Tuesday, August 23, 2011

Want to Wreck Things and Rake In Millions? Become a Pfizer CEO

Let me tell you a little story, that has very broad implications about national economic policy, and eventually get around to saying something that relates to the pharmaceutical industry.

Andrew Carnegie, who in his day was sort of Bill Gates and Warren Buffett wrapped into one, wrote an essay called "The Gospel of Wealth." As rich guys go Carnegie was not a bad sort; he believed that the rich should give away most of their wealth to community charities such as libraries and museums. But Carnegie also had pretty strict views about why you should not give direct charity to the poor. He described an instance in which a philanthropist he knew gave a quarter to a beggar. Carnegie was outraged, and insisted that that single stupid act was bad enough to undo all the good work this philanthropist had achieved over a lifetime. First, he was quite sure that the beggar would use that quarter for some immoral purpose--and those were the days when a quarter would actually buy something. But more important, Carnegie was sure that giving assistance to a poor person was a sure way to sap that individual's sense of responsibility, and lead inexorably to what today people would term the "culture of poverty," always waiting around for a handout and doing nothing to pull oneself up by those proverbial bootstraps.

I don't think that Carnegie had a name for this phenomenon, but when conservative economists started creating the theories that led to Reaganism and supply-side policies in the late 1970s, somebody came up with the term "moral hazard." The basic idea is that if people are in unfortunate straits and you give them some sort of aid, all you do is increase the rewards for being in those straits and make that behavior even more attractive in the future, which works directly against the unfortunate bettering themselves. So basically any federal program to help the needy in any way is a bad idea.

Okay, now back to Pharma. Dr. Roy Poses over at Health Care Renewal--http://hcrenewal.blogspot.com/2011/08/what-pfizer-iii-enormous-pay-for-poor.html--
in turn drawing on a report in Fortune magazine/CNN Money--http://hcrenewal.blogspot.com/2011/08/what-pfizer-iii-enormous-pay-for-poor.html--
tells us about the deeds and reimbursement of the most recent crop of CEOs at Pfizer. The basic bottom line is that the investigation viewed their performance as abysmal; their annual pay was in each case in excess of $10M; and during the time they were doing their best to ruin the company, they were actually granted annual raises. One former CEO, "Hank" McKinnell, more or less threw up his hands and declared his job impossible in 2002. He then sort of went missing and left a power vacuum that created severe headaches in the upper reaches of the company until he finally was forced to "retire" in 2006. He was paid $10.7M in 2003, $11.3M in 2004, and $12.8M in 2005.

This says something about bloated CEO pay throughout US corporations. This also says something about ineffective leadership at some large drug firms. But the particular lesson I wish to draw is about moral hazard. Notice that according to the gurus of our economy, if you give a poor man a quarter, you will probably ruin him for life and incidentally cause the collapse of Western civilization. If you pay a CEO extra millions of dollars every year for destroying his company, however, you are apparently following good economic principles; no "moral hazard"

In other words, there are rules for the rich and rules for the poor. And the rich are in charge. And don't you forget it.

1 comment:

Anonymous said...

how do you know that this CEO wasn't betting against the company by shorting its stock?