Innovation and AI: Driving Global Development in a New Era

Rachel Glenister, President of the Center for Global Development, delivered a presentation at Google on how innovation can drive global development, emphasizing that a new era for development has emerged due to dramatic successes in poverty reduction and the changing economic landscape of many countries.

A New Era for Global Development

The last 20-25 years have seen significant progress in global development, leading to a "new era." While discussions often focus on cuts in aid, the more crucial trend is the immense success of development efforts. This success is evidenced by:

• Dramatic fall in poverty: The number of people living in poverty has significantly decreased.
• Reduced child mortality: Even in the poorest countries, child mortality rates have fallen.
• Shift in country status: The number of low-income countries has dropped from 64 to 25 since 2000. Many traditionally "developing" countries are now middle-income, possessing greater financial resources.

This shift means two things:

1. Poverty eradication is achievable: Estimates suggest that 0.3% of global GDP could lift everyone above the poverty line, highlighting the scale of the challenge but also its feasibility.
2. Middle-income countries are key to solutions: These countries are now spending more on poverty alleviation than aid programs and are significant contributors to global issues like climate change. For instance, 69% of current CO2 emissions come from low- and middle-income countries, primarily middle-income ones. Cumulatively, 38% of all carbon emissions since the Industrial Revolution originate from these regions. Global problems cannot be solved without their involvement.

While many countries can self-fund their exit from poverty, they often lack investment in:

• Evidence-based R&D: Research and development to determine effective interventions.
• Relevant technologies: Technologies specifically designed to address their unique challenges.

For example, countries like India could lift all their poor above the poverty line with less than 1% of their GDP, whereas Nigeria would require 8%.

The Role of R&D in Development Gains

Technology has been a major driver of improvements in quality of life, alongside other factors like countries emerging from communism and increased global trade.

• Health improvements: While rising incomes contribute to better health, technology plays a crucial role. Vietnam's life expectancy today matches Italy's in 1985, despite Vietnam's income being only 65% of Italy's at that time. This is due to affordable, easy-to-use health technologies like vaccines, vitamin A supplements, and insecticide-treated bed nets. These basic technologies, though not always complex, were invented, tested, and made a significant difference.
• R&D funding disparity: Most R&D for these technologies is funded by rich countries, and even when conducted in poorer countries, it often targets rich-country markets due to financial incentives.
• Addressing the "know-do gap": Simple, easy-to-deliver technologies are vital because even highly trained doctors in these regions often have high absenteeism rates and a "know-do gap"—they know the correct procedures but don't always follow them in practice. Technologies deliverable by less-trained workers are highly effective in this context.

Another critical aspect of R&D is learning what is effective. The number of randomized controlled trials (RCTs) in economics in low- and middle-income countries has dramatically increased, helping governments spend money wisely.

The Classroom Example: Challenging Intuition

Consider a classroom in Kenya. Intuition might suggest providing sports equipment, technology, more space, or basic supplies like paper and pens. However, RCTs have shown surprising results:

• No effect on learning: Textbooks, more teachers, computers, and general equipment (like test tubes or LEGO blocks) often have no measurable effect on learning outcomes. Even direct cash transfers for classroom spending showed no effect.
• Importance of teaching methods: What proved effective was changing how teachers teach. Programs like "structured pedagogy" and "teaching at the right level," which involve training teachers, have been highly successful. While training might include providing books and equipment, these resources alone are ineffective without a change in teaching methodology.
• EdTech challenges: Some educational technology (EdTech) can work if teachers use it, but the main hurdle is often teachers' reluctance or inability to integrate it effectively.

Agriculture: The Green Revolution

Technology, often relatively simple, has also been crucial in agriculture, where most of the extreme poor reside. The Green Revolution introduced new seeds and fertilizers, leading to significant yield increases in Asia and Latin America. This resulted in:

• Increased yields
• Reduced food prices
• Improved health
• Reduced fertility

These combined effects had profound structural impacts. Studies show that a 10-year delay in the rollout of new seeds would have reduced GDP in 2010 by 17%, demonstrating the massive knock-on effects of agricultural innovation.

Can AI Solve the Innovation Problem?

AI holds immense promise for reducing the cost of developing new seeds for Africa or new medicines. For example, tools like AlphaFold could be used, and patents could even be given away for free. However, this is only the beginning of the process:

• Trials and regulatory approval: New drugs or seeds require extensive trials and regulatory approval in various countries. While WHO approval can streamline drug adoption, seeds often need country-by-country approval.
• Distribution and marketing: Establishing distribution channels and marketing is essential. If patents are given away for free, there's no incentive for anyone to undertake these costly and time-consuming steps.

Incentives for Innovation: The Patent Problem and Advanced Market Commitments

Traditional patent systems, while necessary, can be highly distortionary, especially for low- and middle-income countries.

• High innovation cost, low production cost: Many innovations have high initial development costs but low per-unit production costs.
• Monopoly pricing: A patent holder, acting as a monopolist, sets a high price to cover innovation costs. This leaves out many potential buyers who would purchase the product at a lower, production-cost-based price.
• Rich vs. poor country markets: If the high-paying customers are primarily in rich countries, and the product is only useful in low- and middle-income countries (e.g., a specific crop variety or a vaccine for a disease prevalent only in Africa), the product might never be developed because no one can afford the high price needed to cover innovation costs.

An Advanced Market Commitment (AMC) offers a solution:

• Commitment to pay: Donors commit to paying a top-up amount if a specific innovation is developed.
• Low price, high quantity: In exchange for this top-up, the innovator agrees to charge a low price, ensuring high quantities are produced and distributed.
• Donor covers innovation cost: The donor effectively pays the innovation cost, but only if the product is useful and purchased by people. This incentivizes innovation while ensuring widespread access.

Example: Neonatal Sepsis Diagnostic

Neonatal sepsis, a bacterial blood infection, kills many newborns rapidly. Current diagnostics take two days, rendering them useless. This leads to both under-treatment (babies die) and over-treatment (contributing to antimicrobial resistance, AMR).

A proposed $60 million "pull mechanism" for a neonatal sepsis diagnostic would involve:

• Milestone payment: A $20 million payment for developing a fast, clinic-usable diagnostic for countries like India, Nigeria, or South Africa.
• Scaling support: Assistance to scale up production.
• Per-unit payment: Innovators would receive payments based on the number of units sold, incentivizing both innovation and widespread distribution.

This approach is estimated to avert 12% of sepsis deaths and reduce unnecessary antibiotic courses by 54%, with a benefit-cost ratio of 78:1. Innovators have the capability, but lack the incentive, as many feel compelled to work on diseases relevant to rich countries (e.g., cancer) to secure funding.

Implications for Development

• Changed development landscape: Poverty in much of the world is now a domestic government issue.
• Lack of R&D investment: These governments often underinvest in R&D, both in understanding what works and in developing relevant medicines, seeds, and technologies.
• Global R&D concentration: 63% of global R&D is conducted in rich countries, and 27% in China, leaving a significant gap for other regions.
• Philanthropy's role: R&D investment, including research on effective interventions, is a key priority for philanthropy, multiplying the impact of investments made by middle-income countries.
• Poorest countries: The poorest countries, which did not escape poverty during the boom years, face unique and tougher challenges, requiring specific attention.
• AI and incentives: AI can reduce innovation costs, but it must be paired with careful incentives to address the world's most pressing problems effectively.