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Joseph Stiglitz: “intellectual property leads to inequality, actually harms the economy”

July 16th, 2013 |  Published in Intellectual Property

Myriad genetics lab dollar sign


16 July 2013 – We see it all the time, especially in the smartphone market.  Apple virtually created a new tier of mobile phone (the smartphones) with their iPhones and grew the pie by a whole load. They didn’t need to compete with the other phone manufacturers at the time simply because their product was better and without equal. Now? They litigate to maintain their market share. The “IP Wars”. The question has always been: if firms turn their patents into ploughshares, the billions of dollars wasted on litigation might instead yield innovative products.

But might there be a greater harm at work?

Nobel prize winning economist Joseph Stiglitz, who has spoken our before about how intellectual property hurts hurts innovation and makes globalization problematic. But this past weekend he wrote a doozy of an op-ed for in the New York Times about how intellectual property increases inequality and how that can lead to much greater harm for the economy. It’s a rather refreshing piece: it makes sense, and doesn’t rely on “voodoo economics” to justify a position.

Much of his article is about the Myriad Genetics case, in which the Supreme Court recently struck down gene patents. Stiglitz points out how this is a good thing, and uses the Myriad case to show how patents in particular can do tremendous damage. He talks about why the Supreme Court ruling was important, but notes there’s much more to be done. Of course, since he doesn’t mention it, I’m guessing that the piece was either written before Myriad thumbed its nose at the ruling by filing a bunch of new patent lawsuits about the new competitors that have sprung up in its wake, or Stiglitz wasn’t yet aware of that fact. Either way, the fact that this is how Myriad has responded really only makes his argument that much stronger.

Most of the article focuses on the history of Myriad, how it’s basically putting lives in danger and disproportionately harming the poor, who can’t afford $4,000 for a simple test. But, the really interesting part is in the last third of the piece, where he digs a little deeper into how this kind of “inequality” actually has a tremendous cost on the economy that is rarely taken into account. In part, this is based on the fact that patents allow for companies to just try to seek a larger part of the existing pie, taking away the incentives to create larger pies — which is where real innovation and economic growth occur.

Some of the most iniquitous aspects of inequality creation within our economic system are a result of “rent-seeking”: profits, and inequality, generated by manipulating social or political conditions to get a larger share of the economic pie, rather than increasing the size of that pie. And the most iniquitous aspect of this wealth appropriation arises when the wealth that goes to the top comes at the expense of the bottom. Myriad’s efforts satisfied both these conditions: the profits the company gained from charging for its test added nothing to the size and dynamism of the economy, and simultaneously decreased the welfare of those who could not afford it.

While all of the insured contributed to Myriad’s profits — premiums had to go up to offset its fees, and millions of uninsured middle-income Americans who had to pay Myriad’s monopoly prices were on the hook for even more if they chose to get the test — it was the uninsured at the bottom who paid the highest price. With the test unaffordable, they faced a higher risk of early death.

And, while you can argue that the poor always have it tougher, and if they can’t afford the test, that’s an unfortunate part of life, Stiglitz has a detailed response to that as well. The question is not just whether or not the Myriad tests for BRCA1 and BRCA2 are helpful in their own right, but what would have happened in the absence of the current situation. And Stiglitz argues, compellingly, that Myriad has actually made things much worse. Without such patents, it’s likely that the same genes would have been discovered anyway and we’d have more, better and cheaper genetic testing for a much wider selection of the population.

Advocates of tough intellectual property rights say that this is simply the price we have to pay to get the innovation that, in the long run, will save lives. It’s a trade-off: the lives of a relatively few poor women today, versus the lives of many more women sometime in the future. But this claim is wrong in many ways. In this particular case, it is especially wrong, because the two genes would likely have been isolated (“discovered,” in Myriad’s terminology) soon anyway, as part of the global Human Genome Project. But it is wrong on other counts, as well. Genetic researchers have argued that the patent actually prevented the development of better tests, and so interfered with the advancement of science. All knowledge is based on prior knowledge, and by making prior knowledge less available, innovation is impeded. Myriad’s own discovery — like any in science — used technologies and ideas that were developed by others. Had that prior knowledge not been publicly available, Myriad could not have done what it did.

Further, on top of that, keeping more people alive to do more and contribute more to society, while not having to take on the costs of breast cancer, also has tremendous positive impacts on the economy, which are almost entirely ignored by most who view the situation through the single prism of “patents = incentive for innovation.”

Indeed, one of the important insights of Robert W. Fogel, a Nobel Prize-winning economic historian who died last month, was that a synergy between improved health and technology accounts for a good part of the explosive economic growth since the 19th century. So it stands to reason that intellectual property regimes that create monopoly rents that impede access to health both create inequality and hamper growth more generally.

He further notes that supporters of strong patent laws have “overemphasized their role in promoting innovation,” and that many of the greatest and most important innovations of the modern era were not driven because of the opportunity to patent them, or even to directly profit from them. As he notes, there are many, many other ways to pay for modern innovation without creating the burdensome negative impacts of today’s intellectual property system, harming overall innovation while increasing inequality and increasing prices.



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"The mind that lies fallow but a single day sprouts up follies that are only to be killed by a constant and assiduous culture."
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