The rapid spread of COVID-19 and the subsequent lockdowns have resulted in immeasurable economic costs and human suffering. In mere weeks, the pandemic disrupted travel, worldwide markets, and the intricate supply chains that pervade an increasingly globalized economy. As a result, this pandemic offers us the perfect case study for a number of important economic concepts.

It may seem like an eternity to us now, but just twenty-two months ago, news broke of a new disease spreading in China. In the succeeding weeks, our world turned upside down. In the months that followed, scientists around the world were able to create a vaccine in record time. The rapid development and distribution of the vaccine in such a relatively short amount of time are an unprecedented achievement. It is one of the few bright spots in a crisis that saw so many mistakes in management. So far, more than 478 million doses have been administered in the United States alone.

When I received the second dose of the vaccine in early April, the United States had a vaccination rate three times higher than in the European Union. (Since then, the European Union has been able to catch up and overcome the U.S. in vaccination rates; but that is a function of a higher willingness of Europeans to get vaccinated, not because of better availability.) At the time, Europeans asked themselves, “How could it be that an 18-year-old American can receive two doses when thousands of elderly Europeans have not even received one dose?”

The answer? The development and subsequent distribution of the vaccine have an explicit economic component. Certain institutions and policies maximize the likelihood of developing and distributing a safe and effective vaccine. To understand why this is the case, we explore four crucial economic lessons.

Start your day with Public Discourse

Sign up and get our daily essays sent straight to your inbox.

Prestigious Universities Have First-Rate Multiplicative Effects

The first lesson is that having universities that prioritize academic excellence, with good funding and a sound governance structure, has first-rate multiplicative effects. Moderna, the company that developed the vaccine I received, is based in Cambridge, Massachusetts. Just north of Boston, this city is historically famous for being home to Harvard and MIT, and, more recently, to a large number of tech companies. This concentration of technological expertise is not a coincidence: time and again, we see great hubs of innovation conceived around leading universities. In Cambridge, Massachusetts, these are Harvard and MIT; in Silicon Valley, it is Stanford; in Austin, the University of Texas; and in Cambridge (UK), the University of Cambridge. Great ideas appear to be ubiquitous in these university campuses and their adjacent communities, as one company emerges after another to revolutionize its sector.

Moderna perfectly follows this model. The company was founded in 2010 by Derrick Rossi, then a professor at Harvard, to commercialize his research in messenger RNA. The name of the company is a portmanteau based on this technology (condensing the words “modern” and “RNA”). Located in Cambridge, Massachusetts, Rossi easily recruited scores of gifted employees to get started.

But Moderna, with Rossi’s original ideas alone, would have accomplished little (Rossi, in fact, left the company in 2014). The second necessity for startup growth is financing. An almost unique aspect of the U.S. economy is the crucial role of venture capital funds that have developed companies as diverse as Amazon, Facebook, and Netflix. Venture capital funding allows companies to grow in both size and distinction, eventually enabling them to go public. Although venture capital funds have grown a lot in Europe over the last decade, in 2020, venture capital investments in the United States (about $140 billion) still represented about three and a half times those made in Europe (about $40 billion). In addition, a large number of those investments are concentrated in the United Kingdom, outside the European Union. In Moderna’s case, the company found record amounts of funding and survived the skepticism of many “experts” who, especially between 2015 and 2017, predicted a bleak future for messenger RNA technology.

Furthermore, and contrary to popular belief, financial markets have shown a remarkable degree of patience in recent decades with tech startups. Novavax, a company founded in 1987 that didn’t have any commercialized product until mid-2021, sealed a deal a few months ago with the European Union for 200 million COVID-19 vaccines in case its vaccine gets regulatory approval. This feat would have been impossible if investors had not patiently held out for thirty-four years.

Why do these venture capital funds exist in the United States and, more generally, why does the United States seem to have more flexible financial markets than Europe? There are several key reasons, including: 1) inadequate European regulation; 2) high entry barriers in financial markets (a pressing problem in Spain that few observers highlight); and 3) a slow and inefficient legal system, excessively formalistic and overseen by judges who, in most cases, lack the economic and financial knowledge needed to decide commercial law litigation.

Collaboration between Public and Private Sectors

The second economic lesson is that having efficient financial markets, categorized by collaboration between public and private sectors, is a key to prosperity and innovation. Moderna’s vaccine could not have reached the market without a notable effort from the federal government in the United States. Operation Warp Speed distributed some $18 billion to accelerate the development of vaccines and treatments against COVID-19. Moderna, in particular, received more than $2 billion. This collaboration between the U.S. federal government and private entities was occurring as the European Union was still deliberating its program’s cost and the fear that one pharmaceutical company would receive more funding than another. As the Europeans squabbled, the American administration opted to spend freely, diversifying risk with little attention to the possibility of cost overruns and redundancies.

Given the deleterious economic consequences of COVID-19, the United States made the right decision. If there is one thing that can be criticized about Operation Warp Speed, it is that it was not even more aggressive. Pfizer and BioNTech, which did not receive financing for the development of their vaccine (Pfizer had sufficient funds and preferred the extra freedom of action associated with independent funding), offered the administration 200 million doses (for 100 million people) in the summer of 2020. Already concerned about the high cost, the federal administration chose to order just 100 million doses. Had it accepted the 200 million doses, it is likely that vaccination would have been accelerated by about three weeks and saved the lives of nearly 10,000 to 15,000 people.

Having efficient financial markets, categorized by collaboration between public and private sectors, is a key to prosperity and innovation.


Collaboration between public and private sectors has always been vital in technological innovation. Many aspects of basic research are either too generic or uncertain to have a market value that allows companies to finance research at an optimal level.

I see this in my day-to-day work. My research is based on two techniques, the Monte Carlo Markov chain methods and Monte Carlo Sequential methods. Stanislaw Ulam, a Polish scientist, developed these techniques in the heat of the United States’ nuclear program and, later, the space program. He figured out how to solve hitherto impossible problems in physics using simulations on the first programmable, electronic, general-purpose digital computer, the ENIAC. In 1945, when Ulam proposed the Monte Carlo method, it had no commercial use. It took several decades for scientists and engineers to become familiar with the technique, for them to implement new, more sophisticated algorithms from the “mother algorithm,” and for computers to become cheap enough for these techniques to have monetary value.

However, today these methods are present even in the most unexpected places, from machine learning to avionic distribution logistics, genetics, and financial derivatives. If you’ve clicked on a movie recommended by Netflix based on your previous viewing habits, you’ve used a product designed with a Monte Carlo method in the training of its neural network.

Collaboration between public and private sectors has always been vital in technological innovation.


Limited Government Intervention

The third economic lesson we learn is that having people like Ulam thinking about a class of problems far removed from any immediate commercial use requires prudent government support.

Nevertheless, one cannot leave everything in the hands of the government, which is very capable of endowing research with resources but often very bad at transforming basic research into successful commercial products. An iPhone uses a lot of technology conceived in the public sector. Still, before the masses hand over any money, the product needs an attractive design, proper distribution before Christmas shopping, and a network of helpful Genius Bar employees.

The incentives that the market offers in terms of benefits are much more potent than any regulation or public distribution system. The Coca-Cola company sells about 1.8 billion drinks every day. If we could administer vaccines at the same rate that Coca-Cola sells beverages, 100 percent of the planet’s population (including children under twelve years of age) would have received the first dose of the vaccine in just over four days. Of course, this comparison is unfair—manufacturing, distributing, and supplying a vaccine is far more complicated than bottling beverages. But Coca-Cola proves every day that having an incredibly complex logistics network is perfectly feasible.

In the opposite economic direction, we know that the supermarkets of socialist countries always lacked supplies. One of my fellow doctoral students, who grew up in the Soviet Union, told me that her father, to celebrate her sixteenth birthday, gave her a dozen oranges obtained thanks to his contacts in the Ministry of Defense. (I did not ask her what her father did to build such a powerful connection.) Upon seeing twelve oranges together, she was so emotionally overwhelmed that she cried with joy for several hours. Growing and distributing oranges is nowhere near as complex as developing a vaccine; in Spain, where I am originally from, we’ve been selling oranges for hundreds of years.

The lesson suggested by this anecdote is further reinforced in the United States daily. Private pharmacies are much more efficient than federal vaccination centers in distributing the vaccine.

One cannot leave everything in the hands of the government, which is very capable of endowing research with resources but often very bad at transforming basic research into successful commercial products.


Monetary Incentives Matter

The fourth and final lesson we can learn from observing vaccine development and distribution over the last nineteen months is that monetary incentives matter. It’s no accident that a vaccine developed with a smaller profit motive, AstraZeneca-Oxford, is causing the most problems, ranging from bug-ridden clinical trials to lousy distribution and poor public relations. Whenever I see people on social media attacking “Big Pharma,” I wonder if it is out of their sheer ignorance or child-like demagoguery. Ninety-nine percent of the critics respond in their daily lives to monetary incentives the same way as the companies that are so often the target of criticism.

These lessons do not only apply to vaccines. The examples in science and technology are numerous. I would bet that you, dear reader, have used at least one product or service from one of the following companies today: Amazon, Google, Microsoft, Apple, Facebook, Twitter, or Netflix. You have probably looked at a web page that uses an Amazon server or Microsoft software. All of these companies are American. If, on the other hand, I think about the products or services that I have used in the last few days, no European brands come to mind except my two cars, both of which are German.

With these four lessons, we can now answer the question why, in April, I already had been fully vaccinated and people much older than I in the European Union had not even received their first dose. The United States has not excelled during this pandemic—far from it. But despite its weaknesses, the United States has managed to combine prestigious universities, efficient financial markets, generous public aid, and private monetary incentives to outperform Europe in vaccine development, production, and distribution.

A previous version of this article was originally published in April 2021 at El Confidencial, a leading Spanish digital newspaper. We are grateful to Professor Jesús Fernández-Villaverde for his permission to publish it in English here, and to Robert Kaminski for his translation.