A Formula for Public Ownership

Today on TAP: What the Similac debacle teaches about the consequences of arrogant corporate concentration

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Here’s what we’ve learned this week about the baby formula scandal. First off, the Abbott Labs plant in Sturgis, Michigan, whose four-month shutdown caused the nationwide shortage, was closed by the FDA for good reason. Scathing testimony before Congress Wednesday revealed that filthy conditions prevailed at the plant, causing at least four infants to be infected with Cronobacter bacteria. Abbott, maker of Similac, has about 48 percent market share, which is a scandal all by itself.

The source of the information on the Abbott plant was a 34-page whistleblower document by a former Abbott employee released by Rep. Rosa DeLauro. The report was sent to the FDA in October. The agency didn’t begin investigating until late January.

Meanwhile, the second-largest maker of baby formula, Reckitt Benckiser Group, the producer of Enfamil, is in negotiations to sell its baby formula business to a private equity company. Reckitt bought Enfamil and other infant products from Mead Johnson in 2017. Enfamil has between 20 and 40 percent of U.S. market share. But according to The Wall Street Journal, Reckitt wants to unload Enfamil because it has been insufficiently profitable.

Here is a terrific test case for Jonathan Kanter, head of the Justice Department’s Antitrust Division, who says he wants to crack down on concentration and other abuses by private equity. As the shortage demonstrated when one major plant shut down, the baby formula industry is one of America’s most concentrated, with a duopoly controlling most of the market. The last thing it needs is private equity ownership.

So consider: Of the two giant companies that control manufacture of this vital product, one is cavalier about sanitation and safety, and the other doesn’t want to be in the business at all. The government has a huge amount of leverage because the WIC program buys more than half of all infant formula.

The remedy is either to break the industry up into lots of smaller producers, or even better, to have a public option, where a public entity enters the market as a major producer. FDR called this “yardstick competition.” The stuff isn’t hard to make, and WIC provides a guaranteed market.

When private producers disgrace themselves, social ownership starts looking very good.

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