[2006-03-25]
So what is our problem? Finance, brains, cottage
Address by Trevor A Manuel, Minister of Finance
25 March 2006

Being neither a scientist nor a manufacturer, it is a rather daunting privilege to have been invited to join you today. There is a great deal of mystery and wide-eyed expectation around the subject of biotechnology, which adds to my anxiety. We are talking about the frontiers of applied knowledge, and so we have to speak with some caution and humility.

Of course, I am well-trained in the art of obscure communication, as my advisors are either economists or statisticians. They promise robust and healthy tomorrows, if only we take a raft of bitter medicines today, and they protect themselves from any accountability for failure by setting out in small print an incomprehensible matrix of side-effects, so that the cure can never actually be distinguished from the initial disease condition.

Something over a century ago, the councilors of the then-frontier town of Grahamstown found themselves confronted with a difficult technological problem. The townspeople wanted an investment in streetlighting, in addition to the existing oil-burning lights in the High Street. They had to choose between gas lighting, and electricity. After a careful review, the city fathers opted to install a network of piped coal-gas lamps, in view of the evident unreliability and expense of the new electricity alternative.

In retrospect, we in Cape Town might agree that this was wise, and although a power-station was eventually built in Grahamstown, today it is used as the home of a variety of craft and cottage industry activities. I simply want to illustrate that choices have to be made on the basis of incomplete information, and over time our knowledge and expectations may change considerably. It is right that there should be great excitement about new technological opportunities; it is equally right that we should be cautious about what works and what doesn’t, what to do and what not to do, and where we might think we are headed. There are usually several plausible answers. And there are always several counter-proposals. The only unambiguously good thing is the opportunity for debate, and so your conference is most welcome.

Let me share with you some thoughts on how the global context and the policy challenges we face relate to our mobilization of advances in biotechnology in pursuit of social and economic development.

• There is first the dilemma that what is good for multinational companies, and maybe even for economic growth and prosperity, is not necessarily good for poor countries and marginalized people. Nancy Birdsall sets it out well in a recent paper of the Centre for Global Development, titled “Stormy Days on an Open Field”. Greater openness in the international economy – for example, greater mobility across borders of technological innovation or advances in pharmacology – may be good for the world and good for growth and development in general, but may be bad for the poor in particular countries or for workers in particular industries. This is partly about how the global economy operates. The relevant economic literature allows for asymmetric gains and losses of technological change, and postulates a series of compensating adjustments and seamless product and labour market movements. But the world isn’t like that. The poor are unlikely to be compensated, and their livelihoods are slow to adjust. And so the great advances in agricultural productivity associated with “green revolution” innovations, for example, brought rising prosperity aggregated across the global economy, but misery and collapsing incomes for some communities in some parts of the world. Amartya Sen’s work on poverty and famines brought the horrifying truth home most starkly – famines arise as a result of increases in productivity, because the resulting market glut causes cash incomes of peasant households to shrink.

• Secondly, there is the huge and interesting question of reconciling the public good and private interests in the domain of research and technology. Protection of intellectual property is a proper part of the incentive structure in the market economy, but the rules inevitably involve difficult judgments and compromises. How can public policy intervene to promote research and technology development focused on the needs of the poor rather than the consumption habits of the rich? Is this a question about industrial policy, higher education and research funding, the state as investor in targeted sectors, or perhaps tax breaks or regulatory measures, purchaser of products or sponsor of international partnerships? Options for international collaboration to commit funding, in advance, to successful vaccine or lower-cost drug therapies, have recently come under the spotlight as part of a reconsideration of how “global public goods” should be supported. The idea is to encourage research and innovation by an up-front “promise to pay” – in this way partially overcoming the bias against research focused on the needs of the poor. Achieving cooperative solutions of this kind internationally is painfully slow, but hugely important.

• Candidates clearly would include major causes of mortality such as HIV, malaria and TB, and perhaps also significant public health and education investments. But building effective partnerships between governments and the private sector requires a strong foundation of trust, and trust in turn depends on the rule of law, and legal systems vary across national boundaries. So there are formidable institutional difficulties. An advance promise to pay is also only feasible when a “successful product” – can be both specified precisely and priced in advance. And in at least some epidemiological challenges, this is complicated because success will only be measurable many years into the future.

• Of course, for countries with their own pharmaceutical production capacity, there is the national industrial interest to take into account. We might agree that a global price control regime should be applied to an essential drug list, until our own manufacturer patents an exciting new product. We might agree on stringent phyto-sanitary regulations until we find they are used to keep our agricultural products out of European markets. We might be comfortable with genetically engineered food crops until we find we don’t like the indemnity clauses in the technology company’s product license agreements. The unhappy reality is that it is easy to describe the benefits of global cooperation, but there are non-trivial practical barriers to overcome.

• This does not mean we have to despair and go back to protectionism and self-interest, it means the issues have to be examined, separated and dealt with systematically. One area in which global and regional cooperation could make more progress, I believe, is in the technical and scientific work that underpins product licensing and regulation. Cooperation between African regulatory authorities and standards bodies is clearly necessary, partly because there are spillover effects from one region or district to another. Avian flu illustrates the point on a potentially global scale, but there are many more instances in which there are clear social and health benefits from shared knowledge, common standards and compatible regulatory arrangements between neighbouring countries. These issues do not receive anything like the attention they deserve, as scientific and research challenges, as international governance issues or even as corporate business concerns.

• The ethical issues here are not just about the social and human costs of disease and benefits of more effective therapies, but they relate to principles of corporate governance, public finance, business strategy and the appropriate limits of national sovereignty. Perhaps this signals a degree of caution about how rapidly we can make progress in translating new knowledge into social and commercial applications, but it surely is also simply an invitation to give the ethical dimension of biotechnology and its uses the intellectual respect it deserves.

• To produce a larger output of scientific patents, or pharmaceutical innovations
• To grow more biotechnology firms, and provide better access to venture capital
• To build stronger partnerships with major international research bodies and companies
• To improve our pharmaceutical trade balance (DTI says a third of our national trade deficit comes from pharmaceuticals - $US 1.4 billion per annum)
• To attract and retain professional and skilled expertise in these fields.
  

•  A number of leading scientists and researchers
• Strong linkages with both international research centres and multinational companies
• An established Biotechnology strategy, established public funding programmes for research and a new tax incentive for R&D investments
• Clear public policy priorities – we need to address the key health problems of the region: HIV, TB, malaria
• Policies and programmes of the Department of Trade and Industry are supportive, and there is a renewed focus on the particular needs of this industry
• Strong respect for patent law. For example through the past three years of setting up the national AIDS treatment programme, we have not taken recourse to the single compulsory licensing option. We bought Effavirens from the innovator company through a large tender and they have recently voluntarily agreed to issue a license.
• 3-4 years experience of setting up some of the institutions and funds to support biotechnology.
• A large public sector market which can potentially purchase biotech products.