Editor's Note: Jeff Ferry is chief economist at the Coalition for a Prosperous America (CPA).
Two decades of offshoring pharmaceuticals has hurt our national security.
[Jeff Ferry | March 17, 2020 | Industry Week]
With breathtaking speed, the coronavirus has revealed a previously overlooked vulnerability in the U.S. economy. The United States has become heavily dependent on China and other countries to supply many of the medicines used in everyday life. In the wake of the current pandemic, policymakers are exploring how to rebuild America’s domestic drug capability. A new analysis from our organization the Coalition for a Prosperous America (CPA) demonstrates that the economic benefits of rebuilding this domestic capability would be significant, including the creation of 804,000 high-paying manufacturing jobs.
Over the past 20 years, U.S. pharmaceutical companies have progressively outsourced and offshored the manufacture of prescription medicines, generic drugs, and over-the-counter medications. Although Ireland has become a popular manufacturing location for some small-batch prescription medicines, China and India have taken the largest share of the production of generics and over-the-counter medications. Ironically, it is these low-cost medications that Americans now depend on when treating the coronavirus.
Pharmaceutical expert Rosemary Gibson has authored a book, China RX, regarding the dangers of America’s dependence on China for key medications. Last week, Gibson—who is also a CPA member—testified in the Senate that three commonly used antibiotics—azithromycin, ciprofloxacin, and piperacillin/tazobactam—depend on ingredients manufactured only in China. Such reliance on China even extends to common household medicines; the U.S. imports 95% of its ibuprofen and 70% of its acetaminophen from China.
China is well aware of the strategic importance of pharmaceutical manufacturing. In a speech last year, Chinese economist Li Daokiu bluntly explained China’s strategic options at a National People’s Conference event in Beijing: “We are at the mercy of others when it comes to computer chips, but we are the world’s largest exporter of raw materials for vitamins and antibiotics. Should we reduce the exports, the medical systems of some western countries will not run well.”
CPA’s economic modeling set a reasonable goal of increasing U.S. pharmaceutical production by $66 billion—the amount of annual production lost to pharmaceutical imports since 2010. We found that boosting U.S.-based pharmaceutical manufacturing to 2010 levels would increase U.S. jobs by 804,000 and raise U.S. gross domestic product (GDP) by $200 billion.
In the pharmaceutical manufacturing industry specifically, reshoring would increase jobs by 62%. Federal data shows that, in 2018, there were 294,250 workers employed in pharmaceutical and medicine manufacturing, with a median income of $74,890. That’s 47% higher than the median for all private-sector employees. A boost to this sector would provide thousands of additional high-paying jobs at manufacturing plants across the country.
The economic model is an illustrative exercise. We cannot bring back all of these jobs and factories overnight. The government should sit down with our leading pharmaceutical companies and develop a three-year plan to reshore production of vital medicines—beginning with those most crucial for fighting the coronavirus. It should do the same for ventilators, face masks, and other essential health care accessories.
In the current Democratic presidential battle, Senator Bernie Sanders has repeatedly and correctly pointed out that pharmaceutical companies earn huge profits. As one example, Pfizer earned net income of $16.3 billion last year on revenue of $51.8 billion, a stunning net profit rate of 31.5%. There are very few billion-dollar companies in the world able to report such net profit rates.
Sanders wants to increase taxes on corporations to redistribute some of those billions. But what he and many politicians in both parties fail to understand is that before the 1980s—before the rise of the “shareholder value” doctrine—there were two ways to redistribute excessive corporate profitability. One was via the tax system. The other was via a large manufacturing supply chain that paid workers well when the companies did well. That’s why the pharmaceutical sector pays its workers 47% more than the average worker. That’s why we had a greater sense of shared purpose in the U.S. between workers and employers 50 years ago.
In 2007, Pfizer announced that it would outsource 30% of its manufacturing to Asia, lay off 10,000 employees, and deliver $2 billion in savings to its shareholders. That was a catastrophic decision. The senior managers at Pfizer are not bad people. Many of them are doctors and research chemists who have devoted their lives to finding cures for illnesses. But they are trapped in a system that rewards socially unproductive activity. That system is called shareholder value.
Our first priority today must be reshoring production of the most vital medications. Our medium-term priority must be to begin rebuilding U.S. manufacturing for national security, patient safety, and economic reasons. And the fundamental change we need is to replace “shareholder value” with a national economic strategy that makes broadly shared prosperity, strategic security, and economic growth our top priorities.
Read the original article here.