‘What Just Happened? What’s Next?’

You might think of the little bits of good news that came out last week as the macroeconomic equivalent of the first crocuses of spring. There was the heartening word that initial jobless claims are slowing. The stock market continues its modest rebound. And some analysts are cautiously suggesting that there might be economic growth again before 2009 is out.

But over at Two Arrow Street, participants in a daylong conference offered April 15 by the Weatherhead Center’s Project on Justice, Welfare, and Economics were looking at the economy through a much longer lens. The conference was called “What Just Happened? What’s Next?” and its subtitle was “An Interdisciplinary Examination of Our Current Economic Crisis.”

In a presentation titled “The Crisis as an Opportunity for Structural Change,” Thomas Pogge, Ph.D. ’83, of Yale University set forth his proposal for what he calls a Health Impact Fund (HIF). It’s meant to do nothing less than revolutionize the way medicines are provided to the global poor.

The fund, he explained, would reconfigure financial incentives for drugmakers. The current system rewards them for selling lifetime “maintenance” drugs to rich Westerners, rather than curative or even preventive medications to fight the diseases of the developing world. But Pogge’s fund “promises to reward … any new medicine on the basis of its global health impact.”

Under Pogge’s proposal, worked out with University of Calgary economist Aidan Hollis, affluent nations would chip in a share of their gross national income to support the fund. He suggested that a 0.01 percent contribution would yield about $6 billion a year, which should be a large enough pool to start the program. Each year’s pool would be divided up among the manufacturers whose drugs were listed at any given time. He foresees about 20 drugs on the list at a time.

“It’s registered and you get health impact rewards,” Pogge said. “You don’t give up any intellectual property rights.” A pharmaceutical manufacturer would, however, give up the right to a profit on the sales price. Under the Pogge/Hollis proposal, “the registrant must agree to make the new medicine available wherever it is needed at the lowest feasible cost of manufacture.”

The reward is for contributing to public health, not for selling pills, in other words. “Perverse incentives” is a phrase on the lips of many analysts of the current financial crisis: Too many actors have been rewarded for taking risks but not punished for poor performance.

But Pogge made the case that the current system of compensating drugmakers has its own perversities as well. He explained that under the current system of international commerce, a country joining the World Trade Organization must sign on to a package of accords including the so-called Trips Agreement, which covers trade-related aspects of intellectual property rights.

This agreement obliges signatories to grant 20-year product patents for, among other things, drugs. This locks countries into the high-markup business model for medicine, and that, in turn makes it hard if not impossible to make drugs available at low cost.

The current system provides incentives for counterfeiting, Pogge said. In the pharmaceutical world, this means making knockoffs with just enough of the active ingredient to pass for the real thing but not enough to be medically effective. Instead, these underpowered fakes help create drug-resistant strains of diseases.

And by making it profitable for drugmakers to serve the poor, the Health Impact Fund would also protect against diseases such as Severe Acute Respiratory Syndrome (SARS) that fester largely untreated in the developing world for years and then burst suddenly onto the scene in the developed world. SARS apparently originated in China and spread to 37 countries, infecting thousands and killing nearly 800 during a near pandemic from November 2002 and July 2003. It could have been much worse, Pogge suggested. “We were lucky with SARS,” he said.

One challenge to the Health Impact Fund concept was raised in a question from the floor posed by Norman Daniels, Mary B. Saltonstall Professor of Population Ethics and Professor of Ethics and Population Health at the Harvard School of Public Health, who told Pogge, “A presupposition of your scheme is that we know how to measure the contribution of a specific drug. I’m not sure we do.” He went on to say that many drugs are delivered in systems, which themselves make a contribution to patient health.

Nonetheless, Pogge ticked off the advantage of the Health Impact Fund as a “focal point of structural reform”:

It isn’t driven only by concern for the poor — it helps benefit the pharmaceutical industry, too.

It’s scalable: The fund could be increased or adjusted in light of experience. And manufacturers could decide to transfer some drugs from the patent track to the fund track depending on whom they benefit.

The fund “strengthens those with objective interest in reform” and thus leads to “the empowerment of global poor.”

It is an exemplar of realistic moral leadership, genuine moralization, and global public good.

It would lead, he suggested, to “a reduction in global public evil.”