February 11, 2012
The Washington Post has an interesting piece about opposition to a trade pact between the European Union and India which could limit the ability of India to supply generic medicines for treating AIDS and other diseases. The article repeatedly refers to the agreement as a “free-trade” pact.
This is 180 degrees wrong. Patent protection is the opposite of free trade. It is a government-granted monopoly. Patent protection is a government policy for supporting innovation. Just as trade protection in other areas is a form of industrial policy.
Patent protection leads to the same sort of distortions as economists criticize from other types of protection except the magnitudes are much larger with patent protection. In the case of prescription drugs, it often raises prices by many thousand percent above the free market price. Most tariffs only raise the price of products by 20-30 percent. There are arguably more efficient mechanisms for supporting research on prescription drugs.
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