Lesson 2 >>
Lesson Overview – this lesson briefly outlines some important scenarios and how their genesis can be understood from an economics perspective
This course is intended to equip scientists and other professionals to appreciate some basics of development economics. It is not meant to prepare one for a development economics exam, but it aims to build a basic understanding of why certain things unravel the way they do so that scientists, tech-people and other professionals can realise some potential gaps and opportunities that their skills/competencies may fill or exploit. The course attempts to be as practical as possible by offering real life scenarios and examples as well as case studies where possible. Throughout the course material, attempts are made to link theoretical aspects to the 4 Scenarios that are set out at the beginning.
The year 2020 made its mark in history. As the COVID-19 (the novel coronavirus) spread across the globe like a veldfire, health care systems suddenly sagged under pressure – even in advanced economies. Like never before, since the end of World War II, Intensive Care Units (ICUs) were critically hit by shortages of equipment and space for novel COVID-19 patients. “Ventilators” became the buzzword since these are the critical life-saving pieces of equipment that helped those in critical distress to continue breathing and remain alive. At a time when factories were full with bristling new automobiles ready for the market and liquor stores overstocked with alcoholic beverages (among many other examples), an important development economics question that arose is why the market (even in developed economies) did not provide sufficient supply of healthcare? The answer can be partly explained by the fact that healthcare is a public good that is typically under-supplied as discussed in the course. Many developing challenges such as air pollution, low rates of school enrolment (particularly in developing countries) are partly because clean air, education etc. are public goods.
In 2020, as the advanced healthcare systems in high and upper-middle income countries in the global north struggled to cope with COVID-19 induced high morbidity and mortality rates , every epidemiologist, health economist and policy maker shuddered to think about the potential outcomes once the disease finally made a firm foothold in the weaker health systems and less prosperous economies in the global South. Some anecdotal evidence suggested at the time that some countries in the global South only had a handful of working “ventilators”, . This introduces another development question:- “Is it that low income countries cannot afford to improve their health care systems at all?” “Can governments not show some level of effort?” “Or is that government priorities are oftentimes misaligned?” Trying to find answers to these questions leads us into a discussion on economic institutions in Section 6.
We have set out a scenario in which, due to poor institutions, governments in somedeveloping countries can renege on their responsibility to provide healthcare and other publicservices, preferring to spend the public purse on election campaigns, for example, so theyremain in power. We also briefly spelled out that health care is always under-provisionedbecause it is a public good. This phenomenon is called market failure. Market failure is asituation in which the free market fails to provide optimum outcomes. For example, apharmaceutical monopoly will produce at the level that allows it to maximise profit – insteadof a socially optimum higher quantity at a lesser price to the consumer ceteris paribus (12). Thequestion then is why do we have monopolies in fuel, medicines and other critical supplies?These are relevant questions especially given the millions of people who live in absolutepoverty and cannot afford to buy essential goods and services (including healthcare) as aresult of monopolies. Monopolies exist due to a number of factors including high start upcosts, high government regulation (to ensure medicines and equipment safety for example) aswell as limited or unavailable key industry information (e.g., formulas are patented). Sciencemight have a huge role to play in breaking some of those barriers especially limitedinformation as these Canadian and South African examples showed in the fight against the covid-19 pandemic. The market failure section of the course will discuss this.
Fake news! The COVID-19 pandemic was also characterised by a lot of fake news doing rounds on social media. While some of it can be construed as harmless humour, some of it was actually harmful. Reports coming out of Nigeria at the time suggested that several people had to be hospitalised after overdosing chloroquine in hope that it would prevent/treat COVID-19. Media reports also revealed that in Iran people were also hospitalised after they ingested dangerous levels of alcohol to also prevent/cure COVID-19. Educated people may have the ability to sieve useful information from potentially harmful content – yet the same cannot be said for those with little or no education. Apart from education levels, in many settings, in remote areas for example, there is limited or no access to internet services to enable communities to fact check content.
Having outlined the above scenarios, which will be critical in our understanding of content, it is important to ensure that all the ‘bases are covered’ by contemplating some of the economics basics. Therefore, the course begins by introducing some fundamental concepts before relating the content to the scenarios.
 In times of crisis – it is possible that humanitarian objectives may supersede the profit objective.
 Ceteris paribus is an important assumption in Economics. It simply means ‘holding other factors constant’. By making the disclaimer of ceteris paribus, the Economist would be acknowledging that other factors may interfere in a suggested hypothesis. For example, while developing countries might offer high capital returns, poorly defined property rights can cause a highly performing local venture that is financed externally to be taken over by the government at the expense of the foreign investor.