Nobel Prize Winning Economist: Intellectual Property Reinforces Inequality, Hurts The Economy

from the say-that-again dept

Nobel prize winning economist Joseph Stiglitz, who has spoken out before about how intellectual property hurts innovation and makes globalization problematic, has written a fantastic op-ed for the NY Times about how intellectual property increases inequality and how that can lead to much greater harm for the economy.

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.

It's great to see such concepts make their way to the NY Times. Hopefully it leads more people to begin to recognize just how broken today's intellectual property systems are.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    Ninja (profile), Jul 15th, 2013 @ 11:23am

    Bravo! Poeple often tend to evaluate anything via the immediate, visible profits. We need to look no further than the environmental aspect. It is safe to assume that without laws to govern the industrial activity we'd have even worse environmental degradation. Such scenario poses a great economic burden onto the nation (ie: increased and more devastating tornadoes and hurricanes). This guy sees the patent issue in an systemic way. We've come to a point where the greed is so insane that the only thing the corporations see is the immediate profit at the expense of a long term loss - intellectual property being one of the most long-standing examples along with Govt granted monopolies in general.

    I'm interested in seeing how the patent-happy ones will dismiss this.

     

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  2.  
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    theDude, Jul 15th, 2013 @ 11:51am

    Question

    "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"

    can someone site an example where this is NOT the case?

     

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  3.  
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    RyanNerd (profile), Jul 15th, 2013 @ 11:54am

    As my 14 yr old daughter would say...

    I think this should have been from the: Well Duh? dept.

     

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  4.  
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    Ninja (profile), Jul 15th, 2013 @ 11:57am

    Re: Question

    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.

     

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  5.  
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    Anonymous Coward, Jul 15th, 2013 @ 12:39pm

    It's so refreshing to read an article on Intellectual Privilege Rights that actually makes sense, and doesn't rely on 'voodoo economics' to justify a position.

    If we were to believe Intellectual Privilege Monopoly proponents, then we would never have had fire or the wheel if it weren't for patents.

    I'm not a believer in 'voodoo economics', but I do believe that, "Necessity is the mother of all inventions".

    Joseph Stiglitz, also makes an excellent point that someone else would have certainly recently discovered the cancer genes, even if Myriad had not.

    There's ample evidence of separate individuals who do not know about one another, living half a world away from each other, developing new technologies in parallel.

    Take for example Russia and America working to develop their own version of the atomic bomb at the same time. Or Gustave Whitehead, a late 19th century avionics engineer from Germany, who we're just now finding out probably beat the Wright Bros. first manned flight by 2 years.

    There are so many more examples of parallel innovation through out history I couldn't possibly list them all here. A more recent example is two different scientists from China and Austria, developing Quantum Teleportation technologies, each using their own separate research and development techniques.

    http://phys.org/news/2012-09-km-physicists-quantum-teleportation-distance.html

    I guess what this really shows us is that the Intellectual Privilege Monopolies have little interest in advancing the "Greater Good", and every interest in "Living as rich as I possibly can before I die".

    The funny thing is, a lot of these rich people start giving up large sums of their wealth to charity in their later years. It's almost as if they start to feel vulnerable to their own morality, and realize no amount of money can change the fact that we're all mortal in the end.

     

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  6.  
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    Anonymous Coward, Jul 15th, 2013 @ 12:54pm

    Re: Question

    Literally anything that creates new wealth? I mean just take patents as an example. There's certainly value added in taking raw inputs and combining them into a useful product. If you're the only one that's legally allowed to make the product as a result of a patent, however, you could charge extra thanks to your patent. That's the 'rent' in economic terms (not to be confused with the colloquial definition of the word where you pay to use something).

     

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  7.  
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    Anonymous Coward, Jul 15th, 2013 @ 1:14pm

    I love it!

     

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  8.  
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    Anonymous Coward, Jul 15th, 2013 @ 1:57pm

    absolute bollocks! you just ask someone from RIAA. they'll tell you the truth!!

     

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  9.  
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    Anonymous Coward, Jul 15th, 2013 @ 1:57pm

    Re:

    Easy.

    They will claim that Stiglitz is also for single payer health care and an activistic free market hater. Which is somewhat true.
    They will use the hate of free market as a reason for why he hates patents generally and why he cannot see the truth about how patents is the definition of invention and therefore the single reason for the growth of the cake.

    The part about the poor will be countered by the number of grants Myriads have given for their product to be used by even the poorest and how unfair it is to claim that the company isn't socially responsible.

    Then they will say that unsubstantiated rumours of interference in research is completely unwarrented citing some grants Myriad has donated to science as proof of the opposite (it is not).

    The argument about public discovery will be completely ignored or it will be discredited as a government sponsored competition disturbing effect.

    Robert Fogel is economically politically much of a specialist in weird combinated disciplines such as climate science/economy and health science/economy. Again the anti-free-market argument and this time they can use all republican tricks since single payer health care and climate change are among the things they argue should be kept at moons lenght from laws since they are inefficient and expensive measures with low economic potential...

     

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    gnudist, Jul 15th, 2013 @ 2:36pm

    Re: Re:

    The funny thing about republicans areguing agaisnt this guy for being anti free market is that patents are themselves anti free market...

     

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  11.  
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    Anonymous Coward, Jul 15th, 2013 @ 3:23pm

    Not exactly a Nobel Prize winner

    Stiglitz hasn't personally won a Nobel Prize. The IPCC (for which he was an author) won the 2007 Peace Prize. And the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, which he won in 2001, was not established by Nobel's will—it's not a Nobel Prize, it's just some clever marketing by the Bank (who pay the Nobel committee quite a bit of money to award it and include it on their website).

     

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  12.  
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    Anonymous Coward, Jul 15th, 2013 @ 5:44pm

    Re: Not exactly a Nobel Prize winner

    Technically you are correct. However, it does obey the name "Nobel Prize" and it is very prestigious in the field. The award was instituted to improve the science in economy and it has worked. All good reasons for accepting it even though the dynamite man himself didn't blow peoples mind with it.

     

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    Anonymous Coward, Jul 15th, 2013 @ 7:42pm

    Re: Re: Not exactly a Nobel Prize winner

    And technically correct is the very best kind of correct.

     

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  14.  
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    Anonymous Coward, Jul 15th, 2013 @ 8:12pm

    Re:

    and patents are actually a deterrent because what if you spent years to develop something and someone gets there only months before you. Now they can get a patent first and prevent you from entering the market. Why take the risk? Both parties will simply choose to avoid developing anything.

     

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  15.  
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    Mike Masnick (profile), Jul 15th, 2013 @ 9:02pm

    Re: Not exactly a Nobel Prize winner

    And the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, which he won in 2001, was not established by Nobel's will—it's not a Nobel Prize,

    Yes, yes, I know the history, and I also know that everyone calls it the Nobel Prize in Economics, and it's considered just as prestigious these days. Only overly pedantic people with way too much time on their hands still go around bitching about this. He won the Nobel Prize in economics. Get over it.

     

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  16.  
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    Anonymous Coward, Jul 16th, 2013 @ 3:16pm

    Re: Re: Not exactly a Nobel Prize winner

    Sorry, that comment reads as a bit more nitpicky than I intended. I doubt there's a more prestigious award in the field, and I'm sure Stiglitz earned it. It just seemed to me like you were attributing an action to Nobel that he had nothing to do with, and I don't view proper attribution as mere pedantry (though I guess one could argue it doesn't matter once someone's been dead for a century).

     

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    nahummer, Jul 19th, 2013 @ 4:11am

    Re: Re: Not exactly a Nobel Prize winner

    I've gotta agree with Coward. It's not a Nobel Prize and calling it a Nobel Prize just lends undeserved respect to a field of studies no more scientific than alchemy. It's part of the propaganda machine that has led us to be cheerleaders in the destruction of the world I'm afraid.

     

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  18.  
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    Rob McMillin (profile), Aug 2nd, 2013 @ 7:07pm

    Stiglitz

    Joseph Stiglitz is otherwise anathema for the pretty damned libertarian political positions I see around these parts; but on this one matter, he fits the stopped clock.

     

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