The developed world is doing extremely well when it comes to vaccinating its population against COVID-19. The European Union had over 46% of its citizens fully vaccinated, the USA had 48% and the UK had 55%. On the other hand, lower income countries are doing much much worse. Low income countries have had less than 5% of their population vaccinated, while middle income countries have had only 10% of their population fully vaccinated.
International efforts aren’t helping very much either. According to the IMF (page 4), the international COVAX alliance has committed to vaccine doses that cover only 20% of the population of developing countries. The same report expects that even by the end of 2022, vaccine rollouts in low income countries will be inadequate. And even then, it's not clear if merely committing to giving the vaccines will mean that citizens of low income countries get their vaccines. As the report notes the amounts needed for vaccination are different from that of vaccines. Storing the vaccines, getting them across a country, and developing the infrastructure to distribute them requires money that less developed countries don’t have. And to add to that, it is not clear if vaccine hesitancy there will discourage them from taking vaccines.
The nightmare scenario
The nightmare scenario is this: due to low vaccination rates in the developing world, the virus mutates and forms a new variant of concern. This is far more transmissible than the latest Delta variant and far more deadly. Vaccines are also less effective against this, perhaps even having efficacy rates of less than 50%. Just like India was hit in May, and Indonesia is being hit now several developing countries drown in a tsunami of infections. Their healthcare systems collapse with millions of people unable to access even basic medical facilities.
In the meantime, the developed world is in euphoria about its supposed return from the pandemic. The new mutated strain breaks the vaccine defenses, and developed country healthcare systems also are overwhelmed (possibly to a lesser extent than those in developing countries, but still high enough to disrupt normal medical services). Developed country governments and electorates who are tired of the continued restrictions respond slowly to the new variants. It leads to belated lockdowns, and a repeat of the scenario of March and April 2020 where the developed world met governments that were caught on the wrong foot (barring perhaps Australia, Singapore, Hong Kong, Taiwan and New Zealand).
I don’t think the situation I describe is likely or even among the worse outcomes possible. It is an extreme event, and one that will require several instances of bad luck. But it is a scenario worth planning for. The likelihood of this event is small, but the costs of it are large. Given that public health officials were unprepared for the initial outbreak in March 2020 and their slow speed at adapting to new information regarding masks and aerosol transmission over the pandemic (evidence for aerosol transmission was present from February 2020 and evidence was building by June, guidance was only updated by the US CDC in October!) it is not likely that they will be better prepared if a new, stronger variant of COVID-19 arises.
Why haven’t we done this?
The Coase theorem says that if there are externalities with low transaction costs, then there will be an efficient outcome. In simple English this means that if one party’s actions have a negative impact on another party’s and they can negotiate compensation without any problems, they will reach an outcome that leads to the negative impact being compensated for.
This can easily be applied to vaccines too. The developed world is harmed by the lack of vaccination in the developing world. If the Coase theorem were to hold, it would mean that they would pay the developing world to get vaccinated. But in practice, as we saw, it isn’t happening. The first explanation is that the transaction costs are too high here. It may be that developed countries can’t negotiate with developing countries to donate vaccines (or money to buy vaccines) but that is unlikely. Consider that the G-7 pledged 870 million vaccine doses, and the Chinese government had donated 32 million doses (and sold 900 million). If they wanted to, they would have donated more. Why didn’t they?
Along with the Coase theorem, you have to consider another thing: public choice. Governments and politicians act in their interests, and those interests are not always altruistic. The major incentive for democracies has been to get their populations vaccinated first and then donate to other countries. On the other hand autocracies which were more focused on building up soft power and donating abroad. And so, China donated and exported almost a billion doses of its COVID vaccine abroad when less than a third of its country has had a first dose of its home developed COVID vaccines.
What can we do?
The first is to scale up production of existing mRNA vaccines. They have been far more effective against the new Delta variant as compared to adenovirus based Astrazeneca vaccine or Sinovac’s CoronaVac. How would this be structured? The best would be developed countries donating unused doses of current mRNA vaccines to countries that cannot afford it. Then, it would be placing orders to vaccine manufacturers on behalf of developing countries. This could be structured as an interest free loan to the developing countries (or outright donations).
Developed country governments would not be as easily willing to donate this, or loan it to low income countries. But the cost of having a new variant that defeats vaccines is extremely high. What they would spend now in the billions would save trillions of dollars worth of jobs later on.
The second is to have an advance market commitment to vaccine makers where countries agree to pay them for the costs of developing vaccines and manufacturing them against new variants. So, vaccine makers will be incentivized towards keeping excess capacity well beyond 2021. Should any new variants develop, it would not take too long until new vaccines were developed and given to people.
Links to interesting articles
On unintended consequences of QE - That money held by commercial banks at central banks is now being used more and more for lending to buy stocks