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Six Mega Trends – 2018

“Existentially all the water on earth is all the water we have.” – Lower Tennessee Watershed, Henry County, Tennessee USA – Photo: R. Wottrich

“If you think in terms of a year, plant a seed; if in terms of ten years, plant trees; if in terms of 100 years, teach the people.” – Confucius

Charting global mega-trends is perhaps a fool’s errand, but there is order in the fractal universe – if you know where to look. Certain historical currents run strongly and are perhaps not immediately apparent, but nevertheless their impact will be felt in 2018 and beyond.

1. Insurance and Climate Change

Zillow recently reported that $400 billion in Florida real estate values could be at risk from climate change by 2100. Property insurers will not be willing to insure real estate unless rates are substantially raised. Homeowners will naturally lower coverages to fit their budgets. Many will move away. Behaviors will change.

Meanwhile many homeowners whose homes were flooded by Hurricane Harvey have no flood insurance – they cannot afford it. But a wealthy owner of a $2 million home on Bird Key in Florida gladly pays $25,000 a year for that same flood insurance. That owner knows their claim will likely be in the hundreds of thousands, so the federal flood ‘insurance’ subsidy is a bargain.

Right now insurance rates are set on arbitrary vectors, such as zip codes. But risk analysis and big data will fine tune these methodologies and homeowners at the greatest risk from climate change will face enormous insurance rates – many will move.

These mismatches in insurance coverage and uneven federal flood insurance subsidies will ultimately be reflected at the ballot box, changing political behavior in favor of working to control and plan for climate change.

2. The Energy Revolution

The United States has become the largest energy producer in the world. This is nothing less than a tsunami in the world political order, as the ripples of surging U.S. fracking production of oil and gas reach across the globe. Venezuela, Russia, and other oil producers are struggling with oil under $50 bbl. Saudi Arabia has been forced to sell more oil than seems logical, just to defend its market share. Economies the world over are benefiting from the drop in energy costs, which ultimately will spur their GDPs.

This American shale oil revolution is occurring primarily on private land, as America is perhaps the only nation on earth to allow private citizen ownership of energy assets. When the U.S. federal government loosens antiquated bans on exporting oil, coal to liquid (CTL) and liquefied natural gas (LNG), this revolution will take on even greater importance. The dropping price of oil is a reflection of lackluster global economies, but it will not stop the tide of U.S. energy independence and all that means to the world order.

3. Robotics and the Great Decoupling

The unrelenting convergence of robotics and ‘cloud’ systems integration is putting irresistible pressure on employment opportunities across the globe. Make no mistake, digital convergence is a jobs shredder – it leaves behind a wake of disenfranchised workers ill equipped to jump the cloud-based divide.

This is not a new concept. Erik Brynjolfsson, a professor at the MIT Sloan School of Management, and his colleague Andrew McAfee have been making the case that Moore’s Law advances in computer technology is the proximate cause of anemic jobs growth over the past several years.

To Brynjolfsson the pattern is apparent: “As businesses generated more value from their workers, the country [USA] as a whole became richer, which fueled more economic activity and created even more jobs. Then, beginning in 2000, the lines diverge; productivity continues to rise robustly, but employment suddenly wilts. By 2011, a significant gap appears between the two lines, showing economic growth with no parallel increase in job creation.” Brynjolfsson and McAfee call this the ‘great decoupling.’

4. Water Wars

Water resources are dwindling across America. The Ogallala Aquifer, which sprawls across eight Western states, is the largest and most important agricultural aquifer in America. Estimates are that it will be exhausted in 20 years.

According to the WHO/UNICEF Joint Monitoring Programme for Water Supply and Sanitation (JMP), 37 percent per cent of the world’s population – over 2.5 billion people – lack adequate clean water for bathing and cleaning, and nearly 1 billion people still use unsafe drinking water sources.

Aquifers the world over are being drained by inefficient agricultural irrigation methods. Over 70 percent of the water in the US is used for agriculture. In California almonds account for $11 billion of the state’s GDP and represent 80 percent of the world’s almond production. But it takes over 1,900 gallons of water to produce one pound of almonds, which cost under $7 a pound at Costco. Water rationing is in America’s future and it will not be pretty.

Existentially all the water on earth is all the water we have. But in 1950 our world population was a bit over 2.5 billion, while today it is roughly 7.5 billion. When an advanced civilization visits our earth one billion years from now they will ask, “What were they thinking?”

5. Deconstructing Education

Higher education is still modeled after a centuries-old monastic tradition of exclusionary practices that myopically shower enormous benefits on an exceptionally privileged few. Available data suggests that 50 million students worldwide attend traditional colleges and universities; constituting just .7 percent of the world’s population.

Higher education resources are mismatched. In 2010 only 44 percent of U.S. professors reported that they spent more than 9 hours a week teaching in the classroom. Meanwhile college students have amassed over $1.3 trillion in student-debt, granting universities and colleges what amounts to a stealth taxpayer subsidy and carte blanche to raise tuitions across the board. Higher education tuition has increased 1,000 percent since 1989, as exemplified by a Harvard Professor’s average 9-month salary today of over $225,000.

Meanwhile in New York City, Department of Education (DOE) high school teachers removed ‘for cause’ and other severed tenured staffers remain in limbo. Sources estimate 200 to 400 of these folks sit in ‘rubber rooms’ and are paid for years while awaiting disciplinary hearings. Their salaries total $15 million to $20 million a year; money that could go to teaching children.

But help is on the way. On-line e-learning resources have increased exponentially across the globe, driven by Internet connectivity. You can watch any course taught at M.I.T for free on iTunes U. Major universities are putting substantial education content on-line for minimal or no cost, begging the comparison to matriculation costs of $50,000 a year and higher for ‘in residence’ students.

There are many nuances that collectively define the on-campus higher education experience. There will always be a place for the few who can afford that experience, or for fields such as medicine requiring extensive hands-on real time instruction. But do not for a moment underestimate the enormously disruptive influence of technologies that can educate the hundreds of millions of people across the globe who desperately want an education, which now can be viewed on a smart phone app.

6. Jobs for Young People

Just a few years ago China had a 12.5 percent GDP growth rate versus a U.S. rate of less than one percent. Today China struggled to hit 6.7 percent in 2016, while the U.S. second quarter GDP growth rate was 3 percent. Such volatility should be considered a harbinger of the future.

U.S. workers “not in the labor force” exceeds 94 million; a labor participation rate of 62.7 percent in August of 2017. Yet its unemployment rate for 18-25 workers is 8.8 percent, versus the general unemployment rate of 4.3 percent.

In China over 7 million college graduates poured into its economy in 2016, yet available jobs came with lower income expectations – resulting in 77.2 percent of graduates ‘showing an interest in entrepreneurship.’

Both the U.S. and Chinese economies suffer from mismatched labor markets – critical skilled labor shortages in key industries – as educational institutions struggle to match accelerating employment trends.

The unemployment rate across the European Union remains above 10 percent, but the larger problem is the EU’s inability to employ its young people. In Italy real unemployment is roughly 15 percent, but exceeds 45 percent for its young people! Unions and governments protect employed union workers, who represent a ‘set-in-place’ aging workforce. Young workers are left out in the cold.

A recent EU Higher Education Authority (HEA) survey shows that one in four EU graduates who found employment last year were working overseas, compared to one in ten in 2008. This represents an EU brain drain that it can hardly afford.

Perhaps the overriding question facing economies across the globe is, “How can we employ our own young people?”

Richard L. Wottrich, CEO & Senior Consultant, DSI Global View LLC

The Uncertainty Principal

The ‘observer” and the observed, Andy Warhol Exhibit, High Museum of Art, Atlanta USA [Photo: R. Wottrich]

The Uncertainty Principal was first articulated in 1927 by the German physicist Werner Heisenberg. It states that the position and the velocity of an object cannot both be measured exactly, at the same time, even in theory. The very concepts of exact position and exact velocity together, in fact, have no meaning in nature. Only with exceedingly small masses of atoms and subatomic particles does the product of the uncertainties become significant. “Any attempt to measure precisely the velocity of a subatomic particle, such as an electron, will influence it in an unpredictable way, so that a simultaneous measurement of its position has no validity. This result has nothing to do with inadequacies in the measuring instruments, the technique, or the observer; it arises out of the close connection in nature between particles and waves in the realm of subatomic dimensions.”

But in the world that is our reality we have ‘observed’ what seems to be the Uncertainty Principal at work when buyers circle a company that may be in play as an acquisition. The very knowledge that buyers are ‘observing’ a corporation as a potential acquisition can cause the target’s ownership to change their behavior. The most common question I receive once an offer has been tendered for a company is, “What should we do now?” The correct answer is that ownership should run their business as they always have, but in practice this often isn’t the case. In one case a private seller injected personal cash into the business to meet cash-on-hand requirements, which in turn influenced the purchase price upwards based on the EBITDA multiple being paid.

Once it is clear that a transaction is possible sellers tend to become more conservative. A risk that they might have taken previously to grow the business, suddenly is perceived as a threat to the purchase price. Capital expenditures that would normally be made, are now seen to drain cash and potentially impact the control numbers that set the price. New employee hires that would usually be considered as additive to the business, now may be put off in favor of not expanding the payroll. An increase in the company’s bank credit line to fund routine growth may be delayed in anticipation of the closing of the acquisition.

Buyers compound this behavior by the very terms of their proposed offers. They insert financial control numbers that cause the seller to become risk adverse, lest they drop the price by opening new business opportunities. They insert debt-equity ratios that discourage adding debt to fund new business. They insist on employment contracts with key executives, which as anyone might imagine causes those executives to think long and hard about taking any business risk that might backfire on them. They insist on a closing audit that freezes the company at a point time, which is the dynamic opposite to how companies live and breath. It is only natural that the sellers seek to keep their company exactly as it was when the offer came in. In essence, the buyers freeze the seller into a defensive position that usually will have an adverse effect on the growth of the business.

I call this the Big Game Hunter Effect. The buyer views the acquisition target as a trophy – in stasis. To the contrary, the buyer should view the company for what it is – a living dynamic entity that is moving upward and onward. The buyer should propose terms that partner them with the sellers from the day the offer is accepted. The purchase agreement terms should allow leeway for normal and customary decisions that can be supported  as correct for the business. the purchase agreement should not penalize the sellers for taking risks and investing in new business that is consistent with the reason the buyers find the company to be attractive in the first place.

Richard Wottrich, DSI Global View LLC

 

 

 

Spooky Action at a Distance

Spooky Action at a Distance – In July 2017, a Chinese team of scientists, led by Ji-Gang Ren at the University of Science and Technology in Shanghai, confirmed Spooky Action at a Distance in a satellite entanglement experiment (Photo: Shanghai by R. Wottrich)

By Richard L. Wottrich, CEO and Senior Consultant, International Services, July 29, 2017, Atlanta USA 

Code Talkers

When the U.S. entered World War I, encryption of Allied communications was a major problem, as their codes were generally based on either European languages or mathematical progressions. The Germans routinely broke their codes. Sending out runners proved ineffective, since about one in four runners were captured or killed. Other methods, such as carrier pigeons, or signal rockets, were slow and unreliable.

During the war, over ten thousand Native Americans enlisted in the U.S. armed forces to fight the Central Powers, even though America had not yet granted them citizenship. Near the end of the war, on October 26, 1918, members of the Choctaw tribe were put to use for the first time using their native language as a code. They played a major role in an attack on a strongly fortified German position, Forest Ferme. “The enemy’s complete surprise is evidence that he could not decipher the messages,” Colonel A.W. Bloor later wrote in an official report.

These so-called “code talkers” were utilized to even greater effect in World War II, when the U.S. government specifically recruited Chippewa-Oneida, Comanche, Hopi, Meskwaki, and Navajo tribal members. The Navajo code talkers developed the most complex code, with over 600 adapted Navajo terms, for use in the Pacific Theater. The Germans did not decipher a single code talker message in either world war. The encryption key (their language) was known to all tribal code talkers, but completely unknowable to the Germans.

Today with Big Data, super computers and complex algorithms, codes can be broken through sheer brute force in ever shorter time periods. What can insure security in encrypted transmissions?

Spooky Action at a Distance

Albert Einstein’s “Spooky Action at a Distance” paradox was first discussed in the early 1930s in his battle with Bohr over the completeness of quantum mechanics. Spooky Action was the result of thought experiments announced in 1935 by its inventors Einstein, Boris Podolsky, and Nathan Rosen.

Spooky Action at a Distance refers to what is today called Entanglement. It’s a phenomenon by which one particle can effectively “know” something about another particle instantaneously, even if those two particles are separated by a great distance.

Tribal code talkers in a sense were similar. They ‘knew’ a common language – the encryption key – hence they could read any message. But suppose you were an observer outside of the tribe (like the Germans were); hence looking in from a distant vantage point. All you could deduce in that case would be that the code talkers were “entangled.”

We are like the Germans, when we act as observers “looking in at a distance” to measure entanglement experiments. The paradox of Spooky Action at a Distance in the world of quantum mechanics is that it seems to violate the axiom that nothing can exceed the speed of light. The paradox is that we do not know how the ‘message’ is transmitted from one particle to another.

Chinese Entanglement Experiment

In July 2017, a Chinese team of scientists, led by Ji-Gang Ren at the University of Science and Technology in Shanghai, fired a laser from a station in Tibet to a satellite 1,400 kilometers above the Earth’s surface. Millions of photon pairs were created. The pairs were then split and sent back to separate receiving stations in Delingha and Lijiang, 1200 kilometers apart. The scientists then entangled a third set of photons and measured the quantum states of the original photon pairs. The scientists found that the photon pairs had opposite polarizations far more often than would be expected by chance, thus confirming spooky action over a record distance.

These results are based on large numbers. The scientists recovered only about one photon out of every six million sent from the satellite — better than ground-based experiments, but still far too few for practical quantum communication. However, when a more reliable quantum entanglement connection is achieved, it would be theoretically unhackable, which means that people could use it to securely transport information. Any attempt to hack either of the entangled photons would be immediately evident to the sender and the receiver.

“This is the first time you have a quantum channel between a satellite and the ground that you can actually use,” said Norbert Lütkenhaus, a professor at the Institute for Quantum Computing at the University of Waterloo in Canada.

Quantum Key Distribution

Quantum Key Distribution (QKD) uses quantum mechanics to guarantee secure communication. Inherent in entanglement is that any two communicating users could detect the presence of any third party trying to gain knowledge of the key. Hence a fundamental aspect of quantum mechanics is that the process of measuring a quantum system in general disturbs the system. A third party trying to eavesdrop on the key will introduce detectable anomalies.

QKD is only used to produce and distribute a key, not to transmit any message data. This key can then be used with any chosen encryption algorithm to encrypt (and decrypt) a message, which can then be transmitted over a standard communication channel.

Quantum cryptographer Artur Ekert, a professor at the University of Oxford and director of the Centre for Quantum Technologies at the National University of Singapore, said, “There is still a way to go before it [QKD] becomes a standard commercial proposition, but we are getting there faster than I expected.”

ID Quantique (IDQ)

It’s later than you think. ID Quantique (IDQ), located in Geneva, Switzerland, has been providing “Quantum-Sate Crypto” since 2001. IDQ was founded as a spin-off of the Group of Applied Physics at the University of Geneva. IDQ is a world leader in quantum crypto solutions, designed for the long term protection of data. IDQ provides quantum network encryption, secure quantum key generation and QKD solutions and services to the financial industry, enterprises and government organizations globally.

IDQ also commercializes a quantum random number generator, which is the reference in the gaming and lottery industries. In the world of quantum research, IDQ is a leading provider of optical instrumentation products including photon counters. IDQ was the first company to bring a QKD system to a commercial market in 2004.

Other quantum cryptography companies include Qubitekk (CA USA), QuintessenceLabs (Australia), Nano-Meta Technologies (IN USA), and Post-Quantum (UK).

These companies have scores of strategic partners including major banks, governments and multi-national corporations. Quantum crypto solutions are not theoretical any longer, but rather are being integrated into the IT fabric of the world as we contemplate Spooky Action.

Richard L. Wottrich

 

 

Proximate Cause of Climate Change

Human population growth is a proximate cause of climate change. Charlevoix South Pier Light Station, Charlevoix, Michigan USA [Photo: R. Wottrich]

Richard Wottrich, Atlanta USA

Summary

Global warming and climate change are linked to overpopulation.

Developed Economies experience slowing birth rates, leading to less attention given to overpopulation effects.

The earth cannot support its human population today, let alone in 2050, or in 2100.

Air conditioning is on track for huge increases in global energy consumption.

Perception

Charlevoix, Michigan USA, is a tiny wealthy enclave of vacationers in Northern Michigan on the shores of Lake Michigan. It is a truism that as populations of humans in Developed Economies become more wealthy their birth rates decline. Charlevoix’s population has dropped from 3,183 in 1990 to 2,529 in 2016 – a decline of 20.5 percent. These are the rose colored glasses that people of means and ‘influencers’ gaze through in Developed Economies when contemplating climate change and its connection to overpopulation.

That global warming and climate change are impacted by humans is a given. Scientists have done the work and the connection is clear. Why then will nobody discuss the proximate cause of climate change – overpopulation? Humans consume and use natural resources to gain consumption opportunities. The more humans we have, the more consumption we have, the more climate change we have. Why is discussing human overpopulation the ‘third rail’ of the climate change discussion? Population growth and climate change are both geometric. The link is unquestionable.

Too Many Humans

There are 7.4 billion humans on earth today. Over two billion humans have nothing. Over 700 million humans are starving to death at any given time. Leaving the politics of the wealth gap and food distribution aside, earth cannot support the humans it has now. The United Nations DESA report has projected 9.7 billion humans in 2050 and 11.2 billion in 2100. Does anyone really believe that climate change can be reversed in the face of another 2.3 billion humans by 2050? Or 3.8 billion by 2100?

Even the relatively wealthy EU added 1.5 million people last year, growing to 511.8 million at the start of 2017. The invidious facts of population growth insure that the countries with the highest standard of living have the lowest birth rates. Meanwhile Africa, with 1.2 billion humans, is projected to grow to 2.5 billion by 2050 and 4 billion by 2100. Asia and Oceania will be at 5.3 billion by 2050 and the Americas will be at 1.2 billion.

Air Conditioning

Consider just one factor in human consumption impacting climate change – air conditioning.

Air conditioning is virtually a ‘right’ in the U.S. and studies have consistently shown that human comfort is key to productivity. Therefore more air conditioning, means greater productivity, means more energy consumption, means rising global temperatures, means more air conditioning. You could look it up.

But what if everyone wants more air conditioning? They do. Nearly all of the world’s biggest cities are in tropical climates. Well over a billion people reside in mega-cities like Guangzhou (44 mm), Shanghai (26 mm), Bogotá (30 mm), Mumbai (20 mm) and on and on.  A modern city-state like Singapore could not exist without air conditioning. Nearly 55 percent of the world’s population lives in urban areas, which is expected to increase to 66 percent by 2050.

Global sales of air conditioners are increasing at an annual growth rate of 18.5 percent – a trend that expected to accelerate; perhaps by an order of magnitude by 2050.  The U.S. uses more energy every year on air conditioning alone than the total energy consumption of Africa and its 1.2 billion people. The climate impact of U.S. air conditioning on rising global temperatures is roughly 500,000,000 metric tons of carbon dioxide per year.

China, the world’s largest energy user and pollution producer, will surpass the U.S. as the world’s biggest user of electricity for air conditioning by 2020. Nearly fifty million air-conditioning units were sold in China in 2016 and total units in China will double in five years.  However while urbanized China, Japan, and South Korea will quickly approach their respective air-conditioning saturation points, the greatest demand will appear in South Asia and especially in India. A report on the global explosion in air conditioning by Lawrence Berkeley National Laboratory projects that the world is poised to install 700 million air conditioners by 2030, and 1.6 billion of them by 2050.

Much of this is logical and intuitive at the same time. But we don’t know what we don’t know – every baby born adds to the geometry of climate change. Over 130 million babies are born every year, netting after human deaths to a gain of over 75 million new mouths to feed every year – year after year. That is another United Kingdom or another Turkey every year.

Until the climate change discussion takes into account the proximate cause of global warming, no realistic progress can be achieved.

Richard Wottrich, CEO and Senior 

 

DEFCON 5: Opioid Abuse Disorder

Opioids – America’s Tasmanian Devil

DSI White Paper – By Richard Wottrich, CEO & Senior Consultant

June 30, 2017, Atlanta USA

Summary

Over 80% of illicit drug demand in the Americas comes from the United States.

Today’s surge in illicit drug traffic at America’s southern border is driven by drug cartel violence in Central America.

GlaxoSmithKline and Johnson & Johnson legally grow opium poppies in Tasmania.

The United States accounts for three-quarters of global legal opiate painkiller sales by weight and five-sixths by value – thus 4.3% of the global population accounts for 83.3% of painkillers sales.

Global Traffic in Illicit Drugs

Attempting to estimate the global GDP of illicit drugs is akin to getting an accurate vote count in an American presidential election – it brings to mind the uncertainty principal. The United Nations has estimated it as follows, “the global drug trade generated an estimated US $321.6 billion in 2003.” In 2016 perhaps one percent of global GDP is in illicit drugs – roughly $790 billion a year and growing – fast.

Drugs in the Americas

Drug cartels are integrated into Mexico’s economy and government. The major drug cartels operate throughout Mexico and employ over 500,000 people and indirectly support an additional 3.5 million people. Estimated profits for the combined cartels are $25-$35 billion a year. These profits fuel corruption and graft on an international scale. Over 80% of illicit drug demand in the Americas emanates from the United States.

The history of drugs and violence in Central American dates to the 1980s, when civil wars in El Salvador and Nicaragua sent thousands of people north in search of safety. This illegal immigration fed into the gang culture of Los Angeles and morphed into the drug cartels of today – destabilizing much of Central America. Many in the drug cartels are American-born.

John Sullivan, a gang specialist with the Los Angeles County sheriff’s department, said, “These gangs are part of the cultural fabric of the U.S., not Central America. We deport them, and they’re bigger and badder than any gangs there, and they dominate. And now we have areas [in Central America] that are widely destabilized, with a high degree of violence.” America’s own demand for drugs has helped produce the very cartels that arose to meet that demand.

The United States drug market, from Colombia through Central America, has been estimated by RAND Corp at over $100 billion. This supports a vast criminal supply chain that recruits and intimidates hundreds of thousands of people. Children are coerced, acting as lookouts, drug ‘mules’ and any other nightmare you might conjure. The cartels send young teens into the United States, where they learn gang culture in the Latino ghettos of Los Angeles, Chicago and Washington DC. In turn they terrorize entire neighborhoods into the drug trade.

The tiny country of Honduras’ (8 million people) illicit drug traffic exceeds its GDP. Let that sink in for a moment. Over 75% of America’s cocaine is shipped out of Honduras.  As a result Honduras has one of the highest murder rates in the world – 59.1 murders per 100,000 people in 2016 – a rate that if applied to the United States would generate almost 200,000 murders a year. The recent flood of child migrants to the United States from Honduras, El Salvador, Guatemala and Mexico is thus driven by this extreme violence and massive drug-related gang activity.

The Legal Opium Poppies of Tasmania

Over 90 people a day are dying of Opioid Abuse Disorder in the U.S. In total including all illicit drugs, 59,000 to 65,000 people died from drug overdoses in the U.S. in 2016. Where do opioids come from?

Tasmania, roughly the size of West Virginia, is one of the most remote places on earth with a population of just over 500,000. Tasmania is the origination point for the global supply chain that involves the biggest drug companies in the world – producing $25 billion a year of opiate painkillers in the U.S. alone.

Tasmania’s gentle climate, 50 years of plant modifications and an obliging government have produced a near-monopoly on production of one of the pharmaceutical industry’s most important raw materials. Tasmania grows roughly 85% of the world’s thebaine, or codeine methyl enol ether, an opiate alkaloid used to make OxyContin and related powerful prescription drugs that have revolutionized pain management over the last two decades. It produces all of the world’s oripavine, an alkaloid poppy extract utilized to treat heroin overdoses. Tasmania also accounts for 25% of the world’s morphine and codeine, two older painkillers from opium poppies still widely used outside North America.

The value of these narcotic alkaloids to Tasmanian farmers may seem small at roughly $100 million a year, but they support a vast painkiller network that marks up value 150 times at market. GlaxoSmithKline plc (LSE:GSK) ($24.6 billion revenues) and Johnson & Johnson (NYSE:JNJ) ($73.6 billion revenues) control most of this production, providing narcotic alkaloids to their own painkiller divisions and to other pharmaceutical companies worldwide. They are a legal cartel overseen and sanctioned by the United Nations Commission on Narcotic Drugs (CND).

Of special interest is Purdue Pharma L.P., a privately held pharmaceutical company that paid one of the largest pharmaceutical company fines in history in 2007 for mislabeling its product OxyContin. Purdue’s revenues are over $3 billion per year, mostly from the sale of OxyContin.

Most of the opium poppy extract produced in Tasmania is shipped to pharmaceutical factories in the Northeastern United States. The U.S. accounts for 75% of global legal opiate painkiller sales by weight and five-sixths by value – thus 4.3% of the global population accounts for 83.3% of painkillers sales. More specifically, the U.S accounts for 84% of global oxycodone (Oxycontin) consumption and more than 99% of hydrocodone (Vicodin, Lortab) consumption.

There is a human price for this obvious “overuse” of opioid painkillers. Between 1999 and 2016, the number of U.S. drug poisoning deaths per year involving an opioid has risen from 4,030 to almost 34,000, now exceeding overdoses of heroin and cocaine combined. Blue Cross and Blue Shield said recently that its claims for opioid addiction and dependence surged nearly 500 percent between 2010 and 2016. Forbes magazine contributor Robert Pearl, MD, says that 3 in 4 drug overdose deaths are due to opioid painkillers such as oxycodone, hydrocodone or methadone.

Remember one salient fact. The pharmaceutical industry knows and has known for years that it produces far more painkiller doses than are sold legally.

A new opiate painkiller with 5 to 10 times the power of Vicodin hit the market in 2014, and there have been corresponding spikes in Opioid Abuse Disorders. In 2014 more than 40 drug overdose experts urged the Food and Drug Administration (FDA) to reconsider its approval of Zohydro ER [manufactured by Zogenix, Inc. ZGNX (NasdaqGM)], a potent extended release formulation of straight-up hydrocodone, citing the potential to add to the growing epidemic of painkiller addiction.

Andrew Kolodny, president of the advocacy group Physicians for Responsible Opioid Prescribing, was very direct: “It’s a whopping dose of hydrocodone packed in an easy-to-crush capsule. It will kill people as soon as it’s released.”

Measured in human misery one might be tempted to ask, “What is the difference between an illicit and a legal drug cartel?” But that is hyperbole. More interesting questions are, “What is it in American culture that produces this dramatic and pervasive abuse of drugs?” or “What is the pharmaceutical drug sector’s mindset that these companies can continue to sell far more drug doses than are prescribed legally?”

Just as importantly, how long can such an obvious imbalance in legal and illicit drug consumption last? At what point does the entire legal supply chain cartel collapse in the face of abuse and resulting government regulations, or in the destruction of a U.S. middle class capable of affording this habit? How far can pharmaceutical lobbying reach and when will blow back hit their industry?

Richard L. Wottrich, richard.wottrich@gmail.com