Economist Jul 19th 2014

America’s lost oomph

Falling working force

  • recession: only partly to blame, after some years of joblessness some people have given up looking for work;
  • ageing of baby-boomers:  they are now in their late 50s;
  • policies: immigration system (getting into country has become much more difficult); Obamacare (helps people get health care without working); outdated social safety net (spent less on retraining jobless and helping them to find work);

Politicians have made matters worse

  • reduce sky-high tax rate?
  • start cutting the endless sprawl of job-destroying regulations?
  • deterring Fed from raising interest rates too soon?

Thoughtful politicians have produce schemes for radical change in almost all of these areas, but their plans — like much else — have fallen victim to America’s polarised politics. The Republicans stand in the way of loosening immigration rules, while Democrats fear that supply-side reforms are a plot to hurt the average Joe. Both sides hoover up cash from special interests keen to anticompetitive regulations in place. Barack Obama, the least business-friendly president for decades, has devoted far too little attention to the problem.

The case for defense

Arm-makers are going through a lean period

  • the Pentagon moved away from “cost-plus” contracts; squeezed in military spending;
  • will not accept further consolidation (the same in Europe); big military contractors have to prepare and look at what else they can do to slash costs;

Any answers?

  • find new, civilian markets – though only a small part of most arms companies’ business; also, may struggle to compete with nimbler Silicon Valley outfits;
  • find customers abroad? but the market is highly fragmented, e.g. Brazil defense budget only 4% of the size of America’s; also the local manufacturing creates issues; some of them also prefer cheaper Russian and Chinese ones;

… the evidence is that an often unreliable, inefficient and over-rewarded industry is at last being forced to change its ways to survive.


nimble: 灵活

An irresistible urge to merge

America’s 2nd and 3rd tobacco makers to merge

  • the combined company also sells part of it to Imperial, bringing it back to U.S. market (but acquiring only brands, not liability-bearing legal entities);
  • usually foreign companies kept their distance to America’s market partly due to the unpredictable payments to courts for sick patients;
  • main holdout against tobacco globalisation is now China (40% of the cigarettes smoked): most of them sold by state-owned China Tobacco; they may someday acquire a big international firm – the last gasp in the round of tobacco globalisation


feisty: 易怒的
holdout: 抵抗
gasp: 喘气

A new home for orphans

Abbvie buys Shire, not only for tax inversion

  • “patent cliff”, too few new blockbusters and health insurers and governments become reluctant to pay a premium; M&A then becomes a solution to cutting costs;
  • many firms redirect their attention to orphan drugs (for rare, severe conditions) since it is cheaper to bring to market (smaller clinical trials), and faster approval; Insurers tend to be more willing to pay more as well;
  • Shire’s R&D drops 13% in 1Q14 compared to last year, and all its remaining is now concentrated on orphan diseases;
  • might be good for long-term as well: thanks to genome sequencing, now “all diseases are turning into rare diseases
  • however, it is unclear how willing health insurer and governments will be to keep paying high prices for such drugs

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