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DLC | Front & Center | October 28, 2020
Using Markets to Fight Disease for Development
By Kevin Croke

The debate over foreign aid is at an impasse. After the Gleneagles G-8 meetings, the worldwide "Live 8" concerts, and the UN 60th Anniversary Summit, there's still no consensus on how to improve and expand assistance to the developing world. Impassioned aid advocates like Gordon Brown, Jeffrey Sachs, and Bono have provided a compelling moral vision for a new focus on the problems of development. But huge new sums for foreign aid have not yet materialized. Aid campaigners have yet to convince skeptics -- including those in the U.S. government -- that big increases in aid would be used wisely to spur economic growth and development.

But while this debate is still unresolved, there is at least one promising area of agreement that unites aid campaigners and skeptics, bleeding-heart liberals and conservative evangelicals: The need for a renewed commitment to fight preventable disease in the developing world.

The human toll from such diseases is staggering: Each year, between 5 and 6 million people die from AIDS, malaria, and tuberculosis. Tackling these diseases would have a huge humanitarian payoff, but could also be a big step forward for economic development: After all, people who are constantly fighting deadly diseases cannot be very economically productive, or afford the necessary investments for future growth. This approach could also be more practical -- while we still don't really know how to use traditional aid programs to create economic growth, we have a much better understanding of how to mitigate the spread of disease.

Sens. John Kerry (D.-Mass.) and Richard Lugar (R.-Ind.) took an important first step recently by proposing the "Vaccines for the New Millennium Act." The bill would combine what public health experts refer to as both "push" and "pull" mechanisms to foster the development of vaccines for neglected diseases. The major innovation they propose is an idea known as an "advance market commitment," or AMC. These are contracts that the U.S. government would sign to commit itself in advance to purchase large quantities of vaccines for diseases like AIDS, malaria, and tuberculosis, if and when they are developed. This idea would create an incentive, or "pull," for pharmaceutical companies to invest in these neglected diseases. The need for AMCs comes out of the economics of the pharmaceutical industry: Since vaccines for most tropical diseases would find large markets only in very poor countries, they would not be lucrative products. As a result, drug companies have not invested much money in research and development for them: Of the 1,223 new drugs that were licensed between 1975 and 1997, only 13 were for tropical diseases.1 But by committing the U.S. government to future vaccine purchases, the Kerry-Lugar bill would provide economic incentives for drug companies to invest in these cures.

In addition to the "pull" of AMCs, the Kerry-Lugar bill -- and its companion House legislation sponsored by Rep. Pete Visclosky (D-Ind.) -- would also provide a much-needed "push," by stepping up direct funding for research by public-private partnerships, such as those between governments, non-profit groups like the Gates Foundation, and private pharmaceutical companies. Lastly, the bill would provide tax breaks to drug companies and biotech firms who research these vaccines, and a tax credit on the sale of vaccines to international health organizations or developing-world governments.

A combined push and pull approach was endorsed by the G-8 Finance Ministers this June, and is supported by leading vaccine groups like the Malaria Vaccine Initiative and the International AIDS Vaccine Initiative. But the strategy does have critics, like Professor Donald Light of Princeton. He argues that this use of AMCs will divert finite resources and political will from immediate public health needs, and that "pull" mechanisms like AMCs are less efficient at stimulating research than the "push" of direct funding for research through public-private partnerships.

AMC advocates respond to these criticisms in two ways. First, since an advanced market commitment requires no upfront spending, there's no reason for governments to reduce current public health expenditures. In the happy event that a malaria or TB vaccine is discovered, then governments will have to make tradeoffs in that year's aid budget. But it will be a tradeoff well worth making -- the new vaccines would be an enormously cost-effective and productive use of aid dollars. Second, AMC supporters like Harvard economist Michael Kremer argue that AMCs will be more efficient than public-private partnerships, citing research that shows private R&D; to be more productive than public R&D.; Either way, argues Owen Barder of the Center for Global Development, the two methods of funding are likely to prove complementary: Public-private partnerships are crucial for the initial basic scientific research, where information-sharing is important and private capital is uninterested. Private firms, on the other hand, are much more likely to undertake the expensive clinical trial process, and bring the drug to market quickly, given the incentive of future profits. The developed world benefits from both approaches for its health needs, Barder notes, so why shouldn't the developing world?

The criticism that AMCs will distract from current spending is a false choice -- since AMCs don't require upfront spending, there shouldn't be a tradeoff -- but it does raise a very good question: If vaccines are such a cheap and effective public health tool, why don't we buy more already-existing vaccines for poor countries?

According to UK Chancellor Gordon Brown, there's no good reason. He recently introduced a plan to ramp up funding for the Global Alliance for Vaccines and Immunization (GAVI). The Bush administration has been cool so far to Brown's initiative. But it shouldn't be: GAVI's record shows that it deserves to be fully funded -- it has inoculated more than 75 million children in its first 5 years of existence, saving an estimated 1 million lives already. If the administration doesn't want to fund its contributions by borrowing against future aid increases -- as Brown's plan entails -- then it should increase its support for GAVI through normal budgetary channels, to a figure well above the $65 million that was appropriated last year. A significant increase in the American contribution would be both a cost-effective way of disbursing aid and saving lives, and a clear demonstration that the United States was not stinting on current needs because of the promise of a future vaccine.

Lawmakers of both parties should support this innovative initiative. But they should also take this bill as a reminder of the need to devote more resources and political attention to the search for innovative ways to fight disease and underdevelopment -- in the present, as well as in the future.


1. B. Pécoul, P. Chirac, P. Trouiller, J. Pinel, JAMA 281 (4), 361-367 (1999), cited in Los Angeles Times, "The Hope of Vaccine," July 20, 2005.

Further Reading:

The Center for Global Development's advance market commitment policy brief:

A paper by Harvard economist (and AMC originator) Michael Kremer that makes the case for AMCs:

Donald Light's critique of the Center for Global Development plan:

An Economist article detailing a recent study from World Economics about the beneficial effects of vaccines on economic growth:

Kevin Croke is a fellow at the Progressive Policy Institute.

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