How “Maximizing Shareholder Value” Minimized the Strategic National Stockpile: The $5.3 Trillion Question for Pandemic Preparedness Raised by the Ventilator Fiasco

Abstract

With just 4.2 percent of the world’s population, the United States had, as of June 23, 2020, 25.3 percent of its confirmed Covid-19 cases and 25.5 percent of its deaths. The magnitude of the tragedy raises the obvious, and critically important, counterfactual question of how the United States as a nation would have fared had there been competent and committed political leadership in place when, during January 2020, intelligence indicating the severity of the unfolding pandemic became available. A partial answer to this question lies in identification of the organizational and technological capabilities to develop, produce, and distribute “countermeasures”—personal protective equipment (PPE), ventilators, diagnostic tests, therapies, and vaccines—that a competent and committed federal administration would have been able to mobilize to respond to the pandemic. Main repositories of the necessary capabilities are government agencies and business firms, with the development, production, and distribution of countermeasures relying heavily on government-business collaborations (GBCs). We contend that the success of projects for public-health preparedness and response depends on the strength of the relevant intersectoral collaborations, and in particular GBCs.

In this essay, we focus on the particular case of the development, production, and delivery of ventilators to the Strategic National Stockpile (SNS). We trace the historical evolution within the U.S. federal government of the current system of public-health preparedness for and response to a pandemic through the end of the Obama administration. Then, we analyze the particular GBCs to develop ventilators for the SNS that were initiated and implemented by the Biomedical Research and Development Authority (BARDA), under the Assistant Secretary for Preparedness and Response (ASPR) within the U.S. Department of Health and Human Services (HHS). BARDA initiated two successive GBCs, one beginning in 2010 and the second in 2014, with two different business firms, for the purpose of developing portable, easy-to-use, and affordable ventilators for the SNS. We show that the strength of these collaborations lay with the innovative ventilator manufacturers with which BARDA contracted. The weakness of these GBCs appeared when these innovative manufacturers fell under the control of business corporations committed to the ideology of “maximizing shareholder value” (MSV). In each case, the financialized business corporation undermined development and delivery of ventilators to the SNS.

We then explain why, in general, we should expect that business firms driven by MSV will be unreliable partners in GBCs—at the expense of the nation’s preparedness for and response to a national emergency, such as the Covid-19 pandemic. This lack of reliability is rooted in the strategic orientation of those U.S. corporations which have put the stock-market valuation of the company ahead of innovative performance producing goods and services. The Covid-19 economic crisis has already revealed the extent to which, in the U.S. economy, the stock market functions not to support value creation but rather as the prime means of value extraction. The most overt form of value extraction is the corporate practice of open-market repurchases of the company’s own shares—aka stock buybacks—typically done in addition to copious distributions to shareholders in the form of cash dividends.

In view of this “predatory value extraction,” we conclude this essay with an urgent question for executives and directors of corporations who, in their embrace of MSV ideology, must bear significant responsibility for the failure of the United States to respond to not only the Covid-19 pandemic but also climate change and income inequity. The question: Why does the company that you head do stock buybacks? In particular, we direct this question to the executives and directors of three corporations that, as of the year 2020, are the biggest repurchasers of their own stock in history: Microsoft at number three, ExxonMobil at number two, and Apple at number one. We also pose this question to the senior executives and board members of any company engaged in the practice who, in August 2019, signed the Business Roundtable (BRT) Statement of the Purpose of the Corporation, which explicitly rejected the BRT’s 1997 pronouncement that “corporations exist principally to serve shareholders,” replacing it with a redefinition of “the purpose of the corporation to promote ‘an economy that serves all Americans’.”

Keywords: pandemic preparedness, government-business collaborations, Strategic National Stockpile (SNS), Biomedical Research and Development Authority (BARDA), ventilators, innovative enterprise, maximizing shareholder value, stock buybacks, predatory value extraction, Microsoft, ExxonMobil, Apple, Business R

JEL Classification: D2, D7, G3, H1, H4, H5, L2, L6, O3