Stupid Spat Puts Millions Of Lives At Risk

by hilzoy

Sound hyperbolic? Not really. From the WSJ (sorry, subscription wall), a story about a really great policy proposal:

"The plan aims to address a problem in global drug markets: The countries that most need new treatments for diseases such as AIDS and tuberculosis are those that can least afford to pay for them. An Italian Finance Ministry paper concluded last year that poor financial prospects have made drug companies reluctant to develop vaccines aimed at diseases found mostly in developing nations.

Under the advance market commitment plan, the G-8 would guarantee a subsidy -- valued at $800 million to $6 billion depending on the disease -- for any company or companies that produce vaccines that meet agreed-upon safety-and-efficacy standards. Once the donors spend that initial subsidy, the pharmaceuticals companies would discount the vaccine sharply for developing-world customers.

"All of the technical work that can be done on an abstract level has been done," said Orin Levine, an epidemiologist who works on pneumococcus vaccines at Johns Hopkins University in Baltimore. "It's time to just commit, to take that step and move into the first stage, which is negotiating the first-ever advance market commitment for a vaccine.""

This makes total sense. Countries like, say, Mali, which has a per capita income of $830, and spends $39 per person per year on health care, obviously do not have the money to pay for expensive new vaccines. But without some reason to think that someone will buy their product, no company will develop one; and so no one bothers to develop vaccines for diseases found mainly in poor countries. Advance market commitment is, as its name suggests, a market-based solution to this problem. It's the same basic logic as patents: companies cannot be expected to develop useful products without some reason to believe that they will profit from doing so, and so we create a legal regime that allows them to do so. In this case, however, we can't just let them charge high prices since the people who need the vaccines can't pay them, and so we ensure their profits directly. (This only works because it's possible to specify what constitutes "an effective vaccine".)

This approach could save a lot of lives for a pretty reasonable investment. Consider what would have been the pilot case:

"That meeting led to creation of a panel of experts, who recommended that the first advance market commitment be used to promote development of a vaccine for pneumococcal disease. According to the World Health Organization, the bacterial infection killed 1.6 million people in 2002, 716,000 of them under the age of 5."

As noted above, the subsidy is $800 million to $6 billion, depending on the disease. (That comes from all the countries in the G8, not just us.) The WSJ article doesn't say what the subsidy would be for pneumococcal disease; I suspect it would be on the low end, since there already is a vaccine for pneumococcal vaccine; just not for the strains that are prevalent in the developing world. However, to be conservative, let's just say it would be $4 billion; and let's restrict ourselves to lives saved in the first ten years, regarding all the rest as freebies. Let's also assume that 2002 was a typical year (as far as I know, it was.) 16 million lives at $4 billion: that's $250 per person. Pretty cheap, I'd say.

Alas, it's being held up. Here's why:

"Hopes that the G-8 leaders would push the plan in St. Petersburg have gone astray at the negotiating table. The proposal is one of three major drug-finance plans floating around the G-8. While the plans could complement each other, they compete for the limited financial resources -- and political bragging rights.

U.K. Chancellor of the Exchequer Gordon Brown has championed what he calls the International Finance Facility, in which the G-8 would issue bonds to raise money to purchase drugs for poor nations. France, Italy and several other nations have signed on, and the first series of bonds is expected to raise $4 billion in the next few months, according to a French government official. The Bush administration has said the British plan doesn't fit with the U.S. system of yearly budget appropriations.

France has lobbied hard for an airline-ticket tax to fund drug purchases. A week ago, Paris took the lead by imposing a tax of €1, or about $1.25, on domestically purchased tickets for economy-class flights within Europe, as well as a €10 levy on business- and first-class tickets. For flights outside Europe, the tax rises as high as €40. The revenue will go for drugs to treat AIDS and other illnesses in poor countries, according to a French official, who says 13 other countries have agreed to the tax plan.

At the summit-preparatory meeting last month, France argued that the G-8 should endorse its approach, provoking opposition from the U.S. and reluctance from Japan on antitax grounds. The U.K. gave only tempered support for its European Union partner. A U.K. Treasury spokesman said London would only go so far as to divert some of its current ticket-tax revenue to the French effort; it won't impose a new tax.

Failing to win support for the ticket tax, the French negotiator blocked the advance-market-vaccine proposal from the G-8 leaders' statement being drafted for the coming summit, according to the senior official.

The French government official played down the disagreement. "We're not expecting to see the U.S. joining the air-ticket tax group on a short horizon -- maybe at a later stage," the official said. The ticket-tax plan does "not require you to have everybody around the same table."

At the same time, Japan and Germany shied away from the vaccine plan because of concern about the cost. "A number of other governments in the G-8 don't want to pony up more money for something right now," said a senior U.S. Treasury official.

Some G-8 officials expressed hope that wealthy nations would find a way to launch an advance market commitment pilot by year's end. Other supporters of the plan are worried it is being slowly derailed.

"I just think it's a tremendous opportunity, and it would be an absolute shame to let the window pass without an announcement in St. Petersburg," said Mr. Levine."

This would be a good opportunity for us to display leadership and serious diplomacy, if this administration were capable of either. Failing that, I'd be happy to just sign on to the French program. It's a tax increase, I know, but not a very big one, and it would do an immense amount of good.

Oh well.

(h/t Effect Measure.)

Comments

[Harald Korneliussen]

"It's the same basic logic as patents". No, it's a problem related to the problem patents are trying to solve. However, this works without giving anyone a monopoly on an idea, so it's far better. Used in conjunction with an assurance contract scheme, it could replace patents for first-world medicines, too.

I know you read Marginal Revolution now and then :-) Tabarrok is a proponent, and inventor of a special kind of assurance contract which might be more popular in practice.

fundable.org even has a working implementation, although people don't seem to get it quite, yet. They use it as any other fundraiser, and more for begging than buying.

[heet]

Here's the thing - why do anything when you don't pay a price for nonaction? The American voter has lost all interest in the possible.

[Jesurgislac]

Tony Blair referred to the International Finance Facility for Immunisation in a recent speech at Kings College in London - but in the next paragraph he refers to

Solidarity contributions on airline tickets are another innovative way to help deliver more aid - the UK already has an Air Passenger Duty. And with France in particular, we are developing an International Drug Purchase Facility designed to lower the cost and improve the availability of drugs for HIV and AIDS and malaria.

While I hesitate to impugn your blogging skills, Hilzoy, I cannot see how two different forms of funding for the same project should clash with each other at all: and as the only news reference I've found to their being a "spat" is in the WSJ, I wonder if it is not an invented spat by the WSJ?

(I say this with hesitation, because I began by assuming that there was a spat: France and the UK traditionally oppose each other on all kinds of measures. But then I wondered - why would there need to be a spat, if France is supporting one kind of funding and the UK is supporting another? If we decide to raise money for the same charity, and you decide to sell cakes and I decide to sell raffle tickets, we are not competing: some people will buy one, some another, some both.)

[Andrew Olmsted]

I'm not sure I understand the logic of using an airline ticket tax to fund this, but that's quibbling with an otherwise excellent idea. Hell, $6 billion is a rounding error in the U.S. budget, and I can think of plenty of ways to balance out a $60 billion committment in order to fund something like this. Combine this with some good training programs on using the vaccines and this could be one of the most effective uses of foreign aid dollars in our history.

[Ginger Yellow]

The IFFim has been about to issue bonds "in a few months" for nearly a year now. I wrote a story with a quote to that effect last August for a finance magazine, so I'd be skeptical about any statements on timing. Nobody has been able to tell me definitively what the hold up is, beyond trying to get more countries involved. Given that the whole idea is to frontload aid to save lives immediately, it seems a bit perverse to hold out for scraps - Spain just agreed to contribute Eu190m over 20 years, which is hardly a huge amount. That would buy one medium sized hospital.

I don't have much to add about the "spat", but frankly any good excuse to raise tax on air travel is a bonus at the moment. It's the fastest growing source of greenhouse emissions, airplane fuel is untaxed, and airlines aren't part of the EU emissions trading regime (yet).

[hilzoy]

Jes: the 'spat' isn't a result of a necessary conflict between different funding mechanisms; it's a result (as I understand it) of the fact that we are unwilling to raise taxes, even little taxes on airline tickets dedicated to this purpose, and France retaliated by blocking this other idea. I don't see why they have to conflict either.

[Bernard Yomtov]

The whole thing is puzzling. The US seems to be opposed to both the UK and the French plans, but has not offered an alternative funding plan.

And what difference does it make? Why not let each country make a commitment and fund it how it will?

Could it be that the dispute over funding is just an excuse to back out of the whole deal?

[Sebastian Holsclaw]

"Could it be that the dispute over funding is just an excuse to back out of the whole deal?"

This is my suspicion. Any of the three countries mentioned could fund a large portion of the program on their own. They could unilaterally choose a couple of diseases and fund a vaccine for them. This is much like the long collapsing Doha round--a world-wide good thwarted by silly games all around.

[hilzoy]

If the French want to back out, we should call their bluff. If we want to back out, shame on us.