Jack Rasmus

Listen to the first of Jack Rasmus’s two part analysis of the recently concluded TPP, Transpacific Partnership Free Trade Agreement, on the Alternative Visions Radio Show of November 14, 2015. (Tune in for part 2 on friday, November 20, 2015 at 3pm New York time, on the Progressive Radio Network, at: http://prn.fm/#axzz26hkFIP6s)

Access the podcast for the November 14, Alternative Visions show at:

http://prn.fm/category/archives/alternative-visions/

or at:

http://alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

Jack Rasmus undertakes the first of a two part deep examination of the terms and conditions of the actual TPP agreement recently concluded. The origins and true functions of free trade agreements is explained, beginning with the 1944 Bretton Woods international monetary system, the IMF, and World Bank established by the US, the role of trade in US global dominance to the 1970s, the restructuring of trade and money flows in the 1970s, and the advent of Neoliberalism in the 1980s under Reagan and Thatcher. How free trade became the international lynchpin of US neoliberal policies, beginning in the 1980s and expanding ever since under both Democrat and Republican administrations. Obama as the biggest advocate of Free Trade thus far is explained. Jack then begins a section by section analysis of the 30 chapters of the TPP, with an overview of provisions associated with ‘goods’ trade, investment, financial services, intellectual property and Pharmaceuticals, and the Disputes Settlement/Corporate Global Courts system section that will undermine domestic democracy and sovereignty and lead to a new drive for global corporate supra-political institutions. In Part 2 next week, further details of the 30 chapters, and reactions by labor, environmental advocates, food safety groups, and others will be reviewed—as well as reports by organizers of the Nov. 18 national US protests against the TPP.

To listen to my analysis of the preliminary release of US GDP numbers for July-September 2015, listen to my Alternative Visions radio show of 10-20-15 on the Progressive Radio Network at:

http:www.alternativevisions.podbean.com

or at:

http://prn.fm/category/archives/alternative-visions/

SHOW ANNOUNCEMENT

Jack Rasmus looks beneath the surface of today’s announced preliminary figures for third quarter 2015 GDP, which slowed sharply at 1.5% from the previous quarter’s 3.9% official growth rate. Jack predicts the US economy is headed, once again, in early 2016 for another ‘relapse’ with US GDP collapsing to zero or near zero growth—for the fifth time of a single quarter collapse since 2011. The US economy is on a ‘stop-go’ trajectory of periodic single quarter ‘relapses’ followed by short, shallow recoveries. Jack notes a similar process globally has been occurring in Europe and Japan, where ‘recessions’ instead of ‘relapses’ occur. 3rd Quarter US data show problems in business spending on inventories, business structures and equipment investment. Problems in US manufacturing and exports continue and will worsen, he argues, and housing growth will remain tepid based on high end residences and apartments. Jack challenges claims by media and economists that US consumer spending will continue to prop up the US economy, citing recent negative wage growth, deflating prices, and rising household debt. Look for 4th quarter growth no better than third, then a ‘relapse’ in 2016 as the likely trajectory.

In the second half of the show, Rasmus discusses how US multinational corporations like Apple, Google, Starbucks and others manipulate global tax loopholes, how Wall St. manipulates the pharmaceutical companies, and how US consumers pay for pharma-bank profits and multinational corps taxes. Why politicians in office, and running, will do nothing about it—and pass even more tax cuts for US corporations after 2016 elections.

(This article appeared in telesurtv.net 10-29-15 as ‘Pigs at the Corporate Tax Cut Trough’)

“A year ago, in November 2014, the US held elections for the US Congress. In an article for telesur that month this writer predicted the top two objectives of the new Congress in 2015 would be the Transpacific Partnership (TPP) free trade treaty and major tax cuts for US corporations. With the TPP agreement recently signed, the top priority of the US Congress is now more business tax cuts. Leading the charge are US multinational corporations (MNCs).

Since 2001, tax cuts have allowed US MNCs to keep trillions of dollars they should have otherwise paid in taxes. And that’s not counting additional hundreds of billions of dollars more in quasi-legal tax avoidance and outright illegal tax fraud.

One would think the issue of multinational corporate tax rip-offs would be at the top of the list in discussions and debates between presidential candidates of both US parties. But thus far hardly a word has been said by candidates, Clinton, Bush, Trump and the others. The one exception has been Bernie Sanders, who has raised the issue of corporate taxes in general, but has said little about multinational corporations specifically—i.e. the biggest pigs at the corporate tax cut trough.

It’s an election year and US MNCs are among the biggest election campaign money contributors to politicians running for office. So politicians of both parties will ‘blow smoke’, tell voters what they want to hear, and ‘take the corporate money and run’. After the elections, they’ll pass new laws giving US corporations in general, and MNCs in particular, even more tax cuts.

Here’s some interesting specifics about US corporations and the taxes they don’t pay:

• The US Government Accounting Office (hardly a radical source) estimated in 2013 that US corporations paid an effective (i.e. actual) federal tax rate of only 12.6% to the US government—not the official 35% that the media likes to report.

• That 12.6% effective rate in 2013 compares to what was once an effective rate of 33% in 1990 and 29% as recently as 2000, when nominal rates were 34% (1990) and 35% (2001).

• In 2013 US corporations paid another effective 2.2% to US states that levy income taxes in the US.

• US multinational corporations’ nominal rate paid to foreign governments is another 6% on average. But that number is a joke as well. US companies like Apple, Google, Starbucks, US oil companies, big pharmaceutical companies, and telecom companies manipulate dozens of loopholes in tax codes to end up paying on average no more than another 2% of that nominal 6% to foreign governments.

• As a result of paying 2%, US MNCs now hoard between $1.7 trillion and $2.1 trillion in cash in their offshore subsidiaries, refusing to bring the profits back to the US to invest there in order to avoid paying US taxes.
It’s not as if US corporations can’t afford to pay more. Corporate pre-tax profits in the US have tripled since 2001 and doubled since 2008, to $1.65 trillion in 2014. And that’s not counting the offshore cash hoarding; or another $1.35 trillion for non-corporate business profits. That’s $3 trillion in business profits in the US last year.

US multinational corporations have the best deal of all US corporations. They have ‘loopholes’ that allow them to pay even less total taxes on a global scale. For example, because they are located in many countries, they can manipulate their internal prices paid between their subsidiaries so that the profits end up recorded in the country with the lowest nominal rates. Favorite locations of US MNCs are Ireland, the Netherlands, and favorite tax haven islands like Bermuda and the Caymans in the Caribbean.

Their nominal rates are then reduced further by loopholes provided by those countries. Tax cut lawyers and corporate finance managers even joke about loopholes they call the ‘Dutch Sandwich’ in the Netherlands that allows them not to have to withhold taxes. Then there’s the ‘Double Irish’ in Ireland that allows them to cut their effective tax rates in half. Google Corporation in this way records all its foreign earnings through Ireland that it then routes through the Netherlands—that way creating a ‘Dutch Sandwich with a Double Irish’ to go. In one recent year, Apple Corp. saved $9 billion in taxes this way. It’s why they hardly pay more than a token 2% on their foreign earnings in taxes to foreign countries.

Surely US tax collectors know of all these manipulations by US MNCs. Yes, of course they do. And they not only allow but encourage the loopholes. Since 1995, under the Clinton administration and continuing under Bush and now Obama, the US government allows US MNCs to manipulate the tax loopholes without penalty. After 1995, all US MNCs have to do is ‘check the box’ on their corporate Internal Revenue Forms to indicate a foreign subsidiary of the corporation is what’s called a ‘disregarded entity’ for paying taxes. They then can activate the ‘Look Through’ loophole on their IRS forms to move profits between their offshore subsidiaries.

Then there’s the so-called ‘tax inversions’ gimmick that became public last year, which US pharmaceutical companies in particular have been manipulating. ‘Inversions’ is the corporate strategy of buying a small company offshore and then transferring the US corporation headquarters there on paper. That makes the MNC technically a foreign company and reduces its US taxes, especially if the purchase is made in Ireland, Bermuda, Luxembourg, Belgium, or elsewhere.

After a flurry of publicity and attention given to the spread of MNC ‘inversions’ in 2014, the Obama administration went silent on the issue of stopping inversions. Billions of dollars in inversion ‘deals’ have continued.
But what about the US foreign profits tax? Don’t US MNCs have to pay the US 35% corporate tax on offshore profits, called for by US law? No. Not if the law is not enforced, which it isn’t. That’s why they’ve accumulated their $1.7 trillion and $2.1 trillion cash hoard in their offshore subsidiaries.

Apple Corp. alone has stashed more than $150 billion offshore.
While US politicians and the Obama administration do nothing about the US MNCs constant ‘gaming’ of the global tax system, recently an initiative was launched in Europe to go after the Apples, Googles, Starbucks, Amazons, and other US MNCs to make them pay.

Last week Margrethe Vestager, an EU competition commissioner, declared US MNC loopholes amounted to “illegal forms of state aid”. Investigations have been launched into Apple, Amazon, Starbucks, and other US MNCs. More are coming. Not surprising, in response the US Treasury department of the Obama administration is protesting Vestager’s investigations. And the US Treasury says it may have to cut US taxes for Apple and others to compensate if Europe makes them pay more offshore. Meanwhile, Obama and Congress have re-introduced legislation to cut US MNC’s nominal and effective tax rates on offshore profits even further. So watch for US MNCs taxes to decline still further.

And what are the candidates for US president and Congress of both parties saying about all this? Nothing. But what can one expect from those who are receiving billions of corporate dollars today to fund their re-election campaigns.

Jack Rasmus is author of the forthcoming book, ‘Systemic Fragility in the Global Economy’, Clarity Press, December 2015. For more information, go to: http://www.kyklosproductions.com/homewar.html

This article has been published by telesurTV Media, Quito, Ecuador, October 19, 2015

by Jack Rasmus

“Negotiations on the Transpacific Partnership (TPP) free trade treaty between the US and 11 other pacific rim countries were concluded last week, October 5, 2015.

Although the full TPP document is still being kept secret—to all but the representatives of multinational corporations who chaired the 30 committees and told the government trade representatives what to negotiate—some details of the super-secret deal have been leaking out.

And if the leaks are any indication of what’s to come when full details are released, consumers, workers, and everyone concerned about the growing global ‘corporatization’ of democracy, are in for a big shock.

Some Early Leaks

One of the most onerous of the TPP provisions leaked involves big pharmaceutical companies. In the US they have been given 12 years of monopoly rights over the sale of certain life-saving drugs. Lower cost generics are banned for that period. That ban on competition has already resulted in runaway price gouging of US consumers desperately in need of life saving drugs. The accelerating cost of the drugs in the US is also making insurance premiums unaffordable. This multi-year protection from lower cost generic drugs for ‘big Pharma’ is now embedded into the TPP as well. Those ill and in need of life saving drugs throughout the other 11 countries—mostly the poor and much of the working classes—will now be denied lower cost alternatives for life saving drugs, as in the US.

The minimum years of price protection from generics under the TPP is being reported as 5 to 8 years. But the 5 to 8 years can be extended up to 11 years. So millions throughout the 11 countries, who might have been able to get the generic drug versions, and save their lives, will now go without for more than a decade to come.

Another area is auto parts manufacturing. The US has agreed to allow more Japanese auto parts imported into the US. But it will be Japanese auto parts manufactured in Japan’s factories in China. In exchange, US auto companies will be allowed to set up more plants and production in Southeast Asia. Both provisions will result in lost jobs in the US.

Another people-killer provision involves the Tobacco companies. Disputes with governments trying to reduce smoking have in the past led to tobacco companies suing governments. Now the disputes must be arbitrated in special TPP courts. That means, at best, token limitations on tobacco sales. In exchange, it also means governments are effectively banned from limiting tobacco product sales by legislation or regulation. They must go to TPP courts to arbitrate efforts to regulate tobacco sales, where the companies will tie up decisions for years while continuing their current practices.

TPP gives corporations in general even more rights. Under TPP they can sue governments to prevent legislation or regulations that contradict the TPP treaty. Want to do something about big Pharma ‘price gouging’, as in the US? Forget it. Legislation addressing price gouging contradicts the treaty. Want to regulate? Forget it, see you in TPP court.

What the ban on any legislation and regulation contrary to the TPP means is that democracy and national sovereignty does not exist if it does not conform to free trade deals negotiated by the corporations themselves. TPP thus represents a major leap toward a global corporate political system, where the economic interests of corporations take precedence over national governments, elected representatives, and popular sovereignty.

Selling the TPP

The Obama administration has publicly declared TPP will reduce US tariffs on 18,000 exports. This will lower the cost of US businesses trying to sell to the other countries and create more export jobs. But there’s nothing to stop countries from lowering their currencies to more than offset the tariff reductions. Japan and most of the 11 countries have already been doing that and will continue as the global economy slows. Japan has been the biggest currency manipulator, reducing its Yen by more than 20% to the dollar. But no one in the US complains. They complain instead about China ‘manipulating’ its currency, even though China’s currency has been pegged to the dollar for years.

TPP is not primarily about exporting more goods from the US. TPP is about creating more favorable conditions for US corporations to invest in the other countries, and then re-export from those countries at lower costs, and thus higher profits, back to the US without having to pay tariffs. TPP is also about containing China.

China’s recent global economic initiatives have the US on the economic defensive, challenging its global economic hegemony. China’s recently created Asian Infrastructure Bank, its ‘silk road’ trade initiative, its forming of its own Asian free trade zone, the imminent approval of its currency, the Yuan, as a global reserve and trading currency by the IMF, and its deepening economic relationships with the UK, Germany and other Euro countries has the US on the economic defensive. The passage of the TPP is thus strategic for the US to counter these China initiatives and its economic momentum. Should the TPP fail, that momentum would no doubt accelerate. That in turn would make the US political and military strategy to contain China even more difficult. TPP is thus the lynchpin for US policy in general in Asia—economic, political and military.

TPP and Obama’s Free Trade Legacy

The TPP is the brainchild of US multinational corporations, who demanded a pacific region free trade treaty as soon as US president, Barack Obama, took office in 2009. In quick response to multinational US corporate pressure, in early 2010 Obama appointed then CEO of General Electric Corporation, Jeff Immelt, to head up the administration’s initiatives to expand free trade. Along with recommendations to protect US patents and expand tax breaks for exporters, the Immelt Committee introduced proposals for the TPP in 2010.

Although Obama had campaigned for office in 2008 on the promise of renegotiating existing free trade treaties that were costing US workers millions of jobs, like NAFTA, and promised not to introduce new treaties, he quickly embraced, pushed, and signed new free trade treaties with Latin America (Panama, Columbia) and Asia (South Korea).

In fact, Obama has either initiated or restarted bi-lateral, country to country, free trade treaty negotiations with no fewer than 18 different countries since taking office. That 18 is in addition to free trade negotiations that have been launched with the 28 countries in the European Union, and a similar multi-country free trade negotiation initiated with various middle east countries.

One of Obama’s dubious legacies therefore will be the recognition that he has been the biggest promoter of free trade in US history—bigger than even his predecessors, George W. Bush and Bill Clinton. That dubious legacy depends, however, on the passage of the TPP first. Should it pass in 2016, which is more likely than not, TPP will no doubt serve as the ‘template’ for pending deals involving more than 50 countries, which will quickly fall in line once the TPP is ratified. The fight against free trade is therefore only beginning. Lined up behind TPP are free trade deals with scores of other countries.

Jack Rasmus is the author of ‘Systemic Fragility in the Global Economy’, Clarity Press, November 2015. His website is http://www.kyklosproductions.com.

United Auto Workers at Chrysler-Fiat recently rejected their union’s recommended new contract with the company 2-1. Listen to my Alternative Visions show of October 16 and interview with long time UAW activist leader, Gregg Shotwell, as he and I discuss the current state of contract negotiations and whether it portends a ‘turnaround’ of union collective bargaining in the US after decades of concessions and defeats. How the auto industry is indicative of the crisis of American unions and collective bargaining or a harbinger of things to come.

To listen to the hour long show, go to:

http://prn.fm/category/archives/alternative-visions/

or to:

http://alternativevisions.podbean.com

SHOW ANNOUNCEMENT

Jack Rasmus welcomes long time UAW auto worker rank and file activist, Gregg Shotwell, to discuss the current negotiations between UAW and Chrysler Fiat. Gregg explains why the first proposed contract was recently rejected 2 to 1 by Chrysler auto workers, and gives a ‘heads up’ on the issues remaining with the pending re-vote on a second proposal. Gregg explains the importance of the fight to end two tier second class worker citizenship in Auto, where 45% of the workers at Chrysler today are temp and receive half pay without retirement or health benefits. Key issues are discussed, including ending two tier pay rates, getting a raise for workers for the first time after 10 years without having had any, demands for overtime pay after 8 hr. work, ending alternative work scheduling, preventing management from passing costs of the coming ‘Cadillac’ health care tax (required by Obamacare) onto workers, and other issues in the first rejected contract which, despite the onerous terms, was recommended by UAE ‘concession caucus’ leaders. Gregg reveals how Chrysler was bought by Fiat without paying anything for it, paid for by US taxpayers, and how managers, salaried employees and stockholders have gotten big payoffs the past decade while workers have been frozen in pay and benefits, with a 24% wage cut since 2007, despite Chrysler sitting on a $4 billion cash hoard. The second contract proposal about to come up for another vote is described in part by Gregg. Both Jack and Gregg discuss the potential significance of the Chrysler contract for reversing trends that have devastated auto and other workers in the US for decades and decimated US unions and collective bargaining. As Shotwell sums up succinctly: US workers everywhere have been “working longer, harder and for less money”, not just in auto. Can Chrysler workers begin a ‘march back’ for US workers and US unions? Listen to the discussion by long time rank and filer, Shotwell, with decades and a lifetime of deep roots in the UAW and the industry.

If interested in my interview with Labor Express Radio in Chicago on the subject of the recent TPP agreement, go to:

http://www.kyklosproductions.com/audiocds.html

or

https://archive.org/details/LaborExpressFor10-11-2015

INTERVIEW CONTENT:

Jerry Mead-Lucero Interviews Jack Rasmus on TPP
Labor Express Radio,
Chicago, Illinois (October 11, 2015, 41 min 52 sec)

Dr. Jack Rasmus

Jerry Mead-Lucero of Labor Express Radio in Chicago interviews Jack Rasmus on the recent TPP agreement signed by the US and 11 other nations. While the full text of the agreement is not available yet, Jack explains what the various ‘leaks’ suggest, including Big Pharma companies enhanced ability to price gouge not only Americans but poor and working classes throughout the TPP economies. Deals made by US negotiators with Australia and New Zealand will enable Big Pharma to prevent cheaper drugs for up to 11 years, not the 5 indicated by the business press, only one year less than in the US. Jack explains how auto and manufacturing job losses in the US will now accelerate, due to terms favoring Japan and its China based auto parts production. Jack and Jerry discuss the anti-democracy and sovereignty issues in the TPP, that will mean legislation to protect jobs and prevent Big Pharma price gouging of Americans (already driving up drug insurance costs in the US) will not be allowed due to provisions of TPP. Nor will the EPA be able to issue regulations to mitigate climate change. TPP is the tip of the iceberg of a growing corporate global government structure that will eventually obsolete democracy. Jack predicts Washington politicians of both parties will eventually pass the TPP in 2016, in exchange for massive campaign contributions from big multinational US corporations, for whom TPP is their number one priority.

On my radio show, Alternative Visions, of Friday, October 9, I provided my analysis and commentary on the TPP agreement just signed this past week, based on the ‘leaks’ available thus far re. its composition. To listen to the show go to:

http://prn.fm/category/archives/alternative-visions/
or:
http://www.alternativevisions.podbean.com

SHOW ANNOUNCEMENT

Jack takes a look at the leaks concerning provisions of the TPP trade agreement signed this past week. Why the TPP will mean loss of jobs with little or no job creation in the US in return. Why it means reduction in wages will continue. The phony statements by Obama and pundits about its effects, and the verbal maneuverings by Clinton and Republicans. Jack explains how China is not the currency manipulator, but Japan and now the other Asian members of TPP. Special focus on the treaty’s effects on pharmaceutical and health, autos, agriculture, manufacturing, Boeing Corp., and other sectors in the US. Negotiation maneuvers between the US, Australia, Japan and others. Why a vote next year, during election cycle, is more likely to pass rather than less likely. Why Congress will talk the talk, but then pass it. How TPP and free trade is really about US corporations’ foreign direct investment and less about goods exchanges between countries. Jack concludes explaining that the global trade recession now beginning will result in currency declines accelerating in the other countries that will more than offset the tariff cuts. The net result will be no gains for the US and big losses as a result of currency manipulation by other members of the treaty.

To listen to my friday, October 2, Alternative Visions radio show, on three reports pointing to more economic troubles: the US jobs report–the WTO report on state of global trade, and IMF report on global economy–go to:

http://prn.fm/category/archives/alternative-visions/

or:

https:://alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

“A review of three just released reports that indicate the US and global economy is in much worst shape than the hype flowing from political and business media sources. Today’s US jobs report showed a sharp reduction in the rate of private sector job growth in the US economy for the past three months, as labor force and wage growth continue to stagnate as well. Jack explains why the official data is even worse than reported. A second report by the World Trade Organization indicates global trade is retreating fast, growing much less than global GDP which is itself slowing fast. According to estimates, global trade may have even contracted in the first half of 2015. Jack explains how a global recession in trade and industrial production (manufacturing, mining, utility output) may have already begun, with global services eventually to follow. Conditions in Europe, Japan, China, and the ‘perfect storm’ accelerating in Emerging Markets from latin America to Asia to Africa are reviewed. Next week’s IMF report on the growing crisis in the global economy, centered on emerging markets and China, is previewed. In the context of these developments, Jack explains how his new, forthcoming book, ‘Systemic Fragility in the Global Economy’, by Clarity Press, due out in November provides a theoretical and empirical explanation of the conditions and where the economy is headed, and how the book is different fundamentally from analyses provided by both mainstream economists or Marxist economists.’

Pharmaceutical drug companies in the US are out of control, raising their prices for potentially life saving drugs to astronomical levels, in the process condemning millions of US citizens to suffering and earlier death.

Last week attention focused on the latest scandal by the renegade ‘Big Pharma’ industry, as a company called Turing Pharmaceuticals raised the price on its drug, Daraprim, by 5000%. The medicine is critical to prevent the life-threatening infection, toxoplasmosis, that kills women with pregnancy related infections and others with cancer and AIDs. Daraprim has been around for more than 60 years.

Turing Pharmaceuticals’ new CEO, Martin Skrelli, purchased the company, Impact laboratories that had previously owned the medicine. As part of the acquisition, Impact Labs had to agree to take all its product off the market to prevent the development of generic alternatives, to ensure that Turing would thereafter have a monopoly on the medicine. Once it purchased Impact labs and Daraprim, Turing jacked up the price 5000%, from the former $13.50 per pill to Turing’s new $750 per pill.

Big Pharma’s Political Power; Washington’s Political Indifference

Skrelli and Turing are not just a rogue example of practices in the industry. They represent a trend that has been growing, as the lobbying spending and election campaign contributions by US Big Pharma have also risen to record levels, and as US governments and politicians turn a blind eye to the practices that are condemning millions of US citizens to pain and earlier death.

Since 2008, the 1425 officially recognized ‘Big Pharma’ lobbyists in Washington D.C. have spent close to $2 billion on lobbying activity, making the industry among the largest of lobbying spenders, according to the source, ‘OpenSecrets.Org’. Since 2008, the industry has also contributed more than $150 million to political candidates as well—not counting the further amounts hidden by US Supreme Court decisions since 2010 allowing unlimited corporate campaign spending.

With government and elected politicians sitting on the sidelines, examples of Turing behavior have been proliferating across the industry in the US.

There’s the recent case of Gilead Sciences, a company with a prescription drug that effectively cures victims of the widespread disease, Hepatitis C. Its drug, Solvaldi, costs $1000 per pill. A treatment to cure the disease now costs between $50,000 and $100,000 per year.

Another recent scandal case is Rodelis Corporation, which bought a company and the drug, Cycloserine, one of the few antibiotics able to treat drug-resistant tuberculosis which is becoming a new worldwide epidemic. Once it purchased the company and Cycloserine, Rodelis raised the price by 2000%. A 30 day treatment for tuberculosis used to cost $500. Now it costs $10,800 for just one month. A full treatment costs $500,000. It is interesting to note that outside the US the drug costs $20 per 100 pills.

Other examples of out of control US Big Pharma companies abound, such as Alexion Corporation’s new drug for treating blood disorders which costs $500,000 per patient; Biogen Corporations drug for treating multiple sclerosis costs $55,000 per year; Valeant Corporation’s price gouging of its newly acquired heart disease drugs, and other drugs from companies that treat cancer that have surged in price and today cost typically $80,000 per treatment. The list is long and growing.

Big Pharma Now Morphing Into Big Finance

The problem with Big Pharma price gouging ‘out of control’ is not just that its companies have been allowed to operate as monopolies due to patent protection. Patent protection has been around for decades, well before the industry began its price gouging and profits at the expense of life practices.

A good part of the problem has become the growing ‘financialization’ of the industry by Wall St. and global finance capital in general in recent decades. That takeover has led to new ways to inject price volatility into the prescription drug market in order to manipulate pricing to extract excessive speculative profits.
This has transformed, and continues to transform, the pharmaceuticals industry into what is sometimes called a ‘rentier capitalist’ sector. By ‘rentier’ is meant the ability of the industry, or a company, to gain excess profits share at the expense of consumers and even other companies. Banking and finance, itself a ‘rentier’ industry, is thus successfully transforming ‘Big Pharma’ into its own image as finance increasingly penetrates the industry.

The connections between Wall St. and Big Pharma are strikingly evident, and not untypical, in the case example of Turing Pharmaceuticals.

Turing’s CEO, Martin Skrelli, is a former hedge fund manager who crossed over to the Pharma sector. He started the hedge fund, Elea Capital, back in 2006. Sued for shady practices during the 2008-09 crash, he started another hedge fund, MSMB Capital Management, and made millions by what is called ‘short selling’—i.e. speculating on falling prices of stocks. Targeting drug companies at the time, Skrelli clearly saw a new opportunity to manipulate prices and make millions. He bought a pharma company called, Retrophin, with older but obscure drugs that were priced low. He then jacked up the prices. Retrophin profits were then creatively redirected to his hedge fund. Leaving Retrophin, he then formed Turing Pharmaceuticals in 2014, and immediately began what is becoming increasingly a practice in the Pharma industry by shadow bankers like Skrelli who are taking over more companies—i.e. manipulate the price of what were once low cost ‘orphan’ drugs, like Daraprim, to extract excess rentier profits at the expense of consumer patients in desperate need of life-saving medicines.

The transition from speculating by ‘short selling’ falling prices of pharmaceutical stocks to speculating by ‘price gouging’ with astronomical price hikes is an easy transition for hedge fund and other finance speculators now penetrating the pharmaceutical industry. Their business model is all about manipulating prices to obtain excess profits. Pharma is thus an easy transition.

Wall St. is in effect transforming the industry for purposes of speculative profits in other ways as well. Pharmaceutical companies are now a prime global sector for Wall St. Investment banks mergers and acquisitions activity. Wall St. investment banks make big bucks in managing M&As.

The pharmaceuticals industry is also among the leading practitioners of what is called ‘tax inversion’, as this writer noted in a previous teleSUR piece published August 13, 2014. Tax inversions, simply put, are a way for US corporations to avoid paying US taxes by purchasing a small company offshore, moving its global headquarters operations to the new company and diverting its US profits there, and thereby avoiding paying US taxes on ‘offshore’ profits.

Big Pharma has become increasingly integrated with Wall St. and has been focusing on various forms of Wall St. driven financial speculation. Price gouging of life-saving drugs is but the latest trend.

Profits for the Few vs. Lives of the Many

The effect the price gouging on US health care is already devastating. According to the US Center for Disease Control and Prevention, 12.9% of US adults aged 18 and older, about 32 million, now don’t take medicines prescribed by their doctors because they can no longer afford the price of the drugs. At least 4 million are those in dire need of life-saving TB, hepatitis, heart, and cancer medication.
As more money buys more votes for the few in the US, it does so at the expense of even more lives of the many—especially the poorest and those least able to afford necessary medicine often needed just to survive.

Jack Rasmus is the author of the forthcoming book, ‘Systemic Fragility in the Global Economy’, by Clarity Press, 2015. He blogs at jackrasmus.com.

Yours truly was recently interviewed by RT-TV on the Volkswagen emissions scandal, where the biggest car company has been systematically cheating on its emissions for 11 million diesel cars. In the short interview transcript, I address the likely consequences going forward. (The interview was conducted Sept. 24, 2015). (For more of my TV interviews in video, go to my website, http://www.kyklosproductions.com, and the video tab).

“The emissions scandal involving the German automaker is an opportunity for governments to cash in on environmental law, said economist Dr. Jack Rasmus. Many countries are going to go after Volkswagen in order to protect their auto industry, he added.

The head of Volkswagen Martin Winterkorn resigned over a vehicle emissions scandal on Wednesday. The US Environmental Protection Agency found the German company had been rigging emissions tests. The world’s largest car maker could face fines of up to $18 billion.

RT: Volkswagen will be paying billions of dollars in fines, but where will all that money end up?

Dr. JR: Well, this whole scandal is the equivalent of Volkswagen’s Deepwater Horizon crisis. Remember British Petroleum [BP] was fined billions of dollars as the result of the oil spill in the Gulf. But this is going to be even bigger: up to $18 billion just on 500,000 cars in the US where Volkswagen has admitted the problem affects 11 million of its cars worldwide. So this is going to be an even bigger billion dollar event in costs to the auto company. It will spill over to other auto companies as well. We’re going to have the equivalent of bank stress tests now globally on all diesel vehicles. It is really a hard hit to the auto industry as it peaks now – its sales are peaking worldwide. So it is a major crisis and especially for Germany economically. .

RT: If the crisis does spread to other car manufacturers, presumably we’ll be talking about similar sums of money. Is this really about protecting the environment and people, or is it really a great opportunity for governments to cash in?

Dr. JR: It is a little bit of both. Already California, New York, and other states in the US with environmental protection plans are jumping in and suing Volkswagen. You are going to see class actions suits by consumers and law firms in which they are probably going to ask for something similar to what happened in South Korea. In other words – repay the consumers in the former debit cards, because now the value of their vehicle has dropped virtually to half probably of what it is in resale value. It is going to spread throughout the US, and I believe it will spread elsewhere, [to] South Korea. You can expect China to protect its auto industry by going after Volkswagen and others.

The second largest sales for Volkswagen are in China – about the same size as the US sales. So yes, they are cashing in, no doubt in these cases. But there is a consumer problem here as well. They have been very deceitful. And there is a long history of that with auto companies.
RT: What is the future for Volkswagen on the US market? Is the company in danger?

Dr. JR: I think so. Its stock has already fallen 40 percent… and it is going to drag out over a number of years, but it is going to be a big hit to Volkswagen and a hit to the German economy – 17 per cent of all the exports of the German economy are auto exports. So this is already being reflected in Germany as export numbers and in its stock prices, and so forth.