May 04, 2016
Eduardo Porter used his weekly column to chronicle Brazil’s economic course over the last two decades. He argues that many of its current problems are due to excessive government involvement in the economy in imposing price controls and trade barriers.
While there is likely some truth to this argument, it is worth extending Porter’s warning to patent and copyright protection. These forms of protection are equivalent to tariffs of many thousand percent, they typically raise the price of protected items by ten or even a hundred times the free market price.
The rationale for this protection is to promote innovation and creative work, but the market doesn’t care about the rationale, raising prices by 2000 percent above the free market price has the same impact whether we call the cause a “tariff” or a “patent.” And, patents and copyrights do affect a very large segment of the economy. In the case of prescription drugs alone, patents and related protection likely add close to $380 billion (@ 2.1 percent of GDP) to the what the country pays for drugs each year.
If anyone wants to give advice to developing countries, avoiding the protectionism that the United States is trying to impose in deals like the Trans-Pacific Partnership would be a good place to start. These deals would both create enormous economic distortions through their impact on the prices of protected products and also be a substantial drain on these countries economies, since the income from the patents and copyrights will mostly go to foreign corporations.
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