Financialization Is Killing Global Physician Entrepreneurship

These days being the CEO of a biopharma or medtech company is as much about boosting the short term stock price as it is creating innovative products and services.

Rana Foroohar, in her book, Makers and Takers: The Rise of Finance and the Fall of American Business, argues that financialization of more and more of the American economy is killing business and hurting entrepreneurs, including bioscience and clinical physician entrepreneurs.

She explains that financialization “is an academic term that includes everything from the growth in size and scope of finance and financial activity in the economy; to the rise of debt-fueled speculation over productive lending; to the ascendancy of shareholder value as the sole model for corporate governance; to the proliferation of risky, selfish thinking in both the private and public sectors; to the increasing political power of financiers and the CEOs they enrich; to the way in which ‘market knows best’ ideology remains the status quo.”

Instead of funding innovation, banks are using money to lend against existing assets. These days being the CEO of a biopharma or medtech company is as much about boosting the short term stock price as it is creating innovative products and services. One result is that the per-capita rate of new business creation has been decreasing since the 1980s.

Foroohar claims that the solutions are in changing the rules we created and can therefore re-create. Bioentrepreneurial finance classes should be less about how to do a stock buy-back to maximize CEO bonuses and more about creating user-defined value. Capital markets should be democratized and less the domain of “experts” and should stop rewarding debt over equity.

Given the globalization of financialization, the problem is not unique to the US and challenges international (bio)entrepreneurs around the world. How and whether we change the rules will determine whether patients, CEOs or shareholders benefit the most.