When I told you Research had left NJ, I wasn’t making it up

 

Hoffman-LaRoche Nutley, NJ- recently shuttered.

NPR ran a recent piece on the problem of ghost towns being left in the wake of the great pharma mergers and layoffs of the last 10 years.

The facility I worked at in Bridgewater, NJ closed in 2011.  I’m not sure they were able to find renters but the MBAs seemed to have a habit of overestimating what new tenants for labs space would be willing (or able) to pay.  The lab buildings I worked in were beautiful with lots of natural light but they were never full. The facility I worked at previously in Monmouth Junction, NJ was also abandoned for awhile but I had heard that there were some plans to lease it.  Or bulldoze it.  I can’t remember which.  I stand corrected.  Google maps says the site is “closed”.  That building was smaller and more contained.  It would have been perfect for a small biotech company on the rise.  It had a state of the art animal breeding facility and room for about 400 people. More than that makes it feel too cozy.

But as I wrote back in 2011, it is difficult to get funding for a startup.  The vulture capitalists like to see most of the work done before they commit their money.  Then there is the problem of finding money for equipment (this is cheaper due to the big pharmas auctioning off all their stuff), subscriptions to journals, buying expertise for robotic HTS assays, structural

The place where I spent the best years of my life

biology, specialized analytical chemistry and ADME analysis, and every other thing that a small biotech doesn’t have in its own arsenal.  A regular Joe researcher funding his own research will probably lose his house before the year is out.  So, he and his colleagues don’t have a whole lot of money to spend on lab space, which despite its abundance, is going to be expensive.

In the meantime, Big Pharma is counting on graduate students living on subsistence wages to pick up the slack on what are now reduced government grants.  It was hard enough to be a graduate student in Chemistry before the sequester.  Now, the money is much harder to come by.  For a person who may not get a decent paying job until he or she is almost 30, the prospects are bleak.

You can see Paul Krugman from here!

You can see Paul Krugman from here!

Funny how Paul Krugman doesn’t talk about this.  He’s living in the heart of what was Big Pharma territory and the desolation is hard to ignore.

Some of the lame excuses that Big Pharma gives for pulling out of NJ is that it’s too far from the City and the kids nowadays want to be right in the middle of some hot urban action, complete with expensive tiny apartments that they will have to share with roommates until they retire.  Also, Big Pharma has relocated to the coasts to be close to Harvard, MIT, Stanford and Scripps.  That’s so they can share ideas in the areas where genomics and molecular biology are king.  But this is utter bullshit.  For one thing, if you are working in Cambridge, MA or San Francisco, you are precluded from talking about your work with anyone.  There’s no sharing going on in the spirit of the Scientific Revolution of the 17th century.  It’s all proprietary and very hush, hush.  Your work won’t be published until the lawyers have taken out anything that’s remotely patentable.  It could be years before you can share your big breakthrough.

Plus, there is this new fangled device called the internet.  If I wanted to, I could use an online tool to order up a synthetic gene from California from the comfort of my backyard wisteria covered swing in Pittsburgh.  I can access thousands of journal articles, provided I had $33/electronic copy and could get over my impulse to strangle the ACS and Elsevier every time I had to do it.  I could attend meetings and conferences.  My work does not depend on my location.

And here’s one more reason why pulling out of NJ to go to Boston doesn’t make sense.  It’s fricking expensive.  If the MBAs were trying to save money, which is what they always claim is the reason for shuttering labs, why the hell would they relocate to some of the most expensive real estate in America??  Why not go back to the midwest where the mothballed labs are still cheap?  That’s where most of research was before the big mega mergers in the 90s brought everyone to the Northeast.  Cinncinnati, Kalamazoo, Ann Arbor all had thriving research communities before the business people decided to manage things.  Or even Pittsburgh.  This place is hopping lately, it’s urban, housing is cheap and there’s plenty of mass transit.

And this is where I think we come to the crux of the matter.  The relocation is about what the business people want.  They don’t want to be stuck in dowdy, suburban NJ with the high property taxes and they can’t think past the rust belt image of the midwest.  It’s not glamorous enough for the people who consider themselves the culture of smartness.  Smartness demands that it hang around other smart people.  Maybe if the business types rub shoulders with the supersmart MIT researchers, they won’t feel like they sold out their biology degrees to become finance wizards?  Projection of sorts?  I can only guess.

It’s also easier to jettison your workforce if you claim you HAVE to move to stay competitive.  Yep, just cut those hundreds of thousands of experienced STEM workers loose when they are in middle age and have family responsibilities.  Leave them stranded in NJ while their property values sink and they are stuck peddling themselves as consultants from one poverty stricken startup after another.

This is no way to treat the people who brought you Lipitor, Effexor and Allegra.  And, yet, this is the way it’s going.  Big Pharma sees its future as chronic illness specialists.  They will charge hundreds of thousands of dollars a year for a drug that some people can’t live without and will expect insurance companies to pay for them.  Think of it as sponge from some Nathan Brazil Well World novel. I know that a few of my friends are still making a living in companies that are focusing on orphan diseases and oncology but there’s something immoral about hooking up people to drugs you know they can’t live without with the goal of milking every dollar from them.  I realize that research is expensive but we didn’t use to be so mercenary about it.  Instead of solving the problem of out of control research costs, the new wizards of pharma finance have glommed onto cheap, dirty and unsustainable new ways to make money. Reduce your workforce to desperation, focus on the poor unfortunate chronically ill and ignore everyone else. This is the new business model.

And it is broken.

Karen Ho: It’s not about full employment

Anthropologist Karen Ho, author of Liquidated, was on Virtually Speaking a couple of weeks ago.  Check out the whole interview here.

I wrote a series of posts about Liquidated, applying Ho’s observations of Wall Street culture to the pharmaceutical industry because I’m going to make you care about unemployed scientists no matter how much you think you hate them, dammit.  It’s that important.  Here are my posts:

The Strategy of no Strategy Part 1

The Strategy of no Strategy Part 2- Flexibility

The Strategy of no Strategy Part 3- Shareholder Value

The Strategy of no Strategy Part 4- Putting it Together

I have to add that the outrageous price of drugs has just as much to do with the left’s behavior as the right’s but that is for another post. The pharmaceutical industry is probably the only place where that statement is accurate.  I’m not just playing a “professional journalist” who has a fiduciary obligation to my employer to say that “both sides do it”.

Oh, and I also told you that the cost of generics is going to continue to rise.  You heard it here first.

Anyway, back to Karen Ho.  In her interview, she said something very interesting that I had been wondering about.  She said that the “culture of smartness” thinks that no one works harder than they do.  And that’s probably true.  The analysts on Wall Street work crazy hours, like about 100 hours a week.  That doesn’t mean they do anything of value or that is productive.  I’m not sure lining up bullet points within a pixel of their lives is a particularly good use of one’s time, even if the presentations are beautiful.  Content is more important, but that’s just me.  So, essentially, Wall Street takes 22 yr old ivy league graduates, throws them in a financial crash course for a couple of months and turns them loose on the world to work like maniacs.  It love bombs them and tells them they’re wonderful because they pull the levers of the world’s economy without sleep and then those same analysts grow up to leave nasty comments in pharmaceutical industry blogs.

What I’m referring to are the comments that Derek Lowe sometimes gets on his posts when he announces another round of mass layoffs at Merck or Glaxo or whatever.  Some asshole will say something to the effect that it’s ok because it clears out the “deadwood”.

The weird thing is, these layoffs frequently *don’t* clear out the deadwood.  Oh sure, there is some brush clearing but the thing is, if you are in a group run by a blessed manager, you could be the deadest of the wood and still survive.  And a lot of the deadwood is in the managerial class and they tend to have the salesperson’s gift for explaining why they should be retained while everyone under them is cut.  So, by the end of the day, after pharmageddon leaves smoking ruins in its wake, the people who are left are those that haven’t been inside the lab for years.

Anyway, I have to thank Ho for alerting me to who was leaving those comments.  Funny how they would even bother to check up on our horror and dismay at another medicinal chemistry group biting the dust.  But they really have no idea what they’re doing, hence The Strategy of No Strategy.

Chrystia Freeland also has an opinion piece in the NY Times about the role of plutocrats vs populists and social distancing.  Something about Freeland’s piece didn’t seem quite right though.  Freeland is taking it as a given that technology is hollowing out the middle class.  This may be true but I see things from a different perspective and mourn the blight that plutocracy has had on technological progress.

The truth is that we are now experiencing the golden age of biology.  We are learning so much about biological processes on a daily basis that it is hard to keep up.  There is so much we now know and so much yet to be discovered.  There is enough work to keep every chemist and biologist busy for the rest of their lives.

The problem is that no one wants to pay for discovering those mysteries.  There will be diseases that won’t be cured, processes that won’t be applied to other fields and whole new industries that won’t be founded because plutocracy is choking the life out of the discovery field in the name of shareholder value.  And now we have the Republicans and their sequester choking out the only hope we have that government will step in and pick up the slack where shareholder value has failed.

In a way, the demonization of science has helped this process along.  We’re just a bunch of Simon Barsinisters in white lab coats planning to take over the world and heedless of our impact on it.  That suits the lawyers and the politicians that feed on the “knit your own sandals” demographic just fine, doesn’t it Jay Ackroyd?  But it leaves science without any advocates.

The point that Freeland is missing and that Ho might understand better is that there doesn’t need to be a hollowing out of the middle class.  This country could become an unmatchable technology powerhouse once again if some of that money was put back into research at both an industrial and academic level.  But someone has to be willing to commit the money to the process and in the age of shareholder value, that’s not going to happen.  Research takes long term investment and continuity and stability, all three of which are severely lacking these days.  The countries that make the commitment to provide these three elements are going to come out ahead.

One other point I’d like to make has to do with what do we do to get it back on track.  One of the things I hated when I was on the school board was when a bunch of parents complained about the same thing over and over again but never offered any solutions.  Ezra Klein twittered yesterday: what is the country’s most challenging economic problem and what is the solution?  Here’s my answer: the problem is an out of control finance industry.  The solution is to phase out the 401K.  Regulation would also help but the 401K makes more and more of us reliant on risky Wall Street instruments and encourages a kind of recklessness.  A steady stream of 401K payroll deductions is like heroin to addicts.

It’s got to stop.

 

 

Sallie Krawcheck will bring Wall Street work culture to the SEC

Sallie Krawcheck of Bank of America, being shopped around DC for head of the SEC

Sallie Krawcheck of Bank of America, being shopped around DC for head of the SEC

Yesterday, I read a post by DDay on Firedoglake about how the totally uneccessary “fiscal cliff” talks are going and I felt a tiny, teensy ember of hopefulness.  But it was quickly dashed when I read in the NYTimes about how the Obama administration is considering Wall Street executive Sallie Krawcheck for the head of the Securities and Exchange Commission.

Never turn your back on the Obama administration or its backers.

It’s not just the fact that Krawcheck is a Wall Street executive who will be regulating one of the worst bunch of cheaters, liars and thieves in the history of the world. It’s more about the other things she brings to the table that the movers and shakers think are important.  For example, she is “known for her independent streak and consumer advocacy efforts”.  I don’t know what that means and the New York Times does not go into details.  Does her independence extend to not calling consumers of Wall Street products “muppets”?  I guess that would be a step in the right direction.  But something about the vagueness of this sentence reminds me of the slick, tailored dude from the major 401K management firm who I will not name who came to our site to describe all the new financial products they were rolling out.  He gave his presentation to a bunch of sciencey types but the numbers on the brochures were all based on estimates of salaries and 401K balances of the executives up the street.  Then he went on to say that these were our choices, there are no guarantees we’ll make any money from any of them, but, hey, where’re you going to go?  There’s not going to be any Social Security.  (Oh, yes, he really did say that.  I kept wondering where he was getting his information in 2009)

So, that’s the first thing that bothers me.  Making the financial products easier to understand and transparent for the consumer doesn’t get rid of their risks.  It doesn’t give you something solid and guaranteed to fall back on like Social Security.  And if everyone on Wall Street is offering products where the House is guaranteed to win no matter what but where consumers could lose everything they have because there are no company pensions anymore and we’re all shoved into 401Ks against our better judgements, then consumer advocacy means very little.  I don’t like the premise to start with that we all have to be playing at the global craps table.  Some of us want other, more secure, boring, plodding choices.  No, we really don’t care if we never own our own yacht.

But it’s more than that.  It’s Krawcheck’s crappy attitude towards work that is characteristic of Wall Street culture as described by anthropologist  Karen Ho in her book Liquidated, An Ethnography of Wall Street.  Here’s what Krawcheck had to say:

One [LinkdIn] recent dispatch, titled “What I Learned When I Got Fired (The First Time),” offered career guidance from her own rocky periods.

“If you haven’t been fired at least once, you’re not trying hard enough,” she wrote. “As the pace of change in business increases, the chances of having a placid career are receding. And if in this period of rapid change, you’re not making some notable mistakes along the way, you’re certainly not taking enough business and career chances.”

This is where she becomes completely unacceptable.  Here’s the problem: she acts like a “placid career” is a bad thing and a thing of the past.  (How does she know that?? What information does she have that we don’t? What schemes have the bankers been up to?)  Well, it might be a bad thing for people who suffer from ADHD and pernicious greed well into their adulthoods but to the rest of us out here, our placid careers are what makes us consumers in the first place.  You can’t buy anything if you don’t know where your next paycheck is coming from.  I have seen this attitude creep into the pharmaceutical research industry and ruin it.  Around 2000, many of the pharmas started employing Jack Welch management and rewards systems on the research community.  But Welch was trying to motivate salesmen.  His method doesn’t work in science.  Research people are about as far away from sales people in temperament as it is possible to get.  But suddenly, we were all supposed to act like salesmen, become super competitive and cutthroat and be prepared to lose our jobs at any moment.  You can’t do science under those circumstances.  Research takes continuity and patience and collaboration.

I’m pretty sure that science is not the only industry that doesn’t adapt well to the Wall Street work style where everyone is ready at any moment to be laid off.  It’s not practical for hundreds of millions of Americans to become instant precariats.  For one thing, many Americans live paycheck to paycheck.  Challenging the status quo and getting fired isn’t an option for them, much less getting things wrong just for the sake of shaking things up.  For another, you can’t plan for the future if you’re always worried about your present.  It’s impossible to put down roots, buy a house or even rent one, purchase a new car or computer.  You can’t have a family.  Well, you *could* have one but you’d better be prepared to not see them.  That’s what has happened to a lot of ex-pharma people.  Their families live in one state while they work in another. Think of South African diamond miners in Soweto.  And no job is secure for very long, which makes relocation a constant problem.

That’s going to have a downstream effect on homeownership, the auto industry, consumer goods.  Has it ever occurred to people on Wall Street and the people from Wall Street who are now in the upper echelons of the Obama administration that this kind of attitude towards work may be prolonging the recession??

Oh, but Wall Street people will argue that it’s the survival of the smartest.  But the science researchers out here who have lost our jobs know this is bullshit.  What Wall Street values is status, not intelligence.  Spend a few months in a lab trying to discover something that no one has ever done before.  That’s intelligence.  Or do brain surgery or rocket science or green energy science.  Or try plumbing, or modern architecture with new materials.  Or fixing some young banker hotshot’s car.  There are many different professions that require intelligence.  Computational chemists have an inkling of what Wall Street professionals do because we work with complex mathematical models all the time.  Wall Street professionals *can* be replaced- easily.  It’s not so easy to replace someone who can interpret a new protein structure.  That takes practice.

And that’s another thing that flies out of the window in Krawcheck’s world.  In an environment where you can be fired for being bold and the safety net is weak to non-existent, no one is bold.  And with each firing, there’s less time to rehearse your skills.  You’re never on the job long enough to learn anything with proficiency.  There’s some study that says that to become truly proficient in an area, you need to have spent 10,000 hours practicing it.  In Krawcheck’s world, no one gets nearly that much time before the bean counters decide to subtract positions from the bottom line.  It’s even worse than that.  During Pharmageddon, it was the salesmen in the labs who survived the job cuts, not the people who actually did the work.  And there were plenty of people with excellent performance evaluations, merit awards and inventors of billion dollar block buster drugs who were let go.  One thing we science geeks have learned from Pharmageddon is that it doesn’t matter how hard you work, how long you work, how dedicated you are to your job or any other factor that you’ve been told is crucial to your employment.  You are expendable whenever the executives need your salary to pay a shareholder or buy a new company.  The relationship between effort and reward becomes permanently broken and no amount of mean spirited insistence from the conservative Tea Party whip kissers will change that.  Kissing the whip doesn’t do you any good any more, no matter what level of education or profession you have achieved.

So, to recap, Wall Street’s idyllic work environment would result in more economic uncertainty, more stress on families, less consumer spending, less long term thinking, less expertise for businesses and a poorer, more demoralized, less motivated workforce.  It sounds like something straight out of Central America circa 1980.

It’s hard to believe that someone like Sallie Krawcheck or anyone with her attitude towards work, would seriously be considered for any governmental position during this Little Depression that was caused by so much short term thinking.  I hope that the New York Times is just trying to be provocative.  Consider me provoked.

The problem with prospective appointments like Krawcheck’s to the SEC, like Tim Geithner’s to the Treasury department, is that they bring with them a moral attitude and values system towards work and reward that is dangerous to the average American.

But the morality and values starts at the top.  I doubt that Krawcheck and Geithner would even be considered by a president who was thinking about the long term interests of the average American.  And that’s what worries me and snuffs out that little teensy ember of hope.  Obama’s actions have to match his rhetoric and just by considering someone like Krawcheck or anyone like her, the actions and rhetoric will be miles apart.

Trust no one.

Update: In a followup post at the NYTimes titled Dropping the Ball on Financial Regulation, Simon Johnson of Baseline Scenario has similar misgivings about the Obama administrations prospective appointments, particularly with respect to Sallie Krawcheck to the SEC.

What Yves said

Yves Smith at Naked Capitalism has a long post about former Goldman Sachs Vice President Greg Smith’s new book on the company.  Smith’s book, Why I Left Goldman Sachs, describes the atmosphere at Goldman and how vulnerable clients are in an environment when making a deal and the gigantic fees that come with it is more important than selling a complicated and flawed financial instrument to unsophisticated clients.  Yves gives her own insider view of Goldman and why the company has gone ballistic over Smith’s book while at the same time insisting that Smith was too junior to know what was going on.  The money quote comes at the end of her piece:

Goldman has such a strongly developed internal culture that even a change at the top would take a while to percolate through, and Smith appears to have seen the impact.

I can relate.  Those of us in the lower rungs of the pharmaceutical industry witnessed a similar phenomenon.  At one point, we were governed by scientists and MDs who rose through the ranks to head the companies.  But that started to change radically in the 90’s during the era of many mergers and acquisitions and it really accelerated in the 2000s.  The financiers began to have more influence at about that time and we read accounts of CEOs under fire from analysts to cut research and outsource heavily. In retrospect, it looks like they were setting up pharma companies for their next M&A deals but eventually, all of the restructuring and Wall Street culture of constant change tricked downwards. The performance and compensation system changed, adopting Jack Welch’s program that was designed for GE salespeople, until it resembled Enron with even the lowly lab rats ranking each other, hoarding resources and actively engaging in cutthroat activities in order to avoid the ax.  And that, my friends, is about the worst thing you can do to a research organization.  Collaboration is essential to research.  By the time Wall Street values had trickled down to our level, we could see that they were more suited to the sales executives but in the labs were alien, out of place and destructive.  When it got to the point that lab equipment repairs had to be justified and we were forced to charge other departments for services we used to provide as part of our project collaboration, it was over.

So, I have no doubt that whatever Smith witnessed at Goldman was significant, profound and deeply disturbing.  It may be a similar situation where the business has begun to run amok and eat itself from the inside out, where policies no longer make sense and where the bulk of his time was spent pushing the competition in the next office off of his pedestal.  At that point, it’s no longer a functional business.  It’s a game of winner take all musical chairs.

Yves speculates on the reasons why Smith doesn’t spill all of the beans on Goldman or is even as detailed in his account as someone like Michael Lewis.  Some of those reasons include his relatively low level and institutional omertà.  But another possible reason is that there are few former insiders, even low level insiders like Michael Lewis who can write well on what are pretty complex financial instruments and make them intelligible to the average consumer.   I loved Lewis’s book The Big Short but it wasn’t until I was halfway through the book before I understood enough of it that I saw the humor in some of Lewis’s passages.  Now I know what Wall Street was up to but I doubt that even many Wall Street analysts truly understand the math and models behind their dynamic proprietary programs.  If Greg Smith understands them, there’s probably a lot he can’t divulge without  getting the Goldman legal department to bear down on him.

In any case, Smith’s book sounds interesting but I probably won’t be adding this one to my audible queue.  It’s not because I don’t think it is a worthy read or can’t learn more.  It’s just that through Karen Ho’s book Liquidated, and Lewis’s The Big Short and Boomerang, I think I get the picture well enough to know what went wrong.  But if you don’t have the time or patience for more than just a high level summary. it sounds like Greg Smith’s book might be just the horror story to keep you up on a cold and stormy October evening.

The Strategy of No Strategy: Putting it together

N17 on Wall Street

This is the final part of my take on Karen Ho’s book, Liquidated- An Ethnography of Wall Street. I can’t do the book justice in a single blog post (it’s going to take at least four), I’m going to try to summarize some of what she is describing as the culture of Wall Street and how it is infiltrating our lives. I’m going to touch on four major themes in her book: “smartness”, “flexibility”, “shareholder value” and “the strategy of no strategy”. Check here Part1 on Smartness , Part2 on Flexibility and Part3 on Shareholder Value. I am going to try to tie Karen’s analysis of the culture of Wall Street to the pharmaceutical industry because having had a first person perspective, it is my belief that Big Pharma has felt the worst effects of Wall Street on its core business- discovering drugs.

This week, Bruce Booth of Forbes wrote an article about the culture of pharmaceutical R&D and how it has definitely taken a turn for the worse. Let me just say for the record that this is a culture that has developed over time and was forced on the labrats. We didn’t invent it in the lab because we know it would never work. (For more feedback and analysis from the labrats on this article, see this comment thread at In the Pipeline.) Over the years, I definitely got the feeling that our overlords thought of us as 1.)socially awkward nerds who 2.) didn’t know the value of a dollar and 3.) were completely unproductive if left to our own devices. But Booth sets the record straight in some respects. He takes on the ‘tyranny of the committee’ and risk aversion, which are related to one another and further exacerbated by, emphasis on shareholder value, FDA failure rate and class action lawsuits. Then he takes on what many first person labrats would say is the biggest problem with pharma today:

Organizational entropy’s negative impact. [entropy in this context means disorder] For most of Big Pharma, at least a few mega-mergers and their integrations have happened in the past decade. And for all of Big Pharma, there’s been the semi-annual reorganization around the latest fad in corporate design: matrix management, proliferating centers of excellence, end-to-end therapeutic area groups vs functional lines, disease area strategies rather than site strategies, etc… These cause constant organizational upheaval with levels of distraction that can’t be measured. Resumes fly through cyberspace as soon as a deal is announced. Organizations are frozen as these changes happen, fear of the unknown paralyzes entire project teams, and closures/layoffs happen without much regard to upgrading the talent and weeding out the deadwood. Drug R&D takes typically 10-15 years from start to approval; how can it stay on track with a cadence of change this fast? As I noted last summer, most new drugs approved today were discovered in the 1990s. Do you think those approvals would have happened faster if there weren’t so many mega-mergers and reorganizations in the meantime?

The answer to the last question is “yes, probably”. There’s no way to tell, really, but having survived multiple mergers over the past 2 decades, I can tell you that we vamped and put everything on hold for months and years on end while the executives had pissing matches and more local management engaged in political backstabbing. It was a horror show. Much valuable experimental time, money and talent was wasted in the aftermath of Wall Street engineered deals.

But Booth also makes the common mistake that presumes that if all of us just worked at smaller companies, we’ll be more innovative and save oodles of money! If that happens it would be the equivalent of putting a few dozen labrats on a desert island and telling them to build their own labs with the tools available. Yep, there will be some geniuses and amazingly well coordinated teams that will fashion robotics and gel electrophoresis devices from sand and seashells but it won’t necessarily be efficient nor will those labrats be able to purchase stuff they can’t find on the island. There’s a reason why medium sized corporate labs discovered all those drugs back in the 90s.

Nevertheless, this is the new model of drug discovery. You, the scientist are chucked out on your ass and some cocky asshole business class people just assume that you’re going to whip up the next Lipitor with some sleight of hand. We’re encouraged to become entrepreneurs but they seem to have forgotten that our severance packages didn’t consist of millions of dollars in stock options. For the most part, we have a lot of poor scientists with no place to practice their craft and a mountain of extremely hard work and expenses before a vulture capitalist signs on.

The Wall Street smarties never thought about any of this stuff when they made the M&A deals. Nor did they stop to reason out why so many labs were failing to produce new drugs in the wake of those deals. For the last decade, all we’ve heard is that it’s OUR fault. We’re lousy scientists or lazy or spendthrifts. And they probably won’t figure out that the small little islands they set us adrift on aren’t going to be as profitable as they had hoped. But it doesn’t really matter because as soon as they’ve extracted the last bit of wealth from the big pharmas for the shareholders, they’ll just abandon the industry and the American scientific infrastructure to its own fate and move on to some other industry where wealth can be extracted. That’s what they’re paid to do.

Likewise, they will continue to pressure governments to hand over every bit of wealth from their citizens, to adopt austerity measures and cause untold suffering because they are in the business of finance and making money and if you as a country took the loan, they will expect payment. They don’t need to reason out that they’d be better off structuring things so that economies would grow and so they would get a more reliable but unspectacular return over time. That’s your problem. Their problem is to make the biggest, fattest deals they can in the shortest amount of time with the maximum amount of profit. It’s an optimization problem, a Traveling Salesman problem, a Metropolis algorithm on a global scale with one optimization endpoint. How much money can you make? They are in it for the deals, making their numbers and retrieving the wealth and private property of the shareholders. They don’t have time or patience for whiners and losers. They don’t even have the time to worry about another Depression. All they care about is the deal.

Karen Ho describes the culmination of “smartness”, flexibility and shareholder value as a thing called The Strategy of No Strategy. This is where the normal world meets the weirdness of quantum finance. Regular people assume that there is a small evil group directing things for some specific purpose, some grand scheme, some particular worldview. But all that is mere icing on the cake if it happens. What the 1% are really into is how this moment in time is going to affect their bonuses. Their plot to take over the world doesn’t extend much further than that. That is the only cause and effect relationship that matters because other than the expectation of money at the end of the year, they have no other rights or expectations as employees. They’re valued only for their ability to make connections and extract money from other people, they expect to be laid off at any time and the working conditions are brutal. And all of the authoritarian, political crap that gets thrown in to the mix is simply to protect their right to that money. As a result, you, the target of their financial machinations, are expected to conform to their deals. You are expected to give up your job at a moment’s notice to satisfy shareholder value or work in less than optimal conditions because to complain is to be a loser. It even helps them if they don’t have too much contact with you because personal feelings might get in the way of doing what they need to do. If you get in the way of their bonuses, they will have a problem with you, nothing personal. If it ends up feeling very callous and cruel, well, better to decrease the surplus population.

Karen Ho describes how the Strategy of No Strategy drives and changes the world:

Given that the identities of investment banks are wrapped up in their ability to immediately induce change in their people via job insecurity and flexible compensation, it is not surprising that one of their primary strategies-their plans for the future based on their imaginings of “the world and the firm’s position in it”-is, simply, to have no long-term plans (Schoenberger 1997, 122). To actualize their central identity as being immediately responsive to their own changing relationships with the market (including employees, products, and so on), their strategy is, in a sense, to have no strategy. Ironically, having no long-term strategy is contradictory and potentially self-defeating in that investment banks often find themselves making drastic changes only to realize months or weeks later that those changes were unnecessary, premature, and extremely costly. For example, in chapter 5, I described how investment bankers, in part because of their access to “sensitive, proprietary information,” are not only fired in an instant, but must also leave the physical premises of the building within fifteen to thirty minutes. Given how crucial the control of knowledge and the protection of inside information are for Wall Street investment banks, it seems self-defeating that they do not place any premium on loyalty. Despite the fact that firms try above all to enforce secrecy, they accept and maintain this volatility and revolving-door policy.

At first glance, it seems not only improbable, but also “irrational” for investment banks to engage in such practices, for why would a business so focused on profitability and knowledge not engage in practices that always improve its bottom line and its control of information? As many anthropologists have demonstrated, capitalist organizations are not simply motivated by purely instrumentalist quests for profit or governed by perfect rational actors; they are sociocultural organizations with complex, contradictory worldviews and particular organizational practices (Yanagisako 1999, 2002). Profits may be claimed as one of investment banks’ primary ideals, but it is mediated, situated, and enacted-along with other values-through the social and cultural lenses of particular organizations, groups, and bankers. How profits are made, what constitute profits, and what amounts are considered “profitable” enough are also culturally, organizationally, and historically variable.

John Carlton, the seasoned investment banker and managing director from BT, described how Wall Street’s strategy is to operate without a long-term strategy:

“Again, it is a business where there is no tenure. There is no union protection. Basically, if things change, you could be out. That’s one reason why people are very flexible. So you need flexible people, and people who can deal with it every day. Some people would hate that. I don’t mind that. Some people can’t stand it. They can’t last. They say, “I like to know where I am going to be five years from now.” They like the idea of stability. It is not very stable. I think that is a characteristic. Probably most people you talk to would say that it is not a very stable environment. Most businesses have five-year plans-What are we going to be producing?-and have long product life cycles. [We] have very short product life cycles. How do you plan when you never know what the market is going to do?”

Although Carlton attributed the rationale for not having a plan to market unpredictability, my point is that not having a plan is central to the strategy and cultural identity of investment banks.

[...]

Underpinning the continual (re)creation of “instant” teams or product expertise is a corporate culture that values eagerness for change and expediency. The “build a new dam strategy” while the old dam overflows also prefigures waste and even decline. As I learned from informants throughout my fieldwork, these star hires and seven-figure offers are often abysmal failures: stories abound of senior bankers simply pocketing the cash and producing no results, of formerly successful teams that were separated and dislodged from the environments in which they had thrived.

In other words, reflection is not Wall Street’s strong suit.

This is the part of the book that kept me up at night. Here we have a bunch of “smart” people with no job security, driven by their own conditioning and the banks they work for, that see *themselves* as The Market. They are the ultimate precariats. They are no better than miners whose goal it is to take the top off the mountain. And they have asked and gotten more and more leeway to act as they please, without regard to rational expectations for the future of the things they act upon.

The pharmaceutical industry has been destroyed by Wall Street and now, it knows it. There won’t be a recovery for the gigantic monstrosities like Pfizer that merged so fast and furiously that it didn’t have time to structure its most valuable asset- its database of compound and assay information. They’ve jettisoned the most valuable parts of their organizations in order to feed the Wall Street beast and its spawn of corporate CEOs whose job tenure can be measured in less than a handful of years. It does not matter that there is a generation of scientists laid off who will never make the salaries they once had or can pay their taxes. It doesn’t matter that communities and states will feel the effects of hundreds of thousands of terminations. It doesn’t matter that millions of patients will now be left vulnerable to bacterial infections that can’t be stopped or cancer or schizophrenia. It doesn’t matter that once the labs have been dismantled and equipment sold off, there will be no one who will be ready to reconstitute the labs when or if our society wants to discover drugs again. It will not matter that they have retained the scientists who are the best salesmen- of themselves- and not necessarily the best experimentalists. All that mattered was the deal at the time it was made. And now, all that matters is getting in on the get-rich-quick deals that can be made from academic basic science and discoveries that are not quite ready for primetime and will be abandoned as soon as they do not generate the expected profits.

For society at large, the strategy of no strategy is behind the austerity measures pushed on all of us. For countries that took out loans, that money must be paid back regardless of the havoc it plays on the citizens or that more austerity makes recovery of that money even less likely. What matters is that the recovering the money is as optimal an exercise as possible as quickly as possible, to get the highest return in the shortest amount of time. It’s sort of like harvesting organs before the body can’t be kept alive any longer. Go read Never Let Me Go and you’ll know what I mean. So, Spain, Ireland, Greece, Great Britain and the US will continue to pay and pay and pay until no further profits can be extracted. Then, they will move on to a different hemisphere. What is surprising it how passive many countries have been in accepting this fate. How long will it take for western countries to rebel like the middle east has? Decades? Will we have to live with decades of austerity and growing authoritarianism?

And now we can see why our governments act the way they do. Back in 2007, when Hillary Clinton was the front runner. I remember talking to a colleague who had a friend who was once an investment banker on Wall Street who had insights into how the bankers were thinking in 2007. They knew there was trouble coming and were trying to thread the needle. A Republican candidate might cause another Depression with the wrong policies. No, they didn’t want the patient dead, well, not until they could recover themselves. Maybe a Democrat. But Hillary Clinton had a strong responsibility streak in her. Besides, she came from Yale and we know that the culture of smartness distrusts Yalies as being too liberal. Another New Deal might have been too much like rehab. So, they threw their weight behind the Harvard guy whose unchecked ambition and cool demeanor was more like the cut of their own jibs. Just like the undergrads they hire from Princeton and Harvard, it didn’t matter to them if he knew nothing about finance. They would teach him.

If you’ve ever wondered, like I have, why Obama careens from saving one institution  to another in negotiations behind closed doors and apparently without any guiding principles, like he was making it up as he goes along, now you know why. He is governing on a deal by deal basis, without a worldview and without a strategy. It’s his modus operandi and he does it with equal fluidity with the bankers, the auto industry, congress, health insurance companies and voters themselves. He’s playing Let’s Make a Deal with each individual entity and with everything on the table.  Flexibilty and the “culture of smartness” is important to him, which is why Geithner and Summers got so much face time with him.  Loyalty and planning not so much, which is why Christina Romer got the shaft.  All of the reports on the way the White House operates with the fast paced credit stealing and high profile tasks going to smart young men and the golf outings with “front office” guys, sounds a lot like Wall Street.  If it turns out that his team hadn’t thought about how Republicans would game the debt ceiling business or how the individual mandate without a public option would make employees *more* vulnerable to layoffs and loss of health benefits, well, this is what you have signed onto with Obama.  He doesn’t see his role as a long term policy maker or seasoned politician and it shows.  If you’ve never worked in a corporate environment, you might be forgiven for not recognizing how the schmoozer works the system but there’s no excuse the second time around.

All around the world, bankers had their way with government leaders, well, except for Iceland, whose decendents of marauding Vikings and new female prime minister told them to f&*( off.  I guess it takes pirates to know pirates.  But the rest of the world bowed quickly to the notion that recovery of the banking system was The. Most. Important. Thing. Everything else, their sovereignty, public welfare and future growth, was made secondary to the immediacy of keeping the paper flowing between the banks. The fear of a global meltdown made them cower. But there is no strategy to ever get out from under these conditions. There was no effort to reign in the bankers either. And they have a well oiled propaganda machine and know that when a population is under stress, it circles the wagons and becomes more conservative and nationalistic. Liberal policies look too risky and threatening. In next week’s vote in France, I would not be at all surprised if Nicolas Sarkozy managed to hang onto power, despite his unpopularity. The rational people of France may look to the right at Marine Le Pen’s crazy nationalists and fear that Le Pen’s faction will get enough votes to form a coalition with Sarkozy’s. Voting for the socialist candidate may look too risky. I hope I am surprised.

And what does it mean for this country? Well, I am not at all surprised that expectations have been set for Hillary in 2016. The press only sounds beneficent and contrite this time around, acknowledging that maybe they have regrets about what they and the party did to her in 2008. Bullshit. They know damn well that her chances of getting elected in 2016 are nearly zero. But pushing the timeline for her forward is an attempt to pacify the restless elements of the populace who see her as the only legitimate alternative to either Romney or Obama. At this point, it doesn’t even matter who wins the White House. Wall Street doesn’t see either of them as a threat.

In the meantime, they have just scored another victory in the JOBS bill where they can be less than transparent to investors who they hope to make new deals with. I think the idea behind this was to help small companies, like small biotechs, get investment capital. Small biotechs don’t really have a product to sell. They have ideas and beginnings of products. But development takes a lot of time and money and as the big pharmas have already found, you can sink billions of dollars into an idea and have it shot down by the FDA or siphoned off by a side effect that no one anticipated. So the risks are high. But that doesn’t matter. All that matters is the deal and in innovative industries like biotech, there are a lot of potential deals to be made.

And then there is correlation between bonuses and crashes. Ho says that record high bonuses on Wall Street frequently precede crashes. That’s not really surprising. It means that there is a frenzy of unchecked deal making and risk taking with large sums of money in some corner of the market where all of the investment bankers have been attracted like magpies to shiny things. All of the money has poured into this sector and bets have been placed for and against. Maybe the new rules will prevent overleveraging. Maybe they won’t. But there is one thing the bankers can count on- a steady stream of new funds from your 401K accounts to their hands that they can bet in a global casino. Pensions are so passe. 401Ks are the new black and you can be sure that there will be an even bigger push for the banks to get their hands on even more piles of money that are sitting around that no one seems to be using.

There is no goal. There is no plan. There is no strategy. It’s all, “What have you done for me since lunch?”.

The system is broken. Its entropic, unsustainable, moving at speed of fiber optic cables and out of control. The best thing we average Joe’s can do is to limit our own losses, get out while we can and sleep with the lights on.

The Strategy of No Strategy: Shareholder Value

This is a continuation of my take on Karen Ho’s book, Liquidated- An Ethnography of Wall Street. I can’t do the book justice in a single blog post (it’s going to take at least four), I’m going to try to summarize some of what she is describing as the culture of Wall Street and how it is infiltrating our lives. I’m going to touch on four major themes in her book: “smartness”, “flexibility”, “shareholder value” and “the strategy of no strategy”.  Check here Part1 on Smartness and Part2 on Flexibility.  I am going to try to tie Karen’s analysis of the culture of Wall Street to the pharmaceutical industry because having had a first person perspective, it is my belief that Big Pharma has felt the worst effects of Wall Street on its core business- discovering drugs.

This post is about Shareholders vs Stakeholders.  In Wall Street culture, nothing is more important that enhancing “shareholder value”.  But why is it that shareholder value is more important than anything else, including the health of our modern economy and the companies that drive that economy?  Let’s talk about what it’s like to be a corporate stakeholder.

I used to work on a beautiful tree lined campus.  It looked like the science section of a university. Right about now, when it’s Take Your Children to Work month, the trees that were planted by the staff in honor of previous Earth Days would be in full bloom.  Pretty soon, the sidewalks would be edged in fragrant purple lavender.  I have pictures of myself and Brooke under a tree on a Take Your Children to Work Day, the tree abundant with clusters of white flowers and in the background, lots of kids working off energy with hula hoops and jump ropes before another tour of the labs after lunch.  My site also had a gym and after a hard session of spin or pilates in the evening, I would walk back to my office to finish a few things before heading home.  While I strolled back, I thought about how lucky I was to have the job I’d always wanted.  My life at work was like being a perpetual student, learning new things about biology and nature and never having to dress up.

As scientists, we make an unspoken deal with the corporation we work for: it provides the labs and resources we need to make discoveries and we sign those discoveries over to the company for a token amount.  They paid me well.  I have no complaints.  I would have never made the big bucks that I might have if I’d worked on Wall Street, but I was able to pay my bills, put some money aside for my retirement and college funds, and occasionally, I had money to splurge on a Royal Caribbean Cruise or to feed my gadget addiction.  Believe it or not, that was enough for me.  I was just delighted to be there.  No, seriously.

When I tell people that we sign our patents over to our companies for a buck, they can’t believe that we don’t feel cheated.  But you know, discovering drugs is an expensive proposition.  I could never do it by myself, and neither can most scientists, as we are finding out.  But it’s not the money that’s important.  For example, I used to work with the guy who invented Effexor, Morris Husbands.  His invention made the company, Wyeth, billions of dollars, though he never saw more than his own salary and a generous bonus/prize.  It was still a teeny fraction of the profits but that was Ok.  What Morris got that the rest of us envied was letters.  He got letters from patients who thanked him for helping them turn their lives around.  Yes, I know that Effexor isn’t the right drug for everyone but some people genuinely couldn’t pull out of depression without it.  And these patients were so relieved that they went out of their way to track down who this guy was and they wrote to him.  Morris was a lucky man but there’s a cautionary tale about the discovery of Effexor that I’ll get to at the end.

So, what does this have to do with shareholder value?  Bear with me on this because I only took two economics/business courses in college and my knowledge of this is a little rusty.  This was the most difficult part of the book for me to get through because it has to do with the history and philosophy of capitalism.

Here’s the part that I get: In modern capitalism, a corporation consists of many stakeholders.  Shareholders are stakeholders.  But so are managers, employees, vendors, government and the community, among others.  Stakeholders are dependent on the success of the corporation so it is in their interest that the corporation succeeds.  Ho describes a sort of golden age of the corporation post World War II where corporations took their responsibilities to the community and employees seriously.  Maybe it was just a temporal thing that had to do with the proximity to the Great Depression and all that that entailed to the society and economy at large.  This is not to say that corporations always had a rosy relationship with their employees.   But there was an understanding that managers and employees worked together in what was naturally an adversarial relationship to find solutions that would work for everyone.

Then, right around the early sixties, the shareholder contingent got the notion that they were being ripped off.  This was also a time of conglomeration, or what we called mergers and acquisitions before they got to be sexy.  In some cases, the conglomerate was created by the accretion of corporations that were not related to each other.  The conglomerate was sometimes big and unwieldy and not terribly profitable.  In other cases, CEOs were just not eeking out every dollar of profit from the corporation to the satisfaction of the shareholders.  Or they were sharing the profits with employees without a lot of shareholder input.  You know, pensions, health care, union contracts.  Shareholders began to feel like an aggrieved party.  They didn’t feel that lifting all boats on a rising tide was their responsibility.  They wanted a bigger share of the profits.  But how to do it without looking like greedy assholes and how would Wall Street arrange it so it would get a substantial cut?

Enter Adam Smith.  Here’s where Karen Ho describes the neoclassical capitalism as laid out by Smith and how it didn’t evolve to take the modern corporation into consideration and how shareholders took advantage of that lapse.  Ho writes:

The dominant theoretical perspective on the goals and values of corporations has arisen out of the discipline of economics, which in turn has been dominated by the neoclassical tradition (Schrader 1993).

To understand the history and persuasiveness of shareholder value, it is crucial to understand the ideological assumptions which render it natural and legitimate. The most obvious problem with neoclassical economic theory is simply that its core premises are significantly different from, and clash with, any understanding of the firm as a social organization. Neoclassical theories are derived from the “classical” worldviews of Adam Smith in the eighteenth century, built upon and reconfigured by the “neoclassicists” of the nineteenth and early twentieth centuries-all before the modern corporation was established as the major organizational form through which business in the United States is conducted. Even contemporary iterations of neoclassical theory bear the marks of their precorporate origins, having never attempted to take into account the corporation as a social institution and refusing to acknowledge how its multiplicity could change the very foundations of economic theory and business norms. David Schrader (1993, 2) has characterized neoclassical theory as “woefully inadequate to the task of providing a sound understanding of the managerial corporation.” Instead, corporations have been continually made to operate according to neoclassical values, however ill the fit.

At the center of Adam Smith’s The Wealth of Nations, the founding text of classical economics, is the notion that individual acts of economic self-interest combine, through the “invisible hand” of market forces, to further the best interests of society at large. Smith, like many classical economists who followed, centered his theories on the single individual, the notion of an entrepreneur who both owned a small, private enterprise and managed it. The dominant neoclassical assumptions in economics and mainstream business today are certainly grounded in these worldviews, though many pivotal additions and reworkings were necessary. Even after the modern corporation came to be the dominant form of economic organization in the early twentieth century and the “visible hands” of multiple constituents and managers became apparent, neoclassical theories maintained the centrality of the individual entrepreneur.

In fact, throughout the twentieth century, in the face of a completely new socioeconomic phenomenon, entire schools of economists, notably from the University of Chicago, “steadfastly maintained that all important work in economic theory could be carried on from the perspective of an individualistic analysis with an assumption of perfectly competitive markets” (Schrader 1993, 67). The resurgence of shareholder value in the 198os, then, can be read as part of a long line of neoclassically inspired worldviews attempting to collapse and treat the corporation as a single profit-maximizing individual in the market. Championed by Wall Street financial institutions and brought to prominence during the leveraged buyout movement, the shareholder value movement became, arguably, the culmination and most effective demonstration of neoclassical values in the history of American business. Specifically, neoclassical capitalist worldviews recognize the presence of two entities: the individual owner and private property, understood as an exclusive unit. The individual and his private property are the only two inputs into the equation;3 other actors or claimants cannot wedge themselves into this limited space.

Moreover, Adam Smith imagined that the individual owner-entrepreneur would necessarily manage his own enterprise, and as such, he would be solely entitled to all the fruits of his property, the profits. It is precisely because the owner controls the enterprise and gets to “own” the profit that he, driven by self-interest, is compelled to use his industrial property and labor “efficiently” and grow for the strict purpose of accumulating more profit. This pivotal sequence-ownership, control, full access to profits, efficiency-constitutes the neoclassical, logical order of the relationship between individuals and private property. The glue stringing this causal chain together is the concept of self-interest as motive and the invisible hand as automatic market mechanism. For the capitalist world to be aligned properly, capitalist owners must have full access to the profits through complete control over their private property (Berle and Means iggi).

So, shareholders consider themselves the primary owners and stakeholders of the corporation and all other stakeholders get relegated to interloper status.  Nevermind that modern corporations do not operate strictly by neoclassical principles.  The rights of ownership trump any other claims on profits.  And the shareholders found further justification for their views from Smith himself:

Adam Smith himself, who believed that the managerial corporation would inevitably fail because its very structure negated his assumptions about the interests and motivations of owners and managers:

“The directors of [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail … in the management of the affairs of such a company. It is upon this account that joint stock companies … have seldom been able to maintain the competition against private adventurers. They have, accordingly, very seldom succeeded without an exclusive privilege; and frequently have not succeeded with one. (A. Smith zooo, 800)”

To fit into this theoretical legacy, large, public companies had to be understood as if they were merely the creations and appendages of individual entrepreneurs.

(Karen Ho. Liquidated: An Ethnography of Wall Street Kindle Edition.)

I think we can see the problems with this view and the solutions that shareholders would impose.  For one thing, a corporation with many shareholders whose interest in a company can be reduced to trading those shares for greater value than they bought them is hardly the kind of owner that Adam Smith envisioned when he wrote the quote above.  Smith lived in a pre-industrial culture where owners were more closely associated with their businesses and where the rule of law was still in its infancy.  It made sense in the 18th century for an owner of a company to keep a close eye on his managers.  Those managers were his stewards but without a proprietary stake in the company itself, were not going to go bankrupt if the company failed.  In the 18th century, the owners bore the primary responsibility for the fate of the corporation so they were most likely to also profit by it.  Their hands were more in the pie so they were more justified in calling the shots and taking their share.  In the 20th century,  ownership is distributed among many thousands of individuals.  This should limit their ability to interfere with the way the corporation is run.  But if they feel they’re not getting their cut, they might start exercising control in different ways.

For example, if the manager CEO did not have the proper attitude of responsibility towards the owners and continued distributing the profits to stakeholders instead of shareholders, then the shareholders would instill that sense of obligation by making the CEO an owner.  Mid-century salaries for corporate managers were generous but modest by today’s standards.  Now, with much of the CEOs compensation in stock, the manager now sees the value of the stock as important to his own wealth so he’s motivated to maximize the value of the stock.  Note that I did not say he is motivated to maximize the value of the corporation.  With ownership as the incentive, money becomes the object.  Other shareholders, such as institutional investors, demand more of the profits as well and eventually, more of the corporations resources are used to pay the shareholders at the expense of the other stakeholders.

I don’t think any of this is new to anyone who has been paying attention in the past couple of decades.  But it’s interesting to know what shareholders have been using as a rationale for their rapacious behavior.  Owners are entitled to their private property.  As far as they’re concerned, everything that is produced by the corporation is theirs and does not need to be distributed to anyone else.  If you were employed by the corporation and stupid enough to buy into the idea that it owed you a pension after 30 years of service, that’s your problem.  The shareholders didn’t authorize that pension plan.  The corporate managers did, probably without consulting the shareholders as to whether they were in favor of such a long term commitment.  Not only that but since shareholders are changing all of the time, how is it possible to entail one’s private property to stakeholders who are not actually owners?  You can see how this logic as slowly infiltrated our culture and our politics.  Remember George W. Bush’s “Ownership Society”?  Not just a slogan, it was a philosophy that really didn’t include the vast majority of us.

In big pharma, we have seen an accelerating dismantling of the corporation and shedding of stakeholders.  It first started during the merger and acquisition frenzy of the late 80s and through the 90s.  With every merger and acquisition, the Wall Street firms that set up the deal would profit greatly, as would the CEOs with a lot of outstanding compensation in stock.  With those early mergers, it was the sales force and other executives that were laid off.  They generally didn’t have a problem landing jobs elsewhere.  There were also some therapeutic areas that were shuttered and the staff either reabsorbed elsewhere or laid off.  But since this was a relatively small number of scientists, it wasn’t alarming at first.  But then there were a couple of high profile deals in the 90s where a whole company’s research division was laid off.  A number of pharmaceutical companies  located in the midwest were shuttered after deals and some staff relocated to the east coast.  Sometimes, this was just the personal preference of the CEOs who didn’t want to live in the midwest.  Brand new labs were mothballed and families displaced.  But still, there was no panic.

It wasn’t until the last decade that the strategy of going “weightless” became clear.  Little by little, therapeutic areas were closed and certain scientific fields relocated to China and India.  Chemists, in particular, have been especially hard hit.  And since 2007, the bottom has completely fallen out of the research industry.  Research is very expensive so corporations aren’t doing it anymore.  They are contracting out everything, leaving former stakeholders on our own.  Without the support of the corporate lab, we can’t afford to do research.  Now, we are hobbling along, hoping we get far enough in a project to sell our patents to a corporation that is waiting, like vultures, for a small company to get out from under it’s R&D debts.  (Those of you who are concerned with the provisions of the JOBS bill that have to do with transparency with investors should take note.  I think there is an important connection here where Wall Street acts as a middle man.) Those companies will end up selling the patents for more than a buck but not anywhere near as much to keep their operations stable.  And in the meantime, the corporate owners, incentivized by ability to shed any obligations to share their wealth with stakeholders, continue to dismantle their infrastructure.  Before long, a corporation will consist of a pool of investors who own patents from which they will derive their wealth and have very light operational costs that are associated with the “smartest” scientists and engineers who will direct the outsourcing and CRO contracts.  R&D will become a commodity and the people who engage in it completely exposed to the free market.

There’s a big problem with this scenario.  Well, there are several, actually.  It turns out that the barrier to conducting research in this environment is too much for many scientists.  It’s not that they’re not business people.  There’s nothing we can’t learn if we put our minds to it.  It’s that startup costs are so astronomical and the amount of work to be done on a project indefinite and not easily quantified, that the probability of losing all your money greatly outweighs the likelihood of striking it rich.  So, scientists are getting out – of science.  In this environment, it’s strictly for the young and unencumbered.  Science will do better in Europe than here in America because European governments typically protect their scientific industries better and labor unions are stronger there.  The stakeholders are more thoroughly grounded.  And corporations will look to Asia for their non-proprietary science.  PhD chemists in China and India are cheap and plentiful.  They’ll do the knock offs and the synthetic work.

Effexor: The one that almost got away

But the other thing that is problematic with this scenario is that serendipity is much less likely to occur.  The corporation is only going to get exactly what it contracted for and nothing more.  Which brings me back to Morris and Effexor.  Morris was the junior PhD on the project and legend has it that the senior chemist called the shots.  Morris was synthesizing a bunch of compounds for testing and wanted to make one that the senior chemist discouraged him from making.  The senior chemist thought they had synthesized enough at that point.  But Morris had the lab and the resources and the time so he synthesized it anyway and that was the one that made Wyeth billions of dollars of shareholder value.

Under the new system, Morris would be working for a CRO and he wouldn’t be paid to make any extra compounds.  He wouldn’t be getting letters and people wouldn’t be getting better and no one would be getting rich.

Oh well.

The Strategy of No Strategy Part 2- Flexibility

This is the second part of the series reviewing Karen Ho’s book, Liquidated: An Ethnography of Wall Street.  Click here for part 1 on the “Culture of Smartness”.  In this summary,  I will describe each concept as it originated on Wall Street and then show how it has been translated to industry.  The industry I am using is Big Pharma because I think pharma has been one of the industries most adversely affected by Wall Street culture and whose demise is indicative of what will happen to the rest of the country if this culture is not reformed. Of course, Wall Street culture has permeated politics too.  I’ll get to that at the end.

Let’s start with some current news that on the surface doesn’t appear to have anything to do with employer “flexibility”.  Yesterday, the NYTimes featured an article about the sharp increase in retracted articles from scientific journals.  In some cases, the work is just shoddy, in some others, it looks like it was deliberately manufactured.  What’s going on?:

In October 2011, for example, the journal Nature reported that published retractions had increased tenfold over the past decade, while the number of published papers had increased by just 44 percent. In 2010 The Journal of Medical Ethics published a studyfinding the new raft of recent retractions was a mix of misconduct and honest scientific mistakes.

Several factors are at play here, scientists say. One may be that because journals are now online, bad papers are simply reaching a wider audience, making it more likely that errors will be spotted. “You can sit at your laptop and pull a lot of different papers together,” Dr. Fang said.

[...]

But other forces are more pernicious. To survive professionally, scientists feel the need to publish as many papers as possible, and to get them into high-profile journals. And sometimes they cut corners or even commit misconduct to get there.

Yet labs continue to have an incentive to take on lots of graduate students to produce more research. “I refer to it as a pyramid scheme,” said Paula Stephan, a Georgia State University economist and author of “How Economics Shapes Science,” published in January by Harvard University Press.

In such an environment, a high-profile paper can mean the difference between a career in science or leaving the field. “It’s becoming the price of admission,” Dr. Fang said.

The scramble isn’t over once young scientists get a job. “Everyone feels nervous even when they’re successful,” he continued. “They ask, ‘Will this be the beginning of the decline?’ ”

University laboratories count on a steady stream of grants from the government and other sources. The National Institutes of Health accepts a much lower percentage of grant applications today than in earlier decades. At the same time, many universities expect scientists to draw an increasing part of their salaries from grants, and these pressures have influenced how scientists are promoted.

“What people do is they count papers, and they look at the prestige of the journal in which the research is published, and they see how may grant dollars scientists have, and if they don’t have funding, they don’t get promoted,” Dr. Fang said. “It’s not about the quality of the research.”

Dr. Ness likens scientists today to small-business owners, rather than people trying to satisfy their curiosity about how the world works. “You’re marketing and selling to other scientists,” she said. “To the degree you can market and sell your products better, you’re creating the revenue stream to fund your enterprise.

Been there.  By the way, that part in bold is not by choice.  We didn’t go to school to learn marketing and business.  This is a role we’re being forced into to the detriment of our other work.

In the research industry, your chances of getting or retaining a job depends on your publication count.  And let me tell you, it’s not easy to have your work published.  Those of us in corporate labs have to run our submissions past a team of lawyers who may keep work on hold indefinitely.  There are many reasons for this.  Sometimes it’s to protect proprietary information or patents.  But while you’re waiting, you could be laid off- for having insufficient publications.  When I was laid off, I was involved in 2 active projects, one of which I had been working on since 2006.  We are just now getting around to publishing.

The scramble for publications is fierce.  People get really cut throat about them.  Your future may depend on being first author.  And when people can’t publish on their active projects, sometimes they end up writing crap on some trivial method development just so they can put something down on their performance goals worksheet.

So, what does scientific misconduct have to do with flexibility?

Karen Ho describes the working conditions of Wall Street as being constantly changeable.  Employees do not expect to be in a job for very long.  As an analyst, it’s expected that you will quit after 2 years and go get your MBA.  So, long term employment is really not expected in the lower levels.  But even 2 year commitments are rare.  Ho was laid off after being at her first job for only about 6 months.  Bankers Trust gave laid off workers grace time to find other jobs and Ho was able to transfer to another department within the company.  But the first lay off came as a shock to her, while other more experienced Wall Street workers just roll with it.

Layoffs are common on Wall Street and workers there pride themselves on their ability to adapt and change as if their “smartness” is some genetic asset that confers some phenotypic advantage that allows them to adjust to their new environments.  Survival of the smartest. When they get laid off from one job, they usually land another one pretty quickly somewhere else.  They just move their desk organizers across the street.

In economic downturns, layoffs are to be expected and they can look like a bloodbath.  But layoffs are routine in good times on Wall Street as well.  Wall Street uses good times to do “rank and yanks”, getting rid of their bottom 20% of performers and then going on a hiring spree at Princeton or Harvard. Sometimes Wall Street firms overdo it and layoff too many people in the very area of expertise they find out later that they should have retained.  That can cost them in institutional knowledge.  But they have the flexibility to hire new people to fill those spots or poach them from other companies.  It’s light, it’s quick, it’s flexible.

When Ho talked to her informants about the changeability, expansion and contraction of Wall Street, they tended to attribute it to a nebulous entity called “The Market”.  The market is not simply the Dow or geopgraphical activity.  The market is a combination of economics, financial industry trends and the people who work for the market.  In other words, Wall Street firms tend to follow trends.  If Merrill Lynch is ditching 20% of its workforce, all of the other institutions follow suit.  If one institution gets into collateralized debt obligations, all of the other ones do too.  So, when a particular market collapses, so does the need to keep people in particular jobs.  No biggie for the Wall Street worker.  All they need is a cube and a workstation.  They shift with the market.  Since they were hired for their prestigious pedigrees and connections and not their undergraduate specializations, they just learn a new area of finance and take it from there.

All that matters in the end is getting that bonus and making a high number of deals.  The pressure is always on to make the highest number of deals, to sell the highest number of securities, to arrange a giant merger.  Everything is quantified and correlated with the bonus.  To stay in the game, you need to keep up, make your numbers and be flexible.

So, when a Wall Street financial unit starts analyzing companies, it begins to wonder why it is that other industries can’t be as adaptable.  Why are workers clinging to their jobs like their lives depend on them?  If they were more flexible, they would be more innovative.  If scientists are as smart as they say they are, they’d be more productive or just get jobs somewhere else.

In the 90’s, those of us in the research industry started to notice an increase in the number of new trends in big pharma.  When one company decided that combichem was the next big thing, all companies jumped on the bandwagon.  When that changed to proteomics a few years later, everyone started chasing that.  Then genomics after that.  Then siRNA. etc, etc. The introduction of next big things was beginning to get ridiculous.  Usually, they were something discovered in academia that wasn’t quite ready for prime time, a get rich quick scheme talked up by some desperate manager who saw a presentation at a meeting, that was sold to the executives as the thing that would result in research churning out half a dozen blockbusters a year.  While we tried to figure out how to use these new tools and incorporate the data, we found that just as we were figuring things out, the fad was abandoned and a new one took its place.  Couple that with the rapidity of new biological discoveries and it made your head spin.

Then came the “rank and yank” performance evaluations where everyone’s work was reduced to a metric that could be measured.  How many compounds did you synthesize?  How many NMRs did you run?  How many crystals did you solve?  How many papers did you write and where were they published?  That last one became very important at one of the companies I worked for.  There was a hard number of papers that had to be written each year just to rank in the middle of the pack.  To get a decent raise or promotion, you had to publish in a prestigious journal and you had to be first author.  This resulted in a lot of writing and not as much science.  Your career and house and kid’s college fund were directly tied to how many papers were written.  Resources were hoarded because if you needed to run certain experiments for a method paper, you had to prioritize.  Should you spend a lot of time collaborating and helping your project team or run a bunch of LC Mass Specs to make sure you have the right number of data points for your paper?  Some people will manage to suck a good portion of limited department resources, like disk space on a server, for themselves, leaving the rest of the department scrambling for enough space to run their jobs or deleting their data at a moment’s notice.  These selfish people usually end up keeping their jobs, because they can get their work done without interruption and publish, so there’s incentive to be selfish and hobble your competition.Big blank spaces in the publications section of a CV due to active project limitations are stress inducers if you need to find a new job.

Eventually, the mergers and acquisitions, trend chasing, competition vs collaboration, and the increasing pressures from the FDA to find the perfect drug with zero side effects or risk a recall, started to have an effect on the bottom line of many pharmas.  And then there were all those cheaper scientists overseas who surely must be more productive.

The layoffs have always been a feature at pharma since my first days on the job back in the late 80s.  But they started to pick up in the 90s.  For research, we always operated with a hiring freeze.  Since 2007, the number of layoffs has been devastating with hundreds of thousands of scientists thrown out of work.  Many of us have been encouraged to find jobs at the small biotechs that have popped up lately.  The problem is that small biotechs have very high overhead.  Sometimes, they have to layoff early stage research staff when they move to a new stage of development.  It’s not unusual for scientists to jump from company to company and get laid off multiple times.  The problem is, unlike the Wall Street worker who sees this as normal, a scientist can’t simply pick up his equipment and move across the street.  There are costs associated with that.  As I have written before, journal articles for small companies and independent scientists are prohibitively expensive.  And modeling software?  The stuff I used to use on a daily basis when I was in a corporate lab cost millions of dollars a year for licenses.  That leaves me working with open source applications, some of which are decent, like bioinformatics tools that most governments make publicly available, and some, like computational chemistry tools, are not.  I always feel like my hands are tied when I have to do a docking run that used to take me minutes to setup and run and now takes me much, much longer to cobble together from cheap, available and generally inadequate parts.  Innovation has just taken a step backwards because a lot of us are forced to use stone age tools that we can afford when we used to use high tech stuff in a corporate lab.  Wall Street workers need only a cube and a computer.  We need a complete working infrastructure.

But the worst aspect of the flexibility model is that you can’t have a life as a scientist.  I mean, you can’t have a scientific life and you can’t have a life outside the lab.  When you’re forced to keep moving, your connection to the actual work is tenuous.  You can’t follow a project long enough to really understand what’s going on.  And some CROs don’t even want you to do that.  They just want you to do your one special thing and not think about what it means in the whole scheme of things.  That’s going to have a great impact on innovation because you can’t learn anything in a holistic sense or apply new understandings to new projects.  In a similar sense, the Wall Street worker also doesn’t have time to analyze their work, resulting in a different set of consequences.

Outside the lab, you can’t really have a family.  There’s no security in it.  You can never be sure that you’re going to be in one place long enough to settle into it.  Many of us have been told to relocate to Massachusetts if we want to find a job and many of us have said, “No, thank you”.  That means disrupting your domestic life and moving to another state where you might only have a job for a few months.  Then you’re hitting the pavement, marketing your “product”, which is yourself.  I’ve met a lot of scientists lately who have decided to not go to Cambridge and are leaving science altogether.  And if you’re always in danger of a layoff, there’s no point to buying a house or any big purchases.  Any money you can save needs to be stashed away in preparation for the next big down turn. In science, bonuses are not half or more of our compensation package so there’s considerably more insecurity than there is on Wall Street.  Sure, maybe if you have enough publications and graduate from the right university, you can find another job but it’s not like Wall Street where employees can afford to wait it out and jump into a new job when the market shifts.

This is the new workplace.  It is dynamic and you’re expendable.  Some corporations are headed towards a “weightless” model where they hire and fire contractors when they need to and to whom they have no long term financial obligations. Nevermind that it doesn’t work for your industry.  Nevermind that Wall Street analysts start working at age 23 while the average PhD chemist is over 30 before he or she gets his first paying job.  The average Wall Street worker has had 10 years to sock away a nest egg before he imposes his flexible workplan on your lab.

In the meantime, publications are everything.  And when the money is hard to come by and the equipment is available for a limited time only, mistakes will be made, corners will be cut and papers will be retracted.  That’s going to affect innovation and “shareholder value”, the next part of this series.

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