‘Intellectual property rights’ as the foundation of ‘free’ markets is a notion difficult, intellectually, to sustain.
As Cédric Durand and Cecilia Rikap have argued, ‘intellectual monopoly capitalism’ represents the challenge of our time.
Many countries used to grant monopoly rights to foster innovation, the adoption of foreign technologies or the exploitation of natural monopolies—or simply to provide trading privileges. When monopoly rights were intended not only to assign convenient privileges to the ruling class, public authorities faced a well-known trade-off, between the ex-ante incentives monopoly rents could provide and their many ex-post disadvantages.
These disadvantages included high prices, restrained production, reduced incentives for innovative investments complementary to the technologies monopolised and neglect of public purposes incompatible with the interests of the monopolists. Monopolies were considered a necessary evil restricting trade, to be granted only temporarily in particular cases.
Private property
The advent of intellectual monopoly capitalism marked a structural break with monopolies as traditionally conceived. Intellectual monopolies became a form of private property, entailing rights similar to those attached to a house or a plot of land. Under the new coinage of ‘intellectual property’, they were no longer regarded as obstacles to trade but indeed as determinants of well-functioning markets.
Knowledge as private property however entailed the right to limit the liberty of others to use the same knowledge, even if it had been independently produced—private ownership of a house does not restrict the freedom to build identical houses in different locations. Physical property rights limit other’s liberties only in a particular place; intellectual property rights could limit the liberties of individuals in every part of the world.
By means of intensive lobbying, well documented by Susan Sell, some American multinationals exploited the collapse of the Soviet Union and the political dominance of a single superpower to make the global enforcement of intellectual property a condition of international trade. And the extension of what Katharina Pistor calls ‘the code of capital’ to intellectual assets proved much more invasive than where tangible assets were involved—though the abrogation of intellectual property rights had less negative consequences for the owner.
Every state retained the power to expropriate land or dwellings, even to demolish them, when they interfered with socially recognised needs. Unlike the owner of a demolished house, however, the former sole proprietor of knowledge could keep possessing and using it—simply no longer having the right to stop others from enjoying the same liberty, thereby opening new opportunities. Yet the power of nation-states to ‘interfere’ with intellectual property rights was severely limited by international institutions.
Lost power
With the establishment in 1994 of the World Trade Organization and the associated Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), governments lost the power to reach compromises balancing the advantages and disadvantages of intellectual monopolies. Intellectual monopoly became an almost undisputable private-property right, to be enforced at global level. The entire world was deprived of an important instrument of economic policy. This dramatic reinforcement and extension of intellectual monopolies caused what James Boyle has called a ‘second enclosure’, which has had much more harmful effects than the enclosure of commons land in earlier centuries.
The incentivised acquisition of rents contributed initially to the investment boom of the 1990s. After a few years, however, the increasing monopolisation of the public domain blocked many innovative investments requiring the availability of knowledge which had been privatised. This was one of the causes of the famine of sound investments, contributing to the 2008 crash and succeeding depression. Monopoly rents greatly increased inequality and created the basis for financial claims detached from economic growth.
The pandemic has highlighted the ruthless expansion of intellectual monopoly capitalism. The public network of open science institutions which has characterized the influenza network since the establishment of the World Health Organization in 1948 has been replaced by intellectual monopolies which have been enabled to grow by massive public funding, with pre-contracts stipulated under convenient conditions and high risks covered by states. Prices have been raised without the updating of vaccines, most individuals in poor countries have not been vaccinated and potentially competing innovations have been fettered.
An intellectual-property-rights waiver for Covid-19 vaccines is now accepted by the great majority of countries. It is mainly blocked by the European Commission, which controls 26 votes at the WTO with a single representative. While the waiver is urgent, however, radical reform of the WTO is also necessary.
Active freeriding
States have not only lost the power to balance privatised and public knowledge; they too are actively freeriding on the latter. While the public knowledge they support can be exploited by others elsewhere, they can treat the privatized knowledge sequestered by companies headquartered within their borders like a global tariff protecting ‘their’ industries. This freeriding is a form of unfair competition, and it is incompatible with a healthy system of international trade.
If this unfair competition is to be tamed, the WTO should be reformed. Its charter should include rules stating that fair participation in international trade requires that a fraction of each member state’s gross national product be invested in open science, made available to all countries as a global public good.
If states are not to be re-empowered to find a balance between public and privatised knowledge, there must also be an authority, linked to the WTO, which determines when the latter should be rendered public. At a time when privatised knowledge is blocking many innovative investments, global public funding through its ‘publicisation’ could have huge multipliers. New routes would be opened for others—while the former monopolists, compensated with adequate monetary returns and encountering greater competition, would be incentivised to increase their investments rather than enhance their rents.
Ugo Pagano teaches economics at the University of Siena. He is a director of the Associazione Marcello De Cecco and a member of the scientific committee of Fondazione Bassoand of Disuguaglianze e Diversità, which counters inequalities including those due to knowledge privatisation.