We Sell Drugs: The Alchemy of US Empire

by Suzanna Reiss

  COCA COMMODITIES, CORPORATE COLLABORATION, AND LEGAL CONTROLS

  The monopoly logic of enforcement, which granted the FBN primary stewardship over the redistribution of government surplus narcotics, depended on FBN collaboration with select companies involved in the drug trade who, as a result of these policies, acquired a de facto monopoly over aspects of drug raw material imports, distribution, and manufacturing. This monopoly conformed largely to key economic relations already established between private and public capital during World War II that helped situate the pharmaceutical industry in an unprecedented position of political and economic influence. Efforts to control the coca commodity circuit in this context—at least to limit participation in the market to that which could be effectively monitored by the government—provides a window onto the regulatory underpinnings of the national security program outlined in the Resources for Freedom report. Government collaboration with the three US companies most directly involved in the coca commodities trade, Merck & Co., Inc., Maywood Chemical Works, and The Coca-Cola Company, paired the selling of American drug commodities internationally with expanding the nation’s global influence.

  Corporate relationships forged with the government during World War II persisted in the war’s aftermath, and this was especially true for Merck & Co. When Anslinger testified to Congress that the FBN sent all surplus narcotics unsuited for the national stockpile to an unidentified “alkaloidal” firm, it is quite likely he was referring to Merck. The company was one of only a handful authorized to import narcotic drug raw materials and extract alkaloids from them. It is difficult to determine the exact number of authorized firms since the FBN in 1943 ended its practice of publishing a list of licensed firms in its annual report on the Traffic in Opium and Other Dangerous Drugs (perhaps reflecting the general turn toward government secrecy that accompanied defense mobilization). Nevertheless, Merck had historically occupied the unique position of being the only one of five licensed narcotics importing firms authorized to import both coca leaves and opium.54 As a contemporary chronicler of the US pharmaceutical industry described Merck’s unique position, “Almost everything at Merck & Co., Inc. is bigger, better or first.” The Merck Manual of Diagnosis and Therapy was (and remains) the medical profession’s bible for matching drug treatment to diagnosis, and during the war “pharmacists’ mates on submarines and paratroop doctors went into action with the Merck Manual in their pockets.”55 As the company’s official chronicler recounted, “The wartime spirit of cooperation accelerated progress,” with the company receiving government support for plant construction and research and development. The new warehouses and accompanying large drug stockpiles ensured that “from the 1940s on, increases in scale cut costs dramatically, increasing demand and transforming the market for medicinal chemicals.” At Merck’s Stonewall plant, for instance, which was built during the war in Elkton, Virginia, to comply with the government’s request that facilities be built at least two hundred miles inland to be protected from enemy attack, annual vitamin output transitioned from grams to tonnage, lowering consumer prices and consolidating the company’s dominance in the field.56 Merck’s expansion was tied to the wartime phenomena observed by the Drugs and Pharmaceutical Unit of the Bureau of Foreign and Domestic Commerce: “Under the impetus of gigantic wartime needs, many drug manufacturers have achieved undreamed-of capacity.”57

  The company’s leadership included an array of men directly involved in coordinating the government’s efforts to mobilize drugs for the nation’s defense both during the war and in its aftermath. The line between private and public in this context becomes difficult to disentangle. During the war the firm’s president, George W. Merck, “was personally entrusted with one of the most sensitive jobs in the war effort: chairmanship of the United States Biological Warfare Committee. Under his direction American scientists explored virulent strains of human plant and animal diseases so that the United States could be ready to mobilize man’s most powerful enemies if the Germans or Japanese used them first.”58 In George Merck’s report to the government on this research he advised that while the field was “born of the necessity of war, [it] cannot be ignored in time of peace; it must be continued on a sufficient scale to provide an adequate defense.”59 For this service Merck was later awarded the Medal for Merit. In 1947 Fortune Magazine celebrated George Merck for his war service, which also included an unpaid advisory role on the Munitions Advisory Board’s Chemical Advisory Committee. Merck’s influence in the government remained evident in the frequent trips the president made “to Washington as a consultant to Defense Secretary Lovett.” Merck’s vice president, George Perkins, also held a wartime position as “a colonel in the Army’s Chemical Warfare Service,” and a member of the company’s board of directors served as the wartime head of the nation’s research and development program. George Merck became the face of the pharmaceutical industry cast as public benefactor, committed citizen, and protector of national health and defense, even gracing the cover of Time magazine in 1952, above the suggestive quote “Medicine is for people, not for profits.”60 One year earlier, President Harry Truman appointed him to the National Science Foundation, and President Dwight D. Eisenhower reappointed him.61 Such ties were widespread; by the end of the decade Vannevar Bush, described by the company as the man who “ran America’s entire defense research establishment,” became chairman of Merck’s board of directors.62

  These economic and political connections persisted. After the war, as part of the Drug Resources Industry Advisory Committee, Merck executives (along with a number of other major pharmaceutical houses) advised the National Security Resources Board and Munitions Board of the Department of Defense in developing industrial mobilization plans, in particular with regards to the “procurement of medicines, medicinal chemicals, drugs, biologicals, surgical dressings, and antibiotics for the entire civilian economy in time of emergency and for the armed forces, and the production potential of industry.”63 Both these government agencies worked with the FBN to establish civil defense procedures whereby the first response to “disaster striking an area” would be to “alert every wholesale drug house” to provide “what they need for immediate casualties and within half an hour a truck could be dispatched to that point under police escort and have not only enough morphine for pain, but other drugs, and have them instantly available . . . the wholesale druggist would be the key man.”64

  These political connections had profound effects on policy and profitability and helped establish the privileged position of select pharmaceutical companies like Merck within the drug manufacturing business. Merck as a privileged and politically connected importer and manufacturer of controlled substances became an influential policy advisor and central provider of “medicinal chemicals” for the government and other drug manufacturers in the context of defense mobilization. Stockpiling would be critical to maintaining this position. What Fortune characterized as a “nagging problem of inventory” generated by Merck’s “production efficiency” was the need for possession of “a reasonable stockpile of imported raw materials for such products as narcotics and quinine.” The raw materials stockpiles ensured the capacity to produce more and to do so quickly, since for Merck, “medicinal orders must, if at all possible, be filled instantly from stock.” As a primary provider of medicines, Merck had peculiar needs to stockpile drugs, much as the government’s own stockpiling policies were broadly conceived in relation to anticipated global demand. The fact that Merck “had (and still has) about half the U.S. narcotics business, and it manufactured a long line of high-purity, low-bulk chemicals for pharmaceutical, food, laboratory and miscellaneous industrial uses,”65 placed the company in a position of being a primary supplier for the rest of the industry—a middleman supplying the reworkable raw materials of national drug manufacturing.

  The political influence of Merck’s leadership, its economic might, and its capacity to stockpile and supply other drug manufacturers positioned the firm well to dominat
e the US export market. Business Week reported in 1949 that across the drug industry common stock values had increased significantly from before the war to its aftermath. At the head of the corporate pack was Merck, whose common stock in the later 1930s had ranged between $0.30 and $1.74, whereas by 1948 it was rated at $7.34 per share.66 Merck’s powerful domestic position also made it an increasingly significant player in the global drug trade. Global demand for US drug exports had grown as a direct consequence of the war. As early as December 1941 Barron’s, an investor publication, reported that the “increase in the company’s business since 1938 can be attributed to the war, which has resulted in a stimulation of exports and large purchases by the Federal Government.”67 Looking back on the decade, the Department of Commerce described how every year drug exports reached a new peak.68 A few years earlier, in 1946, Merck set up PWR Export Corporation “to handle the growing volume of foreign sales.”69 As Fortune reported on the company’s overseas business, “Before the war Merck had none to speak of. . . . Today, however, it is quite sizable.”70 Export sales soared by over 700 percent from a total of $24 million in 1940 to $171 million in 1951.71 Having been primarily in the drug wholesale business, after merging with Sharpe & Dohme in 1953, the company fully embodied the vertically integrated powerhouse whose laboratories churned out an array of pharmaceutical and chemical concoctions for human, animal, agricultural, and industrial uses with a “new emphasis on global operations.” In the wake of World War II’s destruction of competitors’ plants and markets, Merck embraced a “vigorous return to globalism,” and with the formation of Merck North American and Merck Panamerica, export sales grew to some 20 percent of the company’s overall revenue by the early 1950s. The new chief executive officer in 1955, John T. Connor, described the firm as a “free world enterprise based in the United States.” Over the next six years “total assets in foreign manufacturing tripled,” and the international wing of the company was running twenty plants in nineteen countries around the world.72

  As a privileged player in the narcotics trade, Merck came to have enormous influence over national defense policy in relation to all drugs, and became one of the most formidable players in the international chemical field. The story of Maywood Chemical Works’ close collaboration with the government, as the only other FBN authorized importer of coca leaves apart from Merck, further reveals the evolving relationship between the government and select drug manufacturers during this time period. Maywood was the world’s largest importer of coca leaves, and in the war’s aftermath it was able, with the helpful intervention of the Coca-Cola Company, to maintain a manufacturing monopoly on the production of a nonnarcotic flavoring extract from the leaves. This depended on securing support from the FBN both in terms of limiting participation in the coca leaf import market by means of government licensing, as well as securing adequate stockpiles to sustain the growing international market for America’s famous soft drink. Maywood’s role in the coca-based commodity market shows more than the increased economic concentration that accompanied drug control. It also reflected the alchemical possibilities of a drug manufacturing process producing end products that could move (or attempt to move) beyond the regulatory gaze in the form of new commodities that were not necessarily policed or controlled substances, but that benefited from the parameters of participation within the legitimate drug market established by the drug control regime.

  While it had been during World War I that a number of US subsidiaries of German pharmaceutical houses were first nationalized, World War II also produced a number of confiscations, at least of those portions of corporate assets that continued to be held by “enemy” nationals. In the case of Maywood, the working out of such a seizure and subsequent sale further reveals some of the mechanisms that justified and sustained a limited arena of economic participation in the drug trade.73 Upon hearing of the upcoming auction of Maywood stocks seized by the Alien Property Custodian during the war, Ralph Hayes, an executive at Coca-Cola, wrote to the US Commissioner of Narcotics in January 1949 to advocate on Maywood’s behalf. At that time, Coca-Cola had an obvious stake in the company’s future, being responsible for almost half of Maywood’s sales income as the sole purchaser of a coca leaf extract manufactured by its chemists.74 Hayes explained to Anslinger, “It is our frank hope, as one customer of Maywood, that it might be the successful purchaser” of the shares being held by the government. Hayes informed the FBN that he had spoken with the Alien Property Custodian and had determined that aside from Maywood, S.B. Penick Company was the only other prospective bidder. Outlining the grounds that might be used to assess the suitability of potential bidders, Hayes emphasized that “first, naturally, would be [their] financial responsibility, moral reputation and industrial capability.” He went on to suggest that restricting ownership would advance the country’s drug control agenda, arguing it was necessary to deploy the “same considerations you would have in mind” for those seeking to “import materials of the type brought in by Maywood.” In other words, the fact that Maywood imported “special leaves” (the legal category for coca leaves imported for the manufacturing of Coca-Cola) raised security concerns surrounding the importation of controlled substances.75

  Ultimately, the Commissioner of Narcotics agreed. Apparently having contacted the Office of Alien Property subsequent to receiving Hayes’s letter, Anslinger outlined a response to the Coca-Cola Company’s concerns. The FBN expressed a particular interest in the matter “from the standpoint of control measures over the narcotic drug traffic; that Maywood has been cooperative from this point of view” and that Penick was “a comparative newcomer in the narcotic production field.” Fusing Hayes’s arguments regarding industrial capability with concerns over moral responsibility and the dealing in controlled substances, the FBN assented to Coca-Cola’s view of the matter. The bureau “would rather see Maywood continue” having total ownership of company stock in light of their record of being “cooperative” with the government in ensuring effective drug control. Policing imperatives, thus in effect, were deployed to justify limiting participation in the manufacturing market.76 The company particularly was not eager to see Maywood’s monopoly over the provision of its product’s flavoring extract subject to economic influences outside—and even in potential competition with—their already-established business partner.

  By highlighting the need to ensure adequate drug control, Coca-Cola successfully sought—through the government’s enforcement apparatus—to eliminate the interference of a potential competitor. Since at least the 1930s Penick had been trying to gain entry into the coca–soft drink market, yet had been unsuccessful in acquiring legal supplies of coca leaves.77 Their bid to take control of what amounted to almost a quarter of Maywood stock presumably would have given them access to this valuable commodity.78 While the rivalry, or “Cola Wars,” between Coca-Cola and Pepsi-Cola have received considerable attention, for the most part they played out in competition over consumer markets and sales.79 With regard to the acquisition of raw materials for beverage manufacturing, an argument grounded in the value of drug control worked to the competitive advantage of Coca-Cola and its pharmaceutical supplier of coca leaf extract, Maywood. Later the same year, US officials continued to try to discourage Penick from entering the coca processing business, this time by denying their application to import coca leaves. When Penick tried to argue for their inclusion in the coca manufacturing market, the Chief Counsel of the Treasury Department A.L. Tennyson outlined arguments that might be made to discourage them. Again, drug control imperatives, specifically the “international movement toward limitation of production of coca leaves,” became the justification for restricting market participation. Additionally, the Treasury official emphasized other discouraging factors, highlighting the import duty expense, the Internal Revenue tax, “in addition to initial cost, transportation charges, and expense of production.”80 Thus government regulation in and of itself was presented as a burdensome—and from the government’s perspecti
ve a hopefully prohibitive—obstacle to expanded participation in the drug manufacturing market.

  While the number of participants in the coca leaf import and manufacturing market was carefully limited, the scale of production steadily increased. It is in this realm that the convergence of interests in stockpiling for defense and the expansion of concentrated economic power come to the fore. It was during this period that Maywood began to stockpile larger quantities of coca leaves to meet, as Maywood’s President M.J. Hartung explained to the FBN in 1948, the increased demand that came with Coca-Cola’s expansion and “process improvements.” Maywood anticipated its need for coca leaves would almost double in the next decade. In a letter to Anslinger verifying Maywood’s authorization to expand importations of coca leaves, Hartung characterized the company’s future dependence on stockpiling: “To make operations economical and profitable, MCW [Maywood Chemical Works] must be in a position to extract coca leaves without interruption, and the seasonal availability of leaf in Peru and the uncertain shipping facilities from Salaverry, necessitates the keeping of an ample stock of leaves on hand in this country. We are accordingly now building up a reserve at Maywood and we understand that this has your approval.”81