April 12, 2021
(This post originally appeared on my Patreon site.)
I realize that I may seem obsessed with the topic of patents (and copyrights), but it really is a big deal, and few people seem to appreciate the issue in its larger economic context. I have written about the inefficiency and corruption associated with these monopolies for decades, but if there were ever a time when public attention should be focused on reforming the system, it is now.
With the pandemic costing millions of lives around the world and costing our economies trillions in lost output, we really should be asking whether the current system serves us well in producing vaccines, tests, and treatments. Incredibly, public debate is so dominated by the pharmaceutical industry and its allies that we are primarily seeing celebration of the system’s dubious claims to success, rather than discussions of the ways in which system was and is failing us in addressing the pandemic. We also should be discussing the lessons for possible alternatives.
Starting with the failures, while we should all be glad that we now have several effective vaccines, which a large percentage of the U.S. population has now received, the fact is that only a small portion of the world’s population has been vaccinated. In Latin America less than ten percent of the population has been vaccinated and in Sub Saharan Africa the figure is less than one percent.
The enormous gap in vaccination rates is important not only because of the unfairness of the world’s poor being left behind, but because of the risk the situation poses to the whole world. If the pandemic is allowed to spread unchecked through the developing world it is certain that we will see more mutations. It is very possible that some of these mutations may be more contagious and/or more deadly and more resistant to our current crop of vaccines.
The last possibility should make us very worried. The makers of the mRNA vaccines are confident that they will be able to tweak their current vaccines to protect against new variants. That may prove to be true, but even if it is the case, we would still be looking at a disastrous scenario.
In a best case scenario we would still be looking at many months where a new variant was spreading across the country while we wait for a new vaccine to be tested and then produced in mass quantities. We would then need to distribute and administer hundreds of millions of shots. In the mean time, we would be looking at more sickness, death, and economic shutdowns.
Given the enormous costs associated with a vaccine-resistant strain, we should be doing everything possible to get the whole world vaccinated as quickly as possible. We clearly are not going this route, as the U.S. and other wealthy countries insist on maintaining patent protections as well as doing nothing to ensure that the technologies needed to manufacture vaccines are made widely available instead of being kept as industrial secrets.
The Vaccines as a Dubious Success of Patent Monopoly Financing
There have been numerous efforts to point to the mRNA vaccines developed by Pfizer and Moderna as great successes of our system of patent-monopoly financing of drug research. These celebrations are bizarre because so much of the research that led up to these vaccines was done on the taxpayer’s tab through funding by the National Institutes of Health (NIH) and other government agencies.
Earlier this month New York Times ran a piece on Katalin Kariko, one the heroes in the development of mRNA technology, who spent her career going from lab to lab where she was supported by government grants. According to the piece, she never made more than $60,000 a year.
This was the sort of work that created the basis for the developments of the vaccines shortly after the pandemic was recognized. The scientists at both Moderna and Pfizer (and its German partner BioNtech) have boasted about how they were able to develop the vaccines now being distributed in a matter of days after getting the genome for the coronavirus. These companies claim that this success was only possible because of years of prior research. That claim is true, but most of the key research was on the taxpayers’ dime, not out of the pockets of these companies.
In short, telling the story of the mRNA vaccines as a tale of a successful patent system is a serious rewrite of history. This is a story where two companies stand to make tens of billions in profits off of decades of publicly funded research, while putting relatively little of their own money at risk.
In fact, if there is a tale to be told about the development of vaccines in response to the pandemic, it is how public funding can provide an enormous impetus to medical progress. In addition to the years in which the NIH supported the development of mRNA technology, we had the one-time influx of $10 billion in public funding through Operation Warp Speed (OWS).
While this is a substantial sum, it is just 11 percent of the $90 billion that the industry reports spending on research each year. This means that if we think a dollar of public funding is equal to a dollar of private funding in its impact, then we should have expected OWS to have roughly one tenth of the impact on medical progress as the industry’s annual spending.
From we have seen to date, this public spending could quite possibly have an impact that is ten times as large as the industry’s annual $90 billion in spending. In addition to helping to quickly develop vaccines against the coronavirus, it looks as though it is also leading to spinoff results that could result in effective vaccines against Malaria, HIV, and possibly other diseases. And, we must remember that only a portion of the $10 billion from OWS went to developing vaccines. Much of the funding went to developing treatments and tests.
Even this picture understates the potential benefits from publicly funded research. There was little concern from the Trump administration about sharing findings. If publicly funded research were fully open-source, researchers could build more quickly on each other’s successes and failures. There would also be the benefit that the cost of research itself is inflated by patent monopolies, due to the fact that many of the tools researchers must use are themselves protected by patents. As a result of patent protection, these tools sell at prices that are many thousand percent above the free market price.
Additional Benefits of Publicly Funded Research
In addition to the likelihood that research would advance more quickly if it were fully open, we would also have the advantage that we would take away the perverse incentives created by patent monopolies. When a drug or vaccine can sell for many thousand percent above the free market price due to a government-granted monopoly, we give companies an enormous incentive to lie about the safety and effectiveness of their products.
We saw this most dramatically with the opioid crisis. The leading manufacturers of the new generation of opioids paid billions in settlements based on the allegation that they deliberately misled doctors about the addictiveness of the new generation of opioids in order to maximize sales. They would have had little incentive to push their drugs so aggressively if they had been selling as cheap generics.
We have seen the same sort of issue in the pandemic where all the drug companies have been less transparent in sharing their clinical trial data. Most notably, Astra Zeneca was accused of cherry-picking results to inflate the reported effectiveness of its vaccine. More recently, the company insisted that there was no issue with its vaccines causing blood clots even though a number of young healthy people got blood clots, many of them fatal, shortly after receiving its vaccine.
If the people managing clinical trials and overseeing a vaccine’s safety record had no incentive to misrepresent evidence, then we should see many fewer cases of deliberate lying. Anyone who believes that people respond to incentives has to accept this fact.
Patents and copyright monopolies are also a big part of the story of inequality. Bill Gates is the poster child on this one. Gates is one of the world’s richest people because the government will arrest anyone who uses software developed by Microsoft without its permission. Without government-granted patent and copyright monopolies, Mr. Gates would probably still be working for a living.
But we are also getting a lesson on the inequality story in front of our faces in the pandemic. The shareholders and top scientists at Moderna, Pfizer, and the other leading manufacturers stand to make billions that will come out of the pockets of the rest of us. The amount of money transferred to the drug industry alone through patent monopolies and related protections is close to $400 billion a year.
This comes to more than $5,000 a year for a family of four. People would have a lot more money in their pocket if drugs sold for ten or twenty dollars a prescription instead of hundreds or thousands of dollars.
When economists claim that technology is the cause of the growth in inequality over the last four decades, they actually mean that patent and copyright monopolies are the cause. These government-granted monopolies are what allowed a relatively small group of people to get a grossly disproportionate share of the benefits of new technologies. It wasn’t the fault of the software or mRNA.
Finally, it is important that we recognize that the rents created by patent and copyright monopolies are implicit forms of government debt. With the passage of President Biden’s recovery plan and his newly proposed infrastructure package, we have seen the deficit hawks return in force, warning about the burden the debt will be placing on our children.
The argument is that they will have to pay higher taxes to service the debt created by current and future deficits. While I have mocked this argument numerous times, if anyone wants to take debt service burdens seriously, they have to also include the higher prices that our children will pay for drugs, medical equipment, software, and other items due to the patent and copyright monopolies that we are currently granting.
It makes zero sense to claim that a tax on these, or other items, to cover debt service is a burden, but paying higher prices due to patent or copyright monopoly is not. Unfortunately, no one expects the people who lead our policy debates to be consistent, so the debt whiners literally never have to comment on the burdens of patent and copyright monopolies.
Can We Get to a Patent Free World?
To my view, there is no economic policy that is worse in its outcomes than our system of patent monopoly financing for prescription drugs. Yet, the question of alternatives almost never comes up in policy discussions. (My scheme is in chapter 5 of Rigged [it’s free].) It is encouraging that there are politically plausible proposals to limit drug prices in the United States comparable to the limits that already exist in Europe, Canada, and elsewhere.
However, as we know, intellectuals have a hard time dealing with new ideas. Even though having public funding of biomedical research is not new, in public debates, it is treated like an alien concept. Corruption and inertia are very powerful forces in public policy, but we can still hope.