Medical biz prof Stephen Parente on Medtronic move: "It's kinda hard to see this occur"
Medtronic's world headquarters (pictured) is currently in Fridley, but the company plans to pack up and move to a more tax-friendly country.
Governor Dayton characterized the news that Medronic is buying Ireland-based Covidien for $42.9 billion and moving its headquarters to Dublin as "tremendous for Minnesota," citing company executives' promise that no local jobs would be lost due to the transaction. (Read the backstory here.)
But Carlson School professor Stephen Parente, director of the Medical Industry Leadership Institute, says that when he heard about the move, "I didn't shout for joy."
"The medical device industry is one of the things that really did grow up in Minnesota, and the story about Medtronic is that it has a U of M tie-in that's so strong and authentic that it's kinda hard to see this occur, even with 1,000 [new] jobs promised," Parente says. "I think what's a little disconcerting is that there are many entrepreneurs in the medical device industry where the goal of their first invention is to sell it to Medtronic. There's a cycle here that's been very beneficial for the community, for the small business entrepreneurial aspect of it, so to the extent that now you've taken serious decision making away to a different location, that [cycle] could be changed."
That said, Parente, who supported John McCain in 2008 but has backed politicians on both sides of the aisle, says he doesn't follow Republican gubernatorial candidate Marty Seifert in blaming Dayton for Medtronic's relocation.
"I put what the governor says in a neutral context, and Marty probably went too far," Parente says. "But it's political season and I can understand why he would say that."
Some, including the New York Times, view Medtronic's move to Ireland as an effort "to change its tax domicile through a so-called inversion... Such deals are attractive to American companies seeking a lower corporate tax rate." Medtronic officials, on the other hand, emphasize what the deal means for the company in terms of access to European markets.
But Parente doesn't buy that.
"Half [Medtronic's] sales are overseas already," Parente says. "It's hard to ignore the tax question."
But while he doesn't pin all the blame on Democrats, Parente says, "In terms of health policy, the medical device tax was never something I espoused on either side of the aisle."
"I honestly think [the tax] may have had an impact [on Medtronic's purchase of Covidien]," Parente says. "My guess is that this will increase the heat to not have something like this happen again... the Democratic caucus in the Senate from Minnesota, Klobuchar and Franken, are already more or less saying, 'Get rid of the tax.'"
"The device tax has been seen as something that has been pretty punitive to the industry," Parente continues. "Both major and small companies resent it and it may have, at the margins, made people think outside the box."
But beyond the politics and business implications of the Affordable Care Act's medical device tax, Parente says it's never good for a homegrown Minnesota company to relocate, regardless of the reasons for doing so.
(For more, click to page two.)
"To see Medtronic move, I think it makes a lot of people question how well we can sustain economic growth -- Delta purchasing Northwest was another illustration of that," Parente says. "The example that strikes me most was I went to undergraduate school in Rochester, New York, and Xerox moved their corporate headquarters from Rochester, where they had a giant tower dominating the skyline, to Stamford, Connecticut, for tax reasons."
"The community thought of Xerox much differently after that," Parente adds. "The perception was, 'We're now the factory floor for the 200 chosen ones that are in Connecticut by the golf course.'"
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