The knowledge-leveraging corporation in the neoliberalisation-financialisation nexus

On the neoliberalisation-financialisation nexus

No other phenomena have so powerfully altered the contemporary socio-economic fabric than neoliberalisation and financialisation. But neat definitions of these concepts are hard to provide, largely because they both refer to several processes unfolding in different spatio-temporal contexts that inevitably generate variegated outcomes. Such difficulty is compounded by the fact that these processes are often co-constitutive of each other, as well as of the contexts in which they unfold. Although a secular tendency towards financialisation is noted in some quarters, it often refers to a phenomenon that started in North America and certain European countries around the 1980s. This spatio-temporal context overlaps with that of neoliberalism which, while boasting a pedigree stretching back to the 1930s, often denotes an epoch starting in the 1970s and continuing to this day. Their co-constitutive nature makes ascertaining causality between processes of neoliberalism or financialisation and observable outcomes in specific contexts challenging. This may be why focusing on one or the other phenomenon is preferred, occluding in the process their co-constitutive nature. The definitional problem can be overcome, for our purposes, by focusing not on their outcomes but on the distinct logics that underpin them, namely, neoliberalism’s fundamentalist market epistemology and financialisation’s value extraction logic.

Neoliberalism is a political project built on a complex philosophy ultimately aimed at extending the reach and operation of markets, consolidating a market-friendly regulatory sphere, and promoting individual freedoms (Jessop, 2013). Rather than a monolithic and totalising project, remaking the nexus between market, state and citizenship is attempted through transformative but uneven processes whose outcomes depend on the context they unfold (Peck, 2010). Neoliberalism’s protean nature, while confusing at times, nevertheless hinges on its fundamentalist market epistemology: markets are not simply or even primarily economic mechanisms for optimal resource allocation, but rather epistemic mechanisms for optimal decision-making (Mirowski, 2011). This is not the laissez-faire notion of liberating markets; rather, because markets are optimal decision-makers, it implies the reorganisation of all socially significant processes, that is, not only strictly economic ones, as markets (Tyfield, 2016). As we shall see, this orientation has resulted in important institutional reconfigurations that, while central to the functioning of contemporary financialisation, were not caused by it.

Neoliberalism is a political project also because the ‘hegemony of market rule’ can only be achieved through, confoundedly, an activist and interventionist state. Despite being discursively distrustful of state’s involvement in the economy, in practice state power is central to constructing markets and expanding their reach into as many non-economic spheres as possible (Peck, 2010). State’s politico-juridical powers are indispensable, for instance, in creating and granting IP titles to certain groups, thus deliberately creating scarcity without which neither markets nor assets can exist. As will be discussed, state power has been central to the expansion and neoliberal reconfiguration of IPRs, a process that greatly facilitated the transformation of pharmaceutical corporations into knowledge-leveraging ones.

Neoliberalisation processes have generated variegated landscapes in specific contexts, often in tandem with processes of financialisation. Starting with the shift from a strictly regulated financial sector to a largely deregulated one driven by particular states, financialisation came to refer to a phenomenon with several manifestations, including the expansion and the proliferation of financial instruments and services; the penetration of such instruments and their rationales into a growing range of fields; the crowding out of non-financial investments; a new regime of accumulation where profits accrue primarily through financial channels, etc. (e.g. Epstein, 2005; Sawyer, 2013). I argue that, despite this range, financialisation currently hinges on a specific logic of value extraction in which, taking advantage of the neoliberal reconfiguration of institutions of all kinds, financial players increasingly permeate and appropriate a growing share of value created in the economy and society.

Because the financialisation literature was spurred largely by the 2008 financial crisis, it has tended to neglect the central role that assets have come to play in contemporary political economy (Langley, 2020). This dynamic has been brought to the fore instead by the recent literature on assetisation, broadly defined as the process of converting ‘things’ into assets that can be owned, controlled and capitalised as a revenue stream (e.g. Birch, 2020; Birch and Muniesa, 2020). Assetisation and associated rent relations have become important mechanisms in the extraction of value from the economy and society today. As will be seen in sections two and three, the ownership and control over intangible assets – although, importantly, not only of state-backed IPRs – are central to pharmaceutical corporations operating as knowledge-leveragers. While making an invaluable contribution to understanding the distinct logic of contemporary financialisation, however, the assetisation literature has not paid systematic attention to how the deeper penetration into and extraction of value from the socio-economic sphere has been enabled by the concomitant neoliberal transformation of various socio-economic institutional forms. The co-constitutive nature of neoliberalisation and financialisation processes can get overshadowed here by the looming logic of asset capitalisation dynamics.

One of the most distinctive features of the current phase of financialisation is the shift away from the historically familiar way in which finance influenced the productive sphere through determining the viability of possible investment decisions, to the much more intrusive shaping of the very content of decisions made by non-financial firms (and states and households) today (Vercelli, 2013). Given such penetration, it is perhaps understandable that the financialisation and assetisation literatures have been at the forefront of scholarly efforts to make sense of changes occurring in the global economy currently. Certainly, strategies noted in these two bodies of literature, for example, those aimed at increasing shareholder value and expanding the portfolio of assets of different kinds, are used widely in the sector. But it is difficult to explain why these but not other strategies took hold. An important part of my argument is that the deeper and more intrusive penetration of the financial logic in various aspects of socio-economic life would have been difficult without the neoliberal restructuring of a number of institutions, which is why the neoliberalisation-financialisation nexus is proposed here as a productive conceptual lens.

The concentration-decomposition dynamic in the proprietary pharmaceutical sector

There can be no doubt that the proprietary pharmaceutical sector is financialised. Financialisation scholars have provided the evidence which can be grouped under three main ‘tell-tale’ signs. First is the shift towards institutional investors: for example, the same five institutional investors (BlackRock, Fidelity Investments, State Street Global, Vanguard Group and Wellington Management) are the largest shareholders in most of the US pharmaceutical corporations (Busfield, 2020; Lazonick et al. 2017). Although blockholders like business families and industrial corporations still appear in the top 50 investor in the European counterparts, the share of institutional investors’ ownership has been increasing since the 2000s and, with it, the adoption of the shareholder value orientation and associated strategies (Danzon et al., 2003; Montalban and Sakinç, 2013). Among other things, the anti-competitive consequences of such ownership constitute an important antitrust issue (Auvray et al., 2021). For instance, it seems that BlackRock’s ownership shares in both Pfizer and Moderna may have enabled it to limit the mRNA Covid-19 vaccine race to its benefit.

The second ‘tell-tale’ sign is the dominance of the shareholder value maximisation which has made shareholder payback – in the form of dividends and buybacks – one of the main corporate ‘investment’ strategies in this and other sectors of the economy. More in this sector than others, for pharmaceutical corporations appear among the most extractive companies (Lazonick, 2015; Lazonick et al., 2017). During the 2000–2018 period, the total shareholder payout by 27 of the world’s largest pharmaceutical corporations amounted to US$1,540 billion, a nominal increase of 400 percent (Fernandez and Klinge, 2020: 16). Meanwhile, investments in fixed capital fell (from 6 percent of net sales to 5 percent), investments in R&D increased only moderately (from 12 percent of net sales to 17 percent), and the ratio of financial reserves to fixed capital rose from 0.87 to 1.09 (ibid., 19, 24, 27).

To this relative decline of fixed capital investment rates, flanked by increased ownership share by institutional investors, rapidly rising rates of shareholder payouts and financial reserves, a third indicator can be added: merger and acquisition (M&A) activity. A considerable literature on the topic exists, not least because relatively high R&D expenses and complex regulatory requirements made size important to a firm’s ability to succeed in this sector from the mid-20^th century onwards and M&As were a common tool to achieve it. But M&A activity is now of a different nature. In quantitative terms, M&As claims a significant part of the sector’s resources: M&A outlays from 2000 onwards overtook shareholder compensation which, in turn, overtook R&D expenses (Fernandez and Klinge, 2020: 16; Schwartz, 2016: 244). In qualitative terms, M&A activities have become deeply financialised because they: are central to maintaining and increasing corporate profitability and stock value; correlate closely to valuations and liquidity conditions in capital markets; and, are often orchestrated by financial actors, whether M&As are financed through companies’ cash reserves or borrowing (Busfield, 2020; Fernandez and Klinge, 2020; Rikap, 2019). Pharmaceutical M&As have become much more frequent and larger in scale, increasingly being used as a strategy for neutralising competition (‘killer acquisitions’), as well as for buying-in smaller, nascent or biotech firms with promising pipelines in different stages of development, new technological platforms or valuable IP portfolios (Roy, 2020; Sunder Rajan, 2017).

A lower propensity to invest is sometimes considered a ‘tell-tale’ sign of financialisation on its own right. Investment rates are down but perhaps less because of financialisation than assetisation. Intangible assets constitute an ever-increasing part of pharmaceutical companies’ balance sheets: the ratio of intangible over total assets for the largest 27 pharmaceutical corporations increased from 13 percent in 2000 to 51 percen in 2018 (Fernandez and Klinge, 2020: 25). For some of them, this ratio is higher. Linking lower investment rates to intangible asset ratio in this sector is in line with studies showing that IP-rich companies substantially underinvest relative to their profit share (Auvray et al., 2021; Pagano, 2014; Schwartz, 2022). This intangible-asset-heavy profile enables them to shrink the physical asset and labour footprint, eschew productive investment, and throttle competition through buying up potential competitors, further reducing the pressure to invest. One would still expect pharmaceutical corporations to maintain substantial investment levels in R&D, the basis of most IPRs. It appears, however, that it is cheaper for them to obtain these via M&As and, as will shall see in the case of intangible assets under the ‘goodwill’ category, by maintaining tight control over networks where R&D and production now largely take place.

Both the IP monopoly and assetisation literatures have expanded our understanding of how IPRs have become key intangible assets in corporates’ hands across different sectors (e.g. Birch, 2020; Birch and Muniesa, 2020; Pagano, 2014; Schwartz, 2022). Within our sector, the focus is often on how pharmaceutical patents have become the most-prized assets whose proper management is central not only to market control but also to accruing rent income (e.g. Roy, 2020; Sunder Rajan, 2017). Since the 17th century, the concept of rent has adapted to emerging socio-economic practices (Rogers, 2023) and is primarily understood today as the income derived through the ownership, control or possession of an asset whose scarcity is ensured through legal means of limiting/eliminating competition (Christophers, 2020). Both literatures highlight how pharmaceutical patents – conceptualised both as legal entitlements and as material manifestations of future earning streams – are now largely constructed, bundled and managed as assets critical to rent extraction in the sector (Bourgeron and Greiger, 2022; Roy, 2020; Zeller, 2008).

As will become evident, my argument builds on both IP monopoly and assetisation literatures but also tries to go beyond them. Both have a tendency to focus on IPRs and often give warranted but sometimes outsized attention to patents. Patents have historically been important in the sector and there is no doubt that they have become even more important now, but so have other kinds of IPRs, for example, data exclusivity and secrets (more below). Importantly, intangible assets come in many forms; Christophers (2020) lists at least seven, of which IPRs are only one category. An exception in the IP monopoly literature is Rikap (esp. 2021) who, building among others on Durand and Milberg (2020), expands intellectual monopoly to cover various forms of knowledge assets. Leading corporations across different sectors that ‘continuously monopoliz[e] access to knowledge’ are labelled ‘intellectual monopolies’ (2021: 23). Such monopolies are seen to have emerged from knowledge-specific features: changes to IPRs and especially changes to corporate innovation systems do the heavy analytical lifting in this account at the expense of broader socio-economic phenomena – neoliberalisation and financialisation – that have transformed these and other configurations in the first place.

The case can safely be made that IPRs account for a significant part – but not all – of the increase in the intangible assets of pharmaceutical companies. It is worth noting that although IPRs generate rent income and are subject to speculation, they are statutory creatures based on state guarantees and not financial assets (Texeira and Rotta, 2012). As with other intangible-asset-heavy corporations, a significant part of intangible assets of our companies are ‘undisclosed’/‘uncategorised’, pointing to a much larger problem that exists with the definition, identification and measurement of intangible capital in general (Bryan et al., 2022: 96). Although research on the latter is still in its infancy, there is agreement that ‘unidentifiable’ knowledge assets are not linked to a specific product/service and that ‘goodwill’ constitutes a large and increasing part of the intangible asset category overall (Baranes, 2020; Gagnon, 2007). Despite the confusion that characterises the treatment of ‘goodwill’ by accountants and economists alike, it generally refers to the advantage generated through the ability to control relations between various players – most commonly, customers, employees, creditors/investors and the general public (Baranes, 2020). I would argue that the ‘goodwill’ category can be expanded to include pharmaceutical corporations’ coordination of various research, development and production networks. ² Indeed, control over and coordination of such networks, while not an IP asset, is a knowledge asset and a source of rent that is central to the transformation of pharmaceutical corporations into knowledge-leveragers.

Taking stock, the picture that emerges so far is that of a corporation over whose relatively emaciated productive base towers an outsized structure consisting of intangible and of financial assets. Despite the size of the latter, I argue that the modus operandi of these hybrid creatures is based primarily on leveraging knowledge and not finance, as in most dominant accounts. Explaining why this knowledge-leveraging corporate form emerged necessitates exploring how the financialisation and assetisation processes discussed so far in fact exploited the dynamics first created by the concomitant neoliberal transformation of IPRs and that of the corporation. To explore these processes, I start with the corporation, turning to the simultaneous neoliberal transformation of scientific knowledge production in the next section.

I argue that the origins of corporations’ ‘decomposition’ are to be found in neoliberalisation and not financialisation pressures. The neoliberal transformation of the corporation can be conceptualised to have occurred along at least three dimensions. The first relates to the ‘hollowing-out’ of corporation’s earlier hierarchical structure. The managerialist view of the corporation espoused by Schumpeter, Chandler and others gave way from the 1970s onwards to the neoliberal view of firms as a nexus of contracts between different factors of production that essentially function as any ordinary market contract (Alchian and Demsetz, 1972). Neoliberalism’s market epistemology subjected the interior of the corporation to market principles, which is why the boundaries of the corporation gradually became blurred and hierarchical structures gave way to disaggregated but interrelated transactions among participating agents. In practice, the disintegration of the corporation is visible both in arms-length transactions among internal units, and in the more general trend towards outsourcing, offshoring and the acquisition of externally produced knowledge and technologies (Zeller, 2008). As will be seen, the selective disintegration of the lead pharmaceutical corporations has given rise to a new form of spatial organisation of the entire value creation process characterised by tight orchestration and control (Buciuni and Pisano, 2021).

This unbundling and disintegration went hand in hand with the corporation’s neoliberal reconfiguration along a second dimension. From the late 19th century onwards, when they became institutions legally separated from their shareholders, corporations evolved to become, as Peter Drucker noted in 1946, one of the most representative social institutions of our time whose assets, wealth, and fortunes are created by and affect millions of people in their capacity as workers, consumers, savers, citizens, etc. (1972 [1946]: 208). Seeing corporations as social institutions was however foreign to the neoliberal view of the firm noted earlier; moreover, corporations in this view suffered from many intractable problems stemming from the separation of ownership and control. The neoliberal ‘solution’ came in the form of the shareholder value maximisation which would both solve the separation problem and make corporations more efficient (Lazonick, 2015). In practice, maximising shareholder interest, as we have seen, became a powerful lever for siphoning off profits out of the sector to shareholders. Here, the co-constitutive nature of neoliberalism and financialisation is clear: while a neoliberal construction, shareholder value became central to value extraction. This is so despite the fact that contemporary corporate law itself challenges the view of shareholders as owners. The corporation is legally structured to be owned by no one; shareholders own neither the corporation nor its assets, for the share is a distinctive form of property in the form of a claim on a company’s profit (Ireland, 1999).

A third dimension along which the neoliberal transformation of the corporation took place relates to antitrust. Antitrust constrains post-WWII were crucial in motivating large companies across various sectors, including ours, to build their own R&D labs (Pisano, 2012). Largely driven by neoliberal ideology and pursued by corporation themselves, antitrust policies were gradually (initially in the US and then elsewhere) reconfigured from the late 1970s onwards (Davies, 2010; van Horn, 2018). Market concentration and its corollaries came to be seen as unproblematic insofar as consumer welfare was improved through lower prices – incidentally, an unknown phenomenon in proprietary pharmaceutical markets. The neoliberal reform of antitrust, unsurprisingly, sent corporate R&D labs in free-fall (Pisano, 2012). The corporate lab collapse started in earnest in the pharmaceutical sector in the early 2000s and was crucial to the development of innovation networks where most of R&D now takes place.

Once the neoliberal transformation of the corporation is taken into account, a peculiar concentration-disintegration dynamic becomes visible within the pharmaceutical sector. On the one hand, the sector has become much more concentrated: the more M&As are used as a strategy to limit competition, maintain profitability and enhance the value of IP portfolios, the more concentrated the proprietary pharmaceutical market has become. Indeed, a smaller number of much larger corporations now controls the ever-growing pharmaceutical global market: the latter grew more than five times between 1975 and 2018, ³ whereas the top 10 concentration ratio increased from about 12 percent in 1987 to around 40 percent currently. ⁴ That they are doing quite well from this market position is confirmed by recent data suggesting that their profitability – historically above the average non-financial corporate sector – has increased even further in the recent decades (Işik & Orhangazi, 2022). But, crucially, these corporations, while more powerful and profitable than their predecessors, are comparatively emaciated and ‘hollowed out’. This is not an accident, for it is precisely their organised disintegration and strict control over the entire pharmaceutical value creation process that allows them to increasingly extract value through leveraging knowledge generated outside their porous boundaries and thus enhance their market power. In short, the concentration-disintegration dynamic in the sector corresponds to the new, knowledge-leveraging corporation.

Proprietary pharmaceutical corporations as knowledge-leveragers

A general shift in non-financial corporations’ source of profits towards rent income derived from the ownership and control of intangible, especially IP, assets has been noted in various sectors (Bryan et al., 2022; Schwartz, 2016; 2022). Given such role for IP assets, why not refer to the new corporate form in our sector as an IP- rather than knowledge-leveraging one? Indeed, few could argue that this particular asset form is not crucial to the sector. Certainly, pharmaceutical corporations did not discover IPRs yesterday: IPRs have historically been important tools for appropriating returns from innovation in the sector, which is why it has probably done more than any other business sector to shape domestic and – following the emergence of the WTO TRIPS agreement in 1995 – global IP regulation in its favour (Muzaka, 2011; Sell, 2003).

The growing importance of IP, especially patents, is supported by data; for instance, annual patent applications worldwide increased fivefold and eightfold for pharmaceutical and medical biotechnology, respectively, from 1980 to 2017. ⁵ This growth, however, does not indicate increased innovation rates in the sector; the impressive growth of pharmaceutical patents owned and controlled by proprietary corporations has been accompanied by fewer new drugs introduced in the market, falling from a high of 93 new molecular entities introduced annually in the 1960s to an average of 31 in the 1996–2014 period (Gassman et al., 2018: 7). The R&D productivity crisis, already noted in the 1980s, persists.

I will defend the ‘knowledge-leveraging’ characterisation starting first with the neoliberal transformation of scientific knowledge production and IPRs. I argue that it was not financialisation but neoliberalisation pressures that set in motion these transformations. Of particular relevance for our purposes is the radical encroachment of IP into the ‘republic of science’ from the 1980s onwards which would go on to transform the biopharmaceutical R&D landscape. I briefly touch on its most important junctures with the aim of supporting my claim that financialisation pressures exploited but did not initiate these changes whose origins lay instead in the neoliberal reconfiguration of the ‘republic of science’, in conjunction with that of the corporation discussed earlier.

State’s politico-juridical powers were indispensable in creating and sustaining the conditions for the appropriation of publicly funded and hitherto freely available academic research through IPRs. The neoliberal reconfiguration of IPRs and of the border between public and private knowledge production started initially in the US in the late 1970s and reached its pinnacle with the 1995 WTO TRIPS Agreement which subjected more comprehensively global knowledge production and circulation to private appropriation (Zeller, 2008). More important than the expanded spatial reach of IPRs has been their expanded scope which has enabled the enclosure of ever more diverse forms of knowledge previously belonging to the ‘commons’ (Boyle, 2003). These enclosures expanded the reach of (artificial) scarcity in the realm of knowledge, scarcity being the core function of public IP law and without which IPRs could not function as an asset.

The extension of market principles into the ‘republic of science’ and its (partial) disaggregation into various for-profit units was driven by the distinct market epistemology logic of neoliberalism and not financialisation. As neoliberalism scholars have argued, the existence of academic science freely shared and insulated from market forces was an anathema to neoliberal thinkers and policymakers for which a solution came in the shape of market-driven science (Nik-Khah, 2014; Tyfield, 2016). The 1980 US Bayh-Dole Act in particular, and national variations on its theme elsewhere, were instrumental in enabling the penetration of private IPRs into the publicly funded research realm (Jasanoff, 2005). In the life sciences, the ‘science-for-sale’ spin-off firms that emerged had a hitherto unknown profile: relatively small, colonised by venture capital and boasting astonishingly high valuations in stock markets often without ever developing a product or making a profit (Coriat et al., 2003). For the first time in history, their valuation was based exclusively on IPRs that increasingly came to enclose both research tools and outcomes. The more pharmaceutical corporations became entangled with biotech companies through M&As and other strategies from the 1980s onwards (more below), the greater the use and accumulation of IPRs in the sector, and the more profound the reorganisation of the entire R&D process therein.

The neoliberal reconfiguration of IPRs and of the corporation itself have led to the total reorganisation of the pharmaceutical value creation process in general and R&D in particular. Although R&D was internationalised early on, it was kept in-house in relatively robust labs that would be decimated in the lab ‘bloodbath’ that started in the early 2000s (Mirowski, 2011). Data suggests that the trend of R&D migration was already in motion in the 1980s, but only around 4% of the large pharmaceutical corporations’ R&D budget went outside in-house labs in the mid-1990s (Ramirez and Tylecote, 1999: 16). The change is pronounced from the early 2000s onwards, corresponding to the evisceration of in-house labs: around 25 percen of pharmaceutical corporations’ R&D budget went to external sources in the mid-2000s (Nightingale and Mahdi, 2006: 103) and continued unabated thereafter: up to 80 percent of pharmaceutical corporations’ R&D pipeline projects now come from external sources (Gassman et al., 2018: 82, 91). This trend intensified further during the Covid-19 pandemic (Deloitte, 2021: 11).

Apart from the rise of ‘science-for-sale’ firms, the neoliberal reconfiguration of knowledge production also led to the research programme in life sciences shifting away from one determined by academic experts independently of market values towards one concerned with commercial opportunities and, especially, accumulating IPRs (Mirowski, 2011). As scientific production came to increasingly rely on the multiplication of IPRs as the main means of guaranteeing rents, the classical justification of IPRs as incentives for innovation – already irrelevant in publicly funded research – was replaced by the neoliberal logic of IP as a means of creating markets for knowledge and for its efficient exploitation (Orsenigo et al., 2006). Indeed, knowledge enclosed within IPRs circulates in its own rapidly growing markets. ⁶ These markets both help to fuel an IP ‘gold rush’ penetrating deeper into the knowledge commons, and increase IP titles’ prices, contributing ultimately to the higher value of IP assets controlled by the largest biopharmaceutical corporations.

Despite all this, it would be too limiting to suggest that these are solely IP-leveraging corporations. IP assets constitute a significant proportion – but not all – of pharmaceutical corporations’ intangible assets. Likewise, IP rents are significant but other intangible asset rents exist of which, as it will be seen, network rents are a crucial category. But this is not all. Selective disintegration is favoured by pharmaceutical corporations also because it allows them to penetrate more deeply into existing knowledge commons. Modalities of access differ; sometimes, as in the case of ‘crowdsourcing’ (below), knowledge is not enclosed in a clearly defined asset form and is all the more dynamic for that reason. In other cases, the ever-growing connections between pharmaceutical corporations and bioscience innovation clusters allow these corporations to leverage not only the heterogenous kinds of knowledge generated and concentrated therein, but also the very sources that underpin their success, namely, the public goods/provisions in the region in question (Cooke, 2006). These are largely the reasons why I refer to them as knowledge-leveraging corporations.

Knowledge as a concept is fiendishly difficult to define; minimally, unlike data and information that are collected/transferred as something new, knowledge enjoys a higher degree of organisation, validity and employability (Reitz, 2017). It is creative and driven by meaning and understanding: without the application of knowledge, information is meaningless (Cooke, 2006). For our purposes, the knowledge being leveraged is predominantly of three kinds: the scientific and technological knowledge often (but not always) enclosed within IPRs; the knowledge specific to controlling and orchestrating the R&D and production networks; and knowledge of the complex national and global regulatory systems pertaining to the sector. Because the latter has always been important to proprietary pharmaceutical corporations, it is the other two kinds that are of particular importance to the new corporate form, although it bears noting that the growth of the global pharmaceutical market and its concentration in the hands of fewer corporations has made their control over this kind of knowledge an even more important source of rent than before.

Although not common, networks can be conceptualised as knowledge; Kogut (2000) is particularly convincing in arguing that networks arise out of generative rules of coordination that gradually become encoded in persisting structures (i.e. knowledge) that influence subsequent behaviour. Just as the scarcity value of coordination within firms generates rents, networks as the outcome of generative rules of coordination also generate rents. How network rents are captured or distributed is another matter. Durand and Milberg (2020) provide a good account of rents from networks where intangible assets are unequally distributed. Specifically, they group sources of network rents into: (1) tighter IPRs over technologies, standards and brands (already discussed); (2) ‘natural’ monopoly dynamics arising from network externalities, that is, both from the complementarity between the firms involved and the scalability and sunkness of the integration framework that makes the operation of the network possible (a framework often controlled by the most powerful firms); (3) the difference in scale economies between intangible and tangible assets (the nearly infinite returns to scale characteristic of intangible assets mean those controlling these benefit disproportionally from network expansion); and (4) innovation advantages arising to dominant companies from heightened control over network activities and over data generated in it.

All these partially overlapping sources of rent – legal rents, ‘natural’ monopoly rents, intangibles-differential rents, and data-driven innovation rents, respectively – are important to pharmaceutical corporations that control the new spatial organisation in research, development and production networks. This organisation has a perpetuating dynamic of its own: the more large corporations are able to extract these kinds of rents, the less they need to invest in productive and R&D capacities. Key elements of this spatial reorganisation will be discussed below, separating high-end (upstream) and lower-end (downstream) R&D mainly because they involve distinct activities (lab-based discovery and clinically based development, respectively). Because bio/pharmaceutical innovation is not generally process-embedded, innovation and production networks are often separate but both tightly controlled by lead companies (Buciuni and Pisano, 2021). Less attention is paid to the production network for this and other reasons that will become clear shortly.

Some concluding thoughts

Pharmaceutical shortage lists in developed and developing countries alike, accompanied by an R&D productivity crisis manifested in fewer innovative drugs compared to historical trends, are only two outcomes of a radically transformed pharmaceutical sector. The vertically integrated company of old has been replaced by the selectively ‘disintegrated’ company of today, at the helm of research, development, and production networks and orientated predominantly towards the large-scale extraction of knowledge rents. We have seen that both the roots of pharmaceutical corporations’ disintegration, so central to their wider/deeper penetration of valuable socio-economic processes, and the roots of their increased market power, so central to their value extraction from therein, are to be found in the co-constitutive processes of neoliberalism and financialisation. It is difficult to grasp the depth of these transformations but through this nexus. From this vantage point, the knowledge-leveraging corporations are more profitable and powerful today precisely because these two co-constitutive phenomena have enabled them to expand such penetration and control to levels unknown in the history of the sector.

Space constrains have limited the consideration of the many social, economic and political consequences of the transformations discussed here. A good starting point would be to investigate knowledge-leveraging corporations as tools for siphoning off value from the social and productive sphere in light of their nature as social institutions. It is one of the biggest ironies of the current juncture that the more large corporations have ‘decomposed’ and the more they rely on their control over networks to penetrate more deeply knowledge embedded in economy and society, the scarcer references to them as social institutions have become. Seeing them as social institutions would create the necessary space for thinking differently both about the roots of their recent transformations and about strategies for dealing with the aftermath. In the absence of alternative ways of ‘seeing’, thinking, and acting, the risk remains that the more pharmaceutical corporations proceed in their transformation into knowledge-leveragers, the more they will perpetuate the neoliberalisation-financialisation dynamic in the sector, all the while making their own future – and that of the millions who depend on them – more unstable and insecure. Indeed, whatever the promises of neoliberalisation and financialisation for the sector, they appear to have been the disease masquerading as the cure.