Middle Israel: Wanted, Capitalism with a human face

The 30-year journey from mass layoffs at socialist behemoth Koor to mass layoffs at capitalist flagship Teva is part of a global need for a new economic idea.

WORKERS OF Teva Pharmaceutical Industries stand at the entrance to their facility in Ashdod earlier this week. (photo credit: AMIR COHEN/REUTERS)
WORKERS OF Teva Pharmaceutical Industries stand at the entrance to their facility in Ashdod earlier this week.
(photo credit: AMIR COHEN/REUTERS)
Like Yugoslavia after Tito, Teva Pharmaceutical Industries crashed soon after the death of the man who was the brain, heart and spirit behind its phenomenal success.
Eli Hurvitz, a former kibbutznik who, while studying economics at the Hebrew University, worked as a test tube washer in his father-inlaw’s small drug plant Asya, later became an executive in the firm, which, through two takeovers he led, became by 1976 Israel’s dominant drugmaker, Teva.
Charismatic, visionary, tactful and also handsome, the artillery officer who fought in four wars while producing and marketing aspirin, antibiotics and assorted lotions was 50 when Ronald Reagan’s deregulations made it easier for foreign drugmakers to sell and produce in the US.
With all this coinciding with Israel’s hyperinflation crisis, Hurvitz the man and Teva the company would loom as emblems of this country’s journey from socialism to capitalism.
Hurvitz understood the promise of globalization, steadily focusing Teva’s sales and production in the US. By 1990 sales more than doubled, crossing $260 million, winning applause on Wall Street, where Hurvitz raised on NASDAQ more than $25m.
Before long, Teva sold in America more than it sold in Israel. That was also when it began swallowing competitors, from Canada through France and Italy to Hungary. By 2000 Teva had not only more sales but also more employees overseas than in Israel.
By autumn 2011, when Hurvitz died at 79, Teva had 42,000 workers in 60 countries with $18.3 in annual revenues and a market value of $40 billion. With this figure swelling by 2015 to nearly $60b., Teva’s journey since 1985 – when it was worth “only” $17b. – became a capitalist inspiration for an economy once guided by social equality and ruled by governmental decree.
Hurvitz was not just a symbol of this transition; he was a piston in its engine.
A patriot who, as a 41-year-old CEO, rushed to the front during the Yom Kippur War, where he improvised a battalion with which he fought in the Sinai Desert, Hurvitz volunteered to represent the private sector in the negotiations that resulted in the great stabilization plan that defeated hyperinflation.
It was a thankless role that demanded endless negotiations with the Histadrut labor federation and the Treasury, but Hurvitz delivered the industrialists’ agreement to slashing the duties that protected them from foreign imports, while the unions gave up on salary indexations and food subsidies, and the politicians cut defense spending and outlawed printing money as a means of covering deficits.
Israel was thus severed from its socialist roots, while the privately held and shamelessly profitable Teva became the antithesis of Koor – the union-owned conglomerate of 32,000 workers whose bankruptcy in 1988 resulted in 10,000 layoffs and wholesale closures and spin-offs en route to its privatization.
No one in his right mind thought back then that the next Israeli company to fire thousands would be Teva. Yet Teva is now about to fire 14,000 workers worldwide, including 1,700 in Israel.
What went wrong, and what does it mean?
TECHNICALLY, ONE thing went wrong.
Like Bonaparte galloping to Moscow, Teva stormed one rival too many when it bought two years ago a competitor called Allergan for $40.5b., through a $35b.loan. As all soon learned, the price was too high, which is why Teva’s shares began tumbling, and the loan was unaffordable, burdening Teva with the debt that its layoffs are now meant to repay.
Strategically, Teva relied too heavily on its multiple sclerosis drug Copaxone, a patented pill that originated in the Weizmann Institute, and which ultimately generated Teva an annual $4b.
Like the short botanical distance between medicine and poison, Teva’s flagship drug would demonstrate the short psychological distance between treasure and adventure. Failing to heed Joseph’s advice to Pharaoh, Teva did not use the good years in order to prepare for the bad ones, failing to reach the day of its patent’s expiration with a new patent that would emulate Copaxone’s success.
This, in brief, is what went wrong technically. But what went wrong substantively?
Some pinpoint the death of Hurvitz, who chaired the board to his last day. This thesis is not farfetched. Hurvitz, who masterfully balanced risk and caution, would never have taken that $40b. loan.
Others would argue Teva ultimately defied the Israeli character, which is better at inventing than at manning conveyor belts. That, too, is true, and calls into economic question the patriotic Hurvitz’s effective subsidizing of Israeli manufacturing jobs for more than twice their cost in India.
Yet there is a deeper cause for Teva’s crisis, and it begins where Teva’s Israeli roots end, in the very globalization that fueled its journey to capitalist stardom.
Feeling compelled to expand geographically, Teva ventured into moral moonscapes where it soon did strange things, like hiring a Russian con man as an expensive go-between it did not need, or paying $2.3b. for a Mexican drugmaker it soon charged with fraud. These and other such misadventures cost Teva $520m. in payments to the US Justice Department and Securities Exchange Commission to settle charges it had scattered bribes from Russia through Ukraine to Mexico.
In this regard, Teva is part of the global crisis of capitalism, the combination of financial gluttony and moral decadence whose threat to humanity’s future became clear in the wake of the 2008 financial meltdown on Wall Street.
In an article the following year titled “What went wrong with economics?” The Economist lamented academia’s assumption “that capital markets worked perfectly.”
The need for a new economic idea runs deeper, as globalization and automation destroy job security, social stability and financial certainty, while cracking political establishments on both sides of the Atlantic.
Just what this new idea will be remains to be seen, but – to paraphrase the 1968 Prague Spring’s slogan “socialism with a human face” – it will be some kind of “capitalism with a human face.”
This is the broader context of what Teva now faces, a malaise that vindicates sociologist Daniel Bell’s insight that communism is a system where man exploits man, and capitalism is the same thing except the other way around.