Two Very Different Takes

Ajay Shah had what I thought was a pretty good piece in the Business Standard the other day (h/t Murali Neelakantan). While the headline of the piece was “Price controls for vaccines?1, it was essentially about the best way to ensure delivery of the vaccine to every nook and cranny of India.

The great Indian vaccination story has begun. Private health care firms will be required for reaching the masses. A basic tenet of economic policy is that price controls work poorly. If price limits are brought in, this will limit private outreach to cities.

And to make his point, he used the example of demat securities settlement.2

In the event, non-interference prevailed: The price charged by DPs was left to market prices. Competition developed, and the prices charged to customers crashed. Competition ate away the profit rate in the easy urban sites and DPs got the incentive to go forth into the great Indian hinterland, looking for more business. This generated outreach.

Ajay Shah makes the point that this is how markets can work when allowed to, and uses this analogy to make the argument that governments should not cap the prices of vaccines (and their delivery).

So far, from an economists point of view, so good. Markets work when allowed to, and all is well with the world. But Gulzar Natarajan has a different point of view:

This is deceptive and an extremely misleading story. In fact it is shocking that this comparison could even be made. As I shall explain in brief, this extrapolation from the world of demat shares settlement to that of administration of vaccines is all logic with little understanding of the differences between the respective markets.

He raises the following points:

  1. The tendency of those in rural areas to defer medical visits because of poverty/affordability concerns
  2. Share markets are about the luxury of choice. Vaccination isn’t.
  3. Vaccinations lead to large positive externalities3
  4. Market allocation in the face of deep inequality is problematic
  5. Private health clinics may not follow all follow-up protocols.4
  6. Effective markets need strong state capacity. Without it, price gouging, sub-standard medical equipment, fake vaccines are all more than possible.

Read the whole post, please, as usual. Towards the end, he makes the point that it is not about one or the other:

None of this is to say private market should not be part of the vaccine drive. A low enough price should be fixed and vaccines administered privately too. But coverage of the vast majority of Indians in remote and rural areas will have to be through the public system, as has always been the case with all other vaccines.

None of this is meant to be a criticism of either Ajay Shah or Gulzar Natarajan, of course. The point of this post, instead, is to show you three things:

  1. “How might the author be wrong?” is a useful way to read everything.5
  2. The truth lies somewhere in the middle is a thumb-rule that fits almost everything. Especially Indian things. While there are disagreements that I have with Gulzar Natarajan’s piece, he is making the point that ignoring government (or public) delivery of vaccines is fraught with risk – and I agree.
  3. The guy who writes these posts (me, that is) himself didn’t focus enough on pts. 1 and 2 when reading Ajay Shah’s op-ed. Note to self: work harder!
  1. This will be behind a paywall, sorry[]
  2. Don’t worry if you don’t know what this means. Run a simple Google search and plunge right in to the first three articles. You’ll get a reasonably clear idea.[]
  3. I’m quoting him, ok?![]
  4. Of course, neither may public hospitals![]
  5. It’s also a useful way to attend classes[]