The Economist on Patent Waivers

From Alex Tabarrok.

 "A good statement from The Economist:

We believe that Mr Biden is wrong. A waiver may signal that his administration cares about the world, but it is at best an empty gesture and at worst a cynical one.

A waiver will do nothing to fill the urgent shortfall of doses in 2021. The head of the World Trade Organisation, the forum where it will be thrashed out, warns there may be no vote until December. Technology transfer would take six months or so to complete even if it started today. With the new mRNA vaccines made by Pfizer and Moderna, it may take longer. Supposing the tech transfer was faster than that, experienced vaccine-makers would be unavailable for hire and makers could not obtain inputs from suppliers whose order books are already bursting. Pfizer’s vaccine requires 280 inputs from suppliers in 19 countries. No firm can recreate that in a hurry.

In any case, vaccine-makers do not appear to be hoarding their technology—otherwise output would not be increasing so fast. They have struck 214 technology-transfer agreements, an unprecedented number. They are not price-gouging: money is not the constraint on vaccination. Poor countries are not being priced out of the market: their vaccines are coming through COVAX, a global distribution scheme funded by donors.

In the longer term, the effect of a waiver is unpredictable. Perhaps it will indeed lead to technology being transferred to poor countries; more likely, though, it will cause harm by disrupting supply chains, wasting resources and, ultimately, deterring innovation. Whatever the case, if vaccines are nearing a surplus in 2022, the cavalry will arrive too late.

Elsewhere in this issue they draw on my work with Kremer et al.

The increase in capacity seen over the past year was brought about in large part because of government interventions, most notably Operation Warp Speed in America and the activities of the Vaccine Taskforce in Britain, which guaranteed payments and drove the expansion of supply chains.

These efforts splashed around a lot of money which, if none of the vaccines had worked, would have been lost. But with the benefit of hindsight it is now hard not to wish they had been more generous still. In March Science, a journal, published estimates from a group of economists of the total global economic loss that would have been avoided if enough money to produce vaccines for the entire world had been provided up front, rather than enough for most of the rich world. They calculated that if the world had put in place a vaccine-production infrastructure capable of pumping out some 1.2bn doses per month by January 2021, it would have saved the global economy almost $5trn (see chart).

Eric Budish of the Chicago Booth School of Business, one of the model’s authors, explains the situation using a plumbing metaphor: it is faster to lay down a wider-bore pipe at the start of a project than to expand a narrow one later. The rich world succeeded in producing effective vaccines remarkably quickly in quantities broadly sufficient to its needs: an extraordinary achievement. But the capacity of the system it built in order to do so created constraints that the rest of the world must now live with. That was a choice, not destiny."