Newly discovered antibody recognizes many strains of flu virus

Posted by Biomechanism 

Some vaccines are once-in-a-lifetime; others need a booster shot or two to maintain their potency. And then there’s the flu vaccine, which only lasts a year. Strains of influenza virus change so much from year-to-year that new vaccines must be developed annually to target the strains of virus that are most likely to cause illness. But Howard Hughes Medical Institute (HHMI) scientists have now discovered a human antibody that recognizes many different flu strains. Understanding more about this antibody may help scientists design a longer-lasting vaccine against the influenza virus.

Our immune system does a remarkable job of defending us against disease-causing microorganisms. But sometimes it fails: A flu such as influenza virus may invade the body successfully and make one sick.

The research is published in the August 8, 2011, issue of the Proceedings of the National Academy of Sciences.

To find the new antibody, Stephen C. Harrison, an HHMI investigator at Harvard Medical School and Children’s Hospital, Boston, took advantage of the diversity of the human immune system.

When given the flu vaccine, every person’s body will produce slightly different antibodies, which are immune system molecules that recognize and remember pathogens, such as viruses. Antibodies are small compared to the flu virus, but they need only recognize one piece of the virus’s outer shell to be effective. This means that within the human population, there’s great diversity when it comes to antibodies that recognize flu. For example, some people will produce an antibody against one bit of the virus, while others have antibodies that recognize a different viral snippet, and so on.

Strains of flu virus differ from one another largely in the genes that code for surface molecules called glycoproteins, which are the primary targets of the body’s immune system in defending against flu viruses. Like a coat of armor, the hemagglutinin and neuraminidase surface proteins stud the tiny influenza virus particle. When the virus mutates, it essentially “changes coats,” altering the shape of its exterior surface and becoming unrecognizable to the human (or animal) immune system. This is the essence of immune evasion, a hallmark of influenza.

To study how the immune system determines which antibodies to produce, Harrison and collaborators at Duke University, turned to a new technology that lets scientists quickly scan the molecules in a person’s immune cells.

“What this allows us to do is get a snapshot of the different kinds of antibodies being made in a person in response to a vaccine,” says Harrison.

While the research team was taking such snapshots of immune cells, they found an antibody they weren’t expecting—one that recognized multiple strains of the flu virus.

There’s one part of the influenza virus that doesn’t mutate—the binding area that recognizes receptors on human cells. If this receptor pocket mutates, the virus is no longer infectious. Scientists had previously believed that antibodies couldn’t target this small area with such specificity.

“It has been assumed that because antibodies have a larger contact area than most virus receptors,” says Harrison, “an antibody might target that receptor binding area, but it would still also recognize surrounding, changeable areas.” This means if that surrounding area mutated, the antibodies wouldn’t bind.

But the new antibody that the researchers isolated—dubbed CH65—binds so tightly to the receptor pocket that it appears not to be strongly affected if the surrounding area mutates. When collaborators at the U.S. Food and Drug Administration tested the new antibody against 36 flu strains that have arisen between 1988 to 2007, they found that the antibody recognized and blocked 30 of those strains.

While this knowledge could theoretically be used to develop a vaccine that stimulates production of the CH65 antibody, this could just push viruses to mutate in the area around the binding pocket. If this occurs, the vaccine would eventually become obsolete. Instead, Harrison would like to use CH65 to probe how the immune system chooses which antibodies to produce. If one person can make the broad CH65 antibody, why can’t everyone? Can scientists learn to coax the human immune system to produce CH65?

“Our goal,” he says, “is to understand how the immune system selects for antibodies and use that information to get better at making a vaccine that will take you in a direction that favors breadth over specificity.”

Harrison is now collaborating with HHMI investigator Nikolaus Grigorieff at Brandeis University to get structural information on antibodies as they evolve in the immune system after vaccine administration. By taking structural snapshots of antibodies over time, they may be able to deduce a pattern in how the immune system selects which antibody structures to favor.

Others, however, may use CH65 in a more direct clinical setting. “Some scientists are thinking about therapeutic antibodies, which can be administered to patients with severe flu cases, or compromised immune systems, as a way of fighting the virus,” says Harrison. “And this antibody is a very interesting molecule to consider for that.”

Live from the scene: biochemistry in action

Posted by Biomechanism 

(Biomechanism) – New microscope follows single molecules by the millisecond.

Researchers can now watch molecules move in living cells, literally millisecond by millisecond, thanks to a new microscope developed by scientists at the European Molecular Biology Laboratory (EMBL) in Heidelberg, Germany. Published online today in Nature Biotechnology, the new technique provides insights into processes that were so far invisible.

The new microscope enables scientists to watch and measure fast-moving molecules. Photo: EMBL/H.Neves.

By combining light-sheet microscopy and single molecule spectroscopy, the new microscope can record the fluorescence of every pixel within view, and take snapshots at intervals of less than one millisecond. With it, scientists can watch and measure very fast processes, such as the way molecules diffuse, across a whole sample, even one containing several cells. This is a considerable step up from previous techniques, based on confocal microscopy, in which researchers could only observe at most a few isolated spots in a sample at a time.

“It’s really visual biochemistry,” says Malte Wachsmuth, who developed the microscope at EMBL. “We can follow fluorescently-tagged molecules in whole live cells, in 3D, and see how their biochemical properties, like interaction rates and binding affinities, vary throughout the cell.”

Until now, chromatin – the combination of DNA, RNA and proteins that forms chromosomes – had been observed in two states: wound tightly together, with most of its DNA inaccessible to the cell’s gene-reading machinery, in which case it is called heterochromatin; or loosely packed and easily readable, called euchromatin. But when they used the new microscope to measure the interaction between chromatin and a protein called HP1-α, the EMBL scientists made an intriguing discovery.

“In some areas that look like euchromatin, HP1-α behaves as it would in the presence of heterochromatin,” says Michael Knop, now at the University of Heidelberg, Germany. “This suggests that chromatin may also exist in an intermediate state between hetero- and euchromatin, which was not observable before in living cells.”

By providing a tool to watch molecules that move very fast, the scientists believe this new microscope will help to investigate processes ranging from the role of growth hormones in cancer to the regulation of cell division and signalling and the patterning of tissue development in the embryo.

Video: New microscope follows single molecules by the millisecond

 

Citation

Capoulade, J., Wachsmuth, M., Hufnagel, L. & Knop, M. Quantitative fluorescence imaging of protein diffusion and interaction in living cells. Nature Biotechnology, Advance Online Publication 7 August 2011. DOI: 10.1038/nbt.1928.

NASA Researchers: DNA Building Blocks Can Be Made in Space

Posted by Biomechanism 

(Biomechanism.com) — NASA-funded researchers have evidence that some building blocks of DNA, the molecule that carries the genetic instructions for life, found in meteorites were likely created in space. The research gives support to the theory that a “kit” of ready-made parts created in space and delivered to Earth by meteorite and comet impacts assisted the origin of life.

Meteorites contain a large variety of nucleobases, an essential building block of DNA. (Artist concept credit: NASA's Goddard Space Flight Center/Chris Smith)

“People have been discovering components of DNA in meteorites since the 1960′s, but researchers were unsure whether they were really created in space or if instead they came from contamination by terrestrial life,” said Dr. Michael Callahan of NASA’s Goddard Space Flight Center, Greenbelt, Md. “For the first time, we have three lines of evidence that together give us confidence these DNA building blocks actually were created in space.” Callahan is lead author of a paper on the discovery appearing in Proceedings of the National Academy of Sciences of the United States of America.

The discovery adds to a growing body of evidence that the chemistry inside asteroids and comets is capable of making building blocks of essential biological molecules. For example, previously, these scientists at the Goddard Astrobiology Analytical Laboratory have found amino acids in samples of comet Wild 2 from NASA’s Stardust mission, and in various carbon-rich meteorites. Amino acids are used to make proteins, the workhorse molecules of life, used in everything from structures like hair to enzymes, the catalysts that speed up or regulate chemical reactions.

In the new work, the Goddard team ground up samples of twelve carbon-rich meteorites, nine of which were recovered from Antarctica. They extracted each sample with a solution of formic acid and ran them through a liquid chromatograph, an instrument that separates a mixture of compounds. They further analyzed the samples with a mass spectrometer, which helps determine the chemical structure of compounds.

The team found adenine and guanine, which are components of DNA called nucleobases, as well as hypoxanthine and xanthine. DNA resembles a spiral ladder; adenine and guanine connect with two other nucleobases to form the rungs of the ladder. They are part of the code that tells the cellular machinery which proteins to make. Hypoxanthine and xanthine are not found in DNA, but are used in other biological processes.

Also, in two of the meteorites, the team discovered for the first time trace amounts of three molecules related to nucleobases: purine, 2,6-diaminopurine, and 6,8-diaminopurine; the latter two almost never used in biology. These compounds have the same core molecule as nucleobases but with a structure added or removed.

It’s these nucleobase-related molecules, called nucleobase analogs, which provide the first piece of evidence that the compounds in the meteorites came from space and not terrestrial contamination. “You would not expect to see these nucleobase analogs if contamination from terrestrial life was the source, because they’re not used in biology, aside from one report of 2,6-diaminopurine occurring in a virus (cyanophage S-2L),” said Callahan. “However, if asteroids are behaving like chemical ‘factories’ cranking out prebiotic material, you would expect them to produce many variants of nucleobases, not just the biological ones, due to the wide variety of ingredients and conditions in each asteroid.”

The second piece of evidence involved research to further rule out the possibility of terrestrial contamination as a source of these molecules. The team also analyzed an eight-kilogram (17.64-pound) sample of ice from Antarctica, where most of the meteorites in the study were found, with the same methods used on the meteorites. The amounts of the two nucleobases, plus hypoxanthine and xanthine, found in the ice were much lower — parts per trillion — than in the meteorites, where they were generally present at several parts per billion.

More significantly, none of the nucleobase analogs were detected in the ice sample. One of the meteorites with nucleobase analog molecules fell in Australia, and the team also analyzed a soil sample collected near the fall site. As with the ice sample, the soil sample had none of the nucleobase analog molecules present in the meteorite.

Thirdly, the team found these nucleobases — both the biological and non-biological ones — were produced in a completely non-biological reaction. “In the lab, an identical suite of nucleobases and nucleobase analogs were generated in non-biological chemical reactions containing hydrogen cyanide, ammonia, and water. This provides a plausible mechanism for their synthesis in the asteroid parent bodies, and supports the notion that they are extraterrestrial,” says Callahan.

“In fact, there seems to be a ‘goldilocks’ class of meteorite, the so-called CM2 meteorites, where conditions are just right to make more of these molecules,” adds Callahan.

________________

The team includes Callahan and Drs. Jennifer C. Stern, Daniel P. Glavin, and Jason P. Dworkin of NASA Goddard’s Astrobiology Analytical Laboratory; Ms. Karen E. Smith and Dr. Christopher H. House of Pennsylvania State University, University Park, Pa.; Dr. H. James Cleaves II of the Carnegie Institution of Washington, Washington, DC; and Dr. Josef Ruzicka of Thermo Fisher Scientific, Somerset, N.J. The research was funded by the NASA Astrobiology Institute, the Goddard Center for Astrobiology, the NASA Astrobiology: Exobiology and Evolutionary Biology Program, and the NASA Postdoctoral Program.

Health System Innovation in India Part III

SUBMITTED BY ADAM WAGSTAFF, CO-AUTHORS: SOFI BERGKVIST 

Taking high-quality affordable primary care to the rural poor with the help of handheld computers, telemedicine, and P4P.

In our first post in this series, we showed how illness in India causes financial hardship and leaves Indians—especially poor ones—with limited access to affordable good-quality health care that can actually make them better. In our last post, we outlined the Aarogyasri scheme—a novel government-sponsored health insurance program in the state of Andhra Pradesh that has the potential not just to reduce financial impoverishment but also raise quality standards in hospital care. In this post, we discuss an innovative private-sector approach to delivering and financing primary health care in rural Andhra Pradesh.

a) Quality of care in India—from bad to excellent

In our first post, we highlighted the low quality of care among India’s unqualified and qualified providers many of whom work in India’s unregulated and fragmented private sector. But it would be wrong to think that all India’s private providers deliver poor quality care.

India’s private sector is actually home to a pool of health care entrepreneurs who have developed processes for high-quality and low-cost care. They have developed their own cadres of professionals and para-professionals to perform specific tasks after internal training. They have developed new technologies and new ways of existing technologies. These innovations and approaches have brought down cost and increased specialization. Major improvements in health outcomes as a result of these innovative practices have been documented in areas such as maternal and child health, eye care, cardiology and also primary health care.

One example is Ekjut, an organization that piggybacks on the existing networks of self-help groups in India. They work on awareness and demand-creation, and as documented in The Lancet were able – over a period of three years – to achieve a reduction in death rates among newborns of 45 percent.

b) Reddy to (Primary) Care Dr. Krishna Reddy runs a chain of 12 for-profit hospitals in South India known as CARE Hospitals. The chain is committed to affordability and has worked towards low-cost care by developing indigenous technology such as stents. Reddy is convinced that improved quality of care reduces the cost of care and improves revenues – with reduction in hospital infections and medical errors. The chain has developed internal clinical audits and professional teams across the hospitals.

What caught our attention when we recently caught up with him over dinner, however, was Dr Reddy’s enthusiasm for CARE Hospitals’ sister organization, the CARE Foundation. Schemes like Aarogyasri – the subject of our last post – encourage medical (and indeed surgical) intervention and in India’s most high-tech facilities. They do nothing to encourage prevention and the management of chronic conditions. As a commentator on our first post noted, India – like most countries – badly needs innovation in primary care too.

Dr Reddy’s CARE Foundation is precisely such an initiative – in fact, it comprises multiple initiatives. The Foundation aims to bring affordable high-quality primary care to India’s rural poor. It builds on the human resources that already exist in India’s villages ensuring care is delivered where the patient lives by someone from their community. These “village health champions” are female educated paramedics. Each VHC is equipped with and trained in the use of a mini-computer that performs multiple functions. The computer can perform some basic tests such as an ECG and other tests for monitoring chronic conditions. It also houses software containing algorithms to support the VHC in arriving at an accurate diagnosis and treatment. But the device is also linked to a supervising doctor via a mobile network: the VHC can talk to the doctor; the doctor can monitor and if needs be step in and join the consultation remotely (the CARE Foundation is a champion of telemedicine); and the doctor-sanctioned prescription is printed out on the VHC’s mini-computer. The VHC issues the medicines, and the mini-computer logs the information in the database of the group’s supply chain. The device also issues a smart card for all program members, and records each consultation and transaction.

The idea is to detect disease at an early stage in the village, and then manage disease close to the patient while being backed up by a supervising doctor and with the option of referral to a hospital when needed. VHCs manage 60-70 percent of primary care treatments in the village itself. The VHC receives a base salary and a performance-based supplement, based apparently on a mix of quantity and quality indicators.

After Dr Reddy had walked us through the details of the program, we discussed what was known about its impact. The organization collects lots of data, but he admitted he didn’t know how much better it was doing than the government primary care system. We asked him whether he’d be agreeable to subjecting his program to a rigorous randomized control trial. He said he’d be delighted to.

c) An innovative delivery model. But who pays? We then talked about the financing of the program. Currently it’s households who finance the program directly. In part they pay through microinsurance premiums: currently around 600 families have signed up at a cost of Rs 300 (just under $ US 7) for a family of 4. This does not cover chronic care, however: individuals with chronic conditions can be treated for Rs 50 per monthly visit with low-cost (but effective) generic drugs.

Whether such a financing model is sustainable, efficient or equitable is debatable. The history of community financing in health is a mixed one, with far fewer success stories than failures – limited resources, adverse selection, and small risk pools all work toward undermining a microinsurance approach to health financing. And it seems a little hard on people who develop chronic conditions to have to shoulder the costs of their care by themselves.

d) Having your cake and eating it Is there an alternative? Different financing and delivery models can be bolted together in lots of different ways. As one us argued in an earlier post, a model that is proving popular in Asia (and indeed in the OECD) is one where the taxpayer finances an institution that sits at arm’s length from the health ministry and contracts with public and private providers.

So, we put it to Dr Reddy as we were finishing our dinner that there would be nothing to stop his innovative primary care delivery model being financed instead by the AP government on a contractual basis. After all, the Aarogyasri program does precisely that, albeit only for tertiary care – it could also contract with organizations like the CARE Foundation to ensure that the population also has access to affordable high-quality primary care, with a strong focus on prevention and the management of chronic diseases. In fact, the two parts to such an integrated program could reinforce each other. Dr Reddy’s model could improve not only the pre-hospital care but also the follow-up treatment and monitoring. Hospitals under the Aarogyasri scheme have to provide consultations and medicine for one year for many of the treatments. Patients are now traveling across the state to come back to the same hospital; the travel for these visits is not covered, and people are also losing income on trips that can take more than a day.

Dr Reddy liked the idea of his foundation contracting with the AP government to extend Aarogyasri’s reach into primary care. But on recent trends, this seems unlikely to happen. Soon after our last post went live, the AP government announced that 133 of Aarogyasri’s 938 procedures will be treated exclusively in government hospitals in 10 districts across AP. There is talk of it scaling back private-sector involvement in Aarogyasri much further (hat tip to Robert Palacios).

For the moment then Dr Reddy’s innovative primary care delivery model looks set to continue relying on microinsurance – not the first best but probably the best available option right now. 

Development Marketplace: Neeraj and Amit Story

Development Marketplace: Neeraj and Amit Story

WORLD BANK COUNTRY DIRECTOR’S FINE ADVICE ON THE NEED FOR RAISING INVESTMENT RATIO THE GOVERNMENT SHOULD REVISIT ITS STATE EXPANSION POLICY

The World Bank Country Director for Sri Lanka and the Maldives, Diarietou Gaye, delivering the keynote address at the 172nd Annual General Meeting of the Ceylon Chamber of Commerce or CCC last month emphasised, inter alia, the need for raising the country‟s investments in proportion to its total output or GDP from the current 28% to a level of about 35% in order to sustain an annual economic growth of 8-9% as targeted by the government in the medium to long term (available at: http://www.ft.lk/2011/08/01/emerging-sri-lanka-and-the-role-of-the-private-sector/#more-41432 ).
The burden of raising the investments to this level, she further elaborated, devolves on the country‟s private sector which presently invests only about 22% of GDP. Accordingly, given an average investment rate of about 5% by the government, the private sector should raise its investments to a level of about 30% of GDP, requiring it to make a mega jump of 8% if it is to reach the target on investments.
This is a formidable challenge given the country‟s low savings habits and government‟s use of the lion‟s share of the savings to pay for even its consumption expenditure year after year in most of the post independence period.
The veteran World Banker with a long track record as a practitioner in development and finance should be credited for highlighting the important role which the private sector should play in Sri Lanka‟s post conflict economy.
However, in my view, the responsibility for generating funds for raising the country‟s investments to the required level should not be placed squarely on the private sector. It should be supported by the government by generating savings in its revenue account. How should it do it? By keeping the consumption expenditure below the revenue and adding such savings to strengthen its investment initiatives.
The Magic Required Investment Number
How has this required investment number of 35% of GDP come about? It is derived as „a rule of thumb‟ from a celebrated economic theory developed independently by two economists, one British, Sir Roy Harrod in 1939 and the other a Russian-American, Evsey Domar in 1946. The theory is known as the Harrod-Domar Growth Model.
The logic behind the Harrod-Domar Growth Model is simple: it is necessary to use the physical capital such as plant, machinery, transport equipment etc to produce goods and services. A
country adds to this capital stock by way of investments and these investments are then converted to new goods and services. The rate at which such conversion is made depends on the efficiency of using capital by a country. If this efficiency level is high, then, with a small investment, a country can attain a higher rate of conversion, or in the laymen‟s language, a higher rate of growth.
The level of the efficiency of using capital is known as the incremental capital output ratio or ICOR. It is simply the units of capital goods needed to produce one unit of goods and services. If ICOR is high, it means that capital is inefficiently used and if ICOR is low, it means that capital is efficiently used. This means that a high ICOR country has to have a bigger rate of investment to attain a given growth rate than a country with a low ICOR.
ICOR being the efficiency of the use of capital depends on a multitude of factors: the quality and the level of the capital stock, its maintenance standards, the managerial practices and their efficiency, the skills and talents of the people who operate such capital equipment, Research and Development outlays that improves the use of capital, supportive cultural practices of people and above all the ease of doing business and government‟s facilitating role.
Sri Lanka‟s ICOR has been historically at a level of about 5 meaning that, to attain a one percent growth rate, the country has to invest at least five percent of GDP. Accordingly, if one knows the required growth rate, one can calculate the required investment rate by multiplying it by 5.
It appears that Gaye has used a lower ICOR of 4, that is, a higher efficiency of capital in Sri Lanka than its historical record, to estimate the required level of investments to attain and maintain a growth rate of 8-9%. She would have been prompted to use this number by the improved results of Sri Lanka in 2010.
How to pay for investments
The other side of the investments is how to find money to pay for them.
An individual wishing to construct a house may cut his consumption and save money or borrow from a bank or do both to finance his construction. The options available to a country to finance its national investments are practically the same.
Historically, Sri Lanka has been a high consumption country compared to some of its East Asian neighbours like Singapore, Japan or Malaysia. Its domestic savings have been in the range of some 18% of GDP meaning that for every rupee it earns, it consumes 82 cents on average. But its investment requirements, as calculated by Gaye, have been 35% plus. This means that it has to fill a gap of some 17% which the economists call „the saving-investment gap‟.
This high saving-investment gap is the basic constraint which Sri Lanka faces in its drive to increase the investment levels to attain and maintain a growth rate of 8-9%. Gaye has simply asked the private sector to increase its investments by 8% of GDP, but there are no moneys of that magnitude available in the market for it to tap. Given the projected growth rate of 13% in nominal terms for 2012, this requirement amounts to some Rs 600 billion or $ 5.5 billion. A credit expansion of that magnitude in a single year will raise money supply and cause the economy to overheat, the first symptom of high inflation which both India and China are now trying to avoid at all costs.
So, Sri Lanka has no choice but to go for tapping the savings of foreigners in the form of both borrowings and private direct investments. Since Sri Lanka has now graduated from concessionary borrowing to market borrowing on account of its rapid increase in average income per head known as per capita income, in the case of borrowing, the choice is to borrow from commercial markets under extremely non-concessionary terms. These non-concessionary terms involve market interest rates (about 6.25%), shorter maturity periods (between 4 to 6 years), repayment mostly in a single shot called „bullet repayments‟ and practically insignificant grace periods (usually one year). Hence, it is absolutely necessary for a country to use such market borrowings for projects that generate an adequate income in foreign exchange to repay these loans, while adding net wealth to the country.
If this golden rule is not observed, it is inevitable that the country gets into a debt trap and has to sink to the bottom before it gets rescued by others as experienced by Greece and Ireland recently. This is a very painful and costly experience for the peoples of a country who had earlier been promised of a great future by their leaders.
The other option available to Sri Lanka is to tap foreign direct investments or FDIs in larger volumes.
Gaye has very correctly noted that Sri Lanka‟s track record in this respect is not very impressive despite the end of the war two years ago. According to the Central Bank data, the net inflow of FDIs in 2010 has been a paltry $435 million which includes reinvested earnings of $ 195 million as well. Even an FDI flow of 2% of GDP in 2012 as projected by the authorities amounts only to $ 1.3 billion, falling short of the required amount of $ 5.5 billion by a significant margin.
It appears that Sri Lanka‟s destiny requires it to go for a mega commercial borrowing of $ 4 billion in 2012 and in progressively increasing numbers thereafter to maintain its required rate of investments at 35% of GDP. This is surely a debt trap toward which Sri Lanka is fast walking.
Government’s Supporting Hand
The gravity of the problem could be alleviated if the government makes an adjustment to its policy and budgetary numbers.
During the ten years to 2010, Sri Lankan government‟s annual consumption expenditure exceeded its revenue on average by 3% of GDP. Economists call this a deficit in the current or revenue account of the government. Since it is a dissaving by the government, it reduces the savings of the private sector by that amount.
The reasons for this deficit are numerous but could have been avoided: the overexpansion of the government sector, losses made by government enterprises, the need for keeping some of the government enterprises afloat by paying even for their consumption expenditure, high borrowings of the government requiring it to pay interest and untargeted subsidy schemes like the Samurdhi scheme and the fertiliser subsidy.
If the government is to give the best supporting hand to the private sector and the nation to raise the investment levels to the required amount and thereby build the country‟s capital stock, it should do a rapid budgetary reform in the form of cutting its consumption spending to a manageable level. If the government goes on a spending spree, the consequences are all unpalatable: rising public debts, trapping in a debt trap, stunting the private sector, wastage of national resources and breeding of corruption.
The countries which did not pay attention to this golden rule such as modern Greece, Ireland and Portugal had to pay a huge social, economic and political price eventually when the respective economies became bankrupt and could no longer raise funds in the international markets to feed the voracious thirst for funding. The minority government of David Cameron in the UK, having noted the festering sore in time, took measures to cut unnecessary spending by Sterling 1.2 trillion over the next four year period. This he did despite the enormous political pressure mounted against him. President Barack Obama of USA failed to take timely corrective action and continued to enjoy the lavish lifestyle without any control contrary to what he preached when he was not in government. The consequence was that he was driven to the wall by August 2011 and had to bend backward in order to accommodate the harsh conditions of his rival Republicans to avoid default of the government payments.
Though he averted a crisis, the rating agency Standard and Poor‟s has downgraded USA‟s „triple A credit rating‟ to „double A plus‟ with a negative outlook thereby seriously wounding the American pride. It has also warned that, if Obama fails to cut the spending in two years as he has promised, even the double A plus would be downgraded to simple „double A‟.
Sri Lanka should revisit its state expansion policy
The current policy of the government appears to be pro-state sector. Accordingly, the divestiture of ownership of state enterprises even when they continue to make losses and could be run profitably by private entrepreneurship has been desisted; furthermore, when previously state owned but subsequently privatised enterprises are available for sale, there appears to be a willingness by the government to reacquire them. In addition, the public sector is continuously being strengthened through new recruitment to its lower grades to appease the rebellious youth joining the unemployment pool. All these measures entail additional consumption expenditure on the budget and have raised borrowing requirements to fund the consequential government‟s dissavings.
The signs of growing uncontrolled consumption expenditure are already visible. The current account deficit of the budget for the whole year had been estimated to be at Rs 54 billion. This number was exceeded in the first quarter itself and amounted to Rs 75 billion by end April. It appears
that the deficit is on its way now to exceed even the peak of Rs 179 billion in 2009 if effective measures are not taken to control government‟s consumption expenditure.
There are no economic objections to expanding the government sector if there is a need for same. However, it should be done after a careful analysis of the economics of such expansion not only as it is relevant to the current period but also to the future as well. Common business sense always requires a person to put his money into projects that are relevant, essential and paying back. This rule applies to the government as well.
Hence, it may be worth its while if the government revisits all its recent state sector expansion measures to identify whether there are prospects for making a cost saving or simply to abandon them if they do not pay back to the nation.
Northumbria University’s State of the Art Sports Complex
A good example of a state organisation‟s going into a mega investment project after making a careful analysis and a business plan is the State of the Art Sports Complex of Northumbria University in the UK. The writer had the fortune of visiting this complex recently.
The Sports Complex had been built at a cost of 32 million Sterling Pounds. It has all the modern facilities equipped with the latest technology and including an indoor football field that could be used for playing the sport even in the freezing winters. For a relatively small university located in the north of the UK in New Castle, I wondered whether it was another white elephant created by the university authorities. I put the question directly to them.
“No” was the answer I got. The explanation I received was amazing and well fitted with the Five Forces Competitive Strategies Model put forward by the Harvard Business School Professor Michael Porter in 1980. Porter said that in addition to the conventional rivals, a business should be mindful of the forces exerted by new entrants, customers, suppliers and substitutes to remain competitive in the long run.
That was the only modern sports complex in New Castle and therefore it did not have rivals close by. In view of the high capital costs, there was no threat of new entrants. Given the obsessive cultural habit of the university students and residents in New Castle to remain in good health with a good physique, the customers of the complex were all tied to it and did not wield an uncompetitive bargaining power. The suppliers of equipment to the complex had some measure of power over the management, but by going into long term contracts suitable to both parties, the complex was able to keep the threat at a low level. In view of the harsh wintry conditions in New Castle, the substitutes in the form outdoor physical training facilities were limited.
The sports complex had sold its facilities to about a half of the students numbering some 15000 and about 2000 residents in New Castle without overstretching its facilities. There was a dual price system, a low price for the students and a high price for the staff and the residents. In addition, international sports events are also to be attracted to New Castle by the new sports complex of the university. Benefitted from the differentiated pricing system, another invention of Michael Porter in his generic value chain, and the superior business plan, the net cash flow the complex is sufficient to recover the capital expenditure of the sports complex within eight years.
This is a good example of state expansion based on a viable business plan and the use of the common sense involved in business entrepreneurship.
I was told that a swimming pool opened in a state university in Sri Lanka had only the patronage of about 20 students a day despite the free availability of the facility.
Time for the Government to Wake up
There is the need for raising the country‟s investments to a high level to increase, maintain and sustain a high growth rate. The burden of raising the investments to this required level should not be squarely passed onto the private sector when the government is happily overspending even for its consumption expenditure. The recent data show that its consumption expenditures are ballooning because of the government‟s conscious state expansion policy. Lessons in this respect could be learned from the recent tragedy of Barack Obama, the unrivalled leader of the world‟s strongest economy.
In my view, it is time for the government to wake up, learn from the emerging global trends and revisit its state expansion policy.
(W.A. Wijewardena can be reached at waw1949@gmail.com )