From Globalization to Gollum

My precious vaccine

If the coronavirus has, at a very broad level, set in train the post-globalization era, the search for a vaccine reveals the detail of what that world will look like.

A vaccine for a virus that is global should in many respects be a hopeful project, but this hope is also undercut by cynicism. Consider the events of the last week.

On Sunday night last, the Chair of the Federal Reserve declared that apart from the financial stimulus enacted by the authorities the best way out of the crisis was through the discovery of a Covid-19 vaccine.

Then, on Monday details emerged of a positive vaccine trial from biotech company Moderna based on a very small group of people. This news led to a more than 20% spike in the company’s share price. Once the market closed, Moderna surprised investors with a rights issue, and it was announced that the individual heading the US’s Warp Speed vaccine program, would sell his USD 12mn holding in the company (he was a non-executive director). Other executives then also sold shares.

While some doubts have been cast on the early Moderna trial, the company will now move to a much bigger vaccine testing group (1,000 plus people) in the summer, with first results due late summer. If all goes well, an approved vaccine could be ready by the start of next year, and this then has to be mass produced and distributed (vaccinating the world will take three years at least).

If the case of Moderna demonstrates the uneasy intersection of science, ethics and money, the broader vaccine race will become even more complex.

Ideally, given the death toll, huge economic damage and societal disruption the coronavirus has caused, one could imagine a unified, global approach to constructing a pipeline (from research, testing, approval to manufacture and distribution) that would produce a ‘world’ vaccine. Previous pandemics such as Ebola, and HIV, demonstrate how collaboration can work and there are already provisions in the WTO framework that allow differentiated drug pricing between richer and poorer countries.

Instead, the quest for a vaccine has more resembled the Lord of the Rings, with the potential vaccine or ‘ring’ being guarded jealously. In a world that seems intent on replacing globalization with Gollum, the scramble for a vaccine (there are over 70 such ‘quests’ with Oxford University seemingly in the lead) will tell us much about how countries and companies organize themselves in the new world order.

The first is that, even in grave circumstances, collaboration between powerful countries and regions is limited. The US has alleged that China has tried to hack American vaccine researchers, and for China’s leader the prospect of a Chinese made, globally distributed vaccine has obvious geopolitical capital. The fissures undercutting this lack of collaboration are also undercutting two of the institutions of the 20th century, the World Health Organisation and the World Trade Organisation, both of which have been poorly led.

The second trend is that the relationship between innovation and finance will need to be rethought and will in many countries incorporate the state as a player.  The capture of technological innovation by a handful of large tech and private equity and venture capital firms in both the US and China is producing inequitable outcomes, such as the absurd coincidence of near twenty percent unemployment in the US and a near record high level in the Nasdaq stock index. Corporate tax rises and regulatory pruning back of mega companies may be a trend of the future.

Relatedly, with globalization given way to a more geopolitically nervous multipolar world, governments will increasingly insert themselves into the innovation process. France was once derided for its ‘strategic yogurt policy’ but governments like it will increasingly regard cyber security, artificial intelligence, genetic editing and so on, as strategic industries where they need to be involved as core players.

In cases where the state has a competence, such as defense, infrastructure or aerospace related innovation, its involvement can be effective, and obviously much less so where it has little expertise to offer.  Clumsy redirection of supply chains and orchestration of drug production are generally not in the competencies of states and they should resist the urge to over control here.

In a world where economists debate whether we will see more deflation or higher inflation in the future, the effect of the two above trends will be to make economies potentially more fractioned and less effective.

To this end, the danger is that states that are over eager to control the innovation process, combined with an intense concentration in the ownership of the benefits of innovation (big tech, venture capital) creates a world where the benefits of innovation are lost to the broader economy and society. Both parties, like Gollum in Lord of the Rings regard innovation as too ‘precious’.

In that regard, the next phase in this debate should focus on finance and corporate governance – tax systems and ownership structures that encourage and spread the benefits of innovation.

Have a great week ahead,

Mike

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