dominant determinant. This has led to what is known as ‘the 90/10 problem’
where 90 per cent of R&D is focused on health issues predominantly relevant
to the richest 10 per cent of the world’s population (Chataway and Smith,
2006:16). The impact is striking. Of the 1,233 drugs licensed worldwide
between 1975 and 1997, only 13 were for tropical diseases: five of these came
from veterinary research, two were modifications of existing medicines, and
two were produced for the US military (Kremer, 2002). In 1992 only 0.2 per
cent of global health-related R&D was conducted on diarrhoeal disease, pneu-
monia and tuberculosis, which between them constituted 18 per cent of the
total global disease burden. Between 1975 and 1996 patents related to tropical
diseases constituted only 0.5 per cent of total pharmaceutical patents (Lanjouw
and Cockburn, 2001:272, 285). Even for diseases that affect both rich and poor
countries, research tends to focus on delivery systems that are more appropri-
ate for use in rich countries. It would be more appropriate for research/techno-
logical change to focus on drugs that can be delivered in a few (rather than
repeated) doses by personnel with little medical training and that are not trans-
ported using expensive refrigeration.
Market failures in medical research face developed and developing coun-
tries alike. Technological change with the associated R&D expenditure lead-
ing to new knowledge has the characteristics of a public good. ‘A good is a
(pure) public good if,once produced, no one can be excluded from benefiting
from its availability. Public goods usually also will be non-rival. (Nicholson,
1995:815). This implies that knowledge, once produced, can often be rela-
tively easily copied (non-exclusionary) and by any number of firms or individ-
uals (non-rival), which reduces the incentives to undertake the original
research. Glaxo (India), for example, was beaten to its launch of Zantac (an
anti-ulcer drug) by seven competitors selling cheaper generic products. A
patent or copyright is an artificially created barrier to entry to ensure the
(temporary) monopoly of an innovator, to provide a reward (monopoly profits)
as a stimulant to undertake R&D and offset this market failure. At the end of
the 1980s,forty countries worldwide did not grant patents on innovations in
the pharmaceutical industry. This changed dramatically in the early 1990s
through the auspices of the WTO. The 1994 Agreement on Trade Related
Aspects of Intellectual Property Rights (TRIPs) required least developed coun-
tries to join the rest of the WTO members in providing 20-year patent protec-
tion for pharmaceuticals by 2006. It was argued that although patent protection
would lead to higher prices, this would be offset by an increased incentive for
R&D. It was, however, unclear whether developing countries would benefit in
net terms, partly because of the lags between granting patent protection (which
raises prices) and the benefits of R&D filtering through (a long and uncertain
process).
Wu (2000) found that stricter protection of intellectual property rights
(IPRs) increased technology transfer by MNCs, specifically to China, while
Lai (1998) claimed that because patents would reduce the ability of firms in
developing countries to slow technological diffusion. This tightening of patent
110 Sources of Growth in the Modern World Economy since 1950