health & medicalmoney

Wait, I thought Republicans were the party of big business?

In the chart below, I’ve plotted IHE (Ishares Dow Jones Pharmaceuticals ETF), IHF (Ishares Health Care Providers), and IHI (Ishares Medical Devices), with SPY (S&P depository trust) included for comparison purposes. I’ve also included vertical lines marking various landmarks in the road to healthcare reform (left to right): May 11, healthcare industry players meet with Obama; June 8, Senate HELP committee releases initial draft bill; June 23, Obama presser on healthcare; July 22, Obama prime time presser on healthcare; July 31, Congress recesses to go home and get yelled at by constituents; November 19, Reid unveils bill in Senate; December 24, Senate passes healthcare bill.

Healthcare Stocks

Judging by some of the rhetoric I’ve heard over the last year, you’d think that with all of the cost-curve-bending and health-insurer-pimp-slapping going on, the market on healthcare industry stocks would reflect all the money we’re going to be saving. Interestingly, starting around the end of November (when we started to get a true idea of what final legislation will likely look like and when healthcare reform started gaining the most momentum), all three industry groups began outperforming the market as a whole (as represented by the S&P 500).

We saw something similar last year when the Senate passed a measure allowing the FDA to regulate tobacco products (see below chart of Altria and SPY).

Smoking

According to a NYT article at the time, the CBO estimated that the measure “would reduce youth smoking by 11 percent and adult smoking by 2 percent over the next decade.” Yet Altria didn’t respond in a manner which seems to indicate that investors thought the large tobacco company would be much harmed.

I’ve always thought that regulatory risk is a lot like having Tony Soprano for a business partner. The U.S. government, our stand-in for Mr. Soprano in this analogy, may not have interests that are directly congruent with that of the business owner (as David Scatino found out in season 2 of The Sopranos), but there’s no better ally to have if you want to discourage competition.

I came across a passage in The Fall of the Roman Empire: A New History of Rome and the Barbarians, by Peter Heather:

“In 310 a speaker before the emperor Constantine put it succinctly: ‘For in whatever places your divinity distinguishes most frequently with his visits, everything is increased – men, walls and favours, nor more abundantly did the earth send forth fresh flowers for Jupiter and Juno to lie on than do cities and temples spring up in your footsteps.'”

Regulatory risk is a risk, sure. But, in general, the federal government seems more inclined to play kingmaker with regulatory authority than anything else.

The healthcare debate is featuring a lot of kabuki over who in the private sector is making sacrifices, with certain sectors (insurers, for instance) playing the part of the villains and others playing cost-cutting heroes. However, there’s another debate where this is playing out with the participants much more patently displaying their naked self-interest: net neutrality. There was an article over at Reason detailing the in-fighting among technology firms as the spoils of the regulatory burden are divided amongst the players. As Br’er Rabbit begged not to be thrown into the briar patch, are modern companies begging not to be regulated?

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5 Responses to “Wait, I thought Republicans were the party of big business?”

  1. For government its never been about big business. The role of government has branched out into picking winners and losers. Large companies can use their size to use regulation as a weapon (Verizon, H&R Block, Bank of America) but they need to be careful. They need to heed the lessons of AIG and GM, government can also get nasty turn against them in a heartbeat.

    This Administration really does play it both ways and companies need to realize that.

  2. Reminds me of the line in the early 70s concept rock album “California 99:”
    “Greeting from the House of Nonrepresentatives … Remember, we’re here to help you help us.”

  3. The problem is that whichever way the Administration plays it, its friends will win and taxpayers will lose.

  4. Interestingly, there was a similar phenomenon right before Copenhagen started. Coal companies started jumping about a week or so before the Copenhagen conference began.

  5. Now we know why so many big business types vote Democrat. Capitalism is apolitical. If business can get ahead by lobbying regulators, it will. It’s yet another reason for for decentralization of power and smaller government.

    Before the 1996 presidential election, Hedrick Smith did a report for PBS about how businesses grease the palms of both parties. Gallo Wineries, for example was in the top five donors to both Republicans and Democrats.

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