Davos Man, page 28
Britain’s treasury relied on a network of more than one hundred qualified lenders to distribute the loans. One lender, Greensill Capital, furnished £350 million’s worth of government-backed loans30 to a collection of companies controlled by Sanjeev Gupta, an Indian-born, Cambridge-educated steel magnate with a private jet and a mansion in Wales. Those loans at least temporarily staved off disaster for both firms. Greensill had lent some £3.5 billion to Gupta’s business empire over the years. That money had enabled Gupta31 to acquire steel and aluminum operations in the United States, Europe, and Australia, employing about thirty-five thousand people while racking up annual revenues of $20 billion.
The global economic shutdown was threatening Gupta’s ability to keep making his debt payments. A default by his commercial group would be colossal—a failure large enough to take down its lender.
As subsequent disclosures made clear, Greensill was aware32 that the Gupta group was already behind on its payments and in serious jeopardy of sliding into bankruptcy when it used taxpayer-backed loans to help plug the gap. That should have made the company off-limits for a publicly financed rescue.
But two details transcended such mundane considerations. The Gupta group’s holdings included steel mills that employed more than four thousand people in Britain, making the company’s collapse a potential calamity. And its lender, Greensill, employed the former British prime minister David Cameron, paying him more than £1.2 million33 in annual salary and bonuses, plus stock grants that he cashed in for more than £3 million in 2019.
The following year, in March 2021, British authorities revoked Greensill’s participation34 in the government loan program while probing the firm for allegedly breaching its rules by failing to demand adequate collateral from Gupta’s companies. As Greensill’s investors pulled their capital, the firm teetered toward bankruptcy. Gupta was holed up in Dubai, scrambling to raise fresh finance.
The Bank of England published a list of companies whose debt it was buying—a tab that reached £19 billion by the fall of 2020. EasyJet, a discount airline35, tapped the central bank for £600 million in support, even as it outlined plans to lay off 4,500 people. Still, the company found £174 million to cover dividends for shareholders36.
British Airways, the nation’s largest carrier, received a £300 million infusion37 from the central bank, even as it outlined designs to terminate twelve thousand jobs.
Companies that had managed to avoid paying taxes to the British treasury when times were bountiful now used the crisis as an opportunity for corporate panhandling. The Agnelli family—the clan that controlled Fiat—owned a conglomerate called CNH Industrial. It had managed to secure British tax refunds exceeding £15 million between 2017 and 2019—a period in which it had relied on the hired advice of one George Osborne, the former British treasury secretary. In the midst of the pandemic, the Agnelli-owned conglomerate helped itself to £600 million in credit from the Bank of England.38
But the most remarkable recipient of British public assistance was a company that regular people had likely never heard of, even as they were familiar with its holdings—Merlin Entertainment. Its portfolio included Legoland, a chain of astronomically priced amusement parks, and Madame Tussauds, famous for kitschy wax likenesses of celebrities. It operated 130 entertainment sites and 20 hotels in 25 countries, while calling itself Europe’s largest visitor attraction operator. That was not a good thing to be in a pandemic.
In early April 2020, the company released a statement aimed at reassuring its bondholders that it was taking steps to cut costs while seeking public assistance. “We expect to benefit39 from various government measures.” Later that month, Merlin released its annual report, sounding the alarm that lockdowns and social distancing measures posed “an unprecedented disruption to our business.” The pandemic had resulted in “the current temporary closure of substantially all of our Attractions.”40
Merlin was furloughing 80 percent of its workforce worldwide. It had “implemented voluntary salary reductions,” leaving one to wonder about the other options for its selfless workers. These steps had reduced its expenses by 45 percent, but it needed £12 million per month41 just to stay current on its debt payments.
That debt was the result of a merger completed the previous year by a deep-pocketed triumvirate—the Canadian pension fund, the billionaire family that launched Lego, and none other than Steve Schwarzman’s company. They had paid a collective £6 billion to take control of Merlin. Then, they had followed the classic private equity play, using their new assets as collateral for unrestrained borrowing to finance expansion.
That strategy was in tatters. The investors were seeking £10 million a month in wage subsidies, plus £2 million a month in government support for troubled businesses.
Blackstone told me that Merlin tapped the furlough program and gained from tax relief on its shuttered properties.
“We do not believe that Merlin’s employees should be arbitrarily excluded from paycheck support programs that are widely available to virtually all workers solely due to the company’s private ownership,” the company said.
But at the same time that Merlin was drawing on the taxpayer’s generosity, Schwarzman was publicly boasting about his firm’s abundant finances.
“We entered this crisis42 in a position of great strength,” he told stock analysts.
Blackstone was sitting on $150 billion43 in cash and was “looking aggressively” to snap up businesses that had been knocked down to bargain bin prices. Schwarzman’s company paid out more than $700 million in dividends and stock buybacks during the first quarter of 2020.
By the following year, Blackstone would use some of its hoard to purchase a majority stake in another British company—Bourne Leisure, a collection of family resorts.
The government’s rescue of Merlin collided with a legal prohibition against aiding ventures that appeared to be failing—a vestige of European Union law that still applied during a transition period leading up to Brexit. By dint of its heavy debt burden, Merlin fell into the category of those at risk of collapsing.
But Merlin, the treasury, and the Confederation of Business Industry—a leading trade association—all lobbied Parliament to lift the ban on state aid, clearing the way for the government to deliver rescue funds.
Brexit had been sold to the public as a means of taking back control. Freed of the supposed European straitjacket, Britain was flexing its sovereignty, asserting the right to hand taxpayer money to Davos Man.
Months after Chiara Lepora returned to Dubai to resume her duties with Doctors Without Borders, she still struggled to make sense of how her own country—a European nation with world-class medical facilities—had so profoundly failed to protect its people from a public health emergency.
The pandemic was precisely the sort of event that had motivated humans to fashion government—a threat that wildly exceeded individual capabilities to contain. It demanded a pooling of resources, a collective battle plan, and effective execution overseen by specialists. Instead, Lepora had watched aghast as Italy suffered the sort of agony that she and her colleagues were used to seeing in the world’s poorest, conflict-torn countries.
“That was definitely one of the shocking aspects for us,” Lepora told me, “the idea of finding in our country, in hospitals that were very similar to the hospitals where we all started practicing medicine, the same sorts of difficulties that we are used to seeing all over the world.”
But there was one crucial difference. In places like Yemen and South Sudan, the medical resources were scant, leaving populations largely dependent on outside aid organizations. In Italy—as in Europe in general—the medical know-how and facilities were both sophisticated and abundant. But they were no longer organized predominantly for the benefit of public health. That consideration operated alongside an increasingly decisive objective that frequently posed a conflict—enriching shareholders.
In incentivizing doctors to focus on lucrative specialties, Lombardy had given short shrift to basic preventative care. That limited what constituted the most basic surveillance system in a pandemic—family doctors who interacted with patients. In privatizing a host of services at its hospitals, the region produced a setup in which no one was fully in charge; in which no one was empowered to think systematically about how to respond to an emergency, rationing what protective gear was available. That was an invitation for the coronavirus to spread.
Across Europe, part of the explanation for the lethality of COVID-19 was indeed that health care services had been diminished to finance tax benefits for Davos Man. But structure was also a powerful element. When the interests of Davos Man seized primacy in the policy conversation, that relegated other concerns to secondary status. You could have the best-trained doctors, the most formidably equipped medical facilities, and access to the most advanced medicines and still fail to mount an effective response to a public health crisis.
“What we saw was really this sort of lack of centralized and integrated direction that I’m afraid is really a sign of what goes on in general in the region,” Lepora told me. “The pandemic exposes all of those weaknesses.”
Chapter 14
“Is This a Time to Profit?”
Davos Man Wins or People Die
It was March 2020, and nothing was breaking right for the incumbent president of the United States. As the November polls drew closer, the coronavirus was spreading across much of the country. Having failed to control the pandemic, Donald Trump was promising salvation through the development of miraculous drugs and vaccines.
“We are going to come up with some really great solutions,” he declared at a rally in North Carolina. “The United States is right now ranked by far number one in the world for preparedness.”
This was a preposterous claim. In dismissing the threat of the pandemic as fake news, Trump had effectively sabotaged the workings of the American public health infrastructure, leaving the United States far down whatever standings for preparedness one might imagine. As he spoke, the country was registering about two dozen new COVID-19 cases per day. By the end of the month, the number would approach twenty thousand. In an effort to engineer a comeback, he had gathered before him, in a conference room at the White House, the heads of some of the world’s largest pharmaceutical companies.
The meeting included representatives from a half dozen companies that were developing vaccines, including Pfizer and Moderna. Trump took special interest in the man seated directly across the table from him—Daniel O’Day, a Davos Man aspirant who ran a biotechnology company called Gilead Sciences.
Vaccines would take many months and perhaps years to produce. Gilead was working on something immediate—a therapeutic called remdesivir. As O’Day explained it, the drug was an old antiviral that had been developed more than a decade ago for use against other coronaviruses.
“We’re hoping it has effects now against COVID-19,” O’Day told Trump. “We know, in vitro, that it has very high effect.”
Trump cut in excitedly, as if catching word of a magical reelection potion.
“So you have a medicine that’s already involved with the coronaviruses, and now you have to see if it’s specifically for this,” he said. “You can know that tomorrow, can’t you?”
With trepidation, O’Day delivered the news that tomorrow was not a possibility.
“The critical thing is to do clinical trials,” he said, detailing the tests that were underway.
Trump nodded impatiently, clearly uninterested in hearing why he had to wait for a bunch of scientists to check off formalities like human safety before he could get his hands on the elixir.
“Any response yet?” Trump asked. “When will you know if it works? I mean, you already have this medicine.”
Preliminary results would be available the following month, O’Day replied. Gilead was already preparing to manufacture the drug. “We’re moving as fast as we can,” O’Day said.
“Get it done, Daniel,”1 Trump implored. “Don’t disappoint us, Daniel. Do you understand?”
O’Day would get it done. Though the trials would reveal that the drug was of little consequence in limiting deaths from COVID-19, and though the advent of vaccines would fail to rescue Trump’s doomed presidency, remdesivir proved dramatically successful as a therapeutic for Gilead’s balance sheet.
By early 2021, Trump was gone, but remdesivir was forecast to register $3 billion in sales over the course of the year.
The pharmaceutical industry was a uniquely rewarding parcel of Davos Man’s preserve, a landscape teeming with delicious prey, much of it stocked by the public. Drug companies exploited research financed by taxpayers to generate marketable new drugs. Then they priced their wares to maximize returns for shareholders, frequently beyond reach of much of humanity.
The pandemic amplified the stakes, supplying the Davos Men who were running pharmaceutical companies with additional incentive to prioritize profits for shareholders over societal needs.
The global spread of the coronavirus also exposed the pitfalls of the inequality that had been widening for decades. The backlash to Davos Man’s monopolization of wealth had placed belligerent nationalists like Trump in power, just as international cooperation was critically needed.
As nations struggled to secure medicines and protective gear, they confronted serious disruptions to the supply chain, resulting in part from Trump’s trade war. From Europe to India, governments sought to bar exports of critical goods, threatening the availability for all.
The consequences of this spirit of rivalry intensified as vaccines became available in early 2021, bringing a new and defining form of inequality: those with access, and those without.
Davos Man’s companies harnessed world-class research capabilities to yield effective vaccines in a fraction of the time most experts thought possible. But the pricing for these lifesaving products left most of the world’s population unable to partake.
In a nationalist free-for-all, the United States, Britain, and other advanced economies preordered many more doses than their populations needed. Poor countries were largely shut out, dependent on handouts from organizations that distributed more press releases than doses.
From South Asia to Africa to Latin America, billions of people were likely to go without vaccines for several years.
There was but one certainty: Davos Man was going to cash in.
Like many drugs, remdesivir had failed in its original incarnation. Six years earlier, Gilead had entered it into trials as a treatment for Ebola. Those tests had proved unsuccessful, leaving the product on the shelf. Then came the pandemic. Suddenly, any conceivable way to attack a virus was worth trying.
Gilead had supplied remdesivir to the authorities in China for testing as a treatment for COVID-19. A World Health Organization panel2 had concluded that remdesivir was “the most promising candidate” among potential therapeutics. Clinical trials had begun in the United States.
Four days after O’Day participated in the meeting at the White House, he went to Capitol Hill as part of a contingent of industry executives assembled by the leading trade association, the Pharmaceutical Research and Manufacturers of America—better known as PhRMA. At a press conference, he touted remdesivir’s potential, asserting that Gilead had spent “billions of dollars trying to develop this medicine.”3
But he omitted mention of a crucial investor—the American taxpayer. The Centers for Disease Control, the U.S. Army, and the National Institutes of Health had all financed research projects4 that had laid the ground for the development of the drug.
Later that month, Gilead received another gift from the taxpayer, as the company secured approval from the Food and Drug Administration to register remdesivir as a so-called rare disease treatment. That designation brought a treasure trove of benefits—a seven-year monopoly on sales, free from the incursion of generics; tax credits for research and development costs; and a faster review time for regulatory clearance.
Congress had created this categorization in the early 1980s as a means of spurring research into diseases that afflicted so few people they might otherwise be ignored. The designation was limited to diseases that affected fewer than two hundred thousand patients. Technically, COVID-19 qualified because—at the moment of Gilead’s filing—the United States had about fifty thousand cases. But this was like arguing that the beach was an unpopular destination because no one went there on the coldest day of winter. COVID-19 was in no danger of being passed over by the market. By the fall of 2020, the United States alone had registered more than 8 million cases.
“This is an unconscionable abuse5 of a program designed to incentivize research and development of treatments for rare diseases,” declared a letter sent to O’Day from fifty-one consumer advocacy groups led by Public Citizen. “Calling COVID-19 a rare disease mocks people’s suffering and exploits a loophole in the law to profiteer off a deadly pandemic.”
Taxpayers had already paid for the drug through “at least $60 million in grants6 and innumerable contributions from federal scientists,” Public Citizen noted. A broader study identified $6.5 billion’s worth7 of federally funded projects that had contributed to remdesivir.
This was standard Davos Man operating procedure. The taxpayer had long served as the ultimate angel investor8 for blockbuster drugs. Between 2010 and 2019, the Food and Drug Administration approved 356 new drugs. Each was aided by public research, including $230 billion in grants from the National Institutes of Health.
On its face, this was positive. The United States possessed unsurpassed research capacities. The public was harnessing this acumen to yield lifesaving medicines. But shareholders like O’Day and his Gilead forebears were hogging the benefits.
Between 2000 and 2018, thirty-five of the largest pharmaceutical companies reported total revenues of nearly $12 trillion9 and profits of almost $2 trillion. They achieved these gains in part by pricing their medicines beyond reach of ordinary people. Insulins, for example, had nearly quadrupled in price10 over the previous decade, while multiple sclerosis drugs had risen more than fivefold. One in four Americans11 reported struggling to afford prescription medications.
