TCS Daily


The Market Makers

By Tim Worstall - December 12, 2005 12:00 AM

LONDON -- An acquaintance of mine, a civil servant (what you, in the ineffably cute version of the language you use, would refer to as a Federal bureaucrat), has just been part of a long campaign to get rich world governments to do something sensible about foreign aid. What's slightly shocking is that he and his confreres have actually succeeded.

Yes, I know, consternation all 'round. This writer thinking that any governmental action could actually be described as sensible? Functionaries actually agreeing to act on the basis of sensible advice? And the very idea that such could have come from a bureaucracy? Yes. It's true -- or at least most of it.

The full report on the idea is here, Making Markets for Vaccines. The most important point is for us to remember that not all markets are perfect. Depending where you are on the political spectrum, you may believe that nearly all markets are perfect (myself), or that very few of them are (any other random moonbat), but we all have to remember that this is not, unfortunately, the most perfect of all possible worlds. Sometimes we need to give a little kick start to the process.

Vaccines for the poor seem to be one of these very subjects where such a helping hand is required. There's the obvious point that many diseases suffered by the tropical poor, for example, are not also suffered by people in the developed world. So there's really no money in private drug companies developing vaccines for the great unwashed. That is rather unfortunate, as we would all (and not just in a morally self-satisfying way) benefit from a successful malaria vaccine, for example. All those millions of people wouldn't die each year. And quite apart from the moral value of being able to help stop a killer disease, we'd also rather like to trade with these people as well.

Yet if the pharmaceutical companies were to produce such a vaccine, they would not be able to capture any benefit, which would go to the poor society at large. Thus we have our incentives misaligned. There is not enough money in the poor-world health systems to pay for the drugs directly, and certainly not enough to pay for the research program.

It is also true that we don't really want to simply appoint some group to go and find such a vaccine. We'd much rather have competing groups looking at different alternatives, exploring all the nooks and crannies of the possible methods to get to the goal than some centralized operation.

Enter the accepted solution. If -- and note I say "if" -- a successful vaccine can be demonstrated, then the rich world countries promise to pay for sufficient doses to treat those in the poor countries. Something of a win/win situation there, given that our money is already going to failed development measures. In this case, we're not handing money over to corrupt tyrants (I know, I know, not all governments in the poor world are such), we rich-world taxpayers get both the spiritual uplift of knowing we're helping, plus more of Julian Simon's Ultimate Resource -- human ingenuity. The drug companies can invest in the knowledge that if successful, they have a guaranteed market, and once the science and research has actually been done, the poor get to live longer. The latter is what we're really aiming for, as of course, that's the most important part. But we do need to create the structure (as is so often the case) in which all the incentives are correctly aligned, so that the markets can work properly.

You might not be all that surprised to hear that the ground work for this plan was supported by the Bill and Melinda Gates Foundation. It was said, when the charity was first announced, that -- far more than the money -- the important thing would be bringing one of the finest business minds of our generation to bear on such problems -- which appears to be exactly what is happening. Instead of money being sprayed out willy-nilly in the usual fashion, innovative thinking and the construction of systems that work have become the mantra.

I said that most of this is true, and it is. The one little fib so far is that the acquaintance is not actually currently a civil servant (US translation: federal bureaucrat). He was, and probably will be, but is currently on sabbatical at the Center for Global Development where another of the staff is our favorite development economist, William Easterly. So it might be more truthful to say that those who are bureaucrats can and do have decent ideas about how to change the world for the better. One simply needs to take them out of the bureaucracy for them to flower.

On which point something of a request. It is said that in the 19th century, when the British Empire covered a quarter of the globe, the Civil Service had some 4,000 members. We currently have some 500,000. Notwithstanding the increased complexity of the world it would appear that we therefore have 496,000 too many. Transplanting one of these to California to work has produced the admirable and delightful results described above. If we were to scrape together the plane fares for the other 495,999 do you think you might work on them as well?

Tim Worstall is a TCS contributing writer living in Europe. His book on the best of British blogging can be ordered from Amazon.co.uk. Find more of his musings here.

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Copyediting
"consternation all ‘round" -- That apostrophe (inserted by an American copyeditor?) is not ineffably cute.

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