Aids in Africa and the Role of Economics



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AIDS in Africa and the Role of Economics

The World Bank1 estimated that by 1997 30 million people in the world had died of AIDS. Projections of future human and material loss were dire and continued to worsen. Drugs that stem the progress of the disease or cure it are now in existence. Human behavioral change that might follow substantial improvements in information flows offer hope as well. The situation in Africa is so dire, however, that people from all philosophies are urging a stronger and a sustained response from the west. This map of Africa shows that the penetration of AIDS is substantial.




Another way of assessing together both the prevalence of AIDS and its human consequences is to assess its affect on life expectancy. The chart below reveals a disturbing picture; the epidemic has already cut life expectancy sharply in many countries. Large reductions like these tell a grim story of how AIDS has set back human progress on the continent by many decades and done so in just a short time.2 The survivors, unfortunately, will find increased misery in the economic aspects of their lives as well.3


Economic analysis can help to identify the reasons why the halting of this epidemic needs a strong response from each of the three sectors of the economy--the private, the nonprofit and the public. But, especially it explains why private, voluntary market interactions will not stop AIDS in Africa and why they have often made things much worse.

Sexual practices that were common and acceptable in the culture became deadly with the introduction of the AIDS virus.4 Similarly, common economic practices, such as traveling long distances to find work or to pursue one's current occupation, became ready means for the virus to spread geographically.5 When local job sources closed down, sometimes due to the economic side effects of a local disease crisis, then the additional geographic searching for work probably added to the problem.

A two-branched attack on the epidemic can bring substantial success. First, provision of the various drug treatments is effective though it can be costly. The annual cost per person of drug treatment by 1997 ranged approximately from $10,000 to $20,000. Financial accessibility, augmented by the volunteering of professional expertise and the on-site provision of care, needed to be improved whether by public purchasing of the drugs or by price reductions by the pharmaceutical companies. All are involved in such assistance; and we will describe and emphasize the government role in a moment. But, first consider the drug company's role.

Drug companies have come under close scrutiny for their behavior during this continuing crisis.6 Their high prices for the new drugs made effective care for Africa appeared out of reach to those in need or excessively enriching to the companies. The bind is that drug companies need the reliable promise of profits in order to make large and risky investments in new drugs, often drugs that the public desperately wants and needs. To many, however, the special situation of AIDS in Africa called for correspondingly special drug company behavior, a view eventually shared by the companies if this can be inferred by their actions.7

By cutting their AIDS drug prices substantially, however, the companies opened a Pandora's Box. The large price cuts revealed to many consumers how far below their previous prices lay the drug company production costs.8 Once the price is lowered to one large market it becomes difficult to persuade your other customers to accept a continued high price, and it also becomes difficult to stop black market smuggling from the low priced-market to the other. A few analysts have recommended very tight control structures to be put in place in Africa, and others have recommended the use of government funds to purchase the drug company patents.

The second major branch in the attack on AIDS in Africa involves the nature of and the provision of information. Low cost prophylactic measures were not commonly used when the epidemic hit, nor were scientific explanations of the causes for the epidemic widely known or understood.9 That these basic units of information can be effective in stopping the epidemic is made clear in the following diagram. Note that the treatment in this case, that of working to increase condom use, involves low cost materials, contrasting to the costly drug treatments. Yet, the effectiveness of condom use is demonstrated dramatically. It is a second approach to providing medical care to the infected people, and it is one that is primarily centered on information.

The role of information raises poignant questions. For example, do westerners attempting to help have the right to confront local culture and beliefs? Are they justified to attack "superstitions" and established gender roles as they try to stop the spreading virus? If Africa had as much skilled health manpower as it wants of its own, even if they came fully with western beliefs in science, it would probably employ them. Many in the west who know the depth of the crisis would also probably discard this concern in favor of action.

Despite its unique African characteristics, the information problem presented by AIDS in Africa is formally the same as the more familiar health economic problem of "asymmetric information." (See Chapter 9, "Asymmetric Information and Agency"). In the western literature, the problem of asymmetric information is often seen to arise in medical markets due to supplier-induced demand (See Chapter 10: "Imperfect Information, Supplier-Induced Demand and Small Area Variations"). In Africa, the different problem of asymmetric information is undoubtedly much more serious in that it leads to the underutilization of needed care and the insufficiency of hygienic behaviors. Information asymmetry then is both an information gap between what the doctor knows and what the patient knows, and it is also often a cultural gap between patient and health personnel.10


The above graph demonstrates one of the key production processes that apply in Africa to stopping AIDS. The production of health, as in the Grossman model (See Chapter 6, "Demand for Health Capital"), is performed by the individual African. The material inputs are simple, but it is the information component that makes the health gain possible for the individual to accomplish. The striking effectiveness of condom use in the above case is a cause for optimism.


These two branches of the attack on AIDS in Africa strongly suggest the need for government action for reasons based on the standard economic analysis. Information, on the first hand, is a public good, or at least it has a high degree of public ness, in which its marginal cost of transmission is extremely low once the infrastructure has been established. Furthermore, it is impossible or economically infeasible to limit the information only to those who pay making the private provision of information unprofitable. (See Chapter, "Government Intervention in Health Care Markets").
A similarly important public role follows from an economic analysis of both the detrimental and the beneficial externalities involved. Risky sexual behaviors involve risks to more people than just the individual making the risky choice. The economics of efficiency requires that the effective price of risky behaviors be raised, and government can be instrumental in doing so. The collective action made possible through government can also intervene to reduce the effective price of safe sexual behavior, for example, by providing condoms freely (yet with social discretion). (See Chapter 20, Government Intervention in Health Care Markets").

Also, a beneficial externality occurs to the millions of people worldwide who feel a charitable gain in the health improvements and disease prevention of Africans. This charitable externality can in principle be expressed through voluntary charities, but free riding behaviors will in principle limit this giving to sub optimal levels. Collective action can, in principle, overcome the problem of free riders, the people who benefit from the provision of a public good yet who decline to contribute when it is possible to refuse. (See Chapter 19, "Equity, Efficiency, and Need")..

The world community is still in the process of awakening to the dangers posed by the AIDS epidemic.11 Foreign aid contributions from the United States have not made a large fraction of GDP in the past, in part perhaps because many Americans have become disappointed by difficulty of getting aid directly to the people who need it. The unique circumstances of the African AIDS crisis has brought forth proposals to address this American issue and to override the fear. Economist Jeffrey Sachs of Harvard University offers a plan to develop a structure of aid at the point of service. He estimates that the United States would need to contribute $1 billion a year for a comprehensive plan to fight AIDS in a partnership with other industrialized nations. (Newsweek March 19, 2001). He points out that this is a small portion of U.S. annual income and even a fairly small portion of currently projected budget surpluses.

The task of income redistribution, when a society opts to undertake it, is primarily a governmental one in most countries including the United States. It is well known that Africa is a very poor continent relative to the industrialized nations, making the direction of transfer obvious in the African AIDS case. What may surprise many, however, is that the disease itself preys upon the poor nations more than proportionately, as is shown in our last chart drawn, one that was drawn by researchers at the World Bank.



There is no economic analysis for the sense of urgency one experiences on learning about the AIDS epidemic in greater depth; it has to be experienced by one's own research. It is probably not through this science or any other that the issue will be fully grasped. Yet, the understanding of the avenues of assistance and their unproblematic justifications might, along with the many other approaches to their study, prove enabling.
Questions:

1. What is the "economic" cost of the lives lost? Is the value of a life lost, according to economic theory, based solely on the person's foregone productivity opportunities? How is the question of a life's value approached in economics? (See Chapter 4, "Cost Benefit Analysis and Other Tools for Economic Evaluation").

2. Why, in the presence of externalities, is the private market likely to provide an economically inefficient amount of AIDS protection? Why would the private market for AIDS information tend to provide a suboptimal amount of information? (See Chapter 19, Equity, Efficiency and Need; and, see Chapter 20, Government Intervention in Health Care Markets").

3. Why does the use of condoms represent a “public health” rather than a private health decision? How is it also an information problem?

4. How would or could the decision of drug companies to cut prices of AIDS drugs to Africa affect future populations in Africa or other countries?

5. Describe the campaign to stop the AIDS epidemic as a health production process. What inputs do you think will prove effective? What inputs already have an established record for effectiveness?



1 "Confronting Aids," World Bank, April 30, 2001, http://www.worldbank.org/aid-econ/

2 Brundtland, Gro Harlem, "Health Care Issue in African Region," Presidents and Prime Ministers, Vol. 8, July/August 1999, p. 31-33.

3 Annan, Kofi, "Peace and Prosperity in Africa: United Nations, an Organization of African Unity," Vital Speeches of the Day, Vol. 65, August 15, 1999, p. 642-643.

4 Ezzell, Carol, "Care for a Dying Continent," Scientific American, May 2000, pp. 96-103; McGreary, Johanna, "Death Stalks a Continent," Time, February 12, 2001, pp. 36-53; "International: The Plague, The Economist, March 24, 2001, p. 55-56.

5 McGreary, Johanna, "Death Stalks a Continent," Time, February 12, 2001, pp. 36-53; Ezzell, Carol, "Care for a Dying Continent," Scientific American, May 2000, pp. 96-103.

6 "Why AIDS Victory Could Spell Trouble for Drug Companies," Time Magazine, Tuesday, May 1, 2001.

7 Swarns, Rachel L., "Drug Makers Drop Suit Over AIDS Medicine: Deal May Set Precedent to Let Cheaper Treatments Reach Markets in Third World," New York Times, Friday April 24, 2001, p.1.

8 Harris, Gardner, "AIDS Gaffes in Africa Come Back to Haunt Drug Industry at Home: Price Cuts Abroad Deepen Domestic Trouble as Firms Reveal 'True' Cost of Pills," Wall Street Journal, Monday April, 23, 2001, p. 1,

9 "International: The Plague," The Economist, March 24, 2001, pp. 55-56.

10 Englund, Steven, "Death in Africa," Commonweal, Vol. 126, August 13, 1999, p. 8-9.

11 Baylies, Carolyn, "International Partnership in the Fight Against AIDS: Addressing Need and Redressing Injustice?," Review of African Political Economy, Vol. 26, September 1999, p. 387-394.


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