Pfizer, a long-established pharmaceutical giant, continues to report a profit margin on its Covid vaccine shipments in the “high-20s as a percentage of revenues.” This margin is in the same range of what Pfizer had been earning on its overall business before the Covid crisis. But because demand for the new vaccine is so high, Pfizer’s aggregate sales have nearly doubled — and so have its dollar profits. Pfizer recently declared that it expected Covid vaccine revenue for 2021 to be about $36 billion. If the company’s own “high-20s” figure is correct, the company’s profits on the Covid vaccine for this year will end up around $10 billion. This means that Pfizer, a very profitable company before the pandemic, will see its overall profits jump by about 60 percent over what it had been averaging in the late 2010s, thanks to demand from the current global emergency.
The effect of Covid profits on a company is even more striking in the case of Moderna, which before the Covid crisis had been a relatively small company, with average annual revenue of only about $100 million. This year, according to Moderna’s own most recent statement, it expects sales (nearly all of which come from its Covid vaccine) to be between $15 billion and $18 billion. In the first three quarters of 2021, Moderna took in $7.3 billion in after-tax profits, on $11.3 billion in revenue — an extraordinary margin, of about 65 percent. If that margin holds for the remainder of the year, Moderna’s total profits in 2021 will end up being at least $10 billion. This astonishing profit jump over previous years has driven up the company’s stock prices, making its founders into billionaires, nearly overnight.
As these numbers have become more widely appreciated, and as the global Covid crisis continues, with less wealthy regions of the world still without sufficient doses, there have been some cries against corporate irresponsibility and profiteering. A few weeks ago, for example, the People’s Vaccine Alliance, a coalition of groups focused on global health and social justice, condemned the companies’ high profit margins, along with their failure to freely share their vaccine formulas.
Pfizer and Moderna and their defenders counter such criticisms by stressing their private investments in risky new technologies, which have ended up providing huge benefits to the world. Past and future innovation, they argue, is driven by profit incentives. They also promise to supply more doses to the rest of the world, in the coming months, at reduced prices.
The high cost of innovation is the longtime justification for the drug industry’s high profit margins, and it’s one that American society — rightly or wrongly — has implicitly lived with for decades. But a global health emergency isn’t business as usual. In a crisis, how can we decide if the vaccine-makers’ current profits are too high, too low, or just about right? Economists and ethicists may provide a variety of responses to this question, but we may also answer it by looking to history. In particular, we should consider the era of the world wars, when global emergencies provoked rapid industrial mobilizations, with urgent government orders for huge volumes of new products, including munitions. Under those crisis conditions, some firms — like Moderna and Pfizer today — found themselves in the position of collecting high profits from desperately needed goods. These gains did not escape the attention of the public; during World War I, the words “profiteer” and “profiteering” came into popular usage, as a way of referring to illegitimate gains in time of crisis.
The U.S. government responded to this situation by imposing strict limitations on profit-taking by companies filling large emergency orders. By the end of World War I, there were new “excess profits” taxes, and other special levies, that served to rein in corporate gains. During World War II, Congress and the executive branch forged an elaborate profit-control regime, which employed multiple, overlapping devices, including price controls, high corporate income taxes, new excess profits taxes and contract “renegotiation.” (This last device imposed what some people today call “clawbacks” — the forced return of profits above a level that government authorities deemed acceptable.)
According to the standards developed by U.S. authorities in the 20th century, today’s profits by Pfizer and Moderna are unquestionably excessive.
During World War II, government authorities expected most companies to have lower profits-to-sales ratios than they had recorded before the crisis; as a rule of thumb, they expected pre-tax profit margins on sales to be no more than about 10 percent. Because corporate income taxes and excess profits taxes were high, this left many companies, including some of the nation’s most innovative and successful military contractors, like Boeing, with after-tax profit-to-sales margins of about 3 percent. Companies that had been small and unprofitable before the crisis, and whose operations were largely made possible by government financing — like Moderna today — were subject to especially close scrutiny and tough profit limitations. But even the companies with the most impressive pre-crisis financial performances, such as Chrysler and DuPont — and like Pfizer today — were forbidden from using the big jump in their revenues, thanks to war demand, as a way of increasing their dollar profits.
The difference between now and then is stark. Today, by failing to regulate vaccine profits, Congress is tacitly approving the astronomical Pfizer and Moderna returns, including after-tax profits-to-sales ratios of 30 percent or more and annual dollar profits of more than $10 billion per company. During World War II, by contrast, Congress and military authorities expected contractors, including the nation’s leading companies, to have after-tax margins on sales remain in the single digits, and annual dollar profits were limited to the tens of millions. To take one extreme but telling example, Boeing was limited to about $5 million in profits per year, equal to about 1 percent of its sales. By the standards of the “Greatest Generation,” the Moderna and Pfizer profits look up to 10 times higher than they should be. If we could transport by time machine a handful of politically moderate members of Congress and executive branch officials from the 1940s to the present day, they would be horrified at the companies’ recent financial reports and would not hesitate to call them profiteers.
History suggests that the government is fully capable of correcting today’s profiteering problem. As it did in the past, Congress could enact special taxes for the purpose or use other measures. History shows that these need not be crude, one-size-fits-all rules but could take into account a variety of factors, including pre-crisis performance, levels of private investment devoted to vaccine development and new R&D projects, the extent of pro bono work for global customers, and amounts of government assistance. Such subtleties would likely favor Pfizer over Moderna, which has relied more heavily on public aid, but both of those companies would have their gains sharply limited, reducing an advantage in crisis-year earnings they have enjoyed over competitors that have promised to forgo significant profits from Covid vaccine sales, such as Johnson & Johnson.
Would limitations on vaccine profits amount to a dangerous, un-American policy that would disrupt current production and stifle future innovation in the pharmaceutical industry and other sectors? Certainly, Pfizer, Moderna and their allies would like us to believe this is the case. They favor an understanding of human behavior, economics and technological change in which the private sector, driven by the profit motive, is the only source of innovation and growth. There are many reasons to question this self-interested narrative, but one of them is the record of World War II. Then, heavy doses of public investment and regulation — including tight limits on profits — complemented energetic action by private companies, in a way that sustained rapid innovation and a successful emergency mobilization.
Gridlock in Congress may make it hard to imagine the passage of a targeted anti-profiteering bill that would doubtless be met with determined resistance from lobbyists. But profiteering should not be a partisan issue; rather, it is one of basic equity and common sense, which should be embraced by a wide range of voters and their representatives. This was the case for much of the past century, when crisis profiteering was widely condemned by a broad coalition of Republicans and Democrats and the mainstream media, as well as members of veterans’ groups, labor unions and business associations. Most of those people are no longer with us, but we can learn from their example. Profiteering at public expense in a time of crisis is no more acceptable today than it was a century ago.
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