'COVID and structural cartelisation: market-state-society ties and the political economy of Pharma' by Matthew Sparke and Owain Williams in (2024) New Political Economy comments
At first glance, the inequities in global access to effective vaccines against SARS-CoV-2 might simply be attributed to the raw power of so-called Big Pharma. These dominant pharmaceutical firms, after all, have long exercised concentrated control across global markets which have been structured in such a way as to support highly stable and globally entrenched forms of monopoly power (Malerba and Orsenigo 2015). The firms dominate over a series of product and national markets and a world-wide industrial sector involving high levels of profit and relatively low levels of competition. And while the rapid rise of Moderna and BioNTech would seem to tell a different story with their breakthrough mRNA vaccines for COVID, the larger pandemic picture appears on initial impressions to present a familiar outline of the dominant corporations like Pfizer using their market influence to secure yet more concentrated power and super-profits (Kollewe 2021). Forecasting full-year sales figures for COVID vaccines and Paxlovid totalling $56bn in late 2022, Pfizer CEO Albert Bourla boasted to investors that: ‘[W]e believe our Covid-19 franchises will remain multibillion-dollar revenue generators for the foreseeable future’ (Smyth 2022). Such hubris has so far proven merited. More widely, dominant pharmaceutical firms make vast profits year on year, even in ‘normal times’, and exercise a huge degree of market power. But this focus on firms and their profits is only one part of the more complex picture of their power.
We start with some important definitional grounding work. First, for the purposes of clarity about the firms in question we define dominant pharmaceutical firms as global companies that structure national and global markets and the scientific orientation and business practices of dependent life sciences sectors. These firms also use their dominance and substantial market power to stymie market entry and erect substantial barriers to would-be entrants, beyond natural barriers to entry or first mover advantages, and not least via the patent system and other strategic resources and business practices. Mergers and Acquisitions (M&As) and other formal partnership arrangements are used to further build in market power and dominance, and to structure and control a wider innovation system. These firms are large and have market power (Banares 2016), but, just as importantly, they also possess intimate connections with regulatory, legal and research infrastructures they have co-produced with states.
Second, while there is a degree of distinction between traditional pharmaceutical firms and biopharmaceutical firms, we note that large pharmaceutical firms have adapted and integrated the potentially disruptive technologies, particularly in their M&A and joint venture strategies toward small biotech firms. They have done so not least to diversify sources of drug discovery away from chemical-led processes and secure wider micro-biological bases for product pipelines and to retain control over a wider innovations system. We also note that the market strategies of biopharmaceutical firms are doing much the same. This is observable in their dominant relations with a diverse pool of smaller firms and their structural control of networked innovations systems; including through their defensive, offensive and product-pipeline diversification uses of M&As and their strategic uses of patents and trade secrets. Both sets of dominant firms are closely involved in the overall bioeconomy and in the production of medicines, therapies and diagnostics from which they extract enormous profits. We therefore simply refer to each category together as dominant pharmaceutical firms, as is increasingly common in industry analysis which collapses the two sectors in terms of the reporting and ranking of such firms by profits, revenues and sales.
Third, we are not concerned here with deriving a comprehensive list of which firms are leaders and those that are not. Following Banares (2016), we acknowledge the preeminence of 15 or 20 pharmaceutical firms which are large and global in reach. These firms exercise market power across core high-income country pharmaceutical markets (which constitute the vast majority of the world market in terms of value) and more widely dominate the related sectors they sit at the apex of. These firms have technological, functional and managerial advantages over would-be rivals that provide the necessary assets and capabilities for their sustained market power and dominance (see especially Banares 2016, pp. 102–143).
However, these giant pharmaceutical firms not only have substantial market power but also possess very strong formal and informal relationships with core high income states, where many of them have deep historical links and deeply embedded institutional ties. We also view it as important that all dominant pharmaceutical firms are still predominantly headquartered in key High-Income Countries (HICs), and their histories and strong associations with their more than nominal host states constitute one of the key bureaucratic, infrastructural and political bases of their continued dominance, despite their status as global companies that operate transnationally.
Overall, it is precisely the confluence of hybrid market and political power associated with pharmaceutical oligopoly that is central to our understanding of enduring dominance by core firms, as well as the mix of strategic resources, power and agency that cement and reproduce it over time with little variation in the top 15 or 20 firms, other than routine consolidation between them.
Our first claim is that focusing simply on the big profits of dominant pharmaceutical firms, or recounting their market and innovation strategies, misses the still bigger picture of market-state relations and structural power involved in their stable market dominance and oligopolitical relations (Gleeson et al. 2023). At the centre of these powerful relations, we argue here, is a political economy of what can be described as multi-layered, multi-levelled and nested structural cartelisation. Indeed, the kinds of explicit structural collusion revealed by the COVID crisis and state-backed defense of monopoly rights to new vaccines went far beyond the old image of conniving corporate executives fixing prices and plotting against competitors in smoke-filled board rooms. Typically, these traditional kinds of anti-competitive collusion have been understood to be organised outside of and in opposition to the capitalist state’s vaunted interest in creating competitive markets. In the terms of Adam Smith’s early critique of cartels, the resulting monopolies came to be seen as ‘formidable to the government’ (Smith, 1776). But in the oligopolistic global pharmaceutical sector, we instead see the cartelisation of market concentration being repeatedly co-constructed over time by governments in active and explicit collusion with dominant firms.
Cartelisation in the pharmaceutical sector today, we therefore submit, involves a permissive and enabling series of entanglements between corporations, states and prominent societal actors. These entanglements have effectively been institutionalised and interlinked with one another as a series of dense regulatory, legal, financial and institutional arrangements for enclosing life sciences innovation into intellectual property (IP) as assets. These relationships and practices are concerned with turning its health value into economic value, and, in the words of Victor Roy’s important new critique, capitalising on cures (Roy 2023). Here, what can be described as the non-market environments and socio-legal infrastructures for pharmaceutical oligopoly are a major basis of durable market power and structural cartelisation.
Although there are corporate practices and strategies apparent that evidence more recognisable
forms of cartel-like behaviour (such as price fixing, market rigging and tacit collusion), structural cartelisation both describes and seeks to capture how dominance is facilitated by a combination of market and socio-political, legal and regulatory arrangements which are explicit and institutionalised nationally in HICs, and internationally in the global trade regime of the World Trade Organization (WTO) and over a series of partnerships and initiatives in global health. We therefore use structural collusion here in distinction to traditional understandings of how cartels operate by means of illicit and tacit coordination between firms. The high-level strategic coordination, and the routine bureaucratic and everyday arrangements between firms, states and key societal actors in global health are structurally embedded and rarely need coordination or discussion, involving collective behaviours, practices, shared rhetoric and assumptions (as is the case with the shared language games around the need for patents for innovation), formal and informal linkages, conjoint agency and shared strategic visions of dominance, competition and the basis for state and firm comparative advantages. These agencies act together and intersect to repeatedly produce a whole series of cartel-like outcomes in global political economy.
Despite the endlessly-argued industry defense that the monopoly-pricing based on patenting creates an economic incentive for innovation, recent research shows there is in fact little relationship between profitability and drug discovery (Işık and Orhangazi 2022, Dosi et al. 2023). What we see instead is that structural cartelisation turns state investments, public goods and the public health value of pharmaceutical innovation into the captured economic value of private corporate profits. We also agree with legal historian Graham Dutfield’s assessment that any explanation of monopoly pricing and associated limitations on access to pharmaceuticals needs to be extended far back and far beyond a narrow focus on present-day patents to take account of the historical development of interdependencies between pharma and governments (Dutfield 2020). That said, we are in new terrain today where the resulting cartel effects are supported by even wider sets of international agency. As Dutfield himself details (2020), the public-private partnerships comprising today’s complex medical-industrial complex are new players in the structurally collusive system. As with other sectors, the pharmaceutical cartel now involves multiple types of strategic partnership in the expansion of monopoly power across global production networks (Sparke et al. 2023). What are described as 'partnerships' and 'foundations' in health and medicines are often part of this broadened agency involved in creating and cementing the collusive regimes of value capture from pharmaceuticals, while supplying it with an often thin semblance of legitimacy to the political economy of medicines which continues to produce such patently inequitable outcomes for would-be consumers and those in need of access (Lexchin 2021, Rushton and Williams 2012).
In Section 1 we turn to the web-like arrangements of corporate monopoly power and the structures of firm-firm collusion made manifest by COVID. In Section 2 we next examine the networks of firm-state collusion that the pandemic has brought to the fore, including in undermining the proposed waiver from TRIPs rules at the WTO. And in Section 3 we explore the most novel and hybrid kind of collusion represented by the firm-state-philanthropy collusion that became apparent in the philathrocapitalist COVAX initiative. To begin with, though, we offer a short detailing of how our approach to structural cartelisation contributes as an original theorisation of contemporary political-economy.
