"The consequences ... are simply staggering"

Knowledge, public health and the wealth of nations.

Andrew Leonard
May 23, 2006 10:29PM (UTC)

In 1985, the influential economic theorist Robert Lucas gave a lecture at Cambridge University: "On the Mechanics of Economic Development." He compared the growth rates of various nations over the past 20 years -- Japan, 7.1 percent, Egypt, 3.4, U.S., 2.3, India 1.4.

"I do not see how one can look at figures like these without seeing them as representing possibilities," says Lucas. "Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia's or Egypt's? If so, what exactly? If not, what is it about 'the nature of India' that makes it so? The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else."


The anecdote comes from David Warsh's astonishingly good history of the economics profession and growth theory, "Knowledge and the Wealth of Nations: A Story of Economic Discovery." You'll be hearing more about this book in future installments of How the World Works, including an interview with the author. But for now, all you need to know is that, after reading that passage on page 238, I dog-eared the page and thought to myself: that is what How the World Works is about. Why are some countries rich and some poor, and what can we do about it? (I was amused to learn, a few pages later, that the last sentence of the quote had become, in the world of economics, "the most frequently quoted passage since Keynes wrote that 'the ideas of economists and political philosophers ... are more powerful than is commonly understood.'")

From the perspective of 2006, perhaps the most intriguing aspect of that quote is that India did take measures that led to extraordinary economic growth. That's not to say, naturally, that the question of how best to achieve such growth is settled. The Washington Consensus hard-core free traders will argue that deregulation, privatization, and reliance on free markets were the key. There is little doubt that a new openness to the global economy played a large role, but there are also plenty of development economists who will argue that India (and, importantly, China) are both examples of nations that opened up to the global economy while at the same time carefully protecting portions of their economy, and supporting key strategic sectors with government incentives. The exploration of that interplay between protection and openness, between government intervention and unrestrained markets, is the red meat of this blog.

As regular readers might guess, one of the most controversial intersection points of these concerns is that point where public health concerns and intellectual property laws clash. This theme resurfaced again this morning, when I read an IPWatch report on the opening of the current World Health Organization annual meeting that trumpeted the brazen headline, "U.S. Declares Opposition To WHO R&D Resolution."

The resolution in question is a proposal pushed by Brazil and Kenya to address the problem that the pharmaceutical industry does not devote enough resources to developing drugs for diseases that afflict poor people in developing nations. The U.S., and Big Pharma, take the position that "intellectual property creates incentives." Health officials in the developing world argue that the strongest IP laws possible still won't encourage pharmaceutical companies to develop drugs that poor people in Kenya can afford. There's no profit to be made.

U.S. officials hew carefully to a line forcefully espoused by corporate-funded think tanks like the International Policy Network, which organized a panel discussion on this very topic on May 21, at which "the message was that the main problem for access to medicines is poor infrastructure in developing countries." How to solve that? More free trade! Remove tariffs and lower taxes!

What's the connection between economic growth and concerns about public health? As I was reading Warsh's account of how economic theories on growth have evolved over time, it occurred to me that, even though there are, of course, ideological differences among academic economists that influence the arguments that they make and the direction of their research, there is still, as argued by Warsh, a scientific process of knowledge accumulation and incrementally greater understanding -- of progress no less. But when we leave academia, and move into the nitty-gritty world of free trade agreements and deliberations in U.N. bodies, we are in a less pure arena, a place where arguments are bought and paid for. There is little progress to be discovered in the countless forums where "stakeholders" from industry battle against their opponents. There is little progress to be uncovered when the arguments of U.S. government officials match, talking point for talking point, with the arguments of corporate propagandists.


The clash over public health is simply the starkest illustration of the struggle. A government's proper role is to mediate between conflicting interests, not to represent one particular interest against all others. When we see how obvious the alignment between private interests and government policy is in the case of pharmaceuticals, it casts doubt on every other position taken by representatives of the U.S. government as they approach the challenges of the global economy.

An underlying theme of Warsh's "Knowledge and the Wealth of Nations" is that there is room for governments to play a role in nurturing growth. It is a subtle argument, focusing specifically on the question of how to properly ensure that a given society accumulates and distributes "knowledge." Clearly, how a society sets its intellectual property rules is of critical importance -- where is the sweet spot between no rules at all and rules so restrictive that monopolistic behavior crushes all competition? I'm not sure yet exactly where the central figure in Warsh's tale, economist Paul Romer, comes down on this question -- but I suspect it is not in the immediate vicinity of the International Policy Network.

Andrew Leonard


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