(FORTUNE Magazine) – IN 1918 A VIRUS THAT normally infected birds exploded into the deadliest disease outbreak in human history. Symptoms of the so-called Spanish influenza were so violent that some victims broke ribs from coughing fits; others bled from the mouth, nose, ears, and eyes; still others turned such a dark blue that a physician confessed "it is hard to distinguish the colored men from the white." Half the dead were young adults. City after city ran out of coffins; many imitated Philadelphia's use of steam shovels to dig mass graves for bodies wrapped in winding sheets.

Experts now think that this worldwide epidemic, or pandemic, killed at least 40 million, and one Nobel laureate believed the death toll may have reached 100 million. Even taking the lower estimate and without adjusting for population growth (up by 250%), the virus killed more people in 24 weeks than AIDS has killed in 24 years.

This was the 1918 influenza pandemic. The flu we come down with today is tame by comparison. But the emergence of a new pandemic influenza virus is, as a recent National Academy of Science study claims, "not only inevitable, but overdue." And while medicine has advanced enormously in the past 86 years, it has no panacea against a powerful virus.

This season's breakdown of flu-vaccine production will lead to many lost work days and will cost lives as well, but it could end up a net plus if it forces government and industry to address not just vaccine manufacturing but also our vulnerability to another influenza pandemic.

A pandemic erupts when a new influenza virus jumps from birds to people. All human flu viruses are bird viruses that have adapted to humans. Typically a bird virus will not infect people, but it can when someone suffers massive exposure to it. Even more rarely the virus adapts to humans, either by mutating or by infecting a cell that is simultaneously infected by an existing human influenza virus. In that cell, the two viruses can trade genes and create a hybrid able to spread from person to person. Pigs also may serve as a genetic "mixing bowl" and create a hybrid, because they are naturally vulnerable to both human and avian flu.

The resulting new virus infects people more efficiently than existing pathogens because human immune systems don't detect it. A pandemic erupts. Historical evidence suggests that three or more flu pandemics rage in each century. The 1918 flu was followed by pandemics in 1957 and 1968. The viruses that caused these were mild compared to 1918's--yet each resulted in massive illness and economic disruption and killed from one million to four million people worldwide.

Scientists now are tracking three influenza viruses that seem poised to jump from birds to people. The least virulent, called H9N2, sickened three people in Hong Kong but killed none. A second virus, H7N7, infected 84 people and killed one in the Netherlands in early 2003. European authorities slaughtered 30 million animals, mostly poultry but also some pigs, to prevent its spread. Though a mortality rate of one person in 84 may not sound horrific, a new virus will likely infect between 15% and 40% of the population, so a one-in-84 mortality rate would mean the death of 500,000 to 1.2 million Americans. That puts it in the same league as the 1918 virus.

The third avian virus poised to jump to humans is more lethal still. Called H5N1, it first surfaced in 1997 in Hong Kong, where it killed six of the 18 people it infected. To contain the virus, 1.5 million chickens were immediately slaughtered and live animal markets were redesigned. But H5N1 can survive in wild birds and resurfaced with a vengeance earlier this year in nine Asian countries, killing 24 of the 35 people it infected. This time more than 100 million poultry were killed. Nonetheless, the virus returned this summer, killing still more people and forcing the slaughter of more birds; in September, Malaysia quarantined an entire state. In total, H5N1 has killed 38 of 63 people with confirmed infections.

As yet, none of these viruses has adapted to humans, but each time one infects a person--or a pig--it has another slim but real chance to do so. The question now is whether policymakers will learn lessons from 1918 or repeat mistakes. Back then scientists fully comprehended the threat's magnitude, knew how to cure many secondary bacterial pneumonias, and gave public-health advice that would have saved tens of thousands of American lives. Politicians ignored that advice.

Modern scientists and public health experts have, Cassandra-like, been issuing warnings for years of a lack of preparedness for another influenza pandemic. Just a few days before British authorities shut down production at the Liverpool plant of flu-vaccine maker Chiron, the European health commissioner warned that Europe was woefully unprepared. Since too little vaccine is made in the U.S. and since other countries might refuse to export vaccine in an emergency, the U.S. is even less prepared. Four areas need attention.

1. Evidence suggests that the 1918 virus adapted to humans about eight months before it mutated enough to infect them efficiently; then it became lethal. In a best-case scenario, a vaccine could be readied in as little as six months. Thus early warning could make an immense difference in the death toll. The World Health Organization has a system to monitor for signs of a new influenza virus; the system worked magnificently in identifying SARS, a virus initially feared to be influenza. Most pandemics have come from Asia, but a virus can jump species anywhere; indeed, the most likely origin of the 1918 pandemic was Kansas. Yet fewer than half the nations in the world participate in the monitoring system, because it costs money. This system needs to be expanded, and poor countries should get the resources to take part.

2. Governments must get involved in vaccine production. The current shortfall helps highlight the risks that discourage private-sector vaccine makers. Flu is one of the fastest-mutating pathogens; it changes so rapidly that last year's vaccine is usually ineffective at preventing this year's flu. Therefore vaccine cannot be stockpiled. In developing vaccine for an upcoming flu season, scientists must anticipate which mutations will dominate; if they guess wrong, the vaccine is less effective and demand drops. All this helps make vaccines a not very profitable business. Add the fact that vaccine makers carry substantial liability if their products go wrong, and you can see why few drug companies make vaccines.

To ensure that supplies are adequate, governments must give guarantees or subsidies to manufacturers, or make the vaccine themselves. And to protect the U.S. against a pandemic, vaccine development and production facilities must be upgraded, new technology developed, and factories located in the U.S. That is a national security issue.

The U.S. Department of Health and Human Services has tried to address that, contracting to produce vaccines for the viruses now threatening to jump species, and asking for funding to upgrade vaccine production in the U.S. But no one has listened--Congress cut last year's $100 million request to $50 million and was in the process of halving this year's $100 million request when Chiron blew up.

3. Antiviral drugs, particularly oseltamivir (sold by Roche as Tamiflu), limit an attack's severity and can also prevent the disease, though the prophylactic effect lasts only as long as a person takes the drug. Such medicines will be crucial to help contain new outbreaks, to buy time necessary to make a vaccine, and of course to limit fatalities. Adequate quantities should be stockpiled.

4. Ethical and legal issues that affect public health need to be settled. Just a few examples: The liability concerns of vaccine makers must be resolved. Legal authority for strict quarantines is adequate, but policymakers must be clear when to exercise it. Viral tinderboxes should be eliminated. Factory farms in the Midwest raise thousands of poultry and swine in adjacent buildings, with workers moving back and forth between them; these operations must be stringently controlled or even prohibited. Meanwhile, live-animal markets in New York City and elsewhere must be made to meet the same public health standards enforced in Hong Kong.

Action on all these fronts must come in advance. Once a virus jumps to humans, it will allow no time to respond. A terrorist with a nuclear weapon is every national politician's nightmare. A new influenza pandemic should be.