Operation Warp Speed helped spur one of the greatest public health achievements in decades: the manufacture, testing, and authorization of several safe and effective life-saving COVID-19 vaccines in less than a year. At the heart of Operation Warp Speed was a simple idea: the government can align incentives in the private sector by legally promising to buy a certain product once it is developed. These advanced market commitments, or AMCs, reduce uncertainty on the side of private developers since they know, if their finished product meets a series of predefined quality standards, the government will be ready to buy.
AMCs are a form of market socialism, involving extensive state intervention to manipulate (but not coerce) the allocation of goods in a private market. In the case of COVID-19, Operation Warp Speed used AMCs to guarantee the purchase of vaccines even before they were shown to work. The Department of Health and Human Services promised $2 billion to Pfizer in July 2020 in exchange for 100 million vaccine doses — if they were ultimately approved by the FDA.
AMCs had promising successes before COVID-19. In 2009, Italy, UK, Canada, Russia, and Norway set up a $1.5 billion commitment to purchase a pneumonia vaccine at $3.50 per treatment. Within a few years, both GlaxoSmithKline and Pfizer had developed a vaccine that met the $3.50 threshold, and today, the vaccine is being rolled out in over 25 countries.
A report from the Center for Global Development notes that this AMC “made a market where none existed before, and for-profit manufacturers [responded] by building up capacity to meet the demand.” A World Health Organization assessment found that the increases in vaccine distribution following the policy intervention saved around 740,000 lives.
One elegant and important aspect of AMCs is that the government can meaningfully shift the free market toward public goods without playing the role of hedge fund manager. In place of picking companies or non-profits to invest in, the government instead launches a cash prize that is up for grabs and the most capable firm wins. This is notable, as Republicans have generally been hostile toward Democratic attempts to pick companies to invest in, such as Obama-era supply-side green energy subsidies. In a 2012 Presidential Debate, Mitt Romney slammed Obama for squandering government funds, saying, “I like green energy as well … but don’t forget, you put $90 billion … into solar and wind … I had a friend who said you don’t just pick the winners and losers, you pick the losers.” AMCs have greater potential to circumvent similar attacks from the right.
Following the success with COVID-19 vaccines, there is now a growing chorus of support for using AMCs to encourage private innovation for other socially valuable goods, like solar power, nuclear reactors, lab-grown meat, and other vaccines for the world’s deadliest diseases.
For instance, the Center for Global Development has proposed an AMC that would offer companies $15 per treatment for 200 million doses of a malaria vaccine that meets predefined efficacy requirements in trials. This $3 billion market for vaccines could save millions of lives in the coming decades.
Commentators have been especially eager about AMCs as a tool to accelerate green innovation. Clive Thompson of WIRED writes that “with renewable energy, the US government could pledge to buy as much clean energy as firms can make … by being a single, huge buyer of first resort, the feds could strip away complexity.”
Some economists are skeptical that AMCs can be generalized to such a wide range of public goods. Tyler Cowen, an economics professor at George Mason University, argues that “Operation Warp Speed relies on some features particular to vaccines, namely relative homogeneity of the product and simplicity of distribution and application.” In the context of green technology, it is less clear which technologies to fund, and once funded, if any strings should be attached to the deployment and distribution of the technology. Greg Nimet of the Niskanen Center has retorted that despite these limitations, a mere $1 billion AMC to accelerate battery innovation would make “a huge difference to the industry.”
Given the existential threats that humanity faces, even low probabilities of AMC success could justify significant expenditure. Spending a couple billion dollars on a 10% chance of producing an mRNA-vaccine-level breakthrough in clean energy is an excellent investment opportunity. The costs of such a policy would amount to a rounding error on the proposed $2.3 trillion American Jobs Plan, and would pale in comparison to the US military budget. The benefits could be exceptional.