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      Right, with the ban on Huawei using chips made with American manufacturing equipment (one of America’s last few places of absolute advantage); the bans of TikTok, Tencent and WeChat; the attempt to convince other countries to not use Huawei 5G; the arrest of the Huawei founder’s daughter for doing business with Iran along with the […]
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Phase out the 401K

401k-624x416There is a post in the NY Times today about the way companies that layoff their workers and replace them with H1B visa holders also require those workers to keep their mouths shut about what is going on.

The non-disparagement clauses might be partially responsible for the conventional wisdom that we need more STEM graduates when clearly we don’t. Long time readers of this blog know that I and my colleagues were laid off in NJ when our site closed. In fact, New Jersey, Connecticut, New York, Maryland, Delaware and Pennsylvania, the Northeast Corridor, laid off hundreds of thousands of invaluable researchers and replaced them with… nothing. In some cases, brand new research facilities, some built for very specific studies that cost millions of dollars to build, were mothballed or even destroyed.

That’s right, it made more sense to the bottom line to destroy valuable lab space than keep the facilities with the upkeep, maintenance and taxes on the books. The people? What about them? It’s interesting to me that the braintrusts who decided to lay off all those scientists and planned to rent out the buildings to new start ups had a hard time finding renters. Who did they think they were going to rent to? The same scientists who were laid off didn’t have the funds for the start ups that were meant to replace the large corporate labs. They were too stressed trying to find any work in any state while keeping their families in the expensive northeast and mortgaged houses out of foreclosure. So, the “rent the labspace to the old labrats” scheme turned out to be a bust and now the buildings have to come down.

There are a couple of states that benefitted from the destruction of the research industry. Those would be Massachusetts and California. The business models were changed from small molecule research to biologicals. But number of jobs created is small. Only a tiny fraction of those laid off were invited to go to Cambridge. Medicinal chemistry in this country is decimated. Compounds can be made very cheaply in India. There’s still research in graduate school labs but it does not begin to make up for what has been lost.

It’s not like there’s not enough biology to research and anyone in the research industry knows that training is not the problem. These are some of the most highly trained people in the world who have to continue reading the latest papers to keep up. Soooo, that’s not it.

What could be driving the frenzy to dismantle the country’s research industry? Hmmm, what could it be, what could it be.

Well, in some companies, the decision to close the site was followed a few days later by an email to all employees from the finance department that congratulated itself on reducing costs and creating a nice quarterly profit. Sort of a “You who are about to die, we salute you!” email.

When they say it’s not about money, it’s about money.

Working Americans have been forced to participate in their own destruction through the 401K. We invest in funds that are rewarded when companies merge, consolidate and layoff. Companies are sold like baseball cards, drained of their assets and left as hollow shells of what they used to be. Research is expensive. Paying for experience is expensive. Better to ship that out if you can, hire only short term contractors, buy up companies with a promising drug lead and lay off their early research staff.

In the meantime, the portfolios will grow and now the masters of the financial universe have brought us into the game, some of us unwillingly. We are now complicit, watching the quarterly earnings reports and demanding more shareholder value. Because there are no pensions in our old age. This is how we make our money- on the backs of our fellow Americans.

And let us now turn our attention to the H1B visa holders who unfortunately have no rights here. If they lose their jobs, they can be sent back to their home countries. It doesn’t matter if they have lives, relationships or property here. Those are risky luxuries. And it doesn’t help that these people may eventually get green cards. Some green cards are so narrowly tailored so as to make getting a new job after a layoff very difficult for the bearer.

It’s all because of the vast amounts of money that used to be tied up in safe, boring but reliable pensions that are now splashing around the world like colored scrip in a global game of Life. The greed of the financiers and titans of industry is gargantuan. The analysts who work for them on Wall Street are incentivized to accumulate as much wealth as possible, with as much risk as possible in as short a time as possible. If they lose money, the government will cover it or some stupid firefighter will take the hit. It’s their fault if they didn’t go to Harvard and make the right connections.

The 401K is at the heart of everything that is wrong with the current economic system. It encourages risk taking, it incentivizes avarice, it propels the short term investment cycle, it causes the outsourcing, it destroys industries and it is now starting to affect productivity. Because when you sacrifice your talent for youth and low wages, and then force everyone to account for every billable minute, you force the workforce to reinvent the wheel and cause anxiety and distraction in the offices with endless paperwork and minute swapping.

Phase it out. Get rid of the pyramid scheme. Disincentivize short term investment and greed. If we don’t tackle the 401K, all the unions in the world won’t make a dent. There will be no need for them when we are all independent contractors in the gig economy looking over our shoulders for the next layoff and becoming more angry by the minute.

This is the legacy of the last eight years when no bankers were held responsible and no hearings were conducted to ferret out the root causes of so much risk and destruction while the companies held revolvers to the heads of their laid off staff and told them to not say a word about what was happening to them. Funny, the CEOs don’t have any problem telling the researchers what they think of them and how expendable and exploitable they are.

It’s about the money. The 401K fuels the Gig Economy. It’s the Gig Economy, Stupid that’s undermining the middle class, causing income instability, family instability and a drag on spending. Get rid of it.

Hey, Hillary Episode 1: Your biggest donors are hurting us

Google Pittsburgh in Bakery Square, East Liberty.

This is the first in a series as I try to catch Hillary up to what has happened in the last 7 years.

Back when she suspended her campaign in 2008, I thought her presidential hopes were finished. 2008 was her best year in terms of what she might have accomplished. After the financial collapse, there was an opportunity for a disciplined and knowledgeable president to force rehab on the malefactors of great wealth. Well, that didn’t happen. Instead, the malefactors recruited someone more pliable and easily dismissed. I’ll never forget the passages in Ron Suskind’s book, Confidence Men,  where he recounts the meetings Obama had with Tim Geithner, Larry Summers and Christy Romer. Obama would make an executive decision and Geithner would essentially blow him off and nothing would get done.

Anyway, what I could see happening after Obama won is that the bad deals on the financial clean-up and healthcare reform would get concretized. The changes to the workforce brought on by the massive layoffs and restructurings would lead to a different kind, but by no means better, kind of work environment for working people. And that’s pretty much what’s happened. Now, you could say that she’s working with what she’s got and I agree. In these circumstances, given what she’s got to work with, her policies are going to have to be more modest than the opportunities that might have presented themselves in 2008 would have created.

But if all you’re planning to do as president is tweak what is a sucky situation and slightly improve the status quo, then what’s the point of running? No, seriously. Wouldn’t that just make you Babysitter in Charge instead of a president? Oh, sure, Hillary would be a great babysitter, one of the best. No one is going to complain about her protecting us. By the way, that doesn’t mean she is a “hawk”, whatever that means. There are shades of gray. You don’t have to be one thing or the other. And she’ll probably be really good on infrastructure projects, especially broadband. That right there would be a not insignificant legacy. However, for working people who have been so busy trying to keep their heads above water that they are only now realizing how far out to see they have been dragged in terms of work security and income stability, that’s not going to be enough.

Hillary, you need to talk to your donors. Because right now, they can do whatever stupid shareholder value, McKinsey generated idea that pops into their heads and it’s going to hurt them. It is time that someone sat them down and told them that just because they are hiring people in India, or bugging out of NJ and we all need to adjust, doesn’t mean they’re going to save money in the end. In fact, they could be making their problems much, much worse.

Let’s take the latest examples of really stupid ideas in big pharma. It’s now more like, little disconnected, distributed pharma in a  very expensive part of the country. One of the latest Nature Alerts featured an article about the shortage of space in the Boston biotech belt and that the price of land in Cambridge Massachusetts is too expensive for new startups. In short, there’s very little land but big companies keep firing their R&D staff in Connecticut and New Jersey to relocate there. Now, the little start up companies to which we are all told we will find our pot of gold can no longer afford the cost of business there.

And we haven’t heard yet from the hapless souls who manage to get an invitation to work in Cambridge. Go read Derek Lowe’s comment sections on the latest relocation scheme to Cambridge of the virology division of BMS from Wallingford, CT. First, it should be noted that the business people are mostly keeping their jobs and relocating to a different site in CT. But by our calculations, the R&D staff is facing almost a 50% cut in personnel and the “lucky” ones will be relocated to… you guessed it. Cambridge. There’s a lot of anger and bitterness there. Housing prices are astronomical unless you live far from the city. If you live far from the city, your commute is long. Then there is the uprooting of families and finding new schools. Then, when they get there, there’s no guarantee that the job will be available for long. They will be expected to be ready to jump to a new job every couple of years.

And for what? What in God’s green earth would make all these companies decide that it HAS to be Cambridge or they aren’t truly living??

We have no f^&*ing idea.

Harvard is there and so is MIT. Ok, fine. But it’s not like there’s going to be a smorgasbord of people trading industry shattering techniques. Hell no. We all have secrecy agreements. You can’t just talk about what you’re doing over sushi with people from other companies or academic groups. Even 15 years ago the ACS meetings were becoming less and less useful and informative because presentations contained almost no relevant information, structures or data. It’s all protected by lawyers. So, the idea that Cambridge is some kind of hot bed of new open source learnings is just stupid. Do not let them tell you otherwise.

It’s not even like you even have to BE in Cambridge if by some weird chance you can actually share information. The internet makes location irrelevant. In fact, some of these companies farm out so much of their work to other companies that there’s no need for them to be in the same place geographically. Hey, if they want to break up their infinitely configurable corporate lab space and inefficiently run their research by having lab rats negotiate contracts with outside companies, complete with secrecy agreements so that they can become lightweight organizations free from the constraints of employees to whom they are obligated, let them do it and waste their money and talent. But in that case, they’d be saving a lot of money by relocating to Detroit.

And while we’re at it, why is it that the R&D people are the ones that have to make all the sacrifices? Why can’t an MBA who is after all just a bean counter live in a rust belt city? Aren’t they costing valuable office space for the shareholders if they’re located in Cambridge? I mean, if the almighty dollar is the reason why we are reconfiguring pharma, shouldn’t we eliminate the costs of things that don’t actually contribute to the discovery of drugs? If I were a shareholder, I’d want to know why the cubes have to be in an expensive high rise facing the Charles River. It’s not like an accountant or marketing person will have any reason to hob nob with the PhD superstars at Harvard so why are they there? Can’t we find plenty of English speaking MBAs in Hyderabad?

Speaking of rust belt cities, Pittsburgh, for example, offers a lot of culture and plenty of affordable housing for working people. We are not located in East Jabip, most people have all their teeth and this city has one of the most literate populations in the country thanks to Andrew Carnegie’s magnificent libraries. This is a great place to live and work with public transportation, a thriving university center with Carnegie Mellon and the University of Pittsburgh at the center. There’s plenty to do here from an outdoor perspective and free jazz every Tuesday in Katz Plaza downtown. And we have internet. We even have our own Google headquarters. Why Cambridge? Or why not Cincinnati? I only ask.

But nooooo. They’re all going to squeeze themselves into a shoebox or run themselves off a cliff like lemmings. In the process, they’re uprooting a lot of scientists or just plain ruining their careers, and setting back drug discovery by decades. Somewhere on Derek’s comments section a commenter noted that drug discovery requires Leonardos not Mozarts. That’s because it takes a very long time to learn to be a drug hunter. There are software moguls who think they can speed it up by applying something like Agile principles and maybe they can have a minor effect on the middle layer of research. That is, the layer between routine analysis and project team level collaboration. There is a sweet spot consisting of protein groups and crystallography groups that might be amenable to that kind of intervention. But, in most cases, they’re already there. They’ve figured it out and work as a team and they don’t need no stinking software guy telling them how to do it.

The rest of the time, research just needs to grind through it, one cell assay at a time. It’s aggravating to the shareholders who have the attention span of a newt. Ok fine, Ditch the shareholders. No, seriously, they don’t seem to have any appreciation for this stuff. Outsourcing doesn’t make the process go faster, in fact it can cost money and time in the end. What looks like a sure fire way to cut costs and put money in the shareholders’ pockets just doesn’t in the end.

So, Hillary, the next time you meet with these guys, and they are almost always guys, ask them why they are doing what they’re doing. Does it really make sense from a business perspective? Is cutting R&D really the only thing these toadstools can think of doing to increase shareholder value? Aren’t there better ways to cut costs? Or is there a hierarchy of costs to cut that have nothing to do with actual productivity? Are these titans of industry deliberately overlooking the obvious in order to appeal to their MBA culture of smartness? What is the long term strategy or is there even a long term strategy? Is all this pain on the R&D side really necessary? And how does that result in new drugs? Is relocation to certain areas of the country really about costs and collaboration, or is it really about egos and classism? And ask to see the numbers. Tell them you’ll wait until they find them.

Someone needs to start asking these uncomfortable questions and getting straight answers. Because if you want to be the next president and champion for us, you’ve got to start getting the executive class to explain how their McKinsey generated restructurings actually work in the shareholders’ favor. I’m not seeing how it provides value over what we had when the industry was working through new technology but still producing blockbusters. Call me extremely skeptical.

Someone needs to start holding these people accountable for the havoc they are creating. If you’re not going to do it, don’t be surprised if the country doesn’t get all excited about your campaign. Do you really want to be another British Labour party politician?

Next week, does contracting everything out really work?

#antibiotics : somebody should do something

I’m blogging from my iPhone while I wait for my car to be inspected. Expect imperfection, although, some of you may not notice a difference.

To those of you on the left who are finally paying attention to pharma research, head on over to In the Pipeline. Derek Lowe has another story that illustrates the state of R&D research in the era of shareholder value and its potential impact on the rest of us.

This recent event is about Merck acquiring antibiotic research company Cubist. Cubist in-licensed much of its pipeline and had a small early discovery research team of 120 people. It has now been announced that those 120 researchers have been laid off.

I guess you could say, well, Cubist in-licensed much of their stuff anyway. But those 120 people presumably have many accumulated years of experience from working on antibiotic research and that experience will largely be lost because companies are not really investing in antibiotic research. Where are they going to go?

Some of them are going to get a nice payout from Merck but even if they pool their resources, it’s not going to be enough to make a dent in the hole of antibiotic research. It will mean starting from scratch-again- for many of them. Or casting around for another hard to keep job in one of the most expensive housing markets in thtalee country.

In the meantime, there goes some badly needed talent to combat multi drug resistant bacteria.

If only there was an institution big enough to fund research in the public interest…

 

 

Stupid Drug Discovery Advice, $2 Billion dollar prizes and Antibiotics.

The NYTimes posted a column from Ezekiel Emmanuel, Vice Provost at the University of Pennsylvania, on the subject of antibiotic resistance and how to encourage more companies to develop antibiotics. He wants to reward the successful researchers with a $2B prize. BUT, he says: “no payment for research that fizzles. Researchers win only with an approved product.” Oh, and he says that the bragging rights would be great! Yes! That would make the starvation diet so much more meaningful. Funny, we don’t expect any other employed person to live on nothing for close to a decade on something that might not pan out or may need to be sold to a big company to keep our little startup from declaring bankruptcy.

He’s identified the problem. Companies don’t want to invest a ton of money in a treatment that’s only going to be used for a short period of time. By the way, that’s the new business model. Back in the olden days when I first started working in pharma, we had all kinds of therapeutic areas to choose from. But during the mergers and acquisition years during the 90’s to the mid Naughties, those therapeutic areas had to be eliminated to make room for shareholder value. Ok, I don’t want to get into this too deeply because it’s territory I’ve covered before but I might touch on it towards the end.

As I’ve discussed before, the antibiotic shortage problem was bound to come up. Bacteria mutate. It’s what they do. They are masters of natural selection, if you believe in evolution. If you don’t, an infection might just be one of those mysterious things that happen to people who do not pray enough. See, there’s another topic I don’t want to get into right now.

Here’s the problem: as Derek Lowe at In the Pipeline has pointed out, the molecule space around the typical antibiotic therapy has been exhausted. There are other targets than beta lactamases but they are not low hanging fruit anymore. There are new mechanisms that we have to learn, like quorum sensing for example.

When a new target is identified, it takes many years for that project to reach any semblance of what Silicon Valley industries would call fruition. In fact, the most promising project I was ever on started back in 2006. I don’t know what its status is at this point. It was promising enough that I think there was a drug there. But I’m betting it is still in the early phases of clinical development even now. That’s almost 10 years later.

This is the problem that a $2B prize does not solve. You can’t incentivize research like this. The reason is that the money has to be spent up front. That is the problem that almost all R&D, both academic and industrial, is grappling with right now. The scientists have to be hired and paid, the reagents have to be ordered and paid, the equipment has to be bought and maintained, and the people funding all of this have to have the patience of saints while the scientists churn through iteration of iteration of assays, high throughput screening, medicinal chemistry and drug design, pharmacology, ADME/T optimization and scale up. It takes a long time and it’s expensive. What will the R&D staff live on in the meantime? What are they supposed to use to get their work done? It’s like marooning a bunch of scientists on a desert island and telling them to come up with a drug using sand and chewing gum. Or hitting their “friends, families and fools” up for early funding as the American Chemical Society encouraged us to do when we first got laid off.

There are ways to reduce costs. For example, don’t make everyone live in Cambridge, MA or San Francisco. That right there would save the funding agent a bunch o’cash. Move people back to the mid-west from whence they came 25 years ago. You know, those places like Kalamazoo and Cinncinatti or even Pittsburgh. It’s cheap to live here and there is such a thing called the internet. We might even use web meetings to interact with each other. Wow, I believe I even used to do that with my colleagues in France and Germany once upon a time about 5 years ago! Let’s face it, there is not a big melting pot of exchange going on in Cambridge when everyone has signed confidentiality agreements. The only reasons to relocate there is 1.) it allows the MBAs who were once bio majors but sold out for the big bucks to live vicariously and 2.) I have absolutely no idea. No one I know actually wants to relocate to Cambridge. But I’m getting off topic.

My point is that the investment has to be made up front. It doesn’t do much good if it comes afterwards, especially if there are side effects and litigation that need to be covered. This is the case with all drugs. To get the drug discovery mechanism rolling, the fuel has to come early in the process and be committed to seeing the process through. That’s what we don’t have anymore. Once the drug is discovered and marketed, the profits can be reinvested in the next drug. That’s what used to happen.

Note that in this scenario, it is the R&D professionals who are important, not marketing, finance or shareholders. The researchers aren’t in it for the big bucks. You will have to take my word for this. Almost no one I ever worked with went into chemistry or biology with the intention of becoming an entrepreneur or cashing in big on their first blockbuster. Pushing us to become what we are not may be hampering the drug discovery process. Do you want someone in the lab making discoveries or do you want that person negotiating with contractors and venture capitalists? You can’t have both. There may be a few people who have the energy for both but they are exceedingly rare or exceptionally lucky.

And here is where I revisit the cause for why antibiotics, and other therapeutic areas like CNS, Cardiovascular and reproductive health, have been abandoned. It was the frenzy to merge that caused this to happen. All of those mid-size labs were joined and then a purging went on when the executive bonus class and shareholders took their cut. They created “efficiencies” by cutting out R&D and imposing cost cutting measures on research. They made research departments compete with outside vendors for services. They destroyed the collaboration between departments and exacerbated the complexity of the problem to be solved. They looked at their post-merger portfolios and said, “Antibiotics are not chronic therapies. We can’t make money on those. Let’s cut them.”. That’s what happened, Mr. Vice Provost.

And THEN, to top it all off, the mergers and acquisitors decided that academic researchers were so much less expensive. Why not scrap the R&D group altogether and let grad students do it?? Not that I have a problem with grad students but realistically, you have to do industrial research and follow a project from start to finish (if that’s possible without being interrupted by a merger or layoff) before you actually “get it”. Solving a drug discovery problem is one of the most difficult problems in science. Pretending it can be done on the cheap or rewarded afterwards when the vulture capitalists are going to demand their cut is not really understanding the nature of the problem.

A $2B prize is not a solution. It is the definition of success from a country that thinks the only reward is money. THAT is the bigger problem that we have not solved and the reason why new antibiotics are in short supply.

#Pharma: Gobstopping Greed

Researchers are mostly a non-ideological lot. I sometimes wonder if we had been a little more ideological whether we would have kept our jobs but that’s for another post, someday down the road.

But some “capitalists” take greed to such an unbelievable level that even we are left almost completely speechless by the sheer audacity and (dare I say it?) evil.

Take the case of Martin Shkreli. I’ll let Derek Lowe at In the Pipeline tell this story:

He went on to form Turing Pharmaceuticals, whose business plan, by contrast, was (at least at first) to find some small-market drugs, buy them from their obscure producers, and raise their prices into geosynchronous orbit. As reported here by Adam Feuerstein, his first target was praziquantel (Biltricide), the antihelmenthic made by Bayer:

Shkreli is negotiating with the German drug giant Bayer to purchase marketing rights to Biltricide, a drug used to treat infections caused by worm-like parasites called liver flukes. A course of treatment with Biltricide typically involves taking six to nine pills in a single day and costs around $100. 

If Shkreli acquires Biltricide from Bayer, he plans to raise the price of the drug to $100,000 for a single-day course of treatment, according to people briefed on Turing’s business plans. No other changes or improvements to the drug will be made by Turing. The extra revenue generated by Biltricide is expected to earn Turing a fast profit for its investors and help defray the cost of developing other, experimental drugs, sources said.

We shouldn’t be surprised by this. This is just plain supply and demand economics. The number of small molecule drugs has fallen precipitously since the salad days of the 90’s. That means there are fewer blockbuster drugs to make money on and fewer drugs overall getting approved. Lowe reported a few weeks ago that the number of FDA approvals had gone up in 2014 but that represents work that happened about a decade earlier and now that we’ve been furloughed for the sake of “shareholder value”, that might be a high tide mark. The shift is from small molecule drugs to biologicals. This is not necessarily a bad thing but it does turn a whole generation of researchers into the equivalent of steelworkers while vastly reducing the output of small molecule drugs.

The consequence of not discovering new small molecule drugs is that even though they are going off patent and should be cheaper, there are no “new and improved” drugs to replace most of them. So, when they become generic, that’s it. There is no higher end model to compete with. Therefore, the cost of generics has to increase. I mean, where else are you going to go?

Now, in comes someone like Shkreli who sees a vast landscape of obscure generic drugs that could get a new life through retesting or new indications. He scoops up what he can and, without any R&D, he can cash in hugely. He still has to account to the FDA on production and quality standards. This is not insignificant. Think about what happened to the Today Sponge. But in general, this is a pure profit business model on the backs of ordinary people who may need these previously cheap medications. He is the ultimate MBA.

Give that man a bonus.

Believe it or not, researchers are not heartless tools of the pharmaceutical industry. We’re also consumers, and some of us are rather poor now that we’ve been kicked out of the field. R&D is incredibly expensive. Don’t let lefties tell you differently. And companies do have a right to recoup those costs and make a profit- that they can plough back into R&D (note: this was the old business model). But Shkreli’s model is shocking. One of Derek’s commenters summed it up nicely:

I wish people would learn to distinguish two types of capitalism:

1. Social capitalism: Create long-term value for customers with innovation, and then distribute the value created among all contributing stakeholders, including customers, employees, suppliers, distributors, payers & providers, tax payers, and yes, also managers and shareholders.

2. Anti-social / psychopathic capitalism (aka greed): Screw everone and take value from others while destroying it, in order to make a quick profit for management and shareholders.

There is far too much of the latter, and its rapidly destroying society as we know it. And ironically, managers and shareholders will also pay the price, ultimately, as part of the same broken society and economy.

I swear I didn’t write that.

In another sign of the times, I am starting to see some slight indications that the industry is falling out of love with academic research. A couple of postings I’ve seen for drug design support are specifically requesting industrial experience and one went so far as to say that academic modelers are not preferred. (And oh my golly, what a difference industrial experience makes, It really is amazing.) Of course, a PhD is still maniacally important so the wait continues…

Pondering Abramson’s firing- again (for the last time)

Update: Here’s a podcast from the Women’s Media Center on the subject of Jill Abramson’s firing featuring Carol Jenkins, Geneva Overholser, Gloria Steinem, and Soraya Chemaly.  They talk about some of the material I posted below.  As to how we tackle the problem of subtle but real discrimination, we need to take a lesson from Finland and open up a Gender Glasses office in the EEOC that will quantify absolutely everything in a suspect workplace.  Everything must be measured from the placement of desks to the time it takes for email to be answered to who reports to who to how many minutes women are allowed to present and how many times they are interrupted compared to a man.  Think of it like following sports.  Men respect statistics and, frankly, I think it is the only way this problem is going to get flushed out into the open.   Otherwise, it’s just our word against theirs.  If feminists are really serious about the issue, they need to lobby legislators to formally create a Gender Glasses type of bureau, fund it and publish the statistics.  You will know who your friends are when they are asked to co-sign the legislation and move it through the committees.

*******************************************************************************************************

I promise this will be the last time I write about this thing because it’s speculation anyway.  But there’s a lot going on here and, in the end, this is primarily a story about how gender stereotypes were used to serve Baquet.  I realize that he’s a likable guy but in the end, Baquet was the primary beneficiary of Abramson’s firing.  I think we have to acknowledge that he had a significant role in it.

The story is complicated by a family dynasty, recent history, embarrassment, loyalty, economics and a fundamental misunderstanding about how modern women (and some modern men) think.  So, this post will be in pieces parts with the hope that it will all make sense in the end.  Some of these pieces come from personal experience that I have witnessed or was encouraged to participate in.  The pharma field has given me a wealth of material to write several satires.

Let’s start with the most obvious factor plucked from another post I read this morning about positions traditionally held by men being replaced by female appointees and the irrational resentment that engenders.

“There aren’t any WOMEN here today, are there?”

1.) The male affirmative action program.  I ran into this one early in my career when the lab I worked for hired a woman to run a medicinal chemistry group.  As far as I could see, she was the only woman running a group of that size in the company.  There were other female chemists who had a few assistants and were running project teams but this one new hire, let’s call her D, was going to have a substantial group of PhD chemists running their own projects working for her.  It was unprecedented.  On the projects I worked on with D, I found her to be very intelligent, incisive, authoritative and, this one is important, calm.  There was no drama.  She was, and still is, a natural leader.

Needless to say, to this day, the chemists at that lab (who were all laid off en masse by Pfizer in 2009, but that’s another story) complained bitterly about why D was hired.  It wasn’t just that she was a token, it was that there were so many other more qualified men that could have been hired in her stead.  I had lunch with a bunch of these guys a couple of years ago.  They are all pretty decent people, even if they are mentally disabled by their Y chromosomes.  When the subject of D was brought up, I laughed at them. They were still convinced that there were better qualified men that could have been hired.  I pointed out that before D started, all of the group leaders were men and several, and I named names, were leaders that no one could stand.  They were irrational or untalented or autocratic or weird.  No one wanted to work for them.  But D comes along and instead of saying, hey, she makes JB look like a fricking nut case, why don’t we replace HIM, we’re getting all upset that she’s not some dude we know.  I gave them case after case of lousy male group leaders and they all agreed that no one wanted to work for them.  Working for D, on the other hand, was a pleasure because it was so damned rational.  So, what was the problem, guys?  Why is the answer always the affirmative action plan for men?  That shut them up and gave them something to think about for awhile.

Sometimes, you need to point out what a warped perspective men have about how the world works.  In some respects, their lives are as disadvantaged as a person who grew up in the ghetto.  It’s all they know.  They’re so used to lousy leadership from half of the men they work for that they fail to see what the real problem is when a woman steps in to a leadership position.

This has been brought up before but the news media represents women’s points of view very poorly.  The ratio of men to women on the Op/Ed pages of the NYTimes is something like 10-2.  Just look at the Supreme Court to see how having even 3 out of 9 people judging while female has had damn little impact on the law of the land.  It only takes one Justice Kennedy or Anonin Scalia in love with his own self and sense of power to hold back modernity in this country.  But for some reason, all I ever read about is consternation over why Ruth Bader Ginsburg is still serving, a question that never came up when John Paul Stevens was serving well into his 90th year.  So, it’s no wonder that our perceptions of women in leadership roles are so twisted.  It’s like the privileged group just now noticed that there are women in the crowd.

2.) The layoffs are coming!  The layoffs are coming!  Anyone working in the last 30 years knows what it’s like to be on the verge of a layoff.  The MBA crowd starts sending out fatwas about money and getting lunch served during 4 hour meetings is suddenly not happening anymore and cuts start really biting into how things are done.  When this starts happening to a group of professionals who are heavily mortgaged and have kids to raise and college to pay for, alliances start to get formed very quickly.  It becomes necessary to find the politically well connected and become their best friend.  You like what they like and hate who they hate.

When the layoff rumors started at my last lab about 2 years before the ax fell, I had a conversation with one of my colleagues who told me a story about his family dynamics.  He said that he had two brothers and in order to get what he wanted, he always sided with the stronger brother at the time.  The brother on top would periodically change and he switched his loyalties accordingly.  This conversation was in reference to why he was siding with the guy who eventually turned out to be our boss just before the layoff decisions were made and not with the woman who was my boss.  He was offering me a choice.  Switch and help drive the knife in or suffer the consequences.  I opted for  loyalty.  I liked my boss and was learning a lot from her.  She was displaced a few months later and got a new job, and almost all of her former group members were laid off pretty quickly.  I jumped to another group and hung on.

I bring this up because I’ve heard a lot of stuff about how even some of the women in the newsroom complained about Abramson.  This is at a time when the CEO of the Times had been making his presence more widely known.  When it comes time to satisfy the shareholders, it’s important that you have made the correct alliance.  It is pretty clear from the posts I have read about Baquet that Sulzberger liked him and had regretted not appointing him instead of Abramson.  So, if the Times staff was in the unenviable position of picking a brother to side with in order to save jobs, Baquet was the one to go to.  In such a situation, it is appropriate and understandable to play up his good characteristics in order to justify why Abramson was stabbed in the back.  It happens all of the time.  I didn’t say it was nice, or fair, or loyal.  It’s just human.  It’s not a reflection on either Baquet’s or Abramson’s leadership qualities.  Pinch liked Baquet and didn’t like Abramson and that’s all you needed to know in order to save your own skin.

3.) Ovaries of Steel.  In this case, I am not referring to Abramson, although that plays into it as well.  No, I’m referring to the person who Abramson was trying to bring in, Janine Gibson, newly appointed editor-in-chief of The Guardian.  Frontline recently ran a two part series on the NSA scandal that everyone should watch for a wide variety of reasons.  What Janine Gibson did was both shrewd and incredibly ballsy and she learned what NOT to do by watching what the Times did with previous national intelligence stories.

So, here’s a quick summary.  In 2004, James Risen of the NYTimes wrote a story about the Bush administration’s possible violations of the constitution through a massive surveillance of American citizens.  It turns out that Risen only knew a tiny fraction of what was going on and Edward Snowden would spell it all out 9 years later.  Risen presented Bill Keller, executive editor at the time with his story and Keller and Sulzberger contacted the White House.  The White House, deep in reelection politics, knew it had a problem on its hands so it invited Keller and Sulzberger to a meeting. It then put pressure on the Times to sit on the story for a year.  The Frontline documentary makes it sound like the White House either threatened the Times or laid a guilt trip on it about “letting the terrorists win”.  Well, you remember the crap that the Bushies were always dumping on its critics.  Same thing.

Fast forward to 2013.  Janine Gibson sends her representatives to Hong Kong to vet Edward Snowden.  They check him out and say he’s legit and the story is huge.  At that point, she also calls the White House- and gives them four hours to respond before she goes to print. She refuses a meeting. Gibson knew that if she met with the White House and they stalled for time or found a way to silence her source, the story would vanish into the ether so she gave them very little time to engage in defensive tactics.  Now, I think Edward Snowden is a hero and Glenn Greenwald and Laura Poitras were inspiring but when it comes right down to it, none of revelations might have happened if Janine Gibson hadn’t had the courage and intelligence to pre-empt the White House and NSA’s stalling tactics.

4.) Putting it all together.  So, here’s my best guess as to how Abramson’s firing went down.  First, we have Baquet indulging in male affirmative action behavior.  Why shouldn’t he be executive editor?  Also, Abramson’s bringing in this Gibson girl to be his equal?  What?

(I’m going to guess this is when Abramson discovered that she had been underpaid at certain points during her career at the NYTimes.  She probably had to find out what salary, benefits and level she could offer Gibson and in the process, uncovered a pattern of pay discrimination that dated back to the time when she was a deputy managing editor.  Just a guess but the timing seems right.)

Then there is the sense of unease and impending cutbacks.  Baquet makes a lot of friends.  Sulzberger likes him.  Alliances are formed around Baquet.

Then there is the possible embarrassment to the Times if Gibson comes in.  First, it highlights Keller’s and Sulzberger’s toadying to the White House and, secondly, Janine Gibson looks like a loose cannon, something Baquet was likely to highlight during the amuse-bouche.  Abramson is making a rash decision to bring in someone who may get the NYTimes into another Risen situation with all of the potential legal headaches and expenses that would entail.  Did Pinch really want another embarrassing situation on his hands??  Come to think of it, it’s kind of flattering to be on the president’s good side, isn’t it?  And besides, Pinch was one of the forces behind trying to get Caroline Kennedy to take Hillary Clinton’s senate seat.  No doubt, Sulzberger considers himself to be one of the best people.  It just wouldn’t look good to hire this upstart boat rocker.  Did Abramson really think this over before she went over both of their heads to hire Gibson?

5.) The Pilhofer Pilfer.  Women who came of age during the 70’s and 80’s, before The Backlash, grew up believing that there were no boundaries to their ambition.  Oh, sure, we had professors who spent inordinate amounts of time fluffing some pissy little male students instead of us but we could rise above that.  Then we went to work and accomplished and moved into leadership positions and took some risks.  To us, I mean to the females in this cohort, there is a lot of admiration and respect for each other’s talents and life work.  We see ourselves as persons who are women with accomplishments.  However, to the rest of the world, especially to men who for some reason aren’t interested in hearing about the Abramson firing because it is booooorrrrrring to them, a person with Hillary Clinton’s or Jill Abramson’s credentials is still like a dog playing a piano.  They are one offs.

I have also read that women get their first crack at high level leadership when an organization is in trouble.  There are a couple theories as to why this is.  One is that the organizations have run out of other options.  Another is that women are seen as smoothing the waters when there is internal turmoil, although this is really a cultural stereotype.  Women are human beings and can be tough as well if they are given permission to do so.  Look at what happened in Iceland during the financial crisis of 2008.  Johanna Sigurdardottir was put in charge when the country faced down the IMF and the world’s biggest banks.  It initially had a severe recession but has recovered better than Ireland, Spain or Greece.  The risk to women is high in these situations.  If she can’t avert the impending disaster, her leadership is blamed and taints the careers of other women of her stature.

Abramson was put in a tricky position when she took over from Keller in 2011.  The Times is going through a harsh transition due to the changing nature of the media.  From all accounts, she was doing very well.  She was instrumental in putting up the paywall to the news, which makes a hell of a lot more sense than putting a paywall around the Op/Ed pages.  Maybe it wouldn’t have been enough to save her when the shareholders started demanding more for dinner.  Even superhuman accomplishments wouldn’t have been sufficient in that scenario.  And her reputedly “brusque” behavior was not unusual for executive editors of major papers.  I think the gender related complaints were just convenient excuses that Baquet and his allies used to get her out of the way.

But Sulzberger and Baquet are still working with old male brains because Janine Gibson *is* a force to be reckoned with and the fact that she poached one of the NYTimes’ up and coming digital content specialists in the aftermath of Abramson’s firing tells us quite a bit.  It tells us that there are some men who see an advantage to working for strong, courageous women, and that’s a very good thing for the rest of us.

And a very bad thing for the NYTimes.

 

 

Post in a hurry

Weather here in Pittsburgh is right up there with Edinburgh, Scotland this spring.  The forsythia still have yellow flowers on them.  The magnolia tree was in full bloom when we got a hard, hard frost a couple of weeks ago.  That turned all of the blossoms brown.  That same frost killed the flowers in my planter.  Don’t you love to spend money on plants to watch them die?

Lovely.

Cate Blanchett as Hedda Gabler

I noticed that someone was reading my Mad Men post from a couple of years ago.  I still stand by the Ibsen connection but I have a couple of revisions, as well as some theories about a secondary theme on the submission of the creative forces in business to the forces of convention and money.  Heads up: it doesn’t end well for the creative types.  But if you’re wondering how it is Americans celebrate the MBAs and their values to the detriment of everyone else, Matt Weiner may have an idea about how that happened.  I’ll try to map that out later.

Betty Draper as Hedda Gabler

In the meantime, what is the real world consequence of the defeat of the creative?  We may be about to find out when it comes to infectious diseases.  The NYTimes reported yesterday on the first case of MERS in the US.  MERS is a respiratory disease that is related to SARS.  It has a lethality rate of around 30%.  That’s scary high.  It doesn’t mean that MERS is going to take off like the pneumonic plague but I’m betting that fellow passengers on the flight with patient zero are sweating buckets right now.

MERS is a viral infection but resistant bacterial infections are the ones to really worry about.  Viral infections require vaccines and they’re trickier to treat once you get an infection.  For example, what do you take if you get the flu or ebola?  Cat’s out of the bag at that point.  You don’t have a lot of options but to wait it out and hope your immune system kicks in before you die. But we know how to make antibiotics.  We just aren’t making a lot of new ones these days.  Those kinds of drugs aren’t profitable because patients don’t take them for long periods of time so the shareholders aren’t getting a high enough return on investment.  The antibiotic projects get dumped from the portfolio in favor of cancer drugs and orphan disease drugs.  Maybe that’s reassuring to the cancer patients out there but how does it feel to be the shareholders’ cash cows?  And what about the patients with resistant infections, psychiatric illnesses and other illnesses that are difficult and expensive to discover drugs to treat?

In the meantime, the creative types are busily writing their resumes in the wake of another M&A announcement.  That’s the way the world works these days.  The research divisions are viewed as unpredictable and expensive weights on the bottom line.  The hardworking creative geniuses are at the mercy of the bean counters and MBAs.

And so are the rest of us.

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.

 

 

The bigger problem with Obamacare and why people will hate it

I’ve noticed a certain sentiment appearing in so-called “progressive” blogs about Obamacare that I find particularly awful.  It’s that people who are desperate for healthcare will be so grateful for something better than the Republican sharp stick in the eye that they will put up with endless amounts of indignities to get it.  Yep, those truly sick or with relatives who are truly sick will gladly spend hours and hours of frustration in front of a hot display trying to log in and get their information correct so they can see the exchange plans.

There’s an underlying heartlessness about this sentiment.  It’s like, well, what did they expect??  They’re poor and they’re sick.  They should be happy we’re doing anything for them at all.  This strikes me as just a hair better than the “let ’em all die!” attitudes of the Tea Party people.

But that’s not why I think Obamacare will eventually come to be loathed by anyone forced to jump through hoops and face indignity after indignity before they even get to see what their options are.

No, I think the biggest problem with Obamacare that will make people loathe it is the lack of the employer mandate.

See, it’s a little like getting on an airplane and finding out the guy in the seat next to you paid a LOT less for his flight.  If you have employer provided insurance, you probably have a policy that doesn’t cost you the equivalent of a couple new car payments.  You health insurance payments are your benefits, not an added expense.  It’s like you’re getting a bonus every month.  You can go on vacation and if you get a severe case of tourista or break your arm, you won’t come back home with a huge bill to pay off for treatment.  (Note to self: vacation in Canada)

And this is a problem because there is a lot more temporary work these days.  A lot more people who were formerly covered by their employers suddenly aren’t anymore.  I met a lot of people like that in New Jersey.  They couldn’t afford their insurance anymore because they were part time employed or unemployed or self-employed or employed by contract.  Those numbers are growing all of the time in this Little Depression.

So, many of them go without treatment, like the lovely, elegant blonde woman in her fifties I met.  She and her husband both lost their jobs and tried to pay their mortgage on what work they could get.  She let her dental care lapse.  And now she has a mouth full of rotting teeth.  Rotting front teeth.

Or the guy I met at the bar of a local restaurant where I was waiting for my car to be fixed who kept bugging me about signing up for his financial services company.  I finally had to be rude to him and tell him to leave me alone (I had been laid off about a week before).  He got quiet and despondent and said very softly, “I wish I had health insurance again”.  Then I noticed how thin and pale he looked.

How would these so-called “progressives” like it if they had to pay for their health insurance by nagging equally poor women at bars for business?  You can only avoid bars for so long.  Or New Jersey, where the problem is lurking in plain sight.

This administration and its party thought all they had to do was pass the bill and then celebrate.  Implementation would take care of itself apparently.  And if the employer mandate didn’t happen or the deductibles weren’t capped, it was no big deal because it was only the poorest and sickest of the poor who would suffer the slings and arrows of outrageous fortune.  It’s like all of DC has been living in a glass dome for 5 years and has no idea how segments of the formerly well cared for middle class has fallen through the floor caused by the chronic unemployment they have left festering while they allowed the Republicans to control the message.

They have created a new tier of second class citizens.  Oh sure, the employer mandate will come, maybe.  We’ll see.  In the meantime, there will be resentment and seething and anger.  The costs still come out of our pockets or our income tax returns and now, we’ll have no choice to be shaken down by the private insurance market.  We will be captives to it.

Not all of us.  Just those of us unlucky enough to lose our jobs in the name of “shareholder value”.

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.