In the midst of the high-stakes global scramble to procure and administer COVID-19 vaccines, a group of economists have made a compelling case for governments to foot the bill to build production capacity for vaccine makers. A trillion-plus-dollar case, in fact.
In a paper published this week by the University of Chicago’s Becker Friedman Institute for Economics, the authors credit the billions in financial commitments that governments have already made – through R&D funding, up-front payments and supply contracts – with accelerating the timeline on worldwide vaccination by about three months, resulting in a global economic benefit of an estimated US$1.6-trillion.
Yet they calculate that if governments had invested more – enough to expand vaccine production capacity to roughly double what we expect this year – then they could have advanced worldwide vaccination by another eight months, and delivered another $1.1-trillion in economic gains.
“Every month, the world is losing US$500-billion in short-run GDP alone,” said University of Chicago economist and Nobel laureate Michael Kremer, one of 15 co-authors of the report, on a videoconference Monday. “Given those huge monthly costs, the social benefit of expanding manufacturing capacity and delivery capacity is immense.”
The authors – hailing from such places as Harvard, the World Bank and the Foreign, Commonwealth & Development Office in the U.K. – have acted as informal group that has advised U.S. and foreign governments on vaccine strategies during the pandemic. Their paper amounts to a playbook for governments to accelerate supplies and, by extension, speed up the economic recovery associated with this and future pandemics.
They conclude that if governments pick up most of the costs in advance for expanding production facilities, it removes a major financial risk for the drug developers – clearing the way for multiple players to aggressively pursue larger-scale mass production of vaccines and assuring they can hit the ground running.
They also advocate for countries to secure supply agreements with multiple potential vaccine developers – “lots of shots on goal,” as Dr. Kremer put it. Far from being wasteful overkill, they argue, such an approach both increases the chances of success and, effectively, incentivizes more global production capacity.
They also argue that countries should tie these contracts to commitments to specific capacity targets, rather than just to delivery volumes – as, ultimately, production capacity is the critical element to fostering widespread delivery as quickly as possible.
Canadian policy makers should pay attention. We’re a country that has only managed to get needles into arms of about 2 per cent of its population, far behind many of our global peers. We have neither an approved home-grown vaccine, nor manufacturing facilities to produce our own supplies. We’ve been frozen out of doses being produced just a few kilometres from our own border, and left at the mercy of a factory in Belgium that has temporarily cut us off. Clearly we have a few hard lessons to learn.
Yet surprisingly, the researchers don’t think Canada is doing such a bad job. Quite the contrary.
“Canada is a role model,” said co-author and Stanford University professor Susan Athey.
They hold up Canada’s vaccine deals – securing commitments from seven drug developers for up to 400 million doses, enough to vaccinate the entire population more than five times over – as the global leader in a strategy that they consider particularly wise and effective. With numerous vaccines proving successful, Canada not only has locked down what will be ample vaccines for its own population, but has promoted expanded capacity that will fill the needs of other, poorer countries. Indeed, Canada will likely be in a position to donate considerable supplies to countries in need.
But, as Canadians know all too well, our country has been agonizingly slow out of the critical starting gate. And in terms of investment in domestic capacity, the government has come under fire for doing too little, too late. The authors’ research indicates that capacity investments made before the vaccines were ready to launch have the biggest economic benefit, as they accelerate the launch of vaccinations and precipitate the economic turnaround.
While the federal government says it committed “over $1-billion to secure access to promising vaccine candidates,” including “up-front payments that companies require to support vaccine development, testing and at-risk manufacturing,” key investments on the domestic manufacturing front have been for facilities that won’t go into production until the end of this year, at the earliest. The Medicago facility in Quebec City – which alone accounts for $173-million of Ottawa’s money – won’t begin production until 2024.
But Dr. Kremer stresses that while the biggest economic benefits may have already sailed, it’s not too late.
“Even at this late stage, it’s still worth investing more in capacity,” he said. Even for the vaccines that are already ramping up production, governments could help accelerate availability by investing in the supply chains supporting manufacturing.
“In the short run, we need to do everything we can to try to get more doses out of the existing capacity,” he said.
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