Keane Bhatt: Could you begin by outlining the key issues of global poverty and why you consider its existence the gravest violation of human rights?
Thomas Pogge: We live in a world where economic positions – income and wealth – are very unevenly distributed, and this leads to the widespread persistence of poverty. The bottom half of humanity is living in severe poverty; not all of them are malnourished or severely deprived now, but they are extremely vulnerable to even small upsets in their income or in the prices they face of basic necessities, and when something like this happens, they can be thrown off kilter in terms of a disease of a family member or a change in food prices; anything like that can throw them into destitution.
The collective income of all these people – the bottom half – is less than three percent of global household income, and so there is a grotesque maldistribution of income and wealth. The bottom quarter of the human population has only three-quarters of one percent of global household income, about one thirty-second of the average income in the world, whereas the people in the top five percent have nine times the average income. So the ratio between the averages in the top five percent and the bottom quarter is somewhere around 300 to one – a huge inequality that also gives you a sense of how easily poverty could be avoided.
Given the total income and wealth available in the world today, we could easily overcome poverty, which would require raising the share of the bottom half from three to roughly five percent. Unfortunately, the trend is going in the opposite direction. Over the period from 1988 to 2005, the income share of the top five percent has grown by about 3.5 percent of global household income, and the shares of all the other groups have diminished. The greatest relative reduction was in the bottom quarter, which lost about one third of its share of global household income, declining from 1.155 to 0.775 percent, and now is even more marginalized.
The increase in the global average income cannot make up for this one-third loss in its income share that the poorest quarter experienced over a mere 17 years. So poverty persists, essentially, because the people at the bottom – the bottom quarter and also the bottom half – see the gains from the rising global average income wiped out by severe declines in their relative share.
KB: I've read similarly grim figures on income by Branko Milanovic of the World Bank. Isn't the disparity in wealth even more severe? A United Nations report found that the top two percent owns over 50 percent of the world's wealth.
TP: I also rely on Milanovic for my figures; he is doing the best, most independent work on this. And, yes, wealth disparities are indeed even larger, though income inequality matters more on a day-to-day basis. Wealth matters more for political influence.
You asked about the violation of human rights; I see a violation not in the mere fact that people don't have enough to eat and that they are very vulnerable, but I see it in the fact that the economic institutional order of the world is associated with this very persistent poverty and that different institutional arrangements at the supranational level could stop and even reverse the slide towards ever-greater income disparities.
KB: You've written that at a cost of two-thirds of the US military's expenditures, we could largely eradicate poverty. This includes all cases of extreme poverty, which according to the World Bank's scandalously narrow definition, are those who live on $1.25 a day or less. But those who subsist on double that level would also be lifted out of poverty. This $2.50-a-day poverty line is not even typically talked about.
TP: The collective shortfall of the 3.08 billion people (47 percent of world population) who, in 2005, lived below $2.50 per day was $507 billion per annum, which indeed comes to about two-thirds of the present US military budget. This gives us a rough sense of how much the eradication of poverty would cost. But I would stress that we should not think of poverty eradication as a matter of collecting money and giving it to the poor so much as of reforming the global rules that are disadvantaging the poor and making it impossible for them to fend for themselves. Such reforms would bring opportunity costs for the affluent, which might be larger or smaller than the sought $507 billion gain in the incomes of the poor.
KB: Let's talk more in detail about that, because your framework for understanding poverty is distinct from that of other philosophers. Some focus on a moral obligation to devote a great deal of our personal incomes to nongovernmental organizations as a duty to help, because not donating money to saving the lives of the global poor is akin to walking past a child drowning in a pond and not wishing to ruin one's shoes. You, however, say our duty to the poor is to stop actively harming them, which strikes most people as bizarre or counterintuitive. You say that as citizens of rich countries, you and I are responsible for this suffering and we should be working to minimize our role in their impoverishment. Can you explain this controversial position?
TP: Yes, it's certainly controversial and I've been attacked by people on the right end of the spectrum and also from the left for this supposedly much-exaggerated claim. Let me respond by saying, first, that I don't disagree with the duty-to-help argument; it's just an argument that has been made, and made effectively, by Peter Singer, Peter Unger and others. So, rather than add my own voice to the chorus, I have developed a different argument, and this argument – counterintuitive as it may be – really consists of very simple and pretty intuitive steps.
One point is that our global institutional arrangements – the basic ground rules that govern our world economy – are human-made. They don't exist naturally, nor are they God-given. We make these rules, those of the WTO [World Trade Organization] Treaty for instance, which fill tens of thousands of pages. These words have been strung together by human beings and are also interpreted and enforced by human beings.
The second point is that such global institutional design decisions have effects on how much inequality there will be, on how much poverty there will be, and on much else. This is a relatively straightforward point. People are fighting quite hard over these rules – different countries and corporations are trying to influence this rulemaking process. And they wouldn't be fighting so hard over them if they didn't know that the design of these rules makes a difference to their own economic position.
Once you recognize those two pretty undeniable facts – that these rules are made by human beings and that they have distributional effects – you naturally get to the responsibility question.
KB: One thing that's striking is that these points are intuitive, whereas your work mentions the “demanding” task of conceiving “institutional morality.” We're all familiar with assigning blame to an individual for hitting someone's car, but not with assessing the morality of the speed limit or lack of a stoplight. Are you saying that the rules themselves can be moral or immoral?
TP: Yes, social rules are susceptible to moral analysis. This is, again, relatively familiar in the domestic case, where we now condemn slavery as unjust. And when we affirm this judgment, we're not merely saying that all those people who owned slaves were unethical people; they shouldn't have done that. We do believe this, but that's only part of the point. We also believe that the fugitive slave laws were unjust. The state should never have instituted and enforced legal property rights in persons, and should not have been in the business of returning runaway slaves to their “rightful owners.” The whole institution of property in human beings was an unjust social institution and should not have been maintained in existence. It is this sort of thought that I'm appealing to at the supranational level.
Feudalism is another example. It's an economic system where a few people own all the land and the others have no option but to be serfs on such a feudal estate. We now condemn feudalism. We condemn not merely the feudal lords but we condemn the whole structure of rules that sustained feudalism. I am asking people to think similarly about the world economy. We should condemn as unjust a global economic order that leads to ever-increasing economic disparities – provided this effect is foreseeable and provided it is also avoidable through some alternative institutional design that would foreseeably lead to much less poverty and inequality. If I am right to claim that these two provisos are satisfied (something that, of course, can be empirically disputed), then those involved in designing or imposing the existing rules are collectively responsible for the resulting excess deprivations and human rights deficits.
KB: So how is it that you and I are culpable? We didn't design the rules or actively advance this system.
TP: Governments and their hired negotiators are designing these supranational rules and pressing for their adoption and for compliance – and the US government first and foremost. These governments are elected by us, funded by us, acting on our behalf, sensitive to our will, and so, we are not mere bystanders observing the injustice. To be sure, one citizen, or a few, may be powerless if all the rest are determined to benefit from the imposition of unjust supranational rules. But this excuse cannot work for large numbers. Just imagine 10 million US citizens saying in unison: “I am just one powerless citizen. There is nothing I can do to change my government's policies!”
KB: One novel insight of your theory of global justice is that prior to this, at least within mainstream academia, international relations were understood in narrow terms between two featureless agents. The justice of dealings between, say, a country and a corporation would be evaluated in terms of the sanctity of legal contracts. But you say that we must scrutinize this and the international legal framework that gives such negotiations blanket approval. So in analyzing supranational arrangements, you're actually demanding that we also look at domestic power structures too, right?
TP: Yes, indeed, these two are closely connected in both directions. Thus, domestic power structures are shaped in good part by global arrangements. As I analyze in one chapter of my “World Poverty” book, dictatorial regimes often manage to keep themselves in power because they are recognized by foreigners as representing the state and its people, and therefore as entitled to sell the country's natural resources and to borrow money in its people's name. These privileges conferred by foreigners keep autocrats in power despite the fact that they were not elected and do not rule in the interest of the population. Conversely, the domestic power structure – how power is exercised in the United States, for instance – also greatly influences the structure of international institutions. So, for example, the Clinton administration was very influential in shaping the WTO treaty, and, because of the way the US domestic political system works, this meant that corporations could use the US government to wield a huge influence.
KB: It's interesting to apply this to mainstream discussions. Many prominent voices on global poverty, like New York University economist William Easterly or the British newsmagazine The Economist, blame kleptocratic regimes, endemic corruption and “bad government” for poverty's persistence in the third world. But if the ascendance of dictators like Marcos, Suharto, Sese Seko, Sani Abacha or the Duvaliers is incentivized by what you've just described, then the policy-shapers who defend the current global arrangement are implicated in the very ills that they denounce.
TP: Right. If we offer a prize, so to speak, to anyone who manages to bring a country under his physical control – namely, that they can then sell the country's resources and borrow in its name – then it's not surprising that generals or guerrilla movements will want to compete for this prize. But that the prize is there is really not the fault of the insiders. It is the fault of the dominant states and of the system of international law they maintain. They create this disturbing fact that, if only you manage to bring a national territory under your physical control, then you will be recognized worldwide as its legitimate government: entitled to sell its people's natural resources, to borrow and sign treaties in their name, and entitled also to import the weapons you need to keep yourself in power.
KB: Could you talk more about their right to borrow money? So many poor countries' citizens end up paying off odious debt over decades despite having had no say in acquiring it.
TP: The fact that oppressive and corrupt regimes can borrow money in the name of the whole country means that the country's future generations will be weighed down by interest and repayment burdens, even if the money has been frittered away in some frivolous way, embezzled or used for weapons to suppress the country's population. A dramatic example is Rwanda, which borrowed a lot of money. Some of this was used by the Habyarimana government to fund the genocide which killed some 800,000 Tutsi. In the end, the Tutsi resistance managed to overthrow the government – and then the successor government was asked to repay Rwanda's debt! The government complied, lest Rwanda be excluded from future borrowing. This was highlighted in the Organization of African Unity report on the behavior of the various countries and who did what in the Rwanda episode, “Rwanda: The Preventable Genocide,” especially sections 17.30 and 17.33.
KB: Are there any other examples of perverse incentives that arise out of this legal and economic framework?
TP: As for supranational incentives that corrupt and undermine domestic processes, the resource and borrowing privileges are the main ones. But I should also mention our international banking system. It allows banks to accept funds gained from tax evasion and other crimes and thereby facilitates and encourages embezzlement by public officials, especially in developing countries, as well as tax evasion and tax avoidance by multinational corporations. Countries compete in offering easy working conditions to their banks. In many jurisdictions, you can deposit money anonymously with no questions asked, even if the accepting bank knows that it derives from criminal activities. In the United States, for example, there are only two exceptions: banks have to report deposits they suspect to be related to either terrorism or drug trafficking. But if your funds derive from trafficking women and children for sexual exploitation, for example, or from illegal arms trafficking or any other illegal activity, then banks in the US are legally free to accept your money and are not required to report your deposit to the authorities.
KB: But again, globally influential groups provide cover for this. For example, Transparency International puts out a list of the most corrupt states, and it always features easy targets like Chad, Somalia and Sudan. You never see Switzerland in the top ten.
TP: That's right, the massive corruption common in so many developing countries would be quite impossible if Western countries did not provide convenient opportunities to ship ill-gotten funds out of the country. It wouldn't make much sense for a ruler to store in his basement large quantities of stolen cash in his own country's currency. A corrupt ruler wants to be able to keep this money safe and to be able to spend it. And for this, he needs to convert it into a Western currency and store it in a bank abroad, where it can also earn investment returns and be bequeathed to his heirs. Global Financial Integrity estimates that less-developed countries have lost at least $342 billion per annum in this way during the 2000 to 2008 period.
KB: Up until the economic crisis that took place a couple of years back, many people did not look to institutional moral analysis to explain a wide range of phenomena, like why someone might not have a job, for example. Individual responsibility was constantly invoked. In the wake of irrefutably structural events like sudden surges in unemployment and food insecurity that have blighted the lives of even the “virtuous” individuals, do you see this as an opportunity to cultivate or reanimate people's institutional awareness?
TP: Yes, the global financial crisis is a great opportunity to showcase and propagate both causal and moral institutional analysis. The crisis shows major flaws in the way the US financial system is regulated and, more importantly, in our political system, which is essentially a bazaar of legalized bribery where financial institutions can buy themselves the governmental regulations they want, along with the regulators who routinely receive lucrative jobs in the industry whose oversight had formerly been their responsibility, the so-called revolving-door practice.
Perhaps the most egregious example of regulatory capture is the special tax rate for hedge fund managers – they pay federal income taxes of maximally 15 percent on their income even while the maximum income tax rate in all other professions is 35 percent. Why? Because hedge fund managers pay legislators to have this special perk – not cash delivered secretly in brown paper bags, but money given in bright daylight through official channels.
Our Supreme Court has even lifted this practice of buying legislation to the level of a constitutional principle by repeatedly protecting corporate spending for and against political candidates, as well as promises and threats of such spending to bribe and blackmail such candidates, by appeal to the free-speech clause of the First Amendment. I think that many citizens understand how our system works, or rather, fails to work, for structural reasons. But who has the capacity and the incentives to bring change? The banks and other corporations love the system because it allows them to buy legislation that serves their own interests even at the expense of the vast majority of citizens. Incumbent politicians love the system because it allows them to raise millions of dollars toward defending their seats. And the politicians, of course, get to appoint the judges who decide whether our constitutional protection of free speech also protects a bank's purchase of legislation.
The extremely low respect Congress enjoys among the population – Gallup polls record about three times more disapproval than approval – indicates that the citizens understand broadly what's going on. But the lack of a realistic political reform path leads to apathy and the kind of mindless frustration that manifests itself in the Tea Party-style hatred of any and all government.
Institutional analysis is needed also for understanding what goes on in supranational institutional design. This is subject to the same sorts of regulatory capture which then drives the persistence of severe poverty I mentioned earlier. There is at the global level a very small number of actors who can meaningfully weigh in on global institutional design, who are able – through powerful governments and most effectively (for reasons just discussed) through the government of the United States – to exert substantial influence on international negotiations, which are routinely conducted behind closed doors. These large multinational corporations, often acting through their industry lobbies, also exert a powerful influence on the formulation of domestic rules and on their application – but their influence on supranational institutional design is even larger because it faces practically no opposition there.
Drafts of domestic legislation must be published, debated and publicly voted on, which gives ample opportunities to civil society organizations and ordinary citizens to at least understand what's being proposed and to voice and to organize opposition before the decision is made. Though often vastly more important, international agreements are not routinely published in draft form or publicly debated, and civil society organizations and ordinary citizens often learn of important global institutional design decisions only after they have already been finalized and adopted. The only reliable way to be kept informed and to exert timely influence is by lobbying and paying the politicians and their negotiators. On this route, corporations can even initiate whole new institutional regimes, as exemplified by the TRIPS [Trade-Related Aspects of Intellectual Property Rights] agreement, which would not have come into being but for intense efforts by the software, entertainment, pharmaceutical and agribusiness lobbies.
Domestic and supranational regulatory capture leads to two things: on the one hand, to an inequality spiral where the rich get richer because they can influence rulemaking and rule application in their favor; on the other hand, it also leads to instability. This is so because the relatively few organizations capable of influencing supranational rulemaking through the lobbying of major governments have diverse interests. This will, in some cases, lead to compromises. The TRIPS agreement was such a compromise among industries eager to maximize their revenues from intellectual property. But it will also lead to spheres of influence. Each powerful player, or coalition of players, will make concessions in areas where it has relatively less at stake in exchange for other such players making reciprocal concessions in other areas where it has relatively more at stake. Such trades are collectively rational insofar as they get each of the powerful players more of what it wants. But such trades are also dangerous because, insofar as various pieces of supranational regulation are shaped by different sets of players with diverse special interests, the whole international rule-system will become incoherent and therefore vulnerable to crises that will continue to become increasingly severe.
KB: Usually, the people that criticize “crony capitalism” – but only the third-world kind – differ with you on the past 20 to 30 years of economic trends. While you talk about half the world's population being in dire straits, they typically speak in upbeat terms of the progress made in alleviating poverty. You've taken The Economist to task and dismantled its portrayal of recent economic history. Talk about the logical and empirical problems with this view, as you see them.
TP: The World Bank is the monopoly provider of poverty data and, partly due to a leadership change there, the World Bank's reporting has been heavily on the rosy side since about 2000. The Bank's cultivation of an upbeat picture affords a very interesting lesson in statistics and how you can, depending on which numbers you present and how you present them, create a more positive or more negative impression of the evolution of poverty.
The first thing to appreciate here is that the poverty trend is very sensitive to how high or how low the poverty line is fixed. The World Bank uses the outrageously low poverty line of $1.25 per person per day, in US dollars of the year 2005. Adjusting for inflation, this means that a household located in the United States would count as poor in 2010 only if its entire spending in that year had been below $510 per household member. In poorer countries, the amount the Bank deems sufficient to escape poverty is much lower still. This is because the Bank converts US dollars at purchasing power parities, or PPPs, a kind of exchange rate that takes account of the prices of household consumption goods and services in the various countries.
While in 2005, $1.25 was equivalent to about 55 Indian rupees at the going currency exchange rate, for example, the Bank reckons that an Indian family needed only 19.50 Indian rupees per person in 2005 in order to be non-poor. With such an extremely low poverty line, the Bank finds a mild decline in the number of poor people, which puts us on track toward achieving the 27 percent reduction in this number that the first Millennium Development Goal promises for the 1990-2015 period. But the World Bank's own data show that, if they had chosen a more adequate poverty line, perhaps one twice as high at $2.50 per person per day, US dollars of the year 2005 converted at purchasing power parities, then they would have found a slight increase in the number of poor people between 1990 and 2005, the last year for which full data are now available.
So it is essential to the World Bank's upbeat picture that it chooses an extremely low poverty line. As every resident of the US can confirm, you could not have met your basic needs here in 2010 on $1.40 per day or $510 per year.
Let me add that the Bank's entire methodology is flawed insofar as purchasing power parities are not a reasonable method for comparing households across countries or currencies. The reason for this is simply that PPPs are sensitive to the prices of all the commodities, goods and services, that households are consuming worldwide, with each commodity weighted in the calculations according to its share in international household consumption expenditure. So car prices play a large role in calculating PPPs even while they play no role whatsoever in the consumption or consumption needs of the poor. And the prices of rice, bread and beans play a small role in calculating PPPs even though they play a huge role in meeting the consumption needs of the poor. So the World Bank's method of comparing and converting everything at general purchasing power parities into US dollars is highly distorting within an exercise whose purpose it is to determine whether households are or are not capable of meeting their basic consumption needs.
KB: One counterargument they may use is, “Hey, certain goods are relatively cheaper in developing countries, but there are other goods and services that are relatively more expensive, like electronics and fast food. So at the end of the day, it's all a kind of a wash. PPPs are the best we can do to have a general gauge.”
TP: It's certainly not the best they can do, I think, but let me comment on the other point first. One thing that I did recently was to compare the PPPs used by the World Bank – individual household consumption expenditure PPPs – with food PPPs.
KB: And food makes up about 70 percent of poor peoples' consumption.
TP: Indeed. What I found is that in 88 poor countries for which we have data, in each and every one of the 88, the PPP for food shows that poor people can buy less food than you would expect from the PPP that the World Bank is using. The reason for this is obvious on reflection. It has to do with the fact that most foodstuffs are tradable commodities: basic foodstuffs, such as rice, flour and beans, can easily be conveyed across national borders and their prices will therefore roughly mirror the exchange rates among currencies. Thus, if two currencies are exchanging five to one, for example, then you also expect a five to one ratio of the prices of particular foodstuffs. If this price ratio diverged significantly from the exchange rate, then traders would quickly exploit this divergence by buying food where it is cheaper and then exporting it to where it fetches a higher price. This arbitrage activity would quickly move the price ratio back to near the going currency exchange rate.
Now this mechanism works only for commodities that are cheaply tradable across national borders. It does not work for land, for example, where gigantic price differences persist between an acre in Manhattan and an acre in rural Niger. Nor does it work for services: though people could, in principle, cross national borders to reach places where their work is more highly rewarded, they are in fact prevented from doing so. As a result, huge differences also persist in the price of labor, as you can see when you get a haircut in rural India or hire a driver or babysitter in Bolivia. You can easily buy such services at one-fiftieth the price you would pay in London, Hamburg or Manhattan.
The dollar-rupee PPP, as calculated by the World Bank, will come out somewhere between the extremes. As a result, the dollar amount calculated to be equivalent to a poor Indian household's income will not really be equivalent. The dollar amount will buy much more food in the US than its PPP “equivalent” will buy in India. And the rupee amount will buy much more services in India than its PPP “equivalent” will buy in the US. By using general consumption PPPs, the World Bank is, in effect, saying to the poor: “Sure, you cannot buy as much food as the dollar value we attribute to your income would buy in the United States. But then you can buy much more by way of services than you could buy with this PPP equivalent in the United States.” But what consolation is this? The poor do not buy services – they are services, on their luckier days. And the fact that services are very badly paid in India thus cannot in any way make up for the fact that food prices in India are substantially, over 35 percent, higher than the Bank's PPP would suggest.
KB: You say that the way we count the poor grossly underestimates their actual number. Those who believe poverty has declined since 1990 might say, “Look, if the bias is constant, then the income at each percentile of the distribution grew by the same with or without this underestimation. It just turns out that people were even more desperately poor before we started making things fantastic for them.” So there needs to be a successively worse undercounting over time for your point to apply to their assertion of poverty reduction.
TP: It is correct that the point I just made – about how PPPs systematically understate what food costs in poor countries – does not, as such, affect the trend picture. Of course, the effect may get larger or smaller over time, but I have not investigated this.
My claim about the distortion of the trend is backed by the evidence I gave you earlier about how the evolution of the number of poor people in the world is highly sensitive to how high or low you set the international poverty line [IPL]. The lower you set the IPL, the nicer-looking a trend you will find. So the Bank's rosy picture crucially depends on its choice of a low IPL: $1.25 rather than, say, $2.50 per person per day in 2005 US dollars converted at PPPs. I have attacked this IPL as absurdly low by pointing out that it would count a US household in 2010 as poor only if its entire consumption for the year had been under $510 per person.
I have now strengthened my case by adding that the official PPP equivalent of $1.25 in poor countries actually buys a lot less food than $1.25 buys in the US. The Bank will not count as poor an Indian household that, in 2005, could buy as much food, per person per day, as one could get for 93 cents in the US. (In the average poor country, this amount is even lower, about 83 cents.) Now – bearing in mind that, if such a household really spent all its money on food, it would have nothing left for clothing, shelter, medical care, water and other utilities – we can surely conclude that a higher poverty line is needed, one at least twice as high as the one preferred by the Bank. As it happens, the Bank has actually applied its methodology with such a higher poverty line of $2.50 per person per day, in 2005 US dollars converted at PPPs, and found that the number of poor has increased in the 1990 to 2005 period. While this finding gets no air time, the Bank and the media continue to propagate the story that the global elite wishes to be told: that the number of poor has declined by 24 percent in those 15 years.
Another important response should be made to the Panglossians. To make a proper moral appraisal of the prevalence of severe poverty today, we should focus not on comparisons with times past, when the global average income was much lower, but on a comparison with what would be possible in our time, given the current global average income and level of technological and administrative development.
Consider a more distant case where our attachment to the status quo does not cloud our judgment. Think of US slavery in 1850, or the subjection of women. Both of these injustices could have been – and were! – defended by pointing out, quite correctly, that this situation of slaves and women had been improving throughout the preceding century. Slaves, in particular, were worked less hard, beaten and raped less frequently, better fed, and less often ripped apart from their families. So would a celebration of moral progress have been appropriate in 1850? Surely not. Slavery could have been and should have been abolished – then, if not before. And this is what I say about severe poverty. Yes, it's getting better by some measures, but it's also becoming ever more scandalous because it is now so easily avoidable. A few hundred years ago, perhaps 85 or even 90 percent of humanity lived below a standard of living that today only 40 or 45 percent fail to reach. But at that earlier time only part of this poverty could have been eradicated, and this at substantial cost not only to the pleasures of the affluent, but also to their well-being and to human culture. In our time, nearly all severe poverty could be eradicated at a cost to the affluent that is truly trivial. It is perfectly consistent – and also true – to say that the world poverty problem today is smaller (relative to world population) than before and yet also a much graver injustice.
KB: This is crucial, because in the midst of such immense misery, cheerleading for the status quo is only morally justifiable if, as Margaret Thatcher said, “there is no alternative.” But Venezuela, to name just one example, reduced poverty by 44 percent in less than a decade starting in 1999, according to the United Nations. It didn't adhere to prevailing dictates. So the policy prescriptions are much wider, right?
TP: Yes, and I would transfer that to the global level and say that we have the ability now to arrange global economic institutions so that poverty declines to a fraction of what it is now.
KB: People like Princeton philosopher Peter Singer believe that India and China's alarming increases in carbon emissions and environmental degradation must be, in some sense, tolerated. After all, the industrialized world had to pollute like mad to achieve its poverty reductions. But if, as you say, the number of poor in these countries is drastically undercounted and there are better development models that can be envisioned and implemented, there's much less of a reason to accept such high emissions increases. The resulting wealth in those countries has largely accrued into the hands of a relatively small group, while many, if not most, have languished during all these years of eight to nine percent growth. Is it right to say that rapidly increasing emissions for this kind of development is not an attractive tradeoff for the global community?
TP: I agree with that. It's not an attractive tradeoff, and we should, if we can, find ways of incentivizing different paths of development. You may know that in India now the Tata car is becoming all the rage; you can buy it for one lakh – $2000 dollars – it's very, very cheap. So India seems to be going the route that China went a few years ago and that developing countries all over the world seem to want to follow, namely, to rely on these personal vehicles, which is just an irrational way of organizing transport. So I think one big improvement would be if we somehow made it cheaper and easier for developing countries to learn from the sad experience of some of the developed countries, and also from some of the positive experiences we have of building good transportation systems, like high-speed rail. The Chinese are becoming leaders in high-speed rail transport, but they have also added nearly 14 million new passenger cars in 2010.
Another important point is that we have this highly irrational system of incentivizing innovation for clean and green technologies, where we allow the innovator to have a temporary monopoly and then mark up the price of the product or sell licenses at high prices to those who want to use the kind of product that the innovator has invented. This system is collectively irrational because many people, to avoid the inflated prices of still-patented cleaner and greener technologies, opt for some older technology that is much more polluting. What we should do instead is require or at least permit innovators to license their green innovations free of charge in exchange for public payments based on the impact this innovation has on the environment – emissions averted or something of this sort.
KB: This touches on some practical engagement and policies. The Health Impact Fund (HIF) is an analogue to what you've just described. What is it and what are some of its general features?
TP: The Health Impact Fund is based on the same idea, namely that it is irrational to charge high prices for socially valuable innovations as this guarantees that they will be underutilized. It is much better to sell them at cost and then to reward the innovator in some other way. This is not always possible, because in some cases the value of an innovation is in the eye of the beholder; it's very difficult to value how much a new Madonna song is worth, for example. But in the case of medicines, green technologies and seeds in agriculture, such an alternative reward mechanism is fairly straightforward. In the domain of pharmaceuticals, we need a metric for health impact, and with this metric we can then assess the value of the introduction of a new product and pay its innovator accordingly, say on the basis of the product's measured health impact during its first ten years on the market. In exchange, innovators must of course renounce the usual rewards they are otherwise entitled to, namely the patent-protected markup on the price of their product.
KB: You're the architect of this initiative and have assembled some of the greatest minds in economics, public health, bioethics and government to support you. Yet it wouldn't be so obvious based on your positions that you would lead a project to attract and persuade the big pharmaceutical companies that in many ways dominate the global institutional order.
TP: It's a team effort, actually, but I am certainly fully behind it despite some regrettable actions by pharmaceutical companies, including their strong and successful lobbying of the Clinton administration in behalf of the TRIPS agreement. The reason is that I want to help achieve some actual progress in the design of the global institutional architecture. Reform through revision of the TRIPS agreement is currently quite unfeasible because one would need unanimity within the WTO. What is realistic is to create a parallel track, giving innovators at least the option of being rewarded in a different way. I think pharmaceutical companies would appreciate having this option. It does not cost them anything to have the option and they wouldn't have to use it. Insofar as they would use it, it would give them a separate income stream for some innovations that would be less profitable or unprofitable on the patent track and it would also bring them substantial gains to their image.
KB: How do you think the failures in the recent rounds of the WTO, like Doha and Cancun, have affected your understanding of how to move forward with the HIF?
TP: I think it shows the urgency of initiatives like the HIF. We have to find ways of addressing the very clear moral problems arising from the WTO Treaty and the TRIPS agreement in particular.
KB: It seems like there's a bloc of developing countries that does not want to be pushed around much anymore. They won't accept the policies that were rammed down their throats.
TP: Yes, some of the developing-country governments and populations are tired of having things rammed down their throats, but we're not yet at the stage we want to get to, namely where the developing countries join forces with one another on behalf of creative alternative ideas about how to take things forward. That is where the Health Impact Fund would be a welcome departure, and I'm happy to report that it is supported by a number of developing countries and also finds some support in the developed world.
What is really nice about the Health Impact Fund is that it is a win-win, something that without much cost to anyone makes a lot of people better off. If you ask yourself who is paying for pharmaceutical innovation today, the answer is that it's the more affluent populations paying for still-patented advanced medicines at the pharmacy, for comprehensive insurance coverage or for a national health system. With the Health Impact Fund in place, these same people would still pay the lion's share of the cost of innovation – now exclusively via taxes. But there would be a huge difference. For the present system to work, poor people must be excluded from the innovation, because if they could get access at an affordable price, then affluent people would find ways to buy it cheaply as well – and then the innovator would be poorly rewarded and introductions of new medicines would decline.
With the Health Impact Fund, the innovation is paid for separately, through publicly funded health impact rewards, and the product is sold at the cost of production to all. Here, the cruel injustice of preventing the poor from buying at cost – evidenced by today's suppression of the trade in generic versions of patented medicines – would no longer be needed. So you can think of the HIF as a mechanism that would keep the benefits and burdens of pharmaceutical innovation for the affluent roughly as they are while massively reducing the burdens presently imposed upon the poor. This sounds like magic. But it really works because the current system is not Pareto efficient. It's a system that generates hundreds of billions of dollars in litigation costs and deadweight losses that HIF-registered medicines would sidestep. By avoiding these losses, the HIF reform can bring improvements all around – including for pharmaceutical innovators.
KB: This seems like a smart, practical first step. But if you bring up Pareto efficiency, why not advocate strongly increasing the $30 billion already spent by the government through the National Institutes of Health and directing it toward drug research and development [R&D] to provide medicine at cost? That way you cut out the privatization and monopoly rents on the end results of basic, taxpayer-subsidized research.
TP: There are two main reasons for preferring the HIF. First, the alternative proposal is not politically realistic in the United States and most other affluent countries with a substantial pharmaceutical industry. Second, companies are actually much better than governments and other bureaucracies at organizing in a holistically efficient way the extremely complex path from the examination of molecules all the way to the delivery of medicines to patients. Already in the conception and selection of research projects, companies would anticipate all the challenges down the line that they will need to overcome in order to achieve actual health impact. Bureaucratic organizations, by contrast, are notoriously bad at this sort of optimizing. This is partly due to the fact that they operate with push-funding and thus have an incentive to spend more on, and seek more money for, an existing project even if another one now seems more cost-effective. Competing companies evolve toward efficiency as the more efficient ones profit and expand while those who fall behind fail. And companies being efficient and profiting under the HIF, this is exactly what we want, because the company's profit is directly driven by the health impact its registered products achieve.
KB: Do you think that in competing with private firms, a public system could overcome such defects by using open communication between different researchers and not being hampered by R&D on copycat drugs?
TP: It would surely be worth trying, and I wish this were politically feasible. But I remain skeptical. To justify this a bit more, let me expand on the thought I just offered. To improve global health, it's not enough just to have a really good new product and to obtain marketing approval. You still need to market the product and bring it to patients, follow up, create the infrastructure, and so on – the whole pipeline, the network. That's something that companies are extremely good at: organizing a whole pipeline in a cost-effective way. As an example, let me mention Coca-Cola's distribution network. You can get an ice-cold Coke for around fifty cents in most developing countries, not just in the major population centers, but at the most remote and surprising places. The logistical challenges to resupplying all these outlets are enormous – and yet, the entire system works with incredible efficiency as is confirmed by the price of the product. UPS is another example where they are able to get the parcels to the most remote locations at an incredibly low price. So, large companies are very good at solving extremely complex problems in a globally optimal way.
If the Health Impact Fund were to be instituted, a single company would be in charge of a medical product all the way from its conception to the health improvements realized by actual patients. The company would be paid for health impact, and it would have to arrange the entire pipeline in between – all the steps of invention, of clinical testing, of getting marketing approval in many different countries, of wholesalers and retailers and prescriptions and so on – in a holistically optimal way. Already at the conception stage, you would think about, “So, if we can create the desired product, is this really worth doing? Will we be able to overcome this, that and the other last-mile problem?” My sense is that companies are better able to do this sort of holistic planning and continuous rethinking of how health impact can be realized most cost-effectively than bureaucracies.
KB: Currently, what are the most important goals and challenges for the HIF?
TP: We are working hard to win additional support from governments and intergovernmental agencies such as the World Health Organization and the World Bank, and also from pharmaceutical innovators, opinion leaders, and nongovernmental organizations such as the Gates Foundation and Medecins Sans Frontieres. Such additional support depends on being able to show that, and how, the HIF would actually work in the real world. And so, we are now planning various one-drug-in-one-country pilots where an innovator would agree to sell one product in one country at a pre-agreed low price in exchange for health impact rewards. These pilots would allow us to demonstrate that we have a reliable health impact measurement methodology, and they would also show how innovators introduce and promote a product differently when they are differently incentivized.
KB: You're an atypical voice among high-profile Ivy League academics. In addition to your pragmatic effort on behalf of the health of the global poor, you promote a forthright critique of international affairs that coincides with 80 percent of the general public of the US, which, in a 2008 poll, believed that the government is “run by a few big interests looking out for themselves.” To a large extent, the intellectual class that you belong to tends to dismiss such a view as a “conspiracy theory.” Do your arguments marginalize you in this elite sphere?
TP: My analysis is not really a conspiracy theory, but it is certainly an analysis that is supporting what you report as a widespread perception in the US: that the country is run by the rich and powerful in their own interest. To an extent that I think is hard to exaggerate, the intellectuals – academics, journalists and so on – are bought off. And that's a big change that happened in the United States in the last 30 or 40 years. Critical journalism has gone out of fashion, or rather, it has been bought out. And so, we have much less of it than we did during the Vietnam era, where there was very critical reporting on the Vietnam War and a lot of disagreement among the media. Now you find that the media are much more homogenous, converging because they all must cater to the same community of advertisers. It's sad to see.
Since you're talking about economic matters, the trend is also partly driven by economists. They operate with this image of the homo economicus, the rational economic agent, and while such agents are rare in the wider world, they are common in economics departments. Exemplifying the homo economicus paradigm, economists typically choose their research projects and hypotheses so as to promote their own careers, to maximize their lifetime income. This explains the astonishing pressures toward conformity in academic economics: how deviant views (except those by a few who have already achieved stardom) get crushed by an army of conformists. To be sure, the whole army changes direction occasionally: for example, whenever it becomes too painfully obvious that a widely hailed approach that was supposed to decimate poverty has failed to do so. But it's a disciplined turn, taken by the whole profession. Economics is like a church, and it fulfills the same function the church had fulfilled for centuries: the justification of the status quo.
KB: To conclude, what practical advice do you have for a large majority of people that don't resemble Ayn Rand's paragon, the sociopathic homo economicus? So many want to act, and do act, on genuine feelings of sympathy and solidarity. So what do you say to concerned citizens that want to support either the potentially life-saving Health Impact Fund, or more broadly, to those who want to fight on behalf of the half of the planet that lives in poverty?
TP: The key insight here is organization. Ordinary people like you and me can achieve very little on their own. We need to build support. Even if you are a thought leader and have some good ideas on how to make the world better, and even if you write five or ten books – that won't have much effect unless you have people who are willing to support your ideas. So, I am always seeking allies for realizing the Health Impact Fund idea, which I think is a very good first step. In order to achieve something like this, in competition with the powerful and smartly wielded influence of corporations, we need to join forces and be as well-organized as they are. This does not come natural to us more intellectual types, as we tend to be averse to hierarchy and groupthink; we don't like to be part of anything like a disciplined and well-organized team or movement. But the alternative is to continue losing politically – which means continued failure to protect the world's poor, who are really bearing the brunt of our disorganization. It is for their sake, above all, that we urgently need more unity and better organization and need to concentrate our reform efforts in order to really to achieve reforms, one by one.
KB: And you have a unique perspective, having come from Germany, due to working peoples' comparative strength and organization there. There are also institutional structures where they at least have some say in the decisionmaking processes of German corporations, for example.
TP: That's right. In order to prepare for meaningful change, we have to look at both sides of the problem. We need to examine the output of our political system, which is often very hostile to the poor abroad and hostile also to the poor and middle class domestically. And we must also look at the procedures through which this output is produced. There exist better models of decisionmaking, for the governance of states, corporations and other large organizations, for example in Germany, as you say. We need to study such models and promising pathways on which our existing decisionmaking procedures can be gradually reformed. The two sides of the problem are closely interdependent: because present procedures by design favor the affluent, the poor are being increasingly marginalized. And because the poor are so marginalized, they can exert little influence on institutional design decisions. We need to break out of this vicious spiral and create momentum in the opposite direction. Then, as the poor gain some voice and influence, they can effectively support gradual institutional shifts in their favor which in turn reinforce the trend. This is what we must work for.