exactly the wrong questions are being asked. Nor is Read, however convenient a scapegoat, the right person to be interrogating.
Instead, they should be asking what could be done to ensure that the R&D pharmaceutical sector remains vibrant, ambitious, and well-funded. In the coming decades, with over two billion people growing into old age, and health care costs still rising ahead of inflation, the “miracles” of the 20th century that contributed mightily to our current longevity will be essential. These are not questions for a CEO, but for policymakers who create the conditions that enable or discourage investment that leads to jobs, innovation and economic growth.
Instead of asking Ian Read about Pfizer’s plans to hire or fire, government leaders should be asking their health, science and finance ministers what kinds of R&D programs could be put in place to enable the British population to age with more vitality.
Ask scientists how the evolving industry landscape can be shaped to become a better, more efficient producer of health solutions for a more active and healthier aging. Ask the National Health Service what new kinds of therapies can improve health outcomes while driving down costs. Ask your education minister if investments are being made to enable the considerable skills and knowledge your scientists will need for the exploding needs of your aging population. That includes caregiving as well as health provision. The answers will give you clues to 21st century public policy — that is where government focus ought to be.
It is interesting that U.K. Prime Minister David Cameron has stepped to the global stage with Alzheimer’s, using his presidency of the G7 to spearhead a worldwide coalition to beat this devastating disease. The future of jobs in aging Britain is far more wrapped up in the fate of Alzheimer’s than whether Pfizer buys AstraZeneca. And so the U.K.'s focus might shift to correcting the adverse regulatory and political system that has doomed discovery for Alzheimer’s innovation rather than imposing politics to squelch a market deal.
But the U.K. isn’t asking these questions. And the U.S. is equally upside down.
As Wyden has suggested, it is true that Pfizer’s potential move overseas exposes just how damaging the U.S. tax code can be. The practice of “inversion” — in which one U.S. company buys another and adopts its foreign billing address — is becoming increasingly common. And President Obama’s quest to put an end to the practice has only motivated more organizations to invert while they still can.
Inversion, however, isn’t the problem. It is, rather, the result of confiscatory tax policy that has impact on company decision makers. Wyden is asking how to stop inversion when he should be asking why companies are inverting.
Fix the disease, not the symptom.
Go to the cause of the problem, which is that the U.S. has one of the highest corporate tax rates in the world, and companies can save billions by changing their address. Pharmaceuticals — an industry that, as much as any other, truly unites some of the world’s most brilliant minds — is thoroughly global. A move from New Jersey to Dublin or London isn’t much more than paperwork. If a decision on location benefits the shareholders — by billions, no less — Read and his team are doing their job, exactly.
Like his political counterparts in the U.K., Wyden is asking the wrong questions and directing them at the wrong people. The newly minted chairman of the Senate Finance Committee should grasp the moment to lead by asking his fellow policymakers how the tax code can be revised to promote pharmaceutical innovation and R&D here in the U.S. Or, how such revision would create jobs, attract world-class talent, and assert the U.S. as the leader in health and pharmaceutical innovation.
Alternatively, revise the code and enable the trillions that U.S. corporations have overseas to be repatriated and invested here. U.S. companies would no longer be incentivized to pack up and move their address; funds for investing in infrastructure, technology, medicine, etc. could be allocated and strategically deployed in America for America’s renaissance.
Now, that would be exciting and that would constitute leadership. Allow repatriation and literally hook it with incentives for investment at home — that infrastructure bill the president announced last week would benefit enormously from these trillions.
The point here, however, is not the process or potential of repatriation. It’s that Wyden’s seizing upon the Pfizer deal is nothing but a distraction. Behavioral economics teaches us that people act based on their incentives; it is useless to get mad and question an organization’s “patriotism” because of the incentive structure in which they operate. Change the incentive structure.
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