Can healthcare serve to jumpstart stagnant economies?

Bill Trombetta discusses the potential benefits of bringing drug manufacturers back to struggling economies, as well as the challenges this may involve.

What if healthcare jobs, especially manufacturing jobs like Active Product Ingredient (API) manufacturing, now largely concentrated overseas in emerging markets like China, Eastern Europe and India, could be brought back to struggling economies? When asked what the outlook for foreign manufacturers to enter the Russian market was, President Vladimir Putin replied that Russia would be glad to be a manufacturing site if Russians were hired as the workers.

IBM's "Smarter Planet" campaign is the poster boy for a company that does well financially as it operates as a good corporate citizen. Whether it is partnering with healthcare providers like Intermountain Healthcare in the US State of Utah to make efficient, cost effective healthcare happen or partnering with police to help high school students get to and from school alive on the mean streets of US city, Chicago, IBM becomes so valuable to its customers that it is more than just a supplier; rather, IBM becomes an invaluable partner.

"...the jobs that could be associated with economies that are struggling could jumpstart a stalled economy."

Strategically, the potential to bring back manufacturing jobs from low cost markets represents an opportunity to go beyond just supplying products. API refers to the active ingredients that make up a chemical pill, such as generic drugs. There are a number of reasons that enhance this potential. Safety of generic drugs is a factor that has become a concern as these drugs manufactured in low cost economies can be associated with unsanitary manufacturing plants overseas. The US Food & Drug Association (FDA) is on record as not being able to inspect much of the 80 percent manufacturing of overseas API. The movie actor, Dennis Quaid's twin sons, almost died from tainted heparin produced in a Chinese plant. Also, the jobs that could be associated with economies that are struggling could jumpstart a stalled economy. Perhaps the most important strategic aspect would be reversing the overwhelming image of drug firms continuously laying off workers and closing plants to the detriment of local economies. Such a company could emerge as more than just a supplier and more of a vital partner in the community's economic health.

Other than IBM and its "Smarter Planet" strategic initiative, a number of healthcare entities are positioning themselves as much more than just physical product suppliers. Yes, the US auto industry is bringing the US State of Michigan's economy back. But the South-eastern part of the state has become a hotbed of healthcare entrepreneurial activity that is also lifting the economy. A recent article in Fortune depicts the role of the Cleveland Clinic in working to revitalize the US State of Ohio and the city of Cleveland. The Cleveland Clinic's venture capital activities have launched 60 healthcare spinoffs creating 1,000 jobs. A significant part of Pittsburgh's revitalization is due to high tech companies and medical start-ups with the biggest impact by The University of Pittsburgh Medical Center. Twenty percent of private sector jobs in Pittsburgh are in the healthcare sector replacing manufacturing as the bellwether of the economy according to the LA Times. The city of Rochester in the US State of Minnesota takes The Mayo Clinic's plans into account because of its operations' impact on the local economy.

"...a number of healthcare entities are positioning themselves as much more than just physical product suppliers."

According to a 2011 In Vivo article, Ireland has become a Mecca for medical device manufacturing. Ireland has a strong engineering and manufacturing base to go along with its goal to develop a knowledge-based economy.

Now, turn to how to make it happen. We start with the wage differential between China and the US. The average manufacturing wage in China is $5,000. Using starting auto industry worker wages of $14 to $18 an hour and logistics and warehousing salaries average $32,000 a year; the differential seems insurmountable at $25,000. So the rub is to cut into this differential.

China's wages are rising rapidly. So are transportation and shipping costs. Energy costs, with oil as the main culprit, are spiking as the US moves to become energy self-sufficient.

Then throw in tax breaks and grants to incentivise manufacturers to set up operations in a locale. Ireland's corporate tax rate is 12% vs. more than double that of the US. Could US states and cities meet that tax rate to incentivise depressed economic locations to enhance their attractiveness to manufacturers?

Arguably, the game changer factor is productivity. At present, American workers can offset lower wages by producing more with less input. Shikha Dalmia writing at the Daily.com in February 2012 reports that in 2010, American workers produced more goods than China but with only 1/10 of the workers. So put one US worker's annual $30,000 wages against ten Chinese workers' total annual salary of $50,000. And that wage differential begins to dissipate.

"Arguably, the game changer factor is productivity."

Then throw in the two wild card questions to which no research could ever answer:

1) How much more would a consumer pay for a generic drug if that drug, made locally, were likely to be inspected by the FDA?

2) How much more would a consumer be willing to pay if that drug's being produced locally resulted in a job for a domestic worker?

It would be naïve, simplistic to suggest or imply that healthcare would even come close to making a dent in 10 percent unemployment rates in and of itself. But there is evidence that manufacturing is making a comeback, albeit modest. What could emerge, though, is a new spirit generated by healthcare activity that spills over to increased employment. And, strategically, those drug firms who would spearhead the public policy renaissance achieves what few, if any, drug or device firms can claim today: a genuine partner in a community's growth and development instead of just a supplier of goods.

About the author:

Dr. Bill Trombetta is Professor of Healthcare & Pharmaceutical Marketing, St. Joseph's University, Phila PA, USA. In addition to his PhD in Marketing from THE Ohio State University, he is also an attorney licensed in New Jersey & New York specializing in healthcare and antitrust law. He served as a Deputy Attorney General in the State of New Jersey, Dept of Law & Public Safety, Division of Criminal Justice, Antitrust Section.

Can healthcare serve to jumpstart stagnant economies?