Vaccine deregulation is bad economics and sinister politics

The health infrastructure in India has collapsed under the weight of the second wave of the COVID pandemic. In response, the Union government has deregulated the vaccination programme, in effect recusing itself from the obligation of managing the pandemic, leaving its resolution to the market. This reeks of not only bad economics that will further aggravate this man-made disaster, but also of sinister politics that shifts the onus of any further failure to manage this crisis from the Centre to the States and the individualised and impersonal forces of the market.

Why is it bad economics?

There is a stark contradiction between the operative logic of the market and the necessary policy response to a public health crisis such as COVID. Vaccines affordable to states and free for the public are necessary, not as some magnanimous handout, but as the only possible way to overcome this pandemic.

The stylised argument in favour of deregulation is that freeing of the pricing mechanism will allow vaccine companies to raise prices to match people’s willingness to pay. The argument is that the extra profits would allow for augmenting production, which in turn (and time) will allow for production on an extended scale that can meet the vaccine needs to tide over the pandemic.

This argument is fatally flawed. Even if one argues that this mechanism works in the usual course — and there are enough compelling reasons to suggest otherwise — it is nonetheless patently unsuitable as a policy response in a pandemic. The reason is rather straightforward. What in the usual course are optimal market outcomes, in the case of a public health crisis, are likely to undermine its ultimate objective, and at substantive costs to society at large.

Regressive redistribution

The deregulation of procurement and pricing will almost certainly lead to an escalation in prices in the short run. There are two facilitating channels. First, there is monopolistic price setting by the firms, which means that all households reliant on the private market will become price-takers. Second, prices would also escalate because of the competitive bidding by States for the vaccines.

Given that the supply of vaccines in the short run is inelastic, a rise in prices will not result in adjustments to quantities purchased. In other words, the same quantity of vaccines currently produced at full capacity operations will fetch higher profits for the manufacturer, depending solely on what price he sets for the vaccine.

However, the objective of vaccine makers is not only to fetch higher profits, but the highest possible profits, which means clearing all quantity produced at the highest possible price for each dose. This inevitably runs into the problem of poverty and inequality in India. At any “reasonable” single pricing point, there will always be people “willing” and “able” to pay more, and many more people unable to pay as much.

Enter differential pricing based on the likely purchasing power (and compelling need) of the purchaser. Using different price slabs for different buyers, the vaccine-maker can ensure maximum profit squeeze for each dose of vaccine produced.

Therefore, in the short run, the number of doses administered, the pace of vaccination, will remain the same as before, constrained as they are by productive capacity. However, there will be a shift away from a universal distribution facilitated by government regulated distribution at present, to one that favours the richer States and towards those that can afford at least the lowest slab available to them. This would result in windfall profits for the vaccine makers.

In the long run, we are all dead

So quipped Keynes, words hauntingly prescient of our circumstance. Time is an important constraint in dealing with a fast-evolving pandemic. As is already evidenced, the sheer scale of the pandemic turns the chance of mutations in the genetic makeup of the virus into a necessity. Combined with the relatively short period of immunity retention from COVID, not only the spread of the vaccination drive, but also its pace becomes vital.

This means there is a need for rapid expansion of productive capacity and mass vaccination now, not only to save lives in the present, but also to snuff possibilities of further mutation from which even the vaccinated may not be wholly immune. The Narendra Modi Government seems to believe this is possible under the current system. It is badly mistaken in believing so.

On the supply side, there are limits to augmenting productive capacity of individual corporations in the time period critical to containing the pandemic. Even at peak envisaged capacity at individual plants of patent-holding corporations, the output will be nowhere near adequate to vaccinate the population share to attain herd immunity within this requisite time period. Meanwhile, facilities able to ramp-up production on war footing cannot do so because of patent restrictions, ironically for vaccines that were researched and developed almost entirely at public cost.

On the demand side, even nominal pricing of vaccines in the absence of universal state provisions will price out a consequential part of the population given its socio-economic make-up. This will create a mismatch between the effective demand (backed by purchasing power) and latent demand (without adequate purchasing power), or unserviced demand, exactly at the “equilibrium”, or optimal outcome of supply and demand. In other words, scarcity relative to needs rather than effective demand is not only commensurate with but is essential in a market economy.

The consequences of a vaccine divide

This phenomenon has long been witnessed in servicing of elementary necessities such as food, for which only the government intervention of PDS has had any substantive effect. In such contexts, the market outcome of hunger and want can, and has, been overlooked, primarily because its costs are imposed on the poorest without any substantive effect on the more opulent population. This is not the case for a pandemic.

Any failure to a timely supply of vaccines with universal uptake will leave enough time and spread for the virus to mutate, flourish, and spread, more aggressively, and increasingly resilient to both natural and induced immunity.

Given the nature of the crisis, its costs are not only borne by those infected, in terms of medicines and hospital bills, but also by society at large on account of the economic contraction that follows. This elementary understanding of the nature of a public health crisis and limitations of the market mechanisms in dealing with them are well understood; they are writ large on policy measures adopted globally by most rich and many poor countries alike.

In short, the new vaccination policy is set up for failure in its social objective by design, not despite the free market but because of it. It can and will ensure monopoly profits for vaccine makers, and it will do so by undermining India’s management of the contagion. The self-interest and economic ideology of these sections of capital and of subservient economists will continue to advocate this policy despite its impending failure-by-design.

Also read: COVID effect on jobs to be felt in 2021 as well: UN

Abrogating responsibilities

But this raises the question — why would a democratically elected government, responsive to majoritarian opinion, cave to this path, if indeed failure when its devastating human cost is the most likely outcome?

The immediate reason is that a proactive response shifts societal cost of managing the pandemic onto the richest, who are the central government’s core interest group. There are three broad sources of financing a universal vaccination drive by the Union Government, which in practice would have to be combined in varying degrees.

First, price-capping of vaccines, which is in effect a finely calibrated tax that socialises what would otherwise be rentier profits, profits on account of monopolies, by vaccine makers. Second, progressive tax on the richest earners, high net worth individuals and corporations, in order to pay for vaccine purchase by the government, at controlled or market-determined prices. Third, government borrowing, either serviced by future claims on government revenue streams and/or liquidation of public assets. All but the third option — foreclosed on account of the tremendous “fiscal slippage” relative to commitments of the Fiscal Responsibility and Budgetary Management Act — are redistributive in nature, which shift the onus of the costs of managing the pandemic on to the richest.

The neoliberal orthodoxy offers theoretical rationale — though no empirical substantiation — against adoption of these redistributive measures. They purportedly dampen the growth impulses that would otherwise pull the Indian economy up by its own bootstraps.

The Government’s commitment to a vague defined atmanirbhar philosophy has effectively led to the abrogation of its social obligation. The onus to handle the fallout of the pandemic has thus fallen on the state governments and individuals.

While states with working people assertion like Kerala or competitive populist pressures like Maharashtra have already indicated strong intent to vaccinate their population by any means necessary, states with neither the political will nor the coffers to pay for it are likely to fall behind. Though the acts of these individual state governments can curtail the worst of the suffering for their own people, the limited measures under their command restricts their ability to cushion the impact of the worsening effects of this man-made disaster.

For those held up at point blank by the invisible hand of the Centre and fallen through the cracks of the fragmented response of the States, the only recourse is a lonely, individual struggle with the pandemic, triggered by a conscious and sinister political evasion.

Also read: WTO can redeem itself by ensuring affordable COVID care

Invisibilising state failure

A disaster situation tends to selectively reconfigure the relationship between the neoliberal state and its subjects. In the period following economic liberalisation, the state gradually retreated from its role as patron of social and economic provisioning and as hedge against everyday uncertainty. In its place, the market became the primary site of outcomes, of riches and poverty.

The systematic failure of the market to adequately provide jobs and income to working classes, “disasters” that occur at the level of class but experienced as individuals, are therefore increasingly disassociated from the state. These tend to be conceived as inherent to society or as individual faults. The failure of the state is systematically invisibilised because provisioning is no longer perceived to be one of the roles and obligations of the state.

Disasters experienced collectively by society at large are a break from this. There is public expectation of the state’s role as the first line of defence and relief, the success and failure in managing these disasters become an important assessment of governments and therefore of electoral outcomes.

The spectacular failure of the Indian state in managing the pandemic – not only because of the failure in response but also the precondition of an underfunded public health system — leave little space or possibility of resounding success. The government, therefore, finds itself backed into a corner.

Its previous economic mismanagement, from GST and demonetisation to the livelihood crisis from last year, have all been absolved in the larger public perception. So far the “greater good” of Hindutva and the apparently shining promise of a Hindu Rashtra have rationalised  the undermining of economic self-interest of large sections of the people, particularly in the ongoing crisis. However, as the scale of the current tragedy mounts, the intimate and personal losses felt by people, and the flagrant serving of corporate interests at considerable to the people, threaten to breed a collective anxiety and hopelessness. Sullenness then can well turn into disillusionment.

This marketisation of misery is a last-ditch attempt by the Modi government to exonerate itself in public perception from its monumental failure. Through deregulation, people are left to fend for themselves, first mediated through their state governments, and finally as individuals. The consequent failure to contain the pandemic – more or less assured given the policy response – can then easily be attributed to the faults and incompetency of opposition states, and in an act of utter depravity, to the victims of the pandemic.

This is the silent, sinister impulse of atmanibharta in times of a complete breakdown of the social contract foundational to modern society. The brutalisation of human life, the stripping of its sanctity earlier reserved only for the “others”, is now democratised for one and all. In short, a Malthusian solution is being peddled by the Indian state without a whiff of a moral dilemma.

(The writer is an economist working on issues of development)