IndianaPurdue University, Fort Wayne Campus

1
Indiana/Purdue University, Fort Wayne Campus

• The Crisis as an Opportunity for Structural
  Change Where should we focus our political
  energies?
• Thomas Pogge
• Leitner Professor of Philosophy and International
  Affairs, Yale University
• with additional affiliations at
• the Australian Centre for Applied Philosophy and
  Public Ethics (CAPPE)
• and the University of Oslo Centre for the Study
  of Mind in Nature (CSMN)

2
1

• Hypothesis about Competitive/ Adversarial Systems

3
Competitive/Adversarial Systems

• ? e.g. real economy, financial markets,
  politics and international relations, courts,
  academic research, media ? can be highly
  efficient when they are properly framed. Proper
  framing is achieved when the rewards players seek
  from the system are highly correlated with the
  creation of social value. Proper framing requires
  that the rules of the game are appropriately
  designed and that these rules are administered in
  a transparent and impartial way.

2
4
Competitive/Adversarial Systems

• contain seeds of their own demise /
  deterioration insofar as they provide incentives
  to various reward-focused players to try to get
  ahead by affecting, in their own favor, either
  the rules or their impartial application. With
  such efforts, the rules and personnel organizing
  and constraining the competition become objects
  of the competition turf.

3
5
Competitive/Adversarial Systems

• can lose much of their effectiveness when such
  efforts to corrupt are lucrative resources
  invested in corruption are lost to the system
  and, insofar as such efforts succeed, they
  diminish the degree to which the functioning of
  the system tracks its social purpose.

4
6
Competitive/Adversarial Systems

• can include rules forbidding and penalizing
  efforts to modify the rules or their application.
  But these protective rules and their application
  are themselves vulnerable to modification
  efforts. Example soccer hidden and pretended
  fouls.

5
7
Competitive/Adversarial Systems

• can, so long as countervailing temptations are
  not too strong, help stabilize their own proper
  framing by only by? sustaining a moral
  attitude toward certain rules and penalties
  (which then become punishments). To be effective,
  this moral attitude must be ingrained in the
  culture and internalized by many of the players
  and esp. by most of those who play a role in
  formulating or applying central system rules.

6
8
Such Moralization has Limited Potential

• The moral character of certain rules and
  penalties is a matter of degree (how many
  disapprove, and how severely?), and is itself
  vulnerable to corruption as players have
  self-interested incentives to seek demoralization
  or moralization of some prescriptions. The
  success of such efforts depends on how morality
  is understood and lived in the wider culture.

7
9
Long-term Tendency

• Money is becoming the pre-eminent universal
  reward, penetrating also the academic world
  (through grants, endowments), media
  (advertising), politics and international
  negotiations (campaign contributions), public
  administration (revolving door), and religion.
  The judicial system is the best hold-out but
  dependent for its rules on legislatures.

8
10
Systemic Problem Regulatory Capture with
Inequality Spiral

• Often in concert, the richest players influence
  the rules and their application, thereby
  expanding their own advantage. Such run-away
  inequality strengthens, in each round, both the
  incentives and the opportunities for influence.
  Public facilities come under the influence of
  players with special and often near-term
  interests, who buy support from media and
  academics for this purpose (venality esp. of
  economists who live up to their homo oeconomicus
  paradigm). Special interests have been especially
  effective in influencing international agreements
  (WTO Treaty) and organizations (WIPO, World Bank).

9
11
Specific Examples of Poverty-Aggravating Global
Institutional Arrangements

• Examples of how global institutional order works
  against HR fulfillment directly rules of trade
  and finance (with asymmetrical protectionism)
  intellectual property rights in seeds and
  medicines environmental degradation race to
  the bottom in labor standards.
• Examples of how global institutional order works
  against HR fulfillment indirectly, by
  incentivizing and sustaining HR-violating regimes
  and policies in poor countries international
  resource, borrowing, treaty, arms privileges.
• The facilitation of dirty-money flows is an
  example of both draining poor countries of
  revenue through embezzlement and also fostering
  corruption and oppression in those countries
  (Raymond Baker Capitalisms Achilles Heel).

12

• Global Institutional Order

4 Privileges
Dirty Money
Protectionism Pharmaceuticals
11
13
Systemic Problem Instability

• Insofar as system rules and their application
  are privately purchased, the externalities for
  other players and the future are disregarded.
  Moreover, there is growing incoherence of the
  whole scheme of rules because its various
  components are shaped by different sets of
  players with diverse particular interests. Both
  phenomena exemplify the structure of collective
  action problems (PD) The strongest players are
  impelled, by their self-regarding interests, to
  seek influence in ways that are detrimental and
  dangerous even to themselves collectively (and
  even more so, of course, to weaker players). Even
  the strongest are worse off in the long run than
  they would be if they abandoned their competitive
  efforts to manipulate in their own favor the
  rules and their application (but who can they?).

12
14
Hypothesis

• Even the rich, if only they think a little more
  long-term, have an interest in the reduction of
  economic inequality, esp. at the top end. In the
  long run, they must expect more damage from the
  mani-pulation efforts of other strong players
  than gain from their own such efforts.

15
2

• Mounting
• Intra-national and Global Inequality

16
Rising Inequality in the US

• In the last US economic expansion (2002-07),
  average per capita household income grew 16.
• In the top one percent this growth was 62, in
  the remainder of the population 7.
• The top percentile captured 65 of the real per
  capita growth of the US economy (45 in the
  1993-2000 Clinton expansion).
• Saez Updated, elsa.berkeley.edu/saez/, Table
  1, from IRS Data

15
17
Rising Inequality in the US (1978-2007)

• The income share of the bottom half declined
  from 26.4 to 12.8 (2005). Meanwhile, that of
  the top one percent rose from 8.95 to 23.50
  (2.6-fold) that of the top tenth percent from
  2.65 to 12.28 (4.6-fold) and that of the top
  hundredth percent from 0.86 to 6.04 (7-fold
  Saez Table A3). The top hundredth percent (30,000
  people) now have nearly half as much income as
  the bottom half (150 million) of Americans and
  BTW about two-thirds as much as the bottom half
  (3400 million) of world population.
• finance.yahoo.com/banking-budgeting/article/10757
  5/rise-of-the-super-rich-hits-a-sobering-wall.html
  

16
18
Kuznets curve is the graphical representation of
Simon Kuznets's theory ('Kuznets hypothesis')
that economic inequality increases over time
while a country is developing, then after a
critical average income is attained, begins to
decrease. One theory as to why this happens
states that in early stages of development, when
investment in physical capital is the main
mechanism of economic growth, inequality
encourages growth by allocating resources towards
those who save and invest the most. Whereas in
mature economies human capital accrual, or an
estimate of cost that has been incurred but not
yet paid, takes the place of physical capital
accrual as the main source of growth, and
inequality slows growth by lowering education
standards because poor people lack finance for
their education in imperfect credit markets.
Kuznets curve diagrams show an inverted U curve,
although variables along the axes are often mixed
and matched, with inequality or the Gini
coefficent on the Y axis and economic
development, time or per capita incomes on the X
axis. Wikipedia
19
Rising Income Inequality in China

• In China, 1990-2004, the income share of the
  bottom half declined from 27 to 18 ? while that
  of the top tenth rose from 25 to 35.

20
Global Inequality

• At current exchange rates, the poorest half of
  world population 3,400 million, have under 3 of
  global household income?as against 2 had by the
  most affluent 0.01 (30,000) in the US. The per
  capita income ratio between the top 5 and the
  bottom 40 is 2001.
• Spreadsheets from Branko Milanovic, World Bank
• Saez Tables and Figures Updated,
  elsa.berkeley.edu/saez/
• At current exchange rates, the poorest half of
  the worlds population, some 3,400 million, have
  ca. 1 of global wealth ? as against 3 had by
  the worlds 1125 billionaires (2007!).
• www.iariw.org/papers/2006/davies.pdf, table 10A,
  p. 47
• www.forbes.com/2008/03/05/richest-billionaires-peo
  ple-billionaires08-cx_lk_0305intro.html

21
Shares of Global Wealth2000 poorest versus
richest households
Calculated in market exchange rates so as to
reflect avoidability of poverty. Decile Ineq.
28371. Quintile Ineq. 851. Year 2000, 125
trillion total. (www.iariw.org/papers/2006/davies.
pdf, table 10A, p. 47)
20
22
The Effects of World Poverty
 
 

• Among ca. 6800 million human beings, about
• 1020 million are chronically undernourished (FAO
  2009)
• 2000 million lack access to essential drugs
  (www.fic.nih.gov/about/plan/exec_summary.htm),
• 884 million lack safe drinking water
  (WHO/UNICEF 2008, 32),
• 924 million lack adequate shelter (UN Habitat
  2003, p. vi),
• 1600 million have no electricity (UN Habitat,
  Urban Energy),
• 2500 million lack adequate sanitation (WHO/UNICEF
  2008, p. 7),
• 774 million adults are illiterate
  (www.uis.unesco.org),
• 218 million children (aged 5 to 17) do wage
  work outside their household often under
  slavery-like and hazardous conditions as
  soldiers, prostitutes or domestic servants, or in
  agriculture, construction, textile or carpet
  production (ILO The End of Child Labour, Within
  Reach, 2006, pp. 9, 11, 17-18).

21
23
30 Percent of all Human Deaths

• some 18 (out of 57) million per year or 50,000
  daily are due to poverty-related causes,
  cheaply preventable through safe drinking water,
  better sanitation, more adequate nutrition,
  rehydration packs, vaccines or other medicines.
  In thousands
• diarrhea (1798) and malnutrition (485),
• perinatal (2462) and maternal conditions (510),
• childhood diseases (1124 mainly measles),
• tuberculosis (1566), meningitis (173), hepatitis
  (157),
• malaria (1272) and other tropical diseases
  (129),
• respiratory infections (3963 mainly
  pneumonia),
• HIV/AIDS (2777), sexually transmitted diseases
  (180)
• WHO World Health Report 2004, 120-22

24
Millions of Deaths
23
25
We Should Focus Our Political Efforts on a Reform
that

• ? constitutes an enduring structural reform
• ? effectively symbolizes the idea that all human
  lives are of equal value
• ? benefits a strong, well-organized faction
  of the global elite (new profit opportunities and
  image improvement for pharma industry)
• ? is scalable and can be increased and/or
  adjusted as experience warrants
• ? strengthens those with objective interest
  in reform (empowerment of the global poor)
• ? is exemplar of realistic moral leadership,
  genuine moralization, global public good.

24
26
3

• The Pharmaceutical Innovation/Access Dilemma

27
Rules Governing the Development and Distribution
of New Medicines

• Under the TRIPS agreement part of the WTO
  Treaty and a paradigm example of regulatory
  capture the intellectual property regime of the
  affluent countries was globa-lized by being made
  a mandatory condition of WTO membership.
  Pharmaceutical innovators must be granted 20-year
  product patents in all WTO member states.

28
Seven Problems with TRIPS-Pure

• 1. Pharmaceutical innovation is neglecting
  diseases concentrated among the poor
• Why are they being neglected?
• 2. High prices impeding access by poor people for
  the duration of the patent
• Why are prices so high?

29
Relevance of Economic Distribution

• 1) Medicines for diseases concentrated among the
  poor are not lucrative targets for pharmaceutical
  RD innovator gets tiny mark-up or tiny sales
  volume.
• 2) Patented medicines for global diseases are
  priced to maximize profit ( mark-up multiplied
  by sales volume). For important medicines,
  optimal mark-up is high because of high economic
  inequality and low price elasticity among the
  affluent.

28
30
(No Transcript)
31
Distribution of Pharma Research

• Diseases accounting for 90 of the global disease
  burden receive only 10 of all medical research
  worldwide. Pneumonia, diarrhea, tuberculosis and
  malaria, which account for over 20 of the global
  burden of disease, receive less than 1 of all
  public and private funds devoted to health
  research. Of the 1556 new drugs approved between
  1975 and 2004, only 18 were for tropical diseases
  and 3 for TB.

32
TRIPS versus Pre-TRIPS
31
33
Seven Problems with TRIPS-Pure

• 1. Neglected diseases (90/10 Problem)
• 2. High prices impeding access by the poor
• 3. Bias toward maintenance drugs
• 4. Patenting, litigation, deadweight losses
• 5. Cost-price differential ? counterfeiting
• 6. Cost-price diffl ? excessive marketing
• 7. Last-mile problem, perverse incentives

34
4

• The HIF Funding Innovation without Obstructing
  Access by the Poor

35
The Economics of Drug Development

• Estimates of average drug RD costs range from
  200 to 1300 million per product (plausible
  800m)
• About half of this cost relates to clinical
  trials (mainly phase 3).
• Any solution must address the need to pay for
  these costs (including for unsuccessful products)
  and must create incentives for firms to invest in
  RD including clinical trials.

34
36
The Health Impact Fund (HIF)

• Funded by willing governments at minimally
  6 billion per annum (0.01 of GNI, if universal)
• Promises to reward (upon registration) any new
  medicine on the basis of its global health impact
• Registering a new medicine with the HIF is
  voluntary for the innovator, who need not give up
  any intellectual property rights
• Registrant must agree to make the new medicine
  available wherever it is needed at the lowest
  feasible cost of manufacture and distribution,
  and to grant zero-priced licenses after reward
  period
• www.HealthImpactFund.org

35
37
Financing

• 6 billion a year is about 0.01 of global
  income, not even 1 of current worldwide
  expenditures on pharmaceuticals.
• Full incentive effects on potential innovators
  require long-term commitment by funders.
• Only governments (of affluent and developing
  countries) can plausibly commit large sums
  long-term. We propose a small share of GNI,
  perhaps 0.03, for each partner country.
• All or most of this comes back to taxpayers
  through lower prices for medicines, insurance,
  national health systems, and foreign aid.

36
38
(No Transcript)
39
How to Constrain the Selling Price

• Three design options
• The HIF sets a price ceiling equal to estimated
  average cost of production
• The HIF requires open licensing of all relevant
  patents and data to create generic competition
• The HIF requires the registrant to issue tenders
  for production registrant controls distribution
  but must sell product at no more than cost of
  acquisition plus a supplement to cover
  distribution
• Cost of production and distribution is to be
  minimized and registrant is not to profit from
  selling the drug, only from HIF-rewards.
  Incentive to lower price iff dQ(Rpc) gt Qdp

38
40
Assessing Health Impact

• Health impact would be assessed in QALYs through
  comparison to outcomes that could have been
  expected to occur given the state of technology
  two years before the drug was introduced, and
  excluding the firms own products.
• Quality-Adjusted Life Years All health states
  are rated on a 0-1 scale. 2 QALYs two extra
  years in good (1.0) health  four extra years in
  poor (0.5) health ten years in improved (0.2)
  health.

39
41
Assessment

• Health impact will be assessed annually based on
  available information and inference
• Assessment will rely on data from
• Clinical trials
• Pragmatic or practical trials
• Audited data on sales aided by serial numbers and
  mobile phone technology
• Stratified sampling of use of the product in
  different environments
• Global burden of disease data

40
42
Assessment Cost

• The assessments would be expensive to run,
  consuming probably about 10 of the fund payout,
  or 600 million per year. Judged to be feasible
  by experts (IHME)
• But assessment of health impact is a priority in
  almost all countries already.
• Clinical reasons
• Budgetary reasons
• Assessment costs are therefore partly balanced by
  collateral benefits.

41
43
HIF Resolves Critical Problems in Prize
Determination

• Which health problems to target
• How to define the finish line
• How large to make the reward (self-adjusting).
• The HIF is a market-based solution payments are
  determined by competition among all registered
  products for the available rewards.
• A drug for malaria can directly compete against a
  drug for HIV/AIDS.
• This regulates relative rewards for registered
  products, rewarding each at the same rate per
  QALY, creating efficient incentives.

42
44
The Last Mile Problem in Drug Delivery

• Proper prescribing and compliance are essential
  to drug effectiveness.
• The HIF pays on the basis of each medicines
  actual health impact as assessed not only through
  sales data, but also through sampling of actual
  use and benefits as well as through population
  health data
• Firms therefore have incentives to promote
  appropriate use of their registered products, as
  well as to develop products that are effective in
  resource-poor settings.

43
45
TRIPSHIF versus TRIPS-pure
44
46
Problems Solved?

• 1. Diseases of the poor become profitable
• 2. Price lowest feasible variable cost
• 3. No bias toward maintenance drugs
• 4. Patenting, litigation, deadweight losses
• 5. No cost-price differential counterfeiting
• 6. No cost-price differential marketing
• 7. Last-mile problem, wholesome incentives

47
(No Transcript)
48
Allocation Rules

• Because pharmaceutical companies negotiate under
  a virtual veil of ignorance with respect to as
  yet uninvented medicines, their collective
  interests will shape their negotiating strategy.
  They will want to design the allocation rules
  so as to maximize their collective harvest of
  rewards. In particular, they will want these
  rules to be clear and transparent so as to reduce
  uncertainty. They will want the incentives to
  be shaped so as to foster efficient collaboration
  and synergies among themselves. They will want to
  set up a cheap and reliable arbitration mechanism
  so as to avoid costly disputes.

47
49
Measurement Reward

• Fixed term of payments, ca. 10 years
• Fixed annual HIF pools
• Metric variant of QALY
• The /QALY exchange rate / Funding
• Data clinical, sales, clusters
• Interfering factors baseline projections
• Phase-in
• Allocation Rules
• Corruption and Gaming

48