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Pfizer and Moderna Mock Biden, Raise Vaccine Prices
Chinese strategists think the West is in permanent decline. Have Joe Biden and Angela Merkel proved them right?
Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…
Today I’m writing about the news that Pfizer/BioNTech and Moderna are raising prices on their vaccines, while failing to make enough for much of the world. Joe Biden, and in particular his trade chief Katherine Tai, had a plan to avert this situation. Why has this plan failed?
Lina Khan’s FTC Tells Mark Zuckerberg to Stop Lying About Facebook’s Agreement with the Government
How ESPN is consolidating college football
An Obama-appointed judge endorses McDonald’s right to suppress wages
The Shadow Public Health System
Public health agencies globally are wrestling with the contagious Delta variant of Covid, which is far more easily transmissible than earlier types of the disease. Different countries are attempting different strategies to address the problem, from loose lockdowns to accelerated vaccination campaigns to travel restrictions.
But another set of health agencies - which we call pharmaceutical firms - are taking an entirely different approach. Earlier this week, Pfizer/BioNTech and Moderna, who make vaccines that are effective against the Delta variant of Covid, raised prices on their vaccines. According to the FT, the European Union must now pay an extra 25% than it did for the Pfizer vaccine, and 10% more for Moderna’s.
The extra revenue is purely a result of market power, not higher costs. Pfizer has already raised estimates to investors, telling them it will generate $33 billion this year selling the vaccine. At the same time, these vaccine monopolists are not making enough doses to vaccinate the world, because they are focused on production to sell to rich countries, rather than ending a pandemic.
In the 19th century, America began chartering for-profit corporations to let private citizens come together and pool capital and labor for public purposes, such as building bridges, factories, and railroads. We created patents, copyrights, contracts, subsidies and a nest of legal arrangements to foster the development of scientific and natural resources, extending and rebalancing property rights to ensure social order. Today, however, the for-profit corporation has a logic all its own, entirely divorced from any public purpose. On the one hand, public health agencies and governments are trying to use the tools they have to deal with a breakdown of normal social capacity in the context of this pandemic. On the other hand, the single most important tools we have - vaccines - are controlled by corporations that have no public obligations whatsoever.
This doubleness of public health - run by governments but controlled by private monopolists - is evident in more than just price hikes and profiteering. The vaccines produced by Pfizer/BioNTech and Moderna are still highly effective against the Delta variant. And while the U.S. is seeing a spike in cases, 70% of U.S. adults have gotten at least one shot. America’s path is similar to that of most wealthy countries. But generally speaking, there isn’t enough supply, and this makes it much harder to bring the pandemic under control for everyone because poorer countries just can’t get vaccines.
Joe Biden’s Follow-Through Problem
Back in May, the Biden administration sought to avoid just such a situation, putting forward a proposal to seize control of Covid vaccine monopolies from Moderna and Pfizer/BioNTech. The lead official on this policy was U.S. Trade Rep. Katherine Tai, who is known as a deeply knowledgeable trade expert, and well-respected by progressives. On a policy level, it was an important path to get these firms to allow more production of a critical resource.
While the U.S. has enough vaccines for our citizens, that’s not the case globally. We need 10 billion plus doses, and can’t make nearly that many. Beyond that, Covid will mutate, and eventually variants will get around vaccines, as we’re seeing with the Delta variant. That makes it important to get manufacturing capacity for the vaccine spread out globally, not just because there isn’t enough manufacturing to produce all the shots we need, but also so that countries can produce vaccines and booster shots as outbreaks occur. If that doesn’t happen, then we’ll just keep having waves of new Covid variants hitting us, over and over and over.
To put a plan into action to avoid this scenario, Biden and Tai supported a waiver of intellectual property at the World Trade Organization for the vaccines produced by Moderna and Pfizer/BioNTech, which use what is called mRNA technology. The waiver would apply to other vaccines, but the mRNA vaccines are the best and most flexible. Such a waiver would suspend monopoly rights, and let third party companies use industrial designs, patents, or copyrights without needing permission from Moderna and Pfizer/BioNTech, though any producer would still pay royalties to these firms. After this waiver is adopted by the WTO, the Biden administration would then have to use the Defense Production Act to force these firms to divulge manufacturing methods and do technology transfers
With these two steps, mRNA vaccine technology would get out into the world, and Moderna and Pfizer/BioNTech would make tens of billions of dollars. They wouldn’t, however, be able to control who got to manufacture the vaccines. In addition, the pandemic would be more likely to be brought under control, meaning their market for vaccines would eventually shrink. It’s no surprise that the pharmaceutical industry opposed Biden’s plan vehemently. (For those who think such a plan would give access to secrets to China, it’s worth noting that BioNTech has already licensed its mRNA vaccine to China, and China will soon have mRNA technology.)
Biden’s plan made sense. It was also consistent with many other aspects of Biden’s domestic agenda, such as his nascent attack on monopolies. Even Jake Sullivan, the National Security advisor, has made competition part of our national security strategy. The problem is, Germany and the EU are blocking Biden’s request for a TRIPS waiver, and that waiver has to be adopted unanimously.
Normally, when the U.S. wants something, we do cajoling, we bully, we bargain, we wheedle. None of that has happened. A few weeks ago, for instance, there was a summit between Biden and German Chancellor Angela Merkel, and Biden poured on the praise, even giving in on Merkel’s desire for a Nord Stream 2 pipeline that would undermine Eastern European security interests. The U.S. got virtually nothing out of the summit. And when asked about the waiver, the White House was noticeably unenthused.
When I first wrote about the TRIPS waiver, I waxed eloquently about Biden’s announcement. Some skeptics mused that Biden wasn’t serious, but I was open-minded. The skeptics, though, have been proven right. In the last three months, Tai has been completely silent and the Biden administration has done nothing to even indicate to Germany or anyone else that this is even a priority.
Today, most informed policymakers believe that Biden didn’t really mean it when he put forward a TRIPS waiver. I don’t agree with that view; Biden and Tai were not lying when they made this promise, mostly because it wouldn’t make sense to do so. If you promise something like this and then don’t deliver, you anger the pharmaceutical industry, upset progressives, and demonstrate weakness on the global stage. Still, if this situation doesn’t improve, it means Tai - who I was initially optimistic about - lacks the ability to follow through on important policy announcements.
But this failure isn’t American alone, but European as well. During the negotiations over prices, European officials were angry that Moderna treated them with contempt. And yet, what Pfizer/BioNTech and Moderna are doing is nothing more than following the policy framework laid out by Germany’s Angela Merkel, who has been highly supportive of ensuring that these monopolists maintain control of key public resources during a pandemic.
Regardless of who is at fault, the complete failure, so far, of Western democracies to engineer a wide distribution of vaccine capacity is highly noticeable. And it’s not because there’s a lack of fairness, but because of what China and Russia are doing.
The Chinese and Russian Vaccine Strategy
Over the past year, China and Russia have been putting together exactly the strategy that Biden outlined and Merkel blocked. They are cutting financing and tech transfer deals all over the globe to produce vaccines they helped develop. The Chinese and Russian vaccines aren’t as good as the mRNA ones, but the sad reality is that these authoritarian states are delivering, and democratic ones aren’t.
Here’s a partial short list.
(Argentina) Argentina Produces Russia's Sputnik V Vaccine in Regional First (US News)
(Bangladesh) Bangladesh OKs local production of Chinese, Russian vaccines (Anadolu Agency)
(Brazil) Chinese vaccine draws demand across Latin America, say Brazilian officials (Reuters)
(Egypt) Egypt to produce Chinese COVID-19 vaccines locally (Arab News)
(India) Russia’s Sputnik V vaccine finally has manufacturing muscle (Fortune)
(United Arab Emirates) China’s COVID vaccines are going global
The Unraveling of the West
In American strategist Rush Doshi’s important book “The Long Game: China's Grand Strategy to Displace American Order,” Doshi shows that Chinese strategists believe that western democracies America and Germany are in irreversible decline. Their argument is that we cannot deliver for our people, and our states are weak. On a global level, we can no longer deliver the public goods that other countries need, whether that’s PPE during an acute pandemic or even our own knowledge about how to make medicine when that is necessary.
So far, these strategists are correct. Covid is a geopolitical catastrophe for democracies. It’s not just that China delivered masks and medical equipment. Even when we have the best vaccines, our own political leaders are unable to force Pfizer/BioNTech and Moderna to turn them into public goods. The best we can do is PR nonsense, like Pfizer grandly announcing it will deign to allow one corporation in South Africa bottle and warehouse vaccines produced in Europe.
Global orders don’t unravel due to great conflicts, they unravel because a hegemonic power stops delivering the mix of favors, coercion, and public goods that other nations rely on, such as stopping pirates, protecting global trade, or containing trans-national crime. Being able to step up in a pandemic and offer treatment and protective equipment is one such public good - the U.S., for instance, coordinated the global response to Ebola. The inability to offer these kinds of public goods leads to a loss of legitimacy, and gradually countries globally begin to reorient their choices towards a different order.
A collapse of liberal democracy isn’t inevitable. Democracy is a better system than Chinese authoritarianism, but democracies are right now dominated by monopolists who overwhelm our sovereign capacity. To address this problem, we must decide that we want real democracy more than we want BioNTech’s or Pfizer’s CEO to get a new yacht. And so far, we haven’t made that choice.
Two days ago, Facebook cut off NYU researchers who were looking at the social networks’s advertising practices. These researchers had asked volunteers if they could look at their Facebook pages to see what Facebook was showing them. Facebook hates being scrutinized by independent authorities, so the firm cut off the researchers, and wrote a self-righteous blog post about protecting the privacy of its users. Zuckerberg’s firm argued that, because they had signed a consent decree with the Federal Trade Commission committing them to protecting user data, they had no choice but to cut off the researchers.
It’s a standard bad faith tactic, to weaponize privacy in service of power.
This time, though, there’s an actual regulator in place. Just a day later, Sam Levine, the head of the consumer protection bureau at the FTC, sent a public letter to Zuckerberg accusing him of lying about the consent decree and misrepresenting the situation.
Had you honored your commitment to contact us in advance, we would have pointed out that the consent decree does not bar Facebook from creating exceptions for good-faith research in the public interest. Indeed, the FTC supports efforts to shed light on opaque business practices, especially around surveillance-based advertising. While it is not our role to resolve individual disputes between Facebook and third parties, we hope that the company is not invoking privacy – much less the FTC consent order – as a pretext to advance other aims.
Typically, agencies don’t publicly call bullshit on powerful firms, and they don’t move at this speed. Or at least, they didn’t used to.
In 2011, ESPN engineered the destruction of the Big East, a college sports conference that included a number of significant universities on the east coast. ESPN, owned by Disney, is the dominant American TV sports channel, and it holds power over virtually every aspect of college football, controlling post-season games, award shows, TV contracts, and sports news.
The reason for the move was that the Big East had turned down an offer from ESPN to be the exclusive TV broadcaster for its games. The Big East had put out its TV contract onto the open market, to let other broadcasters bid. Shortly thereafter, ESPN apparently set in motion a plan to destroy the conference by encouraging key schools Pittsburgh and Syracuse to leave the Big East.
The plan worked. The channel has immense influence over schools because of the money it disburses and the coverage it offers. As one school athletic director put it, “ESPN — is the one who told us what to do.”
The Big East shrank into a minor irrelevant league, and the remaining teams in it lost TV exposure and revenue. The lesson was clear. And it’s a lesson ESPN has taught repeatedly. The channel limited its hockey news coverage when it lost TV rights to the National Hockey League; ratings for hockey plummeted, and the NHL still hasn’t recovered.
Today, ESPN is at it again. The conference being taken apart this time is the Big 12, a group of mostly public universities which broadcasts part of its games on the remaining competitor to ESPN in college sports, Fox. ESPN has already locked up all other key football conferences in long-term deals - the ACC, Big Ten, and the SEC. The SEC is the powerhouse conference in college football, and ESPN paid $3 billion last year for the rights to broadcast games.
Now, ESPN is luring the two marquee teams in the Big 12 - Texas and Oklahoma - to the SEC. The problem is Texas and Oklahoma have committed to the Big 12 and have to pay millions of dollars if they leave the conference, with one big caveat. If the Big 12 falls apart on its own, then they are free to go without a buyout. According to the Big 12’s commissioner Bob Bowlsby, that’s exactly what ESPN is trying to engineer. Bowlsby is accusing the sports channel of being "actively engaged in discussions with at least one other conference regarding that conference inducing additional Members of the Big 12 Conference to leave the Big 12 Conference." Already one Senator has asked the Department of Justice to investigate.
In other words, ESPN is trying to blow up the Big 12 entirely, in order to let Texas and Oklahoma go to the SEC without having to pay a penalty. Ultimately, these kinds of moves will lead to more concentration of the best teams into one conference, which will become a quasi-minor league team for professional sports. The best prospects will go to the SEC not just because it’ll be the easiest path to professional sports, but because now that players can earn money themselves by signing deals with brands, the SEC, and perhaps a few other conferences, will simply be professional sports. The rest of college football will wither, as the Big East did.
I’m often asked why people should care about monopoly. Well, if you work for a living, corporate concentration is likely costing you large sums of money in wages, perhaps $10,000 or more. Some economists found that the power of employers reduces labor’s share of output by 22%. As Marshall Steinbaum, Jose Azar, and Ioana Marinescu, and Bledi Taska noted in 2018, in most areas of the U.S. it’s actually hard to find a new employer to whom one can sell one’s labor.
Employer dominance leads to the ability of firms to use coercive contracting terms on employees, like forcing them to sign employment agreements prohibiting them from going to work at a rival employer. Or firms might sign agreements among themselves, pledging not to hire each others’ employees. Doing so is wage-fixing, equivalent to price-fixing, which is illegal and often a criminal violation.
One might think that antitrust law would be able to help raise wages by both reducing concentration and attacking the problem of employer wage-fixing. Can it? To answer that question, let’s look at what happened last week, when Judge Jorge L. Alonso, killed a class action complaint by McDonald’s employees over a wage-fixing agreement.
McDonald’s is a weird corporation, operating a system that is known as a franchise. A franchise is a hybrid system, with the franchisor - McDonald’s corporation - controlling and serving a large group of independently owned McDonald’s franchisees. While technically these restaurants are independent, the control by the franchisor is absolute, with the franchisor setting standards, training, menus, marketing, where restaurants can be located, who franchisees can sell their restaurants to, etc.
Until 2017, McDonald’s had a provision in its contracts with franchisees saying that they weren’t allowed to hire each others’ employees. If I ran a McDonald’s restaurant near a different McDonald’s restaurant, I was not allowed to go out and offer higher pay to poach some of their workers. Fast food workers are not interchangeable, as McDonald’s employees learned the McDonald’s system, Wendy’s workers the Wendy’s system, and so forth. Anyone can learn a new system but it’s costly to train someone new and easier to hire someone with experience. So this restriction reduced wages for McDonald’s employees.
Some attorneys brought a class action suit against McDonald’s noting that this kind of behavior is just another form of price-fixing, and thus illegal. The judge in the case is not some right-wing ideologue, but was appointed by Obama in 2014. Nevertheless, he killed the case. Why? Two reasons.
First, the judge bought the argument from McDonald’s lobbyist and Columbia University economist Justin McCrary that for franchises, suppressing wages helps them open up more restaurants and cook more hamburgers. The judge just said, this kind of wage-fixing is fine.
Second and more importantly, the judge said these employees couldn’t band together because they each have different interests. A McDonald’s worker in Chicago faces a different labor situation than one in Atlanta. Therefore, Alonso argued, they don’t all face the same kind of injury. As such, they couldn’t band together and sue McDonald’s, even if all of them had been subject to the same national anti-competitive restriction. Each employee would have to sue individually, and that’s not practical.
Every employee-employer relationship is somewhat unique. If bringing class action antitrust cases around labor power means that such relationships must all be the same, then the way judges interpret antitrust law means that the law will be pretty much unusable to stop what is effectively mass theft from workers. As we restructure antitrust laws, it’s worth keeping this problem in mind.
Thanks for reading. Send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.
P.S. BIG reader Connor Leech wrote up a neat timeline of the car rental cartel. If you have something you’d like to share on monopoly power, send it my way or put it in the comments.