The current coronavirus pandemic has once again brought to the fore the fundamental question of how markets solve for what some are calling a ‘Black Swan’ event. Market signals are unable to capture the catastrophic risk of such rare and unpredictable happenings. When such events do occur, as they would, given enough time, the result is massive destruction, both social and economic. 

While there is some controversy around whether the current crisis is really a black swan event, with experts pointing to frequent similar coronavirus outbreaks over the last few decades, in any case, it would seem that markets have failed to provide a solution, unable to marshal the needed resources. On a closer look, it seems such events have other important characteristics, somewhat uncorrelated to the black swan aspect, which make them unlikely candidates for a market solution anyway.

One of these is that while such events are devastating, they do not create a sustained long-term demand for a solution, since they usually run their course in a matter of weeks or months. Then, there is the problem of the kind of investments needed to develop solutions, either preventive or curative, which entail massive research and development (R&D) costs to be sunk for many long years, usually spanning decades, with a high risk of failure. All these characteristics add up quickly to make such problems an extremely poor business case for private investments; essentially, creating a sort of market failure. They are not even good candidates for insurance, since the risks are systemic and mostly result in loss of lives, leaving assets unharmed. 

Irrespective, most people would today agree that a sustainable strategy needs to be devised to prevent and mitigate such epidemics, especially now that the catastrophic costs are a lived experience for about half the world’s population currently in lockdown of some sort or the other. One tried and tested option is for the public sector to step in and collaborate with the private sector to provide the needed funding and support.

Such an approach would involve public-private partnerships (PPP) to provide long-term funding for researchers and the scale of production needed to tackle such pandemics. Given the systemic risk of such epidemics in our highly interconnected world, as is being witnessed in the current crisis, this would have to be achieved through international pooling of resources. 

Once a robust mechanism for such funding has been put in place, it is of utmost importance to ensure that research projects are able to derive maximum mileage from these funds. This is where a low-cost, high-skill research destination like India takes center stage. India is rapidly emerging as the R&D hub of the world. The great Stanley Plotkin, who had developed the rubella vaccine in 1964, recently remarked in an interview about the impressive advent of Indian vaccine companies.  

For example, the Pune-based Serum Institute of India, has collaborated with leading US companies to develop a COVID-19 vaccine. In a recent interview, its CEO Adar Poonawalla claimed to have made surprisingly good progress and expected entering animal studies by the end of April and go to human trials by the end of the year, with a possible launch by early 2021, if everything goes well. 

Once a vaccine has been discovered, approved and licensed, the next challenge is of manufacturing at scale with low costs. Here again, India has a substantial cost and resource advantage. As of 2017, India manufactured more than 60% of the world’s vaccines. The Serum Institute of India is currently the world’s largest vaccine manufacturer. As per the institute, vaccines manufactured by Indian companies are usually sold for half the price or even less compared with the vaccines produced by manufacturers from overseas and imported into India. 

While public-private partnership is an important lever, the partnership should not end with the development and production of a successful vaccine. It would be important to ensure affordability for mass immunization. Given the ethical considerations and the public investments and support involved, private corporations should minimize the profit imperative and instead aim for eradication and treatments for such diseases. 

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