Saving Health Care From Wall Street

I've noted the issues raised by financialization in nursing homes, billing & payment systems, and hospital chains before on blogs.  I wanted to present a few paragraphs from a recent book review (of Robert Shiller's Finance and the Good Society), which explore the problems raised by the finance sector's interaction with pharma: 

A Ph.D. cancer researcher with ten years of experience tends to make about $110,000 to $160,000 annually; a banker specializing in mergers and acquisitions, about $2 million. Top hedge fund managers make billions of dollars annually. The disparity fails to rankle Shiller, since the “scientists are mostly living comfortably doing what they really want to do.”

Unless, of course, they’re among the thousands of drug developers laid off by pharmaceutical firms, which have been pressured by Wall Street to focus on “core competencies” and cut R&D. Last year, investment managers punished Merck for investing in research, while rewarding Pfizer for cutting it dramatically. Investors and analysts also questioned R&D levels at Lilly and Amgen. The constant pressure for quarterly earnings makes each cut to scientific investment seem rational when it occurs, but its consequences are devastating in the long run.

Shiller is eager to praise financiers for funding innovation, but barely mentions the asset-stripping and short-term thinking that have devastated many industries over the past two decades. A study from the New Economics Foundation recently estimated that leading London bankers “destroy £7 of social value for every pound in value they generate.” In the United States, the Kauffman Foundation concluded that an “expanding financial sector” is “depleting [the] pool of potential high growth company founders.” Why go to the trouble of developing a new product or service when you can take on much less risk (and probably net a far bigger return) as a financier deciding which company merits investment? Whatever one thinks of their methods, at least the NEF and Kauffman are asking tough questions about finance’s role vis-à-vis the real economy of goods and services.

Whether we are contemplating drug shortages or lack of innovation in antibiotics, we should always complement critiques of policy failures with critical examination of the methods of those at the commanding heights of the economy.  Contemporary finance is agnostic to human outcomes. We should not be surprised if it generates some troubling ones in health care.

[FP]