Government-Granted Patent Monopolies and Structural Racism

June 10, 2020

No, I have not gone off the deep end, there is an important connection that I will get to in a moment. First, I want to be clear that I am not trying to take anything away from the immediate issue that has brought hundreds of thousands into the streets, the police killing of George Floyd. (We even had a protest in my little town in Utah.)

It is encouraging to see so many people of all races marching to demand justice. Perhaps these mass protests will lead to a lasting change in the way the police treat people of color. We can hope.

Anyhow, I was prompted to think about the connection of racism to patent monopolies, and the way we structure the economy more generally, by a tweet that was passed along to me a few days ago. The tweet was from a doctor who I gather held an important position in a hospital or some other health care provider. (I don’t know the person; the tweet was retweeted by someone I follow.)

The tweet said something to the effect that the killing and the protests had moved them to be more aggressive in promoting blacks in the medical profession. That would be a great thing to see, but we should be clear what a long way we have to go before blacks are anywhere close to being proportionately represented in this high-paying profession.

Currently, 13.4 percent of the population is black. Just 5.0 percent of doctors are black. Suppose we increase that figure by 50 percent over the next two decades, which would be a big change from where we are now. That would mean that 7.5 percent of doctors would be black, a bit more than half of their percentage of the population. That’s better, but still far from anything close to equality.

My response to the tweet was that we should focus on reducing the pay gap between doctors and lower-paying occupations in health care, like home health care aides and nurses’ assistants. These jobs often play close to the minimum wage, whereas the average doctor earns close to $300,000 a year (net of expenses like malpractice insurance) and doctors in higher-paying areas of specialization can earn close to $500,000. Needless to say, blacks and other people of color tend to be over-represented in the lower-paying occupations in the health care sector.

Suppose that we reduced the pay gap between doctors and these lower-paying occupations to something like four or five to one, rather than the ratios of ten to one or more that we see today? The nice thing about going this route is that the key is simply reducing the protections that sustain high doctor pay today.

This means, for example, ending the requirement that foreign-trained doctors have to go through a U.S. residency program before being allowed to practice in the United States. We can also eliminate the barriers that prevent nurse practitioners and other health care professionals from doing tasks for which they are entirely qualified, but are now reserved for licensed physicians.

By using market mechanisms to increase the supply and reduce the demand for doctors, we can expect to see doctors’ pay driven down to something more in line with what we see in Germany, Canada, and other wealthy countries. That would be around half of the current level in the United States. (Yes, I know about the student loan debt many doctors incur. It doesn’t come close to explaining the differences in pay with other countries, but part of the deal should be a write off of most of this debt.)

We can tell similar stories pretty much everywhere. People in highly paid professions, like doctors, dentists, and lawyers, get lots of money, and dishwashers and retail clerks don’t, because we structured the markets so that people in these professions can get lots of money, at the same time that we also structure the markets so that dishwashers and retail clerks don’t get lots of money.

There are similar stories to be told about other areas where people get very high pay. The financial sector is an obvious one. We have people who get hugely rich as hedge fund managers or traders at banks who thrive on being able to turn over massive amounts of stock and other financial assets to take advantage of small price differences. A modest financial transactions tax, similar to the sales tax we pay on clothes and appliances, would go a long way towards reducing the big bucks in this sector. Measures that prevented the finance boys from ripping off pension funds would also reduce the big bucks earned in this sector.

In the case of CEOs getting salaries of tens of millions of dollars, even when they screw the shareholders for whom they are supposed to be working, the problem is a corrupt corporate governance structure. And the problem of excessive CEO pay is not just a question of the pay of a small number of CEOs. If the CEO is getting $20 million a year, odds are the chief financial officer and other top execs are getting somewhere close to $10 million and even the next tier is likely drawing paychecks of well over a million a year. We would be in a very different world if the ratio of CEO pay to the pay of ordinary workers was something closer to the 60s and 70s ratios, and CEOs earned $2 million to $3 million a year. That would likely be the story if corporate boards actually acted in the interest of shareholders. (It would be even better if they cared about workers, too.)  

This gets me to patents. There is a largely unquestioned fallacy in policy circles that technology has increased the value of skills, especially those in the STEM fields, and reduced the value of less-educated workers. This fallacy is used to justify the huge growth in inequality over the last four decades. The basic line is that we may not like it but it just turns out that Bill Gates’ skills have become hugely more valuable over the last four decades, and the skills of manufacturing workers, truck drivers, and other people in jobs requiring less education are worth much less.

This is a very simple and obvious lie. The value of STEM skills has increased because as a matter of policy we decided to make them more valuable, first and foremost by having longer and stronger patent and copyright monopolies. As I like to say, if we didn’t give Microsoft patent and copyright monopolies on its software, Bill Gates would still be working for a living. For some reason, people in policy circles, including most progressives, simply don’t like to talk about this obvious truth. 

Suppose that we did not see the same upward redistribution over the last four decades so that everyone had shared equally in the gains of productivity growth. In that world the minimum wage would be over $24 an hour today. This means that a person working at the lowest paying jobs would still get almost $50,000 a year if they put in a full 40-hour week, fifty weeks a year. If we imagine that people in the lower paying occupations in health care get some premium for their skills and the importance of their work, they would be getting over $50,000 a year. A two-earner couple would be getting over $100,000 a year.

Could we afford to pay the lowest workers $100,000 a year? We certainly could if we didn’t pay the people at the top so much. It may not be apparent (especially for people who do policy work for a living), but these high paychecks come out of everyone else’s pockets.

This is very clear if we put on our Keynesian-MMT thinking hat for a moment. The limiting factor for government spending is inflation. We have to cut back spending and/or raise taxes if spending is pushing the economy too far and causing excess demand. The consumption spending by doctors getting $400,000 a year, Wall Street types getting $4 million a year, and CEOs getting $40 million a year, increases demand in the same way more government spending increases demand. If these rich and very rich people have less money to spend, they will spend less. (See what you learn by getting a PhD in economics.)

Anyhow, if we structure the market differently so that those at the top have less, then everyone else can have more. We can ensure that even people at the bottom of the pay ladder can ensure decent secure lives. This is especially the case if we have items like national health care insurance and child care as part of our agenda.

So, getting back to the impact of structural racism, we certainly should do everything possible to eliminate the barriers that deny African Americans an equal chance to get high paying and high prestige jobs in health care and other sectors of the economy. But, recognizing our history, we can’t believe that in ten, twenty, or even fifty years we will have overcome centuries of institutionalized racism.

It is still a big deal if a black kid doesn’t have the same chance in life to work as a doctor or some other high-paying profession as a white kid, but it will matter much less if people working as home health care workers and in other currently low-paying jobs could count on a decent wage, decent health care and other aspects of a secure existence. And, in that world, their kids would have a much better shot at securing a higher paying higher prestige job than they do today.


Support Cepr


If you value CEPR's work, support us by making a financial contribution.

Si valora el trabajo de CEPR, apóyenos haciendo una contribución financiera.

Donate Apóyanos

Keep up with our latest news