May 06, 2021
(This post first appeared on my Patreon page.)
President Biden made a huge step yesterday when his trade representative, Katherine Tai, announced that the United States would be supporting a resolution at the World Trade Organization (WTO), to suspend intellectual property rules on vaccines for the duration of the pandemic. This resolution had been introduced by India and South Africa back in October.
The United States had previously been leading wealthy countries in opposition to the resolution. With Biden now reversing the position of the Trump administration, the resolution is likely to be approved.
However, the approval is not necessarily a foregone conclusion. In reversing the U.S. position, Biden went against a major lobbying campaign by the pharmaceutical industry. Many European countries also have large pharmaceutical companies. They are being every bit as vigorous in lobbying their own countries’ governments to get them to maintain their opposition to the resolution.
Since everything at the WTO has to be unanimous, a single country can block action on the resolution. Nonetheless, it is unlikely that any of the European countries, or even a small group of them, would want to be seen standing in the way of getting the world vaccinated as quickly as possible.
It is also important to recognize that Ambassador Tai’s announcement only indicated that the United States supported the proposal to end intellectual property protections on vaccines. The resolution introduced by India and South Africa also called for ending protections on treatments and tests for the duration of the pandemic. A suspension of IP protections in these other areas is needed to minimize the death and suffering from the pandemic, but we still should recognize the huge step taken by the Biden administration yesterday.
How We Got Here
While President Biden deserves enormous credit for this step, it is important to realize that it came about as a result of a great deal of work by activists here and around the world. First of all, the Indian and South African governments kicked it off with their WTO proposal. Many groups had been urging open source technology from the beginning of the pandemic, but this resolution gave activists and policy types a clear rallying point.
I am tempted to list the groups and individuals who deserve congratulations for their efforts on this, but I am going to restrain myself out of the fear of leaving some important ones off the list. I will just say that this came about because of the efforts of many people in the United States and around the world, who argued that we have to do everything possible to limit the suffering from the pandemic.
The change in positions shows the potential for public pressure to have an impact. This calls to mind the possibly apocryphal story of when a group of progressives met with Franklin Roosevelt to press him on one of the important New Deal issues. He supposedly said something to the effect of, “you convinced me, now make me do it.”
We needed a president who was open to this sort of move for the pressure to succeed. But without the pressure from activists here and around the world, it is unlikely that Biden would have bucked the Big Pharma lobby.
What is Left to be Done
It is important to realize that the change in the U.S. position at the WTO doesn’t directly get a single shot in anyone’s arm. What is needed is a full-scale effort to not only remove the constraints of patent monopolies but also to push the drug companies to transfer their technology as quickly as possible.
Ideally, this would mean going full open-source. That would require Pfizer, Moderna, and the rest to post their manufacturing plans online, and then conduct webinars, and hands-on training with everyone capable of quickly getting manufacturing capacity up to speed.
It is unlikely that the Biden administration will go this route, but it should be seen as the gold standard here. Not only would this allow for the most rapid diffusion of the technology, but it would also open the door for further innovations that could hasten production.
Back in February, Pfizer announced that it had found ways to improve its production process so as to nearly double output. It also discovered that its vaccines did not need to be super-frozen, but could be safely stored in a normal freezer for up to two weeks. Unless we think that Pfizer’s engineers are the only people in the world who could improve its production and delivery process, making the information open-source is likely to lead to further improvements that could increase its rate of output.
Assuming that we do not go the open-source route, Biden should be prepared to use the Defense Production Act to force vaccine makers to enter into contracts with manufacturers around the world, in which they share the technology needed for them to start production as quickly as possible. He already did with Johnson and Johnson and Merck, with the latter now producing the vaccine developed by Johnson and Johnson. Biden needs to take the same step, forcing our manufacturers to transfer their technology to anyone with capacity anywhere in the world.
We also really need to collaborate with Russia and China, as well as any other country that has a vaccine that is shown to be safe and effective. We can have our political fights in other spheres, but we have a common interest in getting the world vaccinated as quickly as possible.
In addition to doing an inventory of the obstacles to ramping up production of the U.S.-European vaccines, we should also be addressing obstacles that prevent these countries from producing more of their vaccines. Ideally, they can also be pushed to have increased transparency on their clinical trial results. It is important to know which vaccines are most effective against each variant, and also the extent to which some are better or worse for different demographic groups.
The goal here should be getting the world vaccinated, not scoring propaganda points. If President Biden approaches the issue that way, hopefully, he can get his counterparts in other major powers to do the same.
Implications for the Longer Term
In my spare time, I have been writing on patent and copyright monopolies for a quarter-century. This is the first time I have ever seen IP issues get any substantial amount of attention from a general audience. Usually, the only people paying attention are the affected industries and a relatively narrow group of activists and policy types.
That matters hugely because when the affected industries dominate the debate, they can be pretty much guaranteed of being able to steer the policy in a way that benefits them. This is really the story of patent and copyright policy over the last four decades, with the inclusion of the TRIPS provisions in the WTO being the most notable example. TRIPS got added to the WTO because the drug companies wanted to impose U.S.-style patent protection on the developing world. There was no major public debate in the United States, or anywhere else, as to whether it was a good idea.
Now that we do have the public paying attention to IP issues, it is worth trying to press a few points.
First, we need to recognize that there are alternatives to patent monopolies for financing research and development. That should be obvious since the federal government already spends more than $40 billion a year on biomedical research through the National Institutes of Health (NIH). (That compares to roughly $90 billion spent by the industry.)
In addition, the government put up another $10 billion in the funding of pandemic-related research with Operation Warp Speed (OWS). While most of the NIH funding goes to more basic research (occasionally it has financed the development of new drugs), OWS was directly focused on developing treatments, tests, and vaccines. In the case of the Moderna vaccine, the government picked up the full tab for the development costs.
In principle, there is no reason why direct public funding cannot be the more standard route of paying for research. There are various ways this can be done (I discuss mechanisms in chapter 5 of Rigged [it’s free], see also this paper by Arjun Jayadev, Joe Stiglitz, and me), but the point is that we don’t have to rely on government-granted patent monopolies to provide incentives for developing drugs.
There are many advantages of direct public funding. First, if the government has paid the tab for the research, any new drugs or vaccines can be sold as cheap generics from the day they are approved. This means that nearly all drugs would be cheap. Instead of selling for hundreds or thousands of dollars a prescription, drugs would sell for ten or twenty dollars.
A second major advantage is that if the government is funding the research, it can require that it all be open-source. This means that not only are all patents placed in the public domain, but all research findings are posted on the web as soon as practical. That would allow researchers all over the world to quickly build on successes and learn from failures.
A third major benefit is that if all drugs were sold as cheap generics, it would take away the incentive that patent monopolies give drug companies to lie about the safety and effectiveness of their drugs. When a drug is selling for a mark-up of several thousand percent over production costs, companies have a huge incentive to push it as widely as possible. We saw this most recently with the opioid crisis, where several companies paid billions of dollars in settlements based on the allegation that they deliberately misled doctors about the addictiveness of the new generation of opioids.
A second important point is that we need to have a clear understanding of the economic importance of patent and copyright monopolies. By my calculations, we transfer over $1 trillion annually (half of all corporate profits) from the public as a whole to the beneficiaries of rents from patents and copyrights. This is a huge amount of money and a big part of the story of the rise in inequality over the last four decades.
While it can be argued that our rules on patents and copyrights promote economic growth (the counterfactual should be alternative incentive mechanisms, not no incentive mechanism) it is indisputable that these are government policies, not the market.
This means that when someone says that technology has been responsible for the upward redistribution over the last four decades, they are speaking nonsense. Technology did not make Bill Gates rich, the patent and copyright monopolies the government gave Microsoft on its software made him rich. These monopolies can be longer and stronger, or shorter and weaker, or they can be replaced by different mechanisms altogether. The fact that a substantial segment of the population was able to get very wealthy from these monopolies was due to policy choices, don’t blame the technology.
The rents created by government-granted patents and copyright monopolies are also a form of government debt. It is utterly bizarre that we have so many people complaining about the debt burden that government borrowing is creating for our children, while completely ignoring the burden created by patent and copyright monopolies.
It’s pretty nutty to claim that if we tax people $400 billion to pay debt service (roughly twice the current debt level of debt service), it’s a burden. But, if we give drug companies patent monopolies, that allow them to raise their prices by $400 billion above the free market level, it’s not a problem. Government-granted patent and copyright monopolies are alternatives to direct government spending. We cannot claim the debt from direct spending is a burden and then pretend the rents from these monopolies are not a problem.
Finally, we should be taking away some lessons from the pandemic for future trade policy, most importantly with China, our major competitor in the world economy. We have real and important differences with China.
China is not a democracy and it does not respect human rights. Critics of the government face serious risks of persecution and imprisonment. It has engaged in large-scale abuses against minority populations in Tibet and the Uygur population in Xinjiang. It also is reversing commitments it made to respect the autonomy of Hong Kong.
But it doesn’t follow that we would benefit from having a Cold War stance toward China, as we did with the Soviet Union for most of its existence. (One consideration for those wanting to go the Cold War route is that China’s economy is already almost 20 percent larger than the U.S. economy, the Soviet economy probably peaked at less than half of the size of the U.S. economy.) Many bad things, both domestically and internationally, were justified by the need to confront the Soviet Union. We should not want to see that story again in a Cold War with China.
We should look to cooperate with China in the areas where we can, most obviously in health and climate change. This would mean a full sharing of technology. After all, in both cases, we gain if China gains and vice-versa. We are not harmed if China uses our technology to develop better ways to store energy or to treat cancer. Ideally, we would look to pool our resources in these, and possibly other areas, with all research findings being fully open. We should look to bring in the rest of the world as well to address the common problems that confront us.
I won’t claim to be an expert in political science and to make predictions about what impact greater sharing of technology can have on China, but I will note an argument that was often made to justify opening to trade with China in the 1990s and 2000s. Many supporters of removing trade barriers argued not just that there would be economic benefits, but also political ones, in that increased trade would lead to more openness in China and a move towards democracy.
While China is undoubtedly more open in some ways than it was three decades ago, it clearly is not a democracy. I never fully understood how increased U.S. imports of Chinese manufactured goods, which were often produced by very low-paid workers, with few rights, were supposed to lead to democracy, but this was the line parroted by many people in policy debates.
By contrast, if the plan is to have open cooperative research in health, climate, and possibly other areas, we will be creating a system in which large numbers of Chinese scientists and researchers would be in regular contact with their counterparts in the United States and West Europe. These scientists and researchers will be the brothers and sisters, sons and daughters, and fathers and mothers of the leaders in China. I don’t know if this contact is likely to have an impact on China’s policy towards democracy and the West, but I will speculate that it has a greater chance of having a positive impact than buying textiles produced by low-paid workers putting in long hours in unsafe conditions.
But that is all just speculation. What is not speculation is that a relatively small group of people stand to benefit from continuing to make our patents longer and stronger and seeing health and climate as areas of competition with China. Most of us will be better off without these policies, and certainly without a new Cold War.