The deadly bacteria outbreak in baby formula which resulted in the ongoing formula shortage arose from what some economists characterize as “rot” in the nation’s economic system: prioritization of shareholder wealth and consolidation.
Biden has invoked the Defense Production Act to speed production of infant formula and authorized flights to import supply from overseas, while the FDA approved a deal with Abbott to bring the Sturgis plant back online within several weeks.
The baby formula producer Abbott used windfall profits to enrich investors instead of replacing failing equipment that was likely injecting the dangerous bacteria into its infant nutritional products, financial records and whistleblower documents show.
The tainted product triggered a February recall of three popular Abbott infant formulas, including Similac, when batches likely tainted with the rare Cronobacter bacteria killed two infants and sickened two more. The FDA and CDC reported the babies “consumed formula produced at the Sturgis, Michigan” facility before they got sick, and the bacteria “may have contributed” to their deaths.
Abbott detected bacteria eight times as its net profits soared by 94% between 2019 and 2021. And just as its tainted formula allegedly began sickening a number of babies, with two deaths reported, the company increased dividends to shareholders by over 25% while announcing a stock buyback program worth $5bn.
“Abbott chose to prioritize shareholders by issuing billions of dollars in stock buybacks instead of making productive investments,” said Rakeen Mabud, chief economist for the Groundwork Collaborative, a progressive economic advocacy group. “We need to make sure children can get the nutrients that they need – I think we can all agree on that – and these giant corporations … need to be held to account for the vulnerabilities that they’ve created and the quality of the product that they put on the market,” Mabud said.
The federal whistleblower complaint alleged some of the Sturgis plant’s equipment that caused the bacteria to get in the product “was failing and in need of repair”, and company management was aware of the issue for up to seven years ahead of the outbreak.“A number of product flow pipes were pitting and leaving pinholes. This allowed bacteria to enter the system and, at times, led to bacteria not being adequately cleaned out in clean-in-place washes,” the report reads. “This, in turn, caused product flowing through the pipes to pick up the bacteria that was trapped in the defective areas of the pipe.”
The problems are not limited to ageing equipment, according to the whistleblower. Management at the plant also falsified records, improperly trained employees, and successfully hid health and safety risks from the Food and Drug Administration auditors in 2019.
Companies like Abbott are “using every product as a personal ATM” by cutting corners to maximize profits, said Moe Tkacik, a senior fellow at the American Economic Liberties Project.
Buybacks were illegal until 1982 because they were considered a form of manipulation. Annual buyback program expenditures among S&P 500 companies are often exceeding research and development or other investment, Tkacik said.
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