exciting “site rationalization” opportunities lead pfizer to pull out of ann arbor

Pfizer, the world’s biggest drug company, today announced that they would be laying off 10% of their global workforce in hopes of cutting overhead by as much as $2 billion. Locally, that means the company’s Ann Arbor research and development facility will close, putting 2,100 people out of work by the end of 2008. According to the “Detroit Free Press,” it also means that the company’s “177-acre, 2-million-square-foot laboratory, office and production space (will go) on the market.”

I don’t think this was the outcome that was expected in 2001, when the people of Ann Arbor, by way of their representatives, agreed to a 12-year incentive package, totaling $47.7 million, to keep the giant pharmaceutical company here. That wasn’t all Pfizer got, either. In order to seal the deal, the University of Michigan also had to sell Pfizer a 55-acre parcel adjacent to their existing Ann Arbor facility. The Board of Regents agreed in September 2001 to sell the property for $27 million. Shortly after this, Republican Governor, John Engler, and his Michigan Economic Development Corporation came to the table with their incentives. According to “Site Selection” magazine, “the state awarded Pfizer a 20-year credit on the Single Business Tax worth an estimated $25.8 million, plus a 12-year abatement of the six-mill State Education Tax, valued at $10.7 million.” Altogether, Pfizer received approximately $84 million in incentives, and the deal was struck.

So, were the abatements the wrong thing to do? I can certainly see how some, looking at the soon-to-be-vacant Pfizer complex, might think so.

As for the reasoning behind the closure, we’re being told not to take it personally. According to our Governor, it wasn’t anything that we did wrong here in Michigan. (She’s defending herself from the inevitable attacks from the right, suggesting that this was because of her having established such a “business unfriendly” environment..) Pfizer uses lots of good MBA buzzwords in their explanation. According to their press release, this restructuring will allow them to focus on “value-added activities,” “enhance total shareholder return,” “take advantage of the diverse and attractive opportunities,” “cut down on bureaucracy and reduce management layers,” “dramatically simplifying the organizational structure of R&D to increase accountability, flexibility, innovation and entrepreneurship,” and lots of other wonderful-sounding bullshit. They will also, “generate cost savings through site rationalization in research and manufacturing, streamlined organizational structures, staff function reductions, increased outsourcing and procurement savings.” I take it that what’s happening to Ann Arbor is “site rationalization.” I bet some public relations flak made a lot of dough for coming up with that euphemism…

Here’s another great quote the Pfizer PR people put out for CEO, Jeffrey B. Kindler:

“By reducing middle management and increasing spans of control, we’re getting leaders closer to colleagues and customers and giving colleagues a clearer line of sight to those aspects of the business for which they are accountable. As a result, our managers will delegate, empower and focus on developing colleagues more than ever, and our colleagues will grow and take on more responsibility than ever.”

People in public relations have no souls.

All spin aside, Pfizer has been suffering.

Some of its biggest drugs are coming off of patent. Lipitor, Pfizer’s blockbuster cholesterol-lowering drug, could come off patent as soon as 2010. And, according to the Associated Press, other patent expirations (i.e. Zoloft and Zithromax) will cost Pfizer nearly $14 billion in revenues annually between 2005 and 2007. To make matters worse, Pfizer’s perceived savior, a drug called Torcetrapid, was just pulled from the development pipeline after it was shown to have led to patient deaths and other complication… The company did do well this quarter due to the sale of their consumer-products division to J & J for $16.6 billion, but the overall trend isn’t looking good.

So, they did what they had to do to… A friend of mine that works at Pfizer actually told me that they’re handling it well. They’re trying to place some people, and the rest are getting fairly generous severance packages. And, as the jobs are being phased out over the next year and a half, it’s not as though people are just being put out on the street without warning. The question in my mind isn’t so much whether Pfizer did the right thing in this instance, but whether we’re prepared to learn from this experience. I’m wondering, in the wake of Pfizer, if maybe we learned something about tax abatements… Here, to put it in perspective a bit, is a quote from Michael Shuman’s “The Small-Mart Revolution“:

…There are literally hundreds of these stories from every part of the United States and they all are practically identical. Convinced that TINA (“There Is No Alternative” to globalization) firms will make or break a region, economic developers insist on lavishing them with taxpayer money to persuade them to come or to stay. Alan Peters, an urban planning professor at the University of Iowa who has studied these deals, says, “It seems like almost every state is giving away grandmother, grandfather, the family jewels, you name it, everything.”

And for what? The company rarely fulfills its pledges entirely, and sometimes not at all, and sooner or later it moves elsewhere. Some state and local officials have learned by now that these deals are likely to be losers, but economic developers ominously warn — there is not alternative. Peters and his colleague, Peter Fisher, estimate that public payments to TINA, nearly all made in back rooms with no public scrutiny, now cost the American taxpayer an estimated $50 billion per hear. And that’s just state and local money.

Many economic developers respond that they’ve learned from the mistakes of the past and no longer place so much emphasis on these deals. Nonsense. Eye-popping bribes in the range of $10,000 to $30,000 per promised job that were paid to attract auto manufacturers in the early 1980’s now seem modest. Alabama, South Carolina, Michigan, and Mississippi spent from $59,000 to $193,000 per job attract or retain various auto plants in the 1990’s. In the mid-1990’s Kentucky lavished two Canadian steel producers with $350,000 per job. Governor Pataki in New York recently gave IBM $500,000 per job as an inducement not to move out of the state. Governor Jeb Bush of Florida dispensed $1,000,000 per job to attract the Scripps Biological Research Center… The anecdotal evidence suggests that the bidding wars for TINA businesses are actually escalating.

Governor Joseph E. Kernan of Indiana regrets what happened with United Airline. He laments that one locality snatching jobs from another does nothing to improve the national economy and concedes that these subsidies probably don’t have very much influence on TINA business decisions anyway. “But,” he adds, “Indiand, like virtually every other state, is not going to unilaterally disarm. After all, there is no alternative…

For the record, I’m not saying that the $84 million in incentives given to Pfizer in 2001 to keep them in Ann Arbor wasn’t the right thing to do at the time. (I likewise am not saying that the incentives just given to Google to locate their Ad Words division in Ann Arbor is a bad thing.) I’m just suggesting that perhaps it’s coming time for everyone working in economic development to take a deep breath and do the unthinkable — stop giving handouts to the corporations among us, and start investing instead in local small-scale entrepreneurs, the kinds of people who are tied to your region, and likely to create jobs that last longer than five years. These deals wouldn’t grab headlines, but maybe in the long run it’s a better strategy. (Just think what kinds of entrepreneurial education we could have provided to the citizens of Washtenaw County for all the millions we lost on Pfizer.)

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15 Comments

  1. mark
    Posted January 22, 2007 at 11:45 pm | Permalink

    And, in case you didn’t already know, the sate of Michigan’s budget was already at “crisis level.”

  2. mike_1630
    Posted January 23, 2007 at 1:53 am | Permalink

    Wonder if this has anything to do with the new Congress throwing out the whole non-negation restrictions between the pharmaceutical companies and the government?

    Not that Pfizer probably actual needs to cut 10% because of this… but that maybe they were thinking about it anyways and figured if they did it now, it would seem related…?

    Hmm… Just thinking out loud :)

  3. t.d. glass
    Posted January 23, 2007 at 8:23 am | Permalink

    The thing that most pissed me off about the whole thing is that our local Ann Arbor NPR affiliate didn’t break into their scheduled programming to cover the press conference held by the Governor and the President of the UM on campus yesterday afternoon. It was covered by the TV stations in Detroit, but our own local station wasn’t broadcasting it. I’ve already called and left a message for their news director.

  4. trusty getto
    Posted January 23, 2007 at 10:05 am | Permalink

    In addition to tax abatements, Pfizer was also supposed to benefit competitively from the “tort reform” movement of the 90s. Michigan is the only state in which drug companies are immune from lawsuits (even if the drugs are so dangerous that they are recalled, such as Bextra), thereby eliminating liability payouts and the need for insurance to cover those losses.

    If the Republican agenda of the 90s had any merit (that tax cuts and tort reform would strengthen our economy), then why isn’t our economy the strongest in the nation?

  5. schutzman
    Posted January 23, 2007 at 1:16 pm | Permalink

    As everyone’s discussing two sides of the same coin, let me suggest a third side for contemplation:

    This doesn’t matter. None of these jobs, nor this corporation, did anything to benefit society as a whole.

    The primary impact of pfizer on the average American’s life solely relates to their lobbyists blocking national health care. That’s it.

    There’s a lot of things in the news these days that makes me sad. The layoffs of some overpaid middle-management types in a predatory corporation is not one of them.

  6. Dirtgrain
    Posted January 23, 2007 at 9:27 pm | Permalink

    Nice piece, Mark.

    I knew a guy whose wife was a secretary at the Ann Arbor Phizer facility. I feel sorry for them.

    There is also that Toyota deal for the site out by Milan. I can see that going sour down the road.

    Just as corporations play third-world companies off against one another, continually going with the lowball bidders, and pushing working conditions for whomever is currently employed in the gutter (not to mention pollution (e.g., Bhopal)) and degrading whatever community they have invaded, they play states and local communities within the US off against one another.

    The politicians always want to look like saavy business people, and they are always bending over–and bending us all over.

    I don’t see things changing unless we act globally, setting some limits at the national level (and beyond?) on incentives deals and tax deals and corporate welfare. Hopefully you are right, Mark, and locally, we will stop getting suckered.

    Pharmaceutical corporations are scum of the scum. From pollution to testing their drugs on the impoverished to artificially inflating the cost of medical care and insurance (and the whole Africa fiasco with AIDS drug patents)–feh!

  7. Dirtgrain
    Posted January 23, 2007 at 9:31 pm | Permalink

    Oops. Bhopal was Union Carbide and pesticides. Screw Union Carbide, too. Feh!

  8. ol' e cross
    Posted January 23, 2007 at 10:31 pm | Permalink

    We are walking in circles.

  9. t.d. glass
    Posted January 24, 2007 at 9:11 am | Permalink

    Some people are of the opinion that Pfizer, if they can’t sell the facility, will plow it under in order to keep from paying taxes on the buildings. I suppose, however, that the state could give them an exemption from the taxes in order to keep the facility. The question then becomes, what to do with it? Does the University need another 2 million square feet? More importantly, do we want the University to have the space, seeing as how they pay no taxes? It seems unlikely that a single entity could take it all.

    http://arborupdate.com/article/1461/pfizer-closing#c015555

  10. schutzman
    Posted January 24, 2007 at 2:10 pm | Permalink

    Dirtgrain, Pfizer’s been responsible for dumping all kinds of neat stuff, and in fact if you do a search for “Pfizer Bhopal”, you’ll find some ‘greatest hits of corporate crime” pages that talk about them both.

    Pfizer’s big thing, beyond lobbying to keep healthcare private, has to do with their paranoid enforcement of patents, most famously when it comes to keeping generic (and affordable) Aids/HIV drugs from poor African nations.

    Pfizer also is one of the most frequently targeted companies engaging in dubious animal experimentation. Even if you feel that such research is acceptable, you probably think it should be regulated to some extent to avoid excess cruelty- and because of that regulation, they’ve begun outsourcing such experiments to China, where there’s little oversight about the treatment of animals.

    I realize that Mark’s main points involve the guv’ment handouts these firms get, which is obviously a different point than I’m trying to make, and one that ties in nicely to the recent peninsular flap here in ypsi.

    However, I felt that there are really a few different elements to the situation worthy of consideration, including the matter of corporate citizenship, which if the layoffs hadn’t happened and we were just all talking about pfizer in general, I think the comments here would be of a very different tone.

  11. Dirtgrain
    Posted January 24, 2007 at 7:32 pm | Permalink

    “. . . in fact if you do a search for “Pfizer Bhopal”, you’ll find some ‘greatest hits of corporate crime” pages that talk about them both.”

    My Spidey sense was tingling. I knew it was trying to tell me something.

    Looking at photos of the Pfizer building, I got this feeling (Spidey sense, again, no doubt) that hideous, “A Clockwork Orange” creepy, Nurse-Ratched-phony cover-up stuff was going on behind that nifty-clean modern facade. And Ann Arbor calls itself a liberal town. Sheesh.

    Corporations further entrench themselves, we barely resist, and soon corporate communism will be realized, with central control coming from the corporate-corrupted government and all who dare oppose going to the gulags. We need a freaking hero, a super hero, one who can reave the conglomerates and sunder the corporate tentacles.

    Mark, are you up for it?

  12. mark
    Posted January 24, 2007 at 11:23 pm | Permalink

    One more thing… I can’t find any reference for it now, but I seem to recall that it was massive layoffs in Austin, Texas in the 1970’s that were credited with making it the thriving technology powerhouse it is today. I can’t remember the company – maybe it was Texas Instruments – but when they laid off hundreds of researchers, many of them stayed in Austin and started businesses of their own. It might be a pipe dream, but I suppose there’s a chance that something similiar could happen here, if we’re quick enough to step in and offer the support and encouragment necessary to these former Pfizer employees. I would much rather have 50 small life sciences businesses than one large entity like Pfizer anyway. There’s less risk in diversification.

  13. mark
    Posted January 24, 2007 at 11:23 pm | Permalink

    And, no, I can’t be a superhero… unless someone wants to swap spines with me.

  14. Jennyfurann
    Posted January 26, 2007 at 2:39 pm | Permalink

    I seriously feel for the people who work(ed) there. It’s hard and scary losing a job, especially when both spouses worked there… I know of quite a few people that happened to. I agree that Pfizer is not a company anyone should admire but, the people who worked there probably didn’t think of it that way. They thought of it as work. Plus they were our neighbors too… seems like everyone I know knows someone who worked there.

    I guess I am a little sensitive right now as ABN AMRO just announce this week that it is selling the wholesale mortgage division to Citigroup. They have a facility in Ann Arbor that employs about 1000 people (state st). I work there, and now there’s a good chance in 6 months… maybe more, maybe less, that I won’t have a job anymore either. I don’t kid myself into believing that what I do is bettering the world – I’m a business analyst – but I do try my best to do a good job and to make sure the things that I do will help people; not add to the bad in the world. I like what I do and frankly, I’m quite good at it. It will be a big blow to my world to lose a job I enjoy and have to hope I can find something in this area so I don’t have to leave…

    Just saying it’s more than a tax loss, or “good riddance to a bad corporate citizen”, it’s the loss of a livelihood and it’s also potentially the loss of community members and neighbors.

  15. ITYS
    Posted November 19, 2009 at 10:52 pm | Permalink

    stop giving handouts to the corporations among us, and start investing instead in local small-scale entrepreneurs, the kinds of people who are tied to your region, and likely to create jobs that last longer than five years.

    Like VG Kids?

    Everything written on this site has a shelf-life of about two years before it starts to stink.

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