We need a vaccine and an economically rational response until we have one

We need a vaccine and an economically rational response until we have one
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Finding a Vaccine

As the nation is convulsed by the worst health crisis in a hundred years, and certainly by an economic response that is more draconian than any of us have ever witnessed in peace time, it is natural to be desperately seeking a way out of this dark room in which find ourselves, with its walls closing in on our jobs, our lives, and our hopes and dreams.

We know that we need a vaccine. But vaccines are hard to discover. Indeed the entire process of new drug discovery is very hard.  It costs approximately £1bn now to take a drug from research to a molecule that might work, to clinical trials, and testing and ultimate delivery into the population.  The system that has delivered new drugs to treat new and old diseases is the patent system, where pharmaceutical companies know that if they do spend that £1bn, and do discover something that can heal an affected population, they will be able to earn their reward through the 20 year patent period.  Because the regulatory process now takes so long, we have developed mechanisms to increase that patent period to account for the decreased useful life of the patent.  Because the data that is submitted into that application is so valuable, we have agreed to give a period of exclusivity for that data.

Whenever there is a new and urgent demand for a vaccine, because of a novel disease, there are the familiar cries forcompulsory licensing (Bayer the producer of Ciprofloxacinwas famously threatened by the US government with compulsory licensing in the wake of the anthrax scare that followed the 9/11 terror attacks), or forcing pharmaceutical companies to do work with no reward, as if they exist as charities.  As Adam Smith famously said, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.”

To believe this is not to be some heartless capitalist monster with no regard for the poor or the sick.  It is to understand what is at the heart of human incentives.  We are asking people to do extraordinary things.  It is only in the pursuit of a fair reward for their industry, their hard work and their property rights in competition with others who are seeking the same thing that critical new innovations can be discovered.

In fact to argue the opposite, to say that companies should do this, in essence because it is the right thing to do with no reward, not only misunderstands the human condition, but actually leads to a situation which is heartless, cruel and pays no heed to the sick and vulnerable.  

If we are ever  to emerge, blinking out of the dark lockdown in which this virus has placed us, we will do so because some enterprising firm or group of firms (yes, in partnership with government health labs and institutes) has gone the extra mile, and looked under every rock to find a solution. And they have done it, because the reward justifies the colossal investment, and because they are in ferocious competition for that reward.

This is not to gainsay the fact that the patent system is prone to abuse.  Certainly some patents are too easily granted, and don’t apply to genuinely patentable material.  Government institutions, such as the National Institutes of Health in the US also play their part.  But, it is at times like these that we look to the pharmaceutical industry for solutions and we should be very careful not to bite the hand that feeds.

Economic Response

Assuming that the economic incentives and government institutions work together to deliver a vaccine, what do we do in the meantime?  It appears that we will now be confined for the duration.  Businesses will not have workers; workers will be unable to work except for those mostly white-collar professionals who can work from home.  In such dire, wartime conditions, we don’t have any choice. The government will simply have to stand up a Pandemic Business Interruption Fund to pay employers, on the strict condition, they use the money first to pay their workers and their other fixed costs.  Preserving the relationship between employer and employee will be very important when businesses start up again.  

But these national level funds do require an additional international element.  Perhaps under the auspices of the IMF, a Global Pandemic Strategic Reserve Fund could be established from which countries could draw to top up their own national funds.  This is particularly important for those countries who cannot afford to take these drastic measures by themselves. But there would be an important element to this Fund.  Countries who have demonstrated a reckless or negligent approach to the origins of the pandemic, and thus inflicted harm on their neighbours should be required to contribute more to the Strategic Reserve, or could be sued by other nations for increased contributions.  This should only be applicable in extreme cases, so as not to encourage an overly protective approach from governments that would do unnecessary economic damage, in the same way that medical malpractice claims in the US hamper physicians’ treatment of patients. These extreme cases would include actions like destroying samples and data, wilfully hiding the evidence of the outbreak, or silencing whistle-blowers.

Since there is no systemic risk in the economic system, but rather an exogenous shock, some of the financing of these Funds could come from the issuance of Pandemic Bonds, on the basis that economies would bounce back once a vaccine allows people to return to their normal lives.  

But a marker would be laid down that in an interconnected world, the actions or inactions of countries in spotting, and isolating novel infectious diseases, and immediately warning their peers would have serious consequences.

The post We need a vaccine and an economically rational response until we have one appeared first on Global Vision UK.

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