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MARKET MENAGERIE

MARKET MENAGERIE Health and Development in Late Industrial States Smita Srinivas

Stanford Economics and Finance An Imprint of Stanford University Press Stanford, California

Stanford University Press Stanford, California ©2012 by the Board of Trustees of the Leland Stanford Ju nior University. All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or in any information storage or retrieval system without the prior written permission of Stanford University Press. Special discounts for bulk quantities of Stanford Economics and Finance are available to corporations, professional associations, and other organizations. For details and discount information, contact the special sales department of Stanford University Press. Tel: (650) 736-1782, Fax: (650) 736-1784 Printed in the United States of America on acid-free, archival-quality paper Library of Congress Cataloging-in-Publication Data Srinivas, Smita, author. Market menagerie : health and development in late industrial states / Smita Srinivas. pages cm Includes bibliographical references and index. ISBN 978-0-8047-8054-4 (alk. paper) 1. Pharmaceutical industry— Government policy—India. 2. Pharmaceutical industry—Technological innovations—India. 3. Health ser vices accessibility— India. 4. Medical policy—India. 5. Pharmaceutical industry—Government policy—Developing countries. 6. Pharmaceutical industry—Technological innovations—Developing countries. 7. Health ser vices accessibility—Developing countries. 8. Medical policy—Developing countries. I. Title. HD9672.I42S67 2012 338.4'761510954—dc23 2011043735 Typeset by Westchester Book Composition in 10/14 Minion

To my parents, Nirmala and Srinivasa Murthy, for their inspiration and example

Contents

Illustrations Acknowledgments

xi xiii

PART I: Market Menagerie: Planning the Health of Late Industrial Development

1

Introduction

1

Health and Development in Late Industrial States

1

Barbarians at the Gate: Late Industrial Supply

8

Data, Methods, and Structure

19

The Chapters Ahead

22

Appendix: Sample Questions

28

Well Beyond Market Failure

32

A Time for Integration: Evolution of States and Markets

32

Technology’s Insights for Markets

33

Extant Systems and the Weakness of Ideology for Reform

34

Beyond Minimalism

37

Bringing an Evolutionary Perspective to Development

39

The Fine Touch

50

viii

Contents

PART II: 1950 – 2000: Indian Market Menagerie 2

3

4

5

The First Market Environment: Trouble in the Making

55

Phase I, 1950–1970s: Coveted Universalism, Controlled Markets

55

A Crucible for Learning: The Public-Sector Effort

57

Nehruvian Efforts in the Manufacture of Medicines

61

The Public-Sector Legacy Today

65

“Essential” Markets, Public Health, and Private Learning

67

The 1970s and 1980s

67

Process Patents

70

Price Controls

72

Monopolies, MNCs, and Accelerated Indian Learning

74

Trouble in the Making: The New Drug Policy and Production

75

Taking Stock

79

Demand and Democracy

84

The Institutional Unraveling of Industrial Planning

84

Planning for the Nation’s Heartland and Outposts

85

Demand and the Health of Health-Care Financing

86

Industrial Slowdown and Fiscal Inertia

88

Universalism and Demand Identities: From Control to Dissipation

90

The Reemergence of Nonmarket Institutions

92

The Ragged Edges of Consumption and Delivery

95

The Second Market Environment: Learning by Proving in Global Regulatory Harmonization

99

National Universalism and Global Nationalism: The State’s Loosening Hold on the Domestic Market

99

Institutional Shifts to Global Nationalism

102

Expansionist Market Tiers

109

Growing Innovation, but Not Access?

116

Looking Ahead

119

Contents

6

7

ix

Demand as Necessary but Not Sufficient: Vaccine Procurement Markets

121

Vaccines

121

Health for Some: The Development Mandate

122

International Procurement Markets: Beyond Government Failure

124

Procurement’s Effect

126

Fine-Tuning Demand Policy Instruments

128

Learning by Proving: Health Policy as Industrial Policy

131

The Third Market Environment: Uncertain State of New Technologies

135

Bringing the State Back into the Process

135

Process, Process: New Technologies Ahoy!

137

Advances Nevertheless

143

New Technology Maps and Blurred Market Signposts: Organizational Vignettes

145

Finally, Niches and Local Relevance

156

New Interactions for Old Players

158

PART III: The Institutional Basis for Industry and Health 8

Health Technologies in Comparative Global Perspective

163

Instituting Welfare Regimes: Building the Double Movement

163

Pharmaceutical’s Historical Advance: Early Capabilities, Early Welfare

165

Private Property Markets

168

Collective Rights and Markets in Welfare Institutions

169

Varieties of Health-Care States

171

Late Industrial Suppliers: Marrying Late Capabilities with Later Welfare

174

Revisiting the Institutional Triad

179

Moving Forward: Transitioning Developmental States

182

x

Contents

9

Markets and Metropolis

186

The Design of (Re)distribution

186

Nation and City in Development

189

Universalism in Federalism: Between Capitalism and Commune

192

Industrial Welfare and the City in Context

196

Cities, Antibiotics, and Universalism

199

From Poor Law to Welfare Paternalism in England and India

201

Ahmedabad, circa 1915

202

The Body Corporal and Politic: Utopias in Universalism

204

The Quest for Healthy Places

208

Nations and Cities: An Evolving Social Contract?

211

Limited Double Movement: Contractualism and Bo(u)nds of Exchange

214

Conclusion: Soft Determinism in the Market Menagerie

219

Infusing Evolution into Economic Plans

219

Planning Process and Outcomes

222

Soft Determinism in a New Pharmaceutical World

228

Intervening in Variety

230

Evolution and Orchestration of the Social Contract

238

Market Variety and Morality: Planning with Small and Large “P”

242

Notes

247

Index

311

Illustrations

Figures I.1

Institutional triad of health care

8

6.1

Evolution and specialization of Indian vaccine capabilities

129

7.1

Culture challenges

147

7.2

CRO learning

153

Tables I.1

Global pharmaceutical companies by 2009 global sales

14

I.2

Share of top 10 Indian firms in domestic market

15

2.1

Major pre- and postindependence changes

59

2.2

The link between public health and manufacturing technology

61

3.1

Reluctance of foreign firms in bulk drugs

68

3.2

Public health histories of several leading companies in 2002

70

3.3

Subphases of the first market environment

81

5.1

Development timelines for selected Indian generics

108

5.2

Regulations and tiered markets

110

5.3

Sample Ranbaxy export product launches by 2000 –2003

113

xii

5.4

Illustrations

Examples of Ranbaxy’s technology and infrastructure milestones

114

6.1

The second market environment’s three Ws

132

7.1

Market challenges in synthetic and biopharmaceutical generics

140

7.2

Lateral learning paths

151

7.3

Niche research opportunities

157

8.1

The coevolution of the Japanese triad

178

8.2

Early and late industrial nations and their health sectors

181

9.1

Biotechnology city-regions

187

9.2

Market scales

216

Ac know ledg ments

T

HIS WORK DERIVES FROM RESEARCH AND PROFESSIONAL OPPOR-

tunities over the past 15 years and from the generosity of many. My gratitude must first extend to a ll my Indian and overseas interviewees, and to pa rticipants in several prior pieces of research who were essential to this book. It was at least in part through their enthusiasm that the value of this endeavor and the need for integration became especially apparent. Several stimulating academic venues, departmental colleagues, and librarians allowed me to t hink through different elements of the book even when large portions of it were still in mind rather than on paper. Before I had even set foot in New York City, others had helped me. I am a poor socializer when I am working intensely. Although several people have kindly remarked on my high productivity, it has come during times of unfortunate close proximity to the health-care system and health technologies, which spurred the topics covered here. Many of those friends mentioned here were especially able at engaging a reticent colleague who had many responsibilities; they have continued to be wonderfully supportive to the present day. Academic scholarship rarely emerges and thrives without social networks, and I must thank mine for solidifying around me when I was unable and unwilling to seek them out. I express special thanks to R ichard Lester and Anita Kafka, who made me welcome over the years at MIT’s Industrial Performance Center (IPC) from 2001 to 2006. Richard made me an active team member on Finland’s biotech sector, and I owe several ideas and articles to the IPC’s collegial climate and to xiii

xiv

Ac know ledg ments

Richard’s friendship. Frank Levy and Mike Piore provided a good community to think through organizational relationships between employment and innovation. Frank, I owe you a special debt on several fronts. So too, thanks are due to B ish Sanyal, who has remained a qu iet, steady voice of support and encouragement on both aspects of my work—political and technological— that are evident in this book. Marty Rein encouraged me to r ethink policy incoherence in ways that I continue to appreciate now as I return to other research. Alok Chakrabarti, Elena Grela, Jean-Jacques de Groof, Ambuj Sagar, Markku Sotarauta, and Judith Sutz have remained especially solid colleagues and friends on innovation, and I would be hard pressed to replace such individuals with anyone better. Charles Cooney in MIT’s biochemical engineering department and Calestous Juma at the Belfer Center at Harvard University provided other contacts and forums for further exploration and comparative work in health technologies. Calestous provided one venue at the Science, Technology, and Globalization project over several years, and John Holdren, now with President Obama’s policy team, provided other opportunities and long-standing support within the wider program at Harvard’s Kennedy School. As with Columbia and MIT, Harvard’s support meant that my papers and ideas reached wide audiences. It also permitted different scales of policy involvement. While at Harvard I assisted in the UN’s newly instituted Science, Technology, and Innovation Task Force (TF 10) of the Millennium Development Goals, interacted briefly in a coordinating role for the task force’s report with innovation scholars on genomics and public health. This solidified some of the comparative context for the health industry and supported insights of private-sector interviewees who emphasized the importance of physical infrastructure and manufacturing costs. I wish to ac knowledge support in grants and other assistance that have added in various ways to this work from 2000 to the present, among others: from the MIT Center for International Studies, the MIT Department of Urban Studies and Planning, the MIT Industrial Performance Center, the Harvard Kennedy School’s Science, Technology, and Globalization project (Science, Technology, and Public Policy program), the Center for Business and Government, the UN Industrial Development Organization, Columbia’s Institute for Social and Economic Research and Policy, and the Graduate School of Architecture, Planning, and Preservation at Columbia University. Materials from the empirical chapters have drawn directly and indirectly from doctoral research at MIT, and I thank Craig Thomas and Peter Bebergal for their help in using the materials here.

Ac know ledg ments

xv

The Institute for Biotech and Bioinformatics, Bangalore, hosted me in 2003– 2004; Harvard’s Sustainability Science program (then at the Center for International Development in 2005–2006) hosted me as an associate; and the Department of Management Studies and the Centre for Sustainable Technologies at the Indian Institute of Science, Bangalore, hosted me as a visiting scientist in the summer of 2008–2009. I thank them for the opportunities to discuss and present my research and for invitations graciously extended. Columbia University’s Urban Planning program has been my professional home for the last six years. Dean Mark Wigley at the Graduate School of Architecture, Planning, and Preservation (GSAPP) generously funded the Technological Change Lab (TCLab) and my research at Columbia University and heartily welcomed the cross-cutting nature of my interests in planning, technological advance, and political philosophy. Seed funding by a research grant from Columbia’s Institute for Social and Economic Research and Policy on a related project on legal entitlements, TCLab support from GSAPP, and the understanding of Elliott Sclar, Bob Beauregard, and Lance Freeman, past and present chairs, allowed me t ime to r eflect, a generous yearlong leave of absence from June 2009 to mid-2010 to finish writing the initial manuscript in Bangalore (now Bengaluru). My Columbia colleagues are collegial and have made writing painless, even pleasurable. I am very fortunate to have frequent good intellectual engagements with Richard Nelson, a pioneer in the economics of innovation, and with the immense richness of other scholars here at the university. Janet Foster extended innumerable small acts of understanding and managerial kindness, as did Leigh Brown and Mark Taylor. Students Matthew Crosby, Sonal Shah, Victoria Ruiz, Joseph Matuk, Alejandro de Castro Mazarro, and especially Lauren Racusin provided cheerful assistance on various small but valuable items. Gordon Sauer and Kate Daloz at Columbia’s Writing Center have made writing more pleasurable and provided a guaranteed refuge. Several international organizations were also vital to t he shaping of this book. These included officials at the World Health Organization, the United Nations Children’s Fund (UNICEF), and the United Nations Industrial Development Organization (UNIDO) and Francisco Sercovich’s support of a Harvard fellowship. A paper that I wrote in that context for UNIDO, Industrial Development Report 2005, allowed me to crystallize my thoughts on export markets and technical standards. The International Labor Organization, the United Nations University and the University of Maastricht, the United Nations Conference on Trade and Development (UNCTAD), the United Nations Educational,

xvi

Ac know ledg ments

Scientific, and Cultural Organization (UNESCO), the International AIDS Vaccine Initiative, and others provided invitations to sp eak, commissioned my research, and extended related resources for studying the comparative institutional and organizational challenges of health, R&D, and manufacturing in vaccines and biotechnologies. More recently, Shyama Ramani’s international collaboration on Access to M edicines and her invitation to pa rticipate in a book project on Indian innovation and inclusion, and invitations and panel presentations at the American Collegiate Schools of Planning and the American Political Science Association have offered other generous opportunities for continued intellectual exchange on the role of industry in a nation and a city’s well-being. The integrative basis for this work, and several other related papers, has been presented over the years to diverse audiences. Although much has not made its way into this book, I have benefited from economists, urban historians, biochemists, and engineers as much as from labor scholars and health policy experts. I have been a bridge in many instances across these communities, a responsibility not always comfortably taken on at the time, but one I now recognize as unusual good intellectual and social fortune. Colleagues and audiences included those at Globelics, the American Collegiate Schools of Planning, Sloan Foundation Industry Studies meetings, the American Association of Geographers, Catch-Up projects, the American Political Science Association, invited inputs to the Indian Journal of L abour Economics, and invitations and opportunities too numerous to men tion here in urban and regional planning, economics of innovation, science and technology policy, political economy, and economics workshops and lecturing opportunities. Although some scholars may read this book more narrowly as one on pharmaceuticals or biotech, the motivations for this and other research derive in no small part from my past opportunities with organizations such as the Aga Khan Health Ser vices, the Self-Employed Women’s Association, Mahila Samakhya, the Belaku Trust, and several others that I have visited or where I have conducted research to understand the Indian economy and the state of employment and health politics. Exceptionally talented organizers and activists there have provided me forums to speak, think, and understand India’s dilemmas. Stanford University Press’s Margo Beth Crouppen was enthusiastic about this book and its ambitions from the start and has been wise in her counsel since. Jessica Walsh has been a patient and generous production team member,

Ac know ledg ments

xvii

along with John Donohue of Westchester Book Ser vices, who coordinated the copyediting. They have made this easy. Frederick, Meghana and Achintya, and Harry and Nellie Weber have supported me in ways too difficult to describe. Smriti Srinivas and James Heitzman have been inspirations as family scholars, and I only wish that James and Harry could have seen this book in print. Frederick, inspirer of titles and husband extraordinaire, no one could be as lucky as I am. This book could not have happened without you. Nirmala and Srinivasa Murthy are truly remarkable parents and personify the building blocks of that elusive word “community.” The world is better because of them, and so am I. This book is dedicated to them.

Introduction

Health and Development in Late Industrial States Market Menagerie uses an industrial lens to analyze technological advances in the health sector of industrializing nations today. These nations are often termed “late” or even “late, late” industrial economies. A multifaceted conceptualization of their developmental states and market variety is vital, for it can better configure their industrial policies in the provision of health-related products and processes. Why “market menagerie”? A “menagerie” was an enclosure that housed exotic varieties of birds and animals for royal pomp and pleasure, seen as early, it is said, as 3500 BC in Egypt and from the eighth century onward in parts of Europe. Such exotica for royal amusement displayed the court’s power because they were not only difficult to obtain but expensive to retain. Unlike zoological gardens (zoos), which appeared later and often had s cience and education as goals, early menageries displayed variety but were rarely studied systematically. “Development” similarly is a mena gerie that houses many institutional varieties—especially of states and markets. However, scholars very often pose development as mediated through “the” market, as if there were only one of that species, while those who advocate state intervention similarly discuss “the” state versus “the” market. Neither approach captures the ever-changing varieties of markets that developmental states may have to structure and rein 1

2

Introduction

in, and choices that they must make as they plan. Let us push the metaphor further. Early menageries tended to be more for royal pomp and pleasure than for the populace’s enjoyment. Markets too risk becoming exclusive and exclusionary rather than catering to more universal or democratic ideals. The less we study their variety, the less we know about how they might be differently planned. Phrased differently, the task is to ma ke the menagerie rather more like a zoological garden: to open it up and to look more closely at species variety and the geographic context in which species thrive. We can then consider what developmental states can or cannot do a nd whether market failure assists us in considering when the state should regulate. Although nation-states and local states fail often, especially in the face of rapid technological advance, this book attempts a more sympathetic retheorizing of states attending to the market menagerie. Even when dysfunctional or outright malevolent, and despite its limitations and contradictions, the state (and its governments) is inevitably the most important planning institution in these economies. Theorizing sector cases rich in industrial capabilities—in pharmaceuticals, biotech, and vaccines—allows us an especially nuanced context for the industrializing world today, comprising markets, democracy, participation, employment, and health politics. Seen as such, the health sector is a story about planning citizen and democratic entitlements and, in India’s case, the special context of religious, labor, language, and other spatial and political discriminations woven into the idea of the nation. Universalism in India has special weight for which a simple cosmopolitanism or multiculturalism will not do. In another sense, the growth of urban life sciences has everything to do with economic development strategies and with urban restructuring, the rise of industry megaprojects and private hospitals, and the pressures on land and investments. In yet another sense, science and technologies change; not surprisingly, therefore, so does the health sector. The state often decides both the politics of entitlements and the urban transformation, but it simultaneously plays a crucial role in technological advance that places bounds on state actions. Much if not most of this occurs outside voting cycles and insidiously changes urban landscapes. Therefore, how should we think about the state, its contingent influence, and the markets that drive the health sector? The concern here is with both the process and the outcomes of health distribution, although studying the evolution of outcomes over 50 years may make them more comprehensible, and a f ocus not exclusively on the

Introduction

3

nation-state may make the urban contradictions that manifest themselves more visible. In this era of “national” health reform and “global” governance, we must be able to grapple with this peculiar contrast of advancing lifescience concentrations amid health deprivation. How do policy and the state (with several governments that have come and gone) actually mediate in the health sector over time, and how does technological advance make this mediation more contingent? Technological advance in specific sectors acts as the kernel of immense economic transformation precisely because it imposes sizable learning challenges for industrializing countries and the social changes to s ee them through. The health sector’s advances represent a crucial economic and physical transformation of national and urban economies from Bangalore, India, and Turku, Finland, to Cambridge, Massachusetts, and Cambridge, England. The sector comprises not only pharmaceuticals and biotech firms but also myriad other research, production, demand, and delivery organizations and infrastructure. Visualize cities that have distributed diagnostic labs, hospitals, clinics, university labs, other R&D units, insurance firms, computation-intensive buildings, medical equipment firms, biohazard containment zones, and industrial recycling. These often exist despite health access being far from an assured right. Most studies of pharmaceuticals and biotechnology, especially from an innovation standpoint, have been concerned almost exclusively with the supply side. Most analyses of the developmental state’s role have similarly focused on health planning and have tended to take technological capability and firmlevel constraints for granted. Three sets of questions therefore lie at the heart of this book: How can industrializing nations satisfy developmental mandates and promote access to medicines produced at home? What market varieties shape this access? What are the institutional implications for nation-states and urban and regional life-science growth paradigms today? We cannot answer these questions even cursorily until we look at the sector’s dynamics. Markets for health technologies have several unique characteristics, such as limited information and autonomous choice, blurred distinctions between producers and users (especially in clinician roles), risks of use, and par tic u lar cultural traits. Furthermore, in health technologies, neither patients nor health professionals but third-party payers (public and private alike) may be the buyers of the end products. As we will see, this collective aspect of consumption and demand shapes late industrial

4

Introduction

technological advance and constrains how states can reconcile economic and social goals. This book brings together three themes that are rarely aggregated in addressing health, industrial development, and developmental states: the building of industrial capabilities in late industrializers, the politics of their access, and their geography of production and redistribution. It situates these themes in terms of two concerns—market varieties and market scales—as challenges to the actions of developmental states and contributions to a new, developmental pragmatism. Therefore, this book is certainly not a health policy or health economics volume, although it analyzes the health industry. It is, however, very much about the health of development itself. As such, it should complement the interests of readers of health policy, those looking to understand its industrial context, as well as those in economic development and urban and regional planning who are concerned with the evolution of essential institutions, such as markets and states. An author writes because of his or her certainty that something has been missed or wrapped up too quickly. I w rite because I am curious about what are termed “wicked” problems: what can seem overwhelming, intractable problems that specialists rush to dissect and separate into individual strands. This dissection is satisfying to show off one’s specialist tendencies, but it tends to shun the “wicked” character of the problem, which is a reflection of the real world. Rather than seek a straightforward industry and regional planning approach, or an economics-of-innovation approach, I have chosen to emphasize the multifaceted nature of the state’s planning compass. My choice to bring several themes together stems from my desire to approach the future in an integrative theoretical manner and from my professional world that often collides with the dual realities of supply organizations, on the one hand, and access and demand politics, on the other. Theories of urban and regional planning and economic institutionalism urge reconstruction, not merely theoretical deconstruction. I agree. They must not merely expose ideologies and generalizations about our world, but must also suggest new ways of approaching older problems and propose new conceptual possibilities for reconstruction and greater well-being. Therefore, in taking on states and markets, my task is partly to look within these institutions and partly to look beyond them to expand our debates. It is also essential that we move beyond complaining about our world, even if our kvetching is buttressed with thorough

Introduction

5

social science research; rather, we must use deconstruction to reenvision our world when this is possible. This book makes two essential points regarding developmental goals. First, it questions the common reading of development as market failure, but also development as production success. It therefore moves beyond the standard focus on market failures and public goods, emphasizing instead an evolutionary market variety and the wider institutional ecology that markets inhabit, which includes other institutions, such as states, firms, technical standards, intellectual property, insurance, and citizenship. Evolution of critical institutions such as markets and states need not mean evolving with no planning interventions (i.e., laissezfaire), but neither does it suggest full social control. What it does suggest is that state autonomy, power, and planning control are technologically and politically contingent. In exposing these contingencies, we can do better in redesigning the institutional scope of industry and health. Neither markets nor states possess absolute power, as we shall see in the forthcoming chapters. Second, developmental states are practically synonymous with developmental nation-states. However, the abstract rhetoric of “national” health reform and “global” governance distracts us from important shifts occurring in subnational politics, rapidly advancing urban life-science concentrations, and intersecting scales of development and regulation. Therefore, the developmental agenda for states is to regulate in the face of technological evolution by managing the market menagerie, continually demarcating market bounds, health entitlements, and redistribution on multiple stages: international, national, and local. On the one hand, the more decentralized the strategies for industrial and technological development become, the more necessary the nation-state is in reining in territories, in economic regulation, and in lowering regional inequalities. On the other hand, supranational globally harmonized standards (intellectual property rights or technical standards of trade, for example) push toward more uniform production, thus forcing nation-states and local states to attend to more customized production and regulation for domestic development needs. Economic plans and policies must combine the political economy of technological advance with federalism, public finance, and urban morphologies of design and distribution. An integrated economics approach, therefore, requires a mo re evolutionary, dynamic view of institutions and regulation because both “national” production and health care occur in

6

Introduction

par ticu lar places and need local institutions. Complexity should not scare us; we should embrace it because more systematic understanding allows us to appreciate better why we collectively combine and choose some futures and let others go. Making plans, rather than controlling them, involves not only innovation and agility but also continuously changing course in light of necessary uncertainty. Theory poorly shows us how to do t his. Therefore, I extend the discussions toward the end of the book to make some reasoned speculation about health in an industrial, technological age. More traditional health policy and industrial analysts may balk at this more philosophical extension of economics to n ew areas, metaphorical and literal. Without this engagement, however, I am convinced that we will continue to analyze our world in unhelpful disciplinary and analytic silos. Finally, I highlight an important difference about access itself: many institutional economics and health economics volumes assume that the only issue at stake is affordability and “the poor.” Th is book emphasizes that planning, regulation, and the state’s roles must encompass both supply and broader concerns of affordability. My concern here, therefore, is with late industrial suppliers and their technological advance, not with those nations that have industrialized (with or without a supply base) nor with “developing” countries. All countries need not have supply bases, but those that do—the focus of this book—are politically and economically distinct from “poor” or “developing” countries as categories. Of course, development is not only for so-called developing countries. Industrialized countries do p rovide an important foil in later chapters for debating the timing and contradictions of technological advance. Even in the United States, important “developmental” goals have reemerged. The national health-reform debate has made world headlines, sharpened the focus of academics and the popular press, and pitted the country’s advanced health technology supply against its large gap in access. It is therefore an excellent time for comparative health debates, judging from the number of books and scholarly articles and the surge in op-eds on health reform worldwide. Similarly, the global governance of health (AIDS, malaria, tuberculosis [TB]) and the growing number of cross-border epidemics and incidents of bioterrorism (swine flu, bird flu, TB, HIV/AIDS, and anthrax) have positioned health technologies as a crucial twenty-first-century issue. The fundamental challenges for nation-states are to wed technological advance to local institutional context, as well as international standardization pressures.

Introduction

7

New influential groupings such as Brazil, Russia, India, China, and South Africa (BRICSA) already have almost half the world’s population, a quarter of the world’s land, and 20% to 25% of current economic output, and it is estimated that they will have over 60% of the world’s gross domestic product (GDP) by 2050. Most 2000–2008 increases in world output were from developing countries, with estimates of as much as half coming from the growing powers of Brazil, Russia, India, and China (BRICs) alone. Trade among the BRICs now dwarfs some aspects of the trade between traditional North Atlantic and BRICs countries. China has now become India’s second-largest trading partner, for example. The institutional climate is doubly crucial because much of this economic surge has come from technology-intensive gains in several city-regions within the BRICs. India alone has 10 or more of the 30 fastest-growing urban regions in the world. These city-regions disproportionately add to t he country’s GDP and growth rates. The BRICSA countries require new approaches and scholarship in development debates on both industry and health fronts. Their immense size, growing economic power, politics of federalism, and technological advance are highly distinctive. India’s growth-focused prospects look remarkably promising, but if one focuses on redistribution (and even more conservatively on per capita GDP based on historical growth rates), this future looks far less rosy. A point I will reiterate in the chapters ahead is that technological advance in the pharmaceutical and life-science industries can reinforce economic development and industry growth, but not necessarily positive health outcomes. Nevertheless, there are vital reasons to bridge more closely the spheres of the economy that can be self-reinforcing. After all, health policies can be powerful protectionist tools for industrial growth in generics and pricing, for example, while well-crafted industrial policies can boost health outcomes in drug safety and supply. A central task for states is to reconcile economic and social goals in their developmental agenda, something that no developmental state to date has arguably been fully able to do. The health sector can consequently be seen as a triad consisting of a fragile web of three primary institutional dynamics: industrial production of technologies, medicines, and vaccines; the provision systems of health-care delivery, such as hospitals and clinics; and the consumption (demand) of health care through individual or collective buying systems. Instead of “a” market of supply and demand, health care is in fact a web of these three interlinked relationships (see Figure I.1).

8

Introduction

Industrial production (1)

Provision/delivery (clinics and hospitals) (2)

Consumption (through individual or collective buying instruments) (3)

FIGURE I.1 Institutional triad of health care sour c e: Created by the author.

Indeed, despite the economic rhetoric that “institutions matter,” “considering single institutions may be misleading and may altogether miss the genuine importance of institutions in the economy which is of a combinative nature.” This selective combinative nature and its tensions will be evident as we track the challenges to technological advance from 1950 to 2000 . Barbarians at the Gate: Late Industrial Supply All democratic supplier countries face special challenges, even industrialized ones. For instance, U.S. President Barack Obama is attempting reforms in areas ranging from orthopedic procedures to diagnostic tests as costs spiral, the economy plummets, and employment-linked health benefits recede. Domestic politics can spur innovation policies, regulate health access, cap prices, or ration ser vices. However, late industrializers are especially complex and presage the state of the world’s economy and its health-care supply in the twentyfirst century. Prime Minister Manmohan Singh of India has called healthcare access a national priority (national emergency might have been closer to the truth); President Luiz Inacio Lula of Brazil walked a balancing act among strong social policies and family and community support for health care, organizational innovations, bold patent policies for HIV drugs, and a g rowing industrial and consumption base. It remains to be seen whether his successor, President Dilma Rousseff, can do t he same. In general, not only must democratic industrializing supplier nations such as India, Brazil, South Africa, Nigeria, and Indonesia keep industrial momentum humming, but their health-care systems also must work triply hard: to provide healthy citizens (and they have many young ones) for this economic transformation, to manage the politics of redistribution and minimize unrest, and to boost the competitiveness of their health industries. From generics to vaccines and from surgical instruments to

Introduction

9

testing kits, this triad, especially in late industrializers, encompasses several subrelationships and lends itself to a n oisy market menagerie at any time. Its coevolutionary elements indicate that several political economies can be conceptualised, but not all these institutional mixes necessarily complement each other in a well-working health system. Seeing the health sector in these terms is intended only as a broad heuristic to appreciate better how different types of planning and policy analysis tend to pick one or another realm. More important, this view reminds us that the three elements interact and constantly coevolve. Therefore, the goals of development plans, particularly when the goals may be both better supply and healthier populations, are never easy and are rarely simultaneously accomplished. In Chapter 8, for example, we will explore how several countries have emphasized some elements over time. The health sector’s several spheres of regulatory influence vie for state attention: competition policies, safety and efficacy policies, or access and equity policies may be peppered throughout the triad of production, delivery, and competition and may have no exact correspondence with them. After all, access and equity are important not only for consumption, but also for the design of delivery. Similarly, competition policies not only affect industrial production but also can, through increased competition, lower prices and increase access or improve quality (and thus safety). There is no comfortable equilibrium; constant state intervention and regulation are required. The heuristic of the triad cannot lead directly to policy prescriptions, but it can remind us of the complexity of development and regulation and thus make the prescriptions more palatable, as well as innovative. It also can make us less ideologically tied to particular institutions and national frames and more attuned to the necessity and challenges of local planning as an essential part of economic theory and practice. The story of the Indian pharmaceutical and biotech sectors and the comparative questions I ask about other states in later chapters will repeatedly return to the varieties of market settings and development concerns in a single sector. The simple institutional triad can therefore be only a broad guide to analyzing market changes over time. This is neither a story of successful production states nor of how markets ruled supreme. It is a story of how markets evolved and developmental state learning and challenges grew. Indeed, technological advance (the production success of developmental East Asia, for instance) has exacerbated the challenges to demand for health care and its delivery. The forthcoming chapters and analysis will emphasize the menagerie of

10

Introduction

markets in one country—India—for health technologies. How the nationstate unevenly governs these to fulfill its developmental task is at the heart of the book. Today India is the world’s tenth-largest industrial economy and one of the world’s largest suppliers of vital medicines and vaccines. Médecins Sans Frontières (Doctors without Borders) today calls India the “Pharmacy to the World.” India has some of the world’s most competitive generics suppliers, rapidly growing life-science concentrations, and a booming medical tourism industry, but also one of the highest populations without access to medicines, vaccines, and diagnostics. India’s story is telling because it shows the tensions and political struggles to marry late industrialization and its benefits, with its poorly institutionalized and struggling links to employment and employmentlinked health benefits—trends visible across South Asia, Latin America, West Asia, and Africa. To be sure, India has had its share of health successes, from declining infant and maternity mortality rates to a rise in immunization rates and a lower incidence of epidemics than earlier in the twentieth century. Certainly, not all countries need to manufacture or innovate in health technologies. Those that do ma nufacture or innovate, however, face considerable production challenges. Although several important traditional health systems exist in India, such as Ayurveda and Unani, and provide significant potential for health care, my analysis focuses primarily on “mainstream” drugs and biologics alone and the imperatives and dilemmas generated by industrial capabilities. The pharmaceutical industry has moved from older chemistry advances in discovery, categorization, and isolation of effective components of age-old drugs such as alkaloids, quinine, and morphine to the serendipitous discovery of organic synthesis clues arising from abundant industrial by-products such as coal tar to advances in pharmacology and chemotherapy. Such advances have led to rapid growth and an avalanche of inevitable regulations. These have reorganized markets and public health priorities in safety, efficacy, pricing, and organizational forms in insurance, university-industry relationships, and public funding. Firms in this domain of “synthetic” pharmaceuticals face certain types of technology: discovery of new drugs (product technology) and the development of viable production methods (process technology) and improvements to existing technologies. Industrial and laboratory technologies straddle multiple levels of sophistication, from simply importing and repackaging imported

Introduction

11

medicines to l ocally producing bulk materials from raw materials (often local). Whether innovative in products, processes, or both, firms are inevitably constrained by low-cost competitors at one end and high-technology competitors at the other. It is process technologies, however, that especially demonstrate the firm’s crucial ability to develop a viable manufacturing method in making medicines. The firm needs to move from research laboratory to factory scale-up and eventual manufacture. The classic example, acetylsalicylic acid, was first synthesized in a laboratory in 1853 with acetyl chloride as an acetylating agent. However, it took more than 40 years for a large-scale production system with acetic anhydride as an acetylating agent to e volve. The result was Bayer’s phenomenally successful drug aspirin. Similarly, fermentation process technologies revolutionized the industry and enabled lifesaving commercial penicillin production. Two further types of manufacturing technologies are highly sensitive to scale economies: (1) bulk drugs (active pharmaceutical ingredients [APIs] in drugs) and (2) formulations (finished dosage forms, such as tablets, capsules, and ointments). Countries may specialize in or offshore formulations and the methods to store, transfer, and distribute therapeutics (packaging and storage technologies). Bulk drug producers can be of various types, generic or specialized suppliers. Although bulk drug production forms the primary source technology for pharmaceuticals, few countries today can manufacture bulk drugs from local raw materials. As health security becomes more urgent, so do these crucial industrial capabilities. Biotechnologies that have revolutionized health products are “any technological application that uses biological systems, living organisms, or derivatives thereof, to make or modify products or processes for specific use.” More generally, they are a field of applied biology with applications in medicine and are fundamentally based on process technologies in order to create proteins and cell- and tissue-culture engineering and/or use proteins, RNA molecules, and enzymes associated with specific genes and diseases. In industrial biotechnologies a typical three-step process consists of preparation phases, fermentation phases, and recovery and purification phases. Biopharmaceuticals that use biotechnologies have similar stages. In contrast to synthetic pharmaceuticals, “biopharmaceuticals” involve simply the use of biological elements in drugs. The drug-development cycle for both synthetic and biological drugs is technologically complex and financially burdensome.

12

Introduction

Innovation costs are significant. Estimates for a new prescription drug reaching the market are US$802 million in 2000 dollars, while the cost was $231 million in 1987 dollars, although some dispute these high numbers. Pharmaceutical process development is a three-step process from process research to prototype and pilot development and to c ommercialization from lab to factory. Similarly, “biologics” are a product class that comprises vaccines, blood products, and cellular and gene therapies. These are used in drugs, vaccines, and diagnostics of various types. Unprecedented shifts are now under way. The world’s pharmaceutical industry in 2008 was valued to near US$800 billion. Late industrial suppliers are the barbarians at the gate of industrial dominance of U.S. and European health industries. China has become the third-largest pharmaceutical market with a US$40 billion market, and India, Brazil, and Russia are all growing in double digits, estimated to add between US$5 billion and US$15 billion in annual sales by 2013, followed by (in the order listed) Venezuela, Poland, Argentina, Turkey, Mexico, Vietnam, South Africa, Thailand, Indonesia, Romania, Egypt, Pakistan, and Ukraine. Most are late industrial “developing” economies in South America, Asia, and Africa. Although technological changes after the 1970s created new opportunities for firms worldwide, in reality the twentieth-century pharmaceutical industry was remarkably static in ownership, dominated by a few resilient U.S. and European multinationals originating in the late nineteenth and early twentieth centuries. Despite mergers and acquisitions that concatenated their names, the leading companies stayed steady. The top three worldwide pharmaceutical leaders in absolute R&D spending in 2002 (many with their own biopharmaceutical divisions) were Bristol-Myers Squibb (United States), Pfizer (United States), and GlaxoSmithKline (United Kingdom). Of the top fi rms, 11 were U.S. fi rms (Bristol-Myers Squibb, Pfi zer, Johnson and Johnson, Abbott, Merck, Eli Lilly, Pharmacia, Wyeth, Schering-Plough, Medtronic, and Baxter), two U.K. (GlaxoSmithKline and AstraZeneca), two French (Aventis and Sanofi-Synthelabo), two Swiss (Novartis and Roche), two Japanese (Takeda Chemical and Sankyo), and one German (Schering). They give the industry its distinct economic traits: market structure (oligopoly, with concentration and stability of the configuration), barriers to entry (product differentiation, economies of scale, predatory pricing), multinational dominance, and global spread. Several regulatory institutions, such as patents, public health spending, and insurance availability, further segment these markets. Pharmaceuti-

Introduction

13

cals account for over 15% of measured global spending on health, but private spending by households fueled this trend in the 1990s, while public spending on pharmaceuticals fell faster than total public health spending. R&D spending worldwide was US$30.4 billion in 2001, and global drug discovery spending was $19.6 billion in 2002. Forty-eight blockbuster drugs, 8 of which recorded sales of more than US$3 billion each, kept firms busy. Eighty billion U.S. dollars’ worth of patented drugs went off-patent in 2005. Several well-known U.S. brands went off-patent in 2010–2011: Flomax, Boehringer Ingelheim/Astella’s drug for urinary disorders; Aricept, Pfizer/Eisai’s drug for early Alzheimer’s treatment; and Lipitor (atorvastatin), Pfizer’s drug for cholesterol, the world’s best-selling drug. In richer parts of the world, which have traditionally provided these technologically intensive cures, people are spending more and more. Health-care costs as a percentage of GDP between 1980 and 2003 rose from 8.8% to 15.2% in the United States. Not everyone is spending as much: Japan’s increase was less dramatic, from 6.5% to 8%, and many countries place caps on how much of a new technology is publicly procured or at what rate of cost increase. Although US$75 billion is spent on medical research, only 10% of this amount is spent on 90% of the world’s population. Th is may seem highly inequitable, but it is hardly surprising if the R&D of industrial economies is tied to the consumption and delivery of their health care. Countries either have all four technological capabilities (product, process, formulations, and packaging and storage) or specialize in one or another type. Process innovations are vital, often more so than products, but may be difficult to mea sure even in a process-enabled industry such as pharmaceuticals. Roughly speaking, many industrializing countries are primarily formulators and packagers. However, this changed dramatically in the twentieth century with the rise of sophisticated late industrial suppliers in medicines, vaccines, and bulk drugs from Egypt and India, Indonesia and China, and Cuba a nd Brazil to Nigeria and South Africa. But despite the technological advances that brought them to the gate, these late industrial barbarians now find their own kingdoms replete with noisy and complex challenges. Their urban consumption patterns that greedily seek new products and their states’ successes in building technological prowess have made their redistributive failures all the more apparent. Ranbaxy Laboratories is now India’s largest pharmaceutical firm, with $1.17 billion in 2005 annual revenues, and between 1999 and 2003 its U.S. sales

14

Introduction

alone jumped approximately ten t imes. India is also one of the world’s top three API manufacturers, with over 400 different APIs in its manufacturing menu. Pfizer and Ranbaxy (India) now have an agreement for Lipitor’s worldwide sales but delayed U.S. sales until late 2011. Ranbaxy also settled a case with Boehringer Ingelheim and Astella to sell the generic Tamsulosin hydrochloride under the brand name Flomax for two months before patent expiry. Dr. Reddy’s Labs is a close second Indian firm but has recently had several U.S. regulatory difficulties in Current Good Manufacturing Practices (cGMP) facilities and production. Mergers and acquisitions have continued, with about 37% of them structured around drug discovery arrangements. Biotechnology firms grew in size and in research spending as well. A distinct trend is discernible: leading products worldwide have come to be lifestyle drugs and those catering to diseases of predominantly urban lifestyles; cholesterol and diabetes drugs have been important markets for Indian firms. Table I.1 lists global sales of the leading multinational firms, augmented by their mergers and acquisitions. The Indian pharmaceuticals industry is jockeying to b e among the top 10 sales markets by 2020. Médecins Sans Frontières estimates that India now produces 20% of the world’s generic drugs, an estimated US$100 billion market. In 2008 its 10 largest fi rms spent approximately US$480 million on R&D. The Japanese firm Daiichi Sankyo’s majority stake in Ranbaxy was the country’s most lucrative pharmaceutical business deal. Similarly, in 2010 Abbott Laboratories purchased the health-care business of India’s Piramal group for $3.7 billion. Abbott bullishly predicted that the country’s pharmaceutical market would double by 2015 from almost $8 billion at the time. India is now one of the world’s largest producers of bulk drugs (active chemicals) and TABLE I.1 Global pharmaceutical companies by 2009 global sales 2009 rank

Company



Pfi zer (acquired Wyeth)



Merck & Co. (acquired Schering-Plough)



Novartis (to take over Alcon)



Sanofi-Aventis

 and down

AstraZeneca, Roche, Johnson & Johnson, Eli Lilly, and Abbott Laboratories

sour c e: “Pfi zer Tops Big Pharma Rankings after Year of Mergers in 2009 ,” Wall Street Journal, May 3, 2010.

Introduction

15

TABLE I.2 Share of top 10 Indian firms in domestic market

Company

Percentage of domestic market share, 2005–2006

Ranbaxy Laboratories



Cipla Ltd.



Dr. Reddy’s Laboratories



Nicholas Piramal India



Aurobindo Pharmaceuticals



GlaxoSmithKline



Lupin Laboratories



Sun Pharmaceuticals



Cadila Healthcare



Wockhardt Percentage of market share of top  fi rms relative to total Indian market

 

sour c e: William Greene, “The Emergence of India’s Pharmaceutical Industry and Implications for the U.S. Generic Drug Market” (Office of Economics Working Paper no. 2007-05-A, U.S. International Trade Commission, May 2007). Percentage of total market share of top 10 fi rms is consolidated from Economic Times, Orbis, stock-market quotes, and company research.

formulations (the diverse dosage forms sold to c ustomers). The industry is growing at 11% to 14% or more a year, with immense volume and significant competition. Many more multinational corporations (MNCs) have recently built partnerships with Indian firms. The market is competitive, with a growing invigorated science and technology infrastructure. As Table I.2 shows, only one non-Indian firm remained in India’s top 10 firms in pharmaceutical sales in 2005–2006 (GlaxoSmithKline had 6% of market share, while the leader Ranbaxy had 19%). However, some of India’s indigenous firms have recently been acquired by European or U.S. multinational firms. Indian vaccine firms have been breaking down existing market dominance as well, in several instances combining forces with international AIDS, TB, and malaria initiatives. In early November 2010, India’s Serum Institute announced a meningitis vaccine breakthrough that has turned the vaccine market on its head and induced public health euphoria across the world. On November 26, 2010, the Global Alliance for Vaccines and Immunisation (GAVI) announced a breakthrough combined-vaccine initiative that is rewriting vaccine

16

Introduction

pricing for essential pediatric immunization. The combined vaccine at much lower prices incorporates diphtheria, whooping cough, tetanus, Hib, and hepatitis B and is being offered by an “emerging market vaccine manufacturer” yet to be announced. The original 2004 price at which UNICEF procured and distributed the pentavalent vaccine with GAVI funds was $3.65. It will now be $2.58, and the only multinational with such certified capability, GlaxoSmithKline, is not in the running. The remaining three are South Korea’s Crucell and India’s Panacea Biotec and the Serum Institute. Public health security therefore often requires indigenous product and process capability and can benefit others as well. Independent India forged a new technological identity around public health access and self-reliant drug supply after a harsh colonial experience. In later years, at the 34th World Health Assembly of 1982 in Geneva, Switzerland, Prime Minister Indira Gandhi, in a well-publicized speech, expressed an attitude common in the country at the time: “The idea of a better-ordered world is one in which medical discoveries will be free of patents and there will be no profiteering from life and death.” In the past decade, with considerable public sympathy and admiration, the Indian firm Cipla, which had cut its teeth on public health nationalism and thus had developed sophisticated process technologies, courted significant controversy by offering HIV/AIDS drugs to African nations at a fraction of U.S. and European multinational prices. The subsequent price and intellectual property furor nevertheless forced down global prices and raised the number of tiered pricing schemes and charitable contributions, although multinational prices remained much higher than Cipla’s. Médecins Sans Frontières has been vociferously advocating through its “Europe! HANDS OFF Our Medicine” campaign against EU-India free-trade agreements. It calls for Eu ropean governments and multinational firms to stop influencing Indian public health and patent laws and to step away from the adverse role of multinationals in the Indian market and generics acquisitions when such business deals preclude lifesaving access and pricing. The organization says that India now acts as the world’s pharmacy, providing more than 80% of annual purchase volumes in antiretrovirals (ARVs). In particular, among pediatric ARV and adult nucleoside and nonnucleoside reverse transcriptase inhibitor markets, Indian ARV generics amounted to a s taggering 91% and 89% of 2008 global purchase volumes, respectively. The number of firms supplying ARVs also jumped from 4 (2003) to 10 (2008), and for generics as a whole, from 14 to 53 in the same period. The Waning et al. (2010) study

Introduction

17

shows that in 2008, 96 o f 100 countries bought Indian generic ARVs, which included several sub-Saharan African nations with high HIV burdens. The authors conclude that there should be sufficient international and national policy space, and that free-trade agreements and intellectual property issues should not impinge on Indian generics capabilities and pricing to continue to play this vital international health role. Similarly, the Serum Institute’s breakthrough meningitis A vaccine (MenAfriVac), developed with the World Health Organization (WHO) and the NGO PATH (Program for Appropriate Technology in Health) in Seattle, Washington, is now re-creating the world market at a very low price of $0.50 a dose. The vaccine was launched in Burkina Faso in December 2010 and will save thousands of young African lives annually. India is thus a new touchstone for the world’s complexity. It has one of the industrializing world’s most sophisticated pharmaceutical sectors but retains severe domestic health challenges. By 2005 it was the fourth-largest producer, with a market value of US$5.3 billion, 8% of worldwide production volume, and 1.1% of production value, or 13th worldwide (Organisation of Pharmaceutical Producers of India [OPPI]). In 1995, at the time of World Trade Organization (WTO) patent accession, India’s exports were less than US$600 million; by 2005 its exports were US$3.7 billion, over 60% of the industry’s turnover. In biopharmaceuticals, revenues were estimated at US$380 million for all biotech applications and US$270 million for biopharmaceuticals alone in 2002– 2003. India has approximately 100 Group 1 large pharmaceutical firms with some R&D capacity, including Indian and MNC subsidiaries; 200 Group 2 midsize firms serving primarily the domestic market; and 5,700 Group 3 firms that have struggled since India introduced its 2005 Good Manufacturing Practices of the revised Schedule M o f India’s Drug and Cosmetic Act, 1940. Fift y-eight foreign-owned MNCs have manufacturing bases in the country but accounted for less than 30% of market share in 2001, 34 firms had 24% of the market by 2006–2007, estimated to rise to 40% in 2011. India already had over 60 W HO-certified production facilities and over 15 U.S. Food and Drug Administration (FDA) facilities in 2000 . In 2005–2006, 18 Indian companies spent approximately $1.6 billion overseas for manufacturing firms and facilities in Europe, North America, and Mexico. This investment in infrastructure and manufacturing capabilities transformed the cities they inhabit. Indian firms export to 200 countries and provide a significant foreign exchange opportunity and source of technology exchange. Firms are aggressively expanding in transition economies. South-South market expansion

18

Introduction

is growing rapidly with the expansion of other developing and transition economies. In recent years firms have been aggressive in generics (off-patent) markets, moving quickly to a ssure exclusive licensing. Cash-rich Indian firms are changing town and city fortunes at home and abroad in an investing and acquisitive spurt of “buy” instead of “make” for the latest technologies and manufacturing and research facilities in Europe, the United States, Africa, South America, and other parts of Asia. Elsewhere, pharmaceuticals often coalesce around core business skills derived from chemicals and consumer products. But Indian firms are varied. Diversified business groups with backgrounds in telecommunications, petroleum, power, and construction have made ambitious forays into drug discovery and development. Manufacturing, however, still remains largely the province of medium-sized pharmaceutical bulk and formulation producers. In the south, Hyderabad City alone in the early 2000s produced more than 40% of the country’s bulk drugs, primarily through medium-sized manufacturing units. With regard to market variety, it is safe to say that India has experimented with a w ide variety of markets and regulation in pharmaceuticals and many other industrial sectors. Controversy and activism color pharmaceuticals and biopharmaceuticals; the Indian government, economists, firms, scientists, and social activists oscillate among socialist rhetoric, romance with central controls, capitalist reality, and open libertarian desires. The United Progressive Alliance government has stated its aim as 2% to 3% of GDP in health spending, which is likely to shift the industry’s strategies and government policies. The following chapters will examine technological advance in Indian pharmaceuticals (especially process innovations in generics), vaccines, and newer biotechnologies. As these chapters emphasize, Indian process capabilities were honed by at least three distinct market environments (and several subenvironments) that required constant state intervention, but with heavy or light hands: (1) a strongly nationally driven policy environment, (2) regulation and standards in exports, and (3) technological uncertainties, particularly for biotechnologies. As I argue in the following pages, technological evolution in the pharmaceutical sector in India was intimately connected not just to nation building and state autonomy, nor to patent rights alone (as is often suggested), but to a contingent link between production and redistribution. As this nexus changed over time, with new coalitions for workers and citizens alongside technologi-

Introduction

19

cal advances with their own momentum, new pressures on both production of medicines and their (re)distribution arose. Whether the explanation is the process patent regime, the importance of (Western) MNCs, enlightened state policies, or low wages, each contains a kernel of the truth. Many other industrializing countries of the time had similar policies, making India visionary in some respects, but not unique. Data, Methods, and Structure This book is a reflection of work from approximately 1996 to the present that covers both the production and demand sides of health technologies and the labor and sociopolitical context within which welfare entitlements exist. At the time of the empirical study for this book, the pharmaceutical sector was firmly established, but the biotechnology sector was in some tumult. Pharmaceutical firms were also spread over multiple states and cities, making primary analysis of firms in a limited time and budget frame close to impossible. The considered compromise sacrificed no rigor and included a detailed qualitative secondary analysis of the pharmaceutical sector and supplemented with an indepth primary study of the biotech sector. The initial data collection occurred informally as early as 2001 and continued well into 2010 with key sources and updates to information on several firms, products, and processes. I chose to a nalyze evolution at the level of the nation-state because it almost exclusively defined the overall context of the Indian health sector. Although there are more recent promising analyses looking at specific bureaucracies, by and large, the Indian nation-state’s impact deserves to be assessed as a whole and under several governments that have come and gone. Where more local political economy has been relevant, I ha ve alluded to i t in the chapters. Certainly, organizational studies can only add to understanding the contingent nature of states. Essentially, the firm-level cases highlight the policy concerns of the time. There were two firm samples. The first comprised all-India pharmaceutical leaders, of which 5 Indian-owned market leaders were selected by 2001 data characteristics on sales volume, R&D spending, technology portfolios, and profitability. Systematic company histories, product and process innovation data, and industry-level changes were collected. Some secondary descriptive data were used to understand the business profiles of these firms and benefited from existing literature on this more established sector. I i nterviewed some

20

Introduction

pharmaceutical multinational firms as well as biotech or other types of firms (such as telecoms or construction) moving into pharmaceuticals. I also constructed several intermediate taxonomies from secondary data to differentiate those paths emerging from a public health strategy and other paths through which firms learned and competed. The second sample comprises localized biopharmaceutical firms in the two southern Indian cities of Bangalore and Hyderabad, considered to be India’s upcoming biotechnology centers. I c ollected detailed primary data through structured, open-ended interviews and various descriptive statistics. Interviews provided material on technological learning, organizational changes, and broader market questions. A survey would have been extremely unlikely to elicit useful responses because of the technology details and the confidential information often discussed in these conversations. The interview findings are therefore discussed without attribution, according to the agreement at the time of data collection. Data analysis and interactions with industry, labor unions, and health organizations continued over several years after the interviews were completed. Using a snowball method, I initially made connections with people across Bangalore and Hyderabad well in advance of interviews, which then led to a potential list that looked robust on the basis of the types of firms, their par ticular technological focus, and their own often itinerant professional history. I  had sizable connections in the sector and with health and technology experts in the United States and India that opened many doors for me. The sector was still concentrated and small, several of the firms had quite recently begun work in specific areas, and several continued to have crucial ties within India, but also to labs and personnel in the United States or to venture-capital funds elsewhere. Fift y detailed Indian interviews were carried out with firms, academic scientists, and policy shapers between June 2002 and August 2003 (47 in person and 3 additional telephone interviews) and 4 more by telephone by November 2003. Several of the interviews ran for two hours or more, most for approximately 45 minutes to an hour and a half. I met more than once with some interviewees for clarifications and continued discussions and continued to do so in person on subsequent visits. My goal in interviews was primarily to map the technical and institutional components of firm-level learning set against market structure and the production goals of the state. A s econdary goal was to u nderstand how firms responded (both their purported goals and what secondary data actually

Introduction

21

revealed). A third goal was to track the shifts in industrial policy over time. My earlier and continuing work on Indian social security and health insurance and my involvement in understanding health-care delivery in some instances allowed me to t rack these two triad elements broadly against the technological-advance timeline. Although the focus was primarily on indigenously owned firms, I a lso interviewed some multinational subsidiaries to obtain their perspectives and to p rovide a c ontext for competition policies and the broader developmental climate that guided Indian-owned firms. The appendix to t his chapter includes sample questions from the interviews. These ranged from asking interviewees about their own professional trajectory (which usefully mapped not only their expertise but also changing technologies, shifts from the public to t he private sector, and their own response to the policy and market environment of the time) to questions about the technological challenges of the firm, their organizational responses, their competition, comparative advantages, physical infrastructure, and a wish list for policy changes. Those who study an established cluster and success story such as Silicon Valley have an easier task in several respects. In contrast, the Indian biotechnology sector is still difficult to pin down with regard to both cohesion of clustering and industry success. The pharmaceutical sector is a more robust animal, but dramatic shifts are still taking place at the level of technology portfolios and firm-level strategies. Bangalore and Hyderabad, too, were unstable ground, with policies and the political landscape changing often, and development priorities at the regional state level waxed and waned. In neither city has there been much attention to reconciling urban growth around R&D and manufacturing in these sectors with health-care demand or delivery. Many leading firms in both pharmaceuticals and biotech have suffered mixed fortunes. New firms and new strategies have also arisen in both pharmaceuticals and several biotechnologies across the country: Ranbaxy was bought by a Japanese firm, several firms have been delisted at various time from the Indian stock-market indexes, and many (if not most) have run into certification and legal challenges. Likewise, dramatic new changes have occurred with far-reaching implications on the consumption side, with a n ew social security bill for informal workers, renewed interest in labor-market deregulation (particularly contractlabor changes), and new institutional mechanisms for contributing to health insurance and wider social security. Similarly, dramatic changes have been

22

Introduction

under way in delivery. Private, for-profit companies now manage the bulk of urban physical and institutional investments in health-care delivery from clinics, immense hospitals, diagnostic labs, and pharmacies. Streets in Bangalore and Hyderabad are lined with names such as Apollo-Sagar, Reliance, Columbia Asia, and Narayana Hrudayalaya, as well as nonprofit, free care using high technologies, such as the Satya Sai Medical Institutions. In many instances industrial supplier fi rms in pharmaceuticals or stem cells (such as Reliance) manage hospitals and health insurance simultaneously, leading to significant conflicts of interest. A complex future similarly awaits competition and antimonopoly regulation. Despite this immense surge in nonstate actors, the public sector has not disappeared from any of the three dimensions of the triad. There have been turmoil in public-sector vaccine units and foment in public-sector laboratories. Many are now privatized. However, publicly run hospitals continue to provide acceptable and sometimes even very good services, and state-sponsored (especially in Karnataka) area and occupational group insurance programs have sprouted and spread despite competition from private health plans. The Indian nation-state and regional states continue to be important but somewhat unpredictable, uneven institutions. The Chapters Ahead This book is divided into three parts and several chapters, structured to reflect growing Indian technological prowess and to provide glimpses of how demand and delivery fared together. Part I, “Market Menagerie: Planning the Health of Late Industrial Development” (Introduction and Chapter 1), lays out the core arguments on development and regulation beyond market-failure arguments, the need for evolutionary frameworks in attending to technological capabilities, and the contingent nature of technological advance. In the Introduction I have emphasized that health technologies require sophisticated industrial capabilities, a r eason that many countries, industrial and industrializing alike, import and do not manufacture their own products. Such technologies may constrain and direct the plans and politics of late industrial economies. The Introduction has presented classification of such technologies and descriptive statistics on Indian capabilities set against global trends. Chapter 1 introduces the theoretical lens of evolutionary developmental states and the need to mo ve beyond traditional market-failure approaches.

Introduction

23

The chapter includes a discussion of why an evolutionary perspective can be reconstructive instead of merely theoretically deconstructive. Marrying the insights from the economics of technical change with more traditional political economy analyses of development can provide more nuances of contingent power and the autonomy of states and therefore more clues for planning within and outside the public sector. The chapter begins with the economic and political questions of industrial and health policies and the case of India. It emphasizes the characteristics of late industrializers: those with strong industrial supply can be more fractious than countries with weak supply bases and may have weak delivery institutions and organizations or weak demand. Part II, “1950–2000 : Indian Market Menagerie” (chapters 2–7) provides the empirical core of the three markets and their submarket environments of Indian pharmaceuticals from 1950 to 2000 . The chapters are primarily chronological, and therefore chapters on demand (4 and 6) are interspersed among those that focus on supply and the varied building up of production capabilities (2, 3, 5, and 7). Chapter 6 on vaccines captures both supply and demand sides. No subsequent environment has reproduced the clear policy goals, the leap in technological prowess, and the state-controlled investments of the first market environment and its submarkets. Chapter 2 lays out the challenges for public-sector technological advance and its political climate from 1950 to 1970. The state exhibited autonomy and coherence symbolic of an interventionist developmental state while it was constrained by the need to build private manufacturing capacity and emasculated by foreign technology dependence. Yet despite these constraints, the market environment was relatively well planned and centrally controlled and allowed industrial and health goals to find some (if not perfect) technological and social convergence. Data are presented on the chronology of policy shifts, public investments and their character, and the struggle for self-sufficiency. The analysis of the private sector’s rise continues in Chapter 3. In Chapter 3 I investigate the first state-led market’s second subenvironment on private capabilities. By a strategic use of “essential” drug categories, the Indian state created private-sector capability in core public health areas, especially antibiotics and anti-infectives. Unlike popular explanations that Indian supply-side capabilities were built entirely from its process patent regime, the material of this chapter explains an array of regulatory structures, from patents to public health exemptions, the Monopoly and Restrictive Trade Practices Act, 1969, the Industrial Development and Regulation Act, and the New

24

Introduction

Drug Policy. It establishes the specific markets in which technological learning led to t he eventual dominance of the domestic market by Indian private firms. The chapter uses several examples of technological learning and its challenges for private domestically owned firms. It shows the challenges that the state began to experience in shaping the private sector’s rise. Many health-care challenges, and specifically access to medicines, are best regulated on the demand side, not the supply side. The first market environment signified state controls over production and delivery, but Chapter 4 focuses on the pressures of demand amid low employment growth and the 1970s politics of redistribution. Although the state had sh own quite convincingly that it was capable of tightly structuring and regulating markets in the first environment, various social movements and a growing demand and delivery unrest were evident in the lead-up to t he second environment. My focus in this chapter is to s tep back further to t he demand and delivery institutions under pressure from technological advance. India’s tests came to a head in the 1970s with the nexus of industrial pressures, technology-transfer bottlenecks, and an increasingly vocal discontented social base. These tests of the state were heightened by tensions between fiscal decentralization and centralized state plans, slowing employment growth, and the challenge of fi nancing and building collective institutions for health insurance. Industrial supply and technological capabilities exacerbated the pressures on political parties and fomented conditions that had given rise to new voices for economic opportunity. Corporatist, labor, and caste-based alliances wrought by Indira Gandhi and the Congress Party were squeezed by technological changes. The chapter covers the first and second periods of Indira Gandhi’s rule in India and her par ticu lar brand of populist redistribution. It focuses on union and other orga nizing strategies, the rise of women’s movements and other identity groups, and the changing context for universal health entitlements within and outside the workplace. The state’s inability to reconcile the politics of labor and other identities with broad-based delivery and demand set the stage for the increasing skew toward export demand as technologies advanced. The twentieth century saw immense changes wrought by the network effects/externalities and switching costs of standardization of products and processes in several industries. India’s synchronization with this world economy complicated the state’s task of regulating its firms’ successes. This second market environment selected and rewarded a par ticular form of technological capability, a “ learning by proving” through rapid response to certification

Introduction

25

quality. In Chapter 5, by analyzing cGMP facilities, generic drugs competition, and vaccines, I describe how harmonization-driven global regulation has allowed Indian fi rms to meet external standards and hone its past process capabilities. I demo nstrate this by (1) describing three “W” market subenvironments—the U.S. Hatch-Waxman Act, the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement), and WHO procurement; (2) the progression of Indian firms from one tier of regulatory standards to another; and (3) U.S. FDA and cGMP compliance data. The irony of the second environment and the growing Indian export flow lies in the absence of large domestic institutional buyers. Although generic drugs present a particularly attractive market and learning opportunity for developing-country firms, the relative absence of health insurance coverage, other collective buying instruments, and medical reimbursement programs creates a l ow probability of systemic linkages with domestic demand and a high probability of servicing export markets. In other words, Indian exports depended on the welfare systems of other nations. Chapter 6 examines vaccines. Almost three decades after independence, India finally articulated a c oherent vaccines policy in 1978 despite the fact that many colonial vaccine institutions had e xisted since the 1890s. In the 30 years from 1971 to 2001, public-sector suppliers of the Indian Expanded Programme on Immunization dropped from 19 to app roximately 6, w hile private suppliers dropped from 12 to approximately 2. A series of regulatory challenges plagued the industry in quality, scale, and ownership in a climate of public disinvestment. Vaccines have unique technical, social, and economic characteristics in manufacturing and procurement. The second market environment created new triad tensions but increased international and national procurement demand. In Chapter 6 I analyze the technological characteristics of several subareas of Indian vaccine expertise and the disparities between capabilities and domestic health access. Building on detailed analyses of vaccine advances, mature vaccine use, and new technological opportunities and a s eries of interviews in India and abroad with procurers in New York and Geneva, I describe the advantages and lost opportunities with procurement’s assured demand. Using an evolutionary schematic, I illustrate how technological prowess and assured demand were insufficient to manage India’s expanded immunization supply and delivery needs. Demand was necessary but not sufficient; better regulatory design and broader and deeper commitments to health were

26

Introduction

critical to further technological gains and their exploitation for increased access. However, vaccine capabilities lead us to a n ew, third market environment of biotechnologies, where both technologies and markets were more difficult to predict and regulate. A paradigmatic shift occurred in the field of biology in the late 1970s that brought new breakthroughs in genetics and cell and molecular biology, providing new ways of studying humans and disease, new techniques and models of disease, and possible therapeutic candidates. Rational drug design permitted researchers to “design” molecules (the discovery) with certain characteristics in less labor-intensive ways with a higher “hit” rate. They began backward from the known disease, and sets of molecules were designed to fit the needs of treatment using a combination of drug design and random screening. New technologies often require new regulation and new market rules. Unlike earlier periods, manufacturing capabilities alone were insufficient. Private firms and public research had to move beyond process scale-up and manufacturing to new scientific and commercial relationships. Chapter 7 b uilds on detailed interviews with leading biotechnology firms in the southern cities of Bangalore and Hyderabad. I discuss organizational models in flux, technology challenges, and new business potential. The compressed timeline from the onset of the new technologies of the 1970s to t he frequency of innovation in the field has blurred signposts and policy goals. Firms now face far greater market uncertainties; “biogenerics” neither are well defined nor have clear market structure and regulation. I present technical and orga ni zation data on how this lack of market assurance limited Indian firms to niches with well-defined proof of concept, such as vaccines, antibiotics, and a few exploratory plant and other therapies. Part III, “The Institutional Basis for Industry and Health,” consists of two chapters that further differentiate the book. The goal is not simply to tell the reader about India’s par ticu lar sectoral path, but to ask what the analysis tells about developmental nation-states and market variety in late industrial economies. My goal in this last part is to push further the boundaries of comparative institutional analysis and the situating of nation-states and industrial development against the evolution and scale of community institutions. In chapters 8 and 9 I step away from India altogether. Chapter 8 therefore moves to global comparative analysis by comparing the Indian story with that of several early and late industrializers. Coming full circle with the investigation of national and local markets, this chapter explores a wide array of coun-

Introduction

27

try health experiences and their struggles with the institutional triad. These include postwar and contemporary European dilemmas with examples from the United Kingdom and Germany to Australia and Japan and to the paradigmatic U.S. so-called market model. I use the triad to map t he world’s countries into different institutional permutations along these three dimensions. Using the triad heuristic, I t hen emphasize in a table the differences among countries in the twentieth century. In some cases I provide more details on the evolving historic scope of work, place, and workplace benefits and the challenges to employment-based entitlements in both sets of countries. Chapter 9 d iscusses the local and community institutions that underpin development and markets for nation-states through a w ider, considered speculation of health entitlements and market exchange from historical, geographic, and moral perspectives. If national health reforms are to be successful, a c onceptual understanding of markets and of local redistribution in health entitlements (and distribution of medicines) is necessary. Today’s rhetoric about knowledge economies and high-tech cities has distracted us from a  more integrated understanding by focusing on the metropolis as a site of investments. In urban areas from Bangalore to B oston, significant pharmaceutical and biotechnological concentrations are situated amid large health and economic inequities. Karl Polanyi’s “market society” did not emerge spontaneously as the natural order of things. He established the link between the breakdown of local markets in the town economy over a period of time, alongside the rise of commoditized labor, and the peculiar cruelties of the Poor Laws that forced men into wage and welfare dependence. Drawing on a discussion of geographic market expansion and utopian communities of the past from Gandhi’s Sabarmati Ashram to the Owenites, I discuss various approaches to cities juxtaposed with increasingly concentrated life-science investments. Neither the factory floor nor the union is likely to solve the modern metropolis problem of how productive life-science investments can sit alongside glaring health needs and demand. This chapter explores the political philosophies and local context that undergird market exchange. I argue that the regulation of production, delivery, and consumption colors and textures markets in distinct spatial, temporal, and historical ways. The Conclusion provides perspectives on how to analyze markets and states within the context of future plans in the world’s late industrializing economies. It stresses the need for a “soft” technological determinism in understanding the

28

Introduction

momentum and influence of technical advances on demand and delivery. Technologies have a character and momentum of their own, but they are created, mediated, and regulated through politics and plans that in turn shape the markets of that epoch. The chapter ends with a discussion of market moralities and economic plans, and planning as acts of orchestration. In summary, then, this book aims to contribute to the debates about developmental states and markets by analyzing how states build both health access and industrial capabilities simultaneously. A distinguishing feature is its longitudinal analysis of a single national context, India, from 1950 to 2000, which it places in an international comparative context of pharmaceutical and biotechnology regulation. It comprises a one-country, two-subsector study that combines (1) a study of innovation categories and products and processes and (2) a s et of qualitative case studies developed from structured, open-ended interviews and detailed secondary analysis of product and process changes. By doing so, I d raw out the special nature of late industrial suppliers when technological learning, even if successfully navigated, may constantly place pressure on policy and the politics of development, creating regulatory schisms and challenges in reconciling national health reform with concentrated local production and local economic strategies. The later chapters will underscore the par ticular challenges of late industrialism by contrasts with the health sectors of advanced industrial economies. Market Menagerie adds important insights on development processes to the economics, planning, political economy, business, and health literatures and to the now-urgent worldwide task to rethink access to health technologies. Appendix: Sample Questions Interviewing as a te chnique makes it inevitable, indeed necessary, not to a sk every question in each interview, but to adapt to the interviewee. Conversations were sometimes extremely detailed on one aspect of the questions, and I let the interviewee exercise considerable latitude in defining the order of priority. The health-care sector encompasses a variety of organizations and learning approaches. Structured, open-ended interviews allowed me to c ustomize several of these questions as the interviews proceeded. A survey instrument’s questions would necessarily have been imprecise, and findings likely would have been misleading. Invariably over the period of the interview or across one to two interviews within the same firm, all the questions below were posed and

Introduction

29

answered. It was customary that a business question would often be referred to someone else within a larger firm, while both technological and business questions were fielded by a single person within a smaller firm. Where interviewees were policy advisers or policy makers (usually bureaucrats in certain government agencies or departments), the questions below were scripted accordingly. Very often, interviewees asked me questions as well, especially about strategies pursued by firms and governments in other countries and cities with which I was involved. 1. Professional background: Can you tell me about your background and training? How did you come to be the CEO/head this R&D position? Each interview began with asking the interviewee about his or her professional background. In many instances scientists, chemical and biochemical engineers, and CEOs either had sp ent some part of their careers in India’s public research laboratories or had done their training abroad, or both. Often this early conversation set the stage for par ticu lar issues to b e discussed in much more detail. In those instances where the CEOs were not trained in research, this question applied to directors of R&D or to academics in their positions as heads of prominent chemistry, biology, or computational or engineering fields relevant to this industry. 2. Technologies/organization/markets: How did you obtain the reagents for this study? Is cancer tissue easily available if you should require it? Why did you vertically integrate this technology into the company? What were the circumstances where you were able to shift from culture X to culture Y? How would you describe the life cycle of this product or process? What markets did you enter by this strategy, and why not the market for this other product? Why did you make this in-house instead of licensing this from company Z? In your opinion, can the best Indian firms in this area today break into or redefine the global market or U.S./European markets for this product or process? I asked several technical questions that varied considerably depending on the interviewee’s particular expertise and the company’s profile. The questions often generated a detailed conversation about market structure, scope, and challenges to break into certain markets. I probed further why some organizational formats had worked to address particular technology problems, but had failed in others. Of particular interest were the diverse types of organizations and

30

Introduction

business strategies built around specific types of technological learning, which I describe in Chapter 7. 3. Technology/skills/education: What blending of technology specializations has your company pursued, given the skills your researchers and engineers have? What sorts of training and techniques has it been difficult to acquire/find within the country or region? What do you know to be skills you can re-create in-house if you need to? How, if at all, are the technology skills and conceptual or practical approaches different here (in Bangalore/Hyderabad) from what you yourself experienced in the United States (or Europe), where you did some training? What aspects of biopharmaceuticals or other biotechnologies connect with other sectors (agriculture, chemicals, biology, information technology), and which ones have you attempted to foster and why? Each interview devoted a considerable amount of time to questions 3 and 4, attempting to decipher not only whether firms were at the forefront of their fields, but also whether they themselves were able to articulate what “cuttingedge” meant for their areas and how they proposed to get there. 4. Policy, plans for markets: What policies have helped your firm most, and how do these relate to the markets for your products and processes? How do you attempt to influence these debates? What infrastructural, research, or other policies have shaped the markets of your firm? How does availability of these facilities and instruments define your research and strategizing about market penetration? Why did this technological advance X of yours then stop here? Why did your firm/department not pursue this innovation and commercialize this work to venture into new markets or break into mature ones? In your opinion, who should be investing in these facilities? Are these government responsibilities, or can firms build in-house and manage these the best? What is your cost equation for investing in these new markets and the timeline for breaking into them? How much venture or other capital do you need? [For conglomerates, this question was often discussed within the ambit of organization in question 2.] What kinds of plan or policy frameworks would minimize your uncertainties? What types of markets would best address the social concerns of a health context such as India’s?

Introduction

31

The discussions often addressed price regulations, size incentives, patents, and monopoly and other restrictions (several issues addressed in chapters 2, 3, and 4). Often firms were frank about stating that the plans and policy frameworks hugely shaped whether they adopted a certain strategy and could even describe whether something “cutting-edge” was feasible in India. In some instances, firms were able to describe how even if something advanced emerged in India, the policy and regulations context prevented this advance from being appropriately recognized and diff using throughout the economy. Many researchers and CEOs had strong views on the social element and the role of policy to si mplify getting products and processes to p eople, but equally on how scientists see the last-mile problem of access, and who (firms, academics, or both) bears responsibility for establishing proof of concept and testing for local living conditions.

1

Well Beyond Market Failure

A Time for Integration: Evolution of States and Markets This chapter looks beyond market-failure explanations in understanding the health sector in late industrial states. It advocates for a better appreciation of markets as processes, not immutable institutions, and for a wider, more evolutionary understanding of variety in markets and developmental states. Such an approach will serve us better across time and geographic scales. Rather than “the” market, the term “market menagerie” captures the many species of extant markets. The task of development is to s tructure the markets within this menagerie by plans, regulation, and other tools to serve broader developmental goals for city and nation. I argue here for an analytical lens with three essential components: First, move beyond traditional market-failure explanations in economics and political economy. Second, draw from insights of the economics of technical change and its evolutionary contributions to provide essential grounding in institutional variety. Third, integrate urban and regional planning and industrial geography for a local institutional lens on technological advance and community institutions. By ma rrying these evolutionary, institutional approaches with the more traditional developmental political economy of “underdevelopment,” “development,” and developmental states, we can appreciate how to move beyond market-failure approaches and to assess the institutional triad’s dilemmas. 32

Well Beyond Market Failure

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Technology’s Insights for Markets Analysts have often argued that certain medicines and vaccines remain unproduced or unavailable because of “market failure.” Many of these failures arise from more traditional arguments of public goods and externalities, and still others (still traditional) because of monopolies. “When markets fail” is then the very broad rationale for demarcating nonobjectionable boundaries for state and planning action in producing public goods such as health, defense, education, or public transportation. There are several drawbacks to thinking of developmental interventions as primarily justified on market-failure grounds. I argue here that although the health sector has many market-failure candidates, the state’s developmental task moves well beyond them. Moreover, such an explanation irrespective of the technologies involved is simply misleading. Technological advance often creates new markets and new pressures on states. As technologies differ, so do regulations, market structure, and the plans to accommodate them. Indeed, technological learning itself may require market failure such that specific priorities may be achieved. For instance, where late industrial production is concerned, states often step in to ensure that price is not equal to marginal cost and purposefully induce market-failure conditions so that firms can learn to adapt to imported technologies and produce them in-house. Some failures arise, it is said, because markets are underdeveloped or absent in developing economies or are closed to more efficient private-sector participation. Indeed, market failure as an idea is so dominant that most textbooks describe development in no other terms but as a colossal symptom of market failure and sharply restrict when states should act. In turn, many “developmental states” have usurped that mantle by combating market ideology and building interventionist states. However, unlike sectors such as garments, footwear, or video recorders, the health sector calls for a dramatically different approach to markets and planned economic development precisely because both industrial and health entitlements must be considered. Michael Lipton has correctly argued that perhaps the most challenging issues in development studies are those that arise from market success and government success, not the tired arguments of market and government failures. The commercial success of the pharmaceutical industry complicates health care in many ways, as we shall see, but it can also provide a powerful boost. It is precisely because the industry is so successful that we should look more closely at markets and state choices.

34

Well Beyond Market Failure

What is this “developmental” approach? Although this approach has a tautological quality, we often think of “developed” economies as those whose more visible institutions do not obviously contradict one another (although there may well be inherent conflicts that become visible over time). This notion of development accommodates variety and diversity. If development is seen as a complex process of creating and legitimizing institutions that mostly complement one another, and at the same time including more interested parties at the table, then states and urban and regional planners, for instance, need not step in only when markets fail. They may also build complementary bundles of markets and nonmarket institutions to provide an inclusive umbrella for different actors. These may require creating for-profit or not-for-profit organizations, supporting those that arise, or ensuring, for example, that pharmacy locations are even across a c ity. They may be called on to ensure that some groups are not excluded from insurance coverage and that children’s health does not suffer from the private sector’s pullout from some pediatric vaccines. In this realm states and anticipatory plans are especially vital because the public sector is not only a c ritical producer, funder, and buyer of health technologies (defense being an important reason to invest in health as well), but is also vital to del ivery and the design of institutions for collective consumption (such as insurance policies, but also easily accessible clinic locations or mobile vans). The economic organization of the industry can then be reflected nationally. Some nation-states are practically monopolies: the United States dominates global production and consumption of medical devices. Yet, not surprisingly, its production and consumption are closely wedded to t he country’s policies, such as those on domestic insurance, hospital ser vices, and medical prescription practices. Extant Systems and the Weakness of Ideology for Reform Even if reform is vital, an overdependence on market failure and adherence to market ideology are insufficient for health-care reform. After all, libertarians will find to t heir dismay that the state is actively present in all health-care systems; socialists may find access challenging despite universal rhetoric; and several capitalist systems, despite an emphasis on “free” markets, have nevertheless attained universal access. In every national system health goals may be accomplished by diverse mixes of markets and nonmarket institutions. In

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other words, markets per se lead to n o par ticular forms of economy; their variety, mix, and regulation (by state or other planning institutions) do s o. The key to responsive health-care systems is agile, adaptable, and responsive regulation balancing industrial supply, delivery, and consumption. I pose development planning here not as regulation of single acts in single markets, but as the integrative, fine-tuned management of market and institutional variety. This view is especially important in industrializing supplier countries like India and Brazil, where technological capabilities may outstrip the regulatory context for managing delivery and consumption simultaneously. The moral fiber of nations and their health-care systems is also evident in the choices and strategies of their national and local states. Indeed, in practice, neither market liberals nor conservatives object strongly to s ome state intervention in health-care practice because of some shared moral notions unique to countries in order to preserve minimum standards and practices. This morality in health care may support state actions even if the same camps are widely opposed on state intervention in industrial policies. Therefore, the conventional reading that governments step in where markets fear to tread is incorrect. States always plan and regulate in both health and industry; state intervention is simply a matter of degree, usually agreeable even to those who may, in principle, be opposed to it. Neither will pure theory guide choices for economic practice because health-care markets are far from competitive. In principle, perfectly competitive markets and equilibria are supposed to assist Pareto optimality. If an initial wealth distribution is chosen suitably, it could bring about a P areto-efficient distribution. But Pareto efficiency in welfare economics also requires that any good’s distribution (such as health care) be nonunique; that is, not only must the solution be such that any change will make someone worse off, but the solution should be true of all distributions and must aim to make everybody better off. Kenneth Arrow’s emphasis was that optimal social states could be achieved by “successive approximations,” where markets take over the resourceallocation task, and where public policy handles the redistribution of income. However, because health-care markets are not competitive, Pareto efficiency in its strictest sense is a fuzzy guide to regulation. Moreover, localized economic and health-care planning raises other concerns about community institutions. Markets do not exhaust our forms of exchange or social institutions, after all. Uwe Reinhardt and others have argued that the individual utilitarian basis on which a voluntary exchange of

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Well Beyond Market Failure

health ser vices takes place also holds together poorly even under the less stringent case of Kaldor-Hicks optimality, where those that are better off can compensate in various ways those that are worse off. An individual utilitarian basis also breaks down as a means to an end when communities, not individuals, are targets. Proxy institutions also complicate the individual’s role in areas ranging from of insurance to intellectual property. Combine industrial and health worlds, and these utilitarian issues become practically intractable in determining the individual’s interest and political entitlements in an increasingly collective, proxy world of contracts and property rights. Therefore, situating health technologies at the intersection of local community institutions and the disciplinary areas of innovation studies, welfare theories, and international political economy can prove useful. Thus there are strong philosophical, theoretical, and, most important, practical challenges to utility as a basis for theorizing about health technologies. Therefore, on both marketfailure and equity grounds, state intervention is guaranteed. The private sector can certainly solve some of these problems; in others, especially with regard to equity, this may not always be possible. Moreover, the mainstream economic view of markets as central to economies and as the institution that makes them operate at full potential includes the view that other, nonmarket institutions “hold markets back.” This scholarly bent toward deregulation pushes for understanding broad market dynamics without much institutional detail and focuses on market-supporting policies that legitimize markets as the primary (and sometimes the only) economic institutions of interest. This trend narrows the debate of economic institutions in two ways: first, it limits studying market variety, and second, it limits nonmarket institutions. This need to look beyond markets and market failures is vital. In planning for real-life, several nonmarket, nonprice considerations enter health care all the time: expertise, availability, delivery infrastructure, experimentation, trust, reputation, hope, risk, and scientific and engineering breakthroughs. Each is difficult to analyze purely in market terms. For example, in pharmaceuticals, a complex regulatory mix of organizations and institutions determines the adoption of new technologies. For example, the state often leaves the introduction of surgical instruments to clinical expertise before it steps in to legitimize the practice and make it routine. Regulatory and payment rules for drug and vaccine markets too can be especially heterogeneous, depending on reputation, trust, and a society’s acceptance of a particular healing practice.

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These nonmarket institutions often link an individual’s access or costs to society’s values about how the costs should be shared. We thus reduce markets to pure individualism at our peril because they have obvious social and collectivist natures. Societies may subsidize contraception for individual choice or population policies, but not Viagra; sometimes our health systems do just the opposite, making individuals pay more for contraception. Societies may sometimes require us all to pay collectively more for treating workplace accidents, but not for smoking-induced lung problems. Similarly, in some countries insurance firms, not states, are powerful arbiters; they routinely decide individual and collective benefits from experimental therapies for cancer or new biotechnologies for Alzheimer’s. These market and nonmarket decisions for industrial production of medicines are also physically and spatially experienced in distinct ways: insurance and pharmaceutical firms, hospitals, ambulance routes, and pharmacies may be present in some parts of cities, they may agglomerate, or they may selectively offer some ser vices and physical space to only a few and long waiting lines to others. The divisions within health care also differ by country and technology system. Although I focus on pharmaceuticals and biotechnologies here, systems of medicine may differ across countries and regions within them. Allopathic technologies (“Western medicine”) are extraordinarily different from homeopathy and Chinese, Unani, or Ayurvedic treatments. Insurance coverage norms (which are socially determined as much as they are price driven) may pay for these treatments in some countries and not others. In some, this is a matter of traditional use and trust; in others, standardized testing for safety and efficacy precludes other systems of medicine from coverage. Medical associations and regulatory agencies can be equally virulent in debating coverage when health and profit stakes are high. For instance, as plant-based therapies and “natural” treatments have been commercialized, regulatory agencies have struggled to determine the appropriate systems of accreditation, treatment, and payment. Beyond Minimalism Therefore, exhorting states to “stay out of markets” until market failure occurs is faulty on at least three counts. First, empirically, there is no extant health-care system without state regulation. Second, one of development’s primary tasks is to mitigate broader economic and social risks that accompany economic change. The necessary social protections include health-care entitlements and

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Well Beyond Market Failure

counter the intensity of market exposure and dependence of individuals on labor and continued good health alone. Third, states have roles beyond inducing competition and structuring the rules of the game. Planning for good health and the necessary supply capabilities cannot rest on minimalism. Hayek’s followers may limit the state’s role to minimalist economic reasoning, but real health-care systems encompass few candidates for such policy reticence, especially when technological changes shape new market challenges for the state. Even if states have no more privileged information than private actors, they must act all the same for safety, equity, and building capabilities. States must “steer,” not simply “row,” to act as the public realm for the identity and beliefs of our society on health entitlements. For industrializing countries, the developmental state steps in to correct for market failures, but equally and influentially to steer the economy. Not surprisingly, developmental states are many things to many people. Early on, Chalmers Johnson, in analyzing the extraordinary history of Japanese industrial advance, required of developmental states that they have “a developmentally-oriented political elite committed to b reak out of the stagnation of dependency and underdevelopment and for whom economic growth is a f undamental goal.” Others have variously defined the developmental state as “a state that puts economic development as the top priority of government policy, and is able to design effective instruments to promote such a goal” or “a state which can create and regulate the economic and political relationships which support sustained industrialization.” Most agree that the developmental state must be able to use the private sector’s own economic goals as a crucial instrument of broader development. This is a difficult political and administrative task; certainly it would be wrong for us to expect developmental states always to dominate this relationship. One important reason that market failure is too limiting and that developmental states are no leviathans is that “development” itself has multiple goals. Moreover, democracies such as India, Mexico, South Africa, or Brazil face par ticular challenges in reconciling their economic and social goals of development as technology changes. Domestic social and political structures, however, have crucial effects on the state’s ability to pursue plans. Atul Kohli has conducted a superb political science analysis of four nations, South Korea, India, Brazil, and Nigeria, in which he emphasizes that industrial development involves social change, and that differentiated ability to implement development plans rests in the nature of the state. As Kohli recognizes, the

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differentiated ability characterizes the episodic effectiveness and character of states across their history, and not their continual, immutable character. The ability of the Indian state to p ursue its development goals may be more straightforward in production, but its class, religious, and ethnic character emerges stridently in the challenges of structuring demand and health insurance. This is quite typical of many late industrializers that have anemic industrial welfare programs. Some, like India, have faced manufacturing employment growth, which exacerbates class politics and labor regulations and leaves (especially urban) low-barrier ser vices as the primary conduit for employment expansion. There are clearly many simultaneous concerns that militate against a minimalist approach to plans and integrative capacity. Bringing an Evolutionary Perspective to Development Building Inclusive Capabilities Technological capabilities are especially crucial in understanding the state’s contingent capacity to envision collaboratively, plan effectively, and implement ethically. Twentieth-century East Asian history drives home the importance of technological learning embodied in both technical and organizational changes as a source of economic growth and prosperity. Sanjaya Lall, an influential industrial economist, described this well: [Technological development] is important because it constitutes the basis of successful industrial growth by the NICs (newly industrializing countries) as revealed by their productivity increases or penetration of international markets. It is complex in that it is neither easy nor automatic. It requires not just a base of skilled technical manpower, but deliberate, often risky, strategies of investing in learning and innovating. It is differentiated because it is highly sensitive to the economic policy environment.

However, technological frontiers constantly change. On the one hand, this  may create new learning pressures for firms and new institutional relationships both within a firm and with external research centers. Economic and social goals are often at odds during this period. Technological advance, even if instigated by the state, further shifts the state’s ability to pursue development to its fullest capacity because states and firms may be preoccupied with the need to build deep productive capacities and rapid regulatory changes to meet export market challenges. They may therefore push aside domestic concerns as

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Well Beyond Market Failure

they revamp production. On the other hand, the uncertainties and learning pressures associated with new technologies may open customized strategies for domestic consumption and new state legitimacy for intervention in the sector. Those scholars who hone in on technological capabilities are correct in emphasizing that the South Korean and Taiwanese states, for example, were especially “developmental” in reining in private-sector interests, galvanizing technological learning in both public and private sectors, and filling institutional gaps as their economic transformation unfolded. However, technological capabilities are complex and may require attending to other prior social concerns. In my estimation, therefore, the statists may have been too generous in generalizing about state capacity in regulating markets because they have either focused on production and underemphasized the state’s task of juggling several priorities at once or have assumed that wider industrial change and building capabilities in specific technologies are synonymous. The last two processes may be simultaneous, but technological capabilities are by no means easy or inevitable, especially if these states must attend to redistribution at the same time. Dovetailing production with redistribution is not simply politics dependent; it is also technology dependent. The Evolution of Institutional Bundles Development statism scholarship, of course, emerged as stridently as it did in partial response to overly market-oriented development agencies and governments. In developmental political economy a smaller subset of the literature does concern itself with technological advance in late industrializers; it may emphasize the upswing of industrial capabilities, but not, perhaps, its uneven nature over time. Atul Kohli’s work attends to i ndustrial development, but less to technological details of specific products and processes that might alter our view of the state and its developmental task. Others, such as Robert Wade and Alice Amsden, see the political economy as firmly embedded in the details of technological learning and the state’s spurring of production, but do not necessarily use such detail to understand why a par ticu lar state’s ability to attend to concerns beyond production may wax and wane over time. However, there are other analytical avenues, such as evolutionary theories, that traditionally have been reticent about states, but not about the evolutionary attributes of technological advance itself. In contrast to development analyses that may seek extreme characteristics (that the state is overly rent seeking

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and/or lacks capacity or is highly effective), evolutionary economics may be more sympathetic to nuances in institutional change in the face of technological advance. In evolutionary models there is some agnosticism with regard to “optimal” institutional configurations (which the Washington Consensus and its brands of economists were never shy about specifying). In evolutionary terms, change, variety, heterogeneity, and disequilibria, are grist for the mill. In general, however, there has been much less inclusion of states as institutions of study within this tradition, although it may contain much general discussion of policy options. Notable exceptions are studies that attempt to f ormalize the state’s role and justification for intervention, but may not translate this to t he real world. Although the economics of technical change is mostly nondevelopmentalist in its inattention to the state, other approaches, especially French régulation, that are open to evolution and nonequilibrium analyses go further in exploring structural change, crises, and adaptation in the economy. Régulation in this sense is unlike the Anglo-American use of the term, which focuses on rules and statutory and legal systems. Régulation refers to the episodic, impermanent, and process-based change in several institutions over time within a capitalist system. Although some have argued that evolutionary approaches have paid too little attention to t he political context, and the régulation approach not enough to the technology, this “school” nevertheless has more to offer than alternatives in technical change by engaging more directly with the political context of growth and crises, and it is more nuanced about the effect of time itself. There are other important attributes that an evolutionary perspective, broadly conceived, brings to variety and evolution. For instance, it is comfortable with aggregating “up” and “down” because variety may encompass many economic units. Although it is clear that national institutions play crucial roles in shaping distinctive patterns of productive capabilities, the evolutionary perspective also stresses that urban, regional, and sectoral systems of innovation exist, as in pharmaceuticals. Moreover, detail on “lower” units of product and process variety can give us “higher” insights into a region’s and nation’s economic future. Some scholars have increasingly attempted to make the case for an evolutionary, more systemic approach to development and policy. An ambitious 2009 attempt to incorporate the language and efforts of such specialists into development discourse can be seen in several background studies prepared for the United Nations Conference on Trade and Development’s (UNCTAD) The Least Developed Countries Report, 2009: The State and Development Governance.

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Technology-Induced Variety Although this book is empathetic to the statist literature, it departs from that literature in important ways. First, the focus is less on why some states are more successful than others; rather, it is intent on fleshing out why one state struggles in particular ways over time. Why does the state in one country and one industry (and health is an especially revealing one) seem so successful in some instances, yet appear to be holding a finger in the dyke to prevent a tidal wave of collapse in others? Second, this focus on a single state requires a technological orientation to appreciate what in other studies is often a secondary variable bundled with aggregated industrial change, less carefully sifted through as direct evidence of constraints on states and markets. What this story tells us is how technological detail enriches the narrative of political and economic readings of state development and the developmental state by looking at market varieties and their evolution. Technological imperatives drive specialization and push the state to structure and restructure the market repeatedly in order to achieve developmental goals. At the same time, markets have structures and varieties that change with variables outside the state and shape how the state responds. In some instances the state’s own learning is driven by production challenges and pressures from firms, while in others this learning is forced through social mobilization for insurance or problems of last-mile access to medicines. A third important difference I ha ve mentioned earlier is that this study more directly takes on the combined institutional challenge for the state of managing production, demand, and delivery. It will thus not substitute for a health economics or health policy study, which invariably focuses on one of these dimensions. Nevertheless, by its industrial emphasis, this book can highlight crucial challenges for late industrial supply economies, a subset of nations and subnational regions that are transforming the world’s supply of medicines and responding to demand and delivery in varied ways. Clearly this multifaceted challenge affords us more glimpses into why technological challenges manifest in different spheres of state action, why the state often falters, and why there is no substitute for state action in technological learning and redistributive concerns, even when markets function reasonably well. Finally, India’s complex federalism requires this appreciation of localized production, demand, and delivery. Most late industrial economies face immense decentralized challenges of physical infrastructure, investment, and

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location decisions for industry amid health-care delivery concerns, especially failing public delivery and growing privatization within the sector. This rich context situates these technological capabilities and their material surroundings. It requires states to politically and physically embed fi rms, unions, insurance programs, biohazard units, and hospitals and clinics. This domestic context is related to the trade behavior of firms. Although theoretically trade is structured on the basis of factor differences, including knowledge, history has shown quite convincingly that all firms (and all countries) do not have access to the same bodies of knowledge or sets of technologies, especially as international trade becomes increasingly subject to s tringent traderelated regulations. And even if scientific principles can be relatively well understood and managed internationally, technology and markets need not. Development is then far less about “free” markets and far more about different barriers of entry for firms and nations. It involves a domestic drama played out through search, learning, and technological advance. Domestic context matters both physically and institutionally in how effectively firms and states respond to t rade. Consequently, the emphasis on technological learning that motivates this book is vital to rethinking both markets and states. Industrial development in pharmaceuticals and biotechnologies is especially provocative because just as health economics is full of market failures, so too is the economics of technological change. The very process of searching for, acquiring, adapting, and disseminating technologies is a diverse, complex task that poorly fits neoclassical economics’ models. Even greater than the theoretical limitations of existing models are the policy limitations of advice that models industrial advance on the contexts of “early” industrializing nations where labor markets, entrepreneurs, firms, and land dynamics looked quite different. Moreover, technology supply provokes a series of new development pathways and politics with momenta of their own, creating new variety and future plans and prospects for industrial development that did not exist earlier. Technology, too, is part art, part science. Technology is tacit, but knowing is a necessary prerequisite. Those nations and subnational regions with some industrial capabilities in health technologies are better positioned to supply the necessary products and processes. Examples are the recent meningitis vaccine from India, the Hib vaccine from Cuba, and the promising efforts to develop several essential medicines in other late industrial supply countries, such as Thailand, China, and Brazil. Therefore, technology has its own “push” and creates its own diversity. Par ticular knowledge and technological tides in the

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affairs of men, when taken at the flood, as it were, lead on to fortune, while others do not. But there is no question that technologically speaking, luck favors the prepared. States and Institutional Variety In order to b uild this capability, firms and states must be able to produce effectively from land and equipment and adapted to technology vintages, quality of inputs, and local costs. But variety in industrializing contexts is the norm, not the exception. This variety may be evident in the nature and size of firms and production settings, the types of production processes (small-batch versus more ambitious, continuous-flow systems), or the effort invested in product, process, or sector specializations. Consequently, states must have within their development toolboxes the capacity to accommodate this institutional and production diversity. This diversity may rest in the productive capacity of firms or other productive social institutions such as families, unions, or caste groups. The state may have to coordinate with these other institutions and organizations to plan the physical capacity and land and employment requirements of industrial change, and certainly to support, protect, and (where needed) discipline the learning of essential technologies. This “essential” set itself is a basis for plans and debates about values, but it is quite likely that private firms and their technological capabilities may not automatically attend to urgent problems unless some state-crafted incentives exist to persuade them otherwise. The economics of technical change has certainly come to appreciate better the need to accommodate this institutional variety. Factor scarcity is too limiting in understanding why such variety and limited scaling have come about. Rather, a wider scarcity approach may explain why contingent historical explanations are more useful in appreciating the cognitive context as well as the  climate of welfare entitlements within which innovation emerges. Indian firms chose process capabilities rather than products to further their learning because of several institutional and other scarcities within their innovation milieu. Attending to te chnological capabilities and learning processes requires states to move further away from considerations purely of factor and production functions, especially because the real-life difference “between moving along the production function and shifting to a new one” is not always evident. The institutional and physical scarcities to which states must attend involve more than determining appropriate factor allocations.

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Some types of idiosyncratic learning have generated immense gains for late industrializers and, for instance, may not need traditional plans or policies, but instead new recognition, awards, and advance market commitments to scale them up and diff use them. Other fields of economic inquiry have also increasingly become more welcoming of heterogeneity. For instance, recent economics grappling with realworld financial markets and hedge-fund regulation lends particular credence to this approach because it has become more sympathetic to concerns of selforganization, complexity, and speed of interactions of actors. It too emphasizes that market ecologies and evolution need more study and description. Simply put, market organization is complex. Some market species are more robust, while others are frail and eventually die out. Technological change precipitates even more market evolution and variety, partly because new products and processes are always arising, and new customers and price signals become necessary. States may also initiate or support new markets in diverse ways. In terms of sheer influence in health markets, no single animal in the menagerie is more influential than the state itself—producer, deliverer, and buyer, sometimes all at once. States have much to do, sometimes to induce market failures themselves, sometimes to move beyond markets to legitimize new markets and embrace innovation with its accompanying uncertainties. An evolutionary lens can assist in describing the state’s inner and outer conflicts. For example, there is emerging evidence to show that ministry bureaucracies in India, rather than elected representatives holding cabinet positions, have sometimes wielded disproportionate power in defining the scope of recent pharmaceutical reform. Such data could point us further to the use of evolution to capture the ebb and flow of power of actors and organizations within the state in a ma nner that goes beyond traditional national-innovation-systems analysis. I focus more on the evolutionary learning aspects and their contingent influence on the state’s ability to reconcile this production with other goals. Firms’ Responses to States The evolutionary compass and technological detail also point us to how and to what firms respond and therefore to more questions about technological detail for understanding the state. Firms, rather than being primarily focused on being the best suppliers from a product and process standpoint, often direct their efforts at the constraints that the state imposes rather than those

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that markets impose. In my estimation, it would be incorrect to focus exclusively on firms; rather, they should be seen as part of wider transformations in developmental mandates and evolving market environments. As states learn and change, often so do firms’ strategies. Sometimes states may invest too much in technological efforts with overly optimistic projections of how markets and state policy can match social values. Conversely, state intervention to pursue many social objectives may not necessarily lead to desirable technological efforts for the par ticu lar goal, although they may certainly add to t he general technological capabilities of par ticu lar firms, regions, and even, in a more diff use sense, the nation. A more optimal industrial development of the health sector would lead not only to greater efficiencies in the way industry manages itself but also to greater overall productive variety in products, processes, organizations, and markets. After all, variety in health technologies can be superfluous as well, with some formulations or diagnostics having minimal differentiators that may not always help patients even if firms can influence their commercial success by aggressive marketing. When differentiation arising from variety is seen as more than product-market variety, it can be applied to different levels of aggregation, including individual products, systems of firms, the national economy, and even the world economy. Another framing of institutional variety is in thinking about economic transformation. One proposition that seems intuitively sensible is that if economic development is to be successful, it requires economies to generate both efficiency and variety. The first trend of efficiency results in higher outputs, that is, in general, doing better going forward. The second trend of greater variety in markets, products, and processes is more relevant to us here because it captures not only the search processes of Indian firms but also the varieties of markets and policies. Variety may lead to enhanced outputs of its own, but it generates creativity by constantly producing new institutions and products and processes in existing sectors. In other words, the second process complements the efficiency trend by injecting creativity and adaptability into the economy, making it more resilient in the long term. In reconciling economic with social goals, an evolutionary compass is useful because it suggests that the two processes may not necessarily be complementary and are contingent on technology as well. This more dynamic view of variety and scale rests on the idea that institutions may come bundled and may not always be complementary to social cohesion or economic progress. The “social structures of innovation and production” approach allows a com-

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plex, complementary set of institutional matches and negations to e xplain outcomes. It does not take market failure to generate this interest in institutions. After all, well-functioning markets have creative roles, and the search process of firms and states alike can unleash new forms of creativity, essential to development. This is common to both structural and evolutionary approaches to development, where markets by appropriate incentives at various times have important creative functions. In both structural and evolutionary approaches, market variety and evolution generate substantial selection and adaptation. Increasing returns and uncertainty build cumulative causation and specific regional and sector path dependence. Not only do past technological choices affect the strategy of firms, but increasing returns can also further spread the variation in the capabilities of firms, as well as of regions. Furthermore, this institutional variety has political manifestations. The triad’s three corners mirror at least three political dimensions (and many coevolving mixes) where diverse stakeholders appear. Private firms and the state have largely shaped production, while on the demand side, labor unions and nonprofits have traditionally been important adversaries and have mobilized opposition to the state and business interests. In delivery, an immense constellation of actors is arrayed, from the state to nonprofits, private-sector hospitals and clinics, and hybrid organizations. It would therefore be too simple to pose any of the dimensions exclusively in terms of class, business, and state interests, and this is one more reason to look for a marriage of traditional development scholarship with evolutionary analysis. The emphasis on variety is also, not accidentally, one of evolution and diversity. After all, it is in the shift of conditions that we understand both dynamic economic activity and state activity. Peter Boettke, for instance, argues that although several economists have hypothesized (in both classical and new institutional economics) that market arrangements may have many inefficiencies, they have not fully explored the mechanisms by which markets structure human activity and timelines of adjustment. He stresses the need to look at processes of exchange and to search for a theory and nuance of economic activity, not equilibrium. In his view, both Adam Smith and Friedrich Hayek, the supposed progenitors of the efficient-markets hypothesis, were actually focused on market dynamism and were therefore more cautious about policy prescription. Unfortunately, despite considerable change in the field, it continues to be the case that equilibrium states have far greater theoretical

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reification in economics, partly perhaps because periods of activity and change tend to involve much hand-waving analysis. However, equilibrium conditions can also mislead in suggesting various “isms”—capitalism or socialism among them—as hallowed systems. Mercifully, late industrial economies have tended in the past decades to be omnivorous as far as market ideology goes and thereby to offer new perspectives on old debates. Markets as Process The theoretical leaning in evolutionary formulations in economics—both Austrian and older traditions of institutional economics—is also toward nonequilibrium and an openness to the idea that just as markets may not be the best institutions to achieve certain ends, states may have their own challenges. But a straightforward account of evolution and an appeal to S chumpeterian dynamics of the economics of technical change often shy away from the dissent and conflict that pervades the health sector. A Schumpeterian workfare state, for example, extends the scope of an evolutionary political economy but suffers because its focus on entrepreneurs and firms has not progressed into a broader political economy and processes of planning for change. Innovation, after all, may lead to regressive social changes as economies adjust. Therefore, political pragmatism, even if agnostic, requires looking more closely at the evolution of markets and states over time, although it may lead to mo dest policy interventions in some cases. Examining one industry is especially helpful because although the policy interventions may sometimes be modest, they may be more open to experiment and unexpected outcomes and new partners. By necessity, therefore, well-functioning markets will require nonmarket institutions alongside them. For example, Indian biotechnology firms have tended to develop in certain niches, partly as a result of certain demographic comparative advantages such as population and disease profi les, but also because of past policies defining market structure and specialization areas. Th is path dependency has shaped the interpretive frames, appetite for risk, and context within which firms, other institutions, and citizens pursue social challenges. These markets for biotech products require debate about institutions of testing, compliance, ethics, identity, and so forth, and call for new organizations and often new standards to develop. Therefore, the path dependency does not predetermine future options, but the impact of past planning and regulatory choices is certainly evident.

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In the evolutionary view, markets, states, and other institutions have coordinating and integrating roles. These in turn generate significant variety among firms and other organizations. However, these institutions are constantly transformed by imbibing new knowledge. Therefore, modern capitalist economies are inherently restless, and their restlessness generates a dy namism that endogenously changes structure. Innovation processes act as one of these vital dynamics. Markets, then, are not animals of interest because of any equilibrium characteristics they possess; on the contrary, they facilitate innovation and the absorption of new knowledge, thus acting as important nonequilibrium selection institutions. In short, they are menageries filled with exotic varieties that inevitably change over time. A last note on what this story can reveal. Scholars sometimes pit supposedly cumbersome state-driven import-substitution industrialization (ISI) against the benefits of agile, market-driven export orientation. This is too simple a reading of states and markets in both directions. As we shall see, in India’s case, the first market environment of technology transfer and considerable import substitution permitted private fi rms to build substantial technological capabilities even though many regulatory issues were left poorly addressed. Similarly, although export-oriented industrialization brought more competition and forced fi rms to upgrade, it created complex demand and delivery hurdles at home and forced a te chnological trajectory that has had mixed development outcomes. Moreover, some successful exportoriented firms have tended more recently to look homeward to expand their domestic market base. In this sector, ISI—especially through public health market supports—was a v ital component of many of the industry’s leaders. Later, others diversified into pharmaceuticals, many from sectors such as chemicals, telecommunications, energy, and construction that had enjoyed some ISI of their own. Therefore, a s ystemic, evolutionary approach has further advantages for studying development because it can extend economic theories of dependency and structuralism in useful ways, not least by emphasizing the evolutionary nature of technological learning. Régulation approaches, moreover, can imprint in our minds that regulation is a process, not a legal statute, and that states and markets in capitalist development are not as neatly separable as  orthodox economics would have us believe. Finally, an evolutionary approach can better capture why the strange amalgam of technology, finance capital, and entrepreneurial behavior can cause technology investments to

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bunch together, generating the financial investments, physical infrastructure, and time-dependent industrial clustering so visible in cities and regions. The Fine Touch Compatibility of Local Institutions with Nation-States Markets, however, must also be understood as local processes of exchange and debate. This is especially true in health because when people fall ill, the body’s location is determinate, and the doctor and the drug are local. Douglass North’s state that minimizes transaction costs is compatible with and necessary to his notion of the state in development as the ultimate determinant of property rights. An extension of health care and access to medicine would raise several political, moral, and metaphysical questions whether property rights end or begin with the body. Is it the state’s ultimate test to protect these rights? Seen in such literal language, the state’s role is then a complement and eventual determinant of the compatibility of rules of exchange with these alternate questions. In contrast to standard economics’ simplicity by studying institutions primarily in national frames and cold-war rhetoric that further ossified the debates about central plans and states versus markets, urban and regional planning, and some strands of economic and political geography have much more ably attended to local institutions. These fields have more correctly noted the importance of history and path dependency in understanding heterogeneous institutional outcomes. They have been more agile in understanding how economic theory deviates from real life because they have been forced to confront the physical nature of land and the built investments that accompany booms and busts of capital accumulation in technological advance and production cycles. These business cycles and booms and busts shape cities first, before the more abstract nation-state. The essential point is that an evolutionary approach can be extremely useful to development planning scholarship. After all, late industrializing states have significant challenges other than production. Furthermore, production technologies in such suppliers exacerbate the essential development challenges and contradictions of the state. For example, the existing approaches to analyzing East Asian development as state versus market poorly capture the myriad ways in which their technological advances have combined with employment and social policies. Often, production policies that have been progressive on one

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count have been repressive in others, such as labor relations, the feminization of labor, overreliance on family systems of care, the centralization of authority, and the physical aspects of dormitory labor or migration. This more complete lens is crucial for late industrial supply countries because their structure and politics include diverse nations such as India, South Africa, Nigeria, Morocco, Indonesia, Ukraine, Brazil, and Argentina. They often struggle with core technologies while simultaneously building a domestically contested industrial organization through diverse plans and politics and widely divergent market and state pressures. Alternate Developmental Units Indeed, attention to political economy and the evolution of time forces us to look beyond nations. The developmental nation-state, after all, is an artifact of a period of nationally driven economic plans and of certain types of centrally planned economic activity. Sociologist Peter Evans calls a developmental state one where ties “link the state intimately and aggressively to pa rticular social groups with whom the state shares a joint project of transformation.” However, the state does not simply step into the breach between user and producer. In the health industry, end users vary, as do t heir consumption politics. For drugs and vaccines, for instance, individuals are end users, while for medical equipment and surgical innovations, clinicians or other technicians may be end users. However, even when individual end consumers are involved, they are almost never directly in contact with suppliers of health technologies except through advertising from the latter to t he former (which some countries permit). Rather, there are several intermediate institutions and organizations that mediate this proxy health relationship (most notably physicians and sometimes insurance companies). The proxy relationship can muddy the waters for producers who must understand and customize their innovations for individual end users. This problem may become especially acute in lower-income categories within late industrial economies. As if this relative isolation of users from suppliers in the health sector were not problematic enough from both a political and a technological standpoint, suppliers who are attracted to overseas demand characteristics are even less likely to generate innovations with domestic and low-income users in mind. States that act primarily on behalf of such suppliers are thus surely not “developmental” even if they fulfill the aims of production and competitiveness. Moreover, although the production of health technologies may be a shared project of the central state and firms, the

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demand and delivery politics rarely are, embedded as they are in regional or municipal plans. Even if several successful suppliers exist, it is hardly inevitable that their products will reach end users, whether they be surgeons (in the case of medical equipment or surgical innovations) or individual patients (in the case of drugs or vaccines). It is therefore worth remembering each time we slide into analyzing the health sector in national terms that this transfer of health as a political category out of the hands of local action into that of the nation is a peculiarly recent phenomenon. Even countries that became nations early rarely subjected the individual to c entralized state action. Only later did local governments develop particular characteristics to me diate between the individual and the nation. Even worse, employment-related health benefits and state action are rarely integrated throughout the national territory; rather, they are split among work entitlements, place entitlements (especially residential entitlements), and workplace entitlements. These provide distinct fissures in health access and in the urban context for production, delivery, and demand. One can be a resident of a city but have no easy access to health care, or one can be a worker and have access to health care only through one’s employer. There is clearly no simple economic resolution of technological advance and precarious health through refuge in the nation-state; its federalist and political entitlements need to b e specified. Indeed, as production systems become increasingly globally fragmented and subnationally concentrated, the dilemmas of national controls in health distribution become especially acute. Local economic planners are probably always instinctively evolutionary (and somewhat guardedly optimistic) about variety and change, partly because they work closely with so many different types of institutions and organizations in their actual practice of economic principles. In contrast, economic development planners at national levels tend to do this less by instinct and much more by fiat and are likely to s ee less of the on-the-ground species variety. Aiding competitiveness in this sector requires a s tomach for attending to l ocalized, unequal access and affordability, crucial when we question market variety and scale in this sector. Technological advance, politics, and the ever-changing market context for products and processes are sector and locale specific. Changing Market Territory and Rules In principle, it is in no way inevitable that the nation-state or even the continent be the ultimate determinant of access. Massachusetts is the first U.S. state to

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attempt “universal” coverage. Bolivia is one of the first in a highly unequal Latin American system to move toward a national health-care strategy. Sri Lanka has always had one of the most equitable health-care systems in Asia. Well before you or I purchased the medicine or experienced the new dengue test in the hospital, our governments, past and present, made several choices about quantity, cost, quality, and safety, sitting alongside manufacturers and medical specialists. National context never disappears, but the capacities of villages, towns, and cities to adopt national institutions may differ widely. Therefore, the challenge for health care is not one of market failure in the traditional sense, but of the multiple, uncertain roles that the state must play in creating and regulating markets. Whether all Indians, Canadians, or Chinese have access to medicines is an institutional and regionally diverse question; technological capabilities, however, circumscribe the choices available and the power that some within these societies have to make the choice. Indeed, nations (even where they buy and sell in bulk procurement policies) do n ot produce health technologies; firms do. These firms are set in specific economic development localities and markets. We urgently require a differentiated approach to “national” industrial and health reform. New economic powers such as India, Brazil, and China are in the second and third phases of public reform, often led by regional and urban governments, rapid local growth, and diverse decentralized politics. Their industrial regions are far from dusty Dickensian coke towns or rusty automanufacturing belts of Fordist yore. They mix manufacturing and ser vices, R&D and labor-intensive home-based work, favelas and opulent high-rises, and poverty and immense wealth. This complex industrial design cleaves health fissures in these cities and regions. As our world becomes patched over by the “knowledge economy,” and high-tech city identities build on life-science capabilities, the double ironies are inescapable: cities that place biotechnology science parks and worker shantytowns alongside each other. In these regions the state is tasked with the pursuit of multiple goals and the regulation of markets in the plural. The state also produces and reproduces distinct forms of care physically and spatially: these include homes, churches and temples, schools, hospitals and clinics, high-tech science parks, pharmaceutical and vaccine fi rms, manufacturing plants, and laboratories. More mundanely, it also encompasses a maze of sewers, waterways, toilets, and roads that more often than not determine health-care outcomes on the ground. Markets are in essence sanctioned and designed into city economies and their

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physical morphology. Consequently, planning at national and local levels involves strategy and response to institutional variety and scale, not single acts of regulation of single institutions at a snapshot in time. Planning, especially for considering the practical challenges of antibiotics, vaccines, or diagnostic kits in cities and regions, is an act of experimentation, adaptive institutional redesign, and regulation. The Indian evidence suggests that political theories of state and society alone cannot account for the effects of technological imperatives and their timing in forcing a d isjuncture between production and redistribution. Markets thus are a construction of specific moments in history and are dependent on the occurrence of certain technological advances; they are not passive background environments that “receive” a given technology. In this sense there is no ceteris paribus assumption of holding all other variables constant. It is precisely because other variables change that a moment in history unfolds; causality and counterfactuals are challenging. The chapters that follow will not provide a “ how-to” for health policy. Rather, they inquire into the empirical nature of two fundamental institutions, markets and states. The next chapter dives straight into the first market environment of the Indian pharmaceutical industry and the nation-state’s roles.

2

The First Market Environment Trouble in the Making

Phase I, 1950 – 1970s: Coveted Universalism, Controlled Markets The first market environment represents a timeline (the early 1950s to the late 1970s) from the first postcolonial nationalist policy efforts enacted by the public sector to the gradual private-sector endeavor in manufacturing medicines. These years encompass not only the independence surge of several countries from colonial rule but also the wild swings of the OPEC oil crunch. These approximately 25 years of Indian effort saw the rise of more advanced manufacturing capabilities and allowed engineers, planners, and policy makers to assist Indian industry by shaping distinct markets. The first market environment was distinctive in three ways. First, nationalistic principles of self-sufficiency and professed equality created exceptionally fertile conditions for industry and government to build partnerships. Despite their distrust of private industry, many naysayers in the national government nevertheless permitted policy supports for private manufacturing capacity. The sociopolitical defense of self-sufficiency permitted an enormous industrial effort in pharmaceuticals and chemicals. Second, the period was unabashedly government led. Although some private firms showed initiative and moved into new product categories, by and large the overshadowing influence belonged to t he state, with its defi ning institutions, agencies, and technocrats. The later years produced mostly successful protectionist measures 55

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to shield private firms from foreign competition. Third, deep process capabilities that were developed in this period differentiated Indian industry in subsequent years from all others in the industrializing world. A set of firms such as Ranbaxy and Cipla that built scale-up capabilities from laboratory to factory later stepped into bigger shoes and more ambitious plans for innovation. Ultimately the first environment was a tightly controlled one. It allowed technical capabilities to evolve, with a notable concentration of central power. Industrial planning and policy were entirely a technical process, ordered through the five-year plans and separate from the sphere of local contention, interpretation, or control. Despite nationalistic fervor, there was no formal national health policy for citizens until 1983. Nevertheless, the Indian republic embraced a vision of access to medicines, even if its actual efforts to sustain an ambitious pro-poor agenda with public health infrastructure met with considerable failure. Symptomatic of the policy malaise, even as late as the Sixth Five-Year Plan for 1980 to 1985, the government supported the public-sector effort in principle, but this support was not reflected in its budget. The Bhore Committee, one of several committees established by the national government to deal with health policy, exemplified the relatively optimistic view of establishing health targets and institutional guidelines in 1946. The committee’s recommendations were relatively straightforward: the cost of medical care should not dictate access; ser vices should be “as close to the people as possible in order to ensure the maximum benefit to t he community to be served,” which roughly corresponded to one primary health unit for between 10,000 and 20,000 people and a hospital bed for every 175 people; and there should be a focus on prevention of communicable diseases. Most revealing, perhaps, was the committee’s clear recommendation that no patents of any pharmaceutical product be allowed and that the government spend 15% of all its expenditure on health care. Fifteen years later, however, the Mudaliar Committee’s recommendations were to hint at the slippery nature of past suggestions and commitments and the growing tensions between views of health and the complexities of establishing decentralized mechanisms for health planning. Both committees emphasized a public health cadre and stressed medical training infrastructure and decentralized personnel training, from public health inspectors to malariologists and school health education.

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A Crucible for Learning: The Public- Sector Effort Technological self-reliance in food and medicine was an important basis for decisions. Interview with policy maker, October 15, 2003 IDPL [Indian Drugs and Pharmaceuticals, Ltd.] and the public sector were critical in the Hyderabad story. People don’t like to hear it but the public sector was very important. Interview with private-sector scientist, June 12, 2002

Between 1950 and the late 1970s there were two distinct technical efforts. The first can be collapsed into the public realm, the other into a private one. The first subperiod was characterized by the public sector’s acting as the repository of much R&D conducted in the country and the private sector predominantly manufacturing well-established products. Before 1947 the country was heavily dependent on imports of essential medicines. World War II proved especially difficult, with large-scale scarcity of critical drugs. The early twentieth-century patent regime appears to ha ve served primarily the interests of British manufacturing firms, and most drugs were imported from Britain into India. After independence Indian policy makers and nationalists pushed for socialist medicine. Although they were unsuccessful, the calls became ever louder for access to medicines for all. Technological self-reliance was seen as an extension of Swadesh (indigenousness, of one’s country, referred to a nationalist strategy against British rule of supporting indigenously made goods) and Swaraj (self-rule), guiding principles of nationalist efforts to free India. While the public sector characterized the 1950s and 1960s, the 1970s and 1980s were a critical second phase where nascent Indian-owned private-sector capabilities had to be fueled by the state, channeled into essential medicines, and pushed to compete against foreign firms. The subversion of public health as a national goal to build private indigenous firms is particularly well illustrated by the government’s licensing of salbutamol to Ci pla instead of Glaxo. While this was being debated in the Indian Parliament, Glaxo protested the selective application of national interest clauses: Parliament stands for the right of the people to be heard on issues involving national interests. Yet it is now being seen to be spending more of its time and attention on the causes of private parties who wish to further their own

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economic interests. Certainly, decision [sic] taken in respect to individual companies could, in certain instances, have relevance to national policy. But when Parliament is drawn into protracted wrangles in which individual interests appear to be the main consideration, it is not surprising that some of its own members are provoked to voice their protest against the manner in which proceedings are conducted. Again, when the Government, in arriving at its decisions, appears to apply the rules of national good to one party and waives those very rules for another, national policies lose their meaning altogether.

This broad sweep of measures to ensure self-sufficiency is reflected in several periods of technological efforts. I identify four distinct phases in the move from dependence to te chnological self-reliance that are grouped together in the chronology in Table 2.1 to reflect one broad preindependence category (not the object of study here) and three postindependence market environments beginning in the early 1950s. The three market environments have several subenvironments dealt with in the coming chapters. State-led public-sector capability was established early with national research centers such as the Central Drug Research Institute (CDRI; Lucknow, 1951), Hindustan Antibiotics (HAL; Pimpri, 1954), and the Indian Drugs and Pharmaceuticals company (IDPL; Hyderabad, 1961). Pune also emerged as an important vaccines research base. In the first phase, HAL, with technical and financial help from UNICEF and WHO, and IDPL, with assistance from the Soviet Union, conducted large-scale manufacturing to b ecome the largest third-world producers of antibiotics and synthetic drugs. HAL and IDPL were at the public engineering forefront. Both firms had mixed technology-transfer legacies but made robust advances in indigenous antibiotic production, essential bulk drugs, and vaccines. Public health and access to medicines were therefore critical state political instruments to channel large-scale investments into designated categories of drug manufacture as Table 2.2 indicates. However, while “essential” medicines served to propel the allocation of manufacturing licenses to domestic firms and provided incentives for increased plant capacity investments, the national public health focus did more. It created a system of supply-side initiatives in which public health drugs acted as technological and market entry points for Indian firms. Firms learned by technology transfer (often via the public sector, which itself had negotiated transfers from other countries) and then scaled up and manufactured, assured of significant local procurement and (later) exports. Process patents encouraged firms to seek new ways to the

The First Market Environment

59

TABLE 2.1 Major pre-and postindependence changes Period

Transformations

Before 

British-friendly patent law that favors imports, low local production, and many multinational firms. : First Indian pharmaceutical company reported open. –: British rule establishes several tropical disease research centers. –: World War I. Imports are cut off, local demand grows, and local industry builds capability. : First drugs safety law enacted. : Drugs Enquiry Committee established to monitor prices and propose price controls. –: World War II. Imports are cut off, and local industry continues to grow. Colonial Indian government begins to produce conventional drugs, as well as vaccines and serums. Dysentery and leprosy drugs begin.

First market environment: –

Indian independence and creation of the republic. Period of rapid industrialization building on pre–World War II manufacturing experience. Establishment of public-sector research center network in key locations. Hindustan Antibiotics Limited () and IDBL () are established and become industry pioneers. –: Second Five-Year Plan. Government places pharmaceutical industry together with other chemical-based industries for integrated development planning. –: Th ird Five-Year Plan. Government fuels growth of publicsector enterprises nationwide. Manufacturers produce penicillin, streptomycin, and antibiotics of the tetracycline group. Firms establish foreign collaborations to acquire technical knowledge and develop synthetic drugs and alkaloids.

Second market environment: –

: Drug Price Control Order serves to severely regulate the market vis-à-vis wholesale and retail prices and to increase competition and number of smaller fi rms. : Patents Act recognizes only product patents and patents for production processes for seven years and serves to create protections for Indian firms while they learn and excel at process chemistry and engineering. : New Drug Policy structures manufacturing capabilities through procurement and allocation.

Th ird market environment: –

: The National Biotechnology Board is established to identify focus areas for biotech.

–

: The Department of Biotechnology (DBT) is established under the Ministry of Science and Technology.

: The board’s mandate ends.

: Aims to establish network of biotech competence. Grants liberally disbursed. Creation of Centre for Cell and Molecular Biology, Hyderabad, National Institute of Immunology, and International Centre for Genetic Engineering (some with UN assistance).

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The First Market Environment

TABLE 2.1 (continued) Period

Transformations



Establishment of the Biotechnology Consortium of India, a public-sector fi nancing company in the absence of private venture capital. Balance-of-payments crisis. India’s New Economic Policy. Rethinking of state role. Funds crisis deepens for national laboratories. Liberalization of the Indian economy (begun in the mid-s) continues.

–

Multinational firms increase presence with relaxed controls on foreign ownership. However, increased competition eventually forces some MNCs to exit the market. Continued DBT activity, including New Millennium initiatives to network private- and public-sector capability. CSIR laboratories and public research institutes and universities continue to open up and work with industry. State-funded research in national centers continues for public health remedies.

sour c e: Compiled by the author.

same end drug, and price controls forced this process to become ever more efficient, reaping dividends in (1) process capabilities in chemistry and engineering, particularly for antibiotics, and (2) more efficient plants (economies of scale over time). One private-sector interviewee stated, “Public health gives big markets, large collaborative structures, thus steady advances.” The network of public-sector capability in pharmaceuticals was intended deliberately to r educe dependence on multinational fi rms. Many private firms too cut their teeth on government assistance and collaboration. Although public research institutes suffered from a variety of inefficiencies, they nevertheless provided an institutional mandate for dedicated “mission-mode” resources in health. They represented a den se source of technically skilled, professional managers who migrated (as in Hyderabad) to the private sector and thus created a network among public and private R&D and manufacturing organizations. IDPL was the public-sector backbone of Hyderabad’s bulk drug capacity and home to several small private firms that grew from migration of IDPL personnel (and, some allege, theft of ideas). Other public-sector research capacity in the Indian Institute of Chemical Technology (IICT) and later big-business presence in chemicals and fertilizers (such as the Nagarjuna company and other conglomerates) boosted the city’s capacity as home to midsize pharmaceutical firms. Bangalore’s public-sector investments were considerable, predominantly in machine tools, computation, electronics, and several sciences, including research labs for the Indian Space Research Organization (ISRO). The city’s Indian Institute of Science (IISc) was first begun

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TABLE 2.2 The link between public health and manufacturing technology Public health element Manufacture of essential drugs (e.g., antibiotics)

Relevant policy elements

Impact on Indian firms

Production . Local production and allocation to Indian fi rms. . Canalization of raw materials. . Public-sector manufacturing firms. . Technology transfer of relevant strains to private sector.

Increased domestic market share in essential drugs; increased production capacity in antibiotics; more private fi rms entering vaccine development; greater access to technologies for Indian firms; lowered risk, some technology upgrading.

Consumption . Public procurement. . Drug price controls. . Compulsory licensing and controller’s powers in terms of settlement.

Lowered prices in some categories; evidence in others of excess manufacturing of nonessentials and formulations.

sour c e: Compiled by the author from various interviews and adapted from Sunil K. Sahu, Technology Transfer, Dependence, and Self-Reliant Development in the Third World: The Pharmaceutical and Machine Tool Industries in India (Westport, CT: Praeger, 1998).

with chemistry and electrical technology to b oost the early Indian chemical industry. It housed the country’s first aerospace department, a crucial basis for the later public-sector companies and laboratories, Hindustan Aeronautics Limited, National Aerospace Laboratories, and the ISRO. The IISc was also a crucial site of ideas and people for the establishment of the Indian Institutes of Technology, India’s premier engineering institutes. Bangalore and Hyderabad therefore developed distinct but complementary capabilities in both pharmaceuticals and biotechnology driven by technological histories, public-sector investments, and different business families and organizations. Both cities also became vital private-sector information technology ser vice hubs for the nation. The postindependence technology history, however, required painstaking efforts in science and engineering in regionally dispersed laboratories and was politically nontrivial. Nehruvian Efforts in the Manufacture of Medicines The postwar period caused par ticu lar consternation not just for scientists and engineers but for Jawaharlal Nehru himself. It was one thing to be a diplomat

62

The First Market Environment

and leader extraordinaire, cognizant of the new political economy and conscious of a place for modern India at the helm of world politics. It was quite another to be forced to confront urgent technology needs of the country. Between 1950 and 1954 a new opportunity had arisen to direct the path of India’s laboratories and scientific research prowess, its “temples of the future.” “At one end of the scale, planning was ‘science in action’ . . . at the other, it was the forward movement of a whole people building their own future.” But no policy had a tabula rasa to etch; markets in newly independent countries seeking technological self-sufficiency were shaped by a variety of new institutions and uncertain world politics. The scope of the United Nations effort, from UNESCO to the United Nations Industrial Development Orga ni zation (UNIDO), crafted new markets for technology transfer and placed late industrialization beyond merely the imagination of its political rulers. Beginning in 1946, the preindependence government of India had sent technical teams in search of appropriate future plans for penicillin, sulfa drugs, and proguanil for malaria and fi laria. After independence the Committee on the Penicillin Project was established in 1949 through joint sponsorship of the government of India and the government of the state of Bombay. Foreign firms such as Pfizer, Glaxo, and Merck all evinced interest in the project, each with different proposals for collaboration with the government of India. However, only Merck attempted to negotiate a joint manufacturing facility, while the others’ offers remained focused on importation, bottling, or refinement of bulk materials and formulation. Prices alone did not drive this market; the UN sister organizations UNICEF and WHO intervened with a new penicillin-manufacturing proposal that offered new possibilities both for creating a manufacturing base and for access to t he core technologies rather than licensing the technology alone. Many of Nehru’s advisors had reservations, even though they were cognizant of the political challenges of choosing a private firm over the United Nations’ assistance. In particular, technical advisers to Nehru expressed considerable doubts that WHO either had experience in large-scale penicillin manufacturing or would be able to diffuse such information, and therefore suggested collaboration with Merck. Many industrialists in India, some of whom were averse to UN agencies and sought to expand their commercial base, concurred with this and sought licensed manufacture. This, however, was antithetical to Nehru’s idea of a self-sufficient nation vested in public-sector technology generation. In a year and a ha lf a deterioration of communication within the project had occurred over strategy issues; Nehru himself intervened and crafted

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63

a watershed policy for public-sector organizations to p rioritize technologytransfer agreements with an emphasis on self-reliance and establishment of manufacturing plants and training institutes of their own as bastions of industrywide priorities in the push to socialism. HAL alone made first-time process development advances in penicillin, streptomycin, and gentamicin, among others. The sources were varied: penicillin through the United States via WHO and later upgraded from Toyojozo in Japan; gentamicin from both the United States via WHO and the Hungarian company Medimpex. Process advances were also made in streptomycin sulfate and ampicillin anhydrous. The other major public-sector laboratory, IDPL, with five sites, had distributed capacity ranging from antibiotics, synthetic drugs, and drug and chemical intermediates to f ormulations and surgical instruments. In Hyderabad, its center for synthetic drugs, and in Rishikesh for antibiotics, IDPL successfully manufactured 40% of India’s bulk drug requirements as late as 1983. Twenty-four drug technologies had process development and manufacture in-house, and pilot scale-up was completed for 14 others. Although only six countries worldwide knew how to manufacture vitamin B, IDPL accomplished this and provided consultancy ser vices for many years to a variety of developing countries through the UNIDO partnership. Two decades after the founding of the public-sector effort, almost 90 drugs were manufactured locally that previously had been unavailable. Categories of drugs needed across the country gradually became locally available and affordable. These included antibiotics (synthetic), analgesics, antihistamines, arthritis medications, some nervous-system medications, essential anesthetics, some oncology drugs, and routine vitamins, particularly important for public health programs. HAL also grew from its entry point as a single antibiotic bulk drug manufacturer to a p roducer of human and animal therapeutics and agricultural products. Its in-house R&D created aureofungin (commercialized in 1962), hamycin (commercialized in 1962), and penicillin G-acylase (commercialized in 1992). In addition to IDPL and HAL manufacturing capability, a variety of chemical research efforts were founded, such as the Haffki ne Institute (then in Bombay) on plague research, IICT (Hyderabad), CDRI (Lucknow), and the National Chemical Laboratory (Pune). Drugs like paracetomol, ethambutol, and metronidazole were subsequently manufactured in the country and exported. High-value-added drugs like azidothymidine (AZT) and cyclosporine indigenous technologies later became available. CDRI later developed

64

The First Market Environment

a one-a-week contraceptive pill (Saheli), the only nonsteroidal contraceptive pill worldwide. Local resources and skills were also nurtured to some degree, with commercial impact. Within Ayurveda, an Indian traditional medicine, new therapies were found. CDRI helped create entirely new drugs: Guggulipid for cholesterol reduction from the plant Commiphora mukul (Guggul); Memory Plus, using baculosides extracted from the “Brahmi” plant used extensively in Ayurveda, for memory enhancement; and vincristine, a high-value-added oncology drug developed from Vinca rosea plants (Sadbahar). The public effort in pharmaceuticals arose amid significant heavy-industry investments in petroleum, steel, and chemicals and was marked by significant long-term effects, both negative and positive. The public research and development network was successful in building a relatively sophisticated physical and skill infrastructure for a de veloping country in subfields such as structural chemistry, equal to t he best worldwide. In pharmaceuticals the public effort was successful in pioneering the private-sector foray into numerous large-scale manufacturing efforts. Nevertheless, considerable inefficiency and systemic contradictions also emerged. Although the best skills were born in public laboratories, they were not nurtured in public research over the decades. One public-sector researcher who later joined the private sector attested: “The fact that the public sector was a driver for initial technology capabilities does not preclude the fact that it was also marked by lack of overall inventiveness and repetitive projects.” For a variety of reasons, antibiotics transfers remained challenging, leaving organizations such as HAL no choice but to de velop in-house capability. Technology rapidly became obsolete, so in-house efforts were eventually stymied in their search and experimentation timeline. HAL was plagued by low yields in the fermentation process in antibiotics manufacturing, and production scale was problematic, resulting in a f ragmentation of plant capacity, small unit size, and inefficient yields. Similarly, IDPL suffered from Soviet technology transfer and was reduced to holding on to obsolete technologies and languishing inventories of machinery and produced drugs. Substantial delays arising from sourcing raw materials and design and equipment alterations led to the delayed launch of production in 1970, almost 11 years after the initial Soviet agreement. Even the more dynamic Council for Scientific and Industrial Research (CSIR) suffered similar public research challenges. “In CSIR there are no younger people. I developed [XX] for drug discovery there.

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65

No information was available, efforts were isolated, and my group was trying to reinvent the wheel” (interview, July 5, 2002). Idle installed capacity for obsolete bulk drugs and formulations occurred while private firms were ramping up more mo dern technologies. This trend continued well into the 1990s, when “sick” public-sector firms of all kinds were gradually placed on the auction block for privatization. By 1965–1966 Indian self-sufficiency was alive in rhetoric but crippled in practice. Two devastatingly dry monsoon seasons had forced the government to cede to t he influence of both the International Monetary Fund and the World Bank. The untimely deaths of both Jawaharlal Nehru and Lal Bahadur Shastri derailed the idea of planning as a cohesive process and dramatically further undermined the country’s vision and sovereignty. Almost immediately a “Plan Holiday” was declared by the government between 1966 and 1969, a harbinger of more troubled times to come in the 1970s and the eventual ceding of significant controls over the economy in the mid-1980s. After this point the industry’s technological successes visibly outstripped its ability to meet domestic health needs. The Public- Sector Legacy Today The first phase of the first market environment was state led and often publicly produced. Private firms were offered strategic entry and considerable policy support. The state successfully navigated technology transfer in some cases and failed in others, but the technological base was well established by the end of this phase. In dramatic contrast with other countries, Indian firms were successful in manufacturing several essential drugs. Firms such as Sarabhai Chemicals invested heavily in antibiotics. This was a winning strategy, and the company ranked consistently first or second in sales between 1980 and 1986, until it was overtaken by firms such as Ranbaxy, Cadila, Lupin, Cipla, and others who had developed sizeable antibiotic and anti-infective portfolios and who subsequently invested in AIDS therapies as well. Lupin grew to be one of the largest tuberculosis drug manufacturers in the world and became the world’s largest producer of ethambutol. Ranbaxy, ranked first in total pharmaceutical sales today, was ninth in 1983. Its learning path was structured around antibiotics, particularly cephalosporins. Ranbaxy, Cipla, Zydus Cadila, and Wockhardt all began their technological trajectory in anti-infective segments and have since diversified outward,

66

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many to exports and into generic drugs. Anti-infectives and antibiotics provided a ready national public health procurement system with steady growth. In very recent times bioterrorism alerts in the United States have provided similar markets for antibiotics such as ciprofloxacin and oseltamivir phosphate, the former constituting important product portfolios for Ranbaxy and Cipla. Foreign firms traditionally dominated “nonessential” segments of the market, while Indian firms like Ranbaxy and Alkem were positioned in the top 10 products because of their public health drug capabilities in cephalosporins and quinolones. Antituberculars, for example, were, in principle, an attractive segment in all developing countries, where both tuberculosis (TB) and HIV (with patient susceptibility to T B) continue to b e prevalent. However, TB medications had only 2.4% of the market. Although Lupin, one of the leading manufacturers, held over 40% of the anti-TB market in the country until recently, it has struggled to meet some efficacy requirements abroad. One could say that the developmental state, traditionally conceived to boost productivity and industrial production, was quite successful in this phase of state-led technology development and public production. We might judge it so in terms of its clarity of goals for both health outcomes and technological aims, in the coherence of state efforts across multiple regulatory domains, and in building the foundations for a strong domestic industrial supply base consisting of both public and private fi rms. Private fi rms in India speak today of the public sector’s importance in R&D and manufacturing, vital for entering the domestic market and capturing key segments for national production and national needs. Interviewees cited the importance of (1) public infrastructure, even if it needed upgrading; (2) public R&D advances, even if they were significantly undercommercialized; and (3) public-sector personnel and their migration to the private sector. As we will see in the next chapter, the second subphase of the first market environment focused on building private-sector capability, and although several strategic policies were successful, the market environment emerged as both technologically intricate and institutionally multifaceted. The state was successful in building some but not all private-sector capabilities and was better able to succeed in some, but not most, health outcomes.

3

“Essential” Markets, Public Health, and Private Learning

The 1970s and 1980s Casual viewers describe Indian advances primarily in terms of India’s past process patent regime without understanding why such a regime proved useful beyond “copying” opportunities. Most industrializing and industrialized economies had similar patent policies until quite recently, but only India built such an extensive pharmaceutical sector over two decades. In this chapter I use a range of indicators to argue that India’s unique gains in this period were due in part to a multipronged policy approach with politically defensible market entry points through “essential” drugs and protectionist restrictions. But politics would have been insufficient without systematic and demonstrable technology outcomes and a development agenda focused on the twin goals of process technology gains and affordable medicines. I b egin here with a c loser investigation of the policies that stimulated Indian private-sector capabilities while simultaneously containing foreign firms in domestic markers. Several important policies on patents, prices, antimonopoly restrictions, and production capacity increases (from the first market) worked in concert. This intense state intervention continued for over a decade. The government tied industrial licenses to locally manufactured bulk drugs, but foreign-owned firms were often reluctant to begin their bulk drug manufacturing from initial stages to finished products until the late 1970s (see Table 3.1). Indeed, domestic firms produced most bulk drugs. 67

68

“Essential” Markets, Public Health, and Private Learning

TABLE 3.1 Reluctance of foreign fi rms in bulk drugs

Company

Founding year in India

Year of commencing formulation production

Year of commencing bulk drug production (as of 1978)

Abbott Laboratories (India)





Not produced

Anglo-French Drug Company (Eastern)



Not before 

Not produced

Roussel Pharmaceuticals (India)



 and after

Not produced

Smith Kline and French (India)





Not produced

sour c e: Adapted from Sudip Chaudhuri, “Licensing Policies and Growth of Drug MNCs in India,” in The Drug Industry and the Indian People, ed. Amit Sen Gupta (New Delhi and Patna: Delhi Science Forum and Federation of Medical Representatives Associations of India, 1986).

Against a backdrop of a paucity of antibiotics, vitamins, and antidiabetes drugs, the Pharmaceutical Enquiry Committee in 1953 addressed industrywide imbalances in supply and demand of “essential” drugs, primarily antibiotics and synthetic bulk drugs. Penicillin had underscored domestic technological challenges in scaling-up and manufacturing. Moreover, the Industries Development and Regulation Act (IDRA) of the 1950s continued to exert power over indigenous production by encouraging diversification and investment. It permitted manufacturers’ diversification into new products and increased production by up to 25%, thus building economies of both scale and scope and backward integration into critical essential technologies for bulk drugs. Although 30 years earlier no domestic private bulk drug expertise had existed, by the 1980s Hyderabad City in southern India alone was manufacturing up to 40% of India’s bulk drug intake, much of it produced by former public-sector Indian Drugs and Pharmaceuticals, Ltd. (IDPL) employees. This success was early on driven by central research institutes tied directly to Del hi. Once such specialization was established by the central state, however, the city enjoyed considerable positive spillovers. Private firms absorbed professionals, many of whom had left central research laboratories; others had spun off their own biotech firms. The bulk drug focus of Hyderabad from these early state investments branched city investments in directions different from those in Bangalore, where many more biological research institutions and science and computation laboratories emerged.

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69

The main policy goals of the 1970s were to force a move from formulations to bulk drugs. The government licensed production of “organized-sector” bulk drugs against projected demand for the following year. Most antibiotics met demand projections, but production of antidiabetics and insulin was in shortfall. A central licensing system with planned projections had clearly not sidestepped all challenges. Except for the Monopoly and Restrictive Trade Practices Act (MRTP Act), which was used to rein in foreign firms and to discipline domestic ones, and which limited market power, the other policies were only indirectly size related, but had long-lasting effects. The IDRA and the New Drug Policy initiated considerable capacity expansion in Indianowned firms and allowed diversification in products, and retail markup in some segments of up to 100%. They channeled firms into significant backward integration for bulk drugs, but also created a propensity by some to focus on high markup drug categories. With a reluctant and inexperienced domestic private sector, multinational firms overran the market. In a landmark policy shift in 1970, the government of India (GoI) withdrew permission entirely for foreign firms’ diversification and drafted what was to become the Patents Act of 1970 in a joint committee of both houses of the Indian Parliament. Th is Act’s Implementing Rules/Regulations were brought into force in 1972. Both patents and price controls were structured to transfer technological opportunity into the hands of Indian-owned firms and to build more manufacturing units. The policy also aimed at deepening process development—new routes to ol d drugs in the simplest form and new routes to new drugs in the desired form. The process patent regime permitted entry into inaccessible technology areas by issuing compulsory licenses, explicitly favoring process innovations for public health priorities, and further driving down costs. That legacy continued to shape firms’ portfolio legacies, as Table 3.2 indicates. Price controls followed to prevent excess profiteering in essential medicines and later to drive down manufacturing costs and boost process innovations to reduce retail prices. The GoI policies steered domestically owned firms to further increase licensed capacities while simultaneously limiting multinational subsidiaries from diversifying into “new articles” up to 100%. The diversification allowances acted as carrots with tempting profit margins in formulations (fi nished dosage forms -tablets, capsules, ointments etc.). There were additional rewards for bulk drug production through procurement and preferential allotment of manufacturing licenses. Price controls acted as the stick.

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TABLE 3.2 Public health histories of several leading companies in 2002 Significant antibiotics or antibacterials portfolio

Vaccines

Ranbaxy

Yes

Yes (planned)

Cipla

Yes

No (possibility of conducting clinical trials only for AIDS vaccines developed elsewhere)

Company Pharmaceutical

Sun Pharmaceuticals

No

No

Cadila

Yes

Yes (launched)

Wockhardt

Yes

Yes (launched)

Biotech DRL

Yes

Yes (planned)

Biocon

Yes

No

Bharat Biotech

No

Yes (launched)

Shantha Biotechnics

No

Yes (launched)

sour c e: Interviews, company websites, and annual reports of various years.

Only a subset of private firms that could scale up operations and vertically integrate thrived in this structured environment. Indian firms do not appear to have sought large size for dynamic economies of scale, but rather to c ircumvent several external institutional problems, especially in sourcing. Although Gandhianism influenced national policies to return economic power to small industries and reserved some production quotas (e.g., paracetamol), most policies were explicitly geared to increasing private bulk drug capability, plant capacity, and internal process capability. Pro cess Patents The Congress Party government’s ostensibly pro-poor stand led to t he 1970 Patents Act of India. The core elements of the Indian Patent Act were unremarkable: process patents and lack of recognition of product patents. Most countries in the world fl irted with this combination of protections for decades, and many Eu ropean countries, in par ticu lar, moved out of this regime as recently as the late 1990s. It protected no products, only production processes, which were protected for seven years, allowing Indian fi rms to (1) produce nonbrand versions at very low cost and (2) develop significant pro-

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71

cess chemistry capability. Although the Patent Act dissuaded foreign firms from conducting sophisticated R&D in India, it substantially boosted process investments by Indian firms and eroded MNC market power. It had tremendous effect: a few years after the introduction of the act, in 1976, only 4 Indian firms ranked in the top 20 firms by sales, but by 1995, 13 of the top 20 were Indian firms, and these had cornered almost 85% of the market. Even more dramatically, of the top 50 in sales revenues, 38 were Indian firms, and only 3 MNCs ranked in the top 10. The compact between the state and the private sector had diverse technological outcomes. On the one hand, the state rewarded firms that upgraded manufacturing processes for essential drugs with key technologies and market boosts relative to foreign firms that balked at producing essential drugs. Patent regulations and the threat of compulsory licensing severed medicine monopolies and lowered prices but had i mportant international repercussions. But the state held steadfast to technology transfer and access to a ffordable medicines. It was this dual purpose that claimed the moral high ground. The patent regime’s incentives to invest in profitable but expensive areas (such as drug discovery) allowed cash-strapped firms a new opportunity to seize markets. Although product life-cycle theory often presents process and product technologies as staged learning, one preceding the other and depending on technology, Indian firms’ resource constraints created inevitable choices between products and processes. One company scientist I interviewed said, “We couldn’t afford products, so we chose processes.” When the government eventually restructured the patent regime to honor processes alone, it did so in awareness of the need to balance the profitability of firms with goals of access. As one policy maker stated: “The generic drug industry told us, ‘we don’t have problems with product patents, per se, but we must be able to  license key technologies. We don’t mind paying royalties or sharing revenues . . . don’t cut us out of profitable markets.’ Their R&D strategies came later.” The ability to search and experiment and then to scale up and manufacture an existing drug became a distinctive path for many Indian firms. These firms had to invest in distribution and marketing networks and create a set of tacit skills. But patents were far from the entire story. Process capabilities took on a variety of goals, only one of which was to reduce drug costs, but price controls took that goal much further.

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Price Controls Pharmaceutical price ceilings have been commonplace in many countries. Until the early 1960s India had no price controls of any form. The Chinese invasion in 1962 prompted policy makers to worry about the costs of medicines under a state of emergency. Classical microeconomic thinking predicts that if the price of a good is artificially set lower than the equilibrium price, supply should shrink because some firms become unprofitable and demand then exceeds supply. However, price controls in India acted in concert with several other policy initiatives that boosted increased supply by domestically owned firms, caused a significant rise in manufacturing units, and lowered average profitability. The state selectively introduced price ceilings for “essential” medicinal products and exempted small-scale units. Largely because of a variety of policies for indigenous supply, price controls had a s alutary effect on competition and proliferation of small firms (helped by special production license and price policies). Price controls reflected not only the government’s intention to balance equity goals with technological advance and industry profitability, but also vital fiscal controls on a growing health budget. The Drugs (Display of Prices) Order was promulgated in 1962, followed closely by the Drugs (Control of Prices) Order in 1963 and the Drug Prices (Display and Control) Order of 1966, by which time all producers had to gain government permission for any price increases. The Drug Price Control Order (DPCO) was formally instituted in 1970 and was subsequently revised in 1979, 1987, 1995, and 2002 to remove more drugs from price controls. The DPCO required that pretax profits from sales of pharmaceuticals in any firm should not exceed 15% of its sales. Firms could set prices accordingly, because any excess revenue had to be returned to the government, and could focus on overall margins, not individual products, thus being allowed some discretion. The 1979 DPCO revisions were more cumbersome because they required limits on 370 specific price categories of both bulk drugs and formulations. The Kelkar Committee (1984) later recommended revoking price controls on many categories to liberalize the system for greater profitability. This resulted in the DPCO 1987, which reduced price-controlled substances from 370 to 142. Although the 1970s had begun with Indian drug prices for essential medicines among the highest worldwide, the 1980s concluded with drug retail prices among the lowest. The Hathi Committee Report of 1975 stressed the importance of the public sector’s role in the manufacture and availability of

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pharmaceuticals, and the DPCO revisions in 1979 reflected this concern to some extent. Besides restricted markups on drugs, the controls set normative numbers (not directly associated with the cost of production) on price ceilings, thus drastically reducing profit margins and forcing firms to find cheaper processes to the same end, that is, a technological and business incentive combined. Indeed, overall profitability in the industry fell from approximately 15.5% in 1969–1970 ( just before the introduction of the Patent Act) to 8.8% in 1980–1981 ( just after the introduction of price controls) and 4% in 1985–1986 ( just before the first wave of drug price liberalization in 1986 after significant industry lobbying). The intense price and process competition led Indian firms to pull back gradually from formulations (which witnessed greater growth and higher entrants for a period because of low price controls) and to move into bulk drugs (where MNCs had pulled back). Formulations also had branded inertia that favored incumbents. Between 1970 and 1984 formulations grew by 12.5%, while bulk drugs grew by 19.5%. Manufacturers scrambled to r ecoup investments after price controls were initiated, and a large number of small units that were exempted from the DPCO sprang up to ser vice significant market demand; they eventually numbered 18,000 manufacturing units in the country and employed over 3 million people (in manufacturing and pre- and postproduction areas). Approximately 2,900 of these were large-scale units. Many larger firms skirted the restrictions by focusing on “nonessential” drugs that were outside the DPCO’s purview. Gross profit margins, while quite low, allowed a dominant market position for firms that could invest in scaled-up plants and more sophisticated, more profitable production technologies. High-volume markets in India and in other developing countries made the past 30 years a pa rticularly profitable time for I ndian pharmaceutical firms, despite the low wholesale and retail costs of the drugs. Firms like Cipla gradually gained recognition with low ciprofloxacin and AIDS drugs costs. Increased process capabilities mitigated price-control effects on profitability and could have led to even greater technological investments and upgrading in antibiotics and antidiabetics, for example. However, price controls had mixed effects. They brought shortfalls in highly controlled drug segments, such as essential medicines. The DPCO had i nitially controlled prices on 347 bulk drugs, of which more than 220 were domestically produced. The 347 drugs were split into four categories: (1) Category I: essential

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drugs; (2) Category II: essential drugs with higher permitted markup; (3) Category III: less essential; and (4) Category IV: outside price controls. Both private domestic and foreign firms increased profit margins by openly moving into nonessential and unregulated segments. Category IV formulations without price controls of any kind flourished, and India saw excessive formulations of dubious utility. One estimate suggests that in the 1980s the country was producing between 40,000 and 60,000 formulations. By deliberately trying to increase access of the poorest to essential medicines, the price controls had increased production of dubious therapeutics at much higher prices. The DPCO has gradually reduced in stages the number of drugs whose prices it monitors and controls. Monopolies, MNCs, and Accelerated Indian Learning Both the absence of product patents and the price controls kept MNCs away, but the rate of most MNC investments worldwide in local R&D had been low by most accounts. Regulation at the time did not require local production, and most MNCs manufactured overseas, imported drugs, and sold at a sizable profit to a captive Indian market. Furthermore, Indian firms have shown high profitability even with controls of certain drug segments. Indian competition law dates back to the Monopoly Enquiry Commission of 1964. Its mandate influenced policies such as the Industrial Policy Resolution of 1956, the Industrial Development and Regulation Act, and central planning for the national five-year plans. The commission concentrated on generating high production levels while ensuring consistency with the redistributive goals of the Indian Constitution’s Directive Principles of State Policy. Its policy goals to serve the common good centered on controlling ownership (to limit the concentration of wealth) and on controlling material resources (to widen access for domestic firms to the means of production). The Monopoly and Restrictive Trade Practices Act, 1969, and the workings of the 1964 commission were also influenced by corresponding overseas legislation on prices, monopoly, and fair trade in the United Kingdom, the United States, and Canada, among others. The MRTP Act aimed to (1) prevent concentration of economic power, (2) control monopolies and prohibit monopolistic trade practices, (3) prohibit unfair trade practices, and (4) ensure an environment conducive to healthy industrial growth, fair trade, and competition. India’s relationship to the MNCs was driven by two competing goals: (1) to reduce national dependence in essential drugs and (2) to obtain new technolo-

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gies. While one favored curtailing MNCs’ powers, allocating production away from them in essential medicines, and reducing their size, the other allowed them profits in return for technology transfer in antibiotics and vaccines. The move to allocate manufacturing licenses preferentially to Indian firms emerged only after attempts had largely failed to induce MNCs to manufacture locally and in essential categories. Against the backdrop of these production policies and strictures on foreign firms, Indian companies experienced significant technological learning. This technological learning occurred while foreign firms were being curbed. Policy makers, medical specialists, and social activists applied sizable ethical yardsticks to company performance. These yardsticks measured (1) the extent of bulk drug production, (2) the investments in “essential” drugs, and (3) the technology-intensive profi le of products. From 1948 to 1968 there was an MNC pharmaceutical monopoly, from 1969 to 1978 policies were explicitly geared to removing the monopoly, from 1978 to 1985 a strong national sector developed with considerable process improvements and some product innovations, and from 1985 to 2003 there were innovations in both products and processes. Most MNCs survived by selling branded drugs and mature product lines, often in low-technology segments such as cough syrups and cold medications. The 1970s Patent Act, combined with preferential allocation of manufacturing licenses to Indian firms, also served to change their tide of fortunes. The result was substantial: multinationals overran the market before the 1970s with a market share of almost 85%. By the end of the 1990s Indian firms dominated the market 60% to 40%, and many MNCs introduced domestic production to remain competitive.

Trouble in the Making: The New Drug Policy and Production The public sector cannot be a substitute for in-house technology capabilities. Interview, July 6, 2002

The new selection environment continued with the New Drug Policy (NDP) imposed by the Janata Party government in 1978. The policy created an important further market shift in this environment by making technological

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self-reliance and quality a priority in both public and private sectors in order to achieve the necessary domestic production of drugs. While it saw a v ital leadership role for the public sector, it envisioned a growing indigenous private sector R&D effort and reliability in production quality, safety, and efficacy while simultaneously channelling foreign firms toward Indian health priorities. Foreign fi rms were now under considerable pressure to ma nufacture essential drugs and to introduce new product varieties. The NDP was instrumental in categorizing and allocating production licenses for three categories of drugs: 17 essential ones (public sector only), 27 drugs (Indian firms only), and 64 items (open to all applicants). Categories were further divided; polio vaccines were on the public-sector list, whereas other vaccines were available for licensing to private Indian firms. Foreign firms were prohibited. Corticosteroids, vitamins B and B, and other vitamins and drugs such as cyclophosphamide were open to foreign firms for local production. However, the government placed restrictions on equity holdings by foreigners who chose to manufacture “low-technology” drugs. Others in higher technologies were allowed greater than 40% equity but were forced to mix product types and bulk drug availability to a strict ratio of 1:5 (bulk drugs: formulations), while Indian firms enjoyed 1:10; 50% of the bulk drug production of foreign firms deemed essential to the pharmaceutical industry was then required to be made available to formulation companies not associated with them. In contrast, Indian public-sector firms were required to send 40% of their bulk drugs for use to outside formulators, and private Indian firms were required to make available only 30% of their bulk drug production to such formulators. Although historically their province, MNCs rarely produced bulk drugs from local raw materials. Their local subsidiaries had often used transfer pricing to buy materials from the parent company for bulk drug manufacture. Policy makers responded with “canalization” of bulk drugs, forcing the importation of bulk drugs through a government-initiated corporation, preventing transfer pricing, and ensuring a steady supply and price to the Indian producer. Indian public and indigenous private firms eventually dominated bulk drug production and formulations by a huge margin. The public sector’s contribution was significant in technology sourcing, transfer, development, and production. Several years after the first institution of the NDP, policy’s effects on indigenous bulk drug capability became evident: in 48 product groups, 21 firms with monopoly power in more than one drug category, and in 17 other

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product groups, 13 firms with duopoly power in more than one drug category. There were high levels of concentration in almost all segments, and even where many firms for similar goods existed, firms competed on promotion and advertising expenditures rather than price alone, a characteristic of the small-scale industry segment. The extent of Indian penetration into the ranks of manufacturing firms is evident for 1998’s top 25 domestic firms, where only 10 foreign firms feature, market concentration is sizable, and no single company exceeded 7% market share. Some Indian firms are domestic leaders in particular products, even if they are below the number 10 rank overall. More recently, the leader held a tenuous 5.7%, and the top 10 firms combined held only 31% of the total market. In 1998 Indian firms occupied 68% of market share, U.K. firms had 10% of the market, U.S. and German firms had 9 %, and other Europeans had 4%. High competition prevented concentration and oligopolies; in the same year, the top 5 firms held 19% of market share; those occupying the 6th to t he 10th rank shared 11%; 11–15, 10%; 16–20, 9%; 21–25, 6%; and all others, 45%. Cipla and Daiichi-owned Ranbaxy have increased their market share while GlaxoSmithKline remained at fifth place in the period from 2000 –2001 to 2005–2006. Traditionally, MNCs depended on the parent company for capital requirements; the result was lowered local capital bases and heavy dependence on the parent’s product portfolio and proprietary assets, and thus they rarely conducted R&D abroad. For many regulatory reasons, MNCs in India conducted little novel work; R&D budgets as a p ercentage of total operational income were low relative to those of leading Indian firms. Until recently most had no drug discovery programs or biotechnology efforts; Glaxo, Aventis, and Pfizer had no significant research in India by 2001, while many Indian counterparts were actively upgrading their capabilities. However, AstraZeneca was an example of a change. The relative vigor of Indian fi rms, even those outside the top 10 by market share, and the corresponding stagnation of foreign ones are evident in an article in the Hindu, a l eading Indian newspaper, on the contrast of Pfi zer (India) with Glenmark Pharma, a midsize Indian company. Both had comparable operating profits of 18% to 20% in 2001–2002, but the Indian fi rm had subs tantially higher operating revenues from the previous year (39% versus 11%), primarily driven by an expanded product portfolio and new product launches by Glenmark, particularly in diabetes drugs. Pfi zer performed well with low dependence on raw material sales. But its overall

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per formance is less compelling because its interest costs are low relative to those of Glenmark. Even with low net profit, Pfi zer’s return on net worth is high because of low capital employed and ready-to-use brand names, among other factors. Manufacturing was a capital-intensive process, while process chemistry and engineering required skilled personnel. Those fi rms that were able to invest in buying new technologies or upgrading existing ones were more likely to be large. Plagued by quality-control problems, fi rms also grew in size to ensure in-house sourcing. Indeed, in recent years different technological and organisation challenges have generated the need for external collaboration. Although the NDP’s elaborate licensing structure suffered from many “License Raj” characteristics (characteristics of red tape, rent seeking, and uncertainty), it succeeded in inducing private-sector manufacturing capability through a c ombination of production allocation, government procurement, and explicit sidelining of MNCs. A progression from the 1950s to t he 1990s therefore led to a me tamorphosis from an economy primarily dependent on imported formulations to one manufacturing and consuming bulk drugs from locally available raw materials, and on to n et export of both bulk drugs and formulations, although formulations have been produced at higher rates in recent years. The NDP of 1978 was subsequently modified in 1986 and 1994. Manufacturers in older segments and those initiating new formulations required government approvals for allowing free imports of five important bulk drugs, such as those for vitamin B and tetracycline, and the denial of permission to export new molecules clinically untested or cleared by the Drug Authority. The transfer of some therapies to o ver-the-counter status further reduced their profitability. Moreover, five remaining drugs reserved for public manufacture were freed. The central government automatically approved any FDI investment up to 74% (of total investment) compared to i ts prior policy, which limited FDI investment to 51%. Later, the government increased this limit to 100% FDI. The state began to privatize public-sector manufacturing in pharmaceuticals and vaccines, a move that was politically complex and a danger to vaccine self-reliance and availability. Those public firms being considered for privatization included flagships Hindustan Antibiotics and IDPL, which had b een instrumental in Indian pharmaceutical success. A new patents bill followed,

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along with incentives for in-house R&D expenditures. The Pharmaceutical Pricing Authority conducted four price-decontrol exercises in three months of 1999 alone. Finally, in sweeping changes, a large number of drugs have been removed from controlled price categories, and within these and other drug segments the profit ceilings have been raised. Taking Stock While being late to the use and adaptation of a set of scientific and technological advances brings definite costs, the gains can also be substantial. Several policies with far-reaching impact on the industry (process-patent-only regimes, price controls, policies to curtail MNCs, and the NDP) all cumulatively contributed to significant learning measures through market restructuring. Indian firms grew through several strategies: the targeting of domestic and especially export markets, increased R&D expenditures, increased generic drug opportunities, out-licensing to foreign companies, increased patenting, and targeting of high-margin therapeutic categories such as cardiovascular diseases and diabetes. A rise of exports from 26 firms over five years from 1997 to 2002 coincided with increased R&D spending. Bombay Stock Exchange data demonstrate that sales of these 26 leading Indian firms had almost doubled, while local MNCs saw sales rise only slightly. Profits for Indian firms were also significantly higher on average, and their R&D spending growth went from an absolute total amount of Rs. 50 crore in 1997–1998 to 240 crore in 2001–2002, a r ise of 380%. Exports rose 230% in the same five-year period, although most foreign firms were only beginning to a ssess the possibility of India as an export base. Today the Indian industry is the largest by volume and number of companies in the developing world. It leads worldwide in the manufacture and export of drugs such as ibuprofen and anti-TB drugs such as ethambutol and rifampicin. It is also the world’s second-largest producer of indigenous hepatitis B vaccines. Of the leading bulk drug manufacturers in 2000 –2001, Ranbaxy and DRL have emerged as innovative drug firms in terms of their New Chemical Entities and patenting profi le. Since the mid-1990s the imports of bulk drugs into the country have dropped, in part because the quality of local manufacture has significantly increased, and many MNCs also have switched to buying locally manufactured bulk drugs. Indian industry now manufactures all along the value

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chain, with a r epertoire of approximately 350 bulk drugs from most major therapeutic categories and production capability for all dosage forms: capsules, liquids, tablets, orals, and injections. Economies of scale certainly contribute to size, but large firms have dominated the global pharmaceutical sector partly because of financial and production requirements in clinical trials and advertising. Early Indian firms were rarely in global markets, drug discovery, or clinical trials. Price controls removed the incentive to invest in advertising. Indian firms grew large because of production targets, allocation policies, and procurement incentives. Furthermore, scarce reliable supply networks and quality materials forced firms to i ntegrate vertically to ensure standardization of materials and routines. Process technologies encouraged firms to invest in the skills of chemists and chemical and mechanical engineers, as well as the integration across investments in manufacturing ability. Some firms expressed the desire for greater cooperation, especially those moving into biopharmaceuticals. “We do too much in-house” (interview, June 27, 2002). However, a few fi rms that have paid their manufacturing dues and have built scale have also benefited from revenue streams that allow them to move closer to discovering drugs themselves. “Hyderabad-based companies have made so much money that now it’s simply a money issue combined with priorities, and they can take any expertise and capital and develop really innovative products!” (interview, June 17, 2002). But often they cannot do this alone: “None of the companies yet have the muscle to establish drug development. . . . They have to do this abroad and have to license this to big pharma” (interview, June 14, 2002). “DRL couldn’t afford the cost of development, therefore it had to license to the U.S. It thus generated in-house expertise and has now moved further up the value chain or close to approval” (interview, June 27, 2002). So it is time to take stock. As we have seen thus far, and as Table 3.3 indicates, there were two submarkets in this period of intense state intervention. The fi rst market environment demonstrated several technological troubles in the making of medicines, first in the public sector, then in the private sector, that shaped the state’s attitude toward domestic firms and foreign MNCs and its omnivorous use of several market measures. Can developmental states, especially centralized ones, provide comprehensive economic regulation and anticipate all technology pathways? Clearly not. To take one challenge, although product differentiation is a p roxy for some innovation, it can degenerate into production of irrational drugs. Regulation

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TABLE 3.3 Subphases of the first market environment The first market environment

Characteristics

Subphase : s–s (the public effort)

Entering the domestic market: technological capability and the public sector. Entry/capture points through public health and “essential” drugs important for learning.

Subphase : s–s (the private effort)

Process patents, price controls, production allocation licenses, monopoly restrictions, all boost the private sector.

sour c e: Author.

and market structure may not always ensure that novelty is clinically worthwhile. Each producer has a host of brand names and combinations of similar drugs attempting to compete on the basis of brand, not price alone or efficacy. Some increased combinations are dangerous when they heighten the risk of unsafe drug interactions. The instances of nonessentials and hazardous drugs selling well in the market are numerous. Although segment allocation had its benefits by providing incentives for Indian firms to develop abilities in certain strategic areas, the legacy of these policies (especially price controls) lingered unattractively in the extent to which nonessentials captured market share. The Indian Patent Act of 1970 created incentives for Indian firms to find new processes for existing drugs but reduced incentives for MNCs to introduce more sophisticated drugs into the country (other than the requirements of the later NDP of 1978). This type of market inertia and the relatively low implementation favored companies that advertised more. Price controls on some essential drugs created perversities. Nonessential tonics, supplements, and cough and cold preparations with higher profit margins had l arger market share. MNCs in the mid-1980s continued to overcharge on some of their highest-selling products (usually formulations) with the help of legal fi lings against government orders. Some parliamentary debates and newspaper editorials argued that ownership rules should be even more stringent; even with 40% equity, foreign firms were granted similar footing to that of Indian firms, but in other countries, firms with even 10% foreign equity were characterized as foreign firms. The state dramatically restructured markets several times in this first market environment. But Indian drug policies can be rightly criticized for their delinking of industrial growth from health needs. Prices reflected targeted

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demand projections of central planners, and production allocation reflected the desired standards in self-sufficiency rather than actual capacity and uptake. There was no serious use of decentralized health plans and no consistent institutional effort to mo nitor and consult with neighborhood community health organizations and pharmacies or local governments. Because the pharmaceuticals industry lies within the Ministry of Chemicals and Fertilizers rather than under the Ministry of Health, this institutional gap is undesirable but hardly surprising. The lack of coordination and clear priority often resulted in inefficient production shortfalls and lack of investment in certain key therapeutic areas. The assessments were based on past production, growth trends, and future industry projections rather than health statistics per se (except for the requirement of drugs in national health programs). But it would be impossible to deny that state-led entry points in antibiotics and vaccines, process patents, key technology licensing and production allocation, and the deliberate buildup of plant capacity determined India’s pharmaceutical successes and self-reliance in crucial areas. Price regulation was the stick. The state pushed Indian firms into core technologies while it pushed foreign firms into local production, higher technology investments, and smaller market shares. Indian firms demonstrating indigenous technology developments were also rewarded with additional production licenses, such as Cipla’s salbutamol technology. However, the state was less effective than it might have been because it did not strictly revoke licenses when firms did not meet demand, nor did it punish inertia in fi rms that were slow to invest in technology upgrades. Price controls and ownership allocation criteria made production of certain essential drugs unsustainable business. Public-sector labs could not produce and upgrade to ke ep up with technology and demand shifts, and the country witnessed serious shortfalls in the private-sector production of certain essential drugs. Planning is clearly a continuous, adaptive act of regulation and foresight, with many experiments. The developmental state was successful in many production goals, less so in others, but it was certainly crucial to the task at hand. There was nothing naturally advantageous about unregulated markets where MNCs were reluctant to customize essential medicines, upgrade technology, or accept domestic price restrictions. Several policies thus worked in concert to produce self-reliant capabilities in process engineering, chemistry, and manufacturing.

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But development is far more than market plans and regulation of any one triad element. Single-minded technology and production efforts had t aken their toll; the state (and consecutive Indian governments) had dangerously sidelined the broader decentralized politics of demand and delivery for too many years. This is the tale of the next chapter.

4

Demand and Democracy

The Institutional Unraveling of Industrial Planning Although the state-directed first market environment for production and technological learning had generated many successes, several health-care challenges were best regulated on the demand side. Purely supply regulations that temper pharmaceutical costs, for instance, have limited effect on markets when industrial supply is strong and supplier lobbies grow stronger. Late industrial states and their suppliers consequently face particular demand-driven tensions and opportunities. These include demand growth from individual consumers to collective buying instruments, and diverse challenges from decentralized demand such as information, privatization, insurance failures, and physical delivery. There exist political and spatial questions associated with demand that are locally embedded within the nation-state, such as neighborhood or regional ownership of community health centers or clinics and the state’s tenacious hold on several outdated, obdurate, public personnel procurement institutions and physical infrastructure. Consequently, if the first market environment symbolized state controls over production, this control was to be increasingly questioned by the rise of consumption and demand politics. India’s true tests came to a h ead in the 1970s with industrial pressures and technology-transfer bottlenecks, coupled with an increasingly visible and vocal citizenry. Fiscal decentralization alongside centralized state planning exacerbated these tensions. The unraveling of 84

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industrial planning in the later 1970s and the demand mobilization of workers and other identity groups countrywide demonstrated the institutional thinness of economic planning. Despite (or because of) the rapid garnering of supplyside production capabilities, demand had especially far-reaching consequences. I begin this chapter by explaining some rudimentary fiscal politics of demand in the health sector. I subsequently move to specific demand-side political movements of the 1970s and their challenge during a time of flagging industrial momentum. I conclude by setting the stage for the 1980s export push, which is the story of Chapter 5. Planning for the Nation’s Heartland and Outposts The British government established the first health policy and planning committee in India, the Bhore Committee, in 1946. From independence in 1947 all the way to 1980, several such committees were instituted, from the new nation’s Mudaliar Committee in 1962 to t he Chadha Committee in 1963, the Mukherjee Committee in 1965, the Jungalwalla Committee in 1967, the Kartar Singh Committee in 1973, the Shrivastav Committee in 1975, the Bajaj Committee in 1986, and so forth, including others such as the Indian Council for Medical Research–Indian Council for Social Science Research (ICMR-ICSSR) Joint Panel of 1980. Every health-planning committee attended to strengthening health care, especially universal primary health care, but emphasized different elements as the means to doing so. The early five-year plans of the government also solidified a disparate structure of health-care spending, with urban areas receiving far more physical infrastructure, technology, and skills than rural areas. The Third Five-Year Plan attempted to address rural personnel shortages but faced considerable opposition from doctors and the Medical Council. The Bhore Committee emphasized the need for free health care funded by “general and local taxation” and expressed skepticism about meanstested benefits. In 1961 the later Mudaliar Committee wrought a more technocratic course by shift ing India’s health-care rudder. It recommended a primary health-care unit and hospital bed for every 40,000 persons. The system that in 1946 had accommodated the needs of 175 people in principle now was to serve 1,000 . There was no integration suggested for systems of medicine proliferating in the country. A production shift had also occurred: patents were to be permissible for pharmaceutical processes for a period of 5 to 10 years.

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Independent India’s First Commission on Labour was instituted in 1967 under P. B. Gajendragadkar, when the planned economic system and its industrial growth targets emphasized the difficulty of reconciling an industrial relations system that represented an astonishingly small fraction of the population, with broader goals of economic and social integration. When the Kartar Singh Committee released its recommendations in 1974, the emphasis was on integrating a rapidly disjointed and widespread system. A primary health clinic now corresponded to 50,000 people, and health workers were increasingly being required to take on multiple development tasks. The committee recommended that health workers be considered multipurpose workers. Not just planning committees but political personae mattered. Several individuals wrote this story over and over. But Indira Gandhi’s first regime promoted a superb populist rendition of socialism. Her politically well-crafted Garibi Hatao (Abolish/Get Rid of Poverty) instituted deep changes in health access that might have earned her a place in the history books. However, she did more to rein in suppliers than to expand demand institutions and delivery, overseeing instead the nationalization of banks, attempting antimonopoly legislation, and enacting further price controls and patent-law changes for suppliers. Demand politics tested Gandhi’s mettle in multiple ways during her two regimes. The violence and increasing uncertainty associated with organized work was evident in the railway strike that paralyzed industry in 1974. The dramatic concentration of power in Gandhi’s hands allowed her to break the strike and immediately introduce the Emergency from 1975 to 1977. The Emergency was a p ortentous sign that state centralization was under challenge, and that demand and democracy had become delinked from laborunion politics and concerns about entitlements. Demand and the Health of Health- Care Financing Markets in health technologies include both individuals and groups. However, the state’s regulation and financing of participation for individuals and groups fluctuates over both time and organizational form. In large part this fluctuation stems from political imperatives to make health entitlements more or less universal. Any health system that aims to be universal is fi nanced in two broad ways: first, through tax financing, and second, through social or other health insurance. Both require some form of copayment at the time of use. Tax financing is a means to equalize financial risk, and the corresponding health

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system can be made a vailable to a ll citizens or residents, depending on the country. Social health insurance, the other means to universal coverage, is dependent on some measure of contributory payments, either individual or collective, which can be pooled into a fund or funds. A social health system geared toward either individual or collective contributions may make use of either market-oriented or non-market-oriented elements. There is no type of health system that uses only one type of market. But the collective aspect of financing has many advantages and path dependencies. In all societies consumption of health care is invariably collectively organized because it is too expensive for most individuals to contract for health care individually. Indeed, as technologies advance, costs of innovations often surge, putting them beyond the reach of individuals’ out-of-pocket payments. Consumption and its politics of demand are therefore collective, and comprise a crucial element of industrial and social history. Historically, European employer- or state-funded programs were decisive in bearing health costs. Public buying systems and health insurance coverage emerged as influential demand and reimbursement channels for pharmaceutical and other technologies. However, European systems of welfare provision and political entitlements were historically granted with the registration of settlers in towns and cities; thus they were not limited to ideas of nationhood and its citizenship. Late industrial history, in contrast, does not conform to a linear story of state regulation of industrial welfare and a s eamless accumulation of benefits. These nation-states have conflicts with several other, often older, riskpooling or care institutions and seem unable or unwilling to extend the umbrella to universal entitlements. The collective contributory payments for social health insurance often come from governments, enterprises, employees, and the self-employed. They may be made directly by workers or partially or completely on their behalf by governments and enterprises. These nonworkers or those outside the workforce for periods of time include the unemployed, children, retirees, the disabled, expectant or new mothers, and those who cannot afford the cost and must be accounted for in other ways. In other words, social health insurance is a contributory health-financing mechanism within which contributory payments are made either by individuals or on their behalf. Such a system must have a systematic capability to collect payments and disburse them and must include decision making about what payments can be made, to whom, and for what. In reality, many countries live between tax financing and social

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health insurance, using a further medley of means. These include community insurance, cooperative health insurance, or private health insurance, which may not graduate to universal systems over time. A health system is therefore always a pivotal political institution beyond its more mundane economic elements. It can dovetail both democratic and decentralized ideals. Contributions, especially compulsory ones, have strong correlates with political power and the state’s coercion or trust. Civil servants, employees of other public and private large businesses, and the military frequently have the best benefits. Countries that have small manufacturing employment or large informal economies of manufacturing, services, and agricultural employment face significant challenges in instituting social insurance. The smaller the formal economy, the more challenging it is to establish funds that are contributory and the harder it is to organize workers. Simply put, the wider the institutional and physical dispersion of informal, noncontractual employment, the harder the state has to work to coalesce the institutions and financing for health care. Such economies have strong dual burdens: neither tax financing nor social health insurance is easy because the contributory pool of residents or citizens is low. The study of India’s twentieth-century economy reveals how the production of health technologies became increasingly divorced from the finance and politics of delivery and consumption, in large part because of the structure and institutions of employment and settlement. Industrial Slowdown and Fiscal Inertia Some scholars have argued that the Indian nation-state was unable to reconcile the needs of various actors because of a “crisis of governability,” explained by party politics and the Congress Party’s fragmentary rule. We must step back further; technological changes shaped the development and regulatory environment in distinct ways. As industrial supply and capabilities increased, they exacerbated the pressures on political parties and fomented conditions for new voices and economic opportunity. Corporatist, labor, and caste-based alliances wrought by Indira Gandhi and the Congress Party were affected by these technological changes. These changes both propelled and were embraced by India’s industrial ideology in the first environment, the long-standing romance of several leaders and bureaucrats with science and technologies. In India developmental goals and market regulation were caught amid central fragmentation. This was revealed over the years in the growing powers

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of the Science and Technology ministries, the power of industrial policy and the Planning Commission, and the low visibility of the Health, Welfare, and Labour ministries. Economic growth fueled a rise in effective demand for goods and ser vices but accompanied an increasing fragmentation of social assistance and health programs. The institutional triad, though never aligned, was becoming more visibly unstable. The 1970s were a time of welfare rumpus in several places. European countries too had seen a reduction of Keynesian welfare response and a neoliberal and corporatist emphasis on self-help and competition. However, the pressure on state withdrawal had o ccurred after decades of generous welfare statism that had shaped markets. Although India dealt relatively robustly with the 1970s oil shocks and avoided the crippling effects of rising oil prices, considerable fiscal inertia had set in. The share of capital goods in 1969 was 5% of industrial output and grew to almost 18% by the end of the 1970s, a growth rate of 8.1% annually, a success for policy makers focused on capital goods. However, public-sector investment had already begun to drop after 1965, and the rate of growth of fi xed investments in the public sector was almost halved at the same time that private-sector growth remained constant. Furthermore, manufacturing value added grew at about 5.1% annually. Center-state relations were tense as distributional challenges grew across the country. Not everyone had en joyed the benefits of regional economic successes. But centralized state planning continued to enjoy support. The Green Revolution, a te chnically focused and planned state endeavor, allowed India food independence and showcased its affinity for technological solutions. Although some of the Green Revolution’s redistributive effects were controversial, there was little doubt that it had made ma ny persons prosperous, opened up policy options, and secured a political support base for the government, at least in some parts of India. It was a ps ychological boost to technocratic planning. By the end of the 1970s it appeared that the country’s strategy of capital goods as a leading sector to fuel industrial growth was succeeding. Although rises and falls in its Gini coefficient between 1964 and 1975 indicated that India was better off than countries such as Brazil, many uncomfortable domestic problems remained. The slowdown in industrial employment not only affected the state’s expansion of health benefits and infrastructure but also had a ripple effect on urban concentrations, urban infrastructure, and increasing rural poverty. These led to differing claims on health systems. The rise of

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political organizing and demand made visible the inflexibility of the country’s industrial apparatus. Universalism and Demand Identities: From Control to Dissipation The political upheaval of the 1970s coincided with the gradual erosion of power within the Congress Party. Two industrial issues—an increasing capability in the manufacture of medicines and the state’s receding ability to regulate employment and structured health benefits—came to a head in Indira Gandhi’s tenure as prime minister and significantly shaped health entitlements and market regulation. An im mense social and political transformation strengthened across the country simultaneously with greater labor organizing worldwide. Student political activism was also growing with a younger, disillusioned workforce. Industrial disputes increased dramatically through both strikes and lockouts at much higher rates than in the first phase of unionism. Between 1966 and 1973 the number of disputes involving two or more central trade-union federations was higher than in the first phase of unionism because of the increasing concentration of central trade-union-federation power through certain political parties and unions. The widespread agitations around the country took on different forms. Macroeconomic issues and microlevel tensions over remuneration, health, and agrarian reform drove geographically disparate groups to voice their concerns. Gujarat’s government in western India was the first victim, succumbing to student unrest against inflationary pressures in 1973. The government resigned, but the unrest spread to Bihar. The Sarvodaya activist Jayaprakash Narayan took on the battle against corruption and inflation. Even more reactionary student schisms emerged within the Communist movement, giving rise to severe agrarian unrest and the Naxalite movement. Landless dalits (traditionally regarded as Untouchables) through the Chhatra Yuva Sangarsh Vahini and other organizations fought against landowners and agitated for women’s landownership. Although Kerala’s health system was to receive much attention, the rest of the country suffered disturbing gender biases in delivery and consumption of health care. Kerala and nearby Sri Lanka’s successes appeared to have been built on gender equality and a commitment to social uplift and education, whose combined effects on health were overwhelmingly positive.

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Two different powerful tributaries were about to join this river of unrest. Keith Hart from the International Labour Organization (ILO) published his 1973 account of the “informal sector.” Similarly, the Indian women’s movements and the agitation for education and health arose against a backdrop of employment-related concerns. These movements included the Self-Employed Women’s Association (SEWA), the Tamil Nadu Construction Workers Union, and other company unions. Many organizations for informal workers that until now had been severely constrained by the politics of formal unions branched out into new protests and manifestos in Andhra Pradesh and Maharashtra. Women workers formed alliances across caste barriers and geographic divisions to protest unequal treatment in the Hindu Code bill on issues of inheritance, divorce, custody, dowry, and polygamy. Other rallying cries were violence against women, title to land, access to credit, and issues of health. The government responded with The Status of Women in India, published in 1974 in advance of the 1975 International Women’s Year. India ratified the ILO’s Convention of Equal Remuneration in 1975 and the national Equal Remuneration Act of 1976. The state of Madhya Pradesh, a site of considerable agitation, saw the Chattisgarh Mines Shramik Sanghatana evolve from mine workers’ protests in 1977. Finally, in 1979 the All India Coordination Committee of Working Women was formed under the Centre of Indian Trade Unions (CITU) as a policy group. This prompted other major unions to create women’s factions. Traditional industrial relations had never fully grasped the scale and scope of organizational changes required to include more workers in health or social security benefits, but some unions made initial forays in this arena. The CITU was instrumental from the 1950s to t he 1970s in mobilizing outside its traditional base of formal and agricultural workers. This newer pressure to look outward stemmed in part from two primary sources: a rapid rise and mobilization by the CPI(M) (the Communist Party of India [Marxist]), on the one hand, and evidence of cleavages within the Congress Party itself, on the other. These changes forced the dominant social groups to assert a new identity and to establish new electoral bases. This new uncharted territory included nonfactory employment. It established a n ew proving ground for party cadres and affiliated unions with regard to both minimum wages and social security.

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The Reemergence of Nonmarket Institutions In unplanned laissez-faire economies, perfect competition is the primary tool to seek efficient outcomes. Market regulations weight profits higher than wage equalization, and laissez-faire institutions are relatively blind to d iffering needs and any rising demand expressed other than through price signals. Had the Indian developmental mandate been geared to production alone, the state might have successfully defended its market regulations. The challenges to industrial change arose from demand politics and the vast armies of nonmarket institutions confronting the state. Indeed, did India follow a relatively classic trajectory of pressure-group massification of social security and health benefits? The evidence seems to pull away from this type of explanation. Indian proletarianization had always been uneven by sector and region, even in the early twentieth century. Different regions propelled activism and par ticu lar entitlements. Maternity benefits in Kerala, for example, preceded national legislation by almost 20 years. There, early worker mobilization for basic rights in the 1920s and 1930s was built around caste and was only later given a l abor identity. The 1920s witnessed the mobilization of the Ezhava castes into the Travancore Labour Association (Kerala’s first labor union). The Kerala Socialist Party in the 1930s in the coir (coconut fiber) and bidi (indigenous cigarettes) industries absorbed caste identity into “labor.” The effect was a proliferation and dilution of schemes, with incumbents of existing formal programs being reluctant to sha re the fi nancial pool or institutional mechanism with newcomers. The resulting fragmentation of programs affected health insurance risk pools by state, sector, worker type, and benefit. For instance, casual or migrant wage labor within the construction industry has made full-fledged social security schemes with comprehensive benefits unlikely. In sectors such as construction, bidi, agarbatti (incense), and toddy (in India, alcohol from fermented coconut and other palms), the state and several labor groups attempted to b reak the traditional bond of employee, employer, and state to link individuals directly to welfare funds where work status could be registered independent of employer information. But this proved challenging when the state, as the largest construction employer, remained contested and fragmented ground for the advance of social security and health. Centerstate and centralized versus local bargaining also fueled different health system demands.

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Traditional trade unions have been ambivalent about this fragmentation. Some have argued that specific health insurance programs (e.g., welfare boards, the Employees Provident Fund [EPF], and the Employees State Insurance Scheme) allow participation of both formal and informal workers. Nevertheless, workers outside formal state regulation have traditionally been disadvantaged in programs such as the EPF and have resisted paying into it. Should their benefit period lapse (because of unemployment, moving, or a n ew employer/contractor), their contributions are absorbed to benefit formal workers who remain within the scheme with more secure work tenure. The National Campaign Committee for Central Legislation on Construction Labourers (NCC-CL) has therefore built cross-state, cross-organizational alliances to present a more robust demand strategy. The NCC-CL includes those formal unions that are more active with informal workers, such as the CITU affiliated with the CPI(M). Growing demand was a mirror to Indian labor beyond class identity. The big push of women’s groups evolved through the 1960s and broke exceptionally forcefully into the open in the 1970s. Universal scope in benefits and geography was nevertheless distant. The expansion of benefits was limited and tied to social assistance, not work-based social security. Programs such as the Integrated Child Development Scheme were premised on maternal and child assistance but treated women essentially separately from their labor-market identities. In Chattisgarh and elsewhere, the Mahila Mukti Morcha (Women’s Liberation Movement) was an important, vocal component of women workers’ protests and representation. Especially large-scale mobilization occurred from the 1970s through both SEWA and the Working Women’s Forum (WWF). Both associations stated their opposition to caste-based organizing and, although gender specific, moved beyond unidimensional labor identities. When SEWA broke away from the Textile Labour Association in Ahmedabad, it left behind any caste distinctions and political affi liations of its former associate. When the Thamizhaga Kattida Thozhilalargal Mathiyaa Sangam (Tamil Nadu Construction Labour Central Union), which had originally been moored in strong caste foundations, fragmented, the women’s faction was actively assisted by the NPMS. This movement is similar in some respects to how European demand groups advocated for “gendered” social security benefits, although the state instituted truly comprehensive benefits only after women entered labor markets en masse. The universalism challenge persisted because not only were far-flung women’s groups denied widespread health benefits beyond highly uneven and

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unreliable maternity and neonatal care, but their demands emerged and fused with other, ever more strident calls for work-based benefits with wider insurance, accident compensation, and asset insurance for tools and housing. The 1970s and the UN-sponsored Decade for Women made i nstitutional funding and supports available to hundreds of schemes for women and children. The Congress Party with specific industrial and populist goals nationalized banks and embarked on a series of credit-oriented changes in fiscal planning to advance mass credit. The 1970s corresponded to the early consolidation of genderbased financial ser vices for women through cooperative banks and microfinance schemes that laid the basis for later successes of SEWA Bank and the WWF. These organizations established sophisticated rural and urban strategies for low-income working women that jointly addressed work, income, credit, and health. Financing required nonmarket institutions and funding outside the industrial tripartite system. Unions faced vexing difficulties. On the one hand, union members may resist raising membership dues to c over health; on the other, union leaders and members resist expanding into new territories of unorga nized informal workers. Unlike traditional unions, several organizations working with informal workers used their nonprofit status to seek diverse sources beyond membership dues to expand health ser vices. Member-based organizations such as SEWA saw a sharp rise in membership with the introduction of health insurance and with the deliberate linking of insurance accounts with banking accounts. Nontraditional organizations, unlike unions, were legally unable to c ollectively bargain on wages and thus agitated for health care and health insurance because their “softer” strategies were necessarily multipronged. SEWA strategically linked gender and health by emphasizing not wages, but “work security,” thus bundling rights to minimum wages with explicitly social productivist claims for better health and protection of working assets. These benefits included medicines, free maternity-related medicines, and hospitalization and diagnostics for accidents (especially in accident-prone construction and other manual labor sectors). This shift from paternalistic social assistance to w ider politically based welfare (and health) entitlements has been slow and complex. A move from a class-based discourse has occurred to some degree across sectors. With increasing contract and casual informal work, the state has grown as the locus of activism for welfare measures, rather than wage negotiations alone, toward “softer” options. Neighborhoods rather than factories and child care rather than wages alone emerged as strategies.

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More traditional southern unions such as the TKTMS and CPI and CPI(M)-affiliated unions continued to be instrumental in mobilizing informal workers for building collective health institutions through welfare funds. In Kerala the state moved well beyond industrial relations and wage regulation to an explicitly redistributive agenda. This benefited the overall health-care delivery systems and raised effective demand for it. This process was strongly influenced by the Congress Party split in the 1960s and the spurring of party competition between the CPI and the CPI(M) for the hearts, minds, and bodies of informal workers. However, with the slowing of industrial employment growth, the state’s political avenues to universalism were becoming increasingly limited. The employment road to health care was industrially and institutionally frail, and the central government and regional states remained insulated against much demand. The Ragged Edges of Consumption and Delivery The 1980s brought relatively static capital productivity, low industrial output growth despite rising labor productivity, and correspondingly low employment elasticity. Although Indira Gandhi in her second regime had spoken out strongly for access to health care at the WHO Alma Ata Conference, the later liberalization begun in the 1980s had c reated opportunities for rapid technological change and foreign markets. These included fast product-cycle times, subcontracting and “casualization” of labor, and the spread of zones exempt from labor law. In the absence of a uniform and universal domestic standard for either social security or labor, the increasing pace of economic growth cut sharply into ideas of universal wage and occupational health security. Unionization during roughly the Sixth and Seventh Five-Year Plans (1980–1985 and 1985–1990) revealed increasing fragmentation along regional, urban, and state lines. Although industrial growth rates were a robust 5.7%, employment grew by only 1.8%. The 1980s were highly unstable from a macroeconomic standpoint, and unionism and labor markets were affected accordingly. Significant intercity patterns of organizing emerged in Madras, Calcutta, Bombay, and Bangalore. The seeming collapse of even the semblance of sustained tripartism seemed evident in the context in which the Second National Commission on Labour was unilaterally decided. By 1980 the joint panel of the Indian Council for Medical Research (ICMR) and the Indian Council for Social Science Research (ICSSR) was recommending reining in supply and focusing on demand and delivery, arguing that neither

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medical education nor drug production should be further expanded, but instead both should be reoriented and integrated. The panel continued to support a dominant role for the state and the provision of services to all citizens irrespective of their ability to pay. As an exercise in envisioning equity, the panel’s report was ambitious. In response, the government published the National Health Policy in 1983, calling for “universal, comprehensive primary health care services, relevant to actual needs and priorities of the community.” Health and work, however, are awkwardly situated in the concurrent list of shared authority by central and regional governments in the Indian Constitution. The messy institutional mix creates, in effect, a no-man’s-land between granting essential entitlements in health and labor and designing the physical and economic plans of cities and regions. Although the National Health Policy and several health commissions actively called for reform, they poorly influenced conditional World Bank or other lending to bring central and state government mandates closer together. Neither did they do much to further the regulatory ties of national health plans to private market entry in clinics, hospitals, and diagnostic ser vices, nor did they link these regulatory ties directly to municipal plans. The effect: an inability to reconfigure production toward new institutional design for several elements including consolidating existing welfare funds, expanding formal social insurance programs, making retail pharmacies affordable, ensuring quality municipal health ser vices, placing caps on health user fees, and ensuring universal preventive care. Only Kerala’s regional plans had successfully shown how to integrate health, education, gender, equality, and labor politics, but it too felt the negative effects of industrial slowdown and low employment growth. Some commentators have remarked on how widely divergent from social reality medical care had emerged, reflecting only a sma ll elite’s preoccupation with curative ser vices and the technology intensity of such cures instead of looking more closely at community health, preventive care, and community governance. Such care had been shown to function by basic training of village residents, in many instances not requiring sophisticated technologies but judicious use and referral when needed. The primary health and community health center would then serve as the essential heart of village life, skills, and care, and an overhaul of health care in this vein would spring directly from the vitality of Indian democracy. The resurgence of communicable diseases also made it more urgent that health technologies and treatment regimens correspond to the goals of the five-year plans. Decentralization and deprofessionalization had l imited

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effects in the absence of real community participation mechanisms, with even most rural residents seeking private health care and urban facilities where they could. The joint panel’s recommendations appear to have been complicated by a challenging path dependency of patients’ preference for private providers, a privatization trend begun in diagnostics and clinics, and the later rise in the 1990s of public-private partnerships in delivery, combined with the earlier trend for privatized health technology supply. Today about 80% of Indian payment for medicines and health care is out of pocket. Although planned public health-care programs ostensibly procure low-cost medicines, these delivery institutions are rotten. Individuals transact privately although public “free” health care is available. Payment for technologies and bribery are rampant in many government hospitals and clinics, aggravated by high out-of-pocket amounts for prescription medications and limited nonhospitalization coverage within a catastrophic-coverage insurance model. Pharmacies are well stocked for those who can pay. Only a small minority in public-sector employment or in large private firms are covered for vital routine health technologies. Ironically, the very absence of welfare states and health insurance has made Indian technological capabilities more, not less, attractive in the global market. In May 2010 the pharmaceutical giant Abbott Labs announced its decision to buy the health division of the Piramal Group, India, to establish a dominant market position in the country. Abbott’s CEO i ndicated that the fact that most Indians buy as individuals, not through state-mandated or other health insurance, makes the acquisition even more attractive because it insulates the company from the more standard belt-tightening of welfare states. At the same time, as emerging economies develop welfare regimes of their own, it is even more likely that they too might require consumers to switch over to generics from brand names. In other words, establishing dominant generics ownership amid minimal welfare regimes can be a winning long-term strategy even when the welfare entitlements become more robust. The climate of the postindependence triad in which domestic markets had been shaped by the state toward access and equity had now become deeply unstable. By the time liberalization was begun in the mid-1980s and was instituted economy-wide in 1991, there was a consensus among leading economic planners that the shift to i nternational competitiveness was inevitable. The increasing privatization trend in pharmaceuticals in the first market environment was also reflected during the coming decades in health-care delivery

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and insurance. The inadequacies of health-care delivery were also exacerbated by the incomplete availability of even mature technologies such as malaria and cholera treatments. Public-private partnerships fueled public investments that many critics have claimed benefited only the private investors and hospital chains. Pharmaceutical and vaccine supply increasingly began to respond to e xport demand, further tilting the triad and underscoring the weakening state regulation of domestic demand and delivery. This trend is the story of the next chapter.

5

The Second Market Environment Learning by Proving in Global Regulatory Harmonization India’s policies have been out of synchronisation with the world economy. When international trade was expanding swiftly, India’s policies were very inward- oriented. Now that international trade has slowed down, India has decided to liberalise her trade regime and become more export- oriented. Keith B. Griffin, Alternate Strategies for Economic Development

National Universalism and Global Nationalism: The State’s Loosening Hold on the Domestic Market We are in a new world increasingly linked through trade and regulations, in which nation-states, powerful actors in principle, are emasculated in developmental practice by the harmonization context in which they function. Comparative regulatory scholars have argued that in such a world of regulatory systems, there is a division of labor: states increasingly “steer” the economy in terms of broad plans and navigation goals, while to achieve the ends, firms “row.” But both steering and rowing are difficult, if not impossible, without regulatory compliance. Therefore, even though development is far more than simply complying with such international regulations, wider domestic developmental goals may be impossible to reach without it. Much of this regulatory compliance has important domestic institutional elements. But only some firms and nations may be capable of entering these markets, and this ability hinges precariously on technological prowess and the ability to c reate and regulate the markets necessary to respond to the new standards. In the first market environment Indian policies were successful in wresting domestic market control away from multinational firms. Several policies, especially the New Drug Policy (NDP), the Patent Act, and the Price Control Order, induced manufacturing capability in Indian firms through creating incentives for the production of public health drugs. Large firms emerged at 99

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the helm. The NDP had far-reaching consequences in establishing a dominant position for firms in crucial categories such as antibiotics. Price controls and process patents made it easier for firms to seize critical technologies. Despite the emergence of many dubious formulations, these industrial regulations raised competition and lowered profits in those segments. Nevertheless, the lure of export exchange and the export timing constrained the state’s actions. In the first environment concerns of (eventual) universal access had c onditioned the state’s industrial targeting strategies This form of targeting became much less obvious in the second environment even though a new “learning by proving” occurred at the level of firms. This second environment, beginning around 1970, demonstrated how the tensions between domestic health access and industrial competitiveness were overshadowed by vast transformations in technical safety and efficacy driven by advanced industrialized countries. The economic environment of the 1970s in which Indian firms had b uilt prior manufacturing capabilities was to b e affected in the coming decade by three major foreign institutions. The first, external to the country, in 1984 was a landmark change in the U.S. market by the introduction of the Hatch-Waxman Act to promote generics. The second, in 1985, was initial intellectual property (especially patents) harmonization from the WTO’s Trade in Intellectual Properties (TRIPS) Agreement, which gradually came to dominate the public health debate in developing countries. This coincided with a third institution, WHO procurement of vaccines, which I address in the next chapter. All three Ws created overtly new market rules of a second market environment that in a decade had propelled especially stringent technical standards. By analyzing Certified Good Manufacturing Process (cGMP) facilities, generic drugs, and vaccine processes in this and the next chapter, I describe how harmonization-driven global regulation has compelled Indian firms to meet external standards and hone past process capabilities. I demonstrate this by (1) describing three markets shaped by the Hatch-Waxman Act, the WTO TRIPS Agreement, and WHO procurement; (2) showing the progression of Indian firms from one tier of regulatory standards to another; and (3) describing compliance with U.S. FDA and cGMP standards. In essence, this second market environment selected and rewarded “proving” and rapid response to c ertification quality. This regulatory context not only created new institutional rules but also transformed the built investments of firms. As in other export industries and their supply chains, pharmaceutical and biotechnology regulations are heavily influenced by buyers. However, unlike in

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other sectors, “learning by proving” requires suppliers (from India in this instance) to prove to buyers in importing nations that their product or process is in compliance not simply with industry goals, but also with the health priorities of the importing country. These priorities may be lowering the cost of prescription drugs through generics availability, or extension of pediatric immunization to new vaccines. This distinct tiered learning can be regarded as an offshoot of Kenneth Arrow’s “learning by doing.” Repetition, practice, minor innovations, and increasing returns to production may well ensue, although late industrial contexts differently institutionalize private and public learning. “Learning by proving” occurs against a shifting goalpost. External regulatory requirements may induce continuous learning, but these rules are shaped (and shift often) not by domestic considerations but by the health priorities of importing nations. Therefore, rather than using the argument common in development analyses of export orientation’s advantages relative to import substitution, I argue that India’s synchronization with the world economy ironically made it more difficult for the state to ma nage firms’ successes. Although trade theoretically is structured on the basis of differences in factor endowments, including knowledge, history shows quite convincingly that firms (and countries) have access neither to similar knowledge nor to technologies. Scientific principles may be relatively well understood and managed internationally, but technology and markets are not. Differences in access to knowledge and market adaptability explain why variations occur in innovation levels across countries. Another way to think of these technological changes is that the crucial element of late industrial development is the dominance of production costs relative to exchange costs (transactions). Therefore, industrial development cannot be seen simply as a push toward more perfect markets. On the contrary, states craft industrial policies to minimize production costs that include costs of coordination and distribution. States therefore make markets explicitly imperfect. We saw that the fi rst environment presented development challenges arising from these differences. Differences, however, are further exacerbated by mandatory market rules that push firms to harmonize their products and processes, thus raising both production and exchange costs in the short term. Regulatory capitalism evident in the harmonization of technical standards dramatically colored the priorities of Indian firms by imposing specific production and exchange costs. Exporting firms surged in infrastructure investment and in-house learning. However, the opening up fueled developmental

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differences in the elements of the institutional triad: (1) industrial production, (2) domestic delivery, and (3) domestic demand. Therefore, we see here that although the Indian state strictly crafted the first environment (state steered and rowed) with goals of nationally based universal entitlements, it struggled with steering coherently to regulatory harmonization, and thus private firms were left to row (to foreign shores, as it were). In shifting from strict controls over the economy to an export-oriented phase driven by externally mandated technical standards and harmonization agreements, the state’s slow growth toward national universal access to medicines in the early years was to be increasingly set against a new proud global positioning of Indian firms. We can interpret this as a shift of aims from national universalism to global nationalism. Institutional Shifts to Global Nationalism The earlier import substitution had operated through two elements: (1) backward integration of bulk drugs and local production (later mandated through local content requirements, but initially through requiring MNCs to ma nufacture bulk drugs locally) and (2) catalysis of process development through process patents to manufacture hitherto-unavailable technologies. However, profit margins, squeezed extraordinarily low by price ceilings on “essential” drugs, had two effects: 1. Firms moved into production of nonessential drugs. Although Indian firms were provided production-allocation licenses and procurement opportunities in the essential drug domain, they appear to have moved relatively less frequently than MNCs into nonessential categories. 2. The second effect was more spectacular and less deliberate: firms moved into export markets to increase profits unattainable at home. Domestic demand was low, with few collective buying instruments to soften price controls. International procurement policies aimed at assisting universal access within the country ironically further augmented this export trend. Unlike the 1950s and 1960s, when government policies had clearly directed goals for technology acquisition, creation, and transfer from the public to the private sector, or even the 1970s, when they had sought to protect indigenous firms and build manufacturing capability, the 1980s were characterized by a

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relative lack of central policy vision. The greater harmonization’s momentum, the more evident this lack became. Manoj Pant’s study of 218 chemical and 202 engineering firms found no significant difference in export orientation of MNC affi liates and Indian firms except for those in the pharmaceutical sector; Indian firms clearly outperformed foreign firms. The twentieth century saw immense industrial changes driven by standardization. Because pharmaceuticals are particularly regulation prone, the industry provides an excellent example of firms’ adaptability. Four main characteristics inspire this regulation and standarization: 1. Safety, because the product is directly ingested, injected or topically applied. Besides health, there are more delicate and ethical questions of safeguarding the hopes of patients, which are dependent on the quality of the product. 2. Significant information asymmetries exist between producers and consumers (especially with growing advertising) in which consumers (and indeed many health-care workers) do not have the specialized information necessary to judge a product and must let doctors select them instead. 3. Demand institutions such as insurance, for instance, can significantly affect price. 4. Manufacturing guidelines are vital to ensure quality, efficacy, and safety through good manufacturing practice (GMP). Hiccups in manufacturing can result in end products that contain either too little medicinal value or too much contamination, both of which lower effectiveness and increase toxicity. Because laboratory-scale processes are often directly converted to commercial scale, problems with uniformity in safety and efficacy then emerge at the industrial level. Drugs fall under the purview of ingestible substances, and governments and medical regulators monitor their health sectors closely, usually through specialized food and drug agencies. Additional regulations on insurance, price and safety, and immunization protocols mold the policy environment within which firms strategize. Technical standards matter not only to p roduction but also to del ivery. You and I use medicines and vaccines often. Regulators require that products and processes retain their safety and efficacy from lab to you and me. This is

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not simply a technical challenge but an enormous institutional one. Although both network effects/externalities and switching costs are the primary economic approaches to studying standards, the developmental impact is poorly understood. In order to comply with standards, firms very simply need information and the ability to develop core technologies and knowledge, which in turn can require patent offices, information bureaus, professional associations, or nationwide standards for reporting and enforcement. At the very least they need labs, uninterrupted water and electric power, and skilled people. The state’s desire to f uel competition among domestic firms and to boost their competitiveness against foreign firms is often complicated by the confl icting pressures that global regulatory harmonization imposes. When should firms respond to what foreign buyers want? When should states help them? Standards may emerge as a response to local problem solving. When they do so, they can be classified according to compatibility between interfaces, quality, or information. Even if they can be so classified, the impact of such export production standards on domestic consumption and delivery is unclear. Therefore, we can differentiate the production context from that of consumption and delivery and term export-driven production standards as “harmonization-necessitated” versus more local “needs-necessitated” technical standards. The first change, the United States’ Hatch-Waxman Act, aimed to l ower prescription drug costs by allowing more competition in generic drugs. The act accomplished this through new regulatory guidelines for technical certification and market approvals. In industrialized Europe, North America, and Australia, regulators, insurance firms, doctors, consumers, hospitals, and brand manufacturers have different incentives and long-term goals in price regulation. Some wish to reduce prices for consumers, others to protect market share, and still others to procure medicines, surgical tools, diagnostics, or vaccines in bulk at low rates. Their governments seek low-cost bulk procurements. The irony of the second environment and the growing Indian export flow rests in the absence of large domestic health insurance plans. In other words, welfare regimes of other nations drive Indian firms and their physical investments. A second change occurred to complicate this market environment further. The Trade in Intellectual Properties (TRIPS) Agreement of the General Agreement on Tariffs and Trade anticipated in the 1980s that all members of the WTO would adopt minimum standards on patent laws. The Doha Declaration on TRIPS Agreement and Public Health, adopted on November 14,

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2001, further allowed each country the right to g rant compulsory licenses on key technologies/inventions if they pertained to public health problems. Several countries responded early to TRIPS requirements, but India enjoyed the full legal extent of the compliance dates. It modified the existing patent regime to conform to TRIPS requirements, including increasing existing pharmaceutical patent terms from 7 years to 20 and terms of other patents from 14 to 20 years, thus extending monopoly rights of firms. Leading firms began early preparations for the anticipated regime change of 2005. Today India has the world’s largest number of certified manufacturing facilities (after the United States) both within and outside the country, a testament to i ts “learning by proving.” Those Indian firms with state-of-the-art manufacturing facilities have become choice suppliers for MNCs, foreign research institutes, and WHO. Global pandemics such as AIDS and tuberculosis and bioterrorism scares such as anthrax have made Indian firms increasingly attractive partners. GMP guidelines are therefore a crucial element of the response to the Hatch-Waxman Act, the WTO, and WHO. The U.S. FDA approval process is particularly stringent and represents the target market of choice for most Indian firms. The standards of cGMP provide manufacturing certification and require demonstration of quick turnaround of product certification and ability to contract, manufacture, and produce samples of high quality, consistency, and appropriate volume, thus virtually guaranteeing the success of future trials once approval is granted. They straddle the range of “manufacturing, processing, packaging, and holding of drugs” and include requirements for workers, physical infrastructure, equipment, the actual manufacturing process (production and process control), packaging, labeling, holding (storage), and distribution (as well as handling returns). They even specify guidelines for company records and reporting mechanisms, quality-control monitoring, and documentation. Generic drugs are cheaper for two reasons: (1) the manufacturer can avoid the R&D and marketing costs associated with drug discovery and development undertaken by the brand company; (2) as patent expiry occurs, multiple manufacturers may be approved for the generic drug, thus increasing competition and further reducing the price. Generic drug manufacture is an inherently diminishing-returns game unless one can be the first to market, in which case the U.S. market allows a 180day exclusivity incentive. During this period the market is essentially a duopoly of the original brand-name manufacturer and the generic drug challenger,

106

The Second Market Environment

and profit margins can be very high, even if the price of the drug is already lowered because of the onset of competition. The drug goes through the expensive, time-consuming, and scientifically rigorous process of clinical testing in a highly uncertain climate. The state can help only to s ome extent because technological advance happens within fi rms. Indeed, because Indian fi rms face a fragmented domestic standardization and approvals system, the burden of proof of meeting worldwide standards has fallen on individual fi rms. One interviewee stated, “Standardisation and reliability are poor in Indian labs. . . . People haven’t stored valuable serum samples for later studies. Ethics committee review boards from India are not taken seriously abroad even though they comprise good clinical doctors and good case loads.” The standardization of quality from input supply is a pa r ticu lar challenge. Firms have to fi nd local sources where possible, while setting up cGMP facilities and certified supply routes can be expensive: “In the case of contract research, it isn’t just like the IT [information technology] industry. Reagents and equipment are imported. Therefore, it is actually more expensive to set up a ser vice in India.” Firms acknowledge some government support to s treamline the process. The scale of the Indian market also requires these controls because product impact and liability are greatly multiplied. “Governmental functions come into play with regulatory issues when you market to one billion people.” In this environment of domestic institutional fragmentation and infrastructural and other scarcities, Indian fi rms seek out markets with clear requirements and high rewards. The U.S. Hatch-Waxman Act increased competition and reduced the regulatory hurdles for advanced global generics suppliers. Only a small fraction of manufacturers are able to exploit this market opening by being fi rst to fi le and being able to produce noninfringing manufacturing processes, ramp-up capability, and marketing and distribution links. The generic drug must duplicate the active pharmaceutical ingredient (API). Those fi rms that can show superior efficacy or other novelty can apply for a patent challenge. In 2011–2012, crucial “blockbuster” patent expirations occur, some earlier than expected despite patent extensions, due to o ut-of-court settlements with generics manufacturers: for example, Lipitor (Pfizer), for lowering cholesterol; Plavix (marketed by Bristol-MyersSquibb and Sanofi-Aventis), a bl ood thinner; and Enbrel (Immunex), for rheumatology. Generics are normally priced about 20% of the brand-name

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drug, or approximately US$8.5 billion in 2003, growing to US$60 billion in 2005. Indian fi rms aiming for 10% of market share could still earn almost US$6 billion. The number of generic drug producers is linked less to t he price of the drug at a g iven time and more to t he anticipated rents from the par ticular drug segment. Firms make a concerted effort to obtain information on what rents to e xpect, which makes speed to ma rket of the essence. Indian firms have been decreasing the time required to introduce a patented drug in countries without product patents. They have also reduced the time to introduce off-patent drugs, often because they have already been selling a specific drug in the Indian market or exporting it to c ountries with no product patents. Indeed, because of the diversity of regulations worldwide, with different national systems adopting domestically tuned policies, there may be no lag at all. On the contrary, there may be lead time, with Indian firms launching the product in India years before patent expiry and waiting to launch it in international markets. Usually the product is launched immediately on patent expiry. As Table 5.1 indicates, Indian-owned firms have positioned themselves to benefit from U.S. patent expiry and approval to launch and/or to receive exclusive marketing approval. Indian firms have had t wo broad paths of advance. First, they have attempted to be the first to market; second, they have created additional novel properties for existing drug categories. In the first market environment, generic drug advances based on process capabilities evolved from core strengths in public health drugs into higher-value-added “urban” drugs in cardiovascular, lifestyle, and cancer treatments. Horizontal and vertical product differentiation opportunities for off-patent drugs provided small patenting windows for Indian firms. The New Drug Application for new molecules was reduced to the Abbreviated New Drug Application (ANDA) for drugs first marketed after 1962, requiring fewer clinical tests, faster and cheaper regulations, and bioequivalence of the drug to any previously approved U.S. FDA drug. However, the ANDA still requires considerable investments ahead of the approval process and presents uncertainties in approval. Furthermore, the FDA can also approve other firms for the same generic drug in order to stimulate competition with the incumbent, thus lowering drug prices. Therefore, a g eneric drug producer needs to (1) reduce the prospect of FDA rejection or requirement of submitting further information to satisfy regulatory guidelines and

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TABLE 5.1 Development timelines for selected Indian generics Approximate time of Indian market approval/ marketing (C)

Time lag from first introduction (approx.) to lead (before patent expiry) C–A (B– C)

First production (A)

Patent expiry (B)

Aciclovir







 ()

Albendazole







 ()

Asternizole







 ()

Captopril







 ()

Cefaclor







Ceflazidime







 ()

Cefotaxime







 ()

Cefotaxime sodium







 ()

Cefuroxime axetil







 ()

Cefuroxime sodium







 ()

Drug

 ()

Ciprofloxacin







 ()

Enalapril maleate







 ()

Famotidine







 ()

Ketoconazole







 ()

Netimicin







 ()

Norfloxacin







 ()

Ranitidine







 ()

sour c e: Adapted by the author from Jean O. Lanjouw, “The Introduction of Product Patents in India: ‘Heartless Exploitation of the Poor and Suffering’?” (NBER Working Paper no. 6366, January 1998).

(2) attempt to be the first to market the generic drug itself, thus leaving behind the other FDA-approved producers and securing a monopoly position among this secondary market for a short time. Recall that the original drug manufacturer (the patent holder) also stays in this market, anticipating future price reductions but still earning revenues on its brand name. In order to compete and obtain certification approvals, the generics producer not only has to have a complete, sophisticated, and technologically rigorous dossier for the FDA, but also, to reduce the possible time taken for approval, must ensure that its submission be considerably superior to others in the absence of information on how far ahead rivals may be. Nevertheless, the ANDA system’s results were dramatic. Although between 1976 and 1982, only 2 of the top 13 drugs faced any generics entry in the

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first year, the passing of the act created new market conditions: 11 of the top firms had s een generic drug competition within two months of approval. Indian firms took full advantage of the new U.S. regulations to enhance filing speed. This required manufacture immediately upon U.S. approval and consistency in meeting market volume. The Hatch-Waxman Act tremendously boosted opportunities for Indian generics firms with API mastery and formulation capability and stimulated competition in the U.S. pharmaceutical industry as well.

Expansionist Market Tiers The greatest obstacle is GMP and regulatory hurdles. At least 25 other companies fall into this same category. For Indians, formulations and process chemistry are like ABC now, formulations we can now learn to do the next day, process chemistry in less than 12 months. Interview, October 2003

Learning by proving is a tiered compliance endeavor. I construct a typology of three main export submarkets with varying export reach and GMP compliance for various national authorities. Although compliance determines which countries to access, there is no perfect relationship between GMP standards and country lists because some countries have minimal or unclear regulatory requirements, and thus a firm with “higher” levels of GMP capability can simply enter with no difficulty or does not enter until the regulatory climate can be clarified. Patent regimes of the tiers are less uniform or clearly correlated to adv ances in process capabilities. Ultimately there exist three main types of manufacturing firms in these towns and cities: those that target (1)  the domestic market, (2) the domestic unregulated export markets, and (3) the domestic unregulated and regulated export markets. Despite their relative inexperience, a subset of Indian firms learned rapidly in export markets and grew in size and market reach. GMP compliance rewarded larger companies that made the investment to comply. Cipla, Ranbaxy, Dr. Reddy’s Laboratories, Sun, Wockhardt, and other leading firms did not advance in a clear sequence of “imitation to innovation” because imitation itself under these rules required considerable creativity. They advanced in process steps and some “reverse engineering” with sufficiently novel capabilities. In cases such as cefaclor, Ranbaxy mapped each step until a new step could be patented. Eli Lilly had patented up to 56 steps of the development

110

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process, and Ranbaxy, attempting to develop a noninfringing method for the same drug, had to persist to the 57th step and then file its patent. In February 1991 the president of Eli Lilly stated, “When all factors are considered Ceclor (cefaclor) should remain a viable product for Eli Lilly beyond expiration of the patent.” Further, “The Ceclor synthetic route is so long and so complex’ that it will be difficult to d uplicate. . . . A legal end-run seems extremely improbable.” The successful Ranbaxy response was, “56 processes were under patent (with Lilly) and we found the 57th” (Ranbaxy executive). Table 5.2 documents this graded persistence of firms in 2004. Tier 1 markets (“unregulated”) signify the lowest levels of regulatory requirements. In reality these are loosely GMP regulated, often allowing products that are on-patent elsewhere. Many Indian firms began their first ascent out of the domestic market through these unregulated markets with quality, efficacy, and safety standards at similar or lower levels than at home. In contrast, tiers 2 and 3 are regulated markets, tier 2 corresponding to transition economies of Europe, and tier 3 to t he highly regulated markets of the United States and the United Kingdom. The progression into highly regulated markets (tier 3) has occurred in three ways: (1) GMP certification by the tier 3 country authorities, (2) marketing TABLE 5.2 Regulations and tiered markets Regulated (tier 2) (transition economies, including former Soviet republics)

Highly regulated (tier 3) Yes

Company

Indian

Unregulated or minimally regulated (tier 1)

Ranbaxy

Yes

Yes

Yes

Cipla

Yes

Yes

Yes

Yes

Sun Pharmaceuticals

Yes

Yes

Yes

Yes

Cadila

Yes

Yes

Yes

Yes

Wockhardt

Yes

Yes

Yes

Yes

DRL

Yes

Yes

Yes

Yes

Biocon

Yes

No

No

Yes

Bharat Biotech (vaccines and recombinants)

Yes

Yes

No

No

Shanta Biotech (vaccines and recombinants)

Yes

Yes

No

No

sour c e: Compiled by the author.

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and distribution networks established in tier 3 countries, and (3) R&D connections (often scientific advisory presence or CEOs from tier 3 countries). Current GMP consequently became a c ritical differentiator of quality and transformed speed between unregulated and regulated markets. Indian cGMP-certified firms gained upwards of 25% in margins relative to noncompliant firms. A firm that can demonstrate quality and API development both for internal consumption and for niche exports stands to ga in market share and becomes a specialized generic drug supplier. It then challenges first-comer fi rms. An important element of the learning is that the tiered structure of export markets created “consolidation plateaus” where firms expand markets laterally (in countries with the same or similar regulatory requirements) without having to advance technologically at the same time. Thus important revenue streams are brought into the companies at each tier, which are then used to invest in GMP compliance and the process capabilities necessary to enter the next tier. An important common characteristic of the five leading firms was market access and GMP facilities (usually U.S. FDA or U.K. Medicines Control Agency). Ranbaxy exemplifies this tiered learning-by-proving path. The company began in 1961 and in the ensuing 40 years went from a manufacturing firm to one innovating in new chemical entities and drug delivery systems and outlicensing its products to transnational companies. Ranbaxy’s foray into manufacturing began in 1965; successes began with Calmpose, the generic version of Valium (from Roche), followed by further gains through Roscillin (1971), generic of ampicillin, and Gramoneg (1974), a formulation of nalidixic acid. All leading firms have antibiotics and anti-infective capability, some as their major revenue stream. Ranbaxy continues to en joy advantages developed through anti-infective capability. Its U.S. presence has expanded its antibiotics portfolio, while most other U.S. generics firms have phased out their antibiotics production facilities. Therefore, even past sluggish markets for obsolete or unsophisticated drugs (many antibiotics, for example) have found a new lease on life. When the Drug Price Control Order thwarted large profit margins at home, Ranbaxy moved abroad. For a decade beginning in 1986, the company exported APIs and bulk drugs mainly to other developing countries; it began API exports to Eu rope in the 1990s, where total exports constituted approximately 40% of total revenues by the middle of the decade. Ranbaxy then moved into finished drug exports and collaboration through foreign joint

112

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ventures and established overseas manufacturing and sales. Because Ranbaxy had built up capability in anti-infectives in the late 1960s and early 1970s, it was particularly well positioned to grow during critical policy shifts of the early 1970s, especially the Patents Act. The firm consolidated its domestic market share and moved into novel processes for blockbuster drugs. Its ability to develop noninfringing processes for existing drugs was a successful strategy despite the fact that the Patent Act allowed it to do otherwise. It launched a novel process for doxycycline manufacture in 1978 and for the biggest seller of all, ranitidine, in 1985. Seven years later, in 1992, it developed a noninfringing process for ceflacor that launched it into a different league altogether. Noninfringement meant that innovation had emerg ed, as well as scale-up capability of Ranbaxy and its ability to take the laboratory process to factory scale, a signal to foreign pharmaceutical firms. Eli Lilly, ceflacor’s patent holder, circumvented direct competition and established a relationship with Ranbaxy for contract manufacturing. By 1993 Ranbaxy had reoriented its strategy yet again as research based, and by 2002 it accounted for almost 27% of total Indian pharmaceutical sector R&D spending. In 2008 an era came to an end: Ranbaxy’s global successes, combined with the profit crises of the Japanese pharmaceutical industry, led the Daiichi Sankyo Company to acquire a majority stake. Ranbaxy’s business strategies reflected its historical trajectory: four segmented markets, exports approximately 60% of total revenues today, a presence in over 100 countries, and sales presence in over 25 countries and manufacturing in 7 of them. The U.S. market was now its second-largest market after India. The once-a-day oral dose of ciprofloxacin appeared triumphantly to meet U.S. demand during the anthrax bioterrorism scare. In 1997 an Arthur D. Little study of 4,500 Asian firms listed Ranbaxy among the top 20 most competitive. Its infrastructure to build visibility, quality, and compliance with GMP standards has been noteworthy. Its research accomplishments have also been impressive. Since 2008 it has launched over 50 products in India, and in chemical research it has developed a technology for more than 40 APIs. More than 100 process and product patents have been filed globally, of which about 50 have been granted. Over 450 patent fi lings have occurred in the United States, Brazil, the United Kingdom, Germany, China, and elsewhere, a s trategy to patent in segmented markets differentiated by process patents, APIs, new drug delivery systems, and new drug discovery research.

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The product launches have been tiered by country as well, with small process improvements: first the domestic Indian market, then countries such as Nigeria, Malaysia, Thailand, China, and the United States. All three tiers continue to be attractive markets as Table 5.3 indicates; the rate of growth of exports in the years 1995–2000 to t he United States was lower than those to “easier” tier 2 c ountries but has been increasing. Bulk drugs are internally consumed in the manufacturing of formulations and formed about 38% of revenues in 1998. Acquisition of fi rms and technologies was a shorter route for cash-rich manufacturing fi rms. As Table 5.4 describes, infrastructure expansion goes hand in hand with acquisition. In addition to U.S. FDA certification of manufacturing facilities, Ranbaxy acquired technologies from Crosslands and Gufic and certified manufacturing facilities such as Vorin (India), Rima (Ireland), and Ohm (United States) for immediate product launches in European and U.S. markets. Similarly, Sun Pharmaceuticals (begun in 1983), India’s fastest-growing pharmaceutical company in 2002–2003, combined brands with acquisitions of certified facilities in key regions to enter specific tiered markets: India, Asia, Russia, Canada, and the United States. First, mature brands in psychiatry were acquired, manufacturing commenced at a modest scale, regional expansion occurred, complementary assets in distribution and marketing were developed, the first product diversification into cardiology drugs began, and

TABLE 5.3 Sample Ranbaxy export product launches by 2000 –2003 Ranbaxy product molecule

Generic version of brand name

Sporidex AF

Cephalexin

India, United States, South Africa

Coriem XL

Diltiazem hydrochloride

India, Malaysia, Myanmar

Countries

Difnal DR

Diclofenac sodium

Malaysia, Singapore

Roletra D

Loratadine pseudoephedrine

India

Altiva D

Fexofenadine pseudoephedrine

India

Romesec DR

Omeprazole

Malaysia, Singapore

Cifran OD

Ciprofloxacin

India; licensed to Bayer AG for further development

Zanocin OD

Ofloxacin

India

Riomet OD

Metformin

India

sour c e: Adapted from company reports, website (www.ranbaxy.com), press releases, and newspaper reports.

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TABLE 5.4 Examples of Ranbaxy’s technology and infrastructure

milestones Year

Main business milestone



Company incorporated.



Company goes public.



First foreign joint venture in Nigeria. Penetration of African markets.

 

Main technological milestone Begins active pharmaceutical ingredients (APIs). Multipurpose chemical plant established in Mohali.

Modern dosage facility begun in Dewas. A second pharmaceutical marketing division is begun.

– 

The Ranbaxy Research foundation is started. Modern API production plant opened in Toansa. Ranbaxy thus becomes country’s largest antibiotics manufacturer. The antibiotics plant receives U.S. FDA approval.



Receives U.S. patent for doxycycline.



Modern cephalosporin facility begun in Mohali. Receives U.S. patent for cephalosporins.



First joint venture with multinational corporation: agreement with Eli Lilly to market some of Lilly’s products in India.



First joint venture in China. Corporate mission to evolve into a research-based and international pharmaceutical company.



Regional HQs begun in Raleigh (United States) and London (United Kingdom).

New Ranbaxy Research Centre opened in Gurgaon.

Ranbaxy’s first Global Depository Receipts listed on the Luxembourg Stock Exchange.

A pi lot fermentation plant is begun in Paonta Sahib.



Acquisition of U.S.-based Ohm Laboratories’ manufacturing units.

Commissions new FDA-approved new manufacturing wing at Ohm Laboratories.



Ranbaxy exceeds sales of Rs. , million and exports of Rs. , million.

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TABLE 5.4 (continued) Year

Main business milestone

Main technological milestone



First entry into U.S. pharmaceutical market under branded product names.

Company completes successful preclinical studies and fi les fi rst investigational new drug (IND) application in India to start phase  clinical trials.

Ranbaxy emerges publicly positioned as a drug discovery company. 

First outlicensing/reverse technology transfer for drug development. Bayer AG signs an agreement with Ranbaxy for exclusive development and worldwide marketing rights to an oral once-daily ciprofloxacin.

Ranbaxy commences phase  clinical trials for RBx.



Company’s first TNC acquisition: buys Bayer’s generics business in Germany, named Basics.

Company completes successful preclinical studies and fi les IND application for RNx, an asthma molecule.

Company enters South America’s biggest market, Brazil; sales top US$. million in Brazil alone. 

Move into East Asia: Ranbaxy begins new US$ million manufacturing facility in Vietnam. Company passes  turnover of US$ million worldwide. Surpasses sales of US$ million in the United States and becomes fastestgrowing U.S.-based pharmaceutical company.



Files IND for oxazolidinone RBx , an antibacterial.

sour c es: Websites such as Indian Infoline, http://www.indiainfoline.com; the Hindu and the Times of India, various dates; company records and press releases; and U.S. Patent Office.

then the first significant manufacturing milestone occurred with the acquisition of the MNC Knoll Pharmaceutical’s manufacturing plant. Even capabilities in certain therapeutic categories have shown tiered growth. Although domestic competition in the top layers is intense, market leaders may not be segment leaders or the reverse. Tiered structures also assist bulk drug manufacturers, such as Aurobindo Pharma and Orchid Chemicals. Tiers 1 and 2 often lead to ac cessing tier 3 as larger customer bases provide search and experimentation opportunities for dosage forms, clients, and volume markets for APIs. Only in tier 3 do I ndian firms link up significantly with foreign firms for distribution and marketing. Those firms that cannot move from tiers

116

The Second Market Environment

1 to 2 or 2 to 3 suffer as their knowledge base stagnates and their wage advantage shrivels. Growing Innovation, but Not Access? On-patent drug fi lings give the bare bones of the composition; in the more modern filings, entire families of molecules can be patented, leaving developingcountry firms (and generic drug manufacturers in advanced industrialized countries) no option but to use entirely new sets of molecules in noninfringing processes. Indian firms in both traditional pharmaceuticals and biopharmaceuticals have therefore faced challenges by (1) reverse engineering through process development, which was allowed under the Indian Patent Act; and (2) finding new processes so as to benefit from the process patents awarded, as well as to work around price controls that limited profit margins. Thus firms had incentives to bring costs down through engineering new scaleup processes that took a laboratory breakthrough to the factory floor. These efforts also benefited from industrial policy incentives such as reserved manufacturing licenses for certain drug categories. As the patenting trends became more strict (in part to curb this very tendency of firms to imitate new products), firms had to c onduct more in-house efforts to move past the last patented step of the process. Even for straightforward generic manufacturing, some experimentation during in-house process development occurs through two main paths: The first has to do with modifying an existing molecule in such a way as to show new features and therapeutic value. These molecules are patentable in themselves, such that although the entry lies with a relatively straightforward generic opportunity, the fi nancial reward and learning are high with new features. For example, the shelf life of most liquid suspensions is short, so Ranbaxy has created effervescent liquids. This dosage form accomplishes two things: (1) by creating an amorphous state, the drug’s shelf life is effectively increased; and (2) uptake efficiency increases when the patient consumes and liquefies the effervescent medicine. The second path lies in new drug delivery systems. Ranbaxy alters the frequency of dosage form, which has two main effects: (1) it reduces the cost to the manufacturer and the consumer; and (2) it increases the effectiveness of the overall dose to exhibit enhanced properties. It does this by altering molecular structure and by providing the generic drug in an altered dosage form and frequency.

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In 1976 Indian firms had low levels of R&D investments. Two years later the NDP gave a giant boost to manufacturing. Nevertheless, even shortly after the policy was enforced, Indian firms were investigating new routes for process development but not new drug products, and their R&D investments stayed relatively low, ranging from Rs. 105 million in 1976–1977 to Rs. 500 million 10 years later and Rs. 1,850 million in 1996–1997, and rising to Rs. 3,700 million in 2000 –2001. In the case of early innovations arising from Indian pharmaceutical firms, the novelty was to p rovide new formulations, new platform processes, or new process-development pathways, as in the case of Calmpose from Ranbaxy (Valium of Roche, the tranquilizer diazepam) and salbutamol from Cipla (Ventolin from GlaxoSmithKline, the antiasthma medication albuterol sulfate). Only very recently has R&D expenditure as a percentage of sales of some firms exceeded 5%, while leading global pharmaceutical companies spend in excess of 15%. Generics thus provided important learning, cost-reducing, and innovative trajectories, although they were often dismissed as “copies.” Because of India’s process patent regime, different processes for the same end chemical composition or bioequivalent version are patentable, thus leading to ma ny new search and experimentation learning options for firms. Indian firms dominated the Drug Master Files (DMF) and ANDA fi lings with the U.S. FDA. For the last quarter of 2003 there were more Indian DMFs fi led than from any other nation. A handful of Indian firms have made the first ventures into novel products and processes by introducing sufficiently differentiated products and by challenging existing patents through “Paragraph IV” filings and through new chemical entities. In some instances Indian approvals (based on the no-product-patent regime) have come before the patent expiry date. Product variation underscores a ga in in diversity as processdevelopment skills improve, with a high lead time of 10 to 12 years in many cases. But ultimately, even in a w orld of laboratory R&D, manufacturing and cGMP continue to be crucial hurdles. Several firms emphasized that India’s advantage is not low-cost manufacturing but low-cost R&D because people, not capital requirements, are inexpensive. This advantage is likely to erode as MNCs begin to hire from the same pool. “We’re still enjoying our R&D cost advantage, but not for long,” one company manager stated. Firms face an uphill task to learn and adapt to new regulations and new business environments. Process capabilities are central. Another company manager stated,

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“We couldn’t afford products, so we chose processes.” It added that people write off generic drugs as mere copies. However, although technological challenges are now minimal, they were surmounted through gaining market share by adding minor novelties such as dosage form, lowered frequency, or fewer side effects all the time. These do not present interesting technical challenges any more, but huge financial and regulatory ones: People think that generics is a zero investment business. But it is very investment heavy in comparison to rewards when prices drop. The R&D depreciation is a very, very heavy percentage in generic drugs. No one has really measured this well. The only saving grace is that no sales and marketing is needed in this segment.

Thus a firm that wants to be innovative in products as well needs to learn to cope with these challenges. Some Indian firms, through “minor” novelties, are demonstrating a productdifferentiation strategy that in a previous era of patent regulation would have warranted new patents altogether. The growing confidence of companies is reflected in attempts to increase speed of ANDA filings and Paragraph IV patent challenges. In 2002 Dr. Reddy’s Laboratories filed 11 drugs in the United States out of a total filing of 13 worldwide. Eight of the company’s 11 U.S. filings were patent challenges in 2002. But Indian firms have one more trick up their sleeve that differentiates them: integrated bulk drug manufacture of APIs is a new and critical source of profitability and proprietary assets that allows firms significant backward integration. Time to market depends both on the speed of getting over FDA hurdles and the response to demand for a drug once it is launched. An infamous failure to meet market demand (and a subsequent fall in ranking as a provider for that drug category) is that of Immunex (USA) in 2000 . The company announced insufficient capacity to me et public demand for its blockbuster arthritis drug Enbrel. Immunex lost an estimated $250 million in potential revenues, and its stock price was battered. Indian API expertise comes from low input and development costs, chemical synthesis capabilities, GMP compliance, and speed. For instance, Solvay (Swiss), which normally sourced from Lonza (Swiss) for Teveten (eprosartan mesylate, an antihypertensive), now sources the same API from Dishman (India).

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Looking Ahead Design modification is no trivial task. Despite the tacit nature of the procedure and its patent and cGMP manufacturing hurdles, generics clearly generate valuable skills. These include manufacturing ability to modify APIs, formulation changes and drug delivery changes, and the ability to d istinguish and search around patent families and to meet regulatory infrastructure and process requirements. Patent changes spurred investments that were targeted toward finding new molecules more quickly and cheaply, and built on complementary assets such as market research and better distribution. A few firms, buoyed by successes in mature product lines, have entered higher-value-added drug discovery programs for new chemical entities. Their search process requires identifying whether other companies have commercialized compounds similar to their own target molecule or intermediate, identifying the necessary starting materials or modification for a final desired product, and determining how to maximize drug purity and quantity while minimizing impurities and variability. Syntheses have to be designed to yield the highest probability of commercial scaling-up. This overall process development starts in route selection and design and moves on to k ilo lab trials, pilot laboratory scale-up, and, fi nally, commercial scale-up. As further evidence of technological advance, advanced-stage candidates have also been out-licensed to MNCs, reversing a long-standing technology-transfer trend toward more complex (and profitable) treatments for urology, cancer, and diabetes. The most visible of these in the first half of the new millennial decade was the licensing of Ranbaxy’s ciprofloxacin to Bayer, with once-a-day dosage properties that Bayer, the patent holder, was unable to create. The second market environment therefore had clear technological benefits in responding to the Hatch-Waxman Act in generics and to WTO patent harmonization. But the benefits of export apply more straightforwardly to textiles, electronics, automobiles, or footwear, where jobs, rising sectoral productivity, and competitiveness may be goals in themselves. I r eemphasize that posing export markets purely in terms of greater competition and technological gains limits the scope of understanding the developmental contradictions for the state in using industrial capabilities as a health policy tool. To be sure, the growing export capabilities (e.g., of Ranbaxy and Cipla) made them more

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likely to offer new domestic products as well. However, by and large, the second environment propelled a new phase of divergence in the triad’s elements once firms had overcome the higher production costs necessary in the new markets. The next chapter turns to WHO procurement of vaccines to understand markets of yet another stripe in the second market environment.

6

Demand as Necessary but Not Sufficient Vaccine Procurement Markets

Vaccines Markets are dependent on technology characteristics. Therefore, our market menagerie is far from complete without vaccines, which are technologically and economically unique animals. Many vaccines are not strictly public goods, so traditional market failure cannot be invoked in any case. Furthermore, procurement instruments can sidestep both traditional market failure and standard government failure. The availability of vaccines goes well beyond simple supply and demand and rests in the developmental mandate of states to ensure that production aligns with public shaping of markets and robust delivery systems. We saw earlier that public health in the first market environment was an important market entry point with its own technological learning and regulatory paths. Although public health profit margins were sharply lower after price controls were introduced in “essential” segments, national public procurement programs assured firms of large domestic volume. Consumption and demand are crucial elements of the institutional triad. After all, firms must sell their products and processes, and states can be crucial institutions in establishing and expanding markets to do this. At the level of cities, too, local governments do not simply plan physical expansion of lifescience R&D; they see demand by witnessing firsthand how people use clinics, hospitals, pharmacies, and diagnostic ser vices. In most instances local 121

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governments do not meddle in this demand; they take the projections of firms that such demand exists and simply bundle such demand into economic expansion plans. However, national governments are crucial to establishing overall health-care demand and as such are fundamental to how firms respond and the sector evolves. Beginning with the second market environment, the increasing harmonization of global technical standards ushered in a new era of trade-related regulation, induced learning by proving, and placed bounds on the state’s action in assisting industry. As I showed in Chapter 5, this second environment created new tensions in the triad, especially because industrial competitiveness, safety and efficacy, and affordability began to pull apart. This chapter on vaccines will argue that the demand from international procurement acted as a powerful market and imposed strict regulatory guidelines for safety and efficacy. Vaccine procurement also induced learning by proving in firms. However, this demand was necessary but not sufficient to ensure access. Instead, what was required was the nation-state’s tweaking of regulatory design to shape technology transfer, transparency of product approvals, and the ramping up of delivery infrastructure in India’s towns and villages. These occurred only in small part. Health for Some: The Development Mandate States (and national, regional, and local governments) have many reasons to be concerned about vaccine market structure and such varied nonmarket institutions as community health, wider social norms about children’s health, the effectiveness of health education programs, medical ethics, training, abuse of power, and more mundane but vital issues of infrastructural subsidies. In the late 1990s I lived for about two months in the village hospital facility of an NGO health program in western India. Electricity outages were a fact of life, and several very local factors such as electric generators, staff availability, roads, and alternate sources of water and ice determined whether the vaccines in the refrigerator were safe and effective. The NGO functioned in an almost total absence of local governmental action, active citizens, or working public health facilities. We were in a small village with only basic amenities, a long unpaved road away from the main road to t he closest town. There were also no reliable means of feeding back this information on vaccine quality to supplier firms and no support ecology for technical infrastructure such as stor-

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age, testing, or restocking supply. Vaccine delivery was clearly constrained by broader Indian developmental priorities, failures of decentralized infrastructure, and lack of state accountability. But equally, although the health planning and policy literature embraced these challenges on delivery, it has sidelined the crucial technological and industrial capabilities that permit vaccines to survive in this climate of demand and delivery. These challenges exceed production itself. States (and citizens) therefore have vaccine mandates that go well beyond textbook public-goods arguments for the different facets of the triad, which must respond to different scales of geographic regulation. Let us consider market elements for vaccines. For instance, pediatric vaccination coverage has an immense national impact on public health as a public good for delivery, but unless it is planned and regulated, exclusionary, private production outcomes could result. In addition, vaccine production is a biological process with living organisms as inputs. Production/quality control requires both cGMP and good laboratory practice compliance. Lab testing alone cannot determine a vaccine’s safety and efficacy. Furthermore, vaccines are highly heat sensitive (remember the village refrigerator?). They have limited shelf life and thus make for difficult handling and complex infrastructural conditions of storage, transport, and delivery techniques. Besides these technical features that need their own market attention, vaccines require particular finesse in market structure and regulation. Many vaccinations (and most pediatric ones) are mandatory, so consumers have neither choice nor usually the ability to j udge vaccine quality. They are captive consumers. Production too is oligopolistic: the worldwide vaccine market is characterized by less than 20 vaccine exporters. Credibility and quality are paramount, and the burden of proof on political ability to manage vaccination programs is high because public acceptance of vaccination is vital and depends on the safety and efficacy of the treatment. The more people decide not to get vaccinated, the greater the risk of disease spread to the rest of the population. Finally (and ironically), low cost can increase access but sometimes can reduce trust. Traditional vaccines are cheap per dose and are often provided free. This can result in lowered perceptions of vaccines’ value. Clearly, states and regulatory bodies are needed to work with other organizations at different scales and across time. Given the complexity and importance of vaccines and their political challenges, the slowness of the Indian state’s response is not too surprising. India

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first articulated a relatively coherent vaccines policy only in 1978, almost three decades after independence. Although several colonial vaccine research centers had existed since the 1890s, their impact had been mixed. The Health for All by 2000 mandate of WHO’s Alma Ata conference had  considerable impact on Indian policy. Six pediatric vaccines—Bacille Calmette-Guérin (Tuberculosis) vaccine (BCG), Diphtheria and tetanus toxoids and whole-cell pertussis vaccine, pediatric formulation (DPT), Tetanus toxoid (TT), Diphtheria and tetanus toxoids, pediatric formulation (DT), typhoid, and polio—were introduced first in an Expanded Programme on Immunization (EPI) in 1978; measles was added in 1985. Nevertheless, a focus on vaccine manufacturing self-reliance drove broad policies but sidelined R&D, thus losing any institutional advantage from prior colonial vaccine institutes and investments. Indeed, crisis had befallen Indian vaccine programs by the turn of the new century. Public-sector suppliers to the Indian EPI numbered 19 in 1971, but had alarmingly dwindled to 6 by 2001; the drop in private supply was worse, from 12 to 2. International Procurement Markets: Beyond Government Failure Why pay attention to procurement? Economic theory predicts that easy-entry markets and government protections will cause stagnation; competition and free markets are the solution. However, vaccine procurement provides specialized global markets and industrial upgrading and certification. In many other user-producer studies, such as those of large retail buyers and firms that manufacture VCRs, automobiles, garments, and food, the focus has primarily been on the needs of the buyer. Procurement allows us instead to look closely at industrializing supplier firms, and we can see exactly how procurement can help these firms learn. Indeed, this chapter stresses that public vaccine procurement is unique for its global scale of inducing learning. Moreover, protectionism critiques usually applied to s tate supports do n ot apply straightforwardly to procurement, which thrives instead on competitive bids with technical and managerial features, thus providing a system of large, reliable, but technologically sophisticated markets. International procurement can be especially stringent. Only a few firms worldwide make vaccines of high-enough quality to be procured internationally for expanded immunization programs. They must demonstrate high product quality, batch consistency, and the ability to supply

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large volumes to quickly changing demand. Through its certification process, international procurement provides a springboard into new markets and narrows the pool even further to strictly selected manufacturers. WHO and the United Nations Children’s Fund (UNICEF) run large global procurement programs. UNICEF alone supplies vaccines to 40% of the world’s children. Three elements are vital for such procuring agencies: quality, reliability, and availability. International procurers coordinate worldwide agreement and uniformity on methods, substrates, and virus strains; supply and demand; licensing; standards setting; and regulatory guidelines for packaging, distribution, and return, among other matters. Clinical trials are rigorous in methods and testing and are conducted on appropriately sized trial populations. Suppliers prequalify by registering in their home countries through the National Control Authority (NCA) and through an international competitive bidding procedure. They also furnish additional information to the NCA and WHO/UNICEF. Vaccine type, extent of use, and the speed of supply response generate considerable hurdles. The procurement guidelines of vaccines and serums are distinctive because their quality and control considerations are significantly different from those of drugs. Procurement cannot rest on price alone because quality— safety and efficacy—are paramount, especially for immunisation en ma sse. India’s Pulse Polio program, an example of such mass immunization, is highly successful by most accounts. The country administers oral polio vaccines to over 80 million school children each day of the drive. Not only must production be guaranteed for this operation’s scale, but vaccines must stand the test of safety, efficacy, and adaptability in local conditions often devoid of support infrastructure. This challenge is not determined solely in the laboratory; field uncertainties and technical challenges for manufacturers are acute. High temperature sensitivity forces both manufacturers and procurement agencies to rely on a vast support infrastructure to keep the vaccines effective and safe. This infrastructure includes transport, refrigeration, tracking, and other logistics until they arrive at their destination (recall the village health center where I lived). A high-quality manufacturer also cannot fail to deliver large quantities at short notice (the availability test). In short, this is not a laboratory, but an industrial challenge.

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Procurement’s Effect These programs have played a huge role in sustainability and supply of vaccines because they do not have large commercial markets. At the same time GMP requirements keep changing, so companies need procurement to really make the process viable. This is a guarantee to us and to others to have markets available. It also recognizes companies and thus makes new collaborations possible, while also helping with the standardization of platforms. Private-firm CEO, June 2002

Firms self-select into “voluntary” regulations. Some have parlayed their expertise within these markets in remarkable ways. The Serum Institute’s website, for example, emphasizes that two out of every three children vaccinated worldwide now use its vaccines. This firm worked strategically with WHO, global alliances, and NGOs to innovate a meningitis A vaccine for Africa in 2010. Similarly, the Global Alliance for Vaccines and Immunisation’s (GAVI) coordinated buying policies have included the certification of the Serum Institute, among other firms that systematically drove down global costs of pentavalent vaccines in 2009 –2010. One interviewee early in the process recognized the impact of procurement programs and the market signaling effect of demand from these agencies: “In par ticular, the Serum Institute of India showed all companies the potential importance of institutional buyers in vaccines.” The vaccine industry is compartmentalized into five manufacturer segments: U.S. MNCs, European MNCs, other OECD manufacturers, emerging late industrial suppliers to domestic and world markets, and specialized biotech fi rms. In 1986 there were 7 suppliers of 4 vaccines, and all were in industrialized economies. Ten years later, through deliberate international procurement policies, there were 14 suppliers for 5 i nternationally procured vaccines, and 50% were located outside the industrialized world. This number has continued to increase to 58% for 6 vaccines, but suppliers have dropped to 12, partly as a function of stricter guidelines. In addition, product development cycles are shortening for pediatric vaccines; U.S. efforts on DTP, introduced in 1948, took 48 years to find a r eplacement, DTaP, while DTP-Hib, introduced in 1993, took only 7 years to be replaced by DtaP combination vaccines. The shortest period of replacement was 2 years for Hib polysaccha-

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ride, introduced to the United States in 1985 and replaced by Hib conjugate in 1987. The reasons are diverse for the capabilities gap of late industrial suppliers: growing process capabilities, still-expanding local relevance for some capabilities, and lack of appropriate infrastructure. Those firms choosing to lower their investments in hexavalent or pentavalent vaccines see their market share dropping because of the increased importance that procurement agencies place on such “bang-for-the-buck” vaccines. These vaccines require expensive physical GMP models (compliance) and face other regulatory hurdles. Even deep-pocketed MNCs such as Merck, Aventis, and SmithKline Beecham, who supplied almost 100% of WHO’s vaccines, have seen their share drop to c lose to 15% for the same reason. GAVI and other global alliances are pushing ever closer to emerging market suppliers to fi ll this gap. WHO requires functional national regulatory authorities NRAs to produce guidelines, systems, and enforcement to ensure size-critical functions, especially those related to scale up from laboratory to factory: (1) a published set of licensing requirements; (2) surveillance of vaccine field performance; (3) a s ystem of lot release; (4) use of a l aboratory when needed; (5) regular GMP inspections; and (6) evaluation of clinical performance. Despite a learning path in recombinant technology that is less straightforward than in synthetic drugs, and standards and monitoring that are more complex, India today has the largest number of suppliers for older vaccines such as the inactivated polio vaccines, two private firms among them. Private Indian firms also constitute the majority of qualified WHO hepatitis B suppliers. Firms that could adapt their learning to regulations abroad and could meet procurement demand were rewarded with immense markets. The Serum Institute became India’s largest manufacturer of measles-mumps-rubella (MMR) (100% of local measles vaccine needs) and DPT vaccine batches (60% of local needs) ranging between 2 and 4 million doses. At the turn of the millennium, leading vaccine firms included Biological E (TT and the combination vaccine DTwP, consisting of Diphtheria Toxoid, Tetanus Toxoid, and whole-cell Pertussis vaccines, which protects against diphtheria, tetanus, and whooping cough; working on DTP–hepatitis B); Panacea Biotec (hepatitis B, DTP–hepatitis B, oral polio vaccine [OPV]); the Serum Institute of India (measles, mumps, rubella, TT, DT, DTP, hepatitis B); Shantha (hepatitis B; working on hepatitis E, typhoid, tuberculosis, and a combination vaccine against hepatitis B a nd DPT); and Bharat Biotech (hepatitis B a nd single-shot typhoid; working on malaria and rotavirus). As of October 2002, the number of Indian

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manufacturers of inactivated polio vaccine (IPV) and OPV for the WHO vaccines and biologicals unit was the highest from any single country. Publicsector companies like Haffk ine Bio-pharmaceuticals also had become active again; in 1999, Haffk ine was awarded WHO-GMP certification for OPV blending facilities and later a UNICEF procurement order for OPV in India. A dedicated forum, the Developing Country Vaccine Manufacturers Network associated with procurement, helped companies upgrade and meet regulatory requirements. But some capability gaps remain, a few due to the geographic specificity of some process capabilities and infrastructure, others not. Although Indian suppliers are rapidly upgrading facilities and capabilities, they face competition from other Asian and American public institutes (e.g., Iran, Indonesia, Brazil, Cuba) that hold strong positions in several biological processes. Fine-Tuning Demand Policy Instruments The challenges for states now are to balance the private-sector technological successes they have helped orchestrate with broader institutional concerns. Today the Indian state’s ability to me et domestic vaccine needs is fragile. It  vacillates over shutting down or privatizing public-sector manufacturing units and has tenuous controls over the priorities of private-sector suppliers. Over 60% of India’s exports of vaccines go to other industrializing countries, while many in India have none. Vaccines increasingly point to an export path dependency for domestic firms at a time when foreign firms from advanced industrial economies are opting out of vaccine production altogether. There is also a geographic mismatch in global priorities that requires evergreater coordination between states and suppliers. Measles, DTwP, and OPV are well tailored today for industrializing-country use, while MMR, DtaP, and IPV are better tailored to industrialized countries. Newer DTwP–hepatitis B or Hib and pneumococcal vaccines are geographically tailored in standards, production outputs, and profits. The Serum Institute of India is the only Indian WHO supplier of measles and MMR vaccines worldwide. Furthermore, Indian suppliers serving the domestic market face price differentials. Besides the Serum Institute (India) and Bio Farma (Indonesia), every other WHO measles or MMR supplier in 2002 was from an industrialized country: Aventis Pasteur (Canada and France), Chiron (Italy), and GSK (Belgium). This dependence of mature vaccines lines on MNCs leads to a precari-

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ous situation if they pull out of the market. The meager list of qualified industrializing suppliers requires strong measures to persuade firms to prioritize domestic needs and for supplier countries to assure global vaccine security. Brazil, Cuba, and Indonesia have done far better than India in correcting triad imbalances, but all have fewer private firms in vaccine segments. Significant regulatory challenges remain in managing the supply of and access to vaccines. The evolutionary schematic in Figure 6.1 highlights several learning stages in industrializing countries (ICs) that move from publicsector capability to deepening private-sector capability and from domestic to international regulatory contexts over time. First, point A in the figure is common to many late industrializers’ supply, which rests in public-sector capabilities. Point B is achieved by fewer ICs with

E Private domestic firms becoming suppliers to international procurers

Time and increasing process capability

D Private domestic firms facing mainly international export standards

C Private domestic firms facing both domestic regulations and those in less-regulated markets

B Private domestic firms facing domestic regulations

A Public-sector firms primarily facing domestic regulations FIGURE 6.1 Evolution and specialization of Indian vaccine capabilities no t e: The number of fi rms is reduced over time. sour c e: Created by the author and adapted from vaccine evolution and unmet immunization demand in Smita Srinivas, “Industry and Innovation: Some Lessons from Vaccine Procurement,” World Development 34, no. 10 (2006): 1754.

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private-sector capability. Point C is the onset of global competitiveness, but in markets with less stringent regulatory requirements, which some ICs successfully achieve. Vaccine phases A, B, and C, with tiered standards and regulations, have proved crucial tests for most Indian private firms. Only a few ICs and private Indian suppliers have made t he transition to p oint D. Second, international procurement’s demand and stringent regulations further boost technological improvements from point D to p oint E and therefore represent the apex of learning by proving and large markets. Very few ICs have now moved to point E, a significant market-induced technological point, and India is unique in the number of private firms that have moved to this point. Third, despite indigenous firms reaching point E, there have been several missed opportunities in earlier points A to D o f tightly wedding together supply with demand and delivery in expanded programs of immunization. The WHO estimated that in 2002 approximately 2.1 million deaths occurred worldwide in all age groups from diseases preventable by vaccines that it currently recommends. Of these deaths, an estimated 1.4 million involved children under age five from diseases preventable by vaccines it currently recommends. The state has worked unevenly on national and subnational regulatory contexts that provide firms incentives and clear signals to meet domestic EPI demand. This is true of existing (mature) technologies as well. Thus demand and procurement have been vital but not a panacea for India’s vaccine woes. Other global supply challenges remain; a strong dependence on industrialized countries continues in emerging and combination vaccines. Viral vaccines and MMR have widened the gaps a mong countries, and cell-culturedependent lines are challenges for influenza, hepatitis B, and rabies. Even when such capabilities exist, Indian, Iranian, and Indonesian firms have struggled to transfer technologies from public research institutes to private firms. Korea, Japan, India, and others have stronger hepatitis B capabilities, although these have required significant public and private investments. Korea was especially assisted by regional transfer agreements. India’s newer vaccine quests include rotavirus, meningococcus, neurococcus, Japanese encephalitis, malaria, and combination vaccines for DPT, DT, MMR, hepatitis B, and BCG. These vaccines also require adaptation for specific groups such as newborns, children and teens, and geriatric populations. Region-specific disease research is active in India, Thailand, and Bangladesh for rotavirus, shigella enterotoxigenic Escherichia coli, Japanese encephalitis, HIV/AIDS, and dengue.

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Nevertheless, important institutional challenges to building domestic demand continue. In some vaccine subsegments, consumer perceptions see foreign products as superior. Indian approval processes are slow and patchy; firms have understandable product liability concerns in vaccine trials and immunization programs, both of which remain nationally contentious. Industry lobbies have also pushed regulatory agencies and the government to expand demand channels for their products (such as the EPI and insurance), a strategy increasingly under public scrutiny. Learning by Proving: Health Policy as Industrial Policy The menagerie’s second, export-shaped market environment was distinctive in both generics (which I studied closely in Chapter 5) and vaccines: as in generics, voluntary regulation and self-selection of firms into vaccine markets occurred through tiered cGMP compliance. The most technologically successful firms simultaneously targeted all tiered markets in the two market subenvironments for generics (the Hatch-Waxman Act and the WTO) and vaccines (WHO), each with their distinctive “learning by proving.” Technology sophistication induced competitive markets in both, although generic drugs experienced a more crowded market than vaccines. In the end, Indian firms that invested in technological capabilities in both segments pulled away from the rest; the effect was much more pronounced in the smaller vaccine global market. In my interactions with Indian firms since 2000 , I have been struck by their determination and remarkable skills in responding to strict industry technical regulation. These skills involved interaction, search, speeding up internal processes from lab to manufacture, filing, drug launch, and litigation. These in turn built on cumulative abilities in (1) yield advances, (2) scale changes in production processes, (3) organizational changes (R&D functions, contract ser vices, shifting internal hierarchies), (4) horizontal product differentiation using process innovations, and (5) vertical product differentiation. Moreover, market incentives and regulation of nonmarket institutions influenced accreditation, training, quality, and safety to induce product differentiation and innovation. In both vaccines and generics the markets directed cGMP prowess through different channels. Vaccine procurement provided many of the competitive skills that generics did, but through a d ifferent market system than rapid filing of applications for novelty, challenges to incumbents, and litigation

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TABLE 6.1 The second market environment’s three Ws Second market subenvironments

Lifting the market veil

Hatch-WaxmanAct

U.S. welfare regime opens market and changes incentives, seeking lower prescription drug costs. Allows import of Indian and other generic drugs subject to various technical regulations, short patent expiry, and new appropriation and innovation rewards.

WTO/TRIPS

Intellectual property harmonization, price exchange with mixed implications for the cost of drugs, and equity challenges for redistribution policies in HIV/AIDS or other “neglected” diseases. Private appropriation limits national options for planned redistribution.

WHO

Fewer global private providers and rollback of public-sector manufacturing. International procurement uses planned redistribution combining limiting suppliers, strict technology upgrading, certification, and some features of pure price exchange.

sour c e: Compiled by the author.

from incumbents and other generic drug competitors. Price too played a different signaling role in each market subphase of the second environment, combining pure price exchange (supply meets demand) with planned redistribution (state and welfare regimes, both U.S. and Indian, set prices or provided vaccines at zero cost to the consumer). Ultimately, WHO and UNICEF procurement dodged some pitfalls of standard programs and blended large demand with induced supplier competition and high quality standards. The U.S. Hatch-Waxman Act for generic drug markets mixed competition with strict regulation (and procurement), with an added fi llip for innovation. As Table 6.1 indicates, technical regulations in both markets standardized information, pooled knowledge through different institutions (by going off-patent in the market for generics and by consortia of manufacturers for procurement in the market for vaccines), and fueled learning and innovation. Regulation is therefore not simply a hindrance that prevents markets from working at full effectiveness, as neoclassical economics textbooks often portray it. On the contrary, it has played a p ositive industrial role by boosting private participation at a t ime when world vaccine security was at risk, assured demand for quality-conscious industrializing firms, advocated on behalf of more such suppliers, provided worldwide credibility, and opened global markets to Indian firms. If international and national procurement agencies can plan, manage, and guide such technological gains, they can powerfully

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induce virtuous cycles between health and industrial goals. Markets for both generics and vaccines must induce firms to upgrade technologically and managerially for health goals (why would there be any other goals for this industry, after all?). But the state’s goals must be wider public access and legitimacy for the health sector, rather than simply policy coherence or technical rationalization. Health policy making, health advocacy, and ministries of health rarely enjoy the status of ministries of industry and their lobbies, and India is no exception. The developmental state’s priorities are at the heart of this contradiction in means and goals of industrial development. All three Ws arguably made export markets disproportionately attractive in the presence of high domestic price regulation, absent welfare-state and health-care entitlements. Given this national and global context for generics and vaccine markets, it is particularly seductive to think of skills, manufacturing, and insurance as somehow “national” attributes. Indeed, national (and military) contexts of the past century have advanced vaccine research and buying instruments, leading to unprecedented civilian health gains. Nevertheless, world vaccine markets have changed dramatically over the past 50 years, requiring renewed attention to de centralization. A f ragile market context of organizational and institutional combinations was always historically necessary to get science and engineering advances to t heir end users. These market arrangements vitally depended on density of people, labs, factories, coverage, and hospitals and clinics. Today vaccine self-sufficiency and health security are reshaping market rules and are calling again on economic and health planners to view dense towns and cities as potential sites of epidemics and bioterrorism. Whether swine flu or anthrax, if the delicate balance in the triad collapses, no nation or neighbourhood can respond in time. History tells us that to achieve this balance, a contingent and sometimes fragile political and social commitment is necessary to make markets function in specific ways. But consider how these markets depend on a c omplex organizational and institutional soil seeded by several actors and rules. These include federal governments; specialized defense, industrial, and health agencies; crucial roles for city governments, mayors, and firms; dedicated research centers in the public sector and in universities; clinics; community testing; training facilities; and transport and storage logistics. Vaccines with their special market and technology characteristics expand our menagerie even further but require particularly interventionist states. Yet their science and engineering require a catholic approach to organizational structure and mission strategies

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because what works in one era and for one product or process may not work for another. The physical basis of markets is also becoming ever more evident. The built and technology investments for cGMP that have been so critical to India’s success in generics and vaccines require highly skilled people, process engineering, laboratories, testing centers, biohazard facilities, and precious land. In the past decade Bangalore and Hyderabad as life-science centers have only grown in economic importance in their regional states, Karnataka and Andhra Pradesh, and for India’s high-tech coffers and its national imagination. As I wandered through laboratories, offices, and cafeterias in Bangalore and Hyderabad with scientists, CEOs, and R&D managers, I w as struck by how much regulatory effort firms expend in dealing with New Delhi to restructure market rules, and, despite the potential transformative power of this industry, how little states and city governments are involved beyond investment, land acquisition for science and technology parks, state-of-the-art laboratories, and training programs. In contrast, cities in industrialized countries are coming to terms with new federal statutes and market restructuring around vaccine production, use, and availability. Increased threats of epidemics and bioterrorism have generated new pressures to w eld industrial, health, and defense goals and have ceded much decentralized authority back to federal governments. New forms of eminent domain are emerging in land and knowledge infrastructure; people are increasingly objecting to large industrial zones and to neighborhood plans for R&D labs and biohazard containment. India urgently needs new approaches to this market restructuring and decentralization mix. In this vein, Chapter 7 focuses on the third market environment, where we see new market challenges through the eyes of firms. Rapidly advancing biotechnologies and blurred regulatory road maps ha ve created additional hurdles for states and market variety.

7

The Third Market Environment Uncertain State of New Technologies

Bringing the State Back into the Pro cess Government is now a driver again. Prominent scientist, research institute

What happens when technologies advance? What is the state and public sector’s role? Public science has undeniably been crucial to the U.S. biotech sector’s evolution relative to other industries. Similarly, the Indian state has acted predominantly as a biotech customer and supplier, and its public-domain research organizations have been important conduits for key technologies. The state has also played a role as an international negotiator on behalf of both private and public firms. But we can consider several of these strengths to be pharmaceutical holdovers: setting a sociopolitical vision of public health (even if it has only partially been fulfilled); instituting rules by which firms emerge, grow, and encounter one another (including the policies of price regulation and licensing); and delineating the scope and scale of the marketplace (including size limits, intellectual property regimes, and antimonopolistic laws). In the export phase the state was more reticent, thus allowing foreign regulations to drive indigenous strategies. These qualities of statehood have adapted in mixed fashion to t he new technologies. When technologies and related sciences dramatically change, states (even the most assured developmental states) can be uncertain about 135

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how to s tructure markets and proceed with regulation. Contradictions and conflicts arise within them (such as between ministries of health and industry, between ministries and the courts or the bureaucracy, and among levels of government); policy making and implementation, especially those required to establish relevant regulatory guidelines, can be slow, contradictory, and frustrating. Even if physical and economic plans for new technologies are promising, they may therefore be slow to come to fruition or may be inappropriate for the task at hand. When technologies are rapidly changing, the road map is especially blurred, but the state is never more important in assisting with new market rules, establishing bounds on market activity, and creating competition and cooperation. Even generics in the two domains have diverging market concerns, from entry rules to learning by proving. Technological advances in turn drive further regulation. Although generic products have their own hurdles, particularly stringent guidelines dog the heels of any human therapeutic or vaccine protein using biotechnological methods that are called “biologics,” or biological pharmaceuticals that fall under the regulatory purview of nations’ food and drug administration agencies (FDAs). The U.S. FDA in par ticu lar requires firms to comply with particularly strict guidelines for biologics manufacture and sale. Recombinant human proteins are of special interest because they are often consumed intravenously or by injection by human beings. Indian biopharmaceutical capability has been built in a sha red but not coordinated way by two powerful sets of actors: (1) the state and (2) midsize and small Indian firms. Although an increasing number of pharmaceutical companies have invested in in-house biopharmaceutical capability, broadly speaking, Indian biotech companies are a motley crew of smaller firms in genomics, with applications as varied as brewing, bioinformatics, seed genotyping, phage therapies, and bioinsecticides and an early notable presence of foreign-returned (usually from the United States) scientists and engineers, many of whom were connected with centers of biotechnology and venture capital near San Francisco, San Diego, and Boston. Indian public efforts were initiated relatively quickly in the early 1980s after the first commercialization of the U.S. biotech industry. However, the state was unable to r eplicate its successful pharmaceutical policies with the new biology-based models and challenges of multidisciplinary science.

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Pro cess, Pro cess: New Technologies Ahoy! For pharmaceutical firms, scale-up is obvious, for biotech firms, scale-up is not obvious. . . . This is not just about throwing money; trouble-shooting ability and scale-up are critical for biotech. . . . Companies need technologies that differentiate them and also revenue streams. Interview with CEO, June 27, 2002

In a p hrase, advance in this industry is all about process capabilities. This chapter uses primary data from organizational case studies to demo nstrate the uncertainty of market context and the variety of technological pathways that private Indian firms have used. They strategize to contend with new biotechnologies, new process challenges, and the hazy market and regulatory environments they encounter. I had further opportunities until early 2010 to speak with biotech firms and pharmaceutical industry observers about the continuing market uncertainties in their domain areas. They repeatedly stated that their technologies were pushing public regulatory agencies in India and then the United States (a crucial export market) into unchartered market waters. Consider the advances themselves and how they have rewritten biological and organizational scripts. For three decades now, the field of therapeutics has been revolutionized by breakthroughs in molecular biology of the early 1970s. Biology, chemistry, and computation have surged ahead. The rise of biopharmaceuticals and other biotechnologies has created market environments that are technologically, ethically, politically, and economically tenuous. Some aspects of these technologies are older, giving rise to three generations of biotechnology products: older methods used in farm and industrial-scale production of cheese making and brewing; a second generation using fermentation in producing enzymes (food and related industries) and antibiotics (health); and a third generation using modern biotechnologies (e.g., some vaccines, human growth hormone, and genetically produced insulin). Although the second generation’s antibiotics were crucial to health and especially urban health (as we shall see in later chapters), it is the third generation on which I focus here. Before 1970 “discovery” within the drug industry was based on random screening that led to specific compounds being selected for further investigation on the basis of promising properties. Th is resulted in classification

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opportunities when molecules with new therapeutic qualities were discovered. Scientists searched primarily by chemical properties of the candidate molecules. Serendipity, large samples, and systematic searches resulted in occasional promising drug candidates. In clear juxtaposition, post-1970s breakthroughs in genetics and cell and molecular biology changed both the statistics of success and techniques. A new way emerged of looking at the human body and disease, and with it, techniques and models of identifying disease and therapeutic candidates. Rational drug design signifying a higher level of understanding of “designing” molecules with specific characteristics allowed for less labor-intensive searches and a higher “hit” rate. With high sample throughput and drug design, the researchers began essentially working backward from the known disease, and sets of molecules were designed to fit the needs of treating a disease. Although they are actively designed, this is the equivalent of discovery, often using a c ombination of drug design and random screening. Such advances from genes and molecules to actual medicines nonetheless require significant process capabilities in both laboratory and factory in ways significantly dissimilar to synthetic pharmaceuticals. The differences from synthetic pharmaceuticals are notable. Biotechnology is species specific. Processes range from applied genetics, genetic engineering (of which recombinant DNA [rDNA] is the most common), and cellfusion technologies (hybridoma to make monoclonal antibodies is the most common) to protein engineering. Traditional industrial fermentation expertise has also been given a new lease on life because enzyme immobilization extracts important commitments from firms to invest in process advances. Control of enzyme cultures through fermentation, for example, critically determines some types of drug development. Pharmaceuticals, which historically depended on fermentation for chemical synthesis, have now returned to this revitalized process. At the time of the onset of my study, the biotech sector comprised firms in development and manufacturing, drug discovery, bioinformatics, and equipment and materials supply. Hyderabad firms like Shantha Biotech, Bharat Biotech, and Dr. Reddy’s Laboratories had succeeded in entering drug development and manufacturing and had adopted biotechnological tools to produce vaccines and drugs. Bangalore-based Strand Genomics (starting with bioinformatics), Avesthagen, and Aurigene invested in genomics capability. Firms face manufacturing challenges in scaling up active biopharmaceutical ingredients for bulk manufacture, uncertainties in the regulatory process,

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and investment challenges to demonstrate bioequivalence. Lack of market assurance has thrust Indian firms into public health niches with well-defined proofs of concept, such as vaccines (Shantha Biotech, Bharat Biotech International Limited, Wockhardt), antibiotics, and some more exploratory therapies with bacteriophages (Gangagen). There exist tremendous learning opportunities and economic appropriation of novelty in mature therapeutics such as human insulin and erythropoietin, alpha and gamma interferons, hepatitis B v accines, interleukin-2, and granulocyte macrophage colony-stimulating factor (GM-CSF), all of which were Indian biotech products by approximately 2004. Firms had a lso advanced in diagnostics for AIDS kits, aquaculture disease detection, and hepatitis, common Indian challenges. However, as Table 7.1 points out, because the substance is biological and not chemical, species variations and process stability conditions are vital. Bioprocess engineering in Indian firms is especially challenging to scale-up and manufacture. Biopharmaceuticals also face some generics challenges that synthetic pharmaceuticals do not. The technological challenges are matched by institutional shifts. The crisis facing Indian science and technology was related in part to how industry actors changed their perceptions of the public sector’s involvement in research and commercialization. Today the number of Indian biotech firms is still small, and the sector is too young to draw generalized conclusions on future growth and innovation prospects. In 2000 –2001, 60% of the Indian biotech sector was made up of pharmaceuticals and human health industries, closely followed by agribiotech. Cities with public research and information technology (IT) concentrations, such as Bangalore and Hyderabad, attracted private Indian fi rms and multinational companies alike. However, the diversity in learning paths illustrates that both in mature segments and in emerging drug discovery and development, the existence of prior public-domain or off-patent technologies does not make a specific technology or set of tools easy to acquire, adapt, or improve. Because of this, certain niches develop; university and public research preserves past regulatory and policy trajectories, especially particular tertiary educational investments and on local therapeutic relevance. The institutional context of the wider economy made market shifts more rapid and technology specific. Economy-wide liberalization in 1991 abolished industrial licensing for drug manufacture, except for those bulk drugs

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TABLE 7.1 Market challenges in synthetic and biopharmaceutical generics Pharmaceutical generic drugs (generics/ multisource pharmaceuticals)

Biotechnologically produced generic drugs (“biogenerics”)

Essentially similar to original products whose patents have expired and contain the same active substance.

Lack of a clear entry framework.

Face simplified approval process (ANDAs). Face little advertising and use a generic name, not a brand name. Compete with low prices/high volume (unless first to market or with exclusivity period).

Products potentially open to generic competition: erythropoietin, alpha interferon, hepatitis B vaccine, human growth hormone, insulin, and others. Large biogenerics firms outside India. Active biopharmaceutical ingredients in bulk that do not violate patents. Expensive demonstration of bioequivalence, which is highly species specific. Unclear product liability.

Process research Alternative synthetic routes. Routes scaled up for laboratory use.

Develop analytical methods.

Lab-level production for clinical studies.

Cell-line routes.

Pi lot development Scale-up to pi lot plant. Kinetics and scale-up uncertainties.

Small-scale purification.

Production for clinical trials.

Scale-up to bench level.

Design of plant equipment.

Pi lot batches.

Commercial plant transfer and start-up Scale-up to commercial plant level. Scale-up of processes for commercialization.

Scale-up for commercialization.

sour c e: Interviews; on process differences, adapted from Gary P. Pisano, The Development Factory (Boston: Harvard Business School Press, 1997).

manufactured using rDNA technologies or in vivo use of nucleic acids, and formulations targeting specific cells and tissues. Similar restrictions applied to foreign technology agreements for rDNA-technology-produced bulk drugs. The wider dismantling of state controls as a t ransition occurred in concert with Rajiv Gandhi’s technodeterministic vision for the country. Although the global health agenda was arguably set forcefully in the 1970s during his mother’s reign, there had since been im mense narrowing of the worldwide vision of universal access. Organizations such as the World Bank emphasized private

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providers and user fees as prime market mechanisms, while others such as the ILO retreated to a mo re limited engagement with community health insurance. WHO’s vision had effectively whittled down by 2000 to simply combating specific diseases and setting dramatically limited targets for access. At the same time, the international shift to private biomedical solutions and publicprivate partnerships signaled a notable government withdrawal from ser vice delivery and R&D investments. In combination with structural adjustment programs, fiscal austerities, reduced public infrastructure, the WTO’s “trade creep,” and encroachment on public health, the overall effect was substantial. The WTO’s effects were visible in new safety regulations for food and health products, intellectual property rules, and ser vices trade. In effect, the emphasis on privatization of ser vices by some agencies and the biomedical emphasis of others distracted attention from the sociopolitical context of ill health. The institutional triad makes this context visible. Biotech products need new customers to e xpand existing markets, but India’s health consumption and demand institutions were still quite static. By 1999–2000 annual formal employment growth had further dropped to less than 1%, but the share of the casual, contracted workforce was growing rapidly. More workers than ever before were without social insurance and employment-linked health benefits. At a time of rapidly metamorphosing technologies in the last two decades of the twentieth century, Indian health policies were caught in a hard place between changes in international health rhetoric and market incentives and shifting market and developmental priorities at home. The end of the cold war likewise signaled new geopolitical aid patterns and a gradual move beyond reproductive health strategies to embrace work-based concerns of social insurance and occupational health. As we saw earlier, Keith Hart’s 1973 ILO report on the informal economy had given rise to new debates at the same time that the opening up of credit channels and the rise of cooperatives had sig naled new Indian grassroots changes. Women also agitated for increased attention to gender biases in development priorities, and, not surprisingly, the 1970s and 1980s proved a v ocal and challenging time for building universal health benefits. The changing expectations of the state are evident within the biotech sector. Some interviewees viewed the state as crowding out private research, while others (even in the private sector) viewed the state’s roles as essential to those private firms incapable of undertaking their own cutting-edge research. Still others suggested that public R&D should focus on local relevance, not on

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treating “urban diseases of the West.” Where almost all interviewees converged was in questioning U.S. biotech history and the underappreciated role of public-domain research and funding in propelling firms forward. As one scientist (also a CEO) said: “U.S. companies didn’t have cutting-edge research. Human insulin work came from licensing through City of Hope research. We are made to believe that corporate scientists have done this. . . . The entire knowledge base of this industry is public domain. The U.S. story is one of slow development [of capabilities] and absorption capabilities of companies” (interview, July 5, 2002). Another scientist said, “There is a lack of understanding [in Indian industry] of U.S. history and a lack of understanding of science itself and its applications” (interview, June 14, 2002). Hepatitis B vaccines and other recombinant products had required close collaboration with universities and public research institutes that conducted some of the initial vaccine work. Firms stated that it was important for industry to speak the language of science. Although faced with considerable problem-solving challenges in the discovery and development phase, several firms highlighted that publicdomain research bodies should strive for centers of excellence. Scientists from various private firms stated their philosophies about public-sector and publicdomain research in various ways: “Basic research is vital for product development.” “We do too much in-house. CDRI [the Central Drug Research Institute] should be doing something cutting-edge and pass it on.” “Money should go into fundamental research and academia rather than a biotech fund, towards science in public research institutes.” “Unless we have one academic centre of excellence and motivate professors to start companies, we won’t find small dedicated biotech firms, because they are not parented well by big pharma.” “Government should be funding pure science and global excellence, not a laissez-faire model.” “Basic science is needed.” (Interviews, June–July 2002) Is biotechnology locally relevant? Could the state have pursued a different development trajectory? Some scientists still feel that prioritizing health biotechnology to t he detriment of agricultural biotechnology was an incorrect policy strategy. The “white revolution” that transformed India from a milk-

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scarce nation to t he world’s largest producer of milk had its base in dairy cooperatives in western India and became synonymous with a revolution in collection, transportation, and distribution of milk and profits to millions of small and marginal farmers. However, an important component of  this revolution was the biotechnological development of dairy vaccine kits and of livestock medicine franchises for their propagation. No similar all-around assault on human health challenges (private and public alike) exists. Advances Nevertheless Drug discovery is an expensive, uncertain business, and in the early years most Indian firms simply lacked the resources to make substantial technical inroads. Many participants and observers of the industry described Indian firms as having a “trading,” not an “entrepreneurial,” mentality. Whatever the truth of this, India’s move into biology-based products was driven by significant process capabilities in chemistry, biochemistry, and certain fields of biology (structural biology, for example) where significant breakthroughs were made. Prior advances in agricultural biotechnology (plant tissue culture, micropropagation, and animal husbandry) gave scientists the confidence to use the new biotechnologies in human and animal health. Public investments in rDNA technologies in the 1980s led to enhanced capabilities in areas such as industrial fermentation and boosted the commercialization of product segments such as high-yielding seeds, vaccines, and enzyme manufacture. The government established the National Biotechnology Board in 1982. The subsequent creation of the Department of Biotechnology in the Ministry of Science and Technology was intended to propel innovation in medicine and agriculture. With these technological changes came organizational restructuring and a new division of labor. Large pharmaceutical fi rms took over almost exclusively the full development of promising drug candidates, marketing, and distribution, while dedicated biotech firms dominated drug discovery. There is no better testimony to g rowing Indian process capabilities and the confidence of private firms than the fact that in several cities they were muddling ahead despite the technological and regulatory uncertainties. By approximately 2005 Krebs Biochemicals, with approximately 650 employees,

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was ranked in the top 10 firms worldwide for the manufacture of ephedrine and pseudophedrine (hydrochloride and sulfate) using fermentation technology; partnered with and supplied to G laxo, Johnson and Johnson, Parke Davis, Pfizer, Ranbaxy, Lupin, and Wockhardt; and exported 50% to 60 % of its total production to 30 countries, including strict tier 3 countries such as Germany and the United States. By the end of 2003, six indigenously developed biopharmaceutical products were being sold domestically and abroad: recombinant hepatitis B vaccine, recombinant human insulin, recombinant streptokinase, interferon alpha 2b, erythropoietin, and granulocyte colony stimulating factor G-CSF. Bharat Biotech was the second-largest hepatitis B vaccine producer worldwide and one of the few to ma nufacture recombinant streptokinase. Wockhardt was the fourth-largest manufacturer worldwide of recombinant human insulin and the first Asian company. Shantha Biotech was the first Indian company to receive WHO certification for hepatitis B vaccine, and Wockhardt had the first WHO-GMP-approved hepatitis B Indian product. Indian innovations ranged from new versions of mature products with fewer impurities and side effects and greater benefits to new processes for higher yields in known cultures, or application of older processes and concepts to entirely new applications, particularly those with India-specific biological resources. Firms had a lternative cultures prepared for the hepatitis B v accine and significantly lowered cost, fermentation reactors for enzymes and a novel solid-state mechanism for controlled fermentation conditions, a poultry egg culture for snake venom antidotes, and a push into stem-cell research by novel harvesting techniques and the use of ophthalmologic cells derived from existing networks of eye clinics. One of India’s up-and-coming biotech firms, Bharat Biotech, developed process capabilities and vitality in several technologies: (1) an in-house production process with platform technology for more refined vaccines with worldwide patents; (2) a serotype for vaccines using a new production process; (3) development and scaling up for new vaccines and development of regionally specific bovine and human strains; (4) discovery and development of new molecules to treat existing infections through a n ew in-house method for recombinant proteins; and (5) the first manufacturing expertise in the country of newgeneration vaccines. In 2010 it launched the country’s first cell-culture H1N1 (swine flu) vaccine and is conducting research on thrombolytic agents for heart attacks.

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By 2005 the indigenous diagnostics industry was also surging ahead. Kits were available for (1) commercial applications: HIV (using agglutination ELISA and Western blot techniques), hepatitis C (ELISA), and cysticercosis (ELISA); and (2) those under development: tuberculosis (PCR), leishmaniasis (PCR), malaria (ELISA/dipstick), human leukocyte antigen (PCR/ELISA), and typhoid (ELISA). The dire need for cheap vaccines for common diseases spurred the entry of Indian pharmaceutical firms and start-ups into newer biological products, particularly recombinant proteins. Bharat Biotech and Shantha Biotech made national headlines by competing to manufacture a recombinant hepatitis B vaccine. They succeeded. The first Indian vaccine appeared in 1997 and cost 20 times less than SmithKline Beecham’s product. Since then several public and private initiatives have targeted erythropoietin, growth stimulating factor, and insulin, among others.

New Technology Maps and Blurred Market Signposts: Or gan i za tion al Vignettes Hepatitis B being a known technology is like saying missile technology is known or the atom bomb is public domain. We still need ways to construct it and to take it to market and compete. Interview with CEO (also a scientist), July 11, 2002

Innovations can be innovative even if they are not the fi rst in the world. As in generic synthetics, biopharmaceutical products offered considerable learning opportunities even in so-called mature segments such as hepatitis B vaccines. In this section I sketch briefly several learning and organizational paths visible between 2000 and 2004, many leading to insurmountable regulatory challenges for single firms. The cases (except for number 4 of Biocon with public information) are posed in general terms because of interviewee confidentiality agreements during data collection. My analysis indicates that most Indian private firms absorbed knowledge in two main ways: (1) exposure to new technologies by experimentation with diverse organizational forms and (2) investing in niche research opportunities. Firms learned “by doing” and “by proving” through product differentiation. Every speeding up, scaling up, or manufacture for new customers generates new production parameters and forces learning. These produce a breadth of complementary learning strategies even in mature products relative to the

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global technological frontier and despite constrained resource and search horizons. Various new industrial firms have also emerged. The hepatitis B story illustrates the challenges facing firms because even though the technology is now legally in the public domain, it has tacit characteristics that only in-house search, experimentation, and mistakes will decipher. The hepatitis B p rocess also reminds us of the media attention and national expectation lying heavily on the shoulders of fledgling firms. These firms developed manufacturing technologies suited to local conditions but meeting world standards and created a variety of innovative process and production technologies in the bargain. Worldwide knowledge of the product did not prevent a learning process from taking place. Case 1. Expressions of Regulatory Culture: Approval Mechanisms and Brands A few fi rms in my sample faced a d istinctive challenge: different paths to the same end drug through different host cultures. Three leading global firm collaborations—Novo Nodirsk/Eli Lilly, Pharmacia/Schering, and Serono— used three different cultures to express the same drug form. In each case the process had to be approved by regulatory authorities by demonstrating a host of species-specific and efficacy studies. The identical end product suggests that distinct intermediate processes do not determine the product. At the time of the interview there were five distinct European processes with different expression systems, leading to a n identical human growth hormone. Three are shown in Figure 7.1. However, demonstrating that the end product is similar is insufficient proof of product efficacy or safety. Because of species specificity, among other things, the company must also show that the process sequences are similar in a variety of dimensions. Interview data demonstrated several challenges, including fundamental ones where firms were unable to obtain the cultures themselves. As stated by interviewees, Indian or U.S. regulatory agencies often denied comparable cultures in the other system. In one case the host had presented high yields, and a variety of studies had shown the safety and efficacy of the end result, but the Indian company was to discover belatedly that the culture itself was not approved by U.S. FDA guidelines, and thus it had to end the study. Another company was unsure of the product liability of a specific culture if the end product were to cause undesirable effects despite meeting safety and efficacy guidelines. In a third case public research laboratories

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Culture/expression system

Company

147

Product

Pharmacia/Schering Process 1: E. Coli

Novo Nordisk/Eli Lilly Process 2: Special strains of E. Coli

Biopharmaceutical output: 191–amino acid sequence copying the human pituitary growth hormone

Serono

Process 3: Transformed mouse cell FIGURE 7.1 Culture challenges sour c e: Adapted from Contract Pharma, November/December 2003.

and private firms alike continued to manufacture vaccines for local use with a sheep brain culture not approved elsewhere. In such instances the variation in Indian regulations and the uncertainties regarding export (especially U.S. FDA) regulations have complicated search and optimization and have created considerable uncertainty. In many instances these uncertainties have delayed the expansion plans of firms within cities. Firms have to select from what they can initially afford to pursue, and within this, what they can anticipate being approved even if they can extract high yields for the par ticu lar process. There is therefore a combination of pronounced technological and regulatory challenges. Case 2. International Ladders, International Uncertainties Company 2 began as a v accines supplier with few very competitive brands and only later emerged with a formulations base. The animal health vaccine market in India is fragmented, and viruses keep changing, so firms are forced to keep up with technologies. But the foreign partnership of company 2 ended when the partner sold the animal health products division to a nother company, and company 2’s access to technology in this area ended. This happened twice; the company then turned to human vaccines.

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Company 2’s strategy is to buy existing products and platform technologies to create combination vaccines instead of facing regulatory uncertainties and costs associated with in-house production of these intermediate needs. At the time of the interview, company 2 dedicated about a self-described 30% of internal resources to R&D investments and technological alliances with PRIs. Both of these strategies were then cheaper than acquiring other products, firms, or lab infrastructure. Furthermore, PRI assistance (which works best for encapsulated problems, not open-ended collaborations, according to t he interviewees) opens doors to financial assistance, quicker equipment import, regulatory policy assistance, global immunization programs, and overall speed to market. Through its PRI links, the firm had access to yeast media. But for wider advances, ownership, not simply collaboration, is necessary for experimentation. In the firm’s description, if A i s the initial culture and three different strains of yeast are used to get to B (the hepatitis B vaccine), the process patent drives the process. The host cell is patentable, but it has taken a long time to fi nd, stabilize, test, and demonstrate that the vaccine can be found here and to move subsequently to marketing. Therefore, company 2 (and others like it) needs to patent the yeast medium (the Aventis strategy) to e xplore whether other products can emerge. Pursuing the single method for making hepatitis B vaccine alone is bad business. Company 2 also stressed that it does not know how big FDA hurdles are going to be for biologics, where specificity makes phase 3 work ever more intensive and where national control agencies work doubly hard (as in Khasauli, India, where specified random sample tests on the batches are carried out). Company 2 also worried about product liability. Another core challenge that the company identified was that future patented process technologies (such as conjugation reagents and microarrays), critical inputs for vaccines, would stymie their own efforts in vaccine production. Company 2 has also developed links with foreign universities and research institutes. Local academia is more vital when scale-up systems or researchers with specific regional disease expertise are required. Nevertheless, if there is no real knowledge base in the company, in-house retention of these scientists in the long term is very difficult.

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Case 3. Single Processes, Multiple Applications Company 3 is an exploratory arm of a larger company that investigates both pharmaceutical and biopharmaceutical lines of research. The parent company has pursued this investment as an exploration into possible future profits. The research arm (referred to here as company 3, acting independently even though it is part of the parent company) has developed multiple innovative new processes and differentiated products using both chemistry and biology. The head of company 3 acknowledges the PRIs as having been critical in amassing capabilities, but lacking the abilities to c ommercialize their findings, while industry has had l ittle appreciation for scientific and technological advances, and feels that this is symptomatic of much of Indian industry, which needs to think more about the long term. In most products there is a common theme: one process capability (in this case manufacturing a specific soluble salt) is developed and continuously improved and applied to different contexts. The company investigates known pharmacological off-patent compounds that are no longer effective in treating drug-resistant diseases. It then adds local natural products that have antibodies and attempts to create innovative products. It also looks at specific genes cloned in yeast that do not appear to have a specific biological activity. Although yeast expression is an old approach, there continues to be a large demand for high yields. It partners with a small company founded by a former company executive. With good yields and good biological activity, there may be some combined marketing benefit. It has a U.S. process patent. An Indian PRI had identified a strain of a compound that is relevant for “nutriceuticals” almost four decades earlier. An MNC became interested in animal studies of this compound. Company 3 created a pure soluble salt of this compound and has subsequently patented it in India, Europe, and the United States and completed both animal and clinical studies. Although the intended benefit showed less dramatic results, the company found and pursued a highly significant side benefit of cholesterol reduction and built ties with other Indian organizations for clinical studies. It found a contract manufacturer to trust with proprietary information and manufactured one ton of the compound per month. Exporters originally bought the 50% purity compounds at a third of company 3’s price. Although company 3 claimed to offer 95% purity, buyers were unwilling to accept its higher price, and it needed new market strategies. Two competing firms received product information through company 3’s

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former employees, combined this with public-domain patent information, and created a lower-priced product. Company 3 then learned to litigate. Company 3 discussed four other potential products and challenges in process research, scale-up, and commercialization. It developed a fermentationcontrol process using a sophisticated algorithm and has since patented it in India. It looks for products that are profitable first at home, then in the United States. Case 4. “From Brewing to Biotech”: Lateral Learning and Industrial Reconfiguration [From a] company focused on manufacturing enzymes by fermentation into being a Fermentation Company focusing on Enzymes and Pharmaceuticals production. Biocon Company website, 2003

Kiran Mazumdar-Shaw, Bangalore resident and CEO of Biocon, is the richest Indian woman and a driving force behind regulatory change, governmental supports, and urban and regional expansion of the biotech sector. At a time when 7 of the world’s top 20 best-selling drugs were fermentation based, Biocon began its journey into statins for cholesterol treatment through an unusual, nonpharmaceutical route. Its traditional users were in brewing and textiles. Biocon, like other Indian biopharmaceutical firms, was omnivorous in sourcing technology until it developed the capability to make or develop it internally. Papain, a plant enzyme extract, signaled the first technology transfer in 1978, from the then cofounding company Biocon Ireland to Biocon (India). Also in 1978 the company sourced technology from Biocon Ireland to process isinglass, a marine hydrocolloid. Biocon first began investigating enzymes through the food industry and then struggled to find an alternate noninfringing route to ma nufacture koji (a type of mold that generates valuable enzymes used in the biotech industry), ordinarily available only from Japan, at industrial scale. After considerable search and experimentation in Bangalore (1984), Biocon was able to prepare these enzymes, which launched a l ong line of processes, products, and new platform technologies that stabilized the conditions under which enzymes performed and were manufactured. This small-scale manufacturing process was developed in-house in less than three years by investments in microbial strain selection, development, plant design, and fabrication. These investments culminated in its proprietary Plafractor fermentation-based solid-state surface manufacturing technology, which was granted a U.S. patent in 2000 . Statins, an off-patent biological therapeutic, were an attractive manufacturing target.

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Although Biocon did not directly gain from the state-led policy push of the 1960s and 1970s for pharmaceutical firms, it nevertheless benefited from the surge in scientists, engineers, and doctors available and demonstrated how important it was to i nvest in R&D and partnerships with universities and other firms to develop noninfringing processes in generic drugs. Biocon also emerged as a p olicy champion, actively shaping sector policies of Bangalore, Karnataka, and India. “Continuous lateral learning” across multiple technologies and organizational strategies is the glue that holds Biocon together. Many Indian pharmaceutical firms surged out of the public health gate and into its assured markets. Biocon, in contrast, emerged from industrial applications and different regulations. With the move to adapt fermentation expertise to health biotech, its market and regulatory environment altered dramatically. Instead of beginning at tier 1, the company targeted tier 3 countries directly. Solid-state fermentation (SSF) and submerged fermentation (SMF) in the company’s repertoire combined in many lateral ways as indicated in Table 7.2, to c reate its patented solid-state fermentation technology.

TABLE 7.2 Lateral learning paths Product type

Product names

Details

Fermentation-based therapeutics

Statins (lovastatin, simvastatin, pravastatin, atorvastatin)

Lipid-lowering agents

Synthetic chemistry-based therapeutics

L-ornithine-l-aspartate (LOLA)

Treatment of acute and chronic liver diseases

Etamsylate

Prophylaxis and control of hemorrhage from small blood vessels

Hexpan

Facilitation of digestion and assimilation in the intestinal tract

Biotag

Replacement therapy in pathological conditions in which the concentration of bile acids in upper intestine is low

Biological extracts from the industrial food sectors applied to therapeutics

Pepsin

Digestive aid

Trypsin-chymotrypsin

Debriding agent, antiinflammatory agent

Papain

Breaking down proteins

sour c e: Adapted by the author directly from interviews, press releases, Biocon company reports, and various analyst reports.

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The entry points into different product avenues also created new organizational entities and ser vice functions. The company had an “easy” source of revenue through contract R&D and manufacturing in multiple domains: enzymes, fermentation, and generic drugs manufacture (Biocon) and as a contracted ser vice (Syngene for contract pharmaceutical R&D, Helix for contract biopharmaceutical R&D, and Clinigene for longitudinal and genomics-based patient studies in selected diseases and populations). Syngene helped in the creation of simvastatin, while Clinigene dealt with biomarkers of various types. In the process, clinical trial capabilities were built in the larger Biocon family. Case 5. “Learn While You Earn”: Contract Research, High-Throughput Search [We view] CROs as a statistical way to encounter large volumes of biological problems and obtain detailed domain knowledge which is lacking in molecular biology. Genomics patterns are not ABCD patterns. (We) need an eye and experience and domain knowledge, the bottleneck is not enough (supply of ) molecular biologists. Interview with director of an academic organization, June 13, 2002

In the case of Biocon, we saw the ways in which contract research and clinical studies arose from lateral paths of exploration. Here I i nvestigate the actual learning pathway within other contract research organizations (CROs). Both pharmaceutical and biotech fi rms chose CROs as a  common pathway to develop multidisciplinary domain knowledge. Indian fi rms had superiority in computation, manufacturing, and contract R&D and made attractive partners in spite of unresolved intellectual property regime changes. Within the CRO model, firms that could embark on multiple simultaneous tasks were more likely to pull ahead in their learning process because of multiplicative, not additive, learning insights. For CROs, the intellectual property and proprietary technology aims are negotiated with partners over time. Younger biopharmaceutical firms choose CRO strategies to a ttract large international fi rms. To do this, the fi rms need to demonstrate that they are not simply good ser vice partners but can also provide high-caliber R&D. Despite the potential intellectual property confl icts when a CR O has an R&D division of its own, they are sought-after partners. One CRO chief scientific officer interviewee highlighted a business strategy in terms of learning to consolidate the company’s proprietary base over time, even after the 2005 signing of the TRIPS patent

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clauses: “First three years, we plan a simple ser vices model, assign IP [intellectual property] to client, later we negotiate IP, and later, develop IP ourselves. 2005 makes no difference, it’s only perception.” The success of the CRO strategy propelled a host of private and public fi rms and laboratories to “earn while they learned,” including several alliances with multinational foreign pharmaceutical fi rms. Some examples were Dr. Reddy’s Laboratories’ new molecule for insulin-resistant diabetes licensed to Novo Nodirsk, the world’s largest insulin manufacturer, and the public Indian Institute of Chemical Technology’s alliance with SmithKline Beecham and Cytomed to perform high-throughput screening for drug molecules and process development of a new molecule. NATCO Pharma, a private fi rm, conducted contract research for drug development for Mallinckrodt, and Nicholas Piramal, a conglomerate’s life-science division, conducted contract research for Hoechst Marion Roussel. As shown in the stylized Figure 7.2, which represents the CRO strategy, the firms first interact with each client with a well-defined set of IP restrictions

CRO

Client 1

Problem block b1

Client 2

Client 3

Client 4

....................

N

Problem block bn Problem block b2

Problem block b3

Problem block b4

FIGURE 7.2 CRO learning sour c e: Created by the author from various interviews and adapted from Enrico T. Polastro, “The Future of Biogenerics,” Contract Pharma, October 2001, http://conference.contractpharma.com/articles/2001/10 /the-future-of-biogenerics, accessed September 14, 2011.

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in place. The client outsources a specific problem block {bî}, which in many cases is poorly defi ned and/or has exploratory elements and whose outcomes are obscure. In some cases the technological learning process coincides with repeated articulation and discussion with clients about how the block should be defi ned (the client is not always able to suggest the exact pa rameters to investigate). Next, the CRO takes on the block (or subset) after a considerable investment of time in defi ning the boundaries of the problem. Th ird, a search is conducted of all relevant materials in the public domain that can be used (including patent filings) for the problem at hand. Fourth, laboratory-based and/or in silico (computational) problem solving occurs. Discussions go back and forth with the client at all stages until the outsourced problem is solved. Subsequently, with multiple clients, the process is repeated for different problem blocks {bî}. However, the greatest learning takes place with multiple simultaneous and sequential clients {array N}, each with varied and only sometimes directly complementary problem blocks {bî} or {bĵ}. First, with each foreign client, the CRO estimates how important the problem is to t he core strategies of the client to correctly estimate the importance of its own in-house capabilities for the world stage. It is hardly an exaggeration to say that it is in relation to its client that the CRO recognizes its own true worth. Second, the CRO estimates and defines the related problem blocks and parameters of domain knowledge that it is not being invited to work on. This requires not simply good business sense; to know what it is missing requires fair technological sophistication in defining the possibilities set within which it operates. Third, while preserving IP integrity, the CRO also learns the dominant areas of business opportunity, the technological challenges, and the gaps or excellence of its in-house R&D. An interviewee stated succinctly: “To build relationships, you can only do this as a ser vices company. There is a lot of learning in each relationship” (interview, June 25, 2002). CROs gradually develop local clients that previously conducted all functions in-house. One company in cell-based therapies with extensive links to large hospitals and clinicians searches for public-domain knowledge opportunities and buys, rather than makes, at home. But some level of expertise is still needed to recognize the opportunities and partner with hospitals for data analysis. Learning paths tend to be similar in some respects in the CRO model, and competition is increasing. A CRO company director, a me dical doctor, stated, “We give extension to t he patent, mostly lots of trademarks.

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A progression of skills is happening. The only thing that brings in revenues is a good patent position. Buy r ather than build, you can get cheap IP, good bargains. The biggest competition is local competition; our competitive advantage is the same as theirs.” Case 6. Diversified Business Groups: Behemoths, Opportunism, Agility Company 6 i s a l arge company with a U.S. and Indian base. It began in an  entirely unrelated industry and then diversified successfully several times, grew, and moved into biopharmaceuticals. It acquired people from the local skill base of chemistry and bioinformatics and accordingly concentrated on process R&D ser vices, informatics, medicinal chemistry, and recently, preclinical and clinical trials. Company 6 ha s acquired in silico and wet lab capability. Its competitive advantage is in rapid scale-up and high financial investments relative to t he rest of the industry. “Even Merck doesn’t work on 5–10 targets simultaneously,” a chief scientist stated. Its diversified business model allows it to channel money rapidly into promising areas and to rapidly seize relevant chemistry and life-sciences knowledge from leading public research institutes. Its process R&D ser vices comprise work on intermediates and fine chemicals, catalyst design, and development and process development for chiral drugs. Since 2002 it has employed a senior scientist formerly of a PRI, with a strong track record of accomplishments. One of Company 6’s scientists expressed the organizational dilemma: “In a contract research organization, you don’t know what contracts you will get . . . so you need breadth. . . . The technology bottlenecks are the identification of targets, validation of targets and number of hits. But this is hard.” The increase in target protein patenting has limited the options of Indian firms. Although licensing can be prohibitively expensive, joint ventures may be sources of validated target proteins, making this a revenues-plus-IP-sharing model and thus attractive. Despite the challenges, there is optimism: “The problem is with biology screens, protein-based assays or cell-based assays. As yet, in vitro screens are a problem, but Indian scientists in the U.S. have this capability, while we have in vivo capabilities.” Company 6 sees it as “just as a matter of time” before it finds some promising drug molecules for its clients. It is strong enough just on the chemistry side to ma ke investments in biological tools less urgent.

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Company 6 i ndicates that it is a f unction of its chemistry environment and past. We can’t pick projects and future capability at random. A company sits in its environment. It can then expand into specific areas that complement these capabilities. The gaps between the U.S. and us are increasing, not decreasing, in the biological sciences. However, in informatics and chemistry, this is not so steep. In informatics, India is pulling ahead or is already ahead. In chemistry, there is not much difference.

Established proof of concept, phase 3 candidates, and new targets in the public domain to take jointly to market make the joint-venture/shared-IP model especially attractive. Finally, Niches and Local Relevance Government should have pushed the agricultural biotech area. We tried to do what the Western world did. We should have done differently. Interview, chief scientist, private firm June 7, 2002 More than 70% of the population looks to traditional medicine, not allopathic drugs. . . . Judging efficacy and validation by modern methods, standardization, fingerprinting could lead to an active formulation of a drug. Interview with an Indian scientist, June 14, 2002

The haziness of regulatory options, constrained supply of certain skills and financial resources, large potential demand for certain therapeutic areas, the relative lack of locally patented tools, high costs of drug discovery and development, and prior pharmaceutical capabilities make firms appear to rest longer in certain niches (Table 7.3). These comprise either a well-developed proof of concept not taken further or new market opportunities in the absence of big firms. These niches may develop in traditional medicine, population-specific diseases, and diagnostic kits requiring customization for local use. Moreover, niches in applications mostly jettisoned by the West, such as bacteriophages, tropical disease diagnostics, and older fermentation and vaccine strategies, can potentially revitalize the sector. Large local demand and local skills can assure fi rms their markets by optimizing public and private investments. These may include training and

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TABLE 7.3 Niche research opportunities AIDS diagnostic kits

Need locally usable, easily testable kits. Peptide-based kits now available.

Alternative cultures for rabies

Local research trajectories specific to resources available.

Antibiotics

Large firms pulling out because of alleged nonviability for resistant strains. Many MNCs worldwide unable to meet the purity specifications of their U.S. FDA–inspected plants. Indian emphasis on bacterial culture strains for antibiotics: Streptomyces developed from soil samples. Other strains of bacteria are found more commonly and can be developed from less material.

Diagnostic kits for local needs, some of which have worldwide demand

Most worldwide kits are for diseases with little relevance to the tropics and to India. Indian firms develop kits for neurocysticercosis (tapeworm induced), which are based on cerebrospinal fluid for antigens. PCR-based kits for shrimp virus.

Drugs for illnesses easily studied in large Indian populations

Type  diabetes; population taxonomies for pancreatitis in Kerala, for example, allow linking of genetic features in closely knit communities with large population samples.

New TB regimens

Search for non-DOTS (directly observed treatment short course) strategies for administration of TB drugs.

Nonallopathic drugs (herbal, Ayurvedic traditional medicines)

Traditional Indian medicines now being clinically investigated.

Phage therapies

Antibiotics success crowded out this field from the s. Few firms pursuing phages. Tested in India in the s, being revisited. Used for burns, where people often die of infection, not burns themselves.

Reagents of dual/ triple-track purity

Allows for different end customers and price ranges; provides custom oligonucleotides, antibodies, sequencing ser vices, and PCR-based diagnostics. Provides many ser vices to local firms that foreign fi rms will not. Acts as a test center, so no transfer of viruses to other facilities needed.

sour c e: Compiled by the author from various interviews.

R&D infrastructure in the region. Recognizing a need to acknowledge a country and region’s path dependency, one private researcher shrugged and explained: “India has a strong chemistry base, similar to that of Germany, as well as capabilities within public research institutes. Our skills are in organic chemistry and natural product chemistry such as flavonoids etc. from sandalwood oil, for example” (interview, June 12, 2002). Similarly, as in pharmaceutical research, the desire to apply older technologies to pressing local problems was expressed by one interviewee: “We don’t need tissue engineering or other more sophisticated technologies. We don’t need many high-tech products

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to copy the U.S. We need basic things here. For example, water purification systems using rDNA technology, now that’s what we need” (interview, June 12, 2002). Niches carry the promise of worldwide breakthrough in diabetes, phage therapies, or traditional medicines. But niches usually require new market estimates and regulations, quality controls, careful ethics review, contractual relationships, specialized insurance accreditation, hard choices between biotech for lifestyle products and lifesaving ones, and venture-capital availability. For example, some scientists expressed concern about an Indian nerve-tissue vaccine for rabies where the virus was isolated from sheep brain, while other countries used cell culture vaccines. Several also mentioned the regulatory challenges for getting innovations approved even as the government continued to i mport vaccines. Can Indian firms consolidate positions without the revenue streams and depth of public (and venture-capital) funding of U.S. firms? Over the past several years the Technology Development Board has created a reinforcing cycle by funding a variety of locally needed therapeutics and diagnostics. New Interactions for Old Players The state-led push in biotechnologies is now being transformed. Early learning was honed by a clearly demarcated and accessible export regulatory and standards regimen. Leading firms advanced and learned through a manufacturing push. However, science shifts also required new configurations between firms and their environment. As the numbers of scientists-turnedentrepreneurs increased, there was renewed possibility for convergence between business and science to b ridge Indian health challenges. But technological immaturity, the tight state hold over public research labs, the distrust of scientific expertise in a r apidly changing business environment, and a c orresponding distrust of business within the science establishment placed additional pressures on the state to ac t as a c learinghouse of information to manage new forms of scientific entrepreneurism. As before, resource constraints shaped initial search choices, process-development paths, and final innovation. India’s universities and public research institutes continue to be hindered by outmoded academic models, difficulties of rapid review of grant applications, and collaboration difficulties within public research institutes and with

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industry. Biopharmaceutical research has exacerbated these tensions as science’s prominence has risen and interdisciplinary work has become de rigueur in numerous subfields. The compressed timeline from the onset of the new technologies of the 1970s to the frequency of innovation in the field has blurred the signposts for the field and unleashed several new priorities for hospitals, data banks, clinical studies, and boutique health ser vices. Private health insurance has been growing, while risks associated with general public health problems, maternity, prenatal and postnatal care, and several communicable diseases have been exacerbated by poor or nonexistent coverage in new health plans. Crisis-driven change has forced public and private actors closer together, the former because of resource constraints and a continuing desire to build demand, the latter because of science dependence, both because of differing infrastructure and credibility needs. Their conversation has been muffled, incoherent, or frustrated at best and furious or nonexistent at worst. The state-driven policy mix to boost capabilities in public health that assisted pharmaceutical firms to enter new markets and build process techniques has also assisted biopharmaceutical firms. Furthermore, contract research skills of some firms have also helped others in the industry to successfully confront new biological challenges. Their R&D activity and experimentation complements their own and others’ drug discovery and development, building taxonomies, conducting clinical trials, manufacturing, and sales. However, sophisticated manufacturing capabilities alone are insufficient in the biopharmaceutical realm. Firms (and public research efforts) have been forced beyond process scale-up and manufacturing to question the institutional and organizational relationship to science and its commercialization. Although large pharmaceutical firms have dominated innovation, smaller biotech fi rms, diversified business groups, and dedicated drug discovery fi rms have all innovated in vaccine development and “biogenerics.” Some that had access to c apital (externally through banks and venture capitalists or internally through manufacturing or ser vice revenues) moved directly to drug discovery or collaborated with public-domain institutes in India and abroad. Cities such as Hyderabad and Bangalore had become centers of concentrated riches in chemicals, IT, and bulk drug manufacturing and generated small biotech start-ups. State and city governments openly competed to attract companies and investors with skilled labor, infrastructure such as wet labs, science parks, and assistance with imports of equipment and substances.

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Biotechnology has certainly provoked interaction and friction. A critique of academic scientists from both academics and industrialists was that academia is a low-risk profession and that Indian academia tends to do reconfirmation findings or minor permutations of known problem areas. Academics can avoid challenges simply by switching to another research area without having to solve a technical problem that creates a procedural bottleneck. The tensions are highlighted in the annoyance of private-sector researchers and managers that academics should be interested in money at all: “We have the best biophysics people in the country, but they want money for what is given away almost free in the U.S. There is no accountability in Indian academia, no products out, no rigorous peer review and they are not forced to test ideas” (interview with CEO, July 11, 2002). The counterperception of many scientists in public research is that industrialists care only about money and know nothing of science. One statement typified the difficulties pharmaceutical firms had i n embracing newer tools and organizational relationships after the 1980s: In the 1990s there was a lot o f pressure in parliament from international hype in the biomedical area, to push to develop diagnostics-antibody or DNA. About a dozen diagnostics came out, zero came to market. On the one hand, scientists did not know what makes it work in the field and on the other, companies had problems. Family-based pharma companies were only capable of putting a wrapper on a product and selling it. Towards the end of the 1990s, [there was] a sea change and there is a learning period of working together. In the last 5 years a big change has occurred and a newer class of entrepreneurs in Hyderabad, engineers or scientists, including life sciences, working abroad, then came back and started companies.

There now appear to b e more industry personnel who grasp the science fundamentals, and more (but not many) entrepreneurial scientists. A cultural change providing increased prestige for industry work, previously awarded to academics, is gradually taking place. The two cities where most interviews were conducted have also competed to develop innovation centers. As local capabilities develop, cross-city alliances and dual locations are being forged. Older distinctions mentioned in earlier chapters, such as that Bangalore was biology based and Hyderabad chemistry based, are slowly breaking down. However, old competitive urges of urban image prompted one Bangalore scientist to state, “Bangalore supplies the brains, Hyderabad the manufacturing capability!” (interview, June 14, 2002).

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But other, more fundamental problems have persisted: there has been continuing dependence on tools of analysis, often patented by U.S. firms, and interdisciplinary research has been relatively rare and poorly rewarded. For instance, process technologies such as conjugation, reagents, and microarrays were all patented and acted as input technologies for vaccine development. There were limited data to resolve whether Indian innovation is a function of disciplinary backgrounds, but one interviewee described the process at the time: The gap i s widening. I s ee a te chnology lag to t he U.S. benchmark. Publicdomain knowledge is available from the U.S. to India but there are no interdisciplinary programs here. We have computer science, but no biomedical engineering or tissue engineering. We need this! These are critical for “black box technologies,” i.e., for transferring basic knowledge to c ommercialized products. For example, making a DNA sequence is a sealed box. Also, scientific and technological changes are causing a sea change in organic chemistry. Thus, in five years, our entire medical technology will depend on U.S. products unless we begin basic engineering degrees and build to fields such a s biomedical engineering. We also need national-level accreditation boards for good courses. (Interview, June 12, 2002)

Thus tools and products with applications and translation to Indian conditions have been more difficult to g enerate, and private-sector chemistrytrained scientists and engineers have been reluctant to embrace biology tools and therapeutics models. Public- and private-sector researchers have argued about responsibility for proof of concept. For instance, academics are now encouraged to spin off companies and establish industry research consortia on campus. However, long-standing problems from the 1980s exist of proof of concept, scaling up, and compatibility to Indian conditions. One industry scientist speaking of academic-generated products said: “When the diagnostic kit was sent to four Mumbai hospitals, they said, ‘It doesn’t work.’ The capabilities within the hospital were bleak but even so we have a lab to end-use gap. We need to be able to move from ‘millilitres’ to ‘drops,’ move from ‘distilled water’ to ‘tap water’ ” (interview, chief scientist, private firm, June 7, 2002). Finance too remains a c oncern. When I fi rst had d iscussions in 2001 and 2002, many fi rms claimed that they wanted to remain in India and not establish a U.S. presence simply for the sake of venture capital. They expressed the hope that domestic regulatory roadblocks would lessen. In 2010 I heard

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mention that as Indian niches have expanded in plant-based therapeutics and as regulatory hurdles and technical standardization in both the United States and India have become less clear with advancing technologies, some firms have retreated to tried-and-true manufacturing and old cash cows, while others have exited the sector altogether. Nevertheless, a c oncentration of world-class biology institutes and academic research centers now exists in Bangalore and Hyderabad and elsewhere in India. A younger generation of scientists trained at the best Indian and world labs has new expectations of industry. Nonetheless, markets for Indian biotech will remain scarce and poorly regulated until proof-of concept-responsibilities can be established in multidisciplinary and consortia teams, and sizable demand can be built. Several small firms are still languishing in an uncertain and ponderous regulatory environment for many products, from vaccines to diagnostics and platform technologies. We have now witnessed approximately 50 years of Indian pharmaceutical and biotechnology advance, studied many varieties in the menagerie, and also briefly seen some organizational responses to them. We have seen vital but varied roles for the state reemerging. Next, Chapter 8 looks to whether and how other countries have synchronized their triads over time. Chapter 9 then links market varieties to market scales through the political philosophy of community institutions.

8

Health Technologies in Comparative Global Perspective

Instituting Welfare Regimes: Building the Double Movement Karl Polanyi dramatically posed social protections against markets and cautioned against “market society.” Polanyi’s understanding of great transformations that societies experience was that people, through instituting social protection, try to challenge an inherently unjust market system that threatens their very existence. Nevertheless, the challenge in practice is to institute and sustain such social protections in the face of the unremitting tide of price exchange as the primary form of social exchange. Alexander Gerschenkron forcefully argued that late industrializers of an earlier century such as Russia, Germany, and France were a special group that could not be attended to with standard analyses. He claimed for them a unique status in their path to a fully industrialized society and the roles for their states. However, for those industrializing today, a frequent weak link is their social protections in health care. A significant variety of health-care systems with different market bundles continues to exist. Nevertheless, the convergence thesis has ironically gained support in development scholarship, which is strangely indulgent of industrializing countries. In part this indulgence arises from the defensive reaction of policy makers and scholars in industrializing countries to the finger-pointing of the Washington Consensus. This indulgence argues that countries industrializing today, even if they are not doing “well,” should at least not be overly 163

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castigated because, relative to those industrializing early, they have instituted social policies much earlier in their development histories. But the fact that these policies may have been instituted early does not say much about the depth or scope of the benefits of these policies and quite misses the point for the priorities within these countries. It is precisely development’s task in every society to find a me ans to attend to c ompeting concerns. This may not be straightforward, however, because, as John Stuart Mill aptly pointed out, although production could be made a s cience (indeed, one called economics), there was no corresponding science of redistribution. Here the messy worlds of resources and values collide head-on. This discretionary aspect of the economy and the state is disturbing to many. But states often need such discretion to substitute for or complement markets and push industrial development. Therefore, a pa lpable challenge is to c ategorize the state by the extent to which it dovetails its various means and goals and acts to weld together its legitimate forms of power. Although governments and academics have often used this state intervention as a green signal for protections of infant industries, arguing that such policies would bring the required certainty to human and physical capital investments and generate technological learning and positive industry-wide externalities, the impact of such policies has been mixed. From Latin America to A sia, the patterns of welfare entitlements in late industrializers have differed in benefit structure, support groups, and population targets. Many have legislated initial welfare benefits “early” relative to development stage, but there has been little exploration of how these welfare forms evolved alongside production’s imperatives, such as types of manufacturing, choices of technologies, plant sizes, and allocation of funding, or how trade-offs might have resulted between social protections and economic development. Social identities such as Confucianism have been argued to be linchpins by which many East Asian states avoided responsibility, shifting the risk burdens caused by industrialization and urbanization to families. In Latin America large rural populations suffered under highly inequitable land redistribution. A “massification” social protection strategy privileged powerful elites and public servants over the rest. As we have seen earlier, late industrializers’ technological capabilities often gallop ahead of institutional development in delivery and consumption, in the process outstripping the political and purchasing power of citizens. Pharmaceutical reimbursement and disbursement systems that have more recently

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emerged can partially resolve these tensions, but the emergence of comprehensive and robust welfare entitlements requires a more challenging assembling and aligning of political and organizational interests. This chapter turns to the experiences of early and late industrial economies in synchronizing the evolutions of their institutional triads and better analyzing the variety of market and nonmarket options to do so. Although this broad brush of welfare states may seem reminiscent of health policy analyses, the par ticular thrust here is industrial and technological advance within specific temporal and political contexts. Pharmaceuticals’ Historical Advance: Early Capabilities, Early Welfare It may help to consider first what shapes innovation in any industry. In this vein, the SAPPHO study was an influential attempt to identify factors shaping success and failure in innovation across several industries: advances in science and technology, raw materials, market demand, competition, societal needs, government legislation, and the science and technology market specialization of firms. The study notes that the first six “environmental” characteristics affect research-intensive firms equally. The last, company-specific specializations, can be considered to be “internal.” However, not all industries are alike. In the chemical and pharmaceutical industries the dichotomy of “S&T push” and “market pull” is particularly insufficient to e xplain national pathways. Indeed, market demand, societal needs, and government legislation may drive the S&T and market specialization of firms and therefore shape competition in particular ways. In other words, welfare regimes can integrate and make more powerful the effects of the innovation environment. Th is becomes more evident when we consider that Eu ropean R&Dintensive pharmaceutical firms were born in the 1880s and grew into profitable enterprises through three distinct market phases of their own. It becomes especially evident how these pharmaceutical innovations were connected to growing domestic health and welfare systems. From 1880 to 1950 protectionist frameworks against international trade, the advent of World War I, and the recession of the 1920s, followed by the Depression in the 1930s and shortly thereafter World War II, created rapidly changing national environments in Europe and the United States for both production and importation of essential medicines. Some of the largest R&D-intensive firms of today’s pharmaceutical

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industry were established in this 70-year phase. First-generation medicinal products (1820–1880) in primarily mercantilist economies were driven by French advances in chemistry and new experimental methods. This pre-massproduction phase depended far more on the practices of physicians and pharmacies and far less on market competition. France, Germany, and Britain reacted in different ways to t he chemical revolution and institutionalized innovation and responses to social needs in a limited fashion. In dramatic contrast, the second generation of medicines (1880–1930) emerged amid severe overcrowding and societal disruption caused by rapid urbanization during the Industrial Revolution. At least at the outset, traditional consumer markets did not exist. Contagious diseases, such as smallpox, tuberculosis, diphtheria and cholera at home, and colonial morbidity and mortality rates from tropical diseases spurred the discovery of medicines. The same problems had existed during the first generation of medicines, and lacking appropriate scientific knowledge for either prevention or curative approaches to these diseases, governments resorted to health improvements through sanitation facilities and, in many countries, local government boards. Only in the 1870s, with organic chemistry, physiology, bacteriology, chemotherapy, pharmacology, and instrumentation (all momentous advances), were governments, firms, and medical researchers able to apply appropriate methods to discovery of the second generation of medicines. These advances also heralded private industry. From approximately 1890 German dyestuff firms and French firms established what we know today as the modern pharmaceutical industry with mass manufacture and a t ransformation of packaging, advertising, and sales. Germany’s coal-tar chemicals led to s ynthetic medicines and strong linkages with social needs to meet the Industrial Revolution at home. During World War I ap othecaries became involved in in-house manufacture and sales to substitute for the scarcity of medicines. Public research laboratories and pathbreaking welfare legislation introduced by Otto von Bismarck in the 1880s powerfully combined with the German patent law of 1876 to propel German industry to the forefront for almost 60 years. France created its own compromises between industrial advantage and social need, explicitly excluding medicine from the French patent law of 1844, but also intending to create new institutional arrangements to provide monopoly rights to pharmacists and drugstores, which also altered cities. Third-generation pharmaceuticals (1930–1960) were driven by severe medical needs of World War II and sharply interventionist European states. The

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war effort crystallized military health research initiatives and, building on the Beveridge report, a h ighly influential report on national insurance and social insurance measures during war time, established welfare legislation and national health-care systems. Cooperative research-intensive projects with private-sector firms were incorporated into these efforts. Britain’s National Research and Development Corporation played a critical role in the advent of cephalosporins. At the same time, welfare legislation provided partial or complete reimbursement of prescription costs and created new industrial guarantees. The industry was transformed through 100% reimbursements in Britain and Switzerland, 90% in Japan, and 65% to 80% in most other European nations. Only in the United States at the time of the postwar settlement were prescription reimbursement benefits restricted to 10% of cost. German domination of the pharmaceutical industry came to an end with policy and market changes that required reparations, including patents that became common property of the Allies, the destruction of German physical infrastructure (especially chemical infrastructure), and the emigration of Jewish scientists to the United States and elsewhere. By the end of World War II only two countries, Switzerland and the United States, would survive, limit state involvement, and thrive in pharmaceuticals, one because of its neutral status and profits from war time investments, the second because of its geographic insulation from the war and gains from reparations and scientific and industrial migration. Swiss firms also established American subsidiaries and continued to thrive. The abilities of states to shape societal needs affected the fourth generation of drugs as well. An entirely new set of changes occurred after World War II. From 1950 to 1980 national governments’ attention to welfare rights, alongside new international trading rules, transformed the pharmaceutical industry’s development. In the United States the federal government, including the judiciary and various bureaucracies, instituted strict regulatory controls following the thalidomide tragedy in 1961, and the conduct of clinical trials and drug approvals required new safety and efficacy procedures, even though the 1962 Drug Amendments to the Federal Food, Drug and Cosmetic Act of 1938 slowed the regulatory process. The neoliberal turn caused a retrenchment in public efforts on health-care insurance and a shift to generic drugs to lower prices and increased insurance premiums. The state continued to control large purchases but set aside full-employment and social protection commitments, with the result that many had to forgo health coverage altogether. From 1980

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new global harmonization and biotechnological advances almost entirely re-created market environments yet again. Private Property Markets Some see patent rights—and private rights—as synonymous with innovation. However, intellectual property was only part of a much larger market variety during and after the war, and welfare supports played an important role. Intellectual property rights (IPRs) and directed innovation policies were quite invisible for first-generation drugs, while industrial and colonial approaches to public health, not IPR strategies, drove the second generation. While postwar Europe saw the rise of the welfare state, the U.S. pharmaceutical industry was buoyed by these war-induced changes to the world’s industry structure. By the time of the third-generation drugs, state involvement in granting private rights was routine. Compacts were made with firms for R&D, and the state invested heavily in postwar rebuilding and welfare policies that included subsidies, procurement, insurance, and patent rights. Although the 1960s were a time for great innovation of fourth-generation technologies amid high economic growth, advance was stymied by patent secrecies in competitors, higher governmental approval requirements, and less targeted research support for specific drugs. Eventually, technological advances gradually became profitable by the 1970s. Low unemployment and rapidly rising incomes created a booming consumer demand for basics, luxuries, and pharmaceutical products. Even in the fourth- and fift h-generation drugs, where product patent rights were much more visible, dramatic regulatory and demographic shifts were whittling a new form for markets shaped by safety regulations, unemployment systems, aging populations, and longer life expectancies. By t he 1980s there were growing pressures across Europe on the state to rein in public expenditures and to assign private rights more generously. These were compounded by gaping holes in health insurance and increases in global infectious diseases. Thus, 160 years after the first drug innovations, markets had shifted time and time again, shaping not only what firms researched and developed, but also the time R&D took, what it cost to firm, state, and consumer, and how willingly governments interfered with this process.

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Collective Rights and Markets in Welfare Institutions Unlike private property rights for intellectual ownership, welfare legislation pointed to c ollective institutions and political entitlements for access and affordability, some of which embodied rights satisfied through markets, others outside them. In 1860s Birmingham Christian welfare efforts concerned themselves with civic provision (“gas and water socialism”), which resulted in the Progressive program, first in local government, then at the national level, and eventually in a collectivist strategy for a full welfare state after World War II. Its profound impact was undoubtedly a move away from looking at health merely in terms of social class to a mo re ecological framework of place and shared social environments. The war itself had a n enormously democratic effect in creating shared civil and military experiences that spread grief and insecurity and tied city and nation closer. The devastation of major European cities had pulled women into the armed ser vices and factories and had forced mass evacuation of children. But the devastations wrought by the war minimized class friction and garnered political opportunities for ideological and fiscal collectivism. Whether or not the reading of some that Eu ropean universalism emerged from inherent ideas of equality and rights is correct, there is little question that the war and the reconstruction spending created a new impetus for reopening a p ending conversation on markets and state intervention. Two broad theoretical approaches to industrial welfare resulted. In classic liberalism the discomfort with and opposition to any measure seen to be redistributive had two facets: one for society at a whole, the other at the level of the person. In the first, the market is seen as the primary and efficient mechanism by to a llocate scarce resources, and welfare measures would interfere with this efficiency. For the individual, welfare would interfere with individual liberties. However, at various times in history a competing view has been espoused by conservative, sometimes religious traditions and often has been shared by European fascists and Nordic social productivists. This view posits that welfare measures are not inimical to economic efficiency, but in fact are an integral part of the capitalist economy. At the societal level the welfare state as a driving institution could promote efficiency and economic growth; for the individual it would simultaneously allow for decent living and dignity, but circumscribed by social and political controls. At the core of this theoretical tension of welfare versus efficiency lies the realization that institutionalized health systems, well beyond piecemeal policies,

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are difficult to i nstitute not only politically but also spatially. Although the heterogeneity of national programs is recognized, analysts may attribute this to diverse sources, such as variations in surplus wealth, length of programs, thresholds of economic development, or state characteristics and states’ ability to extract resources. While the first strand of industrial welfare grappled with the role of the individual and whether state-mandated welfare was appropriate or inevitable, the second tradition, although also rooted in industrialism’s progress, was closely tied to nationalism. Gøsta Esping-Andersen crystallized the three idealtype varieties of this welfare capitalism: liberal regimes favored market mechanisms, shied from citizen entitlements or state intervention, and instead individualized risks, espoused “self-help,” and promoted unregulated labor markets; social democratic welfare regimes, in contrast, favored states over markets, citizenship entitlements, socialized risks, and a passive form of employment management. The basis of social democratic welfare regimes assumed that healthy workers led to healthy economies. Conservative regimes were strongly corporatist and collectivist, with risks resting in family, compulsory risk-pooling systems, mixed benefits provision, and a passive form of labor-market regulation. This tension in analyzing democracy and welfare states with a v iew to nationalism becomes evident in the reading of Nordic welfarism. As Esping-Andersen states: Indeed, the Swedes came close to presenting it as a teleology, claiming that the historical mission of the social democratic movement was to shepherd the nation through the successive stages of political, social, and finally, economic democracy—at which point, presumably, the socialist society would become functionally, if not in name, reality.

The two traditions, the logic of industrialism and that of nationalism and democratization as cause and timing of the welfare state, inevitably produced studies of comparative state structure. Democracy was the vehicle that mitigated capitalism’s externalities. In the economically dynamic period from 1945 to the early 1970s, goals for economic surpluses were explained with a continued Keynesian rationale. Not only was welfare expansion seen as necessary alongside economic development, but it was also viewed as a ma jor platform for economic stability. Public confidence in welfare’s continued expansion grew from the Keynesian hypothesis of using welfare spending to drive aggregate demand and act as a

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counterbalance to the vagaries of business cycles. With the energy crisis of the 1970s and associated stagflation, Keynesian economics and the future of welfare-state spending come into question. Later events—inflation after the Vietnam War, OPEC policies, and shifts in the cold war—all showed that public expenditures alone could not balance unemployment and inflation, and trade-offs between capitalism and democracy could not be sustained (the urban effects were quite visible), nor were there sufficient examples to understand class struggle. Only then did comprehending institutional heterogeneity become urgent. Critics of government spending (and local governments as well) blossomed, arguing that welfare statism prevented full profitability of capitalists and full functioning of the economy by generating excessive social spending and suspect macrocontrols with little evidence on sustained industrial development. Varieties of Health- Care States Health-care markets comprise many permutations of the ideal types, depending on which of production, demand, and delivery are being discussed. Although vast differences still abounded in welfare-state institutions, European nations converged considerably, at least in pharmaceutical coverage, procurement, and demand. But welfare states and health-care states, although commonly taken together, often have distinct elements. Michael Moran emphasizes that even in the “market” economy of the United States’ liberal regime, mixedmarket instruments have always existed, as have state regulations. Although welfare-state legislation often molds the pharmaceutical industry, countries differ in the extent to which government legislation and market size are able to ac commodate both social protections and industry innovation. The so-called Schumpeterian workfare state allowed nations and firms the ability to me sh the innovativeness of their industrial supply of health technologies with systems of delivery and collective demand. U.S. industrial suppliers and innovation, for example, grew ever stronger, but employmentlinked health insurance became a primary means of health coverage, while demand institutions that promoted innovation but reduced costs became increasingly scarce. Moreover, legislation with intended welfare goals through price regulation may sometimes pull firms toward imitative but not especially innovative drugs. Modest domestic markets can nevertheless be innovative, as in the

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Netherlands, Denmark, Sweden, and Switzerland, but it helps to have strong exports. By the late 1970s several OECD countries reined in costs by encouraging or requiring generics and by adopting secondary medicine markets. This, along with advertising and brand-name recognition and encouragement from managed-care firms, made generics attractive. Many firms began to focus on low-cost, profitable margins in technologically mature segments. Until then, medicine prices had been driven largely by supply and demand and nationally regulated practices of physicians. However, the oil crisis, the economic slowdown, and rising unemployment in both Western Europe and the United States had a deleterious effect on public and private health access; insurance entitlements disappeared or slowed as health costs spiraled upward. Public health care became a rallying cry for both unemployed workers and older citizens whose real purchasing power had either been depleted or significantly reduced. Both governments and insurance firms reined in costs, resulting in profit losses for suppliers. In Japan, with the largest per capita spending on medicines, recession forced health reimbursements to drop an average of 40% from 1980 to 1987. By the late 1980s private insurance firms, government regulation, and employers brought down costs, often through group rates of health benefits. These forced physicians to select from preapproved safety and efficacy lists of medicines. Greater complexity was in store for health-care markets. “Managed health care” of the 1990s in the United States, for example, evolved to curtail costs, and supplier firms responded with aggressive marketing and sales. The state broke this impasse with insurance regulation that combined the pressures and interests of several health actors. Managed care and pharmacy benefit management firms became institutional customers alongside more traditional customer segments of individuals, physicians, and pharmacies. In Europe, where private insurance was dwarfed by national health insurance systems (which by the 1990s accounted for 60% to 90% of the total health insurance market), these institutional effects were even more dramatic. Today Eu rope has strong demand-side management systems of public procurement alongside social and private health insurance. Despite this, however, regulation has tended increasingly to the supply side with more politically palatable strategies for politicians than copayment or taxation hikes, resulting in similar supply strategies, a “penguin effect.” National universalism is therefore no simple massification project of simply adding groups. In France the early Vincent Bill of 1921, for instance,

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combined the state and early organizations that provided social protections. The bill encompassed wide-ranging coverage for disability and health, and disability pensions included cash benefits that were accompanied by coverage of medical diagnostic, surgery, and pharmaceutical costs. In this system a complicated path ensured that social insurance through government programs was compatible with older, traditional mutual-aid societies. However, a c omprehensive institutional integration was never made. France proceeded along two separate paths to universal norms of social protection—one with an industrially driven family model, the other through mutual-aid societies covering illness, disability, maternity, and old age. In Europe a more recent debate has raged regarding the state’s autonomy and shifting accountability. European regulation now requires federal laws for licensing of pharmaceuticals and devices. But self-governing bodies, for example, in Germany, have played an important role in many cases, such as positive lists of pharmaceuticals, expensive health technologies, nonphysician care, and medical aid. But low thresholds for new technologies could encourage innovation but perversely result in obsolete or redundant technologies. German pharmaceutical reimbursement is thus a potentially vital steering institution, but its devolved organizational context and power sharing with the state are less than obvious. Let me dw ell on two countries with dramatically different welfare-state traditions, but which converged in the 1950s on pharmaceutical benefit schemes and subsidies that have enjoyed policy support and popular response: Sweden and Australia. Australia supports a primarily residual welfare model with low taxation, while Sweden has a universalist welfare state drawing on high levels of taxation. Both have different pharmaceutical structures, with national and foreign firms playing different roles in the two countries. However, in both countries industry development driven by unique regulatory frameworks for safety and efficacy of drugs evolved, shaped by contrasting notions of equity and welfare goals. Sweden first evaluated pharmaceutical benefits during World War II, as did Australia. Nonetheless, a comprehensive Swedish system of pharmaceutical benefits emerged embedded in a larger system of earnings-dependent cash benefits for sickness, maternity benefits, and other social policies. In both countries the pharmaceutical benefits programs allowed different private and public ser vice provision, but in Sweden private insurance was principally determined by collective-bargaining arrangements in the labor market. In this

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sense, Sweden’s pharmaceutical benefit systems are substantially less universalist than its overall welfare entitlement system and have had a r egressive impact on low-income groups. On the other hand, the Swedish prescription benefit system has been tied much more systematically to the broader health effort, and institutional change in the welfare state has relatively painlessly (compared with many other OECD countries) accommodated technological innovation. In contrast, Australian private interests, such as pharmaceutical firms, business lobbyists, hospitals, doctors, and insurers, have been impinging on the ability of the government to coevolve its separate regulatory domains. There is some indication that in the last five years some of the core provisions and social support for the prescription benefit system in Australia have been made more tenuous by state-supported industry-friendly measures to support higher private-sector prices at a t ime of state supports for lower regulatory controls on safety and efficacy. Coupled with the increasing emphasis by international agencies and neoliberal discourse on the benefits of private enterprise, public-private partnerships have also enjoyed considerable visibility. They have, however, complicated the dovetailing of varied state functions such as affordability and access, safety and efficacy, and competitiveness. Late Industrial Suppliers: Marrying Late Capabilities with Later Welfare European corporations, firms, universities, guilds, fraternities, and even citystates developed over many centuries and took on a specific cultural and economic form that accommodated rules of settlement, registration, and health that today’s late industrial economies rarely possess, especially those that are neither small, city-states, nor homogenous nations. Power allows states to overcome resistance and pursue changes or seek to maintain the status quo in the face of opposition. In exercising regulatory authority, the state has always been well aware of parallel communities and systems of care while exercising political, economic, and moral control over entitlements within its territorial scope. Rights have differentiated places, work, and workplaces. Unlike the English Poor Law, a welfare system that lasted for almost 350 years, or that of continental European systems of solidarity, or the highly social productivist and selective interventionist approach of the East Asians, the late industrial welfare system of countries such as India and Brazil has built into it a series of

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contradictions, neither completely effective or ineffective. However, the power and effectiveness of the state within this polity cannot be seen as two extremes. Its contingent involvement rarely satisfies everyone: “the state is constituted to exercise rule over society—whether on behalf of all or part of the society.” Even were it to represent everyone, the task of inclusion is not politically or spatially straightforward. Indian systems of demand could not simply be built when most workers were not in factories. Whether as handmaiden to industrialization or through community solidarity, the state has pieced together a patchwork primarily of social assistance, not comprehensive health entitlements. Rarely are these administered as a universal fiscal welfare mechanism distributed through the tax system, and even more rarely through systematic workbased health rights. The state’s attention is understandably scattered. From the Philippines to Thailand, and from South Africa to Z imbabwe, several broad-based community programs have been expanding alongside state-subsidized insurance programs. Many of these cover medical and pharmaceutical reimbursements at both private and government facilities. The expansion of state rule over these varied forms of social insurance has been neither systematic nor inevitable. However, where it garners policy attention and the state’s capacity to include and expand community institutions, it can play a crucial rule as a vehicle to stability and economic development. Many of these community programs serve street vendors, taxi drivers, and construction workers and thus represent important urban political and spatial contexts; others expand coverage for agricultural workers. A f ew late industrializers have managed to augment a dualistic economic structure by supporting small-firm employees and the self-employed. For instance, Lund and Srinivas emphasize that as far as attending to the informal economy, the Japanese government sidestepped challenges of other late industrializers early on in its economic growth by integrating more than 90% of its population in varied ways into health and pension insurance. In Asia and Latin America the later neoliberal turn, however, had states drastically restructuring economies while also retrenching public supports for health care. Social insurance programs remained truncated, and medicines were unaffordable. Severe setbacks in eradication programs occurred for cholera, tuberculosis, malaria, and diphtheria, with effects that were particularly severe in industrializing countries but were also visible in industrialized ones. Health-care regulation was either centralized or shared in complex

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ways between central and local governments. In several countries the Ministry of Health may regulate pharmaceuticals, but other regulatory tasks, such as testing samples, advertising, and quality, often fall under the purview of national regulatory authorities and subnational state governments alike. These responsibilities may range from the highly centralized Turkish system to t he fragmented Argentine one and an increasingly devolved (and politically robust) Brazilian one. In each, a range of agencies and persons, from provincial health secretariats to pharmacists, have differing freedom and power in shaping access, affordability, and fees for ser vices. Japan may indeed have gone the furthest in forcing health and industrial policies together. Although the Ministry of International Trade and Industry (MITI) has received huge commendation for its role in strategic long-term planning and export orientation that crafted the “Japanese miracle,” in reality the Japanese pharmaceutical industry was affected far more by the Ministry of Health and Welfare than by the MITI until about 1980. The origin of this influence arose in how the nation emerged from World War II, the social consequences of which played out differently than in Europe. Strong national protectionist measures for the domestic pharmaceutical industry and universal health insurance legislation allowed a more equitable and dynamic health system. The critical years for Japanese health can arguably be dated between the late 1950s, when the explicit goal of universal health insurance was decided, and 1961, when such coverage was actually achieved. The state instituted various levels of inclusion, and workers of all categories were required to pay small copayments but enjoyed relatively generous health benefits and prescription drug coverage. Indeed, because of physicians’ relative freedom and control over prescription and process patent protections, the pharmaceutical industry grew rapidly. A different relationship among physicians, pharmacies, and health insurance thrived at the community level and was eventually integrated into an approximation of a t hree-tier system nationwide by the early 1960s. The demand for medical ser vices continued to rise in the 1960s as the government lowered health insurance copayments and provided free medical care for the elderly, combined with catastrophic-illness insurance. These three policy measures had a n immense effect on the domestic consumption of pharmaceuticals and the growth of the sector. Product markets for pharmaceuticals expanded because of the role of national health policy, health insurance policy, and fee-for-service reimbursement, as well as changes in the ways in

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which physicians dispensed and approved drugs. At the same time, the Japanese government crafted a pharmaceutical price policy that was shaped predominantly by this health insurance system. Unlike India, where price ceilings in the 1970s had access and affordability as goals but had weak links to universal insurance or other payments, the Japanese health policy and price controls effectively crafted a new form of industrial policy for the pharmaceutical sector. Importantly, small community-based health insurance programs and area-based insurance systems, the Jyorei, were eventually integrated into the national health insurance system. Here, independent ideas of locality and risk mitigation were combined with a national push for health-care consolidation. From just before the onset of the Second Sino-Japanese War in 1937 to the late 1950s the Japanese welfare state was constructed with substantial military supports (to address poor health conditions of draftees) by creating a new Ministry of Health and Social Affairs in 1938, military assistance schemes that were not means tested, a Mother-Child Protection Law, and, in 1938, the new National Health Insurance Law. The system’s present form has low expenditure and redistribution primarily through the progressive income tax system, and health and education investments have ranked high in national priorities. But there is fragility and constant coevolution of the different regulatory spheres in every country; there is no linear march to consolidation of the different elements. Approximately 10 years after the instituting of universal health insurance coverage, in the mid-1970s, the Japanese welfare state was forced to impose substantial drug price controls because of its generous reimbursement policy, and drug prices fell by 44%. Nevertheless, new drugs were allowed higher prices and foreign firms were permitted to enter the Japanese market under considerable U.S. trade threats. The Japanese state also agreed to support novelty through product and process patents. This co-evolution of pharmaceutical industry policies and health policies is shown in Table 8.1. A further 10 years later, the manufacture of medicines had d ramatically shifted with the introduction of the life sciences and advances in biotechnologies. Yet here too, government legislation worked fairly closely to r econcile social needs with innovation even though the Japanese welfare state was under some pressure. Recognizing that some subgroups could shoulder a higher fiscal burden, successive governments have partially insulated the self-employed, contract workers, and microenterprises from the fiscal implications of social protection.

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TABLE 8.1 The coevolution of the Japa nese triad s (Industrial protection advances health goals)

Japan protects pharmaceuticals to rebuild national health care (Neimeth, ).

 (National Health Care)

Introduction of national health care system (Saigusa, ).

 (Generics versus new drugs)

More difficult to get drugs approved (Neimeth, ); law favors domestic producers (Neimeth, ); government begins to differentiate between generics and new drugs (Saigusa, ).

 (Growth of industry)

Pharmaceutical sales rise to  trillion yen (Neimeth, ).

 (Product patents)

Product patent law first introduced, and timing assists Japa nese fi rms (Neimeth, –).

 (Domestic market reigns)

Drug sales reach  trillion yen (Neimeth, ); Japan becomes world-quality antibacterial producer; market domestically oriented (Neimeth, ).

Global standardization in earnest

Pharmaceutical Aff airs Law revised to realign regulations with global standards (Neimeth, ). Optimal functioning period of Japa nese health care (Saigusa, ). Balance of production, delivery, consumption.

 (Industrial policy realigned with health goals; regularization of prices, removal of protections, drop in profits)

Growing concern over health care costs. Shift away from protection. National Health Insurance regularizes prices for pharmaceutical producers; drop in profits (Neimith, ).

– (New chemical entity innovation rises)

Despite price regulations, innovation proceeds. Japan’s new chemical entity number same as that of the United States (Neimeth, ).

 (Further global standardization)

Laws passed to realign Japa nese standards with world standards (Neimeth, ). Industry spends as much on research per employee as U.S. industry does (Neimeth, ).

s (Swing back toward generics)  (Generics policy)

Doctors paid extra to prescribe generics (Saigusa, ).

 (Consolidation of export per formance)

Top Japa nese pharmaceutical fi rms attempting to internationalize. Ratio of overseas sales for some firms is % (Pease et al., ).

 (Mergers and acquisitions)

Fujisawa and Yamanouchi announce intent to merge (Pease et al., ) in response to increased pressure from foreign fi rms entering the market.

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TABLE 8.1 (continued)  (Deregulation continues; industrial policy shifts again to accommodate aging demographics in health priorities)

Deregulation, seen as a necessary component of taking care of Japan’s aging society, widens gap between large and middle domestic producers in international competition (Pease et al.; Neimeth, ). Government pays  yen to doctors to prescribe generics (Saigusa, ).

no t e: Takeda, Sankyo, Yamanouchi, Eisai, Shionogi, Fujisawa, Daichi, Taisho, Mitsubishi Pharma, and Chugai are leading Japanese fi rms. sour c es: Compiled by the author from Robert Neimeth, “Japan’s Pharmaceutical Industry Postwar Evolution,” in The Changing Economics of Medical Technology, ed. Annetine Gelijns and Ethan A. Halm (Washington, DC: National Academy Press, 1991), 155–167; Stephanie Pease, Stanley Paliwoda, and Jim Slater, “The Erosion of Stable Shareholder Practice in Japan (‘Anteikabunushi Kosaku’),” International Business Review 15, no. 6 (2006): 618–640; and Osamu Saigusa, “Japan’s Healthcare System and Pharmaceutical Industry,” Journal of Generic Medicines 4, no. 1 (October 2006): 23–29.

Across other Asian supplier countries diverse and fragile balances have been achieved. Several broad-based community and state-led insurance programs have been expanding. Many of these cover medical and pharmaceutical reimbursements at both private and government facilities. India has experimented with a landmark Social Security Bill for coverage for over 350 million “informal” workers, but the health component is minimal. Indonesia has endorsed a 2004 Social Security Bill that pushes toward eventual universal coverage for social health insurance, and Thailand in 2001 moved toward universal benefits. Sine 2001 the Thai system has provided free care to a majority of its population. In South Korea the 1963 Health Insurance Act evolved into mandatory health insurance coverage by 1989, but the out-of-pocket payment for pharmaceuticals is still high. Closer to t he Japanese and Thai systems, the Philippines’ National Health Insurance Act of 1995 targeted universal coverage by requiring all Filipinos to acquire insurance within 15 years and recognized the role of community-based schemes. However, it was only partially successful. Revisiting the Institutional Triad Japan was closer to I ndia or Brazil because as a demo cratic late industrial nation, it was equally a strong pharmaceutical supplier country. In contrast, lowlevel industrializers such as Sri Lanka and Costa Rica have achieved significant health-care coverage through wider redistributive economic policies. In their

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cases the differentiating factor is not supply-side production but institutions of consumption and delivery. Those nations with limited supply-side production and technological capabilities can bypass production through imports and can concentrate on delivery and consumption. As we have seen with the Indian case, production capabilities complicate the story not simply at national levels, but because the building of technological capacity and private supply can highlight the economic development potential of this industry and downplay the pharmaceutical industry’s health goals. Late industrializing countries (LIs) with considerable indigenous vaccine and/or pharmaceutical capabilities include Brazil, China, Cuba, Egypt, India, Indonesia, Nigeria, Russia, Singapore, South Africa, Uganda, and Vietnam. Those in this list that are democracies have special challenges to confront. A triad table can be constructed for these countries to emphasize that although their production (1) supply-side strategies (often simply compared in some analyses as technological “catch-up”), their delivery (2) and demand (3) can be accommodated in very different manners (see Table 8.2). States therefore have planning and policy choices to make. Countries can be further studied by analyzing the place-based, work-based, and workplacebased entitlements, which emphasize that the politics of each of the triad’s three elements are territorially and politically dependent. Indeed, some have argued that studying innovations through national lenses such as the national systems of innovation reflects an ex post optimization of institutions and can hide domestic and local experimentation and change. Th is threepart typology allows for better embedding evolutionary change and regressive social policies in par ticu lar places. Table 8.2 is a snapshot to illustrate the complex health-planning challenge whose elements are constantly coevolving between production (1), delivery (2), and demand (3). Where suppliers overly influence demand (as in the case of India’s hepatitis B v accine), there are several dangers, including skewed health priorities and possible rising costs for consumers. Where delivery cannot keep up with either supply or demand, additional problems result. Demand instruments such as health insurance will always need their own regulation. By p ulling supply into a n ever-ending and growing stream, health insurance products can also exacerbate costs for everyone and artificially suppress them for the end user relative to the actual cost of supply. The emphasis of the United States, for example, now in the limelight, may be more recently on the need for 3 (especially insurance), but 1 and 2 are dominant. South Korea and Japan have not always balanced the three to the same

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TABLE 8.2 Early and late industrial nations and their health sectors Industrial type

Health-care system

Triad emphasis

Industrialized countries

Universal but varied among countries.

Nordic countries (, ), although some, such as Sweden and Finland, are important suppliers. Pressure to limit welfare-state spending on  and .

Almost universal

Germany (, ). Historically important supply capabilities; pressure to limit welfare-state spending on  and .

Partial, fragmented, increasingly workplacedelineated entitlements.

United States* (, ); calls for health reform on  (esp. insurance).

Universal, now reduced

Former Soviet republics* (, , );  and  currently far less.

“Later,” nowindustrialized countries

Almost universal, layered

South Korea, Japan (, , ). Multistage health reforms under way to reorient employment-linked health entitlements and reimbursement systems.

Today’s “late” industrializers

Small percentage covered, fragmented, inefficient. In principle universal at the level of local government; in practice, highly uneven.

India* (, ); some movement to building ; challenges of fragmentation. Considerable dependence of suppliers on exports.

Partial, fragmented

Brazil* (, , ). Emphasis on  much more recent and dramatic.

Universal

Cuba (, , ).

Nonsupplier countries

Universal

Costa Rica (, ).

Partial, fragmented

Egypt (, ).

Almost universal

Tunisia (, ).

Universal, now reduced

Sri Lanka (, ). Civil war has taken its toll on formerly substantial health infrastructure and institutions.

no t e: * Indicates significant in-country variation and change. Applies to large countries, but especially to the complex democratic, federal, and quasi-federal systems of late industrial suppliers such as India and Brazil. “Universal” is used to indicate that a significant percentage of the population is covered with some health benefits. sour c e: Compiled by the author.

degree or simultaneously, but have emphasized all three elements relative to other countries. Japan, as I ha ve discussed, has often had t he Ministry of Health dictate the Ministry of Industry’s strategy in pharmaceuticals (i.e., 2 > 1). In both Japan and South Korea item 3 evolved over many decades. In Tunisia, demand’s collective buying systems (3) and delivery (2) are far more evolved relative to other countries with similar supply (1).

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It should be evident from this closer look at the triad’s elements in each country that no system can be simply termed a purely “market” system in health care because the triad’s elements can be mediated through market or nonmarket instruments in every instance. Even the U.S. “market” system is in fact more correctly a h istorically supplier-dominated system. Each of 1, 2, and 3 may dominate and institute unique path dependencies, and often they may be coupled. For example, nonsupplier countries may emphasize delivery as well as consumption. Supplier countries may also emphasize consumption and delivery; however, nonsuppliers ignore these at their peril because they do not produce themselves and would be overdependent on imports. Japan may be historically the most unusual in its ability to del iver (albeit with varying success) on all three. Furthermore, not all elements coevolve entirely insulated by national boundaries. For instance, late industrial production from India has had i mportant effects on U.S. demand and delivery by directly competing with U.S.owned suppliers in an extensive range of technologies. Other firms from Brazil and India have supplanted U.S. and European firms in supplying lower-cost, high-quality segments to international procurers. These impacts have significant economic and built implications: LI firms (especially Brazilian, Chinese, and Indian) have bought U.S. and European-based pharmaceutical and vaccine cGMP/FDA-certified manufacturing plants and R&D facilities. Furthermore, the growth of LI supplier capabilities coincides with the increasing importance to the industrialized nations of LI export-oriented ser vices delivery firms in radiology, diagnostics, insurance, and medical tourism (India is a good example). These outsourced and offshored ser vice firms—such as diagnostics and radiology from India—have taken over vital ser vices in demand and delivery. As U.S. and European public procurement and insurance systems struggle to contain costs, they move ever closer to LI supply. Absent such systems in late industrializers, their firms are likely to continue revenue dependence on export “welfare” markets elsewhere. Moving Forward: Transitioning Developmental States Where does this position pharmaceuticals and health-care debates today? Much economics of innovation material has tended to assume production advances against a r elatively static welfare backdrop. It draws its analytical strength from limiting its field of vision to industrialized capitalist economies

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and assuming common elements of social policy structure. Conversely, those who study health or other social policies have tended to treat production as secondary. This blinkered view will get us nowhere in analyzing newly industrializing economies and late industrial suppliers. Their technological challenges are considerable, but once technological advances are achieved they create important domestic and therefore global questions of supply of medicines and vaccines. Their states are clearly not monolithic. In these changing times the state should not be given short shrift and we must engage with common developmental issues in complex and sometimes contradictory ways at various scales of regulation. Consequently, intersections of spheres of regulatory action in production, consumption, and delivery between nation and city-region provide a more useful lens of enquiry. An analyst of today’s mixed economies has no excuse for minimizing the state’s roles by pointing to past errors of centralized socialism. Similarly, those exhorting the importance of political and civil societies to reformulate state governance from below have largely ignored the opportunities, challenges, and ambiguities presented by technological change, which may sometimes require centralization of state power in building economies of scale and scope and decentralization of state power in other areas. Decentralization itself is complex. Following social security registration and health entitlements in late industrial economies allows us a g limpse of the difficult and blurred moral and political sensibilities of the daily institutional change required in  decentralization. For every market shift, a n ew set of market varieties emerges, a cataclysmic groaning and churning of social values, opposition, and losers and winners. New individuals have to b e categorized; sometimes this involves classifying them as workers or not, eligible for health entitlements or not. In several transition economies, land controls and registration of individuals delineated their national welfare entitlements. The late industrial technological gallop and mass manufacture of medicines went hand in hand with a conundrum of incomplete industrial employment with “factory-style” benefits of Western welfare. Some scholars have made the argument that in preindependence India low-level demand abounded in the 1800s and either was critical to the colonial government in sectors such as plantations or was linked to the nationalist struggle. Early Indian governments postponed the task of building aggregate demand by emphasizing state-driven capital-goods industrialization. While in the United Kingdom, Australia, or the United States the pharmaceutical industry’s twentieth-century face was substantially tied to

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welfare mechanisms of insurance, procurement, and medical ser vices of a basic standard, India’s technical abilities led to a na rrower medical pathway and eclipsed these linkages. Its industrial development strategy also differed from South Korea’s and Brazil’s in that its investments were not in consumer goods and domestic markets nor large manufacturing employment sectors, but instead in large capital goods, large capital projects, a relatively narrow manufacturing employment base, and, in relative numbers, fewer representative labor organizations. All the factors listed above hindered the later overhaul of participatory health institutions. Center-state relations and weak local finance further undermined the ability of local and state governments to deliver. Today most workers have either never worked in a factory or have since left it behind, and urban ser vices growth is substantial. Industrial employment constitutes a bewildering web: petty commodity production through household and family enterprise; a p utting-out system exemplified by subcontracting arrangements, including home-based work; sweatshops; and small-factory production. As a c entrally planned and managed economy but without the welfare state as either a fueling of industrialization through Keynesianism or a counterbalance to industrial travails, India did not undergo a mo re or less conscious foray into neoliberalism. Demand for social security has preceded a formalization of factory-style employment. Where it exists, a h ighly constrained set of benefits has typified India’s social security and social insurance. Primary health care is remarkably uneven in quality and access. The Employees’ State Insurance Scheme and other statutory programs providing accident insurance and maternity and other health coverage have struggled to extend benefits even within the so-called organized sector. After the mid-1980s and the gradual slipping of socialist rhetoric in Congress Party rule, center and regional states lapsed into privileging technical and biomedical programs over other health concerns. In one sense this was easy to do b ecause the pharmaceutical industry’s momentum was substantial, and the state’s institutional challenges for actual access were complex. Whether or not we view it as inevitable, as Polanyi did, that a double movement of the pendulum swing toward increasing social protection must always accompany market expansion, technological advance complicates the simple tale of health as an inevitable social protection emerging from a purely political context. On the contrary, the contingent timing of technological capabilities shapes the political context and prioritizing of crucial technologies

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against changing health-care entitlements in cities and nations. This occurs at both national and community institutions. It requires the state to experiment with several market conditions to bring these different evolutionary strands together. The next chapter grapples with this more local economic and philosophical challenge.

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The Design of (Re)distribution At this point some readers will no doubt have been looking for one-line answers to these three questions: How can industrializing nations regulate access to medicines produced at home? What market varieties shape this access? What are their implications for urban and regional growth paradigms today? My response is that there are no simple answers to these questions, but analyzing the third provides distinct points for the first two. Although India urgently needs health overhaul, its pharmaceutical and life-science capabilities keep growing, and many cities build economic development strategies on such concentrations, Bangalore and Hyderabad among them. These cities increasingly share the spotlight with several others, as Table 9.1 indicates. Among these are several regions located within late developmental states where health access remains seductive but elusive and their local, subnational manifestations are especially nebulous and often contradictory. Technological changes have created unpredictable supply momentum, and there exist a historic unwieldiness of development theories to move beyond nation-states and a political unease of several industrializing nations with their urban image. The question of this chapter is thus critical to future developmental states: what is the role of cities and localized production in the wider context of distribution of medicines, changing global regulation and knowledge production, 186

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TABLE 9.1 Biotechnology city-regions Continent

Cities or inter- or intracountry regions

Americas

North America Canada: Montreal, Saskatoon, Toronto; United States: Austin, Baltimore/ Washington, DC, Boston, Los Angeles, Minneapolis/St. Paul, Rochester, New York/New Jersey, Philadelphia, Research Triangle, San Diego, San Francisco, Seattle. Central and South America Brazil: Belo Horizonte/Rio de Janeiro, São Paulo; Cuba: West Havana.

Europe

England: Cambridge, Manchester-Liverpool, London; Scotland: Glasgow-Edinburgh; Republic of Ireland: Dublin; Belgium: Brussels; Denmark/Sweden: Medicon Valley; Sweden: Stockholm/Uppsala; Finland: Helsinki; France/Germany/Switzerland: Biovalley; France/ Switzerland: BioAlps; France: Paris, Sophia-Antipolis; Germany: BioRhine, BioTech Munich, BioCon Valley.

Asia

China: Beijing, Hong Kong, Shanghai, Shenzhen; Japan: Tokyo-Kanto, Kansai, Hokkaido; Taiwan: Taipei, Hsinchu; Singapore; Israel; Malaysia: Dengkil.

Asia (India)

India: Bangalore, Hyderabad, New Delhi.

Africa

South Africa: Capetown.

Oceania

Australia: Brisbane, Melbourne, Sydney; New Zealand: Dunedin.

sour c e: Adapted by the author from Minnesota Biomedical and Bioscience Network and William Hoff man’s work at http://www.mbbnet.umn.edu/scmap/biotechmap.html, accessed March 29, 2011.

and national pressures for redistributive health politics? I contend that nationstates increasingly need to buttress their legitimacy and control of technology investments, and we must look at scales beyond nation-states to understand market variety. Economics of the traditional variety is ill equipped to analyze institutional context in cities. Old political economy was perhaps closer to the task. For innovation, too, a focus on national systems is likely to generate a biased ex post reading of essential and vigorous prerequisites. Furthermore, market critics such as Polanyi who powerfully attempted to deconstruct the myth of the self-regulating market did not go far enough in specifying the local social contracts and other institutions that enable the nation-state to extend social protections. Polanyi left many planning and agency questions alone. Similarly, his candidate community institutions are largely without power and participate in an uneven market exchange. Urbanists of several stripes— urban planners, urban historians, economists, and sociologists, for instance— are more adventurous and attentive to such issues, and it is to them and their institutional language that I turn in this chapter.

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For both classical and neoclassical economists, nation-states were primary units of analysis. In contrast, Jane Jacobs has famously argued for cities as the true players in the global economy. Using a r estatement of import replacement, she argues that although traditional archaeologists had a rgued that agriculture logically preceded the city, it was through animal and grain trade that city dwellers discovered optimal relations to agriculture and eventually moved it to the periphery of towns. Likewise, import replacement drives city and all economic growth. However, theoretical challenges from and political ambivalence to c ities in economic plans caused immense disjuncture in national politics and birthed frail welfare regimes, even while spatially concentrating production and scale economies in late industrializers. As I discussed at the start of this book, significant political challenges face those nations that cannot autonomously regulate and demonstrate local learning or the advantage of technology-led development in tangible ways. As industrial and technological development become more decentralized, the nation-state becomes more vital in its developmental tasks of attending to several externalities, making policy more coherent, and lowering regional inequalities. Yet all the time, supranational globally harmonized standards (intellectual property rights or technical standards of trade, for example) are pushing firms toward more uniform production, thus creating urgent new developmental challenges for more customized production and regulation. Furthermore, for very large BRICs economies (Brazil, Russia, India, and China), the health sector encompasses complex issues in fiscal federalism and urban economic planning. In this chapter I offer some historical and philosophical context and some reasoned speculation about the political economy of development and markets. I do so in order to further question industrial development as both a state-supported endeavor, on the one hand, and something resting on the moral assumptions of individual economic actors and their market exchanges, on the other. The materials here are wide ranging and selective. This treatment runs the risk of fully satisfying neither economists nor others bound by their disciplinary silos. Nevertheless, progressive economic development specialists, especially those interested in today’s technological contexts in the economies of the BRICs countries and South Africa and those who find themselves involved in moral dilemmas of economic plan making and policy advice may, I hope, find the discussion useful.

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Nation and City in Development Imagine an excavation in 5,000 years: what would the excavators imagine our industrial and health choices to have been? Juxtapose today’s pharmaceutical manufacturing facility with the sick individual, and any thinking person is compelled to ask what model of civilization this represents. In 2002 some of the worst childhood asthma in the United States was found in Harlem, New York, the result of a noxious mix of poverty and institutionalized barriers to affordable health care and work-related benefits, further aggravated by pollutants from heavy industries in New York and New Jersey blowing into Harlem. Yet less than 25 miles southwest in Rahway, New Jersey, is Merck, now the second-largest global producer of prescription medicines and which manufactures Singulair for asthma. Similarly, as Indian pharmaceutical production volumes became ever more profitable, WHO’s World Health Report, 2000 controversially removed access to health care as a criterion in judging healthcare quality. The economic challenges facing these nations and cities—life-science concentration, pharmaceutical laboratories and manufacturing facilities, hightech parks, export manufacturing zones, refrigeration, transport, highways, and bridges—are seriously compromised by a distribution challenge of national health care reform. A large fraction of the world now lives in urban settlements, and some of the fastest-growing urban centers are the smaller towns. The developing world’s cities will make up almost this entire population growth for 30 years to come, with 43% of Asian urban residents living in slums. Despite the rhetoric of “urban bias” in many development approaches, immense deprivation exists in cities that forms a crucial new thrust for developmental states. No matter how urbanization is measured, one thing is evident and ironic: Indian cities and many others across the world have little institutional capacity to handle the immense success of “supply before sanitation” of their pharmaceutical and biopharmaceutical sectors. At the same time, Indian and South Asian labor organizing is shifting from anemic factory floor in both practice and imagination. The neighborhood is thus the new factory, the new collective form, and the new residence all at once. Seen as such, the metropolis becomes redefined for Polanyi’s double movement against complete wage dependence and “market society.” National health-care reform requires a spotlight focused on the investment and location choices and repercussions facing local administrators, private

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investors, engineers, scientists, and citizens. When national ministries of health restructure vaccine markets and increase imports, this often requires scaling back or shutting down local production (the fate of Indian publicsector units). Even in times of historic economic prosperity, as in the United States and Europe and certainly in the contemporary BRICs economies, states and citizens can become complacent and private firms indifferent: public and private manufacturing investments can be rolled back; im mense tax revenues invested in public health fall into disuse, or new markets may be necessary to r einvigorate generics for swine flu, cholesterol, or arthritis medicines. Undoubtedly, therefore, we are in a new era. Rising costs and complexities of care provision and more sophisticated technologies are colliding head-on with complexities of consumption through insurance, community care systems, and means-tested and residual systems. The growing number of the uninsured and structural trends of new employment and contract work have tended toward fewer health benefits and weakened social protections. This is particularly true for outpatient prescription medicines and medical tests in India, for which citizens pay out of pocket. Similarly, many recession-hit U.S. workers have lost health insurance along with their earnings, but the lifescience industries have continued to grow and are even seen as the answer to the economic doldrums of New York and other metropolises. Technological advance complicates regulation and local investments because business and technology cycles have physical investment origins and effects. A c ombination of avian flu devastation and bioterrorism and other pandemics has fueled a n ew physical infrastructure boom in several countries. These include public-private life-science parks, invigorated ties to university laboratories, special manufacturing and biohazard zones, and emergency clinics and response protocols. Often morality and industrial geography clash in specific technologies such as stem-cell research, where both public and private investments combine forces. Ernst and Young India estimated in 2006 that the global biotech industry was valued at $54 billion and was growing at a rate of 17%. India’s biotechnology industry was worth $1.1 billion, or 2% of global market revenue, but growing at a r ate of 36.5% per year, the world’s most rapid growth rate, and was among the top 10 world biotech concentrations. Most of this growth was concentrated in Karnataka (almost two-thirds of Indian firms) and Bangalore in particular. Bangalore and Hyderabad provided locations to t he biotech and

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some pharmaceutical firms and a broad backdrop for my discussions thus far. Karnataka and Andhra Pradesh, states of over 50 and 80 m illion people, respectively, are far larger than many of the world’s nations. The coastal geography affects both states differently (western coast in Karnataka, eastern coast in Andhra Pradesh), shaping crops and rainfall. More important, institutional similarities abound in their histories: royal rule, postindependence state-led industrial transformation, and heavy public-sector investments. For instance, a move from textiles to biotech and information technologies in Bangalore can be traced back to state-led industrial investments made from the 1860s on, during the Wodeyar dynasty’s rule, and under visionaries such as M. Visveshwaraiah (“industrialize or perish”). However, in both Karnataka and Andhra Pradesh cross-sectoral production growth rates, though impressive, still face subsequent planning difficulties because of ambiguous settlement entitlements and failing delivery organizations and infrastructure. Each of the regional states has emerged with its own particular industrial structure and dynamics, distinct agricultural transformations, caste politics, and influence on big business. Both have seen large spurts in private industrial activity despite the lack of explicit local plans and policies. However, both suffer difficulties of land acquisition, considerable land and fi nance power imbalances in industrial development, and fragmented labor organizing, all of which further compound expanding place-based health approaches. Understanding the subtler differences between the two cities is an analysis for another book, but it is sufficient to k now that their dynamism has led the country’s exporting profile in newer sectors. “India’s” economic growth and innovative capacity are therefore significantly city based, although not always city driven. This “Indian” technological and economic advance has generated rising social expectations and provided new opportunities for social mobility in both states. Bangalore and Hyderabad have benefited from their respective regional governments’ technophile approaches to governing. Indeed, some governments here have effectively courted political suicide by focusing on the high-tech images of the capital cities and especially on “IT-BT,” the twin banner of information technologies and biotechnologies. In both cities much of the urban momentum has derived from new land acquisitions, ease of investment, and persistent engagement in policy influence by corporate CEOs in both sectors. These strategies have not always been successful for politicians, however. Chief Minister Chandrababu Naidu, under whom Hyderabad became popular in the press as “Cyberabad,” and whose public image included laptops,

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helicopters, and meetings with Bill Gates, was understandably well accepted among the city’s technology employees and investors, but he lost his subsequent election campaign to R ajashekhara Reddy, who campaigned as the farmers’ chief minister, far from the elites of Hyderabad. In contrast, Karnataka’s chief ministers, from the Janata Dal, Congress, or Bharatiya Janata parties, have been less flamboyant but more consistent in economic development priorities. The Bharatiya Janata Party, which has generated considerable controversy at the national level with its Hindutva (Hindu right) agenda, has been more circumspect in this state, preferring to be seen through its probusiness approach and its support for Bangalore’s IT-BT (and now food-processing) corridors, but equally supporting farmers across the state. The more recent regional plans for the state have included discussion of decentralized industrial growth poles and agroindustry in constituencies of recently deposed chief minister B. S. Yediurappa, essentially pushing economic growth and employment outside the capital. Nascent industrial hubs are mushrooming around the state, along with airport investments and road projects to boost the connectivity of cities such as Hubli and Dharwad, Mysore, Bellary, and Tumkur. “Probusiness” has meant pro–agricultural business as well. The economic agendas of several regional and national parties are looking ever more similar, whatever their social rhetoric. In Brazil and India markets are structured to influence extended immunization programs, HIV treatments, and access to antibiotics. In Europe public procurement and welfare-state budgets exert powerful incentives on suppliers. Private vaccine firms in several subsegments are becoming extinct, and in many countries public-sector resurgence seems likely. But such shifts dwell in the shadow of federalism and the opportunities and inconsistencies of domestic policies and lucrative foreign markets, creating different urban and regional specializations. Universalism in Federalism: Between Capitalism and Commune At least three market environments were visible in postindependence India: first, a s tate-driven and controlled environment that most explicitly linked industrial capabilities and health, and in which first public and then private capabilities were built; a s econd, more export-driven, globally harmonized environment in which the state’s hold on private firms as handmaidens to

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domestic health began to weaken; and a third market environment in which biotechnological advances were creating new technology and regulatory challenges, ironically making the public-sector role more necessary than ever. The three environments taken together underscore a relatively successful technological capability building, but equally the country’s loosening grip on redistribution. The first market environment resonated most closely with a developmental state with not only vision, but also coercive and administrative potential. In the second market environment the successes were more complex: significant technological gains were made a nd its export industry flourished, but domestic demand and delivery took second place to the sector’s export competitiveness. The third market environment saw considerable technological changes and regulatory haziness, pulling state and private industry closer together and hinting at possible future opportunities for a renewed social compact. Today, as industrial nonfarm employment creeps into rural agricultural land, and as urban India fi lls and spills over, redistribution will only become more charged. One reason for the state’s inability to consistently force production closer to delivery and demand has to do with structural features of its industrial path. Unlike Brazil or South Korea, India’s industrialization focused on capital-goods sectors. The strategy was practical, beginning in the 1955–1960 Second Five Year-Plan period influenced by Professor P. C. Mahalanobis and attempting to find a path through stagnant or slow-growing imports. As Sunil Khilnani states, many believed mistakenly that these choices, focused especially on the role of the public sector, reflected a S oviet influence, but the Indian industrial path was more emblematic of post–World War II European responses than of the USSR’s historical strategy. The only shared common element was the centralized planning style itself. However, from an employment and social policy standpoint, its mistakes were a too-thorough borrowing of European models of social insurance and national tripartitism. Nehru’s industrialization, influenced by Fabians, on the one hand, and the Marxist reading of dependency and imperialism, on the other, leaned toward a Keynesianism of sorts. Given the low tax base of India’s population, bureaucrats focused on building a productive public sector to generate a welfare surplus. This strategy forced a riskier outlay on building capacity in advance of demand and required productive risks to be borne primarily by the public sector. The Planning Commission, begun as a scientific and expert committee in

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1950, continued to wield enormous technocratic power, especially in espousing a scientific and technical emphasis in planning rather than a deeper institutional analysis of how the commoner would access and benefit from technological advance. Thus, having laid out potential gains through impeccable plan documents and rationality, leading Indian economists and technical specialists left industrial planning (and health planning with it) securely cordoned off from any direct claims of democracy. The fortress also buttressed the state against international pressures. By the time the baton had passed from Nehru through Lal Bahadur Shastri, Ram Manohar Lohia, and Jagjivan Ram to Indira Gandhi, redistribution had become largely a farce. There were few systematic institutional paths to formal redistribution; instead, there were electiontime “loan melas” (large public occasions and gatherings of masses) and outright bribery through the distribution of clothes, milk, and credit. Social strategies, despite the success of some, such as the employment guarantees, would mostly come to be exemplified by fragmentation, divisive politics, and selective implementation. Redistributive rhetoric often looks better in theory than in practice, and India is no exception. In the late 1990s, for example, I was part of a small research team helping with focus-group discussions in reproductive health and Kannada-to-English translations in Bangalore rural district. Our interest was in investigating public “free” food and medicine programs in order to assist low-income breast-feeding mothers or pregnant women. We found (and this was verified in numerous ways) that it was common that state-funded programs were indifferent enough to these women and local palates that they often used insect-infested grain, cooking oils that locals avoided, and poorquality dals (lentils), with middlemen and administrators presumably siphoning off monies. Such programs are more the norm than the exception although India has its share of successful ones. However, perhaps worse, iron supplement pills for these women were colored red and conflicted with the traditional local health interpretation of “heat-inducing” reds considered dangerous to health. The net result: supposedly successful, generous schemes in practice with bad grain, inedible oils, discarded medicines and little to no care exerted by local health or administrative bureaucracies to understand local context. This history of institutional fragmentation is at least partially explained by center-state institutions and the ambiguous function and stewardship of such locality. Early twentieth-century finances and functions were elaborated by the Montague-Chelmsford reforms of 1919, as was a division of labor between

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national and subnational governments. The Government of India Act of 1935 laid more formal foundations for federalism before independence. It proved particularly important in determining the degree of political and fiscal autonomy of subnational governments. The unitary features of Indian-style federalism created several tensions; this federalism too followed the 1935 act. The Constitution of India in January 1950 attempted harmonious center-state relations by enumerating the Seventh Schedule’s three lists, which delineated the complex institutional boundaries of responsibility, autonomy, and cooperation. The Union List grappled with issues of “national interest,” such as defense, foreign affairs, telecommunications, the post, railways, ports, and national highways, and reserved rights of action on monetary, trade, and stock-exchange questions. The States List covered local government and married public ser vices such as health, education, and irrigation (water the land, water fertile minds?) with such broader questions of governance as law and order, justice, agriculture, land rights, and industries deemed excluded from the Union List. But the twist was the framers’ enumeration in the Seventh Schedule of the Concurrent List of shared responsibility with the center. Social security, labor welfare, and economic and social planning are embedded in the Concurrent List. The Indian Constitution provides ambiguity about the joint responsibility for employment and social security, but the details are left to varied practice, resulting in fragmentation, overlap, and conflict. For instance, regional and central governments are the largest employers of casual construction labor and dodge social security payments. Without a binding and believable national policy, regional states are left to decide whether to be the first to provide coverage to their workers. If they increase employer liability, they invoke the possibility that construction companies will move to other states. Some state governments therefore would prefer that the central government create nationwide legislation requiring all states to p rovide uniform standards of social security where labor migration is immense. The Indian context therefore signified struggles between vapid municipalism and nonexistent national welfare capitalism. Panchayati Raj institutions did show vigor in several instances. However, the question of urban and regional governance was mirrored by the chequered autonomy of panchayats, especially with regard to revitalizing health and employment. On December 3, 2005, Prime Minister Manmohan Singh launched what was referred to by his office as “the single largest initiative of the Government of India for a p lanned development of our cities.” The Jawaharlal Nehru

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National Urban Renewal Mission launch note dubbed the urbanization process “relentless.” The focus was yet again on a planning process at its technocratic best— infrastructure, urban poverty, crime, and environmental destruction. The scale was enormous: 63 Indian cities were to be transformed into new sustainable models of urban governance, private participation, and the opening up of land and housing markets. Cities were expected to be cleaner and healthier; 100,000 crore was at stake to entice urban and state governments into participating. Despite the scale of these changes, the institutional gaps are evident every day: regional governments shift fiscal and political responsibility to the center, and the center calls on the Concurrent List as evidence of what state and local governments cannot and will not do, or on whose basis responsibility is delegated to s tates. The largely unfunded mandate of State List and several Concurrent List items also requires ingenuity by the actors involved. The costs of social security and social insurance programs have rarely been systematically debated until recently. Amid the high-tech branding of southern pharmaceutical and biopharmaceutical centers such as Bangalore and Hyderabad, the cracks in the institutional triad are especially evident: supply dominates. The five-year plans and the poor connection of health, industrial, and ser vice budgets to urban governance indicate how little effort has been devoted to add ressing institutional gaps i n identifying demand and building delivery systems. In the federalism of nation-states, universal ideas must clarify which market rules apply and to what contexts and scales of rule. However, this challenge has a history older than nation-states. Industrial Welfare and the City in Context Then Instituting webs among places, work, and health is an old story. Their dependence on market expansion is even older. The Mediterranean historian Fernand Braudel, for instance, lays out the controls that the Ottomans and the Mamluks held over local markets. He describes how cities flourished as the Mediterranean increasingly opened outward through global trade. From Venice to Amsterdam, the rise of European cities depended on new markets. Their rulers increased the geographic bounds of exchange through purchase, barter, and no doubt considerable gift giving to sweeten (or spice) new trade deals in their consolidation of economic power.

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These new commodity markets depended on labor markets, and these, of course, in turn depended on workers’ health and physical capacities and a ruler’s control over them. Both control and health were important to market expansion: initial trade contacts from Europe to the Americas (North, Central, and South) killed millions by carry ing disease from Europe to the American continents. Europe’s quest for labor coincided with growing trade and profitable new markets and with distinct types of dense settlements. For example, Portuguese enclaves along the African coast, the feitoria, became fortified trading posts from 1445. Gradually, through collaboration with Italians, the Portuguese and Spanish established plantation economies in the Mediterranean and eventually in the Atlantic islands. In turn, the enclave feitoria evolved into English factories at a later time, and settlements became increasingly complex embodiments of trading, labor management, and health vulnerabilities. Many New World settlements combined voluntary and forced labor, the latter driven primarily by racial slavery of African populations by the settling Europeans in South America. Of course, settlement patterns elsewhere in China, the Arab regions, and India were much advanced over those of Europe even before the conquest of the New World, with significant urbanization and high culture. Equally in contrast, Chinese, Indian, and Arabian trading regions were intimately tied to the vitality of their cities and ports. For a time, these were less vulnerable to disease brought on by trade. The relationship among market varieties, place, and health, however, was dramatically transformed in the fourteenth century in both Europe and China. The Mongols established immense economic routes, and trading caravans followed in their wake. These brought doom. The black death spread with them and devastated central Asia and Europe. The deaths numbered between 50 and 100 million. Working lives and workplaces rarely ensured protection against illness. Portuguese feitorias had been primarily functional trading posts and gradually more administrative settlements where labor management was only minimally countered by the provision of health care. U.S. slavery and gang labor similarly were managed with minimal health-care systems in place. Plantations were primarily production sites, and disease was rife. European health control and management rested in the city-states of Venice, Genoa, and Amsterdam. Their labor management and attention to worker health were to change again with the rise of the Dutch East India Company and the burgeoning connections to other worlds of the British Empire.

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Later While a g rand industrial momentum swept cities in the English landscape, Indian cities dealt variously with the 4 Ds o f industrialization: disruption, deprivation, disease, and death. Yet many had a l ife independent of the industrial surge. Although the colonials were to bring railroads and investments into the shipping ports of Bombay and Calcutta to establish their own factories in the industrial towns, a thriving precolonial industry was already in place. But the health of precolonial India was debatable because its urban form was increasingly politically and spatially divorced from the work within it. Precolonial India had townships and even cities that thrived on commerce. Although colonization wedded colonized cities to the industrial, administrative, and political cause of the colonizer, several Indian cities continued to retain their former characteristics. However, city planning and urban design reflected London and Paris from the intellects of Le Corbusier and others. Nehru had comprehended the power of design and the political and social upheaval that design could craft in shaping a new urban ethos. Major Indian cities from Delhi to C alcutta aimed through their colonial (and later Indian nationalist) masters to perpetuate their own unique grand design. And Now The question of nation-states is puzzling because they cannot be simply depicted as strong or weak. Their tensions and contradictions make them theoretically ambiguous with respect to other institutions, such as markets and community ties. Some scholars have argued, indeed, that rather than byproducts of European Enlightenment or political consolidation there, the social experimentation in the New World provided the conceptual export of nationalism to the rest of the world. One of the proponents of this view, international scholar Benedict Anderson, refers to the nation as “an imagined political community—and imagined as both inherently limited and sovereign.” His main claim is that nations are imagined communities resting on self-subscribed notions of community rather than other “real” communities with day-to-day interactions among members. Welfare and health-care states are a p owerful representation of this notion of community, but they do not simply correlate with nation-states or indeed (especially with telemedicine or outsourced diagnostics, for example) with nations themselves. Anderson’s imagined communities have been criticized for referring to Western states and nations and terri-

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torial integration in linear time that may have little relevance for political consolidation and imagination in highly heterogeneous postcolonial countries such as India. The cities of India, Brazil, and South Africa, then, are destined to be perpetually without recourse, simply lagging in time, lacking certain virtues, untidy, unkempt, irresolute, and always seen to be catching up. But technological change complicates this notion of linear time and progress when we consider health and industrial capabilities. Cities of India, from Calicut to Calcutta and from Ahmedabad to Bhuvaneswar and Madras, were cities straddling the grinding gears of industrial machinery. Busy commercial towns such as Surat and Cochin witnessed growing disease burdens. But tied as they were to Britain’s industrial trajectory, industrial mill towns such as Bombay and Ahmedabad were especially destined to face fortunes they could least control. By t he time these cities had i ndustrialized, replete with large factories, coal dust, noisy shipping docks, and slums, India in both pre- and postcolonial periods had i mplemented a w orrying approach to h ealth and the urban economy. Compounded by industrial effluents and unchecked air and water pollution, the urbanization of India, coupled with a strong industrial push, has struggled with diarrhea and dysentery, typhoid, malaria, and gastroenteritis, heavy burdens not just for the poor. Even in 1994 the city of Surat in western India made world headlines with an outbreak of the plague. The specter of medieval living and working conditions rightly haunted Surat. The eroded autonomy of its city government and the remarkably poor municipal record in health had led to weak controls over basic sewage, clean water facilities, or storm-water drainage and to p olitical patronage and contested ownership of utilities and accountability in urban ser vices. Faced with its own desire for minimum standards and tolerant of a slow rollout of basic infrastructure, the middle class in Surat and across India had quite monopolized urban infrastructure and ser vices. Low-income residents alternated between the daily struggle without basic amenities and enjoyment of political patronage as “vote banks.” It took a series of institutional reforms and a remarkable municipal commissioner to set things right. Cities, Antibiotics, and Universalism This urban context has been shaped considerably by what is technologically possible because this allows for varied political exclusion in each instance. From Paul Vuillemin’s use of the term “antibiotics” to Paul Ehrlich’s German

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antibiotic development in the early 1880s, antibiotics protected humans and killed bacteria. Gramicidin was among the first commercially manufactured antibiotics of World War II. Penicillin renewed the vigorous search for antibiotic compounds and provided the Nobel Prize in Medicine in 1945 to Ernst Chain, Howard Florey, and Alexander Fleming. The mid- and late nineteenth century was remarkably fertile: pasteurization, Lister’s antiseptics, and Koch’s sterilization waged war against disease-causing microorganisms. Officials began to understand the relationship of these organisms to sewage. In the interim, however, flush toilets with indoor plumbing linked to such sewage systems began to appear in the homes of the rich and in hotels, but only slowly among the rest of the population. Although many Western cities had moved far beyond chamber pots, a revolution in sanitation to improve health conditions was still distant. The period between 1880 and 1960 actually encompassed two defining periods in urban history. The first, from 1880 to 1930, witnessed some of the worst visible excesses of the Industrial Revolution and showed how its health impact was oppressive and disproportionately urban. The second period, from 1930 to 1960, saw many advances in science and technology and a widespread Western effort to mitigate the ravages of World War II. Both periods saw the nationalization and greater centralization of social policies that markedly shaped the pharmaceutical industry’s environment. Thus at a time when the worst ravages of health were concentrated in specific (and unique) places, national governments during the period from 1918 to 1950, at what Eric Hobsbawm calls the “apogee of nationalism,” had seized the reins of technical production. But lest we believe that these challenges of technological determinism are uniquely twenty-fi rst-century phenomena, let the clock wind back to t he period between 1873 and 1900 in England, where a t ussle occurred over the methods by which diphtheria should be addressed. Cutbacks in the Poor Law stemmed from the view that welfare perpetuated poverty; instead of assessing where public health might be adversely affected, local government board authorities launched a c rusade against any relief measures outside work house infirmaries. Although sanitation promised much, it was not a democratizing technology per se; it depended on the governmental attitude toward the poor. Ideology that linked poverty to w ork houses spurred a rol lback in the Poor Law and enabled little public health improvement outside work house confi nes. Sanitation had a m uch later and greater impact on urban industrial

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England, alongside the rise of the labor movement and agitation for better working and living conditions. Class politics provided a powerful explanatory context for the quelling of diphtheria. The diphtheria case underscores how two sets of technologies—of medicine and sanitation—were dramatically shaped by philosophies of the work house and municipal pauperism of the “nonworking” poor. These philosophies shaped not only the physical planning of cities, but also the later form of center-local relations and much European municipal governance to come. From Poor Law to Welfare Paternalism in En gland and India The niggardly distribution and cutbacks in the Poor Law had a wider adverse effect on public health. From approximately 1873 central and local governments, medical professionals, public health crusaders, and others were determined to influence the debate regarding disease origins and solutions and the course for public health and preventive medicine. These attempts shaped the later priorities for medicinal research and their manufacture. Nevertheless, the world had to a wait the late nineteenth and twentieth centuries for substantial state-sponsored health protections to emerge. Most evolved from community programs, few from national fiat. Many preceded nation-states. However, access to health care continued to be privileged by social hierarchy, although it was increasingly tenable through work status. By the late nineteenth century and the manufacture of public health medicines, in colonial contexts (cholera, typhoid, tuberculosis), both local state and nation-state played a part. It was certainly the first time in world history that health technologies produced by nationally competitive and protected pharmaceutical industries came up directly against the poor health of the average worker. Although in England mass labor politics were to partially heal the social cleavages that had p roved so divisive for diphtheria, in nineteenth-century Britain sewage and water supply were converted from private ownership into public goods, and the “threat from below” of communicable disease was addressed by a gradual expansion of basic ser vices and reinforced by labor orga nizing for an improvement in the working and living conditions of the citizenry. In India, however, two things occurred: first, the sick individual became a d istant entity, out of sight and mind of centralized government;

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second, technological capabilities in mass manufacture of medicines and chemicals, especially easy access to antibiotics, have effectively acted to downgrade preventive strategies comprising health education, regular checkups, clean water, and effective sanitation. Ahmedabad, circa 1915 In 1915 the man later known as Mahatma Gandhi initiated a remarkable social community in Ahmedabad. This ashram knit its residents together in their conviction that social organization and economic organization were intertwined through man’s core values of truth and ser vice, with machine as servant to man. Gandhi’s first experiment in instigating a new polis shied away from urban density, situating Phoenix Settlement at Phoenix Station outside Durban, South Africa. In 1915, however, a year after the start of World War I, Gandhi returned to I ndia and established Satyagraha Ashram first at Kochrab and then on the banks of the Sabarmati River in Ahmedabad’s midst. He embarked on a bold but nonconfrontational experiment, pursuing demechanization with the hand-directed spinning charkha in the heart of mercantilist and textile Ahmedabad. When Gandhi initiated Sabarmati Ashram, industrial change was rapid, and urban squalor and ill health were growing. Simultaneously, Indian nationalism and the drive to t hwart British rule had entered a new era under the charismatic leadership of the likes of Gandhi, Nehru, Lohia, Bal Gangadhar Tilak, and Valabhbhai Patel. The colonial imprint on the Indian landscape was heavy. English industrial imperatives–resources from indigo to whole textiles and from labor on plantations to coal—dictated the shape of Indian cities and England’s concern with civic amenities and the health of its citizens. The colonial preoccupation with pressing problems of sanitation and health assured colonial research institutions a practical bent and a desire to deal with the scourges of industrial and urban living conditions. To pose this as a Nehruvian compact pitted against a Gandhian vision is too simple. When one of the first Indian pharmaceutical firms was begun in Bengal, the sun had risen on a very special industry in an industrial and colonial age and had set on an entirely different type of relationship among work, health, and urbanization. After all, no other country with such pharmaceutical capabilities has contended with colonial rule of such duration, such a variety

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of pioneering social experiments and alternate philosophies and institutions, and such a range of alternate medicine systems. To some eyes, Gandhi rejected a state municipalism in any form save for local panchayats and village self-rule. His universalism was the moral opportunity and obligation to discover satya, the highest truth. Collective organizational and political representation was then not a substitute but an aid to this higher purpose. His aim was “concerned with socialising the individual conscience rather than internalising the social conscience.” And unlike Hobbes, his influence was a primacy of the social over the political. It is one thing to have an untested philosophy, another to have a spatial and political context. There were many who expressed grave doubts that Gandhi had a workable plan to refashion the Indian polis. After all, the “Gandhi Plan,” positioned against the more mainstream Bombay Plan of economic and industrial development, struggled to explain the future of decentralized village industries amid self-enforced limits on plant size, how demechanization, particularly for textiles, might coexist in an already-mechanized city such as Ahmedabad, and whether cooperatives could, without significant management expertise, continue to prosper. His plan harbored optimistic (many would argue unrealistic) hopes for communal harmony and the role of local institutions such as credit cooperatives. But his vision highlighted the importance of the moral nature of exchange, work, and health, set against the daily hurdles of village industry. Its greatest success, therefore, was in providing a conceptual alternative to Soviet polis and polity, to Fabianism, and later to Western European Keynesianism. Today India’s Panchayati Raj has had s ome successes but remains enmeshed in caste, religious, and devolution challenges. Communism’s answer might rest in wholly public ownership of the pharmaceutical sector and central control of each manufacturing plant; socialism’s, in a strong nation-state and devolution, if not ownership. In Gandhi’s thinking the distinction between religion and politics was superfluous, and so, as in communism (but for very different reasons), all resources were humanity’s, and the public sphere was one negotiated by truth and self-exploration. His polis provided the individual the freedom to seek and manifest ahimsa (non-violence) and satya; contracts were not property based but were self-pledges. The state apparatus could add little luster. It was unsurprising, perhaps, that such deeply inspired but revolutionary views did not automatically permeate Indian society and its cities.

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The Body Corporal and Politic: Utopias in Universalism It might seem natural that industrial change would force cities and countries to converge institutionally, materially, and philosophically. After all, between 1850 and 1900 the number of industrial cities scaling dramatically to host more than 1 million people rose from 2 (Paris and London) to at least 14 (including Calcutta in India, Tokyo and Osaka in Japan, and Buenos Aires and Rio de J aneiro in South America). But no such convergence exists or has existed. If development planning is concerned with ethical choices and ideas of justice, then we might hark back to t he variety in utopias themselves. Even where they share some features, they point to the fact that work-related health benefits are always discretionary. The metropolis is a mirror for our inability to tie the work that we all engage in (paid, unpaid, caring, other) to the constrained pathways with which we now secure health. Although utopians and political philosophers (often indistinguishable from each other except by virtue of the former’s experimentation) instinctively conceptualized community size and the motivation of wants and effort, they arrived from vastly different philosophical and political positions to conceptualize the greater good, with welfare situated around work. The utopian communities initiated by Robert Owen and the Saint Simonians showed man’s mastery over machine and attempted to address men, women, and children in whole perspective. They believed that these views could be reconciled with the pace of industrial change and even the introduction of new, ever more complex machines. But some scholars, of no lesser stature than Gerschenkron on late industrial development, have argued that the success of Utopians such as the Saint Simonians rested in their ability to c loak capitalism in social rhetoric and their utopian project’s remarkable ability to have capitalists and financiers adopt a socialist façade for their ventures. However, although many utopians eventually failed to generate profits from such enterprise (well fed, healthy, and well clothed though their residents were), Gandhi’s Sabarmati was fundamentally different. Robert Owen experimented while industrial England was still a rural phenomenon; the trade-union movement was first emerging from new ideas of cooperatives and consumer movements, and with the dissipation of the dreaded industrial work house, Dickensian workers and children had b een somewhat forgotten as the Benthamite movement slowly took hold. The workers’ movement, inspired to the degree it was by Owenite visions of cleanliness (if not godliness), individual dignity, and collective industrial ardor, saw

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urban working conditions as part of larger forces of degradation. Engels would later speak eloquently of the deplorable work and living conditions as depraved exemplars of capitalist oppression. In America the well-being of factory workers and urban forms, instead of being Melvillian “self-expression,” as American historian Thomas Bender points out, were shaped by paternalism and capitalist self-interest. Many Boston and Merrimack Valley industrialists concerned themselves with the “public life of the workers” in education, health, and religion, but primarily to manage their relationship to the factory, which was the locus and logic for caring and health. Social reformers were unwitting contributors to the idea of industrial “discipline” shaped seductively both by the idea of efficiency and productivity and by an unspoken understanding that a new way of life, subordinate to t he machines, had overtaken them. Tocqueville viewed factory work as the last vestige of existing democracy, forcing wage dependence of workers on owners. Both trade and location immobilized the worker, who was intricately bound to changing economic organization, new forms of exchange, and an insidious connivance of political and social institutions that allowed the efficiency of factory work to dominate all other aspects of social life. Utopian communities from Christianapolis to Sha ker villages, Tolstoy, and Gandhian ashrams have differed in their emphasis on creativity and artistry, on the one hand, and commerce, on the other; but although each person must work for his or her keep, that keep is assured. This can be seen as a shifting balance over time between a vision of the creative urge and one of compulsion, social responsibility versus individualism. Utopias have been variously pervaded by work and redistribution amid ideas of religion, justice, and learning. However, the mental and physical experiments in human organization in these communities focused on the ends of human life (artistry, spirituality, caring, and well-being among them). Later utopian ideals, especially spurred by the Renaissance and the rise of scientific and technological innovations in Europe, focused more on the technological means of human endeavor. This reflected in part a transition from the disintegration of the town economy to an uncertain future in broader industrialism. The breakdown between production and redistribution in several of these communities was both symbolic and literal. In most civilizations this sense of community had always been delineated by individual identity around work: worker, slave, ruler, warrior, mother, baker, and manufacturer. Redistribution and access to health care were effected with a given division of work in place.

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The modern distinctions of paid versus unpaid work, or skilled versus unskilled, existed and were diversely accommodated in these utopias partly by their small size and social bonds. Therefore, consuming too much, producing at too large a scale, and commoditizing work can all result in redistribution being wrested from local context to larger regional, national, and international markets over time. In this process, health is doubly cursed. As the community grows and its economy with it, those wants that drive expanded geographic bounds on markets often act to loosen the ties of local relationships. As work becomes a commodity, often so do time, caring, and health care. Although nationalism allows citizenship rules and entitlements to emerge, and increasing scale can accommodate economies and higher outputs, markets and networks do not always sit comfortably side by side. This debate about rules and the scales of the nation at which they should apply was hotly debated in India. Gandhi, of course, was not the only conceptual economic and political opposition to Nehru. Others, such as Lohia, also shared this view, equating both Marxism and capitalism with large industry and capital-intensive work. Rather than a romantic recourse to traditional Indian institutions, he emphasized caste as restricting man’s economics and social and geographic mobility. Similarly, M. Vishveshwariah in Mysore saw an urgent need to industrialize and embraced scale and scope of production and infrastructure. The challenge, of course, was to si tuate work and health in Indian economic plans. Indian industrialization in its critical years had floundered under colonial rule and the nonexistence or peripheral nature of settlement rules, “organized work,” and a trade-union movement. While Owen labored on combining healthy workers with higher productivity, Gandhi was concerned with healthy individuals for whom work was primarily a creative and social function of supporting a m illion others. While in the former view work was an economic necessity whose social impact could potentially be mitigated or even made benign, Gandhi saw man’s social function and truth seeking to encompass and critically form his economic activity. In the former, then, redistribution was constructed to make production ever more efficient and people healthy and happy. In the latter, a person’s health and happiness were viewed as separate from his or her economic functions. Indeed, this philosophy emphasized that there was no economic function that did not have at its core the wellbeing of the individual and others. Seen as such, the search for the self and redistribution were master deities, production merely their handmaiden.

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Older, precolonial mobilizations such as the Bhakti movement had, of course, also provided social alternatives for collective living. Much later, Gandhi (inspired by Ruskin’s “Unto This Last”) coined the term sarvodaya (“welfare for all” or “uplift of all”), which grew into a vast movement particularly crystallized by Vinoba Bhave’s bhoodaan and gramdaan land reformism and donation, with J. P. Narayan’s and Dada Dharmadhikari’s involvements. In Narayan’s persona it launched a strident challenge to Nehruvian socialism and later Indira Gandhi’s populist politics of redistribution. Whether labor to land, or land to industry, each had a place for health. In the past 40 years social experiments and political movements in their own right, such as the Self-Employed Women’s Association (SEWA), a registered trade union, and Sewagram communities, inspired by similar political philosophies, have experimented with health. SEWA’s health insurance program, where I participated in some early assessments, builds on nationalized insurance programs and ties in tightly with work identities, health education, banking, and worker rights. In the Sewagram communities, community members pay for health ser vices and medicines in kind. “Sorghum for salbutamol” has a certain ring to it. But both SEWA and Sewagram must contend with medicines sourced from large producers elsewhere. The redistribution problem and the market varieties and scales to produce them are simply one step removed. Optimists and market enthusiasts would likely believe that industrial development and health technologies will be accompanied by health entitlements and wider and more generous benefits. Evidence from both national and community programs, however, shows that considerable physical and institutional planning is necessary to achieve this. The new social security bill for informal workers, for example, includes basic health insurance and assistance components, but it has arisen from extensive campaigns and experiments over the past 30 years. Undeniably, too extreme a maligning of the state’s underresponsiveness by focusing only on community-based programs would also be unfair. Some bureaucracies and state-sponsored organizations and programs have shown autonomy and initiative in using the arms of the state to carry out social good. Most have sidestepped market principles entirely in doing so. Yet, also indisputably, the average Indian today is beset by a host of conflictridden, inefficient, and corrupt agencies, ranging from the public distribution system for food rations to nonfunctioning health clinics and limited coverage of medical benefits. The citizen’s proximate cengter of power, the city government,

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is hopelessly weak and unresponsive in most instances. Access to health care has been complicated by the suffocation of society by several poorly functioning state agencies and their uneasy alliance of state with alternative institutions: family, religion, caste, work, and community associations. The state’s oscillation between the rhetoric of modernization, socialism, secularism, and price and its ambivalence on optimal plant size, industry size, and “formal” labor size has meant that although economic development and social policy goals are aligned in principle, they diverge in practice. Moreover, whether in Dickensian Coketown or modern Cairo or Bangalore, the factory as ultimate social unifier and health provider has proven false. Indian urbanization has occurred against a slowdown in manufacturing employment growth. Posed as a struggle of organized versus “unorganized” workers, the debate over Indian universalism has gone from ideas of nationalism and citizenship entitlements to f ragmented work identities, weakened unionism, and “nonworkers’ ” rights.

The Quest for Healthy Places The problem is to find a form of association which will defend and protect with the whole common force the person and goods of each associate, and in which each, while uniting himself with all, may still obey himself alone, and remain as free as before. This is the fundamental problem of which the Social Contract provides the solution. Jean-Jacques Rousseau, The Social Contract

Some societies provide health care and medicines in broad redistributive strokes without requiring a rise in per capita incomes to do so. Sri Lanka, Costa Rica, or Indian states such as Kerala are examples. Contemporary South Asia, particularly India, is today a demo cratic battleground and simultaneously a technological and regulatory testing ground. The issues are urgent and political; market menageries, after all, reflect contested social arrangements. The region has the highest percentage of people living in poverty and one of the worst health-care records in the world. From Bhutan to Bangladesh, Sri Lanka, Pakistan, Nepal, and India, there exists a range of governments and market attitudes. Over 90% of Indians now lack robust workplace health entitlements. Well over 80% pay out of pocket; one in four women faces serious illness and death from preventable reproductive complications. India has one of the

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highest vehicular accident rates in the world and is among the highest in child mortality. The technological advance of India’s pharmaceutical and biotechnology sectors thus evokes mixed pleasure. To conceptualize the institutional context within which health technologies change hands, consider health transactions in their most literal social sense. A pharmacy opens, and a p erson walks in, buys a p ill, and pays with cash. Price-driven exchange is often subsidized by the state, for instance, and through insurance, and therefore a c opayment is made. In another instance a bl ood drive occurs. One person offers free a fragment of her health to multiply and thrive in the blood of another. Other institutionalized health relationships exist—a mother to her child, a family to its members, and a government to its citizenry. Every day health institutions emerge, some spontaneously, some coerced through social norms, others by planning and policy. A range of markets thus becomes visible, each socially buttressed by these institutions. Thus, layered through these norms, markets are rich institutions themselves and therefore natural objects of study. In Polanyi’s language, markets combine many forms of exchange: states can assign price by fiat (redistribution by command); prices can be set by more diffuse custom (what communities can bear, perhaps decided collectively); and there can be “pure market exchange” where supply and demand determine prices. Therefore, markets have variety, and several of these characteristics may exist for different products, determined by what society and the state deem essential entitlements. Supply-and-demand-determined price may be a powerful instrument of health policy, but it is only one of many instruments in structuring market rules. “Markets” are thus ultimately illusory demons, a f undamental arena in which values and exchange are determined, but a dance of the seven veils is always in play. Behind the market stage, as Jean Platteau says, is real life. Lift the veils, and markets make visible how and when supply and demand are constructed, how one market environment may blend into another, and how different actors interpret the same market signals. As I have contended, although many agree that some public legislation in health care is necessary, most underestimate how vital the state’s ability is to regulate health-care markets across variety and time. Market failure approaches ultimately fail because they situate health analysis either as industrial “catch-up” or, worse, a si mple story of supply and demand. These approaches cheat by depicting state regulation as optional, springing up “when markets fail.” In fact, the continuous monitoring and regulation required rest

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on clearheaded vision and priorities. They must result in workable guidelines for supply, demand, and delivery and impinge on several regulatory domains of price control, innovation, delivery, and standards to en sure quality, safety, efficacy, and affordability. The state has much to do, a nd to do often. Prior chapters have shown that democratic supplier countries face special challenges. Significant political pressures spur innovation policies, regulate access, and cap prices. Supplier nations as diverse as the United States, Brazil, and India face an enormous challenge. Their markets can be unruly, messy menageries with distinctive national characters. As Uwe Reinhardt says, “The fundamental truth about health care in every country is that national values, national character, determine how each system works.” However, even if public opinion changes, technological context and capabilities complicate any straightforward switching from one type of system to a nother. What works in Bhopal may not in Boston. Polarizing the economy into states and markets is unhelpful in this real world of mixed-market environments and a g reat deal of organizational variety. Health-care markets are rarely fully competitive or entirely impersonal, given their social and collectivist nature. Individuals and groups act as buyers and sellers of medicines, vaccines, treatment regimens, surgical instruments, and other medical equipment. Power and income further muddy these individual and group contexts: oligopolies exist; rules and routines may be obscured from view; information and power asymmetries exist. Markets are not without friction, and institutional combinations can create “sticky” bundles and risk-pooling behaviour that fi lter health entitlements in labor markets. The dilemmas of health and industrial welfare become acute because social insurance ties both health and labor institutions in tight embrace. As Richard Titmuss recognized early, occupational categories can create irreparable social cleavages; occupationbased systems of welfare “divide loyalties” and “nourish privilege.” Large institutional demand, especially from overseas buyers, shapes the behavior of firms, skewing the orientation of products and processes. For late industrializers, the early relationships built in the years of capital-intensive industrial accumulation and capital-goods sector growth were significant in shaping employment-linked health entitlements. In most, however, these have remained anemic. Therefore, health care is not a pure public good or a traditional marketfailure argument. It requires a range of actors, structuring norms, and public

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and private organizations. Entirely state controlled and free are types of market varieties at the ends of a continuum of regulation and moral choices, with both ideal types a theoretical fiction. Certain types of technology clarify the health contexts that need to be demarcated by market and nonmarket institutions. Therefore, planning and regulation can never be simple acts on single aspects of markets. Perfection in plans and regulation is not required, but in stabling the menagerie, ambition is.

Nations and Cities: An Evolving Social Contract? The clauses of this contract are so determined by the nature of the act that the slightest modification would make them vain and ineffec tive; so that, although they have perhaps never been formally set forth, they are everywhere the same and everywhere tacitly admitted and recognised, until, on the violation of the social compact, each regains his original rights and resumes his natural liberty, while losing the conventional liberty in favour of which he renounced it. These clauses, properly understood, may be reduced to one— the total alienation of each associate, together with all his rights, to the whole community; for, in the first place, as each gives himself absolutely, the conditions are the same for all; and, this being so, no one has any interest in making them burdensome to others. Jean-Jacques Rousseau, The Social Contract

Rousseau’s sense of the social contract is substantially removed from Indian democracy. As in many other nations, Indian towns and cities were longstanding centers of economic dynamism, primary sites of exchange, and the moral or social locus of work. They have not, however, always been sites of redistribution. Between 1950 and 2000 the Indian state wove a complicated path among three spheres of regulatory control and state legitimacy. By 2000 the language of competitive nationalism combated immense last-mile problems in medicines and vaccines and sharply underscored how industrial and health goals had diverged. Therefore, for 50 years a play between redistribution (price by command) and market exchange (price from supply and demand) became more visible in India. The Indian Constitution provides only minimal guidance to health entitlements, upholding several identities from citizenship to labor and from caste to religion in their entirety. However, by

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assuring these identities of all their rights, it has effectively fractured most political claims to health universalism in practice. As geographic bounds close in, the urban region is more than a physical location for production. It places bounds on interpersonal relationships, morality, trust, and, more prosaically, the possibility of proximal participation in exchange. Yet technological changes have clearly transformed these bounds. It is important to dwell on this because it may seem as if an equilibrium can be more simply achieved. For example, Rousseau’s economic inequality and political liberty were intertwined, and technological change as such played little explicit part. Later European welfare states represented a social contract that superseded the need, at least in principle, for an individual to seek economic parity through every election. However, economic inequality made political liberty vulnerable. Technological changes may directly generate these inequalities, but they may also offer new contextual prospects for the state in resolving inequality and political liberty. In fact, Rousseau poses man’s fall from nature against Hobbes’s social contract from which the modern state originated and where social inequality as integral to social fabric represented the interests of the rich and powerful. Indeed, equality itself is politically interpreted. Esping-Andersen has argued, for instance, that the ideas of equity, equality, and universalism as goals were not precursors even to t he vaunted Nordic welfare states. Instead, these “revisionist” accounts of equality and universalism arose from occupation-based risk-mitigating strategies that later required a parliamentary-mediated language for expansion. It is true, however, that the timing of state capacity may be closely related to technological prowess and the nation’s secure founding. The nation preceded the state in many early industrializers. For many industrializing countries, the nation came after the (usually colonial) state. When both technological advance and nation-state are contested, some of these resolutions may be harder to find. Today the interplay of devolved planning for industrial development creates a tapestry of institutional dilemmas and trade-offs. Development tied to the nation-state hence runs the risk of continually excluding other narratives. Post-1980s development statism may have vested too much trust and capacity in the notion of cohesive nation-states. Enormous change occurred in India between 1929 and 1998, between the colonial Royal Commission on Labour (the Whitely Commission) and the Second National Commission on Labour in the late 1990s. Indian social policy hinges on its constitutional setting: social insurance and other social

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protections fall squarely in the nonenforceable realm of the Directive Principles of State Policy instead of the Fundamental Rights component. In today’s India the blurring between regulated and unregulated spheres of the economy, between formal and informal workers, is, in some senses, welcome. Here, at least, is a w indow to a p romising debate on universal benefits, beyond the particularities of occupational groups and the tedium and administrative nightmare of ensuring that the right categories of benefits get to individuals. More welcome is the absence of dominant labor organizations or an orga nizing paradigm around which the matter might be summarily settled. This distinction of state action and inaction is crucial; the Indian nationstate and its local states must craft a relationship with alternate institutions and their collective, proxy, or other groups, as well as with the health technology industry. Yet the debate is still too narrow. There is, of course, no simple relationship between the local regulatory functions of the welfare regime and reciprocal arrangements for care and gift giving. The traditional distinction of employment-linked entitlements versus other social assistance measures is murky in societies where wage labor is compounded by other forms of insecurity, and where active organizing now occurs around both work and nonwork identities. The problem is not unique to India’s form of federalism, although its particularistic democratic history results in certain economic and geographic perversities. Designation of Indian health care facilities, products, and services on the basis of these labor identities has shaped a series of challenges in social insurance provision across entire sectoral groups, such as construction. Until the proposed Unorganized Sector Workers Social Security Bill 2006, there was continued debate about poverty measures, eligibility of families and individuals for social security, the relative arbitrariness and insufficiency of minimum benefits, and whether “unorganized” or “formal” had meaning. The inability of NGOs, panchayats, and urban governments to ad minister and deliver social security meant the absence of working social protections in basic health ser vices, maternity benefits, child health, clean water, sanitation, and care work. Brazil provides an intriguing contrast with Indian redistribution. Even there, however, and beyond Lula’s Bolsa Familia program, Brazilian local health councils have also had mixed experiences in establishing new democratic local spaces independent of past political ties. The state, naturally, has no monopoly on caring. Neither can there be an illusory romance of family or community. A double movement must surely

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require that democratic supplier societies contain a v igor not solely tied to nation-states. The success of South Korea occurred amid increasing technological prowess and gains in childhood health and for the elderly. However, an analysis of such forms of industrialization reveals that Korean land reforms allowed some early guarantees to continued income even as the country industrialized. The dependence for care on traditions of extended families was also conserved, as was the parallel large-scale institutionalization of health insurance as the transition to c ommoditized labor occurred. Urbanization and industrialization were woven together in ways such that systems of exchange shifted to s tate supports and family supports, the community structures for redistribution were dismantled, and land reform allowed those caught in between to survive. But here we come full circle. To conceptualize such a society requires behavioral assumptions that must not rest merely on wishful thinking. Exchange requires a risk and care ecology alongside. Unlike T. H. Marshall’s class and social citizenship, which focused on the continued obligation to work, care opens up possibilities for a discussion of work focused more broadly on continuity, skills, or interests. Marshall’s conception of social rights rested in citizenship. But this transfer of care to the state from arrangements in nonstate, nonmarket institutions is not automatic or necessarily equal. In the creeping legitimization of “care work” there are partial glimpses of what a p ossible blurring between work and labor might resemble for universal health entitlements. Like many utopian communities, or Hannah Arendt’s animal laborans and homo faber, such relationships point to alternatives to health care’s current preoccupation with industrialized, standardized, large-scale, and nationalized systems. Arendt’s public sphere of exchange was, after all, about locality and action. Lewis Mumford’s investigations of technology and psyche were realized in communities’ urban fabric. In India, where ill health and pill factory exist side by side, the geographic boundaries of the city have historically enclosed many species of exchange and social experiments to stretch the inclusive umbrella wider. Limited Double Movement: Contractualism and Bo(u)nds of Exchange The nationalist themes of industry and scale economies are not idly juxtaposed with local community and civic action. Citizenship rights, bodily and

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health comforts, and economic scale are more closely linked through individual and collective efforts than we might think. Mumford describes the foundation of some utopias as “bread-work, earth-work, man-work,” where participation’s rewards, even if not plenty, are sufficient. “National” welfare regimes are intimately tied to t he scale of consumption, the workforce, and aggregate demand. In the final estimation, however, welfare depends on whether local states can deliver on promises and allow alternate work and health-care arrangements to thrive. Examine this relationship more closely, and universalism requires new answers about means and ends. Mumford’s and Gandhi’s utopias are not by accident skeptical of technological advance as an answer to social needs; Rousseau’s individual liberty, for example, is defi ned by engagement in community building. Although individual freedom matters in his schema, it requires an essence of community to set it free. Humans crave the social, but their fall from nature, so to sp eak, has caused a s eries of ills that they themselves have crafted, and they must resurrect themselves through the creation of community. Rousseau’s social contract was envisaged in a post-Enlightenment luminosity of new man and society. However, when Rousseau envisaged individual action and effect, he rested his thesis on individualism, personalized ethical codes of conduct, and a f ree state. Today’s new contractualism differs on multiple grounds. Polanyi somewhat simplistically argues that production in earlier, simpler, societies was always closely tied to norms about the distribution of surpluses. In most utopian communities, as Mumford and several others have described, the working body’s income is put toward care of the ailing body. Today, however, the gradual displacement of institutions of exchange spatially outward from the locality to nationality and beyond, a type of centrifugal exchange, has not simply been a geographic displacement. It has thrown outward beyond the sphere of any living body the capacity to ensure that work will provide its own recompense when the body suffers. Late industrial development, beyond the need to build technological capabilities, especially in India, assumed a del ayed redistribution after growth. Th is was especially true in India, which chose a par ticular  economic path focused on capital-goods industry and where social policies were neither explicitly the goal of development nor naturally social productivist in nature. In this sense, national and centralized welfare regimes offer distant and delayed gratification built on a prior, preindustrial

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system of exchange and care and weak systems of trust in the state. They may implicitly rest on alternate systems of care, individual conscience, and exchange. If we lift the veil on India’s manufacture of medicines, two often conflicting views of welfare are revealed: democratization and nation building versus a logic of industrialism. Although democratic rights and nation building are often seen to be the same, the three market environments can be further analyzed at three levels of governance and welfare, as in Table 9.2. Whether the national building and democratization view dominates or that on the logic of industrialism depends on these levels and our expectation of welfare entitlements. Indians are rightly deeply cynical about the state’s ability and institutional motivation to provide health care; this cynicism applies as much to access to medicines as it does to mitigating air pollution, providing clean drinking water, or preventing road f atalities, but technological advance in health care constantly illuminates the unresolved tensions. The Indian state today mixes high-technology prowess with an abysmal record of protecting its citizens. In the absence of a working local government and overreliance on New Delhi’s economic plans, India teeters unhealthily. When local services and recourse to justice are locally unavailable, the nation-state provides poor comfort. In the gradual physical and institutional move of exchange away from the local bazaar to national and international commodity exchanges,

TABLE 9.2 Market scales Scale

Characteristics

Cities

Limited unionism and regulatory welfare for % of workforce. Technical capabilities diminish “threat from below.” Greater explanatory power of a logic of industrialism rhetoric in the presence of weak urban activism and employment-linked benefits.

Nation

From independence to Garibi Hatao (abolish poverty) and then to liberalization. Increase in technological capabilities, weak and slow growth of health entitlements.

World

Growing multilateralism in health rhetoric; a narrowing to technology-specific, biomedical, and disease-specific approaches; increasing privatization of health ser vices and medicines. Initial optimism in nation building shifts to a postponement of health benefits after greater economic development. A move from viewing poverty as a cause of ill health to ill health as a cause of poverty and an instrumental view of health and work.

sour c e: Compiled by the author.

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the sphere of local action becomes not only of practical importance but of philosophical import to i ndividual, collective, and international action. If the means of exchange are transferred from the individual to the local community, and even further to centralized authority, the source of action and its transfer through markets cease to bear direct relationship in conscience to the action itself. An alternative Indian polis, however, without today’s awkward, inequitable form, polarized between profitable industries and disease, clearly remains to be born. It appears that we cannot look too simply to the Indian state alone for solutions, deeply cleaved and distrusted as it is, but we cannot do without it. Today’s contractualism is both dramatically and subtly different. On t he face of it, everything has changed, especially the prospects afforded by hightech cities and our medical means of increasing longevity. The subtle difference is more thought-provoking. Our technological future rests on the ability of individual conscience and control, as well as on society’s collective sense of right and an institutional means to enact what is just. Today Nehru’s temples of the future are everywhere; across the landscape of India, high technology rests amid illness. New laboratories, hospitals, privatized health care, and insurance firms share new alliances with grassroots NGOs. We have evolved, but not rapidly enough to escape social geography and our past built investments. Our new contractualism is inseparably bound with our greater technical prowess and new organizational efficiencies. Despite this, the dependence of the physical body on localized systems of care and redistribution has not vanished. We might reject a r eturn to t imes when thousands, even millions, died from single diseases alone and antibiotics or vaccines were scarce, but perhaps in a more hopeful future, we might also not wish a return to the twentieth century, where health was tenuous in comparison with technological capabilities. It does appear that pharmaceutical and vaccine firms, both public and private, are redefining their identities and opening their doors to p hilanthropy and pragmatism with many new partners. These new social activists, capitalists, and professionals are not engaged in nation building; rather, they seek to eng ineer new urban social relationships. With their own changing vision of the nation-state (India shining, not suffering) and of a shift ing relationship with central and local governments, new debates of production, delivery, and access are emerging. The weak link in development therefore lies between nation and city. This link comprises devolution, the mire of work-health

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entitlements, and the more philosophical questions of market exchange. This economics of morality that shapes both individual conscience and social action pushes the boundaries of economics terminology and our assumptions about the state and public planning processes. The Conclusion turns to these issues.

Conclusion Soft Determinism in the Market Menagerie

Infusing Evolution into Economic Plans Let me reiterate that late industrial development as planning in the public interest is a defense neither of central planning (on the contrary), nor of states as omniscient (which they most certainly are not), nor of planned action only within the public sector (which it rarely is). Economic planners are more than market planners as they attend to the evolution and complexity of institutions. Their perspective must necessarily reflect long-term goals of both the state and the public. Serving the public interest in this sector may require planners to make strategic use of the private sector’s capabilities; indeed, the private sector’s role is often instrumental to ser vice a broader public gain. But as we have seen, the arduous, strategic creation of private technological capabilities does not automatically ensure the public good in either the short or the long term. Indeed, the instrumental nature of private-sector roles underscores that economic plans must sustain more than efficiency and must seek progressive, wider approaches to a ffordability and access. Pragmatism may test our idealism in late industrial economies, but it should not remove it in our seeking a better society within and outside markets. Late industrializers have historically made difficult industrial and technological choices to build domestic capabilities in order to achieve such gains. Although many of these choices provided some social benefits, the reality of most has been sparse and uncertain health-care options. Defenders of the 219

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perspective that these nations have established programs “early” propose a “stages” view which, however, leaves markets and the task of planning and regulating them at any par ticular stage quite unexamined. The institutional triad provided one, broader framing of the issues, but rather than offering a comprehensive rationality or technocratic planning solution, it emphasized instead that inherent coevolutionary characteristics, uncertainty of the domains, and often conflicting priorities make it even more imperative for the state to enga ge in learning and experimentation in these nations and cities. This is, of course, neither necessarily natural nor politically inevitable for states. Bangalore (Karnataka) and Hyderabad (Andhra Pradesh) city and state governments have poor records of health policy innovations, despite their supports for the life-science sectors. Production, demand, and delivery have important built manifestations and path dependencies of their own. Essential elements of welfare regimes, such as hospitals and public universities, for example, tend not to move easily, even if firms do. Therefore, tending to the menagerie is a constant task of evolution and learning, not of policies and plans in the abstract, but of the ever-changing power of some institutions and organizations in the economy and of the physical context of institutions embedded in cities and regions. Indian planning has not had a practicing devolution framework or a well-oiled local machine for instituting economic plans. There are rarely town-hall meetings to d iscuss new investment or regional plans, such as land acquisition or subsidies to the life-science or other industries. Few citizens expect that their ward associations or their elected corporators will effectively communicate their dissent to a chief minister or bureaucrat who has decided to create new laboratory infrastructure nearby. It is the rare Indian resident of towns and cities who expects to b e consulted by the municipal government or planning authority when private pharmacies or diagnostic clinics begin to sprout up. When large tracts of land are dedicated for shiny new hospitals or biotech parks, it is scholars, journalists, and intellectuals who question whether the products might reach the citizen. Although the Right to I nformation Act provides new opportunity for questioning the state’s accountability and capabilities, the Indian public-sector planner (and bureaucrat) continues to h old remarkable power and coercive reputation. Politicians and political influence represent violence and corruption to mos t. Combined with economic and spatial plans that are far from consultative, they trump others’ capacity to successfully integrate the triad’s elements, or they worsen each one’s isolation. In the rare instances when

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public-sector planners confer their attention and shift priorities to other elements, they do not just “muddle through”; they also provide wider attention and legitimacy to social mobilization in such domains. Indeed, in many of the types of mobilization in society evident in Chapter 4, the state and public planners were ironically essential and instrumental to suc h organizing and effectiveness, which challenged the state on some fronts by using its own institutions and physical investments, such as primary health centers and microfinance. Similarly, in building national emergency vaccine supplies for swine flu in 2009 or in assisting domestic firms to meet export-driven technical harmonization, the central government has inevitably had to plan ever more closely with city governments and nonstate actors to anticipate organizational needs and infrastructure, transport, storage, and distribution. The public outcry induced by swine flu across Indian cities against the lack of information on school closures, availability of antibiotics, and criteria for widespread and rapid urban testing brought many of these tensions to t he fore. However, the spread of the flu was quite rapidly contained, and journalists and others turned to asking why such responses could not be instituted against much more common life-threatening diseases, such as malaria, typhoid, or dengue. Production is not a function effectively relegated to the background, leaving redistribution in the foreground and spotlight of public opinion. Although urban and regional planning as professional fields may have evolved in the European and North American contexts as responses to the inhumane conditions of industrial expansion in cities of the time, the field defined as such has tended to shy away from direct engagement in production itself. But we would do damage if we transported this North Atlantic history to late industrializing economies, where there is an urgent need for plans that better mold technological and industrial capabilities to highly inequitable conditions of land, employment, and health. There are important elements to attend to: building technological capabilities in the public interest, fine-tuning procurement as an instrument, ensuring that market incentives other than windfall profits are included, creating welfare regimes than are more robust, and exercising considerably more caution on the conditionality of public-private contracts. To attend to technological capabilities requires a detailed set of market and other instruments, but also never losing sight of the goals of these capabilities or the fact that they need constant tending. Some have called these efforts “gardening” policies—attending to the flowers and weeds together and culling

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some instruments and ends while retaining and nurturing others. We might call these the essential tool kit of the menagerie’s keeper. Planning Pro cess and Outcomes Planning is probably best seen as a process of selection and retention out of institutional variety, culling some and propagating diversity in others. It always has had, and will always have, some elements of reform and progressiveness and others of social control and a “dark” side. This is especially true in societies such as India, where the territorial links to specific entitlements and identities have been so firmly etched in nationhood and the republic, now 60 years old. Planning in these societies involves not only reform of established institutions, but equally contesting monopoly power where it concentrates in government and in the life-science sector and sometimes contesting the power of exclusionary health policies or challenging the unregulated growth of products and processes that have no apparent health benefit. More broadly, it involves questioning the narrow basis of planning as social control as an arm of the nation-state. These controls may be deliberate priorities for some religious, caste, or income group over others, and, in our story here, of one or another of the triad’s elements for some communities over time. Nevertheless, such past investments in technological capabilities cannot be taken for granted in ensuring India’s place not so much as the “world’s pharmacy” as its own. German Marxist sociologist Werner Sombart’s “creative destruction” (often ascribed to Schumpeter in describing innovation) always has winners and losers. Economic development plans are therefore always a potential weapon for social control and exclusion as much as for a more constructive, inclusive agenda. India’s current technological advance consolidates financial and political power at the same time at which it has created new opportunities for individuals and groups. Yet technological and organizational advances have made new positive changes in health realities possible, from vaccines to tuberculosis medicines, and today production capabilities are changing hands from the public to the private sector. A focus on process must also consider outcome, especially on the state’s contingent mediation in addressing the politics of public interest. If planners narrowly approach technological capabilities and innovation as generating primarily negative externalities situated in cities and describe urban contexts primarily as the sites of the overaccumulation of capital, they have lost half the battle of health gains generated from

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technological advance and new organizational capabilities that they must assist. In the analysis of the prior chapters, it was evident that nations are sometimes better able to ba lance the triad, but very few successfully attend to a ll three of its elements at once. Likewise, the state’s centralized controls and the planning opportunity presented in the early Indian postindependence years created the base for a powerful public- and private-sector capability, the latter of which is serving us well 50 years later. Seen at the time (and even since), this involved privileging licenses and subsidies to sp ecific private firms. However, public-sector disinvestment and the rollback of Indian manufacturing capacity are especially alarming in the face of a reluctant private sector in traditional product lines. Similarly, with its disturbing record of delivery and its troubled approach to demand politics, India as a nation has much to assess. There is a notable absence of settlement, registration, and health benefits associated with its subnational territories. Although health benefits can be decentralized, the nation-state will thus continue to play a vital planning and policy role; after all, it is usually through the nation-state that groups excluded in their local territories now claim their health and other entitlements. Development is this process of constant questioning of such aims and processes of societies. In principle, a dynamic innovation system should be able to match suppliers with users through states and markets alike to obtain practical knowledge from applications to specific needs. This, however, late industrial states may find challenging to accomplish. What scholars interested in development and the state must grant is that if markets vary, evolve, and are instituted processes rather than immutable institutions, then states too must necessarily change if they are to effectively govern and pursue developmental plans. In particular, markets are neither natural nor organic, but are a historical and social offshoot of essential social interactions. The challenge to state theory is that both minimalists (e.g., the Austrian school) and rather more pro-state old institutionalists and local development planners agree that markets are processes, and the “market economy” is rather a network of market types. In normative practice economic plans should privilege innovation over systems of control and aim instead for a looser, “directed emergence” of the self-organizing characteristics of firms and regions. Nevertheless, the private sector, especially in the health-care sector, is a ha ndmaiden to health goals and therefore is necessarily strictly regulated. Thus this more fluid normative

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approach removes the stranglehold of central plans, but in practice it must assuredly not be mistaken for laissez-faire because local states continue to play a vital role. It is certainly time to let development as a process move away from the geopolitics of the cold war’s third-world rhetoric of states, markets, and communism. Development is an internal process (not unique to nation-states but applying in principle equally to n eighborhoods) where societies determine their means and goals. Of course, when the territorial boundaries of development change, often so do their relevant institutions. Alan Fox, echoing Polanyi, emphasizes that even the modern economic system “continues to operate as it does only because the economic exchange of the market has not entirely taken over.” The primitiveness of market exploration is evident when “markets are conjured up rather than analysed.” Planners continually affect markets in land, employment, economic development, industry location, housing, and transport. Thus it is remarkable that European history in par ticular and the later cold war so categorically posed (central) planning against markets instead of seeing an essentially symbiotic relationship, which is how most economic planning functions in practice. To counter this narrow approach, some have argued that planners should forcefully see themselves as “market actors,” a more empowering lens that escapes the straitjacket of market-led societies and points instead to plan-shaped markets and places. Of course, economic development planners can never be purely market actors because many economic and political relationships are structured outside markets as well. This is especially worth considering for India, a nation where society still moves between market and nonmarket allegiances. Planning for development is therefore clearly more than planning as reform or regulation in the nation-state’s vocabulary and more than treating production’s externalities in cities. Economic policies and plans must engage directly with production and the industrial process even if that function is carried out in the private sector. Regulatory states can provide guiding frameworks, establish rules, mold these plan-shaped markets, and provide the administration necessary to build a substantial and credible welfare regime. I stress that the state by no means always gets its way. On the contrary, the variety of technological and market restructuring and regulatory tasks emphasizes that the Indian state and public-sector planners only truly overcame most obstacles in the first market environment. In the second and third environments, technological changes and international shifts constrained the bounds

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of development and underscored the state’s relative neglect of domestic demand and delivery. Twentieth-century development-state theories have pulled away from this approach, relying on “strong” states and nation-states to build production and development. The East Asian successes have further narrowed the institutional conversation to autonomous states disciplining firms and markets. These interpretations of data emerged at a time of scholarly and policy reaction to neoclassical and dependency approaches, and the policy overreliance of the Washington Consensus on market mechanisms to solve development problems. However, the focus almost exclusively on production and an oppositional state-versus-market lens oversimplifies the developmental state and only partially speaks to the tensions I have taken up here, of production, demand, and delivery. I am comfortable stating categorically that in semiconductors, consumer electronics, or footwear, the state’s moral burden and therefore technological priorities are not as acute as in health care.  Quite naturally, critics may view economic planners as part of the state’s apparatus of legitimizing capitalism and markets, and indeed there is some truth to this argument. Centralized development plans, even in non-Communist economies such as India and South Korea, were still unabashedly supportive of state supports for capitalist industry. Capital life-science and manufacturing investments are, after a ll, locally manifested even if they represent national goals. However, many economic planners are comfortable with layers of economic practice, working not just at many levels of government but also within many private institutions and organizations. Moreover, development planners, especially in late industrial countries, may often see their role in the public interest as adversarial to the state. This adversarial state in turn is fragmented, contradictory, and juggling many institutions other than markets alone, providing a moving target for such planners. Indeed, both the marketfailure and public-goods arguments may be insufficiently high thresholds for states to intervene; they always have other political and social goals. Development policy experts and economists at all levels of government, and those in nonprofits and even the private sector, may seek other values beyond efficiency, such as participation, monopoly, legitimacy of public authority, universal mechanisms, and ties to settlement such as residence and citizenship. Thus, whether new markets or older ones are at issue, this form of development planning necessarily goes beyond market planning; planning qua regulation is too narrow if development’s only task is market regulation or, even worse, regulation of production alone.

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The time has come to abandon market ideology and subsequent dualistic battles of states versus markets. Markets are a c ontingent construction of specific moments in technological advances, not least because change occurs in par ticular places, not in the abstraction of nations. Some scholars critique East Asian developmental statism for overextending and somewhat romanticizing the analysis of development and states. More specifically, their critique maintains that developmental dirigisme has too narrowly constructed states in the Weberian tradition—legitimacy, rationality, and instrumentality—of Western liberalism and has ignored several other questions of contradictory development goals and state processes of monopoly, violence, and domination. This theme is also found in the contradictions of rule amid competing institutions, and the influence on theories deriving from histories of homogeneous and small states. Western liberal democratic traditions have combined powerfully with instituting markets as primary institutions of exchange. However, late industrial states (like others) may seek legitimacy and dominance only selectively in markets and may instead turn to nonmarket institutions such as religion, family, or unions. Indeed, India’s demand politics reflect this dependence on alternate institutions for representation and delivery. Local states are far from insulated or autonomous; rather, they are closely intertwined with business and other institutions. State progressive influence is episodic rather than constant. The solution, therefore, is not always more reliance on market mechanisms, but greater sensitivity to the local processes of development, which may require both markets and other institutions to function in concert. At the very least, strong and stable public institutions are an essential complement to ma rkets, if not a p rerequisite for them. Political sociologist Gianfranco Poggi, for instance, emphasizes that those who see states as largely passive participants governed by the industrial process exaggerate. Rather, the state not only takes the initiative but is also spurred from within and outside itself to increase its ambit of power and plans of management. The state generates contradictions from its own momentum and within the markets it structures. With increasing technological advance, planning becomes all the more necessary to support markets, to seek nonmarket solutions, and to regulate markets’ workings and boundaries. In par ticu lar, the institutional variety of late industrializers requires market agility, but equally a willingness to plan beyond and often outside markets. There are no in situ markets; they are socially constructed and need molding when other institutions are signifi-

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cantly dominant. At the very least, any civilizing intent of capitalist institutions may not fi nd full expression unless they are regulated; nor, in the eyes of many, can capitalist disruptions and self-destructive tendencies justify overdependence on markets on the path to these supposed civilizing tendencies. The influence of developmental statism in industrial advance is inevitably tempered by the social structure and social policies of the nation. Seen in the local context as externality to economic development, and often as a staged sequence at the level of the nation-state, health inequality is a f ormidable theoretical challenge to the state’s legitimacy. South Korea, for instance, rather than being an instance of centralized state power successfully controlling all aspects of the country during industrialization, points to how industrial policies maintained specific social structures and limited political entitlements. The state-business industrial compact therefore ironically arose from and boosted neofamilialism, “the unintended reinforcement of blood, school, and regional ties.” India and several other late industrial supplier countries possess states that de facto sequence and ration health benefits because in several instances they possess the technologies and industrial capabilities on the production side but are unable to marshal the impetus for building institutions socially (and physically) for demand and delivery. In the absence of urban political institutions that blend industrial dynamism with practical infrastructure, such as clean water and working sewage and health systems, New Delhi’s diktat on development is rapidly overwritten by government corruption and the subordination of most local health concerns to economic growth strategies and land profits. With the predictable unreliability of the state in local matters, people turn to the relative solidity of familialism in its different forms, both to access health care and to extend their influence, where possible, into the bureaucracy of health-care organizations: clinics, hospitals, and the like. Economic planners are therefore much more than market planners. In late industrial contexts where democracy, pluralism, and liberalism have different antecedents with respect to state and society, and where power is established in several arenas, not the market alone, least of all is planning antimarket, even if marketism is an ideology that is invariably antiplanning. Indeed, market exchange may well be an occasional ally in equalizing power among different groups.

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Soft Determinism in a New Pharmaceutical World Does technology drive society? If we answer this entirely in the affirmative, this leaves limited room for plan making because it suggests that societies’ adjustments are inevitable and are handmaidens to s ome technologically determined future. Answering in the negative, that technology does not drive society, can conversely suggest that we have more control than might in fact be the case. Technological determinism may therefore well describe technology’s momentum and impact, but taken alone, it is a poor theory of society and social change. This seems especially true for the health industry, where social regulation is strong and technological effects can be pronounced, as in energy, education, food production, and defense. Such industries have important scale effects related to how the state builds, and firms see, demand. Health care reflects well the need for this softer technological determinism. Spiraling health costs are driven in part by advances in technologies. Modern drug costs and those of new innovations in several chronic and acute illnesses have risen, worsening the picture. However, determinism is tempered by other institutions. As one of the world’s wealthiest and most technologically innovative economies, the United States had out-of-pocket payments in the 1990s accounting for two-thirds of the cost of all prescription drugs. Public insurance programs partially gave way to employer-based insurance, which funded much of this increase. Indeed, by 1996 approximately a third of 37 million Medicare beneficiaries lacked any drug coverage for the whole year, and one in five Americans lacked coverage. For those with low incomes (between 100% and 200% of the poverty level), this number rose to 36.5%. The share of prescription drugs in total national health spending, about 2.2% of GDP, is likely to increase with the baby-boomer retirements in 2011. Not surprisingly, therefore, in both the United States and India no other industry is quite as controversial as pharmaceuticals and biotechnology. From prescription costs to patent regimes, access to AIDS medicines, stem-cell research, and the promise of new (and cheaper) medicines for currently untreatable or incurable diseases, such as Alzheimer’s or pulmonary fibrosis, this industry seems to fuel hope and alarm in equal measure. Nevertheless, the technological determinism thesis has especially drawn strong proponents from aid agencies and global funds to philanthropists and governments. However, producing health technologies does not automatically ensure that societies use or can afford them. The more we act to plan and

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anticipate how technology could best serve society, the less sympathetic we are likely to be to determinism, and the more we might be forced toward contingent theories of technology’s effects. We are also more likely to seek broad bundles of compatibility between types of technologies and types of political or social systems that create and support some types of markets. For example, many vaccines are more effective if everyone is immunized, so states make vaccines available, often for free or at very low cost. They do so by regulating prices of private producers or by producing and selling themselves. Furthermore, some vaccines are highly unstable with temperature, and therefore, states and firms must somehow bundle the higher costs of refrigeration, storage, and complex delivery into their price. In short, technology affects market structure and changes society each time. Yet some societies may “soften” this deterministic causality by debating the validity of vaccine use, private choice, and affordability. Some within this society might seek alternate technologies and designs to counter vaccine use, such as the use of microbicides or medicines. Others might suggest different treatment regimens, early screening strategies and rapid post-infection interventions, dietary changes, or even prayer. Societies always adjust; “soft” determinism is more convincing than the “hard” variety. Therefore, it would serve us poorly to believe, tempting though it might be to do so, that states linearly institute systems of health care in response to the changing logics of industrial development and its technologies of production. Industrial modernization does not signal (or require) direct convergence in market structure. The linearity of rhetoric and technological determinism sit uncomfortably with real-life mixed markets, spheres of public regulation, and health care’s timing and scope. The development planner’s tensions are precisely that many persons may be without medicines, but pharmaceutical and biotechnology firms can be successful despite this. Soft determinism appreciates that the advent of these technologies does have an effect, but that effect is mediated by the political economy of the society and its several institutions that shape demand and delivery and by its productive capabilities to reshape these technologies. Late industrial supplier countries are technologically capable, and their technological advance therefore has a certain hard momentum that shapes the pace of adaptation. Any analysis that ignores this does so at its peril. However, a soft determinism approach reminds us that these countries, particularly those that are democratic, are even less likely to be meekly amenable because their societies possess the capacity to shape the technologies and

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their uses. Therefore, not only will economic plans be more likely to be contested by different actors, but the contradictions and dilemmas for planners at several scales of government too are also more acute, associated with how much to produce, whether to support technological innovation or boost mature products, and whether to accept innovation at any price or confront the tough moral questions of whether to allow people to remain ill or die. Scholars have differed about whether East Asian history represents stateled industrial development or free-market evidence, What is clear, however, is that all the “Tigers” (South Korea, Hong Kong, Singapore, and Taiwan) have relentlessly driven technological advance through mixed-market instruments, allowing the hard effects to t rickle through society, while the states buffered these effects in sometimes unpopular ways through control over the private sector, repression of unions, welfare dependence on families, immigration policy, or selective labor-market measures for women’s entry. The more production capability advances, the more contested the political economy and spatial terrain become. Health technologies present typical wicked problems for planners, especially in democracies grappling with technology advance. Technological change is path dependent; the more you know, the more you are likely to pursue some social and technology choices over others. “Learning by doing,” “learning by using,” and, as we saw in the second market environment, “learning by proving” all require certain preexisting technologies to engender even further technical, skill, and organizational changes. Paradigms of technology are more usefully seen as dominating organizing ideas and resources, rather than as inevitable trajectories of development. Intervening in Variety Economic planners are located everywhere, working on economic and industrial investments, health, land, infrastructure, and housing. Their common goal, at least in principle, is often to s eek the public interest, but the public must be constantly defined and redefined. If we view development planning as regulation exclusively within, for, and concerned with markets, our social choices are likely to be more limited. If cities are primarily venues for market transactions, city economies and healthy futures will be planned more narrowly, even if markets can sometimes lead to equitable outcomes. The importance of plan-shaped markets has also to do with notions of community and exchange. Where this community is politically and territorially ambigu-

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ous, the challenge for economic plans and the process of plan making is evident. Poggi echoes this all-encompassing nature and contradictory momentum of state intervention: The state does not si mply react to i mpulses originating in its counterpart, whether we call it “the industrial-economic process,” . . . or something else. Some encroachments on the state/society line result not from the state’s being “pulled” over the line, as it were, but from its “pushing” itself over it. What makes the trend toward the obliteration of the state/society line so powerful is precisely the fact that several phenomena, distinctive and even otherwise mutually contradictory, are at one in causing it.

Urban and regional capital investments, from supplier firms, hospitals, and laboratories to biohazard containment and community clinics, are often governed by market instruments. Yet planning for the public realm in health care, for instance, may simultaneously invoke planning roles within federal and local governments, industry associations, hospitals, real-estate firms, construction and architectural groups, and community and other nongovernmental organizations. Planning is the act of anticipating change and interceding where an evolutionary approach has a finer touch for economic development plans, in dramatic contrast to more direct and regulative forms of action that have been the hallmark of much economics and development language. Whether neo-Schumpeterian innovation models and a S chumpeterian state can accommodate the structure and political economy of inequality in late industrializing economies remains to be seen. The institutional triad affects health care for all citizens (and noncitizens in medical tourism and crossborder forays to buy cheaper drugs) and evolves with changing employmentlinked health entitlements, as is happening in India. The undulations among the production, consumption, and delivery of health technologies occur not in any equilibrium framework, but as ever-changing weightings from one combination to a nother that may be neither comfortably Darwinian nor Lamarckian. To call the evolution socially progressive is far too optimistic, although some gains in access and affordability do indeed occur. Even in its most uniform sense, modern capitalism’s form in these economies is far from homogeneous. It has a variety of market structures and institutions that may or may not be complementary to one another. For instance, a banking system may be misaligned with educational institutions, and those for innovation and industry (as we shall see) may be poorly aligned with

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health and employment-linked health entitlements. Purely competitive markets, or even markets alone, cannot be a benchmark for health care. Societies may have hierarchies and networks of institutions. Those who focus on networks suggest that properties that market theories struggle with—such as trust, reciprocity, and social capital—might be better accommodated by the shared norms and value structures of networks. Where technological advances are formidable, as in the United States, the demand system may be weak. Approximately 22,000 Americans die each year for lack of insurance; in most other industrialized countries a basic floor of entitlements ensures that everybody is covered, even if some ser vices (and technologies) are rationed. In contrast, in the United States some get access to everything on offer, while others can get in only for emergency care; rationing occurs by income. More crucially, many of these norms are informal and do not require the stringent contractual relationships and sometimes hierarchies that seem to be required for markets to function. These distinctions and arguments are especially germane when we think of health-care and health technology markets, because such markets weave together formal markets and the more diff use values of other exchange, caregiving, and risk-pooling networks. National and international markets may or may not complement the network norms of community health care. Consequently, the narrow theoretical institutionalism of markets tends to telescope developmental debates and causality incorrectly into states versus markets and is unhelpful in the real world, which is replete with mixed-market environments and a great deal of nonmarket variety. States, too, are not monolithic or consistently weak, strong, or predatory. Although simplistic answers are often attractive reading, good development planning needs details about market variety, the ability to see what cannot be planned, and the preparedness to chart new paths when things fall apart. Command-and-control states and “free” markets are endpoints of a continuum, and analyses of technology evolution in a single country can consequently better crystallize its political economy of industry and health. Although the ideological debate of equity versus efficiency may have some resilience at the level of nation-states, the simple opposition of these two is more complex at the local level. Economic planners in real-life situations, too, are often pressed to o verapply the market-failure approach to t he political challenges of posing social policy versus economic development, especially because the very act of industrial development was a prior economic planning

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step to lower structural inequalities in several countries. In a generous interpretation, national industrial policies were delayed social policies. They are complementary when local government focuses on employment policies, but more antagonistic when social (including health) entitlements shift away from work-based entitlements. Indeed, the territorial crises of industrial mass production often occurred when central and federal policies warred with local social policies. In several industrializing countries policy makers knowingly (and practitioners resignedly) dwelt on safety nets for crises, with no longerterm restructuring of social protection to mediate labor-market challenges and the lack of assured health care. If cities are sites of reconciling externalities, then national and local economic plans, goals, and means to ac hieve them must surely occasionally be expected to war with each other. However, if social policies and entitlement are seen instead as prerequisites for both healthy bodies and economies, then this tension may well be reconciled. Many planners, for example, in the United States and Europe have ceded their influence on production, focusing more narrowly on urban and regional health demand and delivery. From this perspective, the world is more vulnerable to fluctuations in technology and more politically constrained to actors working within a constant supply frame. In late industrializers, however, this approach is a luxury, given the extraordinary economic efforts in and rapid rise of production capabilities. Planners have to grapple directly with production considerations because supply often drives the location decisions of pharmaceutical and biotech fi rms and thus the economic development fortunes of cities at the same time at which it shapes health access. Soft determinism therefore allows some room to appreciate that economic planning requires attending to the several implications embedded within this single industry. Real markets, unlike theoretical ones, pose uncomfortable politics for those who enjoy neat economic abstractions. The geopolitics of harmonization instruments, such as intellectual property and trade through the World Trade Organization and the Doha Round of negotiations, can further upset negotiations on other economic fronts. In order to propel both efficiency and equity, the role of developmental states must be precisely that: developmental, which means not command-and-control systems (indeed, this would be foolhardy in many instances), but juggling several types of markets and other institutions and stepping in as guide or implementer on behalf of equitable solutions. Moral judgment inevitably frames and evaluates such equity. To act in the public interest, the state must constantly address a changing “public.” Th is is

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especially true because technology never stands still. Its advances may politically widen or narrow the available choices for greater efficiency and equity for these publics. Very different technological influences have shaped health technologies and health expectations over the past two centuries, from organic dyestuffs to the genome revolution. These have had important market effects and organizational influences on R&D and industry and have influenced the efficacy of health technologies and their consumption. Robert Heilbroner, in making a case for a revised, softer form of technological determinism, argues that perhaps in the end, what can be said is that a particular historical epoch, such as the one we have gone through of “high capitalism and low socialism,” engenders this type of determinism, but should cause us special concern “when the agencies for the control or guidance of technology are still rudimentary.” Technology is thus embedded in national and subnational regulations and drives the resources committed to health care ever upward. Powerful as it is, technology and its production can then overrule alternate concerns of health-care markets. States may construct a social order to protect the private interests of firms that may thrive despite their embedding in democratic societies. In other words, technological advance begets further advance when it enjoys state-privileged legitimacy. Advanced industrial nations offer a typology of social protections that reduce the risk of individuals against market vagaries. However, these may not protect individuals against the market privileges of technology. Welfare capitalism’s highly influential three ideal types (social democratic, liberal/market, and corporatist) refer to consumption, not to technology production. Markets are therefore dependent variables, not independent ones; they build on technologies and coevolving social action. When technology is considered, the United States, rather than a “market” economy and liberal welfare state, is instead better described as a dominant “supply” state with very weak demand rather than a dominant market economy. Again, rather than markets per se, it is the mix of institutions and regulation of specific functions of states and firms that defines the economy and development plans. India’s current struggle among strong suppliers, weak demand, and weak delivery characterizes a shifting market climate over 50 years, with ascendancy of each element at some time. Economic plans and the public regulation of markets have been made more complex by the fact that for many medicines and vaccines, the state acts in these markets on both supply and demand sides. Whether and

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where supply and demand meet on the proverbial graph is the institutional challenge for development plans. This task is not made simpler by the increasing global interconnection of health-care institutions. Local governments in the industrialized world and some insurers may even support residents’ decisions to seek medicines and surgical techniques overseas. That older New York City neighbor with the slight stoop and blue cardigan may have recently traveled to Montreal to purchase cheaper Canadian prescription medicines. After U.S. insurance firms deem her uninsurable, another neighbor travels to Bangalore, India, for cancer treatments at a leading private hospital. A Finnish Laplander relying on teleradiology in Helsinki is linked to outsourced diagnostic facilities with doctors in Delhi. A softer approach to dull the hard edge of determinism recognizes that every society has multiple ways of producing, exchanging, and valuing technologies. These multiple ways include the social acceptance of life-science firms and their strategies. Firms gain visibility and credibility in the marketplace, which itself is changed by their entry over time. A p urely resourcebased, strategic view of rational firms that is focused on their internal capabilities can overspecify their agency and pay insufficient attention to unclear development goals or varied external regulations. This is especially true because not all firms are motivated by profits alone. Many enter the field driven by a de sire to l imit disease. Ironically, they may be driven further to profit considerations alone by the uncertainties of search and optimization and an unclear frontier made hazier by a state’s unclear development goals. This is not to su ggest that the state can always act as a strong regulator, which creates a more linear, misleading developmental narrative. Economic planning, even in state agencies that have clear goals, is made more complex by the vagaries of technological development, the uncertain context for firms’ search and experimentation, and the state’s own mistakes and learning in framing technology and industrial policies. The more sophisticated technology may not always win, but may be selected against through an evolutionary process by the regulations that people support, market effects, and wider nonmarket institutions in society. “Suboptimal” technologies are only so in the purely technical sense because societies always choose, even if not always democratically. The challenge against a backdrop of technological change is for states to r egulate markets and several other institutions, such as firms, families, religion, unions, and trade associations. Sometimes their effort is directed toward regulating these alternate institutions in order to make markets

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function in a certain way; other times they aim simply to influence these institutions about particular technological means, not necessarily with market structuring as the end goal. The state-market relationship is therefore nonlinear, not least because developmental states have many reasons to be involved in society, and because markets are constantly shaped by many other institutions and the momentum that technological advance injects into the equation. Perhaps the most important consideration for this soft determinism is that production loses its momentum and social legitimacy if states cannot build demand and delivery through welfare regimes. After all, technology investments often require wide partners and sizable domestic markets, a core concern for health care. Firms seek this demand to sell their products and hone their technological capabilities in project execution, process engineering, and product engineering. Domestic market size can provide competitive advantages over other firms and economies of scale in R&D or production. National and local states can shape this domestic market through procurement, social or private insurance, or other means. Nevertheless, states cannot simply expand markets for certain products and processes; they often must first create and legitimize them. Once created and legitimized, however, markets act as important selection environments, structuring indigenously owned production and the understanding, assimilation, and exploitation of information and molding technological choice and imitation/innovation strategy in specific ways. Domestic markets are important proving grounds that propel some firms forward. Optimistically, Schumpeterian creative destruction entirely reworks the bases of the economy over time through energizing innovation in these firms. Consequently, through supply-side efforts and production investments by entrepreneurial firms, major innovations give rise to long-wave cycles, which in turn give rise to new demand patterns and investment cycles. These demand patterns and investment cycles not only bunch around technology systems but also create the business cycles (and recessions) of the economy and the material nature of cities and regions. Economic planners and policy makers, whether concerned with economic development or health goals, must necessarily consider the difficulty of acquiring technological capabilities. After all, how long it takes to acquire such capabilities within national or urban territory determines whether planners describe the development problem as “soft” or “hard” determinism. The quicker the dimension of acquisition and learning, the more it can appear that tech-

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nologies drive society. In contrast, the more excruciating the acquisition and learning, the more social adjustment and compromise become visible, and the “softer” the determinism. In this light, if no other, late industrialization requires the softer lens. Pharmaceutical technologies are tied to social insurance and health insurance regimes and thus institutionally to labor-market segmentation and labor orga nizing, and to the structure of the economy. However, this is not necessarily the case for less affluent late industrial economies, where resources may not be spent on local problems, but instead may be crowded out by, or attracted to, overseas health markets. Countries with minimal or no supply, such as Sri Lanka and Costa Rica, have inevitably focused on delivery and consumption politics and have been mostly successful at importing health technologies. However, these examples are few, as we saw in Chapter 8. Today, whether we live in India, the United States, Kenya, Laos, Guatemala, or Iran, technologies may well exist somewhere, but they may be unavailable. Innovation is not always necessary. Mature medicines and vaccines are still inaccessible to most people. Even for those regions of the world where the technologies might have been developed (and increasingly, these are laboratories in China, India, or Brazil), most people lack access. Much of health-care reform today must also grapple with ethics and social norms. “Market economies” are not uniform, and consequently a v ariety of ways exist to govern health care. Aid agencies and a n umber of foundations have ironically complicated some of t his developmental statecraft by overfocusing on technology rather than its contingent link to complementary institutions and the politics of consumption and delivery. The Bill and Melinda Gates Foundation, with $26 billion, has a larger health budget than WHO. In any event, even well-meaning foundations such as the Gates Foundation, with its Grand Challenges for health, may face their grandest challenges in looking to difficult political and social issues beyond technology production. My time with firms and public researchers in India was precisely at such a cusp of technological and industrial history. The hallways I walked through on my way to interviews carried the scent of persistence, high energy, and new technology discoveries. These newer technologies, however, rest on older domains of knowledge and par ticu lar country trajectories in absorbing such knowledge. But technologies increasingly sit in a sea of national distinctions. Today the United States remains the largest market, with several historic advantages (from mass postwar

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immigration of leading chemists to the vitality of its university research) and high per capita drug spending that has boosted its companies. Soft technological determinism pays attention to t hese technological details of industrial advance and their influence on firms and governments in addressing contingent market conditions. Technological advance creates further challenges for a redistributive politics, but as planners for these nations and city-regions, we are forced to attend to production as much as to the other elements of demand and delivery. A look at technological advance illustrates how the common, quite technologically deterministic view of late industrial development (to tightly regulate and stimulate production) is as myopic as the traditional health scholarship and policy preoccupation with demand and delivery alone. Evolution and Orchestration of the Social Contract Much of health-care reform today is a move to g reater commoditization of health, as well as health care, and the enumeration of value within methods of evaluation. Nonmonetary characteristics of markets become complicated to contrast and retain, and trust and caregiving become items of value and exchange. These have widespread manifestations: “Top 20” doctors’ lists, nurses’ wages, retirement communities and their paid care facilities, ranking systems (and prices for these) of child health facilities, or the impact of advertising budgets on health-care consumption. Market regulation involves value-laden choices on pricing on many or all of these. Direct purchases at the pharmacy, free government clinics, cooperative health, innovative private health insurance schemes, activist organizations utilizing existing state provisions, unions extending health ser vices, and corporations offering subsidized or free medicines as part of corporate social responsibility programs—all are possible and coexist. The menagerie is full and raucous. Economic processes depend on the vitality of underlying institutions of community and exchange, but they require appreciating that the state evolves along with market variety. There is neither equilibrium nor a known end state. Technological change shifts rules in dramatic ways; knowing how to regulate may be impossibly opaque and politically and morally ambiguous. In the face of technological change, market regulation and planning are necessarily bold acts imbued with uncertainty on rules of society. The universe is open ended. Planning and policy actions are fundamentally human acts marked by deep

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information challenges and risk. Regulation by state and citizenry is an action with social consequences within radical uncertainty. There is no given welfare function to optimize; more to the point, there is never an optimizing state, least of all as technology and social rules shift under us. Decentralized contexts are doubly challenging, raising the information and coordination problems of devolution to new heights. Although regulation is often seen as an imposition of control on a competitive economic system in order to prevent its collapse under the strain of its own internal, centrifugal forces, in fact, this collapse is inevitable over long periods of time. Development, then, is using regulation and other tools of economic organization and cohesion as a set of planning and policy actions to continually determine new ways of resolving internal and external confl ict, do t hings through new actions, and find new partners in such actions. In this sense, plans are fundamentally associational and time specific. Market varieties strung together in time in health care in particular places are thus complex entities to plan and regulate, permeated as they are with the values of a society. New high-tech urban visions allow states to reassert legitimacy and authority and extend new forms of enfranchisement. They also empower citizens. The Indian Right to I nformation Act, whose scope has been widened by the increased digitization of state documents as well as information about state performance, and the National Rural Employment Guarantee Act have created a new and powerful public realm to question state inaction and market structure. India has shown successfully that its governments can tackle two of the three triad elements: India’s Pulse Polio drive does not deal with demand (the cost is free) but combines mature vaccine technologies with a centrally driven, locally coordinated immense delivery effort to r each more than 80 m illion children a day. The Council of Scientific and Industrial Research’s new OpenSource Drug Discovery has also sidestepped future demand questions but has created bold early stage mixed-market models. It calls jointly on shared opensource efforts of MS and PhD students across India, IT companies, Médecins Sans Frontières, and Indian pharmaceutical and biotech firms. “Hits” are then transferred to Indian firms for further R&D. The goal is finding a new drug for drug-resistant mycobacterium tuberculosis. Diagnostic firms in Bangalore and Hyderabad are experimenting with voice-enabled and other systems to deliver on demand, solving the last-mile problem. A health economist might narrowly and neatly tie up loose ends of cost and user fees, and a postdevelopmental critique might bemoan the violence of

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industrial development and health neglect. Both must be reconciled, however, in the inevitable tension of ends and means that late development creates and that spurs professional engagement in advising industrial investment, scale, location, and strategy. Political scientist Stuart Corbridge argues persuasively in discussing the morality of critique that contemporary India and its state require more of us than reserving judgment or volunteering critique, and he brings us to the uneasy, uneven terrain of action and a less dramatic conceptualization of politics than that to which many academics subscribe. But act we must. Uncertainty and incomplete knowledge make any planning or policy action far from fully rational, and regulation of an unruly market menagerie inevitably incomplete; however, the alternative to state and individual action, given market uncertainties and complex market ecologies, has never been specified. Not to act is an action and a set of choices in itself, an alternate form of market regulation. The public interest is served essentially by broad, shared goals. Several traditions of state analysis, especially from cultural anthropology and sociology, emphasize the extensive roots of state legitimacy and continuity through symbolism. The health sector weighs heavily in this development symbolism, in which there is no single threshold where the market fails and states must be brought in; the state is always present, even if only to continue its symbolic functions. Naturally, the behavioral characteristics of moral choices are not equivalent to single, rational-actor theories. Individuals, whatever their self-interest or moral beliefs, may not act collectively for equitable health outcomes. Simple aggregation of individual preferences is a c omplex, next-to-impossible task whose social costs are high. After all, all societies must anticipate and plan the future, and planning’s goal must therefore move beyond simple pluralism and aggregation that provide few clues about essential elements of health care and community, and practically none about individual conscience of either citizens’ or state’s representatives. At the end, what we can say is that the three spheres of regulatory action—production, demand, and delivery— coevolve and thus require learning and accountability of the state. Regulatory action seeks to adapt and create futures, playing with parts of the economic system even as the whole continually (and somewhat mysteriously) evolves on s ome developmental path. “Dual” publicly oriented organizations (universities, research institutes, hospitals) are increasingly torn between innovation goals and more diff use, shift ing notions of public welfare. To marry technological advance with a more rooted, equalizing, economic

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development, states and citizens in technologically innovative regions will need to be especially agile. Even in liberalism, the social contract creates dilemmas between the internal and external nature of man. For example, in Rousseau’s world man was a product of history that crafted him to subdue nature, but in so doing alienated him and required him to redeem himself. Kathy Froese argues that in Rousseau’s view, one man’s engagement with another through a social contract is not merely to protect one from another—as we tend to emphasize today— but to reclaim for himself the opportunity to sha re futures and effect selftransformation. This link between individual and collective is also evident in early utopian societies, most of which were built on smaller population groups. Competition was held in check through kinship ties and social events that bound people together; with growing size, many utopian groups disbanded, making such contracts moot. Bourgeois society, on the other hand, tended to treat community and individuality as inimical and ostensibly crafted a political life built on the scaffolding of contractual relations in order to construct the greater good. The state acts to distill this contract to its essential elements. The nature and extent of distillation can hardly be arbitrary, however. It seems to me that it is more useful to pursue the question of how to position alternate institutions—family, community, or others—against markets. Without romanticizing early periods, today’s contract mediated through the late industrial nation-state and its terms of exchange and risk guarantees is hopelessly uneven. As Asher Horowitz emphasizes, the social contract itself forced a continuous evolution on community: “It is not the community that legislates, but the community that is constituted and reaffirmed in the act of legislation itself.” The social contract brings the community into existence and thus forever needs to be transformed. The metropolis that must act as the site of economic development where social policy acts to mitigate externalities is necessarily a far cry from one that sees social policies as necessary precursors or at least amicable bedfellows. India’s nationhood has overwritten alternate institutions and notions of community and has erased many of the geographic bounds of risk pooling. National health reform is a complex task when citizens believe that half their development battles arise from the state’s shortcomings and the rest from repercussions of their actively opposing the state.

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Market Variety and Morality: Planning with Small and Large “P” I conclude here with some more speculative comments on morality and the tensions in deciding what should fall within the purview of markets. Economist Richard Nelson argues that we should not expect these choices to be simple because, after all, markets are complex, but we must place some goods and ser vices firmly outside them. How might these be decided? Can our values and morals shape our market structure and health outcomes? The human body is intimately tied to the body politic and civic. Whether we can manage and benefit from technological advance is largely determined by our collective views of people in society and our sense of responsibility. Sometimes this responsibility rests with the state. For example, colonial philosophies of segregation commandeered physical and technological means to rid areas of disease. The state’s legitimacy of rule was supported by advances in sanitation engineering. In modern India, however, it is evidently still easier to focus on production than more systematically on institutional reform of demand and delivery. In our specific time of “high capitalism and low socialism” (or, in India’s case, struggling socialism and absent welfare capitalism), technology’s momentum and the state’s struggle to mobilize its economic goals continue to exclude large portions of the citizenry. It seems to me that this question must be taken beyond collective organizations to i ndividual conscience, but this leaves several social outcomes open ended. However, we do not need to reinvent rules of society in their entirety each time we act as long as we acknowledge that there are no perfect rules, and that these rules are human made and therefore ever open to inspection and debate. Evolution may be of principle, an opposition to static analysis, but it can also be an acknowledgment of process with open-ended outcomes from distinct selection environments. Contrast this to Hayek’s emphasis that an evolutionary explanation is not an explanation of detail, but an explanation of principle. Precisely because it is evolutionary, it can permute institutional and organizational bundles in ways that are difficult to anticipate ex ante, a feature that is especially important to idiosyncratic learning and technological capabilities and to plans that are more experimental. The market in any case is ultimately an unsatisfactory realm in which to resolve most competing moral claims, but it may indeed simplify the means to achieving ends when those claims are partially resolved. This intermediate

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terrain might require “open moral communities” that may be both incomplete and sometimes transitory, but the very embrace of ambiguity may allow some shared sense of vision. Plans are made presuming the inevitable complexity of real life, “indivisibility, interdependence, irreversibility, and uncertainty,” as practical means rather than a blueprint to assist people when they deal with complexity, and to provide accounts of meaning and coherence between people’s cognition and insight from several plans. “Framing” for both pictures and plans involves selective representations that integrate a v iewer’s view with provision of a v isual boundary and require both tacit and explicit appreciation for an image to shape judgments about alternatives. Plans, then, may not literally be market plans (although they may well address these in practical terms), but they can provide the provisional accounts for a f uture imbued with uncertainty. Provisional accounts, small-“p” planning, can nevertheless carry with them better framing, rhetoric, envisioning, and coherence and so direct the emergence of an economic resilience. Large-“P” planning is how people combine their cognitive, moral, or other insights into a web of multiple plans. States then have even more crucial roles to a llow and foster this debate. Industry, however, requires certain economies of scale and scope to flourish, so plans cannot always be of the small-“p” variety nor multiple plans functioning at once if the plan is to guide an investment or a regulatory tool. However, even if some aspects of economic plans always require clear rules (where to invest, how to invest, how much to produce, and for whom), plans are more than regulations. As urban planners such as Charles Hoch and others have pointed out, they can shift from being blueprints to exercises in visioning and contingency. The challenge is that community institutions may be interesting theoretical ideas, but they remain spatially and politically ambiguous in India. Should community institutions be identified most closely with nation, “neighborhood,” villages, urban ward, factory, or city? This ambiguity makes industrial transport, delivery, and distribution of medicines territorially rootless, contradictory, and politically rudderless. National citizenship may be an insufficient basis for such plans when development is fragmented along place, work, and workplace fissures. The morality of critique of state (in)action in health care must be sympathetic to the multiple roles of the state in production, distribution, safety, efficacy, and access. But by prioritizing access without ignoring production, we may be better able to nudge social protections to shape markets rather than

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the other way around. The morality of critique in Stuart Corbridge’s developmental sense is a c ritique that compels local action, not simply because it encompasses the local state and national states in everyday acts, but because in health care ultimately only the body proves witness. More expansively, a state, city, or city-state that is unable to assure health guarantees and effectively kills large numbers of its residents is surely far more complex and conceptually troubling than a “weak” state or a “failed” state. In the extreme instance, it is a state in danger of bankrupting the very thing that many argue states are meant to hold dear: the unrelenting expansion of its own powers and sustaining a population to coerce and govern. The irony is that in the ultimate analysis, such a state undermines its own temporal existence, yet continues to survive institutionally through strategic regulation of markets and its promises of prosperity. In the end, the failure of market-failure theories is not that they are too ambitious. I am not doing battle with the tired debates of markets in socialism, communism, or supposed “free” markets. Ultimately the failure of marketfailure theories is to contend with the variety of the animal that they hope to describe: markets themselves. To the extent that markets are “out there,” external to our being, they remain constitutive of others’ concerns and priorities. To the extent that our actions constitute markets individually and collectively, our plans and economic planning activity bind us in an unrelenting course of action-reflection-reaction-action. This intention-emergence gap between policy and development is made more complex by the ever-roiling sea of technological change, uprooting actors, churning new roles and priorities, and making some more powerful than others. The coevolution of technology with economic development and technology with public policy can create a lopsided three-legged stool, where technophile policies may exclude broader developmental goals. The state’s actions, then, are not intended only to correct for market failures in the narrow sense. At its widest legitimacy and discretion, it must engage in orchestral regulation of markets and other institutions, and close listening to tempo and concert: more of the tuba now, less of the violins, and much more of the timpani later. If political sociologist Edward Lehman’s contention is to b e taken seriously, and I do s o, that states are neither unequivocally effective or ineffective, so that ultimately states cannot be judged on effectiveness alone, then I am right in dwelling on the contradictions of late industrializing states and their incongruent health-care positions. As public institutions, states must venture beyond roles in allocation and distribution of resources, although these functions may be handmaidens to their

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wider symbolic role. This symbolism may act to en hance trust in the state’s legitimacy and ability to reduce health uncertainties, mitigate risks, and institute rules for the economy. This balancing act is precarious for the late industrializing state with significant technological prowess, often limited accountability, significant power and coercion, and an array of nonstate, nonmarket institutions. This development symbolism is at the heart of perceiving the state as the institution of ultimate recourse, as an influential arbiter of rules, but ultimately only a pa rtial guardian of internal values or alternate moral rules of individual and social life and the health entitlements these produce.

Notes

Introduction 1. Horst W. J. R ittel and Melvin M. Webber, “Dilemmas in a General Theory of Planning,” Policy Sciences 4, no. 2 (1973): 155–169. 2. See John Forester, “Reflections on Trying to Teach Planning Theory,” Planning Theory and Practice 5, no. 2 (2004): 242–251. 3. Laura Frost, Michael R. Reich, Tadataka Yamada, and Beth Anne Pratt, Access: How Do Good Health Technologies Get to Poor People in Poor Countries? (Cambridge, MA: Harvard Center for Population and Development Studies, 2009); see also James A. Johnson and Carleen Stoskopf, Comparative Health Care Systems: Global Perspectives (Sudbury, MA: Jones and Bartlett, 2010). 4. Varied estimates from the Economist, Goldman Sachs, and PriceWaterhouseCoopers, with the last two placing China as overtaking United States as the world’s largest economy by 2025, and India as the world’s third largest by 2050. 5. “BRICs, Emerging Markets and the World Economy: Not Just Straw Men. The Biggest Emerging Economies Are Rebounding, Even without Recovery in the West,” Economist, June 18, 2009, http://www.economist.com/node/13871969?story_id= 13871969, accessed August 27, 2011. 6. Also see more d iscussion on B RICs trade in Frank L. Bartels and Jebamalai Vinanchiarachi, “South-South Cooperation, Economic and Industrial Development of Developing Countries: Dynamics, Opportunities and Challenges” (working paper, Research and Statistics Branch, United Nations Industrial Development Orga nization, February 2009), http://www.unido.org /fi leadmin/user_media/Publications/RSF _DPR /WP022009_Ebook.pdf, accessed August 27, 2011. 7. See Stephen Howes’s perspectives as the lead economist on India at the World Bank (“Will India Become an Economic Superpower, Does it Matter and What Might 247

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Prevent It?,” World Bank presentation, March 2005, http://siteresources.worldbank .org/INTINDIA/Resources/StephenHowesPresentation_March21.ppt, accessed 27 August 27, 2011). He poses alternate scenarios for India’s economic transitions. 8. See especially a compelling discussion of European examples in Michael Moran, “Understanding the Welfare State: The Case of Health Care,” British Journal of Politics and International Relations 2, no. 2 ( June 2000): 135–160; also Moran, “Governing the Health Care State,” Sir Edward Youde Memorial Lecture, Centre for Comparative Public Management and Social Policy, City University of Hong Kong, December 7, 1999. 9. Bruno Amable, “Institutional Complementarity and Diversity of Social Systems of Innovation and Production,” Review of International Political Economy 7, no. 4 (Winter 2000): 647. 10. In the United States, France, and Japan, arguably the first task has been managed; the second is tenuous in the United States (in others, health care is in principle universal); and the third task, competitiveness, may be the only element that these countries have in common with late industrial suppliers. For a highly readable comparative analysis of health-care provision and rights to health care, see T. R. Reid, The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care (New York: Penguin Press and Thorndike Press, 2009). 11. “India: Will Pharma, Trade Agreements Shut Down the Pharmacy of the Developing World?,” Médecins Sans Frontières, http://www.msfaccess.org /main/access -patents /india -will -pharma -trade -agreements -shut-down -the -pharmacy -of -the -developing-world/, accessed November 26, 2010. 12. Warren Kaplan and Richard Laing, “Local Production of P harmaceuticals: Industrial Policy and Access to Medicines; An Overview of Key Concepts, Issues and Opportunities for Fut ure Research” (Health, Nutrition and Population [HNP] Discussion Paper, World Bank, Washington, DC, January 2005). 13. These systems often are mixed and matched in practice, although this approach is clearly open to medical debate. 14. Jurgen Drews, “Strategic Choices Facing the Pharmaceutical Industry: A Case for Innovation,” Reviews, Drug Discovery Today 2, no. 2 (February 1997): 72–78. 15. The Convention on Biological Diversity (New York: United Nations, 1992), “Article 2. Use of Terms.” 16. Joseph A. DiMasi, Ronald W. Hansen, Henry G. Grabowski, and Louis Lasagna, “Cost of Innovation in the Pharmaceutical Industry,” Journal of Health Economics 10, no. 2 ( 1991): 107–142; Joseph A. DiMasi, Ronald W. Hansen, and Henry G. Grabowski, “The Price of I nnovation: New Estimates of D rug Development Costs,” Journal of Health Economics 22, no. 2 (2003): 151–185. 17. E.g., Donald W. Light and Rebecca N. W arburton, “Extraordinary Claims Require Extraordinary Evidence,” Journal of Health Economics 24, no. 5 ( 2005): 1030–1033. 18. A recent Intercontinental Marketing Ser vices (IMS) study, “Pharmerging Shake-up: New Imperatives in a R edefined World,” states that 17 countries will ex-

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pand by US$90 billion during 2009–2013 (estimated 48% of annual market growth in 2013, 11% higher than in 2009). 19. Eva Edery, “Market Divergence Softens Growth,” World Pharmaceutical Frontiers (2008), http://www.worldpharmaceuticals.net/editorials/013_march08/013mar ket.pdf, accessed August 27, 2011. See also PriceWaterhouseCoopers, Global Pharma Looks to I ndia: Prospects for Growth, report on t he pharmaceutical industry (April 2010). 20. IMS, “Pharmerging Shake-up: New Imperatives in a Redefined World.” 21. “The Corporate R&D Scorecard 2002,” Technology Review (December 2002/ January 2003), http://www.technologyreview.com/business/13036/, accessed August 27, 2011. 22. WHO states: “In 2000, average per capita spending on ph armaceuticals in high-income countries was almost 100 times more t han in low-income countries— nearly US$400 compared with slightly over US$4. At opposite ends of the spectrum, there is a t housand-fold difference between what the highest spending and lowest spending countries spend on ph armaceuticals per capita.” WHO, The World Medicines Situation (Geneva: World Health Orga ni zation, 2004), p. 41, http://www.searo .who.int/LinkFiles/Reports _World _Medicines _Situation.pdf, accessed August 27, 2011. 23. Isaac Meek (Frost & Sullivan), “World Drug Discovery Spending: A Strategic Analysis” (200 4), http://www.iptonline.com /articles/public/Frost& Sullivan1.pdf, accessed August 27, 2011. 24. The generics share as a percentage of total prescription volume was between 40% and 48% for the United States, the United Kingdom, and Germany. WHO, World Medicines Situation, p. 37. 25. Organisation for Economic Co-operation and Development (OECD), HealthData, 2006, OECD Internet database on subscription data (Paris: OECD, 2006), http:// www.oecd.org /statisticsdata/0 ,3381,en _2649_33929_1_119656_1_1_37407,00 .html, accessed August 27, 2011. 26. Gary P. Pisano, The Development Factory: Unlocking the Potential of Process Innovation (Boston: Harvard Business School Press, 1997). 27. See Bain and Co. report, “Where Will Indian Drug Companies Be in Five Years? Everywhere—If They Innovate,” published by Knowledge@Wharton and Bain and Co., http://www.yale.edu/ybps/YERC/wp_Bain_India _Pharma.pdf, accessed June 16, 2010. 28. The U.S. FDA had denied Ranbaxy product approvals for two manufacturing plants that violated cGMP standards. 29. Note the high percentage of R&D spending of sales revenue for biotech versus pharmaceutical companies. Some biotech firms have R&D spending rates that outstrip revenue streams, pointing to dependence on pipeline drugs. 30. See PriceWaterhouseCoopers, Global Pharma Looks to India. 31. IMS Health, Raymond Hill and Mandi Chui, “Tomorrow’s Pharma: The Pharmerging Future,” Pharmaceutical Executive 29, no. 7 ( July 2009), http://www.ims

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health .com /imshealth /Global /Content /Document /Intelligence .360 %20Documents /The _Pharmerging _Future.pdf, accessed November 25, 2010. 32. Recent partnerships are Claris Life Sciences’ injectables with Pfi zer’s brand name, GlaxoSmithKline with Dr. Reddy’s, and Pfi zer with Aurobindo to bu ild on the latter’s generic drugs portfolio. The Orga ni zation of Pharmaceutical Producers of India (OPPI) Annual Report, 2000 also estimated that Indian public research institutes (PRIs) a d ecade ago were seeing large increases in external collaborations and commercializing PRI innovations. Although overall industrial R&D in India was approximately one-third of total R&D expenditure (half privately fi nanced), it had rapidly increased to about 70% of industrial R&D spending. The pharmaceutical sector was the traditional laggard, although this has now changed for a s ection of fi rms. Sunil Mani, “Public Innovation Policies and Developing Countries in a Phase of Economic Liberalization” (Discussion Paper series 9902, United Nations University, Institute for New Technologies, Maastricht, The Netherlands, October 1999). 33. Guardian, United Kingdom, “Company Offers Low Cost Vaccine against Killer Diseases,” Sarah Boseley’s Global Health Blog, http://www.guardian.co.uk /society /sarah-boseley-global-health/2010/nov/26/gavi-cheap-vaccines, accessed November 26, 2010. 34. Ibid. 35. Cited in Sunil K. Sahu, Technology Transfer, Dependence, and Self-Reliant Development in the Third World: The Pharmaceutical and Machine Tool Industries in India (Westport, CT: Praeger, 1998), 70. 36. “MSF to EU: Stop the Spin, Backdoor Policies and Closed-Door Negotiations That Threaten Access to Affordable Medicines: Europe Seeking to Undermine India’s Public Health Law,” Médicines Sans Frontières/Doctors without Borders press release, http://www.doctorswithoutborders.org /press/release.cfm?id=4841&cat = press -release, accessed November 26, 2010. 37. Brenda Waning, Ellen Diedrichsen, and Suerie Moon, “A Lifeline to Treatment: The Role of Indian Generic Manufacturers in Supplying Antiretroviral Medicines to Developing Countries,” Journal of the International AIDS Society 13 (2010): 35, http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2944814 /, accessed August 27, 2011. 38. Ibid. 39. Guardian, “Company Offers Low Cost Vaccine against Killer Diseases.” 40. Department of C hemicals and Petrochemicals, Government of I ndia; William Greene, “The Emergence of I ndia’s Pharmaceutical Industry and Implications for the U.S. Generic Drug Market” (Office of Economics Working Paper no. 2007-05A, U.S. International Trade Commission, May 2007), http://chemicals.nic.in/chem1 .htm, accessed August 27, 2011. 41. Biospectrum 1, no. 7 (September 2003): 10 (Corporate Office Gurgaon, Haryana, India). In perspective, these revenues are a f raction of t he R&D budget of t he world’s leading pharmaceutical company, Bristol-Myers Squibb, at US$5,003 million,

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or of the world’s largest biotechnology (biopharmaceuticals) company, Amgen, whose R&D spending was US$865 million. 42. See Padmashree Gehl Sampath, “Indian Pharma within Global Reach? ” (United Nations University–MERIT working paper 2006-031, 2006). In 1993 there were three main segments to the country’s fi rms, which the Indian Drug Manufacturers’ Association, representing Indian-owned firms, estimated was made up of 250 large manufacturing fi rms and 9,000 small-scale units alongside approximately 7,000 unregistered small-scale units. Jean O. Lanjouw, “The Introduction of Pharmaceutical Product Patents in India: Heartless Exploitation of the Poor and Suffering?” (NBER Working Paper no. 6366, 1997). The Organisation of Pharmaceutical Producers of India (OPPI) represents foreign firms in the country as well and was founded in 1965. Other estimates are a tot al of 2,257 units in 1969–1970 and 20,053 in 1999– 2000 , and 12,000 fi rms, 2,900 large-scale units, employing almost 500,0 00 people. 43. Press Information Bureau, Government of India, “Fact Sheet on Chemicals” (2000). Also at http://pib.nic.in/archieve/factsheet/fs2000 /chemical.html, accessed August 27, 2011. 44. “It’s Eu rope for R anbaxy,” Financial Express, April 1, 2006, http://www .fi nancialexpress.com /news/its-europe-for-ranbaxy/156086/, accessed August 27, 2011; “Indian Pharma Firms Expand Global Footprint in 2006,” Economic Times, December 25, 2006, http://articles.economictimes.indiatimes.com /2006 -12-25/news /27428092_1_generic-drugs-price-control-essential-medicines, accessed August 27, 2011. 45. Compiled from Indian Embassy reports and trade reports of e xport councils. 46. A recent success, for e xample, has been Dr. Reddy’s Laboratories receiving FDA approval to market fluoxetine, the generic for the blockbuster drug Prozac from Eli Lilly, for an exclusive 18-month period after going off-patent. Th is generates large payoffs and a monopoly position for generics manufacturers. 47. Simon Szreter, “The Importance of Social Intervention in Britain’s Mortality Decline, c. 1850–1914: A Reinterpretation of the Role of Public Health,” Social History of Medicine 1 (1988): 1–37; Vicente Navarro and Leiyu Shi, “The Political Context of Social Inequalities and Health,” Social Science and Medicine 52 (2001): 481–491; Annie Thebaud and France Lert, “Maladie subie, maladie dominee, industrialisation et technologie medicale: Le cas de la tuberculose,” Social Science and Medicine 21, no. 2 (1985): 129–137, http://www.sciencedirect.com/science/article/pii/0277953685900814, accessed August 27, 2011. 48. The argument of India’s low-cost advantage is hard to dismiss. It remains the common feature running through India’s story. However, it loses some of its explanatory resilience when we examine other countries such as Egypt, Brazil, or C hina, many of which had similar wage structures at overlapping time periods, but did not thrive as much. 49. Uwe E. Reinhardt, “Perspectives on t he Pharmaceutical Industry,” Health Affairs, 20 no. 5 (2001): 136–149, supports this approach.

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50. See W. James Booth, “On the Idea of the Moral Economy,” American Political Science Review 88 (1994): 653–667; Marguerite Mendell and Daniel Salee, eds., The Legacy of Karl Polanyi: Market, State, and Society at the End of the Twentieth Century (New York: St. Martin’s Press, 1991); Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (Boston: Beacon Press, 1944).

Chapter 1 1. See, for instance, Alice H. Amsden, “Editorial: Bringing Production Back In— Understanding Government’s Economic Role in Late Industrialization,” World Development 25, no. 4 (1997): 469–480. 2. Joseph E. Stiglitz, “Markets, Market Failures, and Development,” American Economic Review 79, no. 2 (May 1989): 197–203. 3. Michael Lipton, “The State-Market Dilemma, Civil Society, and Structural Adjustment,” The Round Table 317 (1991): 21–31. 4. For instance, in the early 1990s, up to 60%. Susan Bartlett Foote, Managing the Medical Arms Race: Public Policy and Medical Device Innovation (Berkeley: University of California Press, 1992). 5. Uwe Reinhardt, “Can Efficiency in Health Care Be Left to the Market?,” Journal of Health Politics, Policy and Law 26, no. 5 (2001): 967–992. 6. For a c ompelling and controversial discussion of e thical norms to l imit U.S. production and innovation of health technologies in order to make people healthier, see Daniel Callahan, Taming the Beloved Beast: How Medical Technology Costs Are Destroying Our Health Care System (Princeton, NJ: Princeton University Press, 2009). 7. For a longer discussion, see Reinhardt, “Can Efficiency in Health Care Be Left to the Market?” 8. Arrow had much to say on both invention and health. His political concern was the impossibility within a given set of conditions of resolving equitably individual and social goals See Kenneth J. Arrow, Social Choice and Individual Values (New York: John Wiley and Sons, 1951). Similarly, for the challenge of achieving social goals in invention, see Kenneth J. Arrow, “Economic Welfare and the Allocation of Resources for Invention,” in The Rate and Direction of Inventive Activity, ed. Richard R. Nelson (Princeton, NJ: Princeton University Press, 1962); and Kenneth J. Arrow, “Uncertainty and the Welfare Economics of Medical Care,” American Economic Review 53, no. 5 (1962): 941–973. 9. As Arrow puts it, the arguments of optimality depend on a competitive market: “Operationally, the significance of this proposition is that if the conditions of the two optimality theorems are satisfied, and if the allocation mechanism in the real world satisfies the conditions for a competitive model, then social policy can confine itself to steps taken to alter the distribution of purchasing power. For any given distribution of purchasing power, the market will, under the assumptions made, achieve a competitive equilibrium which is necessarily optimal; and any optimal state is a competitive equilibrium corresponding to some distribution of purchasing power, so that any desired

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optimal state can be achieved. If, on the contrary, the actual market differs significantly from the competitive model, or if the assumptions of the two optimality theorems are not fulfilled, the separation of a llocative and distributional procedures becomes, in most cases, impossible.” Kenneth J. Arrow, “Uncertainty and the Welfare Economics of Medical Care,” American Economic Review 53, no. 5 (December 1963): 943. 10. Smita Srinivas, “Intellectual Property Rights, Innovation, and Healthcare: Unanswered Questions in Theory and Policy,” Economica (Brazil) 10, no. 2 (December 2008): 106–146. 11. Ibid. 12. Richard R. Nelson, “What Makes an Economy Productive and Progressive? What Are the Needed Institutions? ” (Staff Paper P07-01, InSTePP Paper 07-01, Staff Paper Series, Department of Applied Economics, and International Science and Technology Policy and Practice, College of Food, Agricultural, and Natural Resource Sciences, University of M innesota, January 2007); see also Richard R. Nelson, ed., The Limits of Market Orga nization (New York: Russell Sage, 2005). 13. This may be endemic to mainstream economics. In other words, the “history of economic thought . . . is nothing but t he history of ou r efforts to understand the workings of an economy based on market transactions.” Mark Blaug, Economic History and the History of Economics (New York: New York University Press, 1985), 6. 14. John Braithwhite and Péter Drahos, eds., Global Business Regulation (Cambridge: Cambridge University Press, 2000). 15. Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975 (Stanford, CA: Stanford University Press, 1982), 140. 16. Amiya K. Bagchi, “The Past and the Future of the Developmental State,” Journal of World Systems Research 11, no. 2 (2000): 398 (emphasis added). See also Amiya K. Bagchi, The Political Economy of Underdevelopment (Cambridge: Cambridge University Press, 1982). 17. Ha-Joon Chang, “The Economic Theory of t he Developmental State,” in The Development State, ed. Meredith Woo-Cummings (Ithaca, NY: Cornell University Press, 1999), 183. 18. Or succinctly, to s ee the state as “some kind of om nipotent and omniscient leviathan that always gets what it w ants.” Thandika Mkandawire, “Thinking about Development States in Africa,” Cambridge Journal of Economics 25, no. 3 (2001): 291. 19. Atul Kohli, State-Directed Development: Political Power and Industrialization in the Global Periphery (Cambridge: Cambridge University Press, 2004). 20. Sanjaya Lall, Learning to Industrialize: The Acquisition of Technological Capability by India (Basingstoke: Macmillan, 1987), xi. 21. As Kohli argues, demand and mobilized opposition may make states scramble for legitimacy, thus promising more than they can deliver and emerging as “middling performers on n umerous dimensions, including the promotion of i ndustrialization and growth.” Kohli, State-Directed Development, 11. 22. Alexander Gerschenkron, Economic Backwardness in Historical Perspective: A Book of Essays (Cambridge, MA: Harvard University Press, 1962); see, e.g., Alice J.

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Amsden, The Rise of the Rest: Challenges to the West from Late Industrializing Economies (Oxford: Oxford University Press, 2001). 23. Similarly, other writings look more explicitly at subnational politics and industrial development. See Aseema Sinha, Regional Roots of Developmental Politics in India: A Divided Leviathan (Bloomington: Indiana University Press, 2005). 24. Alice Amsden, Asia’s Next Giant: South Korea and Late Industrialization (New York, Oxford University Press, 1989); Robert Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (Princeton, NJ: Princeton University Press, 1990). 25. E.g., François Moreau, “The Role of t he State in Evolutionary Economics,” Cambridge Journal of Economics 28 (2004): 847–874. 26. Benjamin Coriat and Giovanni Dosi, “The Institutional Embeddedness of Economic Change: An Appraisal of t he ‘Evolutionary’ and ‘Regulationist’ Research Programmes,” in Institutions and Economic Change, ed. Klaus Nielsen and Björn Jonsson (Cheltenham, England: Edward Elgar, 1998), 3–32. 27. On national systems, see Bengt-Åke Lundvall, Bo Johnson, Elspeth S. Andersen, and Bent Dalum, “National Systems of Production, Innovation and Competence Building,” Research Policy 31, no. 2 (2002): 213–231; and Richard R. Nelson and Nathan Rosenberg, “Technical Innovations and National Systems,” in National Innovation Systems: A Comparative Analysis, ed. Richard Nelson (New York: Oxford University Press, 1993), 46–87. At the level of firms and industries, there is an immense literature of case studies, but for a pa r ticu lar style of synopsis and abstraction, see Luigi Orsenigo, “History Friendly Models of Industrial Evolution,” in The Elgar Companion to Neo-Schumpeterian Economics, ed. Horst Hanusch and Andreas Pyka (Cheltenham, England: Edward Elgar, 2003). 28. United Nations Conference on T rade and Development (UNCTAD), The Least Developed Countries Report, 2009: The State and Development Governance (Geneva: United Nations, 2009). Various background papers are inputs to the report and include relevant evolutionary and institutional arguments. See, e.g., Smita Srinivas, “Industry Policy, Technological Change, and the State”; Morris Teubal, “Direct Promotion of “Commercial” Innovation (CI) in Least Developed Countries (LDCs): A S ystems Evolutionary (S/E) Perspective”; and O. Therkildsen, “Public Sector Reforms and the Development of Productive Capabilities in LDCs.” See also the thoughtful volume by L eonardo Burlamqui, Ana Celia Castro, and Ha-Joon Chang, eds., Institutions and the Role of th e State (Northampton, MA: Edward Elgar, 2001), and Banji Oyelaran-Oyeyinka, Learning to Compete in African Industry: Institutions and Technology in Development (Aldershot, England: Ashgate Publishing, 2006). 29. Padmashree Geh-Sampath’s Health Innovation in Late Economic Development (Abingdon, England: Routledge, 2010) focuses well on t echnological learning, knowledge infrastructure, and Schumpeterian approaches but d iffers in the use of nation-states as primary political units and focuses less on t he inherent contradictions of the late industrial state.

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30. Information in a narrow sense of more data still requires certain institutions and organizations, such as patent offices, information bureaus, professional associations, or nationwide standards. 31. Raymond Vernon’s work is especially representative of this approach of trade differences in knowledge and products. Raymond Vernon, “International Investment and International Trade in the Product Cycle,” Quarterly Journal of E conomics 80 (1966): 190–207. For a more re cent (and very different) heuristic on institutional and other scarcities, technological capabilities, and knowledge, see Smita Srinivas and Judith Sutz, “Developing Countries and Innovation: Searching for a N ew Analytical Approach,” Technology in Society 30, no. 2 (April 2008): 129–140. 32. As Dilmus James describes, this synchronous combinative variety and serendipity are evident in the work of early institutionalist scholars such as Clarence Ayres and Thorstein Veblen, who emphasized workmanship and the momentum that technology capability generates. Dilmus D. James, “The Economics of Technological Progress: A Comparison of Non-institutionalist and Institutionalist Dissent from the Neoclassical Position,” Journal of Economic Issues 21, no. 2 (June 1987): 733–741. 33. E.g., Jorge Katz, “Technological Innovation, Industrial Organization, and Comparative Advantages of Latin American Metalworking Industries,” in Technological Capability in the Third World, ed. Martin Fransman and Kenneth King (London: Macmillan, 1984), 113–136. 34. See Srinivas and Sutz, “Developing Countries and Innovation.” 35. Richard R. Nelson and Sidney G. Winter, “In Search of a Useful Theory of Innovation,” Research Policy 6 (1977): 48. 36. See Andrew Lo, “The Adaptive Markets Hypothesis: Market Efficiency from an Evolutionary Perspective,” Journal of Portfolio Management 30 (2004): 15–29; Erik Reinert, “Evolutionary Economics, Classical Development Economics, and the History of Economic Policy: A Plea for Theorizing by Inclusion” (Technology and Governance Working Papers, Paper 1, Tallin University, 2006); and Geoff rey Hodgson and Thorbjørn Knudsen, “Dismantling Lamarckism: Why Descriptions of Socio-economic Evolution as Lamarckian Are Misleading,” Journal of Evolutionary Economics 16 (2006): 343–366. 37. For an excellent overview of the complex market dilemmas of industrial economies, see the contributions to Nelson, Limits of Market Orga nization. 38. For instance, Anil Jacob, “Steering the State: The Politics of I nstitutional Change in the Pharmaceutical and Telecommunication Sectors in Post-reform India” (PhD diss., Rutgers University, 2010), which uses the recent Right to Information Act strategically to obtain policy process documents, something impossible to do a few years ago. 39. E.g., Lall, Learning to Industrialize, 11. 40. Ibid., 21. 41. Some see economic development itself as comprising two complementary processes of g reater efficiency and greater variety. Pier Paolo S aviotti and Andreas Pyka, “Product Variety, Competition and Economic Growth,” Journal of Evolutionary

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Economics 18 (2008): 323–347; Stanley Metcalfe, John Foster, and Ronnie Ramlogan, “Adaptive Economic Growth,” Cambridge Journal of Economics 30 (2005): 7–32; Richard G. Lipsey, Kenneth I. Carlaw, and Clifford T. Bekar, Economic Transformations: General Purpose Technologies and Long-Term Economic Growth (Oxford: Oxford University Press, 2005). This variety may be based on differentiation at different levels of aggregation. For narrower definitions of d ifferentiation within a product group, see Kelvin Lancaster, “Socially Optimal Product Differentiation,” American Economic Review 65 (1975): 567–585; and Lancaster, Variety, Equity, and Efficiency (New York: Columbia University Press, 1979). 42. See especially Saviotti and Pyka, “Product Variety, Competition and Economic Growth,” 324–325. 43. The classic reference dwelling on an evolutionary approach to nonoptimized search, satisficing, and technical change is now Richard R. Nelson, and Sidney G. Winter, An Evolutionary Theory of Economic Change (Cambridge, MA: Belknap Press of Ha rvard University Press, 1982). For t he more macrosocial effects of such behavior, par tic u lar technological paradigms result. Giovanni Dosi, “Technological Paradigms and Technological Trajectories: A Su ggested Interpretation of t he Determinants and Directions of Technical Change,” Research Policy 11, no. 3 (1982): 147–162. 44. Saviotti and Pyka, “Product Variety, Competition and Economic Growth,” 324–325. 45. See Bruno Amable, “Institutional Complementarity and Diversity of S ocial Systems of Innovation and Production,” Review of International Political Economy 7, no. 4 ( Winter 2000): 645–687. From a s ociety-wide perspective, see Robert Boyer, “How and Why Capitalisms Differ,” Economy and Society 34, no. 4 (November 2005): 509–557; and Boyer and Saillard, Régulation Theory. 46. Several scholars argue that the Anglo-Saxon variety of “optimum” regulation is indeed almost the reverse of Fre nch régulation approaches, which do not s eek to dissolve all economic institutions to m arkets, contracts, and principles/agents but recognize that an economy’s wealth of institutions and organizations may well interact through the market, but also independently of it (see Boyer, “How and Why Capitalisms Differ”). 47. Nicholas Kaldor, “The Irrelevance of E quilibrium Economics,” Economic Journal 92, no. 328 (1975): 1237–1255; Albert O. Hirschman, Rival Views of Market Society and Other Recent Essays (Cambridge, MA: Harvard University Press, 1992). 48. Peter J. Boettke, “What Happened to ‘Efficient Markets’?,” Inde pendent Review 14, no. 3 (Winter 2010): 363–375. 49. Ibid. 50. An excellent discussion can be found in Philippe Dulbecco and Véronique Dutraive, “The Meaning of t he Market: Comparing Austrian and Institutional Economics,” in The Evolution of Economic Institutions: A Critical Reader, ed. Geoff rey M. Hodgson in association with the European Association for E volutionary Political Economy (Cheltenham, England: Edward Elgar, 2007), 160–182.

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51. See J. Stanley Metcalfe, “Instituted Economic Processes, Increasing Returns and Endogenous Growth,” in The Evolution of E conomic Institutions: A C ritical Reader, ed. Geoff rey M. Hodgson in association with the Eu ropean Association for Evolutionary Political Economy (Cheltenham, England: Edward Elgar, 2007), 98– 102; also, from a more Austrian standpoint, V. J. Vanberg, Rules and Choice in Economics (London: Routledge, 1994). Note that this focus on nonequilibrium market behavior can encompass diverse views on r ationality and other individualistic characteristics. 52. Specifically on i ndustrial change and underdevelopment, Erik S. Reinert’s How Rich Countries Got Rich . . . and Why Poor Countries Stay Poor (London: Constable Press, 2007) pursues whether Schumpeterian economics can explain the dynamics of underdevelopment; also, Eduardo da Motta e Albuquerque, “Inadequacy of Technology and Innovation Systems at the Periphery,” Cambridge Journal of Economics 31 (2007): 669–690, attempts to match structural and dependency approaches to development with more systems and evolutionary perspectives. 53. Douglass C. North, “Institutions, Transactions Costs and Economic Growth,” Economic Inquiry 25 (July 1987): 419–428. 54. This literature occasionally overlaps with Marxist political geography, but planners on average tend to have greater optimism about social change and opportunity. In contrast, David Harvey and others value a Marxist account of the state and of complicit physical plans (and planners) in aiding social reproduction, e.g., David Harvey, The Urbanization of Capital (Oxford: Basil Blackwell, 1985), although this has been heavily critiqued as a narrow reading of economic plans and planning goals and practice and only one aspect of accumulation cycles. 55. Carlota Perez is one of the few scholars who have addressed physical and institutional aspects of i nnovation together, using technoeconomic paradigms in a ne oSchumpeterian framework. However, her work h as tended to fo cus primarily on national systems. Carlota Perez, “Microelectronics, Long Waves and Change: New Perspectives for Developing Countries,” World Development 13, no. 3 (1985): 441–463; Perez, “The Double Bubble at the Turn of the Century: Technological Roots and Structural Implications,” Cambridge Journal of E conomics 33 (2009): 779–805. The challenge overall is that most neo-Schumpeterian work with significant insights for innovation is rarely explicitly political. Régulation theorists such as Bruno Amable and Robert Boyer, in contrast, recognize and emphasize not only that national systems of innovation may be drawing the system boundaries too rigidly to encompass a limited number of organizations and institutions deemed “technological” (for instance, often isolating questions of labor markets, social policy, or finance), but also that the essential political frames that accompany these broader systems may have been expunged from the theory in order to maintain the abstractions. 56. Arguably, for smaller East Asian countries such as Singapore and Hong Kong, which are practically city-states, the question of geographic heterogeneity is less problematic. However, South Korean history shows variation by sector and geography and over time.

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57. Peter Evans, Embedded Autonomy: States and Industrial Transformation (Princeton, NJ: Princeton University Press, 1995), 59. 58. See arguments for t he limits of ut ility frameworks and a re consideration of the social context that induced several generations of ph armaceutical innovations, Srinivas, “Intellectual Property Rights, Innovation, and Healthcare.” 59. Smita Srinivas, “Industrial Welfare and the State: Nation and City Reconsidered,” Theory and Society 39, nos. 3–4 (May/July 2010): 451–470. 60. Albert O. Hirschman, The Strategy of Economic Development (New Haven, CT: Yale University Press, 1958); Albert O. Hirschman and Michael Rothschild, “The Changing Tolerance for I ncome Inequal ity in the Course of E conomic Development; with a Mathematical Appendix,” Quarterly Journal of Economics 87, no. 4 (1973): 544–566.

Chapter 2 1. The plan indicates a leading role for the public sector. “An investment on health is investment on m an and on i mproving the quality of h is life. It is, therefore, well recognised that health has to be viewed in its totality, as a part of the strategy of human resources development” (chapter 2, 22.15). Even “the people would be involved in tackling their health problems and community participation in the health programmes would be encouraged. They would be entitled to supervise and manage their own health programmes eventually” (chapter 2, 22.16, vi). Despite these noble a ims, the allocation was 150 crore for the public sector and 250 crore in the private sector for drug production (1 crore equals 10 million rupees). Government of India, Sixth FiveYear Plan document, http://www.planningcommission.nic.in/plans/planrel/fiveyr/6th /6planch22.html, accessed September 17, 2011. For a ve ry wide-ranging discussion of health access and goals, see also Sujata Prasad and C. Sathyamala, eds., Securing Health for All: Dimensions and Challenges (New Delhi: Institute for Human Development, 2006). 2. K. B. Saxena, “Governance in the Health Sector,” in Securing Health for All: Dimensions and Challenges, ed. Sujata Prasad and C. Sathyamala (New Delhi: Institute for Human Development, 2006). 3. Glaxo News, Bangalore Depot Special, a Glaxo Laboratories in-house publication (May 1982). Cited in J. S. Majumdar, “Background Paper,” in The Drug Industry and the Indian People, ed. Amit Sen Gupta (New Delhi: A Delhi Science Forum and Federation of Medical Representatives Associations of India, 1986), 11. 4. These phases differ from those in the extremely interesting work of S ahu, Technology Transfer, Dependence, and Self-Reliant Development in th e Third World. Sahu studies four phases that stop earlier than my study here. His data, from which I have drawn widely for the first market environment, show distinct phases in terms of later technological activity, but no pa r ticu lar emphasis on market structure: publicsector investments, building domestic manufacturing capabilities in the private sec-

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tor, containment of foreign firms, further growth of Indian firms in capabilities and size, and, finally, export launches of Indian firms in multiple overseas markets. 5. Medical universities, teaching hospitals, and a large, well-trained medical community had created the institutional mechanisms for referral, diagnosis, and distribution of prescription drugs. Although health insurance did not exist, a vast network of Central Government Health Ser vice outlets provided the civil and military ser vices with prescription drug coverage to some extent and has since expanded the private insurance and hospital markets to the middle classes. 6. Indeed, many interviewees were of t his category. Dr. Anji Reddy, CEO of Dr. Reddy’s Labs, and others were straight imports from the public sector and served to create the defining vision for private-domain research and manufacturing capability. A combination of advances in the public sector and its capabilities with its inefficiencies led to the eventual movement of skilled researchers to seek their fortunes in private firms. 7. Baldev Raj Nayar, India’s Quest for Technological Independence: Policy Foundation and Policy Change (New Delhi: Lancers, 1983). For more on Nehru’s vision of science, see Jawaharlal Nehru, “Religion, Philosophy and Science,” in chapter 10, “Ahmadnagar Fort Again,” in The Discovery of India (Calcutta: Signet Press, 1946), 509–514. 8. Sarvepalli Gopal, Jawaharlal Nehru: A Biography, vol. 1, 1889–1947 (New Delhi: Oxford University Press, 1975), 306. 9. Nasir Tyabji, “Gaining Technical Know-How in an Unequal World: Penicillin Manufacture in Nehru’s India,” Technology and Culture 45 (April 2004): 331–349. 10. Ibid, 333. 11. Ibid, 334–335. 12. Schering (United States), with the best technology for gentamicin, was unwilling to s ell without equity in HAL. See Sahu, Technology Transfer, Dependence, and Self-Reliant Development in the Third World, 98–99. 13. Ibid. 14. CDRI scientists found a ne w process for m anufacturing acetaminophen by using phenol instead of paraminophenol, which was scarce in the country. 15. AZT, or zidovudine, an anti-AIDS drug, was manufactured using a variant of the original process by I ICT and was subsequently transferred to Cipl a for manufacturing. 16. Traditional Indian herbal names are shown in parentheses. 17. See Sahu, Technology Transfer, Dependence, and Self-Reliant Development in the Third World, for a detailed accounting of the early technological challenges, as well as Tyabji, “Gaining Technical Know-How in an Unequal World.” 18. The CSIR had 40-odd public research laboratories in industries ranging from leather to ph armaceuticals. The “XX” in brackets in the quote is for c onfidentiality reasons. 19. In the 1980s and 1990s some critical cardiovascular drugs, such as streptokinase, were still being imported.

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20. The Indian government had recently given private companies 60 days to submit tenders for privatizing HAL. In Andhra Pradesh, with Hyderabad at its core, and with 40% of the country’s bulk drug production, some of these public assets, such as IDPL, were being converted into state and private consortia-run R&D units. 21. Sunil Khilnani, The Idea of India (New York: Farrar, Straus and Giroux, 1999). 22. India’s five leading fi rms and the interviewed biopharmaceutical fi rms all show the effects of gove rnment policies on t heir product portfolios. Many have benefited from significant procurement for public health markets, and some have directly benefited from past production allocation of manufacturing licenses. Their public health core has vaulted them into market access in the U.S. generics market. Only Biocon and Sun do not have public health drugs as a significant part of their product portfolio, and the former emerged from a history of industrial applications, not health. All have significant plant capacities, and almost all have invested in certified Good Manufacturing Practice infrastructure. The leading 5 are representative of a b roader sample of le arning techniques and capabilities. Less technologically advanced categories such as antacids had 12 fi rms, while cardiovascular formulations had 6, c entral ner vous system analgesics 20, vitamins 16, and antipyretics 10. The most concentrated category was broad and narrow antibiotics, with 21. 23. ORG-MARG, “Retail Store A udit for P harmaceutical Products in India” (2001). 24. One study cites problems with Lupin’s single drug rifampicin products sold in South Africa. The drug showed varied bioavailability and pharmacokinetic variation among patients. McIlleron Helen, Peter Wash, André Burger, Peter I. Folb, and Pete Smith, “Widespread Distribution of a Single Drug Rifampicin Formulation of Inferior Bioavailability in South Africa,” International Journal of Tuberculosis and Lung Diseases 6, no. 4 (April 2002): 356–361.

Chapter 3 1. Some have ascribed this to the patent regime; foreign firms will not move into proprietary areas if product patents are not p ermitted. However, even with process patents in more recent years, some foreign firms had begun R&D in India. It appears that the broader market environment, not patents alone, had a part to play. 2. For approximately the same time period, estimates are of domestic firms controlling 68% market share (Sudip Chaudhuri, The WTO and India’s Pharmaceuticals Industry: Patent Protection, TRIPS, and Developing Countries [New York: Oxford University Press, 2005], 1, 29), and a higher estimate of 75% is from P. K. Ramachandran and B. V. Rangarao, “The Pharmaceutical Industry in India,” Economic and Political Weekly 7 (1972): M-27, M-30. 3. The U.S. war effort required large volumes of penicillin, but firms lacked the ability to obtain large yields. Eventually, a “mission-mode” U.K. initiative led to t he

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development of i ndustrial-scale penicillin production. Ralph Landau, Basil Achilladelis, and Alexander Scriabine, eds., Pharmaceutical Innovation: Revolutionizing Human Health (Philadelphia: Chemical Heritage Press, 1999), 86. 4. Dr. Reddy’s Laboratories, an innovative firm, was begun in this fashion. However, city and state governments had little direct influence on i nvestment in these subsectors. 5. Sahu, Technology Transfer, Dependence, and Self-Reliant Development in th e Third World, 78. 6. Ibid., 81. 7. Government of India, Office of the Controller General of Patents, Designs and Trademarks, “The Patents Act, 1970,” http://ipindia.nic.in/ipr/patent/patAct1970 -3 -99 .html, accessed September 23, 2011. See details at World Intellectual Property Orga nization, “India, The Patents Act, 1970,” http://www.wipo.int /wipolex /en /details.jsp?id = 2393, accessed September 23, 2011, and World Intellectual Property Organization, “India, Patents Rules, 1972,” http://www.wipo.int /wipolex /en /details.jsp?id = 7621, accessed September 23, 2011. 8. For a very detailed analysis see Sudip Chaudhuri, WTO and India’s Pharmaceuticals Industry. 9. Sahu, Technology Transfer, Dependence, and Self-Reliant Development in th e Third World, 64, 67, 70. 10. Certain drugs were reserved for production in the small-scale sector, such as antibiotics (chloramphenicol powder and palmitate, ampicillin trihydrate, erythromycin, amoxycillin, rifampicin, ciprofloxacin, cephalexin), antibacterials (trimethoprin), sulfa drugs (sulfamethoxazole), central ner vous system stimulants (caffeine), vitamins (nicotinamide), and tranquilizers and sedatives such as diazepam. Indeed, many of India’s pharmaceutical policies ran afoul of this small-scale industry bias, and minor modifications were made from time to time to further include small firms. Amit Sen Gupta, ed., The Drug Industry and the Indian People (New Delhi: Delhi Science Forum and Federation of Medical and Sales Representatives’ Associations of India, 1986). 11. ORG-MARG, “Retail Store Audit for Pharmaceutical Products in India,” various years. 12. The state could award compulsory licenses to ot her firms should the patent holder refuse to do so. 13. The juxtaposition of access to medicines and company growth was brought to light in one interview: “Patent law was intended to help to protect small inventors, but has been perverted by big pharmaceutical companies. I am a doctor also, so I feel this way” (interview, company board member, July 5, 2002). 14. Interview, October 15, 2003. 15. One problem is that secondary sources of data on industry profitability show averages across all product categories. Therefore, the effects of price controls only on specific product segments (the “essentials”) where the controls were particularly strict cannot unequivocally be demonstrated. Overall, however, the industry grew in numbers of firms but showed reduced gross profit margins.

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16. Bejon Misra, Voluntary Organisation in Interest of C onsumer Education, “History of D rug (Prices Control) Order (DPCO),” in A Study on Availability and Prices of Medicines in India, supported by t he National Pharmaceutical Pricing Authority, Government of India, http://www.nppaindia .nic.in /report /voicerep.html, accessed September 26, 2011. 17. In recent years low pricing levels also have curtailed market growth. In 2000 volume growth was about 8%, while price growth was just over 2%. Profitability on average is estimated to be only about 8%, where profit is calculated before tax as a percentage of sales revenue. All figures are from the Report of the Committee on Drugs and Pharmaceutical Industry (Chairman: Jaisukhlal Hathi), Ministry of Petroleum & Chemicals, Government of India, PPCM.5/2000 (New Delhi: Controller of Publications, 1975); Reserve Bank of India Bulletins; and Orga nization of Pharmaceutical Producers of India reports, various years. 18. Sahu, Technology Transfer, Dependence, and Self-Reliant Development in th e Third World, 80. 19. Pradeep Agrawal and P. Saibaba, “TRIPS and India’s Pharmaceuticals Industry,” Economic and Political Weekly (September 29, 2001): 3787. 20. Some Indian firms too have avoided essential drugs and have not i nvested in discovering drugs for common Indian illnesses. However, public health’s significance as a technological and market-entry vehicle is its link to antibiotics and vaccines. Only recently have Indian firms developed in-house variants of existing drugs for AIDS and TB. 21. See also H. Ahmad, Technological Development in Drugs and Pharmaceutical Industry in India (New Delhi: Navrang, 1988). 22. The prices refer to wholesale prices, and the markup was taken to i nclude manufacturing profit margins, trade commissions, advertising and marketing costs, and distribution. Markups were set at a c eiling of 40% for Category I and at 55% for Category II (Drug Price Control Order, Government of India, 1970, 1979). 23. The markup for less essential Category III drugs was up to 100%, and prices for Category IV drugs were altogether unregulated. 24. Drug Price Control Order, Government of India, 1970, 1979. “Essential” drugs were a controversial category. Both Indian and foreign firms disagreed with the government on it s meaning and price controls. The Order worked on t he basis of t he MAPE (Maximum Allowable Post Manufacturing Expenses), where life-saving categories of drugs were eventually permitted generous markups. See discussion in Sahu, Technology Transfer, Dependence, and Self-Reliant Development in the Third World, 75. 25. “Farce of Drug Policy,” Economic and Political Weekly, March 8–15, 1986, 409. 26. Despite the process patent regime, many MNCs reentered the Indian market after economic liberalization in the early 1990s. Firms such as Hoechst Marion Roussel introduced new products in the domestic market in 2002 (the antidiabetic Amaryl, the cardiovascular Cardace-H, and Tavanic, an anti-infective). Some, such as Aventis, invested in domestic R&D. 27. More recent modifications to the drug policy of 1986 were announced in 1994. These modifications continued to prioritize availability and affordability of essential

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medicines, quality control, technological upgrading and new investments, and indigenous capabilities in drug production. See National Pharmaceutical Pricing Authority (NPPA), “What Are the Objectives of the Drug Policy?,” http://nppaindia .nic .in /frequent.html, accessed September 24, 2011. 28. “Highly Essential and Life-Saving Drugs” of the New Drug Policy, Category I formulations, included items such as aspirin tablets, DPT (diphtheria, pertussis, and tetanus) vaccines, insulin injections, penicillin injections (including procaine and G and benzathine penicillins), and streptomycin injections. Category II formulations included amodiaquine tablets, chloroquine salts, phenobarbital tablets, tetanus toxoid injections, and tetracyclines in different forms. Some of t he 17 essential bulk drugs listed were vitamins A, B, and C, penicillins of various types, insulin, tetracyclines, and prednisolone. Background papers of the National Convention on Economic Independence and Perspective of Drug Industry, New Delhi, December 21, 1974, 49, cited in Majumdar, “Background Paper.” 29. Ownership was significant and controversial. In a famous case, Glaxo (India) was denied a license for manufacture of an effective antiasthmatic drug, salbutamol, and Cipla was awarded production rights on t he basis of i ndigenously developed technology. 30. Biswajit Dhar and C. Niranjan Rao, “Transfer of Technology for Successful Integration into the Global Economy: A Case Study of the Pharmaceutical Industry in India,” UNCTAD/ITE/IPC/Misc.22 (New York: United Nations Conference on Trade and Development, 2002), 3; Also Sahu, Technology Transfer, Dependence, and SelfReliant Development in the Third World, 71. 31. Sahu, Technology Transfer, Dependence, and Self-Reliant Development in th e Third World. 32. Singh, Multinational Corporations and Indian Pharmaceutical Industry. 33. Dinesh Abrol and Amitava Guha, “Production and Price Controls: The Achilles Heel of National Drug Policy,” in Sen Gupta, ed., Drug Industry and the Indian People, 126–161. 34. For 1997–1998, e.g., Alkem for cephalosporins was outside the list, and Lupin, for TB bulk drugs, was at number 8. High R&D spenders relative to sales are also well below number 10 (e.g., Dr. Reddy’s Laboratories). 35. ORG-MARG, “Retail Store Audit for Pharmaceutical Products in India,” various years. 36. Competition is heavy. Market-share leaders are not necessarily product leaders in the domestic market. Alkem, for example, an Indian-owned firm, had the sixthmost-sold product, Taxim-O, a cephalosporin, but the company does not rank among the top 10 firms by market share. 37. Export-Import Bank of I ndia, “Indian Pharmaceutical Industry: Surging Globally,” Occasional Paper No. 119 (Quest Publications, August 2007), 55, http://www .eximbankindia.com/op/oplast.pdf, accessed September 24, 2011. 38. Ranbaxy had already entered drug discovery in the anti-infectives, respiratory, urology, cardiovascular, and oncology segments, other technology platforms,

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and biopharmaceuticals. Cipla had no biopharmaceutical element but was attempting drug discovery and development in antifungal, antihistamine, and AIDS areas, while Dr. Reddy’s Laboratories was conducting discovery research in diabetes, oncology, anti-infectives, pain management, vaccines, and biopharmaceuticals. 39. In 2003 AstraZeneca opened its Bangalore R&D facility for tropical diseases, most notably tuberculosis, and invested approximately US$11million. 40. Raw materials form a sm all proportion of s ales at 31%. Pfizer lowered this through continuous cost cutting. 41. Local MNCs cannot take advantage of tax benefits for overseas sales. 42. Business Line, “As Different as Chalk and Cheese,” Hindu, July 14, 2002. 43. Gerschenkron, Economic Backwardness in Historical Perspective. 44. Remaining imports were mainly patented molecules from a pat ent-holding MNC to its subsidiary or purchases by Indian firms. In some cases imports were made on bulk drug price margins from China, e.g., captopril bulk molecules bought at a tenth of the Indian price. Indian companies, however, unlike China at the time, were becoming preferred vendors for specialty “customized” bulk drugs. 45. In 1986 there were over 60,000 formulations, of which 9,000 formulators differentiated their brands minimally to be noticed. This compared unfavorably with the WHO Essential Drug List of t he time, which described 7 fi xed-dose-ratio combination drugs out of its total of 250 essential drugs and recommended that essential drugs be marketed only in generic form. Abrol and Guha, “Production and Price Controls.” 46. Between 1980 and 1986 the turnover (in Rs.) of MNCs in the top 20 companies by market share in antibiotics was only 38%, while that of I ndian firms, public and private, was 62%. MNCs produced a h igh share of ton ics, vitamins, and cough and cold preparations in the domestic market. Among the top 85 c ompanies, the MNC contribution was similarly static at 35%, and Indian firms produced 65% i n rupee terms. However, in simple formulations and vitamins, MNCs produced 73% and Indian firms only 27%. ORG-MARG, “Retail Store Audit for Pharmaceutical Products in India,” cited in Sahu, Technology Transfer, Dependence, and Self-Reliant Development in the Third World, 70, 71. 47. Becosules (B complex) ranked second in 1984, and Baralgan (deemed a hazardous antispasmodic) ranked fi ft h (ORG, May 1984). The overpricing ranged up to almost 45% in the case of Becosules (packs of 20) from Pfizer and various Glaxo tonics at 90% to 100%. Amitava Guha, “Marketing of Medicine (Parasitology for Profit),” in Sen Gupta, ed., Drug Industry and the Indian People, 219–231. 48. Abrol and Guha, “Production and Price Controls.” 49. Sambhu Maitra, “Actual Drug Needs: Facts and Fallacies,” in Sen Gupta, ed., Drug Industry and the Indian People, 59–68; Sudip Chaudhuri, “Licensing Policies and Growth of Drug TNCs in India,” in Sen Gupta, ed., Drug Industry and the Indian People, 243–254.

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Chapter 4 1. For instance, Reinhardt, “Can Efficiency in Health Care Be Left to the Market?,” supports this approach. 2. See Ravi Duggal, “The Right to Health in India,” in The Right to Health in Comparative Perspective, ed. Stephen P. Marks (Boston: François-Xavier Bagnoud Center for Health and Human Rights, Harvard School for Public Health, 2008). The Bhore Committee had also earlier recommended prohibiting private practice by f ull-time salaried doctors to assure that rural areas would get attention and had suggested that a state health system was essential. 3. J. Bhore, Report of the Health Survey and Development Committee, vol. 2 (Delhi: Manager of Publications, Government of India, 1946). 4. Srinivas, “Industrial Welfare and the State.” 5. Ibid. 6. Ibid. 7. Atul Kohli, Democracy and Discontent: India’s Growing Crisis of Governability (Cambridge: Cambridge University Press, 1990). 23. The governance problem he refers to is an absence of enduring coalitions, policy ineffectiveness, and the incapacity to accommodate conflict without resorting to v iolence. Here politics and the state are independent variables, unlike structural-functionalist and Marxist approaches, where both remain variables primarily dependent on independent economic ones. 8. Keith B. Griffin, Alternative Strategies for Economic Development (New York: St. Martin’s Press and OECD Development Centre, 1989), 118. 9. Griffin, Alternative Strategies for Economic Development, 118. 10. United Nations Industrial Development Organization, Industrial Development Review Series: India (Vienna: UNIDO, 1985), 4, table 1. 11. Kohli, Democracy and Discontent. 12. Sujata Gathoskar, More than Elbow Room (New Delhi: NORAD, 1990). 13. Anil K. Sengupta, “Trends in Industrial Conflict in India (1967–87) and Government Policy” (Working Paper Series no. 174/92, Indian Institute of Management, Calcutta, 1992); see also Debashish Bhattacharjee, “The Evolution of Indian Industrial Relations: A C omparative Perspective,” Industrial Relations Journal 32, no. 3 (2001): 244–263. 14. Bhattacharjee, “Evolution of Indian Industrial Relations.” 15. Khilnani, Idea of India. 16. A common opinion is illustrated in “Is There Hope for South Asia? Yes, If We Can Replicate the Models of Kerala and Sri Lanka,” editorial, British Medical Journal 328 (April 3, 2004): 777–778. On gender complexities in society and health outcomes, there are numerous excellent articles, e.g., Monica Das Gupta, “Life Course Perspectives on Women’s Autonomy and Health Outcomes,” American Anthropologist 97, no. 3 (September 1995): 481–491. On gender in health, see Gita Sen, Asha George, and Piroska Östlin, Engendering International Health—The Challenge of E quity (Cambridge, MA: MIT Press, 2002); and Gita Sen, “The Quest for G ender Equality,” in Reclaiming

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Development Agendas: Knowledge, Power and International Policy Making, ed. Peter Utting (New York: Palgrave Macmillan and UNRISD, 2006). On gender and health social protections in labor markets, see Frances Lund and Smita Srinvas, Learning from Experience: A Gendered Approach to Social Protection for Workers in the Informal Economy (Geneva: International Labour Office and WIEGO, 2000). 17. Keith Hart, “Informal Income Opportunities and Urban Employment in Ghana,” Journal of Modern African Studies 11 (1973): 61–89. 18. Carmelo Mesa-Lago’s work p oints to L atin American massification. MesaLago, Social Security in Latin America: Pressure Groups, Stratification and Inequality (Pittsburgh: University of Pittsburgh Press, 1978). See also Srinivas, “Industrial Welfare and the State,” for late industrial variety. 19. See Patrick Heller, The Labor of Development: Workers and the Transformation of Capitalism in Kerala, India (Ithaca, NY: Cornell University Press, 1999). 20. See Smita Srinivas, “Cost, Risk, and Labour Models: The State and Sticky Institutions in Global Production Networks,” special issue on “Global Production and Its Implications for Indian Firms and Labour,” Indian Journal of Labour Economics 52, no. 4 (2009): 583–605, for an analysis of the challenges to Indian incorporation and the need for new frameworks of employment regulation. 21. In Kerala head load workers primarily orga nized through local channels, while federated labor unions were critical in the construction sectors. Heller, The Labor of Development, 171. 22. On SEWA’s early path, see also Ilina Sen, A Space within a Struggle (New Delhi: Kali for Women, 1990). See also C. S.Venkata Ratnam and Harish C. Jain, “Women in Trade Unions in India,” International Journal of Manpower 23, no. 3 (2002): 277–292. 23. International Labour Orga nization, Women Organizing for Social Protection: The Self-Employed Women’s Association’s Integrated Insurance Scheme, India (Geneva: ILO/STEP, 2001); Smita Srinivas, “The Future of Social Security Coverage for Informal Sector Workers: An Analysis of the SEWA Integrated Social Security Scheme” (Geneva: ILO-STEP, 1999) (unpublished). 24. This move is “not marked by t he sharp edges of t he capital-labour conflict.” Supriya Roy Chowdhury, “Labour Activism and Women in the Unorganised Sector, Garment Export Industry in Bangalore,” Economic and Political Weekly 40, no. 22/23 (May 28–June 4, 2005): 2250–2255. 25. Supriya Roy Chowdhury, “Old Classes and New Spaces: Urban Poverty and New Trade Unions,” Economic and Political Weekly 38, no. 50 (D ecember 13, 2003); 5277–5284. see also Srinivas, “Cost, Risk, and Labour Models.” 26. See Heller, Labor of D evelopment. On the two-decade-long move to t he full opening up of the economy, see also Alakh N. Sharma, “Flexibility, Employment and Labour Market Reforms in India,” Economic and Political Weekly 41, no. 21 (2006): 2078–2086; and Bishwanath Goldar, “Trade Liberalisation and Employment: The Case of India” (Employment Paper 2002/34, ILO, Geneva, 2002). 27. K. V. Ramaswamy, “The Search for Flexibility in Indian Manufacturing: New Evidence on Outsourcing Activities,” Economic and Political Weekly 34 (February 6,

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1999): 363–368. See also Debashish Bhattacherjee, “Determinants of Bargaining Structure in India: An Exploratory Exercise,” Economic and Political Weekly 27 (May 1992): M71–M74. 28. T. S. Papola, “Structural Adjustment, Labour Market, Flexibility and Employment,” Indian Journal of Labour Economics 37, no. 1 (1994): 3–16. 29. The Indian government created the Second National Commission on Labour in 1998 to rationalize laws for orga nized labor and fi nd new institutional mechanisms to include “unorganized” labor. See http://labour.nic.in/lcomm2/welcome.htm, accessed September 18, 2011. See also Stephen Sherlock, “The National Commission on Labour and Its Quest for Industrial Harmony, 1967–69,” in India: Creating a Modern Nation, ed. Jim Masselos (New Delhi: Sterling Publishers, 1990), 175–198. He mentions that the prime minister was noticeably absent at important labor meetings, but present at discussions with corporations. See also Shyam Sunder, “Second National Commission on Labor—Not up to the Task,” Economic and Political Weekly 35, no. 30 (July 22–28, 2000): 2607–2611. 30. Anwar Islam and M. Zaffar Tahir, “Health Sector Reform in South Asia: New Challenges and Constraints,” Health Policy 60 (2002): 151–169; see also B. C. Purohit, “Private Initiatives and Policy Options: Recent Health System Experience in India,” Health Policy and Planning 16, no. 1 (2001): 87–97; and Ravi Duggal, “Priorities for Health Reforms in India. Paper at t he 3rd International Conference on Priorities in Health Care” (Amsterdam, November 24, 2000). 31. National Health Policy (New Delhi: Government of India, Ministry of Health and Family Welfare, 1983). 32. The challenges of i mplementing the various health plans is a s tudy in itself. For instance, strong opinions about the limits of the ICMR and the ICSSR are evident in the chapters of K. B. Saxena, “Governance in the Health Sector,” and S. Srinivasan and Anurag Bhargava, “Availability and Access to Drugs,” in Securing Health for All, ed. Sujata Prasad and C. Sathyamala (New Delhi: Institute for Human Development, 2006), 163–222 and 223–250, respectively. 33. N. H. Antia, “On Health and Healing: Community Health Care in India,” Indian Journal of Pediatrics 58 (1991): 161–173, N. H. Keshwani oration delivered at t he All India Institute of Medical Sciences, November 1990. Dr. Antia is from the Foundation for Research in Community Health in Worli, Mumbai. 34. Ibid. 35. E.g., National Sample Survey Organisation, “Morbidity and Utilization of Medical Ser vices,” NSS-1987 (42nd Round, Report no. 384, National Sample Survey Organisation, New Delhi, 1987); Ravi Duggal and Sucheta Amin, Cost of Health Care (Mumbai: Foundation for Research in Community Health, 1989). 36. An early infamous case is that of the Apollo Indraprastha Hospital, which was founded in 1996 as a joint public-private partnership between the government of the National Capital territory of Delhi and the private Apollo Hospitals Group. Both the land and the hospital building were heavily subsidized through a lease (a nominal Rs. 1/month) and Rs. 1,700 million spent entirely by the government and public financial

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organizations, with a 25% stake retained by the government. Although the agreement required the hospital to prov ide free outpatient treatment for lo w-income patients, this has not transpired despite ongoing public-interest litigation (cited in Vikas Bajpai and Anoop Saraya, “Healthcare Financing: Approaches and Trends in India,” National Medical Journal of India 23, no. 4 [2010]: 234). 37. As the Wall Street Journal reported in an interview with Miles White, CEO of Abbott, “One appeal of emerging markets is that individuals, and not governments, pay for a b ig portion of he alth-care costs. Mr. White said about 70% of t he Indian market is self-pay, which means Abbott’s business there won’t be as vulnerable to the budget belt-tightening seen in European health programs.” Health Industry, “Abbott Labs to Buy Indian Business,” Wall Street Journal, May 26, 2010, http://online.wsj.com /article/SB1000 1424052748704852004575257614197847830.html, accessed November 25, 2010. 38. E.g., Bajpai and Saraya, “Healthcare Financing”; A. Mukhopadhyay, “PublicPrivate Partnership in the Health Sector in India,” in Public-Private Partnerships in the Social Sector: Issues and Country Experiences in A sia and the Pacific, ed. Yidian Wang, ADBI Policy Paper no. 1 ( Tokyo: Asian Development Bank Institute, 2000), 333–344, http://www.adbi.org /fi les/2000 .10 .books.partnerships.social.sector.pdf, accessed October 6, 2011; also Imrana Qadeer and Sunita Reddy, “Medical Care in the Shadow of Public Private Partnership,” Social Scientist 34, no. 9/10 (2006): 4–20.

Chapter 5 1. John Braithwhite and Péter Drahos, eds., Global Business Regulation (Cambridge: Cambridge University Press, 2000); and David Levi-Faur, “The Global Diff usion of Regulatory Capitalism,” Annals of the American Academy of Political and Social Science 598 (March 2005): 12–32. 2. Smita Srinivas, “Industry and Innovation: Some Lessons from Vaccine Procurement,” World Development 34, no. 10 (2006): 1742–1764. 3. Although the balance-of-payments crisis heralded economy-wide liberalization in 1991, some degree of liberalization (especially in lift ing licensing regulations) had already occurred in the mid-1980s. 4. See Smita Srinivas, “Technological Learning and the Evolution of t he Indian Pharmaceutical and Biopharmaceutical Sectors” (PhD diss., Massachusetts Institute of Technology, 2004); on vaccines, Srinivas, “Industry and Innovation.” 5. Kenneth J. Arrow, “The Economic Implications of Learning by Doing,” Review of Economic Studies 29, no. 3 (1962): 155–173. As he describes it, “I do not think that the picture of technical change as a vast and prolonged process of learning about the environment in which we operate is in any way a far-fetched analogy; exactly the same phenomenon of improvement in performance over time is involved. . . . Learning can only take place through the attempt to solve a problem and therefore only takes place during activity” (155).

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6. Indeed, Arrow emphasizes that the learning by doing need not occur only as an automatic by-product of ordinary production, but can also be heightened by institutions, education, and research geared to this effort (ibid., 172). 7. Vernon, “International Investment and International Trade in the Product Cycle,” p. 191. 8. See Amsden, “Editorial: Bringing Production Back In,” for major arguments. 9. Ibid. 10. In contrast, with stronger domestic policy priorities and a different fiscal federalism and decentralization history, Brazil navigated harmonization in a more substantial manner. 11. Manoj Pant, Foreign Direct Investment in India: The Issues Involved (New Delhi: Lancers Publishers, 1995). Ranbaxy has manufacturing facilities in seven countries, including China, Ireland, India, Malaysia, Nigeria, the United States, and Vietnam. The company indicates that it w as the ninth-largest generics manufacturer in the United States in 2001–2002 and experienced a growth of 162% in U.S. sales over the previous year (Ranbaxy company website, http://www.ranbaxyusa.com/news disp06302003.aspx, accessed September 23, 2011). It is also the 11th-largest generics manufacturer worldwide and exports to over 70 countries, with field presence in 25 of them and manufacturing in the 7 listed above. By October 2003 Indian firms were on a giant shopping spree: Alembic bought a Dutch company, Aurobindo Pharma bought a Chinese pharmaceutical unit, Cadila Healthcare bought a Fre nch formulations business, and Wockhardt bought CP Pharma (United Kingdom) (Centre for Monitoring the Indian Economy, http://www.cmie.com/, and various news reports). 12. E.g., Joseph Farrell and Garth Saloner, “Standardization, Compatibility, and Innovation,” RAND Journal of Economics 16 (1985): 70–83; also Joseph Farrell and Garth Saloner, “Installed Base and Compatibility: Innovation, Product Preannouncements and Predation,” American Economic Review 76 (1986): 940–955; Michael L. Katz and Carl Shapiro, “Technology Adoption in the Presence of Network Externalities,” Journal of Political Economy 94 (1986): 822–841; and Michael L. Katz and Carl Shapiro, “Systems Competition and Network Effects,” Journal of Economic Perspectives 8, no. 2 (1994): 93–115. 13. Smita Srinivas, “Technical Standards and Economic Development: Meeting the Most Common Denominator” (paper prepared for t he United Nations Industrial Development Organization and Industrial Development Report, UNIDO, Vienna, July 2005); Carlos M. Correa, “Ownership of Knowledge—The Role of Pat ents in Pharmaceutical R&D,” Bulletin of the World Health Organization 82, no. 10 (2004): 784–787. 14. Paul A. David, “Some New Standards for the Economics of Standardisation in the Information Age,” in Economic Policy and Technological Per formance, ed. Partha Dasgupta and Paul Stoneman (Cambridge: Cambridge University Press, 1990); Paul A. David and Shane Greenstein, “The Economics of Compatibility Standards: An Introduction to Recent Research,” Economics of Innovation and New Technology 1, no. 1/2 (1990): 3–41. See also Knut Blind, The Economics of Standards: Theory, Evidence, Policy (Cheltenham, England; Northampton, MA: Edward Elgar, 2004).

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15. For a f uller discussion of t ensions between harmonization-necessitated and needs-necessitated technical standards, see Srinivas, “Technical Standards and Economic Development.” 16. World Trade Orga nization, “Declaration on the TRIPS Agreement and Public Health,” WTO/MIN(01)/DEC/2, adopted November 14, 2001, http://www.wto.org /english/thewto_e/minist _e/min01_e/mindecl _trips _e.htm, accessed September 23, 2011. 17. The Indian Parliament enacted the Patents (Amendment) Act 1999 to provide for “mailbox” and exclusive marketing rights obligations (a mailbox system is a system whereby applications for patents for pharmaceutical product inventions can be fi led), and the Patents (Second Amendment) Act 2002 to convert the 1970 Patents Act to comply with TRIPS during the 10-year transitional period from January 1, 1995, until 2005, when full TRIPS conversion was to occur. Before 2005 a Third Amendment was introduced to provide a product patent regime for all areas of technology not previously covered by t he 1970 Patents Act. Analysts had suggested that India tighten the use of the word “invention” to prevent frivolous claims against its firms, and that “product” should apply on ly to new chemical entities and not to for mulations, dosage forms, new uses, or new combinations of off-patent products. See B. K. Keayla, New Patent Regime: Implications for Domestic Industry, Research and Development and Consumers (New Delhi: National Working Group on Patent Laws, 1996). 18. The U.S. National Institutes of Health has designated Reliance Life Sciences one of 10 worldwide preferred suppliers for stem-cell cultures. 19. At the start of the 1990s the cost of an AIDS treatment combination for an individual was about $8,500 a year in India, but when Indian-owned Cipla began production in 1993 of zidovudine as a generic and followed it with stavudine, lamivudine, and nevirapine, it had succeeded in creating the relatively successful AIDS cocktail for US$600 per patient per year and provided it at US $1/day to charities like Médecins Sans Frontières, causing a stir worldwide and forcing multinational pharmaceuticals to lower their prices significantly. Cipla exports anti-AIDS drugs to more than 35 countries. In March 2002 WHO listed Cipla as one of t he preferred international suppliers of a nti-AIDS drugs. Firms such as Anglo American, South Africa’s largest mining company, approached Cipla to buy a three-drug cocktail of the drugs for its workers. Of the cocktail, Cipla has registered one generic (of GlaxoSmithKline Beecham’s lamivudine) in South Africa. The cocktail consists of three products: lamivudine (brand name Lamivir), stavudine (Stavir from Bristol-Myers Squibb), and navirapine (Nevimune from BoehringerIngelheim). Cipla’s stock rose considerably after the withdrawal by 39 transnational companies of a patent suit for AIDS drugs against the South African government. The recent anthrax scare in the United States highlighted the low cost of c iprofloxacin generics made by Cipla pharmaceuticals in India (about 10 U.S. cents compared with Bayer’s monopoly price of US$6, both retail). This caused some U.S. senators to try to contact Cipla for access to cheap ciprofloxacin despite U.S. patent laws prohibiting importation of a pat ented drug from a c ompany other than the patent holder, resulting in Bayer reducing its price to 95 cents.

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20. Thus for most firms, the relevant cGMP guidelines are for (1) tools and processes, such as fermentation or upstream processing, purification or downstream processing, and quality control; (2) descriptive documents, data-collection documents, and numbering systems; and (3) how to establish validation protocols for a new protein, new infrastructure, or an entirely new facility. Documentation alone includes (1) standard operating procedure guidelines and descriptions, protocols of various kinds for process and production controls, and master production records; (2) datacollection formats such as forms, batch production records, and log books; (3) numbering systems, such as equipment part numbers, lot numbers, and form numbers; and (4) data fi les ranging from equipment history to fi les that track products, parts, and equipment and allow traceability at all times. Also, Indian companies must establish validation protocols, many for t he first time. These have three components: (1) installation qualification, including equipment identification information, equipment utility requirements (such as ser vices of water, gas, nitrogen, drainage, and exhaust), and equipment safety features (such as pressure valve releases, alarms, and appropriate triggers); (2) operational qualification calibration requirements, such as measurable pa rameters, methods of measurement, monitoring and the appropriate range, triggers and limits of such calibration pa rameters, preoperational activities, and operations and acceptance criteria; and (3) per formance qualification to create reliable and reproducible working per formance even in extreme conditions. Th is includes preliminary operations, per for mance qualification procedures, and per formance qualification acceptance procedures and criteria. 21. These requirements refer to U.S. FDA regulations, listed in the Code of Federal Regulations (CFR) 21, CFR 210 and 211, 21 CFR 600 and 610. 22. Although in the case of patent challenges, a noninfringing method of manufacture is one of the criteria for application. 23. However, generics still need to meet the same facilities requirements for manufacturing approved by the FDA: “A generic drug is identical—or bioequivalent—to a brand name drug in dosage form, safety, strength, route of administration, quality, performance characteristics and intended use. Although generic drugs are chemically identical to their branded counterparts, they are typically sold at substantial discounts from the branded price. . . . According to the Congressional Budget Office, generic drugs save consumers an estimated $8 to $10 billion a year at retail pharmacies. Even more billions are saved when hospitals use generics.” U.S. Food and Drug Administration, http:// www.fda .gov/Drugs/ResourcesForYou /Consumers/QuestionsAnswers/ucm100100 .htm, accessed September 23, 2011. 24. Interview, July 6, 2002. 25. Ibid. 26. Ibid. 27. Duff Wilson, “F.T.C.: 28 ‘Pay-for-Delay’ Generic Drug Deals,” New York Times, October 25, 2011, http://prescriptions.blogs.nytimes.com/2011/10/25/f-t-c-28-pay-for -delay-generic-drug-deals/, accessed December 10, 2011.

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28. The rents are affected, however, by the uncertainties of approval. For example, in October 1993 the FDA simultaneously approved three generic drug producers for alprazolam and in December 1993 approved nine generic drug producers for naproxen. For more on mo deling of how competition evolves in the generics drug market, see David Reiffen and Michael R. Ward, “Generic Drug Industry Dynamics,” Federal Trade Commission working papers, February 2002, http://www.ftc.gov/be/workpa pers/industrydynamicsreiffenwp.pdf, accessed September 23, 2011. See also Reiffen and Ward, “Generic Drug Industry Dynamics,” The Review of Economics and Statistics 87, no.1 (February 2005): 37–49. 29. Furthermore, generic drug manufacturers have to compete directly with incumbents. Brand-name firms manufacture many generics themselves. U.S. Food and Drug Administration, “Facts and Myths About Generic Drugs,” http://www.fda .gov /drugs/resourcesforyou/consumers/buyingusingmedicinesafely/understandinggenericdrugs/ucm167991.htm, accessed October 6, 2011. A new chemical entity (NCE) can be manufactured and marketed only after the producer has received a new drug approval from the U.S. FDA. 30. The mean approval process requires two to three resubmissions and can take 19 months. Fiona Scott-Morton, “Entry Decisions in the Generic Pharmaceutical Industry,” RAND Journal of Economics 30 no. 3 (1999): 427. 31. Anna E. Cook, How Increased Competition from Generic Drugs Has Affected Prices and Returns in the Pharmaceutical Industry (Washington, DC: Congressional Budget Office, 1998). See also Richard E. Caves, Michael D. Whinston, and Mark A. Hurwicz, “Patent Expiration, Entry, and Competition in the U.S. Pharmaceutical Industry,” in Brookings Papers on Economic Activity: Microeconomics (Washington, DC: Brookings Institution, 1991), 1–48. 32. However, regulatory guidelines were in disuse; approvals were cumbersome. Interviews elicited a surprising similarity in responses among firms in both pharmaceuticals and biopharmaceuticals. 33. Estimates are that GMP-compliant manufacturing is 25% to 30% more valuable to Indian companies than facilities without cGMP certification. Sean Eric Smith, “Opening Up to the World: India’s Pharmaceutical Companies Prepare for 2005” (Occasional paper series, Asia/Pacific Research Center, Institute for International Studies Stanford University, May 2000), 16. http://iis-db.stanford.edu/pubs/11893/smith.pdf, accessed September 23, 2011. 34. All quotes are taken from Lanjouw, “Introduction of Pharmaceutical Product Patents in India.” 35. Although some firms supplied to other countries through partner companies, they began by capturing shares of domestic and then foreign markets with considerable industrial policy assistance. 36. Large companies such as Cipla with a long h istory of exports have approval from the State Institute for the Control of Drugs, Slovak Republic; the National Institute of Pharmacy, Hungary; ANVISA (National Health Surveillance Agency), Brazil; the Medicines Control Council, South Africa; the Therapeutic Goods Administra-

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tion, Australia; the Pharmaceutical Inspection Convention, Germany; the Medicines Control Agency, United Kingdom; the Food and Drug Administration (FDA), United States; and the World Health Organization. 37. Interview data confirmed from secondary interview quotes. 38. Although firms continue to e xport to m arkets with lower regulatory standards, for s everal years now leading firms have challenged foreign firms in highly regulated markets and in their most profitable therapeutic segments. See, for example, Saritha Rai, “Generic Drugs from India Prompting Turf Battles,” New York Times, December 26, 2003, http://www.nytimes.com/2003/12/26/business/international-busi ness-generic-drugs -from-india-prompting-turf-battles .html?pagewanted = all& src = pm , accessed September 23, 2011. 39. Bimal Raizada, “Intellectual Property, Technology Transfer and Policy Framework—Experience of I ndia in the Pharmaceutical Sector,” paper presented at the WIPO National Seminar on I ndustrial Property and the Patent Cooperation Treaty (PCT), World Intellectual Property Orga nization, Port-Louis, Mauritius, July 15-16, 2002, WIPO/PCT/MRU/02/10. 40. Ranbaxy and others have simultaneous process and product innovation: drugs with minimal side effects, more controlled release, or new therapeutic effects through process innovation. Ceflacor’s generic version is typical. Ranbaxy’s process innovations involved (1) studying the patent fi ling from the parent company; (2) devising an in-house lab-level process to duplicate the fi nal product, but not t he process; (3) devising an in-house manufacturing process suitably scaled up to do t he same; and (d) pushing the drug studies past the 56 steps that Eli Lilly had completed and patented. 41. Ranbaxy company reports and press releases, and World Health Organization document on Ranbaxy, “Ranbaxy Laboratories Limited,” http://www.who.int/intel lectualproperty/events/en/Ranbaxy.pdf, accessed September 23, 2011. 42. Ranbaxy company reports and press releases, and World Health Organization document on Ranbaxy, “Ranbaxy Laboratories Limited,” http://www.who.int /intellectualproperty/events/en/Ranbaxy.pdf, accessed September 23, 2011. 43. Alkem led in cephalosporins but i s not a mong the top 10 by m arket share. Neither is Morepen Laboratories, which is the second-largest generic manufacturer worldwide for t he nonsedative antihistamine loratadine, which is the fourth-largest drug worldwide in terms of market size (estimated at about $3 billion). Morepen exports to over 50 countries, including the more difficult regulatory markets of North America and Western Europe. 44. In the case of a d rug under patent, the patent may specify how the drug is  released and absorbed into the body. The cholesterol-lowering drug lovastatin is   now off-patent (the original brand name was Mevacor from Merck) but w as patented as an immediate-release product. Thus Andrx, one of t he world’s leading generic drug manufacturers, was able to come up with an extended-release version, Altocor, which is not considered a generic copy and can be patented. Th is “supergeneric” or “branded generic” is seen as vertical product differentiation and

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automatically obtains a t hree-year period of m arketing exclusivity in the United States, but i s more expensive because it c an no longer go t hrough the abbreviated approval process. 45. Zantac was the largest-selling prescription drug treating heartburn and ulcers. It was produced by Glaxo Wellcome (now GlaxoSmithKline), a “me-too” version of the initial “revolution” of SmithKline’s own Tagamet in 1977. Because Zantac could demonstrate noninfringement, it fi led a patent of its own (multiple patents, in fact, to protect the drug). When its patents expired, Novopharm was awarded rights to market ranitidine, the generic version of Z antac. But Z antac continued to enjoy significant brand-name, incumbent-market power. Zantac’s success was in establishing a product-differentiation strategy buttressed by significant revenues to spend on marketing and distribution. In par ticu lar, note that as discussed earlier, Cipla’s salbutamol was preferentially allocated a license for indigenous development under the NDP. 46. Dosage forms can add incremental new features while extending older product lines. In the case of fluoxetine (brand name Prozac), Dr. Reddy’s Laboratory simply invested in creating a 40 mg dosage because the most highly prescribed dosage for Prozac was two 20 mg tablets. The company’s burden of proof was to demonstrate that its 40 mg tablet dosage form had the same therapeutic effect. Having accomplished this, it emerged as the fi rst Indian fi rm to receive a 180-day exclusive marketing approval from the U.S. FDA in July 2001. One interviewee expressed support for stricter product patents that induced firms to be more innovative: “Foes of this change are people who aren’t capable of doi ng something novel” (interview, June 17, 2002). Specifically, the trend to patent appears to have induced some level of intensity of recent efforts among academics and public research laboratories. Another interviewee stated, “The patenting trend is useful. We have too many armchair scientists” (interview, June 14, 2002). 47. Raizada, “Intellectual Property, Technology Transfer and Policy Framework.” All figures are in absolute unadjusted terms. 48. The patent profi le of Indian firms has also evolved in a similar direction, represented in the concentration of pap ers and patent applications focused on pro cess improvements and modifications of existing drugs. See Sudip Chaudhuri, “R&D for Development of N ew Drugs for N eglected Diseases: How Can India Contribute? ,” paper prepared for the WHO Commission on Intellectual Property Rights Innovation and Public Health, 25. http://www.who.int/intellectualproperty/studies/S.%20Chaud huri.pdf, accessed September 23, 2011. 49. “Indian Firms Set to D ominate Drug Registrations with FDA,” Hindustan Times, Chandigarh edition, November 23, 2003. 50. The larger number of ANDAs is to assure a higher chance in the 180-day exclusive marketing approval lottery. Including the last quarter, there were an anticipated 112 Indian ANDAs in 2003 (up from 40 ANDAs fi led in 2001, but lower than 392 fi led in 2002). In master fi les too, progress was brisk. 51. Under the very important Paragraph IV specifications of the Hatch-Waxman Act, generic firms can fi le patent challenges against a pat ent holder. If the generic

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company can successfully demonstrate to regulators that they have a non-infringing version available, they may be granted a 180-day exclusivity period where they have windfall profits, but w here regulators claim that customers benefit from reduced prices and earlier access to ge nerics instead of h aving to w ait for t he drug to go off-patent. 52. Once Ranbaxy had demonstrated a viable once-a-day dosage form for ciprofloxacin, many brand-name companies sought an alliance with it. 53. P. T. Jyothi Datta, “Litigation in Large Doses,” Business Line, Hindu, September 18, 2002, http://www.thehindubusinessline.in/2002/09/18/stories/2002091800420900 .htm, accessed September 23, 2011. 54. Dr. Reddy’s Laboratories–Cheminor (since acquired) argued that its advantage is a d evelopment speed almost twice that of a ny competing European or U.S. firm. 55. Patent applications can be fi led in engineered excipients, individual or combined delivery devices, preferred API salts, active metabolites or approved APIs, and unexpected results from API mixtures. For more t echnical detail, see Cliff R. King, “API Management Practices: Closing the Gap Between Innovation and Commercial Manufacturing,” Contract Pharma Magazine, January/February 2003, http://www .contractpharma.com/issues/2003-01/view_features/api-management-practices/, accessed September 23, 2011. 56. The kilo lab is an engineering and chemical system (often provided as a service by contract firms) to test, on a small scale, the viability of a larger batch and to scale up a l aboratory process to m anufacturing conditions. It is designed for s afe testing of larger-scale reactions and is carefully engineered for standardization and safety.

Chapter 6 1. Although public procurement can assist public-sector suppliers, the focus here is primarily on procurement from private firms. 2. I conducted 53 interviews in the pharmaceutical and biotech industries between 2001 and 2004, approximately half of w hich were interviews related to pa st, present, or c urrent vaccine suppliers. Interview data are presented anonymously in this chapter. For t he full study, see Srinivas, “Industry and Innovation.” Sections of this chapter have also appeared in Smita Srinivas, “Demand Policy Instruments for R&D: Procurement, Technical Standards and the Case of I ndian Vaccines” (BCSIA Discussion Paper 2004- 09, John F. Kennedy School of Government, Harvard University, December 2004), and Smita Srinivas, “Technological Learning and the Evolution of the Pharmaceutical and Biopharmaceutical Sectors” (PhD diss., Department of Urban Studies and Planning, Massachusetts Institute of Technology, 2004). Vaccine markets differ worldwide by development considerations of important diseases and appropriate market structure. See, for instance, Ernest R. Berndt, Anjli

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C. Warner, and Rena N. Denoncourt, U.S. Vaccine Markets: Overview and Four Case Studies (Washington, DC: AEI Press, 2009). 3. A positive Indian trend is the proliferation of private diagnostic testing ser vices across cities and many small towns. Although they are by no means cheap, they provide rapid ser vice. They are generally well stocked, often have storage and delivery infrastructure, and often collaborate with pharmacies situated nearby. 4. Adapted from WHO/VSQ/98.05, “Guidelines for t he International Procurement of Vaccines and Sera,” Global Programme for Vaccines and Immunization, Vaccine Supply and Quality (Geneva, Switzerland: WHO, October 1998). 5. Procurement from public and private suppliers also pertains to energy (solar panels, wind turbines), education (educational books, soft ware), public ser vices (waste removal, recycling), health (medical equipment, diagnostics), and defense (bomb detonators, land-mine-clearing devices). 6. Admittedly, the primary public health and research goals of the Raj appear to have been driven by t he needs of Br itish administrators, not t hose of t he broader population of the colony. Anil Kumar, Medicine and the Raj: British Medical Policy in India, 1835–1911 (New Delhi: Sage, 1998); Kumar, “The Indian Drug Industry under the Raj, 1860–1920,” in Health, Medicine and Empire: Perspectives on Colonial India, ed. Pati, Biswamoy and Mark Harrison (New Delhi: Orient Longman, 2001), 356–385. Yennapu Madhavi, “Vaccine Policy in India,” Public Library of Science 2, no. 5 (2005): 0387–0391, covers the historical scope of Indian vaccine research. 7. EPI data from reports of H ealth Information of I ndia and the Ministry of Health and Family Welfare, Government of India, New Delhi, cited in Yennapu Madhavi, “Vaccine Policy in India,” 0388. 8. For a d iscussion of demand-side conditions that sidestep procurement’s protectionist pitfalls, see Srinivas, “Industry and Innovation.” 9. This learning for the production of public benefits such as health, defense, energy, waste treatment, and education points to procurement as an important potential tool for technology access and upgrading. Although any public agency can, in principle, be a consumer (e.g., book supplies, garbage trucks, or hospital equipment), it is of par ticu lar value for developing countries that the procurement be linked to standards of increasing levels of sophistication. 10. UNICEF spends US$220 million on vaccines and immunization supplies (the largest group expenditure on c ommodities) out of a tot al budget of $541 million for pediatrics in 162 countries and territories (UNICEF reports). UNICEF works with both governments and other partners to strengthen and increase in scale and scope existing immunization programs and has cofounded the Global Alliance for Vaccines and Immunisation (GAVI). GAVI’s website states: “Increased demand for GAVI-funded vaccines encourages more suppliers into the market and the competition, as well as new technologies, is helping to b ring down prices.” http://www.gavialliance.org /about /gavis-business-model/making-vaccines-affordable/, accessed September 19, 2011. 11. See “Regulation and Licensing of Biolog ical Products” (WHO Technical Report Series no. 858, 1995).

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12. The NCA reviews all bids and acts as a selector. 13. The supplier must manufacture (or import bulk product for fi lling, labeling, and repackaging) and must provide (1) a c ertificate of registration /licensing in the country of origin; (2) documentation on quality-control and sampling procedures; (3) a copy of its most recent GMP certification; (4) production and quality-control summary protocols; (5) a certificate of analysis from the NCA in the country of origin; and (6) a statement of l icensing status in other countries. WHO/VSQ/98.05, “Guidelines for the International Procurement of Vaccines and Sera.” For U NICEF, vaccine and equipment suppliers must show qualification for EN ISO 9001 / EN 46001 and EN ISO 9002 / EN 46002 standards. See also WHO/V&B/00.17, “Report of the First Meeting of the Steering Committee on Immunization Safety” (Geneva, Switzerland: WHO, Immunization Safety Priority Project, 2000), http://whqlibdoc.who.int/hq/2000 /WHO _V&B _00 .17.pdf; and J. B. Milstein and L. Belgharbi, “Regulatory Pathways for Vaccines in Developing Countries,” Bulletin of the World Health Organization 82, no. 2 (February 2004): 128–133. 14. The Serum Institute, http://www.seruminstitute.com/content/about _us.htm, accessed September 19, 2011. 15. J. B. Milstein, S. N. Glass, A. Batson, M. Greco, and J. Berger, “Divergence of Vaccine Product Lines in Industrialised and Developing Countries” (unpublished manuscript presented to t he Strategic Advisory Group of E xperts, Department of Vaccines and Biologicals, WHO, and GAVI Report, 2001). 16. Ibid. DTP = diphtheria and tetanus toxoid; DtaP = diphtheria and tetanus toxoid with acellular pertussis vaccine; Hib = Hemophilus influenzae type b; TT = tetanus toxoid. 17. The Centre for C ellular and Molecular Biology with stem-cell research, and the All India Institute for M edical Sciences, with an AIDS vaccine, have both had important scientific successes. 18. Some interviewed firms stated that even 15% of the global pentavalent market was more than six times the Indian EPI market, and the global market was particularly attractive because the “Big 4” vaccine MNCs were unlikely to fight for it. 19. For extensive contrasts on biotechnologies, especially the novel case of Cuba, which also developed substantial vaccine capability despite limited resources, see several short articles leading up to Ha lla Thorsteinsdóttir, Uyen Quach, Abdallah S. Daar, and Peter A. Singer, “Conclusions: Promoting Biotechnology Innovation in Developing Countries,” Nature Biotechnology 22 (2004): DC48–DC52; also Halla Thorsteinsdóttir, Tirso W. Sáenz, Uyen Quach, Abdallah S. Daar, and Peter A. Singer, “Cuba—Innovation through Synergy,” Nature Biotechnology 22 (2004): DC19–DC24; see also Lynn K. Mytelka, “Pathways and Policies to (Bio)pharmaceutical Innovation Systems in Developing Countries,” Industry and Innovation 13, no. 4 (December 2006): 415–435; and Tirso W. Sáenz, “Biotechnology for M edical Applications–The Cuban Experience,” Science Technology Society 10, no. 2 (September 2005): 225–248. 20. In 2008, 177 countries provided hepatitis B vaccination in their national infant immunization programs. WHO, “WHO Position Paper on Hepatitis B Vaccines,

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October 2009,” http://www.who.int/immunization/Hep_B _key_points _summary_ sep09.pdf, accessed September 19, 2011. 21. In 2007 worldwide measles vaccination coverage was 82%. Between 2000 and 2007 the estimated annual number of deaths had dropped by over half a million. The Serum Institute (Pune, India) played a v ital supply role. See WHO, “WHO Position Paper on V accines Against Measles Virus, September 2009,” http://www.who.int /immunization/documents/summary_key_points_measles_presentation.pdf, accessed September 19, 2011. 22. The challenges of biological research are described in the case studies of the next chapter. 23. India still imported some polio vaccines in 1995, but hepatitis B vaccine is now indigenously manufactured. Furthermore, the New Drug Policy of 1994 lifted price restrictions on ge netically engineered vaccines using recombinant DNA technology and specific cell/tissue-culture-targeted drug formulations for five years from the date of manufacture to boost private-sector supply. 24. See Srinivas, “Industry and Innovation,” for t ables and figures on comparisons of A sian capability gaps. Since the WHO vaccine supplier databases were first developed, more Indian suppliers have met additional requirements. 25. For nonpediatric, optional vaccines, domestic price segmentation can push firms to target those who can pay. 26. The resurgence of the public sector may occur even in industrialized economies where private-sector capabilities may be reluctant to ensure domestic health security. For e xample, the Netherlands has resisted rollback of e xisting public-sector production capability. In contrast, the transition economies have lost significant investments in physical plants, technology, and skills when public-sector manufacturing plants fell into disuse or were sold. 27. Srinivas, “Industry and Innovation.” 28. See WHO, “2004 Global Immunization Data” (Geneva, Switzerland: WHO, 2005), http://www.who.int/immunization_monitoring/data/GlobalImmunizationData .pdf, last accessed September 19, 2011. 29. Srinivas, “Industry and Innovation.” 30. LG Life Sciences, Korea, is the current WHO supplier. 31. Yennapu Madhavi, “New Combination Vaccines: Backdoor Entry into India’s Universal Immunization Programme?,” Current Science 90, no. 11 (2006): 1465–1469. 32. Several interviewees commented on this. 33. Yennapu Madhavi, “Manufacture of Consent? Hepatitis B Vaccination,” Current Science 38, no. 24 (2003): 2417–2424; and Madhavi, “New Combination Vaccines.” Several authors question the inordinate power of international procurers in defining and shaping markets: on polio, see C. Sathyamala and Onkar Mittal, “Polio Eradication Initiative: At What Cost?,” and Rajib Dasgupta, “Hepatitis B Vaccination Strategies in India: Questionable Evidence and Powerful Market Forces,” in Securing Health for All, ed. Sujata Prasad and C. Sathyamala (New Delhi: Institute for Human Development, 2006), 269–286 and 287–300, respectively.

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34. These skills also include attending to pro duct liability and industrial espionage, the need to rapidly fi nd noninfringing routes, and in-house legal expertise for patent challenges and defenses. In 2002, 8 of 13 fi lings by Dr. Reddy’s Laboratories were patent challenges in the U.S. market. 35. For the changing institutional and organizational context of world v accine R&D over 50 years, see Paul Wilson, Sarah Post, and Smita Srinivas, “R&D Models: Lessons from Vaccine History” (Policy Discussion Paper Series, International AIDS Vaccine Initiative, New York, 2007). 36. Ibid.

Chapter 7 1. G. Steven McMillan, Francis Narin, and David L. Deeds, “An Analysis of t he Critical Role of P ublic Science in Innovation: The Case of Biotechnology,” Research Policy 29, no. 1 (2000): 1–8. 2. Examples of some firms and partners that assisted them in Bangalore and Hyderabad: Xcyton (National Institutes of Mental Health and Neurosciences), Avesthagen (National Centre for Biological Sciences, University Agricultural Sciences), Shantha Biotech (Osmania University, Centre for C ell and Molecular Biology [CCMB]), and Genotypic Technology (Indian Institute of Science [IISc], University of Madurai, equipment from Centre for Biotechnology, Delhi). 3. According to the U.S. FDA, “Biological products include a wide range of products such as vaccines, blood and blood components, allergenics, somatic cells, gene therapy, tissues, and recombinant therapeutic proteins. Biologics can be composed of sugars, proteins, or nucleic acids or complex combinations of these substances, or may be living entities such as cells and tissues. Biologics are isolated from a variety of natural sources—human, animal, or m icroorganism—and may be produced by biotechnology methods and other cutting-edge technologies.” U.S. Food and Drug Administration, “Vaccines, Blood and Biologics: Resources for You (Biologics),” http://www .fda.gov/BiologicsBloodVaccines/ResourcesforYou/default.htm, accessed September 24, 2011. 4. For a f ull description, see U.S. Food and Drug Administration, “Drugs,” http://www.fda.gov/cder/. See also Gary Walsh and Denis Headon, “Therapeutic Proteins: Special Considerations,” in Protein Biotechnology (New York: John Wiley and Sons, 1994), chapter 4. 5. Process validation is a complex set of procedures for finished pharmaceuticals and includes, but is not limited to, “Sampling and testing of in- process materials and drug products” (Section 211.110 (a)) and “control of m icrobiological contamination” (Section 211.113). Different tablet forms constitute an area of high relevance to productdifferentiation strategies. Process validation procedures are integral to the quality and efficacy of t he final product. U.S. FDA, “Guidance for I ndustry: Process Validation: General Principles and Practices,” Current Good Manufacturing Practices (CGMP),

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Revision 1 (jointly published by the U.S. Department of Health and Human Ser vices, Food and Drug Administration, Center for Drug Evaluation and Research, Center for Biologics Evaluation and Research, and Center for V eterinary Medicine, January 2011), 6, http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryIn formation/Guidances/UCM070336.pdf, accessed September 24, 2011. As the guidelines state, “For example, in the production of a compressed tablet, a firm may switch from one type of granulation blender to another with the erroneous assumption that both types have similar performance characteristics, and, therefore granulation mixing times and procedures need not be altered. However, if the blenders are substantially different, use of t he new blender with procedures used for t he previous blender may result in granulation with poor content uniformity. This, in turn, may lead to tablets having significantly differing potencies. . . . In this example, revalidation comprises installation qualification of t he new equipment and performance qualification of t he process intended for u se in the new blender.” Dr. Arthur Shaw, “Guideline on General Principles of Process Validation,” Food and Drug Administration, May 1987, 12, http://www.fda.gov/cder/guidance/pv.htm, accessed September 24, 2011. The U.S. FDA thus requires not only that companies establish standard operating procedures, but also recommends them because such standard operating procedures act as written commitments that the company (1) specifies the procedure, (2) assigns responsibility, (3) elaborates the reasons for the task, and describes (4) constraints and parameters of the task (when it can be or should not be applied). Finally, FDA inspections check compliance with these standards (U.S. FDA, http://www.fda.gov/cder /ogd). Process validation is defi ned by the U.S. FDA as follows: “Process validation is establishing documented evidence which provides a high degree of assurance that a specific process will consistently produce a pro duct meeting its pre-determined specifications and quality characteristics” ( http://www.fda .gov/cder/guidance/pv .htm). 6. For a go od description of t he changes and effects on ph armaceuticals, see Rebecca Henderson, Luigi Orsenigo, and Gary P. Pisano, “The Pharmaceutical Industry and the Revolution in Molecular Biology: Interactions among Scientific, Institutional, and Organ i zational Change,” in Sources of Industrial Leadership, ed. David C. Mowery and Richard R. Nelson (Cambridge: Cambridge University Press, 1999), 267–311. 7. Because “new” biotech applications are relatively recent, classification is difficult. Companies constantly diversify into new domain areas, add organizational segments, and change business strategies. 8. Shantha Biotechnics was bought in July 2009 by Sanofi-Aventis SA. 9. See Shyama V. Ramani, “Who Is Interested in Biotech? R&D Strategies, Knowledge Base and Market Sales of Indian Biopharmaceutical Firms,” Research Policy 31, no. 3 (2002): 381–398; Gayatri Saberwal, “New Pharma-Biotech Company Formation in India,” Nature 24, no. 5 (2006): 499–501. There is an urgent need for classification

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and measurement within biopharmaceuticals and other biotechnology sectors. Sachin Chaturvedi looks at t he variation in reports of t he biotech industry’s size: approximately US$2.5 billion (Confederation of Indian Industry), US$1.9 billion (Department of Biotechnology), and US$1.5 billion (Economist). The same large variation exists across biopharmaceuticals (defined as diagnostics/vaccines only for c omparisons): US$420 million (CII), US$150 million (DBT), and US$375 million (Economist). Chaturvedi, “Dynamics of Biotechnology Research and Industry in India: Statistics, Perspectives and Key Policy Issues” (OECD, Directorate for Science, Technology and Industry, 2005). 10. On challenges to integrating biotech into pharmaceuticals, see also S. V. Ramani and M. S. Venkataramani, “Rising to the Technological Challenge: Integration of Biotechnology in the Indian Pharmaceutical Industry,” International Journal of Biotechnology 3, nos. 1/2 (2001): 95–115; and Sachin Chaturvedi, “Exploring Interlinkages between National and Sectoral Innovation Systems for R apid Technological Catch-up: Case of Indian Biopharmaceutical Industry,” Technology Analysis and Strategic Management 19, no. 5 (2007): 643–659. 11. Caroline Thomas and Martin Weber, “The Politics of Global Health Governance: Whatever Happened to ‘Health for All by the Year 2000’?,” Global Governance 10 (2004): 187–206. 12. See Thomas McKeown, The Origins of H uman Disease (Oxford: Blackwell Publishers, 1988); D. Drache and T. Sullivan, Market Limits in Health Reform: Public Success, Private Failure (London: Routledge, 1999); and Prasad and Sathyamala, Securing Health for All. 13. Mahendra S. Dev, “Growth-Mediated and Support-Led Social Security in Unorga nized Sector in India” (mimeo, Centre for E conomic and Social Studies, Hyderabad, 2006). 14. There were some encouraging signs in 1999 when the World Health Assembly granted WHO the mandate to t ake on t he impact of t rade issues on g lobal health, which further fueled the emphasis in the Doha Round of the WTO on public health, the impact of TRIPS, and generic drugs. But health debates had become remarkably tightly associated with regulatory harmonization, limited market access, and unhelpful patent barriers. 15. Only some interviewees suggested otherwise. Even where the U.S. public role was critiqued, the criticism was of pu blic funding shortfalls and distribution and evaluation of returns in the National Institutes of Health. 16. For example, Shantha continued a range of efforts with public research institutes. The company was launched from a base in the Centre for Cell and Molecular Biology (CCMB) in Hyderabad after beginning research efforts at Osmania University in the same city and has continued to build on its public partnerships for drugs that have broad use. For example, it collaborates with the CCMB in Hyderabad, the IISc in Bangalore, Jawaharlal Nehru University in Delhi, the Bhabha Atomic Research Centre in Mumbai, and the Institute of C hemical Biology in Calcutta, among others. A complete list of public and private collaborations on specific products is available in

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Joël Ruet, Marie-Hélène Zerah, Augustin Maria, and Pierre-Noël Giraud, “Biotechnologies in India” (report commissioned by the French Embassy in India, 2002). 17. Public tissue-culture (cardamom and vanilla) pi lot plants in Pune and Delhi resulted in some success and were converted into micropropagation technology parks with the explicit aim of transferring technology to entrepreneurs. The National Institute of Plant Genome Researchin Delhi provided promising leads in transgenic cotton, mung beans, potatoes, and brassica. Important protein studies in mosquitoes and in the demonstration of t ransfer of ge nes in a sit e-specific way of t he reconstituted viral envelopes containing F prot eins of t he virus have come from publicly funded university laboratories (Manju Sharma, “India,” in Agricultural Biotechnology: Country Case Studies-A Decade of Development, ed. G. J. Persley and L.R. MacIntyre (Wallingford, UK: CAB International, 2001), 51–60. 18. Those firms that have advanced in drug discovery appear now to be investing a rising percentages of sales revenues in R&D. 19. Some innovations include (1) establishing the helical structure of collagen, assisting therefore in solving for protein structures; (2) sequencing of Arabidopsis and rice genomes; (3) gene identification; (4) drug delivery systems; (5) diagnostics; (6) recombinant vaccines; and (7) computational biology. Sharma, “India.” 20. The Department of Biot echnology (DBT) of t he Indian government uses a sweeping definition of biotechnology: “Biotechnology is an application of recombinant and non-recombinant technologies in biological resource utilization for product and process development aimed for commercialization” (for classification problems, see Chaturvedi, “Dynamics of Biot echnology Research and Industry in India.” The OECD defines biotechnology as “the application of science and technology to living organisms, as well as parts, products and models thereof, to alter living or non-living materials for the production of knowledge, goods or ser vices” (OECD ad hoc committee, cited in Sachin Chaturvedi, “Status and Development of Biotechnology in India: An Analytical Overview,” RIS Discussion Paper no. 28 (New Delhi: Research Information Systems, 2002). The Committee uses five categories to develop a list-based definition of biotechnology: (1) DNA (genetics, pharmacogenetics, gene probes, DNA sequencing/synthesis/simplification, genetic engineering); (2) proteins and molecules (protein/peptide, sequencing/synthesis, lipid/protein engineering, proteomics, hormones and growth factors, cell receptors/signaling/pheromonics); (3) cell and tissue culture and engineering (cell/tissue culture, tissue engineering, hybridization, cellular fusion, vaccine/ immune stimulants, embryo manipulation); (4) process biotechnologies (bioreactors, fermentation, bioprocessing, bioleaching, biopulping, biobleaching, biodesulfurization, bioremediation, and biofi ltration); and (5) subcellular organisms (gene therapy, viral vectors). OECD, cited in Chaturvedi, “Status and Development of Biotechnology in India.” See also G. Padmanaban, “Growth of Biotechnology in India,” Current Science 85, no. 6 (2003): 712–719. 21. “Technology Board Disburses Rs 30 Crores for 20 Projects,” Indian Express, April 20, 1998.

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22. These include productivity priorities in agriculture (in the seed sector, in veterinary products), industrial biotechnology, bioinformatics, and environmental biotechnologies (e.g., biopesticides and bio fuels) (Sharma, “India”). There has also been some effort to involve NGOs to take up the use of innovations in small bioindustries, particularly for women. By t he early 2000s the Biotechnology Consortium of I ndia Limited was working with the Swiss Development Corporation to foster relations and pool resources of the public and private sectors. India’s progress in information technology and computer soft ware and ser vices has propelled genome research, drug design, and the development of a molecular taxonomy. Computational biologists have linked up with computer scientists in drug discovery and development. An Indian government mission, the Jai Vigyan Mission, was established to d evelop genomic databases. India’s DBT developed a n ationwide bioinformatics network with 10 distributed information centers and 35 subdistributed information centers. The government of India also has 48 approved (accredited) master of science, postdoctoral, and MD biotechnology training programs in almost all states and union territories and has instituted fellowships for s tudy abroad, shorter training programs, and training at ot her Indian institutes, has developed a popu lar lecture series on biotech, and has sought to boost women’s presence in the biosciences. Sharma, Manju,“India.” 23. Although Krebs and others were far from being R&D firms, with R&D investments at 1% of sales, Krebs too was investing in manufacturing of pravastatin and attempting to move i nto more complex drug segments. “Getting Aggressive,” Biospectrum, September 8, 2004, http:// biospectrumindia.ciol.com/content/movers/10409081 .asp, accessed September 24, 2011; “Krebs Biochemicals Limited,” www.krebsbiochem .com/images/krebs _ar_2002_03.pdf, accessed September 24, 2011. 24. For more recent products and biologics capability see “50 Branded Biodrugs in India,” http://www.biospectrumasia.com/content/206011377.asp, accessed September 24, 2011. 25. The company website is http://myprotinex.com/docs/about _us.html accessed September 24, 2011. 26. The first cesium chloride–free vaccine worldwide manufactured using a patented production process. 27. Serotype for hepatitis A with new production process. 28. Rotaviral vaccine candidate in collaboration with various U.S.-based public and private research institutes. 29. A new molecular entity for lysostaphin against staphylococcus aureus infections and for r-streptokinase. 30. For single-shot typhoid vaccines. 31. “Bharat Biotech Launches H1N1 Flu Vaccine,” The Hindu, online edition, October 19, 2010, http://hindu.com/2010 /10 /19/stories/2010101961330600 .htm, accessed September 24, 2011. 32. ELISA = enzyme-linked immunosorbent assay; PCR = polymerase chain reaction; HIV = human immunodeficiency virus, Agglutination refers to a t echnique in

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rapid diagnostic testing based on the cohesion of white or colored latex particles, gelatin bead dyes, colloidal particles, or preserved mammalian/avian blood cells to carry antibodies or antigens. 33. Padmanaban, “Growth of Biotechnology in India.” 34. The confidential nature of many interviews meant that some useful case illustrations and firm-level data had to be left out. Where necessary, I have also left out interview identifiers. 35. One company CEO said, “The first time was much easier. The more well known you are, the harder it will become” (interview with CEO, July11, 2002). 36. At the time of the interview, a U.S. patent cost about $30,0 00 to $40,0 00, but now the company’s patent lawyer in Delhi simply sends his U.S. counterpart the fi nal materials, reducing costs to $10,0 00. 37. Biocon also entered into an agreement to produce human insulin. 38. Phrase used by interviewee. 39. SSF was the entry technology into enzyme research for industrial applications and therapeutics to manufacture lovastatin, while SMF led in three directions: lovastatin, pravastatin, and rDNA products. 40. Kiran Mazumdar, CEO of Biocon, in interview, June 27, 2002. 41. Interviewed firms spend considerable time ironing out IP aspects with clients and use contract research as a means to build their own IP base. 42. Some firms had limited in-house R&D functions and chose instead to be predominantly contract manufacturers instead of contract researchers. Although contract manufacturing also requires some R&D, production is often relegated to wellestablished and noncontroversial areas in IP, e.g., generic drug manufacture or enzyme manufacture. See also B. Bowonder and N.G. Satish, “Is Economic Liberalisation Stimulating Innovation in India?,” Interdisciplinary Science Review 28, no. 1 (March 2003): 44–53. 43. In some cases this was done at t he outset of proble m definition/negotiation because the CRO had expertise in this area. Interviewees who had diabetes-related or oncology-related specializations often found that they knew as much (if not more) in some problem segments, which has led to new niche areas being carved out as part of their own business strategy. 44. A computer scientist with ties to b ioinformatics said: “With an analogy to computer science, we have speed of programmers, quality of programmers and number of contracts. India is good at all of these things more than all other countries and all of this is in one country. Therefore, even if they work with the U.S. or other companies, they foster each other’s capabilities because they need them. Thus, each epsilon improves and cumulatively combines to produce a big delta. So delta doesn’t depend on only domain expertise in molecular biology, genetics, etc., but also on domain expertise in other areas” (interview, June 13, 2002). 45. One interviewee stated, “Producing materials and contract research [is useful]. It does help to do R&D yourself. VC money also keeps burn-rate lower and CROs keep this model healthy.” Another stated: “In combinatorial chemistry, India compa-

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nies do not h ave the libraries of c ompounds like big pharmaceutical companies abroad. Thus, some smaller Indian companies are providing specialized chemistry, and especially combinatorial chemistry expertise to others. Th is ser vice/CRO model allows rapid development time-lines. A network of like-minded companies in Bangalore is now emerging, where each needs the other and using local expertise is slowly becoming cheaper and more re liable to u se than past foreign contacts” (interview, June 11, 2002). 46. Interview, June 24, 2002. 47. Merck chief scientist, July 11, 2002. In silico refers to computer analysis or theoretical modeling, while wet lab capabilities refer to laboratory bench work in chemistry or biology, and often include animal use. 48. Interview with business managers and scientists, Company 6, July 11, 2002. 49. From one company, a head of business development and a head of drug discovery saw a difference with U.S. CROs in two major respects:. “First, [we] depend on the scalability of skilled manpower but must train in-house within sophisticated labs. Second, [we] guarantee best quality, not simply above average. For example, curation is a complex process with many reactions. One needs not just an informational database, but a lso the ability to put d ata into an appropriate form; that is, knowledge is critical. Afterward, there are at least four essential elements: data acquisition ability, simulation models, knowing the number of possible algorithms to hunt for possible candidates, and understanding the constraints and parameters of t he search. Firms also must train researchers for lead generation and lead optimization” (interview, July 11, 2002). 50. Head of Business Development, July 11, 2002. 51. One enthusiastic interviewee, a chief scientist, said: “What you are seeing now in Bangalore is Genentech early on; with companies looking for new products to India, but also to the world. . . . We have the historical fortune of now having a corpus of like-minded people” (interview, June 11 2002). 52. These include early supports such as the production of a mino butanol as an intermediate for tuberculosis treatments (as an input for the production of ethambutol hydrochloride); production of antibiotics such as cefi xime, an orally active cephalosporin; hepatitis B vaccine development; and the development of the pediatric version of t he recombinant hepatitis B v accine. The board also funded cardiovascular drug development. 53. Some scientists have complained of not trusting the peer-review process, especially the challenges of expert reviews of government grants. 54. The Central Drug Research Institute (CDRI) and the Indian Institute of Chemical Technology were known for significant advances in new drug routes, despite the pressures to privatize them. CDRI developed a one-a-week contraceptive pill (Saheli), the only nonsteroidal contraceptive pill worldwide, as well as its Memory Plus and vincristine (from Ayurvedic traditions). IISc researchers developed a male injectable contraceptive vaccine that showed some promise. The National Institute of Immunology made advances in contraception using extracts from the neem tree and has created

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a second vaccine contraceptive, using human chorionic gonadotrophin, a h uman hormone. The National Dairy Development Board works with Indian Immunologicals Limited (Hyderabad) for fo ot-and-mouth vaccine in cattle and has diversified into human biologicals; the Indian Institute of M icrobial Technology (Chandigarh) works on live recombinant DNA vaccines for cholera and rabies; the Centre for Diagnostic Fingerprinting (Hyderabad) is one of t he few centers worldwide to develop a genetic process for pro ducing plasmid DNA; the IISc has further reduced cost and import dependence for plasmid DNA. Consistent with Ramani, “Who Is Interested in Biotech?,” where the number of collaborations with public research institutes is greater in the author’s sample, the author demonstrates that Indian firms nevertheless initiated more collaboration with foreigners than with the domestic Indian research institutes. 55. A CEO scientist stated: “It is hard to do drug discovery because (1) there is no synergy between academia and industry. Start-ups are very sparsely populated. (2) Capital intensive. (3) Lack of h igh-quality academics in biology. Indian academia is good at h ands-on skills, but w e are followers, not le aders, in conceptualizing areas and we have no management of science with connection to technology.” 56. As Gayatri Saberwal indicates, it is common to find skills in protein expression, protein purification, synthetic chemistry, identification and optimization of lead compounds, bioavailability and bioequivalence, and clinical data management. However, it is much rarer to find target identification and validation skills, combinatorial chemistry, dexterity with chemical libraries, preclinical animal models (especially primates), trial design and statistics, and high-throughput screening or me dicinal  chemistry. Notably missing are regulatory skills. Gayatri Saberwal, “Seeding a Skilled Workforce, Careers and Recruitment,” Nature Biotech 27, no. 8 (August 2009): 773–775. 57. Those companies begun by academic scientists trained in the life sciences have not faced this problem. 58. See also Saberwal, “New Pharma-Biotech Company Formation in India.”

Chapter 8 1. As Polanyi phrased it, social protections may sometimes be incompatible with markets if the latter are viewed as encompassing all aspects of society: “Vital though such a countermovement was for the protection of society, in the last analysis it was incompatible with the self-regulation of the market, and thus with the market system itself.” Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (Boston: Beacon Press, 2001 [1944]), 136. 2. Gerschenkron, Economic Backwardness in Historical Perspective. 3. For a p olitical sociologist perspective, see D. Mechanic and D. A. Rochefort, “Comparative Medical Systems,” Annual Review of Sociology 22 (1996): 239–270. Political sociologists Theda Skocpol, Edwin Amenta, and Frank R. Dobbin suggest that

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U.S. public policies for welfare provision arose from nonindustrial factors. Twentiethcentury America’s system of private employment-related health insurance influenced a slew of pharmaceutical products and innovations, but its origins were delinked from a predictable industrial strategy where industrial development and economic growth led to a d efinable set of s tate-led programs to d eal with industrialization. Theda Skocpol, Social Policy in the United States: Future Possibilities in Historical Perspective (Princeton, NJ: Princeton University Press, 1995); Theda Skocpol and Edwin Amenta, “States and Social Policies,” Annual Review of Sociology 12 (1986): 131–157; Frank R. Dobbin, “The Origins of Private Social Insurance: Public Policy and Fringe Benefits in America, 1920–1950,” American Journal of Sociology 97, no. 5 (March 1992): 1416–1450. 4. Typical of these “stages” arguments is Ha-Joon Chang’s well-argued book Kicking Away the Ladder: Development Strategy in Historical Perspective (New York: Anthem Press, 2003). 5. John Stuart Mill, Principles of Political Economy with Some of Their Applications to Social Philosophy, ed. William J. Ashley (London: Longmans, Green and Co., 1909 [1848]), Bk. II, Ch. I.2. 6. Gerschenkron, Economic Development in Historical Perspective. 7. The breadth of d iversity is also expressed in Mechanic and Rochefort, “Comparative Medical Systems”; Jay Midgley, Social Development: The Developmental Perspective in Social Welfare (Thousand Oaks, CA: Sage, 1995); Thandika Mkandawire, Social Policy in a Development Context (Geneva: UN Research Institute for Social Development, 2001); Simon Szreter, “Health, Class, Place and Politics: Social Capital and Collective Provision in Britain,” Contemporary British History 16, no. 3 (2002): 27–57; William Hsiao, “Comparing Health Systems: What Nations Can Learn from One Another,” Journal of Health Politics, Policy and Law 17 (1992): 613–636; and William Hsiao, “Marketization: The Illusory Magic Pill,” Health Economics 3 (1994): 351–357. 8. For a compelling analysis of how the East Asian economies differ among themselves in attending to informal workers, see Gary Gereffi and Lu-Lin Chen, “The Role of the Informal Sector in East Asian Development,” International Journal of Urban and Regional Research 18 (June 1994): 194–220. See also Chris Pierson, “Late Industrializers and the Development of t he Welfare State” (Social Policy and Development Programme Paper no. 16, United Nations Research Institute for Social Development, September 2004). 9. See Albert Fishlow, “Latin America in the XXI Century,” in Economic and Social Development into the XXI Century, ed. Louis Emmerij (Washington, DC: InterAmerican Development Bank, 1997): 405–418. Srinivas and Sutz, “Developing Countries and Innovation,” stress the dysfunctional impact on innovation with respect to needs from cognitive and structural aspects of this inequality. 10. Carmelo Mesa-Lago, Social Security in Latin America: Pressure Groups, Stratification, and Inequality (Pittsburgh: University of Pittsburgh Press, 1978); Carmelo Mesa-Lago, “Social Security in Latin America and the Caribbean,” in Social Security in Developing Countries, ed. Etisham Ahmad (Oxford: Oxford University Press, 1991), 356–394.

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11. “Scientific Activity Predictor from Patterns with Heuristic Origins” [SAPPHO], a project run by researchers at the Science Policy Research Unit (SPRU) at the University of Sussex, England. 12. Basil Achilladelis and Nicholas Antonakis, “The Dynamics of Technological Innovation: The Case of the Pharmaceutical Industry,” Research Policy 30 (2001): 535–588. 13. Srinivas, “Intellectual Property Rights, Innovation, and Healthcare.” 14. Achilladelis and Antonakis, “Dynamics of Technological Innovation.” 15. Basil Achilladelis, Paul Jervis, and A.Robertson, “A Study of Success and Failure in Industrial Innovation (Project SAPPHO),” Science Policy Research Unit, University of Sussex, England, August, 1971. See also Basil Achilladelis, Albert Schwarzkopf, and Martin Cines, “The Dynamics of Technological Innovation: The Case of the Chemical Industry,” Research Policy 19, no. 1 (1990): 1–34. For more detailed studies of specific cases, see also Sven E. Olsson, Social Policy and Welfare State in Swe den (Lund: Arkiv Forlag, 2000); John S. K. Boyd, “Fift y Years of Tropical Medicine,” British Medical Journal 1 (1950): 37–43; Michael Robson, “The French Pharmaceutical Industry, 1919–1939,” in Pill Peddlers: Essays on the History of the Pharmaceutical Industry, ed. Jonathan Liebenau, Gregory J. H igby, and Elaine C. Stroud (Madison, WI: American Institute for the History of Pharmacy, Urdang Publishers, 1990), 107–121; J. Liebenau, Medical Science and Medical Industry: The Formation of th e American Pharmaceutical Industry (London: Macmillan, 1987); William S. Comanor, “The Political Economy of t he Pharmaceutical Industry,” Journal of Economic Literature 24 (1987): 1187–1217; Basil Achilladelis, “The Dynamics of Technological Innovation: The Sector of Antibacterial Medicines,” Research Policy 22 (1993): 279–308; Chris Freeman, John Clark, and Luc Soete, Unemployment and Technical Innovation: A Study of Long Waves in Economic Development (London: Francis Pinter, 1982); R. Porter, Greatest Benefit to Mankind: A Medical History of Humanity (New York: W. W. Norton and Co., 1997); Michael R. Reich, “Why the Japanese Don’t Export More Pharmaceuticals: Health Policy as Industrial Policy,” California Management Review 32, no. 2 (1990): 124–150; Arthur S. MacNalty “Fift y Years of Public Health Legislation,” British Medical Journal 1 (1950): 48–53; and A. Yoshikawa, “The Other Drug War: US-Japan Trade in Pharmaceuticals,” California Management Review 31, no. 2 (1989): 76–90. 16. Boyd, “Fift y Years of Tropical Medicine.” 17. See Robson, “French Pharmaceutical Industry,” and Achilladelis and Antonakis, “Dynamics of Technological Innovation.” 18. The Report of the Inter-Departmental Committee on Social Insurance and Allied Ser vices, or t he Beveridge Report for t he Government of t he United Kingdom, named for British economist Lord William Henry Beveridge. 19. McNalty, “Fift y Years of Public Health Legislation”; Achilladelis and Antonakis, “Dynamics of Technological Innovation.” 20. Achilladelis and Antonakis, “Dynamics of Technological Innovation,” 539. See also Srinivas, “Intellectual Property Rights, Innovation, and Healthcare,” for how social policies shaped industrial outcomes.

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21. Basil Achilladelis, “Innovation in the Pharmaceutical Industry,” in Pharmaceutical Innovation: Revolutionizing Human Health, ed. Ralph Landau, Basil Achilladelis, and Alexander Scriabine (Philadelphia: Chemical Heritage Press, 1999), 87–88. 22. Ibid., 89–90. 23. Until recently, pharmaceuticals constituted about 10% of insurance packages in the United States and 20% in Europe (ibid., 121). In Japan, Western Europe, and the United States, public health programs and insurance defrayed the prescription medicine costs. 24. Simon Szreter, “Industrialization and Health,” British Medical Bulletin 69 (2004): 75–86. 25. Ibid. 26. Gøsta Esping-Andersen, “Welfare States and the Economy,” in The Handbook of Economic Sociology, ed. Neil J. Sme lser and Richard Swedberg (Princeton, NJ: Princeton University Press and Russell Sage Foundation, 1994), 711–732. 27. Peter Flora and Jens Alber, “Modernization, Democratization, and the Development of Welfare States in Western Europe,” in Development of Welfare States in Europe and America, ed. Peter Flora and Arnold J. Heidenheimer (New Brunswick, NJ: Transaction Books, 1981). Phillips Cutright and Frederic L. Pryor believed that only at a certain level of social and economic development do nations develop welfare programs. Cutright, “Political Structure, Economic Development, and National Social Security Programs,” American Journal of Sociology 70 (1965): 537–550; Pryor, Public Expenditures in Communist and Capitalist Nations (Homewood, IL: R. D. Irwin, 1968). Alternately, H. L. Wilensky and others also reflect a s tages argument: “Economic growth and its demographic and bureaucratic outcomes are the root causes of the general emergence of the welfare state.” Wilensky, The Welfare State and Equality: Structural and Ideological Roots of Public Expenditures (Berkeley: University of California Press, 1975), xiii; Jill Quadagno, “Theories of the Welfare State,” Annual Review of Sociology 13, no. 1 (1987): 109–128. 28. Gøsta Esping-Andersen, The Three Worlds of Welfare Capitalism (Princeton, NJ: Princeton University Press, 1990); Gøsta Esping-Andersen, The Social Foundations of Postindustrial Economies (Oxford: Oxford University Press, 1999). An immense literature since then has debated the varieties, the subtypes, and dissent with the model. 29. Esping-Andersen, “Welfare States and the Economy,” 714. 30. Although some argued that postwar prosperity meant that the tensions of capitalism versus political democracy had been largely resolved and replaced by “the democratic class struggle,” this reflected an approach that submerged concepts of both class and state. Seymour Martin Lipset, Political Man: The Social Bases of Politics (New York: Anchor, 1960). See also Quadagno, “Theories of the Welfare State.” 31. John Myles, Old Age in the Welfare State (Boston: Little, Brown, 1984); Morris Janowitz, Social Control of the Welfare State (New York: Elsevier, 1976). John B. Williamson, Joseph W. Weiss, and others found little data to argue that welfare states emerge as by-products of i ndustrialization, and instead found more i nformation on

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class and variables within the political system. Williamson and Weiss, “Egalitarian Political Movements, Social Welfare Effort and Convergence Theory: A Cross-National Analysis,” Comparatiove Social Research 2 (1979): 289–302; David Collier and Richard E. Messick, “Prerequisites Versus Diff usion: Testing Alternative Explanations of Social Security Adoption,” American Political Science Review 69 (1975): 1299–1315; Jerald Hage and Robert A. Hanneman, “The Growth of the Welfare State in Britain, France, Germany and Italy: A Comparison of Three Paradigms,” Comparative Social Research 3 (1980): 45–70. 32. Martin Rein, “The Social Policy of the Firm,” Policy Sciences 114 (1982): 117–135, showed that over 50% of a ll private-sector full-time employees are provided health insurance coverage, and the private employer paid almost 3.5 times the private-sector contribution in Western Europe (Dobbin, “The Origins of Private Social Insurance”). The origins of this private insurance are important because they show that there was nothing particularly inevitable in these programs arising from a predefined logic of industrialization, and that many precursors of these programs for health coverage later led to or were complemented or replaced by medical coverage and hospitalization options. Dobbin juxtaposes a nonindustrial framework of thinking of American insurance separate from the public policy or industrial arguments that have been put forward for the rise of such programs. He argues that the Depression years’ data are not consistent with industrial arguments that argue against starting such programs at the height of a severe economic collapse, when labor should be plentiful and employers are under little obligation to provide such benefits. An institutional account suggests that although industrialization provided the broader backdrop for the expectation of such private benefits from both workers’ unions and firms, firms and workers experimented in localized ways that had little to do with public policy’s enlightened attitude (Dobbin, “The Origins of P rivate Social Insurance”). This is consistent with looking at causes other than industrialization for t he rise of social policies for women and soldiers (Theda Skocpol, Protecting Soldiers and Mothers: Political Origins of Social Policy in the United States (Cambridge, MA: Belknap Press of Harvard University Press, 1992). 33. Moran, “Understanding the Welfare State,” 155. 34. See Reinhardt, “Can Efficiency in Health Care Be Left to the Market?” See also Uwe E. Reinhardt, “It’s the Prices, Stupid: Why the United States Is So Different from Other Countries,” Health Affairs 22, no. 3 (May/June 2003): 89–105. 35. Achilladelis and Antonakis, “Dynamics of Technological Innovation,” 583; Basil Achilladelis, “Innovation in the Pharmaceutical Industry,” in Ralph Landau, Basil Achilladelis, and Alexander Scriabine, eds., Pharmaceutical Innovation: Revolutionizing Human Health (Philadelphia: Chemical Heritage Press Foundation, 1999), 121. 36. Ralph Landau, Basil Achilladelis, and Alexander Scriabine, eds., Pharmaceutical Innovation: Revolutionizing Human Health (Philadelphia: Chemical Heritage Press Foundation, 1999), 130. For changes in the reimbursement systems over time, see Naoki Ikegami and John Creighton Campbell, “Japan’s Health Care System: Containing Costs and Attempting Reform,” Health Affairs 23, no. 3 (2004): 26–36.

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37. This was not the first such break in major market restructuring: the Kefauver Committee’s safety regulations had had a similar effect in the 1960s, but this was to be the most influential in changing marketing practices. Ralph Landau, Basil Achilladelis, and Alexander Scriabine, eds., Pharmaceutical Innovation: Revolutionizing Human Health (Philadelphia: Chemical Heritage Press, 1999), 94–95. 38. Basil Achilladelis, “Innovation in the Pharmaceutical Industry,” in Pharmaceutical Innovation: Revolutionizing Human Health, ed. Ralph Landau, Basil Achilladelis, and Alexander Scriabine (Philadelphia: Chemical Heritage Press, 1999), 135. 39. Ana M. Guillen and Laura Cabiedes, “Reforming Pharmaceutical Policies in the European Union: A ‘Penguin Effect’?,” International Journal of Health Ser vices 33, no. 1 (2003): 1–28. 40. Paul V. Dutton, Origins of th e French Welfare State: The Struggle for Social Reform in France, 1914–1947 (New York: Cambridge University Press, 2002), 14–38. 41. For example, Oscar Molina and Martin Rhodes, “Corporatism: The Past, Present, and Future of a Concept,” Annual Review of Political Science 5 (2000): 319, define corporatism as “state-business processes and procedures of political exchange.” See also Stéphane Jacobzone, Pharmaceutical Policies in OECD Countries: Reconciling Social and Industrial Goals (Paris: OECD, 2000). On these tensions in these arenas, see also Ken Buse and Gil Walt, “Global Public-Private Partnerships: Part II—What Are the Health Issues for Global Governance?,” Bulletin of the World Health Organization 78, no. 5 (2000): 699–709. 42. Matthias Perleth, Reinhard Busse, and Friedrich Wilhelm Schwartz, “Regulation of Health-Related Technologies in Germany,” Health Policy 46 (1999): 105–126. As the authors point out, vagueness exists about choices in diff usion and usage of health technologies. Failed centralization on these issues has resulted in de facto devolution to self-regulating bodies of physicians and sickness funds, which may have limited legal standing. 43. The discussion of Sweden and Australia is from Hans Lofgren and Rebecca De Boer, “Pharmaceuticals in Australia: Developments in Regulation and Governance,” Social Science and Medicine 58, no. 12 (2004): 2397–2407; see also Hans Lofgren, “Pharmaceutical Benefits in Australia and Sweden: Welfare Policy and the Cost of Prescription Drugs,” Australian Journal of Social Issues 36, no. 3 (2001): 207–220. 44. S. E. Olsson, Social Policy and Welfare State in Sweden (Lund: Arkiv Forlag, 1993), as cited in Lofgren, “Pharmaceutical Benefits in Australia and Sweden,” 213. See also Lofgren and De Boer, “Pharmaceuticals in Australia,” which detail the shifts to a neocorporatist relationship between state and business in the regulatory sphere regarding competition, price controls, and safety, causing a blurring of boundaries between private and public activities in three regulatory spheres: product safety, social policy, and industrial policy. Buse and Walt reflect the same tensions emerging in public-private partnerships across the health sphere in major global health campaigns. K. Buse and G. Walt, “Global Public-Private Partnerships: Part I–A New Development in Health? ,” Bulletin of th e World Health Organization 78, no. 4 ( 2000): 549–561; and Buse and Walt, “Global Public-Private Partnerships: Part II.”

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45. In both countries efforts by the government have increased consultative and conciliatory efforts with industry, and although price controls have existed in varied forms, industrial and other economic policy objectives are still being met. It has become consensual in politics to consider rollbacks in the prescription policy, as well as any entitlement cuts, to be politically difficult, and an ethical basis has thus been intertwined in a relatively universalist manner with other policy goals. 46. Lofgren, “Pharmaceutical Benefits in Australia and Sweden.” The escalating costs of several new drugs have also tried the regulatory regime in a variety of countries. In the United States the Pharmaceutical Research and Manufacturers of America has been influential in peddling a “watch list” of countries that allegedly are antagonistic to the profitability of the pharmaceutical industry. 47. See also the discussion of t he evolutionary, but not ne cessarily progressive, nature of state regulation in late industrializers in Srinivas, “Industrial Welfare and the State,” which makes explicit the difficulties of t he state in balancing trust and coercion in expanding industrial welfare entitlements among alternate risk-pooling institutions. See also Geoff Wood and Ian Gough, “A Comparative Welfare Regime Approach to Global Social Policy,” World Development 34, no. 10 (2006): 1696–1712. They emphasize the insecurity regimes that pervade the transformation of t hese economies. Although more positive views of such social benefit accrual exist, the structural-functionalist Marxist tradition, as Esping-Andersen, “Welfare States and the Economy,” points out, supports a darker view of t he role of t he welfare state in aiding capitalist accumulation and rendering a b asic level of b enefits to minimize unrest. Consumers are also influenced, not su rprisingly, by i nstitutional ties to prof essional prestige, demonstration effects, and other issues. Reimbursement norms and difficulty of re payment often drive consumption. Countries may also have different welfare states but similar pharmaceutical benefit design. See, e.g., Lofgren, “Pharmaceutical Benefits in Australia and Sweden.” 48. Most representative of this view may be Amitai Etzioni, The Active Society: A Theory of Societal and Political Processes (New York: Free Press, 1968), 314. 49. Srinivas, “Industrial Welfare and the State.” 50. Sociology seems more c omfortable with state fragmentation and contradiction: “The state, like all organizations, is not unequivocally effective or ineffective; and . . . neither the success of a state nor its polity rests on effectiveness alone.” Edward W. Lehman, “The Theory of the State versus the State of Theory,” American Sociological Review 53, no. 6 (December 1988): 819. 51. Poggi, for i nstance, emphasizes, “The state monopolizes a c rucial faculty— society-wide, generalized coercive power—and to that extent is exempt from supplyand-demand, marketlike curbs. It operates as itself the chief referent of feelings of inter-individual, intergroup solidarity, and treats submission to her itself as the standard expression of those feelings.” Gianfranco Poggi, The Development of the Modern State: A Sociological Introduction (Stanford, CA: Stanford University Press, 1978), 135. 52. Lund and Srinivas, Learning from Experience, 93.

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53. In India the pharmaceutical industry has become increasingly well orga nized in lobbying for policy changes, and industry organizations such as the Indian Chamber of Commerce and Industry and the Federation of Indian Chambers of Commerce and Industry have both been visible in craft ing new alliances to support increasing profitability in the industry. See also R. Aoki, K. Kubo, and H. Yamane, “Indian Patent Policy and Public Health: Implications from the Japa nese Experience” (Discussion Paper no. 57, Institute of Developing Economies, Tokyo, March 2006). 54. See a detailed contrast in W. Oortwijn, J. Mathijssen, and D. Banta, “The Role of Health Technology Assessment on Pharmaceutical Reimbursement in Selected Middle-Income Countries,” Health Policy 95, no. 2–3 (2010): 174–184. 55. Reich, “Why the Japanese Don’t Export More Pharmaceuticals.” 56. Ibid.; Yoshikawa, “Other Drug War.” 57. Christian Oberlander, inputs into Lund and Srinivas, Learning from Experience, 93–94. 58. Reich, “Why the Japa nese Don’t Export More Pharmaceuticals.” 59. Sumiko Ogawa, Toshihiko Hasegawa, Guy Carrin, and Kei Kawabata, “Scaling Up Community Health Insurance: Japan’s Experience with the 19th Century Jyorei Scheme,” Health Policy and Planning 18, no. 3 (2003): 270–278. 60. Christian Aspalter, “The East Asian Welfare Model,” International Journal of Social Welfare 15 (2006): 290–301. 61. Ibid. Japan’s success may lie in its ability to craft a welfare regime with many characteristics of the social democratic model that in its early years did not crowd out a variety of lo calized programs, similar to C hristian Democratic welfare regimes where both families and the state had strong roles to play. On the wider need to tightly link industrial and health policies to spur innovation and health access, see also Reich, “Why the Japa nese Don’t Export More Pharmaceuticals”; and Srinivas, “Industry and Innovation.” 62. For a d iscussion of i nformal workers and different programs, see Lund and Srinivas, Learning from Experience. 63. See message of President Benigno S. Aquino III on Universal Health Care and the status of universal coverage, Senior Policy Seminar on Health Financing and Universal Health Care, May 3, 2011, announced by H ealth Secretary Enrique T. Ona, http://www.universalhealthcare.ph/2011/05/message-aquino-uh/, accessed September 11, 2011. 64. See Rodrigo Arocena and Judith Sutz, “Looking at National Systems of Innovation from the South,” Industry and Innovation 7, no. 1 (June 2000): 55–75. 65. Srinivas, “Cost, Risk, and Labour Models”; Srinivas, “Industrial Welfare and the State.” 66. Moran, “Understanding the Welfare State”; Reinhardt, “Can Efficiency in Health Care Be Left to the Market?” The broader political and economic tensions of welfarism in the early years are captured in A. Glyn, A. Hughes, A. Lipietz, and A. Singh, “The Rise and Fall of the Golden Age,” in The Golden Age of Capitalism, ed. S. Marglin and J. Schor (Oxford: Clarendon Press, 1990): 39–125.

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67. The most influential studies perhaps are Giovanni Dosi, “Technological Paradigms and Technological Trajectories: The Determinants and Directions of Technical Change and the Transformation of t he Economy,” Research Policy 11, no. 3 ( 1982); Giovanni Dosi, Chris Freeman, Richard Nelson, Gerald Silverberg, and Luc S oete, eds., Technical Change and Economic Theory (London: Francis Pinter, 1988); and Bengt-Åke Lundvall, ed., National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning (London: Pinter, 1992). For equal attention to evolution and instability, but more to p olitical economy and accumulation politics, see Robert Boyer, The Regulation School: A Critical Introduction (New York: Columbia University Press, 1990). Peter A. Hall and David W. Soskice, Varieties of Capitalism: The Institutional Foundations of C omparative Advantage (New York: Oxford University Press, 2001) from a rationalist political economy draw a link between these “varieties” and the centrality of firms. 68. Although Foucault dwelt on technologies, Foucauldian analyses capture the darker context of t he state’s use of technologies, but le ss frequently the ambiguities and opportunities that technological change manifests in new social and political configurations. 69. Stuart Corbridge, Glyn Williams, Manoj Srivastava, and Rene Veron, Seeing the State: Governance and Governmentality in India (Cambridge: Cambridge University Press, 2005); see also Srinivas, “Cost, Risk, and Labour Models,” for a discussion of how registration of informal workers and access to health entitlements are complex regulatory functions of local states. 70. One view in the social insurance literature has stressed that extending insurance to the poor and informal workforce is difficult because of their low willingness to pay. Social security legislation, it is suggested, is then difficult to define and almost impossible to enforce. Instead, private provision of ser vices that includes treatments for accidents and maternity might be more efficient. Peter Berman, “Rethinking Health Care Systems: Private Health Care Provision in India” (working paper, Harvard School of Public Health, November 1996); Berman, “Health Care Expenditure in India,” in Health, Poverty and Development in India, ed. Monica Dasgupta et al. (Delhi: Oxford University Press, 1996), 331–358; Randall Ellis, Monira Alam, and Indirani Gupta, “Health Insurance in India: Prognosis and Prospectus,” Economic and Political Weekly 35 (2000): 207–217.

Chapter 9 1. “Labor, land, and money are obviously not c ommodities; the postulates that anything that is bought and sold must have been produced for sale is emphatically untrue in regard to them.” Polanyi, Great Transformation, 75. 2. John Lie, for example, argues that by ignoring social structure, Polanyi is unable to a ccount for t he relationship between market structure and social groupings and alliances, and his relatively homogeneous account of market expansion reduces

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organizational and institutional variety and thus attributes too much autonomy to the state. Lie, “Visualizing the Invisible Hand: The Social Origins of ‘Market Society’ in England, 1550–1750,” Politics and Society 21, no. 3 (September 1993): 278, 296. 3. Lourdes Beneria captures a more e xplicit critique of P olanyi’s gendered assumptions about the fundamental nature of s ocial exchange and the realm of noncommoditized “care” work that foists a disproportionate burden on women in all societies. See Lourdes Beneria, “Globalization, Gender and the Davos Man,” Feminist Economics 5, no. 3 (1999): 61–83. 4. Jane Jacobs, Cities and the Wealth of Nations: Principles of Economic Life (New York: Random House, 1984). 5. Seth E. Spielman, Cynthia A. Golembeski, Mary E. Northridge, Roger D. Vaughan, Rachel Swaner, Betina Jean-Louis, Katherine Shoemaker, Sandra KlihrBeall, Eric Polley, Linda F. Cushman, Benjamin Ortiz, Vincent E. Hutchinson, Stephen W. Nicholas, Terry Marx, Roger Hayes, Andrew Goodman, and Elliott D. Sclar, “Interdisciplinary Planning for Healthier Communities—Findings from the Harlem Children’s Zone Asthma Initiative,” Journal of the American Planning Association 72, no. 1 (2006): 100–108. 6. Jorge A. Mera, “A Review of the ‘Welfare State’ and Alternative Ways of Delivering Health Care,” International Journal for Quality in Health Care 14, no. 2 (2002): 87. See also WHO, World Health Report, 2000: Health Systems; Improving Per formance (Geneva: WHO, 2000). 7. Bernard Cohen, “Urbanization in Developing Countries: Current Trends, Future Projections, and Key Challenges for Su stainability,” Technology in Society 28 (2006): 63–80; United Nations, World Urbanization Prospects: The 2001 Revision (New York: United Nations, 2002). 8. M. Brockerhoff and E. Brennan, “The Poverty of Cities in Developing Regions,” Population and Development Review 24 (1998): 75–114. 9. Biospectrum India, “India Can Become Significant Global Player by 2010,” April 11, 2006, http:// biospectrumindia.ciol.com/content/columns/10604111.asp, accessed October 29, 2009. 10. See Narendar Pani, Tara Anand, and Vinod Vyasulu, “Impact of Colonialism on the Economic Structure of Indian Cities: Bangalore, 1800–1900,” in Essays on Bangalore, ed. Vinod Vyasulu and Amulya Kumar N. Reddy (Bangalore: Karnataka State Council for Science and Technology, 1985), 1:1–32; James Heitzman, “Corporate Strategy and Planning in the Science City: Bangalore as ‘Silicon Valley’?,” Economic and Political Weekly 34, no. 5 (January 30–February 5, 1995): PE2–PE11. 11. There is not space to go into this in much depth here, but particularly powerful are Sanjaya Baru’s writings on agricultural production in shaping Hyderabad’s industrial transformation. See Baru, “Capitalism in Agriculture and Growth of Manufacturing: Some Issues with Reference to A ndhra Pradesh,” in Peasant Farming and Growth of Manufa cturing in Indian Agriculture, ed. Y. V. Krishna Rao et al. (Vijayawada: Visalandhra Publications, 1984), and “The Local and the Global in Hyderabad’s Development,” Economic and Political Weekly (October 27, 2007): 31–36. See

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also Harish Damodaran, “Banias and Beyond: The Dynamics of Caste and Big Business in Modern India” (Centre for the Advanced Study of India Working Paper Series no. 08-04, University of Pennsylvania, June 2008); and Florian Tauebe’s analysis of caste and the IT sector, “Emergence, Geography, and Networks of t he Indian IT industry: Evolutionary Perspectives” (PhD diss., Johann Wolfgang Goethe–Universität, Frankfurt). 12. Khilnani, Idea of India, 77. 13. See also Mkandawire, Social Policy in a D evelopment Context; Srinivas, “Industrial Welfare and the State.” 14. Griffin, Alternative Strategies for Economic Development, 100. 15. Khilnani, Idea of India, 86–87. 16. Ibid., 88–89. 17. Panchayati Raj institutions, or panchayats, are village institutions empowered through a constitutional amendement, the 73rd Amendement. Panchayati Raj translates roughly to “village government rule.” For a qu ick guide, see http://en.wikipedia .org /wiki/Panchayati _raj. 18. “PM Launches Jawaharlal Nehru National Urban Renewal Mission,” Prime Minister’s Office, Government of India, New Delhi, December 3, 2005, http://pmindia .nic.in/speech/content.asp?id=235, accessed September 9, 2011. 19. Critics of t he JNNURM and other policy initiatives have been vocal: “Bad planning is not an accident; it is part of a policy framework that deliberately excludes local bodies and the urban poor to satisfy the needs of the elites through private sector participation.” “Urban Myths,” Down to Earth, August 31, 2006, 31. 20. Ibid., 26–34. 21. Revenue raising through taxation and other fiscal institutions largely follows “the principle of ‘separation’ rather than ‘concurrence.’ ” Amaresh Bagchi, “Intergovernmental Fiscal Relations: The Cases of India and Indonesia,” in Macroeconomic Management and Fiscal Decentralization (Washington, DC: World Bank, 1995), 163. 22. Fernand Braudel, The Mediterranean and the Mediterranean World in the Age of Philip II, trans. Siân Reynolds, vols. 1 and 2 (New York: Harper and Row, 1972); also, Braudel, Civilization and Capitalism: 15th–18th Century, trans. Siân Reynolds, vols. 1–3 (New York: Harper and Row, 1981–1984). 23. “The new pattern of u nfree labor in the Mediterranean and the Atlantic islands was thus a major innovation. It pointed toward the industrial organization of the future, not back to the patterns of slavery known in African villages. Here was the root idea of the plantation system that was later to develop on a l arge scale in Brazil and later yet on t he Caribbean islands.” Thomas Bender, A Nation among Nations: America’s Place in World History (New York: Hill and Wang/Farrar, Straus and Giroux, 2006), 33. 24. “The difference in the mode of unfree labor imposed on Eu ropeans and Africans warrants emphasis. Slavery in Muslim societies was generally not agricultural. Europeans were familiar with a different form of unfree agricultural labor, serfdom,

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but they did not employ it on sugar plantations in the Americas. Serfdom was a form of village or communal labor, while slavery in the emerging plantation complex was based on i ndividual slaves, though they typically worked in gangs. Gang labor as a form of slavery had not existed in Africa or the East and Arabian or the Muslim world, except in the salt marshes of the Tigris-Euphrates Valley.” Ibid. 25. Ibid., 28. Bender estimates that more than 60 million Chinese and one-third of the European population died. 26. Szreter, “Industrialization and Health.” 27. Benedict Anderson, Imagined Communities: Reflections on the Origin and Spread of Nationalism, rev. and ext. ed. (London: Verso, 1991), 6. 28. See essential arguments in Srinivas, “Industrial Welfare and the State.” 29. Despite the fact that Anderson himself was an Indonesia scholar and sensitive to questions of statism and Marxist political economy, such a huge topic faced inevitable criticism. For e xample, on t iming and national imagination, see Partha Chatterjee, Nationalist Thought and Colonial World: A Derivative Discourse (London: Zed Books, 1986). 30. Eric J. H obsbawm, Nations and Nationalisms since 1780: Programme, Myth, Reality (New York: Cambridge University Press, 1991), 131. 31. Elizabeth T. Hurren, “Poor Law versus Public Health: Diphtheria, Sanitary Reform, and the ‘Crusade’ against Outdoor Relief, 1870–1900,” Social History of Medicine 18, no. 3 (2005): 399–418. 32. C. Hamlin, “Muddling in Bumbledom: On the Enormity of Large Sanitation Improvements in Four British Towns, 1855–1885,” Victorian Studies 1 (1985): 55–83. See also Anne Crowther, The Workhouse System, 1834–1929: The History of an English Social Institution (Athens: University of Georgia Press, 1982); John V. Pickstone, Medicine and Industrial Society: A History of Hospital Development in Manchester and Its Regions, 1752–1946 (Manchester: Manchester University Press, 1985). 33. Hurren, “Poor Law versus Public Health,” details the deliberate disavowal of universalization. 34. Srinivas, “Industrial Welfare and the State.” 35. Susan E. Chaplin, “Cities, Sewers, and Poverty: India’s Politics of Sanitation,” Environment and Urbanization 11, no. 1 (1999): 145–158. 36. K. Kripalani, Gandhi: A Life (New Delhi: National Book Trust, 1968). 37. Anthropological and subaltern views suggest that “governmentality” may have co-opted the body, and the rise of “population” perspectives on health and industrial control assured a l ater response from Gandhi regarding the individual’s body and separation from science and state; Gyan Prakash, Another Reason: Science and the Imagination of M odern India (Princeton, NJ: Princeton University Press, 1999). Using political and psychosocial language, Ashis Nandy analyzes the Gandhian economic and political strategy and spiritual ethos against oppressors, which incorporated notions of t echnology and regulation. Ashis Nandy, Traditions, Tyranny and Utopias: Essays in the Politics of Awareness (New Delhi: Oxford University Press, 1992).

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38. R. N. Iyer, The Moral and Political Thought of Mahatma Gandhi (New Delhi: Oxford University Press, 2000), 123. 39. Ibid., 57. 40. Shriman Norayan Agarwal, The Gandhian Plan of Economic Development for India (Bombay: Padma Publishers, 1944); Ajit Kumar Dasgupta, Gandhi’s Economic Thought (London: Routledge, 1996). 41. Carl Markovits, The Un-Gandhian Gandhi—The Life and After-life of the Mahatma (New Delhi: Permanent Black, 2003), 121–123. 42. Ibid., 80–81. 43. But these “Gandhian” forms of economic and social organization did not arise with him. Ruskin, Thoreau, and Tolstoy were known influences on his thought. Perhaps only he was able to infuse their views with his own personal convictions and a political activism with no pa rallel and to bu ild in inspiration and analogies from Hindu ideals to the Enlightenment. See Nandy, Traditions, Tyranny and Utopias; and Iyer, Moral and Political Thought of Mahatma Gandhi. 44. Adna F. Weber, The Growth of Cities in the Nineteenth Century: A Study in Statistics (New York: Macmillan, 1899; repr., Ithaca, NY: Cornell University Press, 1963). 45. For example, “We regard planning as an activity which is concerned with making choices about good and bad, right and wrong, with and for others, in relation to par ticu lar places. It is about making ethical choices over issues which are often highly contested. Planning is therefore profoundly concerned with justice.” Heather Campbell and R. Marshall, “Towards Justice in Planning: A Reappraisal,” European Planning Studies 14, no. 2 (February 2006): 240. Also, planning problems “are ‘wicked’ in the sense that they are difficult to defi ne, multifaceted and infi nitely malleable. They are also situated, in that they do not concern abstract places but unique places; places inscribed with the struggles of how to live well. It is this contestation over the extent and nature of the contribution of place to human well-being which is at the heart of the planning activity” (ibid., 246). See also Horst W. J. Rittel and Melvin M. Webber, “Dilemmas in a G eneral Theory of Planning,” Policy Sciences 4 (1973): 155–169. 46. Guy Standing, for i nstance, traverses East Asian history’s peculiar femaleintensive factory economy. Guy St anding, “Global Feminization through Flexible Labour: A Theme Revisited,” World Development 27, no. 3 (1999): 583–602. The tight controls over dormitory labor, transport, migration, and the factory resulted in a skewed gender distribution of work and entitlements. 47. Gerschenkron, Economic Backwardness in Historical Perspective, 23–24. 48. Bender, Nation among Nations, 64– 65. Workers wrote about the confines of such communities and their desire to be free of the oppressive care being meted out that identified them primarily as factory workers and machine hands, less as people with lives independent of machines. Yet most stayed, factory wages being higher than most forms of available alternate employment. 49. Ibid., 66–67. Bender quotes from Tocqueville: “The friends of democracy should keep their eyes anxiously fi xed in this direction; for if ever a permanent inequality of

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conditions and aristocracy again penetrates into the world, it may be predicted that this is the gate by which they will enter.” Alexis de Tocqueville, Democracy in America (New York: Random House, 2000 [1850]), 256. 50. Lewis Mumford, The Story of Utopias (New York: Viking Press, 1922). 51. Nandy, Traditions, Tyranny and Utopias; Iyer, Moral and Political Thought of Mahatma Gandhi. 52. Lloyd I. Rudolph a nd Susan H. Rudolph, “ The Traditional Roots of C harisma: Gandhi,” in The Modernity of Tradition: Political Development in India, ed. Lloyd Rudolph a nd Susan Rudolph ( Chicago: University of C hicago Press, 1967), 155–249. 53. Bhoodaan refers to voluntary gifts of l and, gramdaan to t he voluntary gift from a richer minority of a major part of the land within a village to the poor majority in the village, especially from wealthier landowners to poorer, low -caste villagers in order to instigate a widespread land reform movement in India. 54. Markovits, Un-Gandhian Gandhi; also Richard G. Fox, Gandhian Utopia: Experiments with Culture (Boston: Beacon Press, 1989), 173–176. 1 For a more recent analysis of securities and entitlements apart from workplaces, see several essays in Renana Jhabvala and R. K. A. Subrahmanya, eds., The Unorganised Sector: Work Security and Social Protection, New Dilemmas (New Delhi: Sage Publications and Self-Employed Women’s Association, 2000). 55. International Labour Orga nization, Women Organizing for Social Protection. 56. See U. N. J ajoo, “Health Insurance for t he Poor,” in Jhabvala and Subrahmanya, Unorganised Sector, 90–104. 57. Kohli, Democracy and Discontent. 58. This theme has been echoed by d iverse commentators from Polanyi to B arbara Harris-White. See Harriss-White, “On understanding Market as Social and Political Institutions in Developing Economies,” in Rethinking Development Economics, ed. Ha-Joon Chang (London: Anthem Press, 2003), chapter 21. 59. See Jean Philippe Platteau, “Behind the Market Stage Where Real Societies Exist—Part I: The Role of Public and Private Order Institutions,” Journal of Development Studies 30, no. 3 (1994): 533–577; Platteau, “Behind the Market Stage Where Real Societies Exist—Part II: The Role of Moral Norms,” Journal of Development Studies 30, no. 4 (1994): 386–422. 60. Many industrialized countries have successfully managed production, while some, such as the United States, continue to s truggle with demand. Most nations however proficient in production and demand, must nevertheless deal with delivery challenges. 61. Quoted in T. R. Reid, “No Country for Sick Men: To Judge the Content of a Nation’s Character, Look No Further than Its Health-Care System,” Newsweek, September 11, 2009. http://www.thedailybeast.com/newsweek /2009/09/11/no-country -for-sick-men.html, accessed September 9, 2011. See also Thomas Reid, The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care (New York: Penguin Press, 2009).

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62. Geoff rey Hodgson, Economics and Institutions (Cambridge, England: Polity Press, 1988), 178. 63. Srinivas, “Cost, Risk, and Labour Models.” 64. Richard M. Titmuss, Essays on “The Welfare State,” 2nd ed. (London: Allen & Unwin, 1963), 52. 65. As Esping-Andersen, Social Foundations of Postindustrial Economies, points out, “de-familialization” skews the typology into different gendered forms (p. 61). 66. Or, as Robert Boyer and other régulation theorists have commented, if a “market economy” is one that organizes production and redistribution through “free” markets, capitalism is then only one form of market economy. See the expansion on the differences between market economies and capitalism in Boyer, “Capitalism Strikes Back: Why and What Consequences for Social Sciences?,” Revue de la régulation, Capitalisme, institutions, pouvoirs, no. 1 (Juin 2007), http://regulation.revues.org /index2142.html, accessed September 9, 2011. 67. See, for e xample, Jane Jacobs, Systems of S urvival: A D ialogue on the Moral Foundations of Commerce and Politics (New York: Random House, 1992). Mumford and Arendt undertake the same question of t he political and cognitive basis of t he economy in their own unique and rather magisterial manners. 68. Th is is as relevant today, it appears, as in sixteenth-century England. Lie, “Visualizing the Invisible Hand,” 278–279. 69. Kathy Froese, “Beyond Liberalism: The Moral Community of Rousseau’s Social Contract,” Canadian Journal of Political Science/Revue Canadienne de Science Politique 34, no. 3 (2001): 579–600. 70. Esping-Andersen, Three Worlds of Welfare Capitalism. 71. As Partha Chatterjee has argued, this implied that the democracy implicit in nation building may nevertheless be absent in practice via the state and its timing. Chatterjee, The Nation and Its Fragments: Colonial and Postcolonial Histories (Princeton, NJ: Princeton University Press, 1993). 72. Niraja Gopal Jayal has argued that Indian governments have sidelined rightsbased challenges because India’s welfare policy has been “from its very inception, grounded in ideas of charity, benevolence and paternalism.” Jayal, Democracy and the State: Welfare, Secularism and Development in Contemporary India (New Delhi: Oxford University Press, 1999), 2. 73. A. Smart and J. Smart, “Local Citizenship: Welfare Reform, Urban-Rural Status, and Exclusion in China,” Environment and Planning A 33 (2001): 1853–1869; Geoffrey DeVerteuil, Lee Woobae, and Jennifer Wolch, “New Spaces for the Local Welfare State? The Case of General Relief in Los Angeles County,” Social and Cultural Geography 3, no. 3 ( 2002): 229–246; Jennifer Wolch and Sissi Dinh, “The New Poor Laws: Welfare Reform and the Localization of Help,” Urban Geography 22 (2002): 482–489. These challenges appear to exist in traditional welfare states as well. See also John Mohan, “New Labour, New Localism?,” Renewal 7, no. 4 (2002): 56–62; and Mohan, Planning, Markets and Hospitals (London: Routledge, 2002).

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74. Personal communications with Mr. R. K. A. Subrahmanya, Indian Social Security Association, and Mr. Rajesh, LabourNet, Bangalore, India, December 12, 2006. 75. There is an extensive geographic theoretical rendition of Eu ropean and U.S. issues; see, e.g., Elmar Rieger and Stephan Leibfried, “Welfare State Limits to Globalisation,” Politics and Society 26 (1998): 363–390; Steven Pinch, Worlds of Welfare (London: Routledge, 1997); Pinch, “Knowledge Communities, Spatial Theory and Social Policy,” Social Policy and Administration 32 (1998): 556–571; Ron Pahl, “Market Success and Social Cohesion,” International Journal of Urban and Regional Research 25 (2001): 879–883; and Julian Wolpert, What Charity Can and Cannot Do (New York: Twentieth Century Fund, 1996). 76. Discrepancies exist between the National Commission on L abour’s definitions of employment numbers in an enterprise and existing law, which downplays the distinction between orga nized and unorga nized sectors. 77. Personal communication with Mr. R. K. A. Subrahmanya, October 2006; see also Indira Hirway, “Unorganised Sector Workers’ Social Security Bill, 2005: Let Us Not Go Backwards!,” Commentary, Economic and Political Weekly 41, no. 5 (February 4–10, 2006), 379–382. 78. Vera Schattan P. Coelho, “Democratization of Brazilian Health Councils: The Paradox of Bringing the Other Side into the Tent,” International Journal of Urban and Regional Research 30, no. 3 (September 2006): 656–671. 79. Without these alternatives, the wait will be long for c oalescence of I ndia’s fragmentary social assistance and insurance into a European-style welfare state. 80. T. H. Marshall, Class, Citizenship and Social Development (Westport, CT: Greenwood Press, 1973); R. Lister, “Dilemmas in Engendering Citizenship” (paper presented at the University of Stockholm Cross Borders Conference, May 1994); and K. Waerness, “Caring as Women’s Work in the Welfare State,” in Patriarchy in a Welfare Society, ed. H. Holter (Oslo: Universitetsforlaget, 1984), 67–87. 81. For a wide-ranging debate on t he laborist society, see Guy Standing, Beyond the New Paternalism: Basic Security as Equality (London: Verso, 2002). 82. Broadly, animal laborans refers to the biologically driven necessity of labor, whereas homo faber refers to work (not labor), which moves into the realm of making, of creating technology, culture, and creations that have their own life and structure. 83. For positioning animal laborans versus homo faber in prioritizing a system of politics, see Hannah Arendt, The Human Condition, 2nd ed. (Chicago: University of Chicago Press, 1958). 84. Vicki Birchfield and Lourdes Beneria reflect some aspects of a similar debate, the latter especially on t he absence of a ge ndered debate in Polanyi’s work. Vicki Birchfield, “Contesting the Hegemony of Market Ideology: Gramsci’s ‘good sense’ and Polanyi’s ‘double movement,’ ” Review of I nternational Political Economy 6, no. 1 (Spring 1999): 27–54; Beneria, “Globalization, Gender and the Davos Man.” See also W. J. Booth, “On the Idea of the Moral Economy,” American Political Science Review 88 (1994): 653–667; Mendell and Salee, Legacy of Karl Polanyi; Adam Green, “Matter

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and Psyche: Lewis Mumford’s Appropriation of Marx and Jung in His Appraisal of the Condition of Man in Technological Civilization,” History of the Human Sciences 19, no. 33 (2006): 37, 38, 40, 53. 85. Mumford, Story of Utopias, 275. 86. For an excellent treatment and discussion from which I have drawn see Froese, “Beyond Liberalism.” 87. Ibid. 88. Polanyi, The Great Transformation. 89. Srinivas, “Industrial Welfare and the State.”

Conclusion 1. See Peter Marcuse, “On the Feeble Retreat of P lanning,” Journal of P lanning Education and Research 3 (1983): 52–53. Marcuse emphasizes a difference between strategic retrenchment and a feeble retreat, one of “cutback planning” as planners within and outside the state engaged within in the late 1970s and early 1980s in U.S. cities and regions. 2. On the question of how bounded such knowledge is in defining practice and decision making, see John Forester, “Bounded Rationality and the Politics of Muddling Through,” Public Administration Review 44, no. 1 (January–February 1984): 23– 31; and the now-classic article by Eric Lindblom, “The Science of Muddling Through,” Public Administration Review 19 (Spring 1959): 79–88. 3. See, for example, Bishwapriya Sanyal, The Myth of D evelopment from Below (Cambridge, MA: MIT Department of Urban Studies and Planning, 1996). 4. Some recent essays that emphasize policy issues are Dinesh Abrol, Pramod Prajapati, and Nidhi Singh, “Globalization of t he Indian Pharmaceutical Industry” (mimeo, National Institute for S cience, Technology and Development, New Delhi); Shyama V. Ramani and Samira Guennif, “Catching Up in the Pharmaceutical Sector: Lessons from Case Studies of India and Brazil” (UNU-MERIT working paper, Maastricht, the Netherlands); Srinivas, “Industry and Innovation”; and Dinesh Abrol, “Conditions for t he Achievement of Pharmaceutical Innovation for Sustainable Development: Lessons from India,” World Review of Science, Technology and Sustainable Development 3, no. 4 ( 2006): 344–361. On post-TRIPS issues, see also Dinesh Abrol, “The Post-TRIPs Technological Behaviour of Pharmaceutical Industry in India,” Journal of Science, Technology and Society 9, no. 2 (2004): 243–271. 5. Rodrigo Arocena and Judith Sutz, “Evolutionary Learning in Underdevelopment,” International Journal of Technology and Globalisation 1, no. 2 (2005): 209–224; Arocena and Sutz, “Emerging Neoperipheral Structures and Gardening Policies” (paper presented to the Summer Druid Conference, Helsingør, Danish Research Unit on Industrial Dynamics, 2004). 6. Oren Yiftachel, “Planning and Social Control: Exploring the Dark Side,” Journal of Planning Literature 12 (1998): 395–406.

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7. Ibid. 8. See, for instance, Stuart Corbridge, “The (Im)possibility of Development Studies,” Economy and Society 36, no. 2 (2007): 179–211. 9. E.g., Susan Fainstein, “Planning Theory and the City,” Journal of Planning Education and Research 25 (2005): 121–130. 10. Bengt-Åke Lundvall, “Innovation as an Interactive Process: From User-Producer Interaction to the National System of Innovation,” in Technical Change and Economic Theory, ed. Giovanni Dosi, Chris Freeman, Richard Nelson, Gerald Silverberg, and Luc Soete (London: Francis Pinter, 1988); Lundvall, National Systems of Innovation; Bo Carlsson, Technological Systems and Industrial Dynamics (Dordrecht: Kluwer, 1995). 11. Dulbecco and Dutraive, “Meaning of the Market,” 178. 12. E.g., Ludwig Lachmann, The Market as an Economic Process (New York: Basil Blackwell, 1986), 3; see also the detailed discussion of commonalities and differences in the two schools. 13. John Friedmann, “Why Do Planning Theory? ,” Planning Theory 2, no. 1 (2003): 7–10; see also David Byrne, “Complexity Theory and Planning Theory: A Necessary Encounter,” Planning Theory 2, no. 3 (2003): 171–178. 14. See Markku Sotarauta and Smita Srinivas, “Co-evolutionary Policy Processes: Understanding Innovative Economies and Future Resilience,” Futures 38 (2006): 312–336. 15. Alan Fox, Beyond Contract: Work, Power and Trust Relations (New York: Faber, 1974), 375. 16. Franz Hahn, “Incomplete Market Economies,” Proceedings of the British Academy 80 (1993): 203. 17. David Adams and Steven Tiesdell, “Planners as Market Actors: Rethinking State-Market Relations in Land and Property,” Planning Theory and Practice 11, no. 2 (2010): 187–207. 18. Johnson, MITI and the Japanese Miracle; Robert Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization (Princeton, NJ: Princeton University Press, 2004). 19. This has been especially applied to Eu ropean welfare states. See, e.g., Ian Taylor. “New Labour and the Enabling State,” Health and Social Care in the Community 8, no. 6 (2008): 372–379. 20. Recall Mkandawire’s comment that we would be wrong to reify the developmental state as an “omnipresent and omniscient leviathan that always gets what it wants.” Mkandawire, “Thinking about Development States in Africa,” 291. 21. E.g., Wade, Governing the Market; Alice Amsden, Asia’s Next Giant: South Korea and Late Industrialization (New York: Oxford University Press, 1992). 22. As I emphasized in the Introduction, there are also distinct national and cultural characteristics of health-care technologies that range from consumption to prescription patterns. See also Katherine Eggleston, ed., Prescribing Cultures and Pharmaceutical Policy in the Asia-Pacific (Palo Alto, CA: Walter H. Shorenstein Asia-Pacific Research Center, Stanford University, 2009).

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23. Michael Dear and Allen J. S cott, eds. Urbanization and Urban Planning in Capitalist Society (New York: Methuen, 1981); David Harvey, “On Planning the Ideology of Planning,” in The Urbanization of C apital: Studies in the History and Theory of Capitalist Urbanization (Baltimore: Johns Hopkins University Press, 1985), 165–184. Planners’ roles in this machinery are also evident in cities and regions. 24. See Srinivas, “Industrial Welfare and the State.” 25. Tridib Banerjee, “Market Planning, Market Planners, and Planned Markets,” Journal of the American Planning Association 59, no. 3 (1993): 353–360; Srinivas, “Industrial Welfare and the State”; John W. Dyckman, “Social Planning, Social Planners, and Planned Societies,” Journal of the American Institute of Planners 32, no. 2 (1966): 72–76. 26. Especially representative are several chapters, such as Richard Boyd and TakWing Ngo’s “Emancipating the Political Economy of A sia from the Growth Paradigm,” in Asian States: Beyond the Developmental Perspective, ed. Richard Boyd and Tak-Wing Ngo (London: RoutledgeCurzon, 2005), 1–18. 27. E.g., Srinivas, “Industrial Welfare and the State.” In “Planning and Social Control” and other works, Oren Yiftachel questions whether states can ever plan impartially and mitigate their coercive impulses when they are ethnically driven and legitimized, as in Israel’s separate “development” of J ewish townships and Arabinhabited areas. 28. Of course, this local state characteristic is true of industrialized economies as well, but the imperatives that drive the state may be different. 29. See Gianfranco Poggi: “What makes the trend toward the obliteration of the state/society line so powerful is precisely the fact that several phenomena, distinctive and even otherwise mutually contradictory, are at one in causing it.” Poggi, Development of the Modern State, 131. 30. Gerschenkron, Economic Development in Historical Perspective. 31. William Dugger nicely captures this when he states that the market cannot be compared to natural formations such as the Rocky Mountains or the Grand Canyon. He could have gone f urther, that markets are more varied, mimicking diverse peak heights or ever-undulating tectonic plates. See William M. Dugger, “Instituted Process and Enabling Myth: The Two Faces of the Market,” Journal of Economic Issues 23, no. 2 (1989): 607–615. 32. See Banerjee, “Market Planning, Market Planners, and Planned Markets”; and Albert O. Hirschman, “Rival Interpretations of Market Society: Civilizing, Destructive, or Feeble?,” Journal of Economic Literature 22 (1982): 1463–1484. 33. Yong Chool Ha, “Late Industrialization, the State, and Social Changes: The Emergence of Neofamilism in South Korea,” Comparative Political Studies 40 (April 2007): 363. 34. In “Market Planning, Market Planners, and Planned Markets,” Tridib Banerjee expresses this particularly well in discussing tensions of economic development at the level of the city.

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35. See an animated discussion in Donald Mackenzie and Judy Wajcman, eds. The Social Shaping of Technology (Buckingham, England; Philadelphia: Open University Press, 1999). 36. Uwe E. Reinhardt, “Perspectives on t he Pharmaceutical Industry,” Health Affairs 20, no. 5 (2001): 136–149. 37. Stephen Heffler, Stephen Heffler, Katharine Levit, Sheila Smith, Cynthia Smith, Cathy Cowan, Helen Lazenby, and Mark Freeland, “Health Spending Growth Up in 1999; Faster Growth Expected in the Future,” Health Affairs 20, no. 2 (March/ April 2001): 193–203. 38. Reinhardt, “Perspectives on the Pharmaceutical Industry,” 140. 39. These more u nidirectional frameworks include “catch-up” and convergence variously depicted for i ndustrialization and technology-transfer theses, e.g., Moses Abramovitz, “Catching Up, Forging Ahead, and Falling Behind,” Journal of Economic History 46, no. 2 ( June 1986): 385–406; William J. B aumol, “Productivity Growth, Convergence, and Welfare: What the Long-Run Data Show,” American Economic Review 76, no. 5 (1986): 1072–1085; and Gerschenkron, Economic Development in Historical Perspective; and more political sociology emphases on logics of industrialism and convergence theses, e.g., Wilensky, Welfare State and Equality; and Flora and Alber, “Modernization, Democratization, and the Development of Welfare States in Western Europe.” 40. Mackenzie and Wajcman, Social Shaping of Technology; Merritt Roe Smith and Leo Marx, eds., Does Technology Drive History? The Dilemma of Technological Determinism (Cambridge, MA: MIT Press, 1994). 41. Callahan, Taming the Beloved Beast, looks at the ethical hard choices for U.S. health technologies. He emphasizes the need to curb innovation in order to make people actually healthier through a u niversal system with greater emphasis on pre ventive care and far less attention to cutting-edge technologies. 42. Rittel and Webber, “Dilemmas in a General Theory of Planning.” 43. Arrow, “Economic Implications of L earning by D oing”; Nathan Rosenberg, Inside the Black Box: Technology and Economics (New York: Cambridge University Press, 1982). An approach that burrows further into this planning difference between “soft” and “hard” rests in “technological paradigms” that represent contingent bifurcations of pat hways and point to b oth technology and institutional variety. Dosi, “Technological Paradigms and Technological Trajectories.” 44. See a treatment of paradigms that distinguishes their use in sciences (Thomas Kuhn) from those in technology (Dosi) in the introductory essay in Mackenzie and Wacjman, Social Shaping of Technology, 9–10. 45. Arguably, planners work as social progressives but may legitimize markets in the short term; they sometimes work for re form but ne ed not i nstitute long-term change (the Marxist critique). See also Dyckman, “Social Planning, Social Planners, and Planned Societies”; Norman Fainstein and Susan Fainstein, “New Debates in Urban Planning: The Impact of Marxist Theory within the United States,” International Journal of Urban and Regional Research 3, no. 3 (1979): 381–403; and John W. Dyckman,

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“Reflections on Planning Practice in an Age of Reaction,” Journal of Planning Education and Research 3 (1983): 5–12. 46. Peter Langer, “Four Images of Organized Diversity: Bazaar, Jungle, Organism and Machine,” in Cities of the Mind: Images and Themes of the Cities in the Social Sciences, ed. Lloyd Rodwin and Robert M. Hollister (New York: Plenum, 1984), 97–117. 47. Poggi, Development of the Modern State, 131. 48. This emphasis on practice through deliberate interventions is captured well in Ernest Alexander, “Institutional Transformation and Planning: From Institutional Theory to Institutional Design,” Planning Theory 4, no. 3 (2005): 209–223. As Fritz Scharpf describes it, such institutional design comes about when institutions “are created and changed through human action either through evolutionary processes of mutual adaptation or t hrough purposive design”; cited in Enrico Gualini, Planning and the Intelligence of Institutions (Aldershot, England: Ashgate, 2001), 49. 49. Sotarauta and Srinivas, “Co-evolutionary Policy Processes,” 331. 50. William A. Jackson offers some hierarchies for evaluating markets. Jackson, “On the Social Structure of Markets,” Cambridge Journal of Economics 31 (2007): 235– 253. See also Bruno Amable, The Diversity of M odern Capitalism (Oxford: Oxford University Press, 2003); and Robert Boyer, “The Variety and Unequal Per for mance of Really Existing Markets: Farewell to Doctor Pangloss?,” in Contemporary Capitalism: The Embeddedness of I nstitutions, ed. J. Roge rs Hollingsworth and Robert Boyer (Cambridge: Cambridge University Press, 1997), 55–93. Nelson, Limits of Market Organization, discusses the limits to market orga nization using similar language, particularly the differentiated roles of the public and private sectors in several sectors of the economy from R&D in science to d efense, and from health care to transportation. 51. For an excellent discussion of lo cal government in European contexts and their contested evolution, see Frank Moulaert and Alan J. S cott, eds., Cities, Enterprises and Society on the Eve of the 21st Century (London: Pinter, 1997). 52. See sympathetic and incisive readings of TRIPS and its industrial and health dilemmas in Raja Rasaiah, “TRIPS and Technology Development in South and East Asia” (UNU-INTECH working paper, Maastricht, the Netherlands, 2001); and Correa, “Ownership of Knowledge.” 53. Robert L. Heilbroner, “Do Machines Make History?,” Technology and Culture 8 (July 1967): 345. For a later discussion, see Robert L. Heilbroner, “Technological Determinism Revisited,” in Does Technology Drive History? The Dilemma of Technological Determinism, ed. Merritt Roe Smith and Leo Marx (Cambridge, MA: MIT Press, 1994), 67–78. 54. Moran, “Understanding the Welfare State,” 146, argues that states safeguard private property, including the investments of firms and their intellectual property, resulting in what Charles E. Lindbolm calls a polyarchic system: firms may be embedded in a d emocratic political system, but t hey are vested with special powers and protections in a market economy and inhabit these overlapping worlds with all their

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contradictions and policy challenges. Lindblom, Politics and Markets: The World’s Political-Economic Systems (New York: Basic Books, 1977). 55. Moran “Understanding the Welfare State.” 56. Ibid. Uwe Reinhardt’s writings also emphasize the weak demand of t he U.S. “market” system, tracing how historically, technology suppliers have been dominant. Reinhardt, “Can Efficiency in Health Care Be Left to the Market?” 57. Lall, Learning to Industrialize. 58. For example, Michael E. Porter, The Competitive Advantage of Nations (New York: Free Press, 1990). 59. Srinivas, “Industrial Welfare and the State.” 60. Chris Freeman and Carlota Perez, “Structural Crises of Adjustment, Business Cycles and Investment Behaviour,” in Technical Change and Economic Theory, ed. Giovanni Dosi, Chris Freeman, Richard Nelson, Guy Silverberg, and Luc Soete (London: Pinter, 1988), 38–66; John Courvisanos, “Political Aspects of I nnovation,” Research Policy 38 (2009): 1117–1124. 61. Polanyi, Great Transformation, lays much of this groundwork for several theorists by describing the associational and embedded nature of “market society.” Similarly, competitive markets have been reified. “When classifying actual markets, one should steer clear of r ankings or h ierarchies placing pure competition at t he top.” William A. Jackson, “On the Social Structure of Markets,” Cambridge Journal of Economics 31 (2006): 237. 62. Anne-Emmanuelle Birn, “Gates’ Grandest Challenge: Transcending Technology as Public Health Ideology,” Viewpoint, Lancet 366 (August 2005): 514–519, emphasizes several ways in which to provide more context for any single disease or vector. 63. François Moreau makes a similar point: “Most of t he future states of nature are not even conceivable. To assume that a once-and-for-all decision can be taken is thus, in a dynamic efficiency perspective, just an illusion.” Moreau, “Role of the State in Evolutionary Economics,” 851. 64. Sotarauta and Srinivas, “Co-evolutionary Policy Processes.” See also applications of this work to ot her contexts, such as planning natural resource management and S&T and innovation policies. 65. Corbridge, “(Im)possibility of Development Studies.” 66. It is no coincidence, perhaps, that the symbolism of statehood, tied as it is to notions of reification, faith and duty, public good, and moral values, should have emerged from scholars studying religion and social orga nization at one or a nother time. See especially Clifford Geertz, Negara: The Theatre State in Nineteenth- Century Bali (Princeton, NJ: Princeton University Press, 1981). 67. For an extended discussion of how this emergent economic development is distinct from a Ha yekian view of a l imited policy role, see Sotarauta and Srinivas, “Co-evolutionary Policy Processes.” In examining how to understand economic development, they describe the fine touch necessary to regulate: “The great debates of most

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fields associated with economic development rest on emergence versus intention and the interplay between the two. The ‘residual’ of unexplained divergence between goal and outcome, in this sense, can be ascribed in part to the interplay, or co-evolution, between policies (intention) and self-organising (emergent) development” (312). See also Phil Cooke, “Regional Innovation Systems: Competitive Regulation in the New Europe,” Geoforum 23, no. 3 (1992): 365–382. 68. Central to the triple helix model of innovation, the university is a critical institution in several other studies. Universities today are torn between the language of a knowledge economy and a s hift ing public welfare role. See Smita Srinivas and Kimmo Viljamaa, “Emergence of Economic Institutions: Analysing the Third Role of Universities in Turku, Finland,” Regional Studies 1 (2007): 1–19. For the broader challenges of u niversity-led economic development, see several chapters in Richard K. Lester and Markku Sotarauta, eds., Innovation, Universities, and the Competitiveness of Regions, Technology Review 214/2007 (Helsinki: Industrial Performance Centre MIT and Tekes, 2007). 69. Froese, “Beyond Liberalism.” 70. Ibid. 71. Among others, see Nelson, Limits of Market Orga nization. 72. A. Horowitz, Rousseau: Nature and History (Toronto: University of Toronto Press, 1987), 186 (italics in the original). 73. Poggi describes the same characteristic: “The modern state is not b estowed upon a people as a gift by God, its own Geist, or blind historical forces; it is a ‘made’ reality. . . . Once ‘made’, moreover, a state constantly operates with references to some idea of a n end or f unction to w hich it i s instrumental. . . . Alternatively, it i s sometimes suggested that the state in fact does by its very nature possess a telos, but this is wholly internal to the state itself, consisting exclusively of the continuous expansion of its own power.” Poggi, Development of the Modern State, 96. 74. Srinivas, “Industrial Welfare and the State.” 75. Nelson, Limits of Market Orga nization. 76. Robert L. Heilbroner, “Do Machines Make History?,” Technology and Culture 8 (July 1967): 345. 77. Friedrich A. Hayek, The Counter-revolution of Science (Indianapolis: Liberty Fund, 1979); also Hayek, Studies in Philosophy, Politics and Economics (London: Routledge, 1967). See also Sotarauta and Srinivas, “Co-evolutionary Policy Processes”; Stefano Moroni, “An Evolutionary Theory of I nstitutions and a D ynamic Approach to Reform,” Planning Theory 9 (2010): 275–297; and Frank Moulaert, “Institutional Economics and Planning Theory: A Partnership between Ostriches?,” Planning Theory 4 (2005): 21–32. 78. Srinivas and Sutz, “Developing Countries and Innovation”; Arocena and Sutz, “Looking at National Systems of Innovation from the South.” 79. From the field of urban and regional planning, see especially Seymour Mandelbaum, Open Moral Communities (Cambridge, MA: MIT Press, 2000).

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80. Charles Hoch, “Planning Craft: How Planners Compose Plans,” Planning Theory 8, no. 3 (2009): 221. 81. Kieran P. Donaghy and Lew D. Hopkins, “Coherentist Theories of Planning Are Possible and Useful,” Planning Theory 5, no. 2 ( 2006): 173–202. See also the description and alternatives presented in Hoch, “Planning Craft.” 82. See Donald Schon and Martin Rein, Frame Reflection: Toward the Resolution of Intractable Policy Controversies (New York: Basic Books, 1994). 83. Hoch, “Planning Craft.” 84. Ibid., 237.

Index

Note: Page numbers followed by f and t indicate figures and tables. Abbott Laboratories, 14, 97, 268n37 Abbreviated New Drug Application (ANDA), 107, 108, 117, 118 Access: affordability and, 52, 56, 63, 71, 169, 174, 176, 177, 189, 219, 231, 262–263n27; competition and, 100; in India, 10, 85–86, 95, 208; judging health care and, 189; to medicines, 102; public health and, 58 Active pharmaceutical ingredients (APIs): defined, 11; duplication of, 106; export of, 111; generic forms, 109, 111; manufacturing, 14, 112, 118, 119; markets for, 115. See also Bulk drugs Activism, 18, 90, 92, 94 Affordability: access and, 52, 56, 63, 71, 169, 174, 176, 177, 189, 219, 231, 262–263n27; barriers to, 189; private sector and, 67; state on, 6, 210; technology advances and, 67; of vaccines, 229 Ahmedabad, 202–203

All India Coordination Committee of Working Women, 91 Amsden, Alice, 40 ANDA. See Abbreviated New Drug Application (ANDA) Anderson, Benedict, 198 Andhra Pradesh, 191 Antibiotics: cities and, 199–201; development of, 200; large producer of, 58; planning and, 54; state and, 82 Antiretrovirals (ARVs), 16–17 APIs. See Active pharmaceutical ingredients Apollo Indraprastha Hospital, 267–268n36 Arendt, Hannah, 214 Argentina, 12, 51, 204 Aricept, 13 Arrow, Kenneth, 35, 101 Aspirin manufacturing, 11 AstraZeneca, 77 Aurigene, 138 311

312

Index

Australia, 104, 173, 174, 183, 187 Avesthagen, 138 Ayurvedic treatments, 10, 37, 64 Bajaj Committee, 85 Bangalore: as biology based, 160; as biotech city, 186, 190–191, 192; bulk drug manufacturing, 159; IT concentration in, 139, 159 Bangladesh, 130, 208 Bayer aspirin, 11 Belgium, 187 Bender, Thomas, 205 Benthamite movement, 204 Beveridge report, 167 Bhakti movement, 207 Bharat Biotech, 138, 145 Bhave, Vinoba, 207 Bhore Committee, 56, 85 Bhutan, 208 Bill and Melinda Gates Foundation, 237 Biocon, 150–152 Biopharmaceuticals, 139; case studies, 145–156; defi ned, 11; FDA and, 136; generic, 139, 159; Indian, 20, 21, 116, 136, 145–146; learning path cases, 145–156; manufacturing, 138; market challenges, 140t; niche research opportunities, 156–158, 157t; process techniques, 159; revenues, 17; rise of, 137 Biotechnologies: analysis tools, 161; city-regions, 187t; defined, 282n20; diagnostics industry, 145, 276n3; financing for, 161–162; generations of, 137; health versus agricultural, 142–143; Indian innovations in, 143–145, 193; information technologies and, 191; market harmonization and, 168; niche research opportunities, 156–158, 157t; path dependency and, 48; process and, 137–143; state and, 158; technological advances in, 18,

26, 43, 134, 137, 143, 177, 193, 209; three-step process, 11; transformation in, 158–162; tumult in, 19; value of industry, 190 Bioterrorism, 6, 66, 105, 112, 133, 134, 190 Bismarck, Otto von, 166 Boettke, Peter, 47 Bombay Plan, 203 Braudel, Fernand, 196 Brazil: growing power of, 7; health-care system in, 8, 188; patent fi lings, 112; pharmaceutical capabilities in, 179–180, 182; pharmaceutical market, 12, 192; public reform in, 53; social protections in, 213; as supplier, 13; vaccine supply by, 129; welfare system in, 174, 176, 179 BRICSA. See individual countries: Brazil, Russia, India, China, South Africa Bristol-Myers Squibb, 12 Britain. See United Kingdom Bulk drugs: backward integration of, 68, 69, 102, 118; foreign firms in India, 68t, 76; imports to India, 78–79; from India, 14, 18, 58, 67, 76, 78–80, 111; manufacturing of, 11, 67, 113, 115, 118, 139–140, 159; by MNCs, 76; move to, 69, 73; obsolete, 65; regulations on, 72, 73, 139–140; synthetic, 68; tiered structures and, 115–116. See also Active pharmaceutical ingredients Canada, 74, 113, 187 Capitalism: democracy and, 170–171; economic planning and, 225, 231; high, 234; large industry and, 206; as market economy, 300n66; regulatory, 101; utopianism and, 204; welfare, 170, 195, 234, 242 Case studies, 145–156

Index

Caste: alliances, 44, 88, 91; identity, 92; organizing, 93; politics, 191; restriction on mobility, 206 CDRI. See Central Drug Research Institute Central Drug Research Institute (CDRI), 58, 64, 142, 285n54 Centre for Diagnostic Fingerprinting, 286n54 Centre of Indian Trade Unions (CITU), 91, 93 CGMP. See Current Good Manufacturing Practices Chadha Committee, 85 Chain, Ernst, 200 Chattisgarh Mines Shramik Sanghatana, 91 Chemotherapy, 10 Chhatra Yuva Sangarsh Vahini, 90 China: growing power of, 7; health sector in, 188; patent fi lings, 112; pharmaceutical capabilities in, 180; pharmaceutical market, 12; public reform in, 53; as supplier, 13; technical advance and, 230; trade and health in, 197 Cipla, 16, 57, 77, 82 Cities: antibiotics and, 199–201; development and, 189–192; industrial welfare and, 196–199. See also Urbanization; specific cities CITU. See Centre of Indian Trade Unions Clytomed, 153 Committee on the Penicillin Project, 62 Communist movement, 90, 203 Communist Party of India, 95 Communist Party of India (Marxist), 91, 93, 95 Competition policies: access and, 100; constraints in, 11; efficient outcomes and, 92; export market and, 49, 119; industry growth and, 15; mandates

313

and, 74; price and process, 73; price controls and, 72–73; regulation and, 100, 104, 106; as solution to stagnation, 124; state and, 9, 38, 136; welfare regimes and, 165 Congress Party, 70, 88, 90, 91, 94, 95, 184 Consumption: delivery and, 95–98; demand and, 121–122; in health care, 7, 8f; welfare and, 215 Contract research organizations (CROs), 152–155; learning model, 153f Convention of Equal Remuneration (ILO), 91 Corbridge, Stuart, 240, 244 Costa Rica, 179, 208, 237 Council of Scientific and Industrial Research (CSIR), 64– 65, 239 CPI(M). See Communist Party of India (Marxist) CROs. See Contract research organizations (CROs) CSIR. See Council of Scientific and Industrial Research Cuba, 13, 43, 129, 180, 187 Current Good Manufacturing Practices (cGMP): certification and, 105; changing requirements, 126; compliance, 109, 127, 131; gains and, 111; generics and, 117, 131; introduction of, 17; investment in, 106, 117, 134; regulation and, 14, 25, 100, 110–111, 123, 131; standards, 105; vaccines and, 131 Daiichi Sankyo Company, 14, 112 Dalits, 90 Decade for Women, 94 Delivery. See Provision/delivery Denmark, 172, 187 Department of Biotechnology, 143 Development: central fragmentation and, 88–89; competing concerns and, 164; defined, 34; domestic

314

Index

Development (continued) context and, 43; goals and, 38; institutional bundles and, 40–41; in late industrial states, 1–8, 32; as market failure, 5; in market menageries, 32; nation and cities in, 189–192; in nation-states, 5, 26, 51, 186, 212, 225; regulation and, 239; state and, 5–6; technological advances and, 39–40, 43, 226; use of term, 1–2 Dharmadhikari, Dada, 207 Directive Principles of State Policy (Indian Constitution), 74 Diversification, 68, 69, 113 DMF. See Drug Master Files (DMF) Doctors without Borders. See Médecins Sans Frontières Dosage forms. See Formulations DPCO. See Drugs Price Control Order (1970) Dr. Reddy’s Labs, 14, 118, 138, 153 Drug Master Files (DMF), 117 Drugs (Control of Prices) Order (1963), 72 Drugs (Display of Prices) Order (1962), 72 Drugs Price Control Order (1970), 72, 99, 111 Drugs Prices (Display and Control) Order (1966), 72, 73 Dutch East India Company, 197 Economic development: coevolution of technology with, 244; developmental state and, 38; health sector and, 7, 186, 227; planning, 4, 52, 186, 222, 224, 231, 233, 236; production and, 180; versus social policy, 208, 232, 241; social protections and, 164, 175; strategies, 2; successful, 46; welfare expansion and, 170 Egypt, 1, 12, 13, 180 Eli Lilly, 109–110, 112, 146

Emergency, the, 86 Employees Provident Fund (EPF), 93 Employees’ State Insurance Scheme, 184 England. See United Kingdom Entitlements. See Health entitlements EPF. See Employees Provident Fund Epidemics, 6, 10, 133, 134. See also Bioterrorism Equal Remuneration Act (1976), 91 Ernst and Young India, 190 Esping-Andersen, Gøsta, 170, 212 Essential drugs: categories of, 73–74; dependence on, 74; development of, 43; as generic, 264n45; imported, 57, 165; manufacturing licenses and, 75, 76; manufacturing of, 61t, 65, 71, 76; market entry through, 67; price controls on, 69, 72, 73, 81, 82, 102; supply and demand of, 68 Evans, Peter, 51 Exchange costs, 101 Fabianism, 193, 203 Federal Food, Drug and Cosmetic Act (1938), 167 Federalism: localization and, 42–43; of nation-states, 196; universalism in, 192–196 Finland, 3, 187 First Commission on Labour, 86 Fleming, Alexander, 200 Flomax, 13, 14 Florey, Howard, 200 Food and Drug Administration (FDA): certification by, 113; facilities in India, 17; generic drugs and, 107–108, 118; requirements of, 136 Formulations: defined, 11, 69; imports to India, 78; from India, 14–15, 74, 76, 109, 117; manufacturing, 109, 113, 140; move from, 69, 73; obsolete, 65; regulations on, 72, 100; statistics, 264n45

Index

Fox, Alan, 224 France, 162, 166, 171, 173, 187 Free-trade agreements, 17 Gajendragadkar, P. B., 86 Gandhi, Indira: alliances of, 88; on health access, 86, 95; on health entitlements, 90; on medical patents, 16; on redistribution, 207 Gandhi, Mahatma, 202–203, 206, 215 Gandhi, Rajiv, 140 Gandhi Plan, 203 Gang labor, 197 Garibi Hatao (I. Gandhi), 86 Gates, Bill, 192 GATT. See General Agreement on Tariffs and Trade GAVI. See Global Alliance for Vaccines and Immunisation General Agreement on Tariffs and Trade (GATT), 104 Generic drugs: cGMP and, 106, 117, 119, 131; competition and, 107, 109; cost of, 106–108; development of, 108t; FDA and, 107–108; from India, 10; licensing technologies and, 71; market challenges, 18, 140t; market menagerie and, 131; MNCs and, 16; patents and, 71, 116–118; promotion of, 100; switch to, 167; switch to brand-name drugs, 97 Germany, 112, 115, 144, 157, 163, 166, 173, 187 Gerschenkron, Alexander, 40, 163, 204 Gini coefficient, 89 GlaxoSmithKline, 12, 57–58, 77 Glenmark Pharma, 77–78 Global Alliance for Vaccines and Immunisation (GAVI), 15–16, 126, 127 Global governance, 3 GMP. See Current Good Manufacturing Practices

315

Good Manufacturing Practices. See Current Good Manufacturing Practices Government of India Act (1935), 195 Green Revolution, 89 Griffin, Keith, 99 HAL. See Hindustan Antibiotics Hart, Keith, 91, 141 Hatch-Waxman Act (U.S.), 100, 104, 106, 108, 119, 132 Hathi Committee Report, 72–73 Hayek, Friedrich, 47, 242 Health benefits: denial of, 93–94; employment-linked, 8, 10, 52, 89, 90, 141, 171, 204; in India, 10, 89, 90, 92; in Japan, 172, 176; nation-state and, 223; planning and, 222; reimbursement benefits, 167, 173, 177; trend toward fewer, 190; unions and, 94; universal, 141. See also Health insurance Health-care costs, 13, 37, 86–88, 97, 228, 268n37. See also Prescription drugs Health-care reform: complexities, 190, 241; institutional triad of health care, 7; market ideology and, 34–37; minimalism and, 37–39; morality in, 35; regulation and, 36, 175–176; social protections, 163–164, 183; state role in, 53, 82–83, 243–245; welfare mechanisms and, 183–184 Health-care systems. See Health sector Health entitlements, 27, 52, 86, 87, 90, 94, 185, 201, 207, 208, 227, 241 Health for All by 2000 mandate, 124 Health insurance: absence of, 97, 104, 168; access to, 93; community-based, 141, 177, 179; contributions to, 21; financing, 86–88; institutionalization of, 214; management of, 22; national, 172, 177; policy in Asian countries, 176–177; private, 159, 172, 238,

316

Index

Health insurance (continued) 290n32; regulation of, 180; risk pools, 92; social, 86–88, 179, 237; universal, 176, 177, 179; welfare and, 39, 97, 167. See also Health benefits Health Insurance Act (South Korea), 179 Health policy: developmental agenda and, 7; in India, 56, 85, 89, 96, 133, 141, 208–209, 220; as industrial capabilities, 119; as industrial policy, 131–134, 177; in Japan, 176–177, 178t; market rules and, 209; planning and, 222; privatization and, 97; regulation by, 9; role of, 176 Health reform, national, 3, 5, 6, 27, 28, 53, 241 Health sector: changes in India, 59–60t, 207–208; by country, 181t; democratization and, 216; developmental units and, 51–52; distribution in, 2–3; entitlement planning for, 2, 175, 185; gender biases in care, 90; global governance of, 3, 5, 6; industrialism and, 216; institutional triad of health care, 7, 8f, 102, 178–179t, 179–182; in late industrial states, 2–8; market regulation of, 209; proxy relationship, 51; social reality and, 96; urban economic planning and, 188. See also Life-science industries; Pharmaceutical industries; Technological advances Health systems, 10, 37, 89, 169–170. See also specific systems Health technologies, buyers of, 3. See also Technological advances Heilbroner, Robert, 234 Hindustan Antibiotics (HAL), 58, 63, 64, 260n20 HIV/AIDS drugs, 8, 16, 17, 145, 192 Hobsbawm, Eric, 200 Hoch, Charles, 243

Hoechst Marion Roussel, 153 Homeopathy, 37 Hong Kong. See China Horowitz, Asher, 241 Hyderabad City: as biotech city, 186, 190–192; bulk drug manufacturing, 68, 159; as chemistry based, 160; IT concentration in, 139, 159 ICMR. See Indian Council for Medical Research ICSSR. See Indian Council for Social Science Research IDPL. See Indian Drugs and Pharmaceuticals, Ltd. IICT. See Indian Institute of Chemical Technology IISc. See Indian Institute of Science ILO. See International Labour Organization IMF. See International Monetary Fund Import-substitution industrialization (ISI), 49 Indian Council for Medical Research (ICMR), 85, 95 Indian Council for Social Science Research (ICSSR), 85, 95 Indian Drugs and Pharmaceuticals, Ltd. (IDPL), 57, 58, 60, 63, 64, 68, 69 Indian Institute of Chemical Technology (IICT), 60, 153, 285n54 Indian Institute of Microbial Technology, 286n54 Indian Institute of Science (IISc), 60–61, 285–286n54 Indian Space Research Orga nization (ISRO), 60, 61 Indonesia, 8, 12, 13, 129, 130, 179, 180 Industrial Development and Regulation Act, 74 Industrialization, late. See Late industrial states Industrial Policy Resolution (1956), 74

Index

Industrial production: in health care, 7, 8f; shifts in policy, 21 Industrial welfare, 39, 87, 169–170, 174–175, 196–199 Institutional triad of health care, 7, 8f, 102, 178–179t, 179–182 Integrated Child Development Scheme, 93 Intellectual property rights (IPRs), 16, 17, 100, 152, 154–155, 168. See also Patents International Labour Organization (ILO), 91, 141 International Monetary Fund (IMF), 65 IPRs. See Intellectual property rights Iran, 130 Ireland, 113, 150, 187 ISI. See Import-substitution industrialization Israel, 187 ISRO. See Indian Space Research Orga nization Jacobs, Jane, 188 Janata Party, 75 Japan, 13, 150, 167, 172, 175, 176, 177, 178–179t, 180–181 Johnson, Chalmers, 38 Jungalwalla Committee, 85 Jyorei, 177 Kaldor-Hicks optimality, 36 Karnataka, 190–192 Kartar Singh Committee, 85, 86 Kelkar Committee, 72 Keynesianism, 89, 170–171, 184, 193, 203 Khilnani, Sunil, 193 Knoll Pharmaceutical, 115 Kohli, Atul, 38–39, 40 Krebs Biochemicals, 143–144 Labor market: deregulation, 21; in early industrializing nations, 43; health insurance and, 173, 210, 233, 237;

317

instability in, 95; new markets and, 197; regulation of, 170; social policy and, 233; women and, 93, 230 Labor unions, 47, 91, 93, 94–95, 213 Lall, Sanjaya, 39 Late industrial states: health-care supply in, 8–19, 89, 196, 209; health-care systems, types, 181t; health sector, 2–8; idiosyncratic learning and, 45; industrial welfare programs in, 39; market ideology in, 48; subrelationships of, 9; transitioning, 182–185; use of term, 1; welfare and, 164, 174–179. See also Development; Technological advances Lateral learning, 151–152, 151t Learning by doing, 101, 145, 230 Learning by proving, 100–101, 105, 109, 111, 122, 130, 131–134, 136, 145, 230 Lehman, Edward, 244 Licensing: of bulk drugs, 69; development and, 80; of key technologies, 71, 82, 105; License Raj, 78; manufacturing, 58, 62, 67, 69, 75, 76, 116, 260n22; NDP’s structure, 78; out-licensing, 119; of pharmaceuticals and devices, 173 Life-science industries, technological advance in, 7 Lipitor, 13, 14 Lipton, Michael, 33 Little, Arthur D., 112 Lula, Luiz Inacio, 8 Lupin, 65, 66 Mahalanobis, P. C., 193 Mahila Mukti Morcha, 93 Malaysia, 113, 187 Mallinckrodt, 153 Manufacturing technologies, 10, 17, 61t, 105, 146; Nehru and, 61–65 Market exchange, 187, 188, 209, 211, 218, 227

318

Index

Market failure: development as, 5, 33; economic planning and, 232; failure of theory, 244; health-care reform and, 34, 53; private sector and, 223; regulation and, 2, 37; sidestepping, 121; state and, 38, 45, 244; technological advance and, 33 Market menageries: ambition and, 211; changing territory, 52–54; development in, 32; exclusivity of, 2; export environment, 131–133, 192–193; late industrializers and, 9; as process, 48–50; regulation of, 5, 220, 221–222, 238, 240; social arrangements and, 163, 208; state’s influence on, 45, 192; subphases in, 81t; of supplier nations, 210; use of term, 1–2, 32; vaccines and, 121, 131, 133; varieties of, 49, 162, 192–193, 223 Market scales, 4, 80, 162, 187, 207, 216t Market society, 163, 189, 307n61 Market varieties, 3, 4, 18, 42, 46–48, 162, 183, 187, 197, 207, 211, 239 Marshall, T. H., 214 Mazumdar-Shaw, Kiran, 150 Médecins Sans Frontières, 10, 14, 16, 239 Medical Council, 85 Medical tourism, 10, 182, 231 Medimpex, 63 Merck, 189 Mexico, 12, 17 Minimum wages, 91, 94 Ministry of Health and Social Affairs (Japan), 177 Ministry of Health and Welfare (Japan), 176, 177 Ministry of International Trade and Industry (Japan), 176 Ministry of Science and Technology, 143 MITI. See Ministry of International Trade and Industry MNCs. See Multinational corporations Mongols, 197

Monopolies, 74–75 Monopoly and Restrictive Trade Practices Act (MRTP), 69, 74 Monopoly Enquiry Commission, 74 Montague-Chelmsford reforms (1919), 194 Morality and market structure, 242–245 Moran, Michael, 171 Mortality rates, 10, 166, 209 Mother-Child Protection Law (Japan), 177 MRTP Act. See Monopoly and Restrictive Trade Practices Act Mudaliar Committee, 56, 85 Mukherjee Committee, 85 Multinational corporations (MNCs): bulk drugs and, 76; generics and, 16; Indian partnerships with, 15, 17, 74–75, 103, 105; IT concentrations and, 139; NDP and, 78, 79; nonessential drugs and, 102; out-licensing to, 119; Patent Act and, 71, 75, 81; R&D by, 77, 117; regulation and, 82; vaccine industry and, 126, 127, 128–129 Mumford, Lewis, 214, 215 Myanmar, 113 Naidu, Chandrababu, 192 Narayan, Jayaprakash, 90, 207 NATCO Pharma, 153 National Biotechnology Board, 143 National Campaign Committee for Central Legislation on Construction Labourers (NCC-CL), 93 National Control Authority (NCA), 125 National Dairy Development Board, 285n54 National Health Insurance Law (Japan), 177 National Health Policy (1983), 96 National Institute of Immunology, 285–286n54

Index

Nationalism: citizenship and, 206, 208; competitive, 211; conceptual export of, 198; global, 102–109; industrial welfare and, 170; social policies and, 200 National Research and Development Corporation (U.K.), 167 National Rural Employment Guarantee Act, 239 Nation-states: developmental, 5, 10, 26, 51–52, 186, 212, 225; federalism of, 196; governability and, 88; harmonization and, 99; health entitlements and, 27, 52, 87, 201, 227, 241; health sector evolution in, 19; as imagined, 198; influence on market, 188; life-science growth and, 3; local institutions and, 50, 84, 216; market menagerie and, 2; market variety and, 187; as monopolies, 34; planning by, 222; regulation and, 5, 224; role of, 54, 223; social activism and, 217; socialism and, 203; technological advances in, 2–3, 6, 18, 52, 122, 184–185, 212; as unpredictable, 22. See also State Naxalite movement, 90 NCA. See National Control Authority NCC-CL. See National Campaign Committee for Central Legislation on Construction Labourers NDP. See New Drug Policy Nehru, Jawaharlal, 61–63, 65, 193, 194, 198, 206, 217 Nelson, Richard, 242 Nepal, 207 Netherlands, 172 New Drug Policy (NDP), 69, 75–79, 99–100, 117 New Zealand, 187 Nicholas Piramal, 153 Nonessential drugs, 66, 73, 74, 81, 102 North, Douglass, 50 Novo Nordisk, 146, 153

319

Obama, Barack, 8 Open-Source Drug Discovery, 239 OPPI. See Organisation of Pharmaceutical Producers of India Optimality, 35, 36, 252–253n9 Organisation of Pharmaceutical Producers of India (OPPI), 17 Owen, Robert, 204, 206 Packaging and storage, 11, 13, 105, 125 Pakistan, 12, 208 Panchayati Raj institutions, 195, 203 Pandemics, 105, 190. See also Epidemics Pant, Manoj, 103 Pareto optimality, 35 Patents: British imports and, 57; challenges to, 118; drug release method, 273–274n44; India’s advances and, 67; laws, 16; of molecule families, 116, 119, 138; off-patent drugs, 3; on-patent drugs, 116; policies, 8; process, 58–60, 69, 70–71, 102; protection, 106; regulations, 71. See also Patents Act of India (1970) Patents Act of India (1970), 69, 70–71, 75, 81, 99, 112; amendment acts, 270n17 PATH. See Program for Appropriate Technology in Health Pfizer, 12, 14, 77–78 Pharmaceutical Enquiry Committee, 68 Pharmaceutical industries: approval mechanisms, 146–148; changes in India, 59–60t, 81–82; coevolution of, 177; culture challenges, 147f; export markets and, 102; generations of, 166–168; health care and, 33; historical advance, 165–168; in India, 10, 15t, 19–20; leading companies, 12; market growth statistics, 262n17; market worth, 12; mergers and acquisitions, 12, 14, 14t, 113; partnering by, 217; privatization in, 78, 141; public

320

Index

Pharmaceutical industries (continued) spending and, 13; R&D spending, 13, 66, 79, 165–166; spending per capita, 249n22; steadiness in, 12, 19; strategies for growth, 79; synthetics and, 10, 11, 138; technological advance in, 7, 18, 45–48, 209; technological determinism and, 228–229, 234–238 Pharmaceutical Pricing Authority, 78 Pharmacia/Schering, 146 Pharmacology, 10 Piramal Group, 14, 97, 153 Planning: defined, 231; development of, 85–86; economic development, 4, 52, 186, 219–222, 224, 231, 233, 236; evolutionary approach, 50; health policy and, 222; industrial, unraveling of, 84–85, 194; integration of local in, 32; process and outcomes, 222–227; production versus delivery and, 233; small and large “p,” 243; by state, 4, 5, 6, 82–83, 89, 193–194; variety/scale and, 54 Planning Commission, 193–194 Platteau, Jean, 209 Poggi, Gianfranco, 226, 231, 292n51 Poland, 12 Polanyi, Karl, 163, 184, 187, 189, 209, 215, 307n61 Poor Law, 174, 200, 201 Prescription drugs: cost of, 97, 101, 104, 167, 228, 235; insurance coverage, 176; medical practices, 34; new, 12; production, 189; reimbursement for, 167 Price controls, 69, 72–74, 80, 81, 82, 102, 104, 171–172 Process patents. See under Patents Process technologies: biotechnologies, 137–143, 159; defined, 10; development of, 102; goals of, 71; increased capability of, 73; multiple

applications of, 149–150; private sector and, 67; scale and, 11; types of, 44 Production costs, 101, 120 Product technologies: defined, 10; diversity in, 44 Program for Appropriate Technology in Health (PATH), 17 Proletarianization, Indian, 92 Property rights, 36, 50 Provision/delivery, 7, 8f, 9, 231, 233 Public health: access and, 58; Indian companies’ histories, 70t; manufacturing technology and, 61t; Poor Law and, 201; private-sector capability and, 23, 57; procurement markets and, 121, 260n20; security, 16 Pulse Polio program, 125 Ranbaxy Laboratories: export products, 111–112, 113; learning by proving path, 111; market share, 77; milestones, 114–115t; patents, 110; product launches, 112–113, 113t; purchase of, 21, 112; revenues, 13–14 Reddy, Rajashekhara, 192 Regulation: antimonopoly, 22; biotechnological, 100–101; of bulk drugs, 72; characteristics of, 103; competition policies and, 92, 100, 104, 106; harmonization of, 104; health-care reform and, 36, 175–176, 210; of health insurance, 180; by health sector, 9; of labor market, 170; market, 92, 240; by nation-state, 5; pharmaceutical, 10, 100–101; positive industrial role of, 132–133; as process, 49; spheres of, 240; by state, 5, 9, 174, 209–210, 239; technological advances and, 136, 190; tiered markets, 110–111, 110t. See also Licensing Régulation: approach of, 49; use of term, 41 Reinhardt, Uwe, 35–36, 210

Index

Right to Information Act, 220, 239 Romania, 12 Rousseau, Jean-Jacques, 208, 212, 215, 241 Rousseff, Dilma, 8 Russia, 7, 12, 113, 163, 180, 188 Sabarmati Ashram, 202, 204 Saint-Simonians, 204 SAPPHO study, 165 Sarabhai Chemicals, 65 Schumpeterian economics, 48, 171, 231, 236 Scotland. See United Kingdom Second National Commission on Labour, 95 Self-Employed Women’s Association (SEWA), 91, 93, 94, 207 Self-sufficiency, Indian, 55, 58, 62, 65, 82, 133 Serono, 146 Serum Institute, 15, 16, 17, 126, 127, 128 SEWA. See Self-Employed Women’s Association Shantha Biotech, 138, 144, 145 Shastri, Lal Bahadur, 65 Shrivastav Committee, 85 Singapore, 113, 180, 187, 230 Singh, Manmohan, 8, 195 Singh Committee, 85 Slavery, U.S., 197 Smith, Adam, 47 SmithKline Beecham, 153 Social contract, 211–214, 238–241 Social health insurance, 86–88, 179, 237, 294n70 Socialism, 63, 86, 183, 203, 207, 234, 242 Social policy, 183, 193, 208, 232, 241, 252 Social security: benefits, 91; cost of, 196; eligibility, 213; gendered, 93; Indian, 21, 92, 184; labor and, 21, 95, 184, 195; massification of, 92; registration, 183

321

Social Security Bill. See Unorganized Sector Workers Social Security Bill (2006) Sombart, Werner, 222 South Africa, 113, 175, 180, 187, 188, 199, 202; growing power of, 7; healthcare system in, 8; pharmaceutical market, 12; as supplier, 13 South Korea, 16, 179, 180–181,191, 214, 225, 227, 230 Sri Lanka, 53, 90, 179, 208, 237 Standards, global, 5, 6, 103–104, 106 State: competition policies and, 9, 38, 82, 136; developmental, 5, 7; economy and, 164, 175; firms’ response to, 45–48; influence on markets, 2, 45, 101; institutional variety and, 44–45; on market failure, 38, 45, 244; planning by, 4, 5, 6; power of, 292n51; private-sector capability and, 57, 67, 71, 129–130, 141; privilege on technological advance, 234; publicsector capability by, 58, 129; regulation by, 5, 9, 174, 210; role in health-care reform, 53, 82–83, 243–245; Schumpeterian, 48; technological orientation of, 42–44. See also Late industrial states; Nation-states Status of Women in India, The, 91 Strand Genomics, 138 Supply and demand, 7, 68, 125, 172, 209, 211, 234–235 Sweden, 172, 173, 174, 187 Switzerland, 16, 167, 172, 187 Synthetic drugs: bulk drugs, 68; German research, 166; large producer of, 58; market challenges, 140t; pharmaceutical industries and, 10, 11, 138 Taiwan, 40, 187, 230 Tamil Nadu Construction Workers Union, 91, 93

322

Index

Technological advances: benefit of, 194; in biotechnologies, 18, 26, 43, 134, 137, 143, 177, 193, 209; demand system and, 232; development and, 39–40, 43, 226, 240–241; East Asian states and, 230; economics of, 5–6, 32, 40–41, 44; economic transformation by, 3, 7; evolutionary economics and, 41; health costs and, 228; impact on health care, 9, 21, 22, 24, 33, 39, 54, 183, 190, 222–223, 232; in individual firms, 106; inequality and, 212; innovation costs, 12; in late industrial states, 1, 3–4, 6–7, 13, 40, 79, 164, 229, 236; local context and, 6, 32; market failure and, 33; market harmonization and, 168; in nationstates, 2–3, 6, 18, 52, 122, 184–185, 212, 234; Nehruvian efforts, 61–65; planning and, 226, 238; price controls and, 72; process and, 137–143; production policies and, 50–51; profitability of, 168; public-sector, 23, 57–61, 135–136, 193; regulation and, 136, 190; self-reliance and, 57–58; skepticism toward, 215; social protection and, 184; specialization and, 42; technology-transfer trends, 119; variety and, 46–48. See also Health technologies Textile Labour Association, 93 Thailand, 12, 113, 130, 175, 179 Titmuss, Richard, 210 TKTMS, 95 Tocqueville, Alexis de, 205 Toyojozo, 63 Trade in Intellectual Property (TRIPS) Agreement, 100, 104, 270n17; Doha Declaration, 104–105 TRIPS Agreement. See Trade in Intellectual Property (TRIPS) Agreement Turkey, 12

Uganda, 180 Ukraine, 12 Unani treatments, 10, 37 UNESCO. See United Nations Educational, Scientific, and Cultural Organization UNICEF. See United Nations Children’s Fund UNIDO. See United Nations Industrial Development Organization Unions. See Labor unions United Kingdom, 3, 166, 187, 197, 200, 201, 202, 204 United Nations Children’s Fund (UNICEF), 125, 128, 132, 276n10 United Nations Educational, Scientific, and Cultural Organization (UNESCO), 62 United Nations Industrial Development Organization (UNIDO), 62, 63 United Progressive Alliance, 18 Universalism: antibiotics and, 199–201; aspects of, 208; controlled markets and, 55–56; demand identities and, 90–91; employment growth and, 95; equality and, 169, 212; in federalism, 192–196; Gandhi on, 203; health, 212; national, 99–102, 172–173; nationstate and, 2, 53; utopias in, 204–208, 215; women’s groups and, 93–94 Unorganized Sector Workers Social Security Bill (2006), 179, 207, 213 Urbanization: in China, 197; conditions of, 166; families and, 164, 214; in India, 199, 208; industrial welfare and, 196–199; institutional capacity and, 189; as relentless, 196 Utopian communities, 204–208, 214, 215 Vaccines: affordability of, 229; for animal health, 146–148; cGMP and, 123, 126, 127, 131; delivery of, 123;

Index

demand for, 121–122, 128–131; from India, 16–17, 128–131, 129f; international procurement of, 124–125; manufacturer segments, 126; market menagerie and, 121, 131, 133; procurement of, 124–128; quality, 122–123, 125; state and, 82; subenvironments, 132t; supply challenges, 128–131; technological advances in, 18 Venezuela, 12 Vietnam, 12, 115, 171, 180 Visveshwaraih, M., 191 Wade, Robert, 40 Washington Consensus, 163, 225 Welfare legislation, 166–167, 169–171, 173–174, 215; efficiency and, 169–170 WHO. See World Health Orga nization Wockhardt, 144 Women’s groups, 93

323

Women’s Liberation Movement. See Mahila Mukti Morcha Working Women’s Forum (WWF), 93 World Bank, 65, 96 World Health Orga nization (WHO): on health mandate, 124; health report by, 189; on penicillin, 62; on private providers, 140–141; procurement by, 100, 125, 126, 132; technical regulation by, 132; vaccine development, 17, 127; vaccine statistics, 130 World Health Report, 2000 (WHO), 189 World Trade Orga nization (WTO), 100, 119 WTO. See World Trade Organization WWF. See Working Women’s Forum Yediurappa, B. S., 192 Zimbabwe, 175