Edward Hadas

AstraZeneca is no one’s property

Edward Hadas
May 13, 2014 09:12 UTC

Pfizer’s planned offer for AstraZeneca is a poor test case for almost any big question about big corporate acquisitions. The weaknesses of everyone involved in the potential deal only bring out the futility of the whole idea that big companies have owners.

The would-be American acquirer, the British target, the UK government and whole pharmaceutical industry are all tainted. They are guilty, respectively, of a tax fixation, cutting research, empty words and inadequate drug discovery. So there is really no one with the moral authority to say whether this is a good deal.

But the whole debate is marred by the law, which leaves the final decision to only one group, the equity shareholders. The squealing politicians and whinging scientists can be cast as intruders, interfering with the rights of these owners. That is wrong. Shareholders should not decide, because the law is economically wrong. The typical large company does not have owners.

Yes, shareholders own some of the financial capital, and should protect their interests. But the shareholders’ capital contribution plays a relatively minor role in most quoted enterprises. The financial base is far less important than a long list of other assets: human capital, government protection, brands, reputation and technological expertise.

There is also a fundamental difference between a company, a human organisation, and property, which is stuff like cars and houses. Property can be used and sold at the owners’ will. Companies, like other human organisations, have a life of their own. Companies should be treated in the same way as a family, a church, a government agency or a voluntary organisation, as institutions with many social roles and responsibilities – and without any owners.

In defence of financial coercion

Edward Hadas
Mar 26, 2014 15:45 UTC

Last week the British government gave a new freedom to its citizens, or at least to a relatively privileged group of them. No longer will pensioners with defined contribution retirement plans be forced to invest their accumulated funds in an annuity. The old requirement was a form of financial coercion: government rules which influence behaviour.

For the pensioners in question, the new arrangement may feel like liberation. They will no longer be enslaved to a product which offers meagre yields. For the rest of Britain, though, financial freedom has probably been reduced. All taxpayers will end up paying more for the medical bills of some pensioners, those who would have had an annuity income but who might now be forced to turn to the state if they run out of money when they need expensive care.

The elimination of one sort of coercion for some people brings a new coercion for others. The pattern is typical, and not merely in finance. Freedom is usually tied to constraint. If I am free to play loud music, my neighbour is forced to endure a racket. If I am free to charge as much as I want for a product that is in short supply, the rich are free to buy but poorer people are forced to do without.

How hunger and obesity go together

Edward Hadas
Feb 26, 2014 15:32 UTC

Global hunger is shrinking. Yet each winter operators of food banks in rich countries like the United States and Britain speak movingly of the plight of those who must choose between heating and eating. The desperation seen by Feeding America and the British Trussell Trust is real enough, but this is not a massive economic failure. The weakness is predominantly social.

When people do not have enough to eat, there are three possible causes: an inadequate food production system, a bad political choice or poor personal arrangements. Through most of history, the first problem was the most important cause of hunger. However, as the economist Amartya Sen pointed out three decades ago, food shortages can no longer be acts of nature.

The reason for Sen’s judgment is that nature has been tamed. More than enough food is already produced globally to feed all the people, and the technology of food transport and storage is sufficiently advanced to get the food to those who need it most. When that does not happen, there must be a human problem. Within a country, a shortage of food comes down to a failure of government to serve the governed. Internationally, it is a failure of the strong countries to help the weak.

How not to do healthcare

Edward Hadas
Dec 11, 2013 16:26 UTC

Almost every healthcare system in the world is a lesson in how not to do it. The pricing-based model fails miserably in the United States. The rationing model works almost as badly in the UK. Both fail in the core task of ensuring that the right healthcare goes to the right people.

Price systems should provide clear information to consumers and producers, helping both make sounder decisions. They can help make hard decision about what care is worth giving, but only if the prices accurately reflect the costs. But that doesn’t happen in American healthcare.

Every service and each drug has many prices, depending on who is providing and who is paying. Almost none of the prices bear any clear relation to costs. The New York Times reported earlier this month that the price of a dose of codeine ranges from $1 to $20 in San Francisco. Hospitals routinely send much higher bills to uninsured patients than to people with insurance. The uninsured have less ability to pay, but they have no clout pre-treatment and less clout than insurance companies in the inevitable post-bill negotiations.

Small is beautiful in finance

Edward Hadas
Nov 6, 2013 16:14 UTC

Some economic activity makes the world better, some is a cost of making the world better, and some actually makes the world worse. Where does the business of finance – lending, borrowing and securities trading – fit in? Mark Carney, the new governor of the Bank of England, recently said: “a vibrant financial sector brings substantial benefits.” The implication is that more finance is a good thing, as long as it is safe. That is simply wrong.

True, empirical studies show that financial activity increases along with incomes in poor countries. But this correlation has little bearing on developed economies with mature financial systems. In these countries, additional financial activity unquestionably adds to GDP, but the same can be said for the substitution of expensive medical care for cheap preventative action. The question is whether additional finance promotes overall economic good.

It can do so, but not directly. Finance is a cost. It is a means not an end, an input not an output. People and companies should engage in financial activity only to help them do other things – most notably to preserve or increase wealth, to coordinate expenditure with incomes and to help organise real investments, production and distribution.

UK’s economic woes are basically social

Edward Hadas
Aug 14, 2013 09:23 UTC

Four decades ago, everyone knew that the UK had a social problem. Class divisions stunted the development of a substantial, well-educated middle class, leaving the economy in a strangely Victorian state – divided between a gruff working class, which was prone to strikes and obstruction; and the incompetent elite, which seemed unable to adjust to the end of Empire.

Times have certainly changed. Britain is now prosperous and predominantly middle class. Union strangleholds have given way to flexible labour markets. The country is a magnet for global talent, drawn by a cosmopolitan culture, not to mention the use of the leading global language. High value-added international services are its speciality.

But something is still wrong. A country with so many advantages should be doing better. Think Switzerland – another country of social peace, high skills and a post-industrial economy. The Swiss run a hefty trade surplus. The country has a very low unemployment rate, low inflation and a fiscal surplus. The nation’s biggest monetary challenge is to keep the currency from rising.