The New York Times - USA (2020-11-15)

THE NEW YORK TIMES, SUNDAY, NOVEMBER 15, 2020 NBU 5

of risk. The lesson of Covid capitalism is that

big business needs big government, and

vice versa.

With astonishing nimbleness and speed,

businesses have accomplished remarkable

feats — most notably the biotechnology and

pharmaceutical companies trying to fight

the virus. But the list includes other

achievements: keeping store shelves

stocked even as much of the capacity to

process and distribute food was disrupted,

and redeploying factories to make ventila-

tors and personal protective equipment.

In many cities, when a sudden rainstorm

arrives, street vendors of cheap umbrellas

will appear as if out of nowhere, driven not

by some central authority but responding to

the invisible hand of the marketplace. If you

substitute masks for umbrellas, and substi-

tute apparel companies for street hawkers,

you have a fair description of the magic of

the marketplace in 2020.

But those private-sector achievements

have been matched by efforts on a scale that

only the public sector can manage — to

channel resources to places most in need

and to protect the economy from huge risk.

Operation Warp Speed has used a mix of

financial incentives to coax the private sec-

tor to invest in vaccine development on a

scale and at a speed it couldn’t have on its

own. Congress enacted legislation to sup-

port millions of small businesses, many of

which would have closed otherwise, and

funneled money to Americans to help pre-

vent a collapse in spending. The Federal Re-

serve announced it would stand ready to

buy hundreds of billions of dollars in bonds

and other assets, ensuring that large com-

panies would have access to capital.

Big business and big government both

play vital roles in making the modern econ-

omy work. The pandemic has showed how

these two can’t really be disentangled —

they rely on each other more than partisans

may care to acknowledge.

Feeding the Country

Seven months ago, although it now seems

seven years ago, Tyson Foods placed a full-

page advertisement in major newspapers

with a dire warning.

“The food supply chain is breaking,” the

chairman, John H. Tyson, wrote. “We have a

responsibility to feed our country. It is as es-

sential as health care.”

A series of coronavirus outbreaks in

meatpacking facilities was leading to dis-

ruptions. With some pork processing plants

closed, millions of pigs on farms grew too

big to be slaughtered and processed in the

equipment used to produce the nation’s sup-

plies of pork chops and sausages. Many

were euthanized instead.

But the remarkable thing is that, despite

Mr. Tyson’s warnings, the food supply chain

mostly remained intact. There were occa-

sional scattered shortages of pork or other

meats, but mostly the market worked.

Prices rose, as Economics 101 would pre-

dict. From March to June, the retail price of

pork chops rose 21 percent, and the price of

fresh whole chickens rose 9 percent. Higher

prices led consumers to seek alternatives to

the foods in short supply, and producers and

supply chain managers worked overtime to

ensure any shortages were short-lived.

Restaurant suppliers reoriented their busi-

nesses to sell to home cooks.

Although grocery stores had some empty

shelves, there were no widespread food

shortages. And while many food prices

were higher than before the pandemic, they

have since moderated. Pork chops are now

only 7 percent above March levels, and

fresh whole chickens are up 3 percent.

“People assume you press a button and

things show up, that when you go to a gro-

cery store food magically appears,” said

Nada Sanders, a professor of supply chain

management at Northeastern University.

“It’s much more complicated. There has

been a sense of absolute urgency in making

sure products are there.”

People involved in the food supply chain

don’t mess around; they are aware that hu-

manity depends on them for sustenance.

But the effort wasn’t confined to food.

“How many distilleries do we know that

stopped producing their high-margin items

like vodka, and began converting to

produce hand sanitizer, which is a low-mar-

gin item?” Professor Sanders said. “There

was a reshuffling of supply chains across

the economy to respond urgently to what

consumers wanted and needed.”

The metaphorical umbrellas arrived

when Americans needed them most. But

nowhere is that more apparent than in the

remarkable mobilization to find treatments

and vaccines for Covid-19.

The Importance of Patents

“A billion dollars is not going to break us,”

Albert Bourla, the chief executive of Pfizer,

was quoted as saying in a profile published

in May. The company, with its $179 billion

balance sheet, could deploy that much to-

ward trying to create a vaccine without fear

that failure would doom it.

Deep pockets were one key to the rapid

escalation of efforts to fight the virus, which

over a mere few weeks went from unknown

to a profound threat to lives worldwide and

to the global economy.

“We’ve watched physicians, scientists

and technologists completely step up to the

charge here and promote information shar-

ing, promote good practices, promote mes-

saging around what’s effective, what’s safe,

and what’s possible,” said Rena Conti, who

studies the pharmaceutical industry at Bos-

ton University.

But the ability of big pharmaceutical and

biotechnology companies to develop new

drugs and bring them to market — at possi-

bly record speed — is not just about money.

These companies have deep expertise and

the ability to channel the efforts of thou-

sands of workers with specialized skills.

A lone genius or a handful of medical re-

searchers working in a lab can come up with

an idea for a molecule that might form the

basis of a helpful drug. But it takes a cast of

thousands to get that drug through multiple

rounds of clinical trials, to crunch the data

to prove it will work and be safe to the satis-

faction of regulators, and to manufacture

the product and distribute it onto pharma-

cists’ shelves.

“The standards are so high by design,”

said Stacie Dusetzina, a professor of health

policy at Vanderbilt University Medical

Center. “Redundancies are built into the

system that require an incredibly high level

of oversight and making sure everything is

absolutely as clean as possible so that when

you get the final answer about whether or

not the drug has met safety and efficacy

goals, you feel rock solid about that.”

The achievements of such industries at

combating the virus make it easy to forget

all the ways that their efforts rely on work

by a powerful government.

The bedrock of the pharmaceutical indus-

try, for example, is patent protection. Com-

panies are willing to invest billions develop-

ing a drug because the federal government

will grant them 20 years of exclusive owner-

ship. (The actual length of the company’s

monopoly on the drug varies depending on

the time lags for F.D.A. approval.)

The F.D.A. also grants periods of exclu-

sivity to companies that develop a new

drug. While its approval process can be

onerous, it helps the pharmaceutical indus-

try as well — by assuring doctors and citi-

zens that an approved drug is safe.

Moreover, innovation itself rests heavily

on basic research in biology and chemistry,

for which there is not a similar profit incen-

tive. Pfizer’s vaccine is based on insights

into chemistry and molecular biology de-

veloped in government and university labs

worldwide over a long period of time.

“No pharmaceutical company would

have the incentive to do the basic scientific

discovery, because it’s not patentable,” said

Amitabh Chandra, a health economist at

Harvard. “A lot of basic science is not prof-

itable. It’s just knowledge. At some point ba-

sic science becomes useful, and then the

private sector can come in. But who’s going

to unlock the fact that there is a 3-D printer

in the cell called a ribosome, or a naturally

occurring messenger RNA that is read by

the ribosome to produce another protein?”

he said, describing the mechanism by

which the Pfizer vaccine works.

He estimates that the coronavirus crisis

has cost the United States at least $16 tril-

lion in terms of lost lives, lost quality of life,

and lost economic activity. If a pandemic

happens even once a century, spending

something like $160 billion a year in basic

research to prevent it could be justified. The

National Institutes of Health budget, de-

voted to medical research of all types, is

about a quarter of that.

The private sector’s capacity to develop

innovative drugs is not necessarily some-

thing that happens because bold executives

manage their companies better than the

less commercially minded public sector.

Rather, in the United States and Europe,

the progress toward virus treatment and

prevention reflects an interlocking set of in-

stitutions: from the state, funding for basic

research, patent enforcement and safety

regulation; and from industry, the ability to

turn raw ideas into a marketable product.

To get safe and effective drugs, it takes

both.

Government Intervention

Supply chain managers in the auto industry

take their responsibilities seriously. One

supplier’s inability to deliver a crucial part

can stop an entire assembly line and cause

millions of dollars in losses to the “original

equipment” manufacturers, as industry in-

siders call carmakers.

“It is a mortal sin to shut down an O.E.,

and the supply base has been hardened to

that,” said Jeoff Burris, an auto industry

supply chain consultant based in Plymouth,

Mich. “No expense is spared to keep that

from happening.”

When a hurricane prevented trucks from

getting to a supplier, he said, his clients

rented helicopters to ferry workers in —

and parts out — rather than risk a shutdown

of the main assembly line. But helicopters

can’t help if the suppliers go out of business

entirely. And for a few scary months this

year, that appeared possible in the automo-

bile supply chain.

Sales of cars and trucks plunged in March

and April, as Americans stayed home. Au-

tomakers slowed or ceased production.

There was a real risk, Mr. Burris said, that

some of their suppliers — smaller compa-

nies without big cushions of cash — would

shutter permanently and blow a hole in auto

production. That’s what happened in the

2008-09 recession.

It didn’t happen this time. A big part of

why: the Paycheck Protection Program, in-

cluded in the huge Covid aid package

passed by Congress and the Trump admin-

istration in March, which provided forgiv-

able loans to companies that kept their

doors open.

“In 2008 and 2009, parts stopped showing

up at the plant, and it turned out the factory

was padlocked,” Mr. Burris said. “Those

stories have not existed this time, and to me

a big reason for that is the government in-

tervention. And I’m not a fan of government

intervention, so I don’t like to say that.”

Ultimately, there are profound society-

wide risks for which only the collective ac-

tion of the state can provide a form of insur-

ance. After the Sept. 11 terrorist attacks, pri-

vate insurers would not write terrorism in-

surance for owners of commercial buildings

for practically any price; the government

stepped in and provided it. In the 2008 fi-

nancial crisis, the collapse of the banking

system created the risk of a broader col-

lapse, and so the government stepped in.

That is the role the government has

played in the pandemic as well. It’s cer-

tainly true of public health: Federal power

and money are being used to ensure that

vaccines are widely available. It is true in

the P.P.P. small-business program, and in

programs for ordinary Americans.

“We say private people can make provi-

sions, but a lot of risks are too big to insure

against privately,” said J.W. Mason, an econ-

omist with John Jay College and the Roose-

velt Institute. “There are risks in the world

we can’t adapt to, make some transaction to

insulate ourselves from, and that is where

the state steps in.”

He has written about the economics of

World War II, when a huge mobilization of

private industry created a formidable war

machine that defeated the Axis powers. One

can celebrate the work of private compa-

nies that achieved new heights of innova-

tion and productivity to supply the military

in that era. But industry succeeded only be-

cause the government deployed its power

and resources to, in effect, provide Ameri-

cans with insurance against a world domi-

nated by Nazis.

When big risks appear on the horizon,

whether it is a pandemic or a global security

threat, it can bring out the best in private

industry, worthy of celebration and ap-

plause. But the history, both distant and

contemporary, shows that business can’t do

it alone.

PHOTO ILLUSTRATION BY GUILLEM CASASUS / STOCK PHOTO BY RICARDO REY

Capitalism Is Amazing!

(It’s Also Inadequate)

CONTINUED FROM PAGE 1

‘A lot of risks are too big

to insure against

privately.’

THIS IS THE TIMEof year when seniors face
a barrage of messages about their Medicare
coverage — everything from insurance
companies’ direct mail blitzes and televi-
sion ads to the federal government’s emails
and mailings.
All of it focuses on the fall open enroll-
ment season, the annual opportunity to
change coverage. From Oct. 15 until Dec. 7,
enrollees can shop Medicare’s marketplace
for the prescription drug and Advantage
plans offered by commercial insurance
companies. They can also switch between
fee-for-service original Medicare and Ad-
vantage.

And they will have plenty of choices:

Next year, the typical Medicare enrollee will

be able to choose from 57 Medicare pre-

scription or Advantage plans that include

drug coverage, according to the Kaiser

Family Foundation.

It hasn’t always been this way. At its cre-

ation in 1965, Medicare was envisioned as a

social insurance program. All eligible work-

ers would pay into the system via the pay-

roll tax and pay uniform premiums when

they enrolled at age 65 — and they would all

receive the same coverage.

But privatization of Medicare began in

the 1990s, encouraged by federal policy and

legislation. The marketplace approach ac-

celerated with the introduction of prescrip-

tion drug coverage (Part D) in 2006 and the

rapid growth of Advantage over the past

decade.

Proponents of privatization argue that

giving Medicare enrollees plenty of choices,

with competition among health insurance

companies, keeps consumer prices down

and encourages innovation.

That notion hinges on having consumers

roll up their sleeves to compare products

and make changes in order to get the best

prices and coverage. But a new study by the

Kaiser Family Foundation finds that often

doesn’t happen.

The study, based on Medicare’s own en-

rollee survey data, found that 57 percent

didn’t review or compare their coverage op-

tions annually, including 46 percent who

“never” or “rarely” revisited their plans.

Strikingly, two-thirds of beneficiaries 85 or

older don’t review their coverage annually,

and up to 33 percent of this age group say

they never do. People in poor health, or with

low income or education levels, are also

much less likely to shop.

“A large share of the Medicare population

finds this whole task pretty unappealing,

and they just don’t do it,” said Tricia Neu-

man, director of the Medicare policy pro-

gram at the Kaiser Family Foundation and

an author of the report. “That raises ques-

tions about how well the system is work-

ing.”

The indifference can’t be chalked up to a

shortage of information.

Each September, Medicare sends an An-

nual Notice of Change document (via mail

or email), which lists the changes in a per-

son’s current coverage for the year ahead,

such as the premium and co-pays. Medicare

also mails a thick handbook, “Medicare &

You,” containing detailed information about

plan options. A flurry of email alerts urging

enrollees to shop their coverage using the

Medicare Plan Finder website also go out.

RETIRING MARK MILLER

Medicare Choices Leave Many Overwhelmed

More than half of enrollees

don’t review or compare their

coverage options annually.

Shopping around on the

Medicare marketplace is

‘unappealing’ for a

majority of enrollees.

CONTINUED ON PAGE 8