Civil Society Report on Intellectual Property, Innovation and Health

One of the major atrocities of the 21st century is that millions of individuals lack access to even the most basic medicines. Indeed, the World Health Organisation (WHO) estimates that approximately one-third of the world’s population lacks access to essential medicines. This figure rises to approximately 50 per cent if we focus exclusively on the poorest parts of Africa and Asia. Furthermore, it is estimated that approximately 3 million children die every year because they do not receive basic medicines and treatments.

This week marks the launch of a study entitled Civil Society Report on Intellectual Property, Innovation and Health conducted by a global coalition of 15 civil society groups from thirteen countries, including South Africa’s Free Market Foundation. The Civil Society report was motivated in part by a concern that the WHO's Commission on Intellectual Property, Innovation and Health, would not address these fundamental issues because of concerns about the response of member governments.

The coalition's research finds that reduced access in many parts of Africa and Asia are due to a range of harmful government policies including: weak health infrastructure; taxes and tariffs on medicines; price controls; bureaucratic drug registration requirements; and regulations that prevent the formation of health insurance markets.

For instance, consider the case of South Africa. The South African drug regulator, the Medicines Control Council (MCC), is notoriously inefficient and tardy with its approval process of new drugs. On average, drugs that have already been registered for use in the US, EU and Japan can wait up to 39 months for approval in the South African system.

A further barrier to access in South Africa is Value Added Tax (VAT). The SA government continues to charge VAT on pharmaceuticals despite the fact that the tax is highly regressive since it disproportionately affects the poorest members of society. If the South African government is serious about increasing access to medicines to the poorest of the poor they will waive VAT on all medicines. It should be noted that the VAT received by government on pharmaceuticals comprises a relatively insignificant proportion of the total budget. However, sick people could use the money that would have been spent on VAT for a number of beneficial alternatives, including food.

Finally the report argues, in the long run the only way to increase access to medicines in developing countries is through increasing the wealth of the citizens of a country and this is only possible through economic growth. Long-term wealth creation can pay for the ongoing improvements in water, sanitation, nutrition, living conditions, health, education, and hospitals, which are vital for the control of diseases such as malaria, tuberculosis and HIV/AIDS.

It should be noted that economic growth is most likely to occur on a sustainable basis when societies have economic freedom. The pillars of economic freedom are security of property rights, personal choice, voluntary exchange, freedom to compete and the rule of law.

In the short run, governments can substantially improve access to drugs by removing artificial constraints in the market and bureaucratic hurdles. These obstacles have detrimental knock-on effects on pharmaceutical innovation, because they shrink the demand for medicines. Commercial drug manufactures are unlikely to invest large amounts of capital into a new drug if it is never going to sufficiently penetrate its intended market.

Author: Jasson Urbach is an economist at the Free Market Foundation who contributed to the Civil Society Report. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article/ 28 March 2006 - Policy Bulletin / 28 July 2009


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