Sunday, April 12, 2020


Another policy conundrum where the rules may need to be rewritten. Much of the logic of public goods and market failure will be common to most of the greatest issues facing humanity, but nowhere more than in health and the global environment. And knowledge is a crucial resource.

A number of my recent postings have discussed the concept of market failure in relation to global threats, most notably the current pandemic and the growing challenges posed by climate change. Freedom from disease can be regarded as a public good, as can a stable environment and climate, and in both instances there are numerous sources of potential market failure. One, though by no means the only one, is the way in which we manage knowledge and information of all kinds, and this leads us into some complex issues of policy, particularly in relation to the protection of intellectual property.

Knowledge is a public good in that its use by one person does not reduce the ability of others to use the same knowledge. A lighthouse has the same property – every ship that observes its beam can take action to avoid the same hazard. But like all public goods, if it is freely available, there may be an inadequate incentive to create it in the first place. With free use, then there may be insufficient incentive for the creator of that knowledge to invest their time or money in research or development while others can then enjoy a “free ride” on what they produce. Policies may therefore be necessary to support it, either by arranging to pay for it through public expenditure, or through the creation of property rights in respect of the knowledge created, through intellectual property law.

If knowledge is thereby not created (or discovered or reported), this is a market failure (under-production), which society, and hence governments, need to correct.

Intellectual property rights such as patents are one way to do this. But they do so at the expense of another market failure, and a potentially high economic cost. Monopolies prevent the full exploitation by others of the knowledge that is created, and the knowledge is under-used even though its further use would appear to have no cost to society as whole.

The relevant question for society is which of these two considerations is treated as more important in a given period or for particular social and economic conditions. Protection of intellectual property is of course often seen as a key component of free markets, and what we might loosely call modern capitalism, while more collectivist political philosophies, and in particular China, have been widely accused of refusing to respect this particular form of property right.

So it is perhaps surprising to discover the following quote from Thomas Jefferson, one of the most revered of the Founding Fathers and early Presidents of the United States. It is an impassioned defence of knowledge as a public good, and an argument against the idea of intellectual property.

He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property. Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from any body. Accordingly, it is a fact, as far as I am informed, that England was, until we copied her, the only country on earth which ever, by a general law, gave a legal right to the exclusive use of an idea. In some other countries it is sometimes done, in a great case, and by a special and personal act, but, generally speaking, other nations have thought that these monopolies produce more embarrassment than advantage to society; and it may be observed that the nations which refuse monopolies of invention, are as fruitful as England in new and useful devices.

However despite Thomas Jefferson, and throughout the late 20th century, the conventional wisdom has been that intellectual property should be protected, even if this had the effect of creating private monopolies. The main mechanism has been stringent patents strictly enforced. But this has created major problems, even in advanced economies, leading to re-evaluation of other new and established means to encourage and finance research, of which there a number, ranging from direct public or charitable sponsoring of research to the offer of prizes for solutions that meet particular needs. It is perhaps ironic, too, that the truly great leaps forward in understanding, for example in the mathematics and physics[1] that underpin virtually every element in the modern world, from electronics to medicine, never depended on intellectual property protection and indeed were largely unpatentable. 

Nobel prize-winning economist Joseph Stiglitz has argued[2] that the conventional philosophy of reliance on patents/ monopolies is increasingly dysfunctional. It has led to “an increasingly dense patent thicket, in a world of products requiring thousands of patents, [this] has sometimes stifled innovation”. Even within the research itself, the incentive may be targeted less at new products than at extending, broadening and leveraging the monopoly power provided by the original patent. Increasingly the objective appears to be the protection of corporate revenues rather than the public interest. Stiglitz[3] also argues that “the preponderance of theoretical and empirical evidence indicates that the economic institutions and laws protecting knowledge in today’s advanced economies are increasingly inadequate to govern global economic activity and are poorly suited to meet the needs of developing countries and emerging markets. They are inimical to providing for basic human needs such as adequate healthcare.”

“The US supreme court’s 2013 decision that naturally occurring genes cannot be patented has provided a test of whether patents stimulate research and innovation, as advocates claim, or impede them by restricting access to knowledge. The results are unambiguous: innovation has been accelerated, leading to better diagnostic tests (for the presence of, say, the BRCA genes related to breast cancer) at much lower costs.”

Stiglitz mounts powerful general arguments for the reform of current arrangements in respect of intellectual property, which he sees as more or less inevitable in the context of increasingly “weightless” economies, and the growing influence of many of the developing world economies. But few demonstrations could be more eloquent than the importance of speedy transfer and exchange of information and research in relation to the coronavirus pandemic, or of the other even larger threat of global climate change.

Few recent stories will have generated more international outrage than the Die Welt report that the White House had attempted to relocate CareVac, a research company based in Tuebingen, in order to secure exclusive access to the vaccine “only for the United States”. Equally it is impossible to understate the importance of the Chinese authorities’ early release[4] of the virus genome (after earlier delays in recognising and admitting the seriousness of the outbreak), or the exchange of data between countries on their individual experiences of the disease. Had any of these been treated solely as the property of the gatherers of the initial information, for their own commercial advantage, efforts to deal with the virus would be in a much worse position than they are today.

Similar importance can be attached to the free exchange of information in relation to climate matters, both in terms of the climate science itself, and in terms of the technologies and ideas required to limit and mitigate its consequences. There is a double emphasis when both the objective, health or global environment, and the means of achievement, knowledge and information, can properly be classified as public goods of the greatest possible value.

Two comments on this post.

[1] Without quantum theory, to take just one example, no transistors or electronic systems, no electron microscopes, and virtually nothing we take for granted in modern medicine.
[2] Wealth before Health? Why intellectual property laws are facing a counterattack. Joseph Stiglitz 19 October 2017. Guardian.
[3] Innovation, Intellectual Property, and Development: A Better Set of Approaches for the 21st Century.
Dean Baker, Arjun Jayadev and Joseph Stiglitz, July 2017. Shuttleworth Foundation.
[4] “Potentially really important moment in global public health-must be celebrated, everyone involved in Wuhan, in China & beyond acknowledged, thanked & get all the credit,” Jeremy Farrar, head of the Wellcome Trust in London, wrote in a tweet. “Sharing of data good for public health, great for those who did the work. Just needs those incentives & trust.”


Anonymous said...

The situation is worse than you describe. The mismatch between expanding patent coverage and the quickening pace of disruptive change has become one of the greatest sources of danger to the innovation economy.
Current laws have also encouraged patent trolls, who bring vexatious claims based on absurd patents.

Anonymous said...

Actually this post understates the reputational damage to the United States that is resulting from this episode. This link is to a Guardian article that puts the issue in a wider context:
This is a newspaper that has never been sympathetic to Trump or his brand of politics, but
is probably an accurate reflection of much wider, British, European and international opinion.