As epidemics ravage the third world, Fabi¨¤ Gumbau-Brisa reports on the issues facing this week's G8 summit.

Each year, just three diseases kill 5.4 million people worldwide. Malaria kills at least 1 million, mainly in developing countries, with 90 per cent of deaths in Africa. Tuberculosis causes 1.9 million deaths a year, almost all of them in developing countries, where resistance to the five major anti-tubercular drugs is spreading. Some 400,000 of the tuberculosis victims are also HIV positive. The yearly death toll for HIV/Aids is almost 2.5 million, with about 1.8 million concentrated in sub-Saharan Africa.

Worldwide, 33 million people are currently infected with HIV/Aids: 30 million of them live in developing countries, 22 million in Africa. About 70 per cent of the almost 6 million annual infections occur in sub-Saharan Africa.

At last year's G8 Summit in Okinawa, the world's most influential states decided to confront the situation by setting some ambitious targets. By 2010, they committed to reducing the number of HIV-infected people by 25 per cent, cutting the number of tuberculosis deaths and cases by 50 per cent and reducing the burden of malaria-related disease by 50 per cent. This year's summit in Genoa (July 20-22) will give the G8 members an opportunity to review progress in what is clearly a daunting task.

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But these epidemics are not restricted to the developing world. The evolution of tuberculosis cases in the United States since the 1980s shows that the spread of diseases in developing countries poses a significant health threat to richer countries. Some 22 per cent of US tuberculosis patients in 1986 and 39 per cent in 1997 were foreign-born. It is also conceivable that these epidemics could become a cause of unrest, damaging rich countries' economic and political interests. This could help to explain rich countries' willingness to address the issues.

Several governments and institutions, including the Gates Foundation, the Rockefeller Foundation, UNAids, the Global Alliance for Vaccines and Immunisation, and the International Aids Vaccine Initiative, are already taking action. Moreover, the US Congress is considering the introduction of substantial tax credits on sales of approved vaccines for infectious diseases responsible for more than 1 million annual deaths.

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Britain's chancellor of the exchequer Gordon Brown remarked in February on the need for additional efforts to fight the spread of HIV/Aids, malaria and tuberculosis, outlining a series of policies designed to achieve that goal. A recent report by the Performance and Innovation Unit of the Cabinet Office makes the economic argument for taking action.

Based on a cost-effectiveness analysis, Tackling the Diseases of Poverty, clearly shows that, if the Okinawa targets are to be achieved, we need better products, such as vaccines that are targeted specifically at the needs of the poor. The report recommends the creation of a Global Health Fund divided into two sub-funds. The first would purchase existing health products such as drugs, condoms and bed nets. The second would be solely aimed at purchasing new products designed for poor countries - it is not clear, for example, that a vaccine against HIV strains common in the US and Europe would work against the most common African strain.

There is little financial incentive for drugs companies to generate products for developing countries, hence the scarcity of drugs to treat their diseases. The most efficient way to provide incentives would be to reward innovation directly. The fund would guarantee sufficient sales of new products, along the lines of the purchase pre-commitment plan outlined by Harvard University's Michael Kremer, thereby increasing the incentives for research into diseases of the poor.

The reason poor countries do not represent a sufficient market for pharmaceuticals companies is not only because they cannot afford to pay much for drugs or vaccines. They also lack adequate nutrition, education and infrastructures. If these were the only reasons, it would be difficult (and cynical) to privilege markets for pharmaceuticals over markets for these other factors. But there are other reasons that have been used to justify market intervention in the case of vaccines. First, people's willingness to pay for immunisation does not fully reflect its benefits to society. Immunisation does not just protect those being vaccinated, but also untold others who might come into contact with them.

Second, it is easier for people to assess the gains from treating a disease than from preventing it. Probability can be used to estimate the gains from immunisation, but, while the world's poor are not versed in this language, their willingness to pay for prevention will not fully take into account its benefits.

Governments, international institutions and non-governmental organisations to some extent lessen the scale of these problems through their role as major purchasers of health products for the poor. But there are other hurdles. First, fighting worldwide epidemics is a global public good. Finding a vaccine for HIV/Aids might save many lives in the UK, but would also benefit other countries. This means that there are few incentives for governments to take unilateral action. Second, innovation involves huge research and development costs. There needs to be the prospect of a reward.

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The system of patents, trademarks and similar arrangements helps to protect innovators, providing a degree of market exclusivity so that they can recoup these costs. But institutional purchasers, the potential buyers of new health products for poor countries, have for a long time been trying to push down prices. As a result, innovators fear they will lose money if they invest in new products for the poor. According to some, public research could be the solution, but this has a chequered history, USAid's malaria vaccine programme in the 1980s being but one embarrassing example.

Finally, socio-political constraints on charging different prices in different markets might also have a negative effect on research incentives. Recent experience with drugs for treating HIV/Aids provides an excellent example. The price reductions for antiretroviral drugs obtained by several African countries have served to fuel attacks on Aids drugs prices in rich countries, especially the US.

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This criticism might have increased the risk factors associated with investment in new products to fight HIV/Aids, eroding further incentives for new research. But Aids affects developing countries disproportionately, although rich countries' interest groups appear not to recognise this in their drive for "equal" treatment, a battle that they can at best win only on a temporary basis - since the economics of permanently reducing prices across the globe do not add up.

A purchase pre-commitment for future products would partially get around those problems by committing to purchase a predetermined number of units of a new health product at a preannounced price, for later distribution in developing countries. The price would depend on the product's proven effectiveness in tests in these countries.

Nevertheless, events such as the apparent collapse of the Kyoto protocol cast doubt on the feasibility of international coordinated action for the global good. The Kyoto case has lessons for any future international agreements to promote global health: either the international community enters into a binding commitment to reward and promote research into the diseases of poor countries, or the Okinawa targets will not be met. The only hope seems to be the creation of better products to combat communicable diseases. That is dependent on the commitments at the Genoa summit being binding.

We should not forget that, in addition to resources, innovation needs time. The shorter the period we have for finding new products, the higher the costs. The estimate for the cost to rich countries of reaching the Okinawa targets is more than ?20 billion.

If the Genoa summit closes without any clear commitment on this front or if the anti-globalisation protesters distract from the meat of the debate and allow states off the hook, the world might have to wait another year. This will have a knock-on effect on the research bill. And, after such a costly wait, might there not then be pressure to abandon the targets altogether?

Fabi¨¤ Gumbau-Brisa is a PhD candidate in the department of economics at Harvard University.

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