TCS Daily

The Invisible Healing Hand

By Andres Mejia-Vergnaud - March 12, 2004 12:00 AM

The rise and growth of popular sentiments against globalization in the developed world is one of the most interesting features of our times. In spite of the evidence that shows how open markets and liberal democracy help the poor, thousands of rich-country intellectuals and activists have engaged in intensive high-impact campaigns against these institutions. Lacking evidence to support their sometimes exotic claims, activists have resorted to emotional strategies aimed at "convincing" people in their hearts that globalization is wrong. One of the targets of these campaigns has been the Intellectual Property (IP) system, especially when applied to medicines and health-care technologies.

Activists have blamed multinational corporations and the patent system for the health-care problems of the third world. However, in spite of the high-impact that this strategy is having on public opinion, the truth is that a closer examination of the issue will easily prove the activists wrong. In first place, we would discover how the problem of inadequate health care in the third world is a consequence of a complex web of political and social problems, none of them related to the patent system. Secondly, we would come to a certainly fascinating discovery: it is precisely in the case for pharmaceutical patents where the basic principles of political economy can be seen in their full logic.

The Invisible Hand and the Improvement of Health Conditions

The principle according to which the self-interested acts of individuals (within the frame of the law) produce a social benefit is the most important concept of political economy. This principle comes from classical political economy, and thanks to Adam Smith's formulation of it, we have come to use the term "Invisible Hand" to name it. The enemies of capitalism have always accused it of being a system based on selfishness, where each individual only cares for her/his own benefit, leaving aside the needs of the others. But, on the contrary, what the principle of the Invisible Hand shows is that self-interest is the most effective way to care for the others.

Echoing that old indictment against democratic capitalism, the opponents of IP and patents blame corporations for seeking profit in the provision of technologies and medicines needed to alleviate health problems. From the point of view of political economy, all we can say is that fortunately this is true. The fact that some people and corporations expect to profit from the development, production and delivery of health care technologies is our best hope to obtain those technologies.

By creating a reasonable expectation of cost-covering and profit, patents encourage people and corporations to invest time, money and other resources in developing new medicines and technologies. In the absence of the patent system, where anybody could copy the developments and discoveries made by others, there would be no incentive for investing in new technologies. Developing a new drug can cost more that $900 million, while copying it can cost less than $1 million. Ask yourself, would you invest $900 million if you knew that the product of your research could be easily copied by anyone?

The patent system is responsible for the amazing advancements in pharmaceutical technology that have allowed mankind to increase living expectations and living standards. Martin Adelman, professor of law at George Washington University, summarized this idea very well. In his words, the best answer to the claims of opponents to patents is: "if patents did not exist, half of you would be dead today."

Patents allow some individuals and corporations to make huge profits. In exchange for this, society benefits from the permanent advancement in health-care technologies. Clearly, the quest for self-interest produces a very high social benefit.

Institutions and Progress

The discovery of the role that legal and political institutions play in economic development and, more generally, in the performance of an economy, is one of the most interesting advancements recently made in political economy. Although this issue had already been studied by classical political economists, we owe the most recent and deep developments to economists such as Douglass North, Ronald Coase, Hernando De Soto and others. Their studies have highlighted the importance of institutions such as private property and the Rule of Law is fostering development. The institutions of Intellectual Property, and more specifically the patent system, play a crucial role on the development of any country. Where protection of IP is poor or inexistent, there are no incentives for innovation and technological progress.

Enemies of free-markets often complain about the "technological gap" between the developed world and developing countries, and demand "active policies" to promote "technology transfer." No policy is needed for this. Adequate protection and enforcement of IP rights will be enough to bring technology to a country.

The problem of access to medicines can also be understood in the light of legal and political institutions. As I explained before, patents create incentives for investing in the development of new drugs and technologies. For specific political reasons, some countries have chosen not to provide adequate protection of IP rights, under the belief that this will allow many producers to deliver cheap drugs and improve access to medicines. By doing so, these countries choose a short-term approach that seriously jeopardizes the future of health care. They act as if everything had already been invented. This has two consequences. First, it makes populations vulnerable to potential new drug-resistant varieties of already known diseases. Second, it reduces research in technologies that are urgently needed to address current health-care problems. Take the case of the malaria vaccine. Malaria, like many other diseases, occurs mainly in poor countries, which do not offer adequate protection of IP rights. This has greatly reduced the incentives to invest in research that could produce the technologies needed to combat these diseases. Government-based alternatives to private research have proven costly and ineffective.

The author is Director, Instituto Desarrollo y Libertad (Bogota, Colombia).


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