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Archive for the ‘Intellectual Property’ Category

The development policy debate focuses too much on aid.  Aid policies may help to improve the living conditions of people in developing countries, but it is development policies that will result in lasting transformation. If we are serious about promoting long-term change, we should talk less about aid, and more about the other rich-world policies and behaviours that affect developing countries.

Rich countries have many reasons for wanting to help poor countries. The main three British political parties speak in their manifestos of Britain’s obligations to the developing world (Lib Dems); moral duty, common interest and poverty emergency (Lab); and enlightened self interest and commitment (Cons).  The combination of motives – moral concern for others and self-interest – is a strength of the development cause, not a handicap.

These motives translate into two broad classes of objectives for development policy:

• One view is that development assistance should help to accelerate economic and institutional change in developing countries. The idea is that temporary support from outside can be a catalyst for permanent changes in developing countries. As economic growth takes off, developing countries will no longer need our help.  This view is attractive both to donors, who do not want to go on giving aid for ever, and for recipient countries who do not want to continue to be aid dependent.  For shorthand we will call this the transformation objective of development assistance.
• Another view is that development assistance can improve people’s lives today. This is most obvious in the case of humanitarian relief, for which the objective is to provide food and shelter; but more generally a lot of aid is used to send children to school or provide basic health care.  On this view, the development process is long and hard, and one role for outsiders is to enable people to live better lives while this process is happening in their country. Let’s call this the solidarity objective of development assistance.

It is entirely reasonable for countries, organizations and individuals to care deeply about both the transformation and the solidarity objective, and they can coherently pursue both objectives at the same time.

From time to time, people try to make connections between these objectives, positive and negative.

The claim of a positive connection is the idea that spending money on health and education is an investment in the human capital of a country, and that this will, in time, lead to faster economic growth.  Some point to significant investments in education in fast-growing Asian economies as evidence that education spending will promote growth.  Others say that improving health will lead to a demographic transition, in which falling infant mortality leads to smaller family sizes and greater investment in each child.  Both of these stories are appealing, though unfortunately neither is very well supported by the evidence.

The possibility of a negative connection is that the things that donors do to support people in developing countries as a matter of solidarity may actually slow down the political, social, institutional and economic changes that the country needs for transformation.  It may sustain unaccountable governments in power; undermine the social contract between citizen and state; hollow out fragile government institutions; cause appreciation of the real exchange rate and so choke off exports; or create a culture of dependency that dims demand for social change.  Again, the empirical evidence for these (quite plausible) ideas is pretty thin (pace the claims of Dambisa Moyo).

Are we using the right tools to pursue our two types of objective: tying to catalyze transformation, and at the same time to help people live better lives?   I think we are focusing too much on aid and not enough on development policies.

It is quite straightforward to see that aid can help meet solidarity objectives.  It is used to provide clean water and food, and to finance public services such as health and education.  There is quite good evidence that it is effective, though there is much more to learn about how to do it better.

It is much less clear that aid achieves our transformation objectives. The statistical evidence linking aid to economic growth is, at best, uncertain (see The Anarchy of Numbers by David Roodman).  This does not mean that there is no relationship – it is much harder to demonstrate a statistical connection when there are few countries to observe, and so many factors as well as aid that are likely to affect whether a country achieves economic lift-off.  We can think of aid being to growth what venture capital is to start-ups: many investments will fail, but the huge benefits from the few that succeed may make the losses worthwhile.

I personally have my doubts that aid makes much difference to the prospects for economic and social transformation.  Countries change from within, through long, slow, organic processes, and it is hard to see how money and advice from outside can make much of a difference to that.  Consider our own history, and the decades and centuries that it has taken us so far to construct our social and political institutions.

If we are serious about promoting transformation, we need to look beyond aid to how we can change the environment in which developing countries are struggling to change their economic, social and political institutions. Transformation is much likely to take root if we create conditions in which it is likely to succeed.

What are the development policies that might contribute to this?

1. Trade policy – As well as duty-free, quote-free access for all developing countries to our markets, we have to dismantle the complex rules – such as rules of origin and phyto-sanitary standards – which make exports complicated.
2. Agriculture policy – We have to stop dumping subsidized agricultural over production abroad, especially as our aid conditions prevent developing countries from competing with us. We also have to stop using food aid as a welfare system for European and American farmers.
3. Climate change – If anthropogenic global warming is a reality, as is the consensus among scientists, then the harm we are doing to developing countries through climate change will become one of the most important obstacles to development.  Probably the most important thing we can do to accelerate development is to stop our own carbon emissions.
4. Conflict – We make and sell the guns that are used in conflicts in developing countries.  We buy the oil and minerals over which groups are fighting.  We sustain the unaccountable leaders in pursuit of our geo-strategic interests.   If we were serious about development, we would by now have stopped the Lord’s Resistance Army in Uganda – it would be a simple matter for a well-resourced army.
5. Immigration – In the 18^th Century, a third of Europeans moved to America, to the benefit of both continents.  In the 20^th and 21^st century we have introduced historically unprecedented restrictions on the movement of people – notwithstanding our rhetoric about globalization. These restrictions may be the single most important factor which explains why poor countries have not been able to converge on rich countries.
6. Intellectual property – Another constraint on the ability of developing countries to close the gap is that there are historically unprecedented constraints on their ability to appropriate technologies. For centuries, new agricultural techniques such as crop rotation spread through word of mouth.  During the industrial revolution, America and Europe were able to use technologies from Britain.  When Henry Ford invented the assembly line, the idea was rapidly adopted everywhere.  But today’s technologies – from business software to pharmaceuticals and biotechnology – are protected by patents that make it impossible for other countries to adopt.
7. Corruption – We often think of corruption as a problem of developing countries, but this ignores the fact that the money for corruption comes from, and often returns to, industrialised countries.  Rich western companies pay bribes, in return for access to contracts or minerals.  To his eternal credit, President Jimmy Carter introduced the Foreign Corrupt Practises Act, which made it harder for American companies to pay bribes abroad. But there is much more we could do, if we were prepared to take on the vested interests of our own multinational companies, to reduce corruption in developing countries.
8. International governance – In our own nations, we have long ago dropped the property qualification for representation; but internationally we do not think that it is strange that representation in our main institutions is based on wealth and power.  This matters because again and again, the interests of developing nations are ignored, or treated only as a footnote.  From banking secrecy to internet peering arrangement, the rules of the game are set by the wealthy in their own interests. Changes to these practices which would be irrelevant to most of us, but could make a huge difference to the prospects for development, are resisted by powerful vested interests from industrialized countries.

It is entirely reasonable that industrialized countries want both to promote transformation in developing countries, and to help people there to live better lives while that process is taking place.  Aid has been proven to be an effective instrument for meeting our solidarity objective, but it is far less clear that it is a significant driver of transformative change.  Our political rhetoric focuses on the idea that development policies should promote transformation.  Yet it seems unlikely that aid is the most useful tool we have for achieving this.  If we are serious about transformation we should invest  more time and effort in creating the global environment in which economic and social change are more likely to succeed, by changing our policies and behaviours on issues like trade, agricultural policies and immigration.

Many people who work in development are directly or indirectly dependent on aid. Government development agencies gain their bureaucratic position from the size of their budget.  International NGOs get a lot of their money from aid budgets or from private charitable giving.  Partly as a result, the debate about development too often shifts to aid: whether it works, how much is given and by what means.  These are important questions, but primarily for the important goal of helping people in developing countries to live better lives while they are waiting for, and helping to build, a more prosperous and fair society.  If we are serious about accelerating the transformation, it is our development policies, not aid policy, that we should be discussing.

On the CGD blog, Nancy Birdsall proposes “Ten Actionable Ideas … for a 21st-Century Global Development Agenda”

What are examples – some realized and some on the table but untested – for practical action in the interests of global prosperity? Where do good ideas come from? How do they get translated into action?

Nancy’s ten:

1. More AMCs for vaccines and green technology
2. Protect some aid from security and political objectives
3. Independent evaluation agency
4. More representative G-20
5. Visas for people from poor countries
6. Duty free, quote free access to all markets
7. Per capita distribution of net income from non-renewables
8. Reform of selection of heads of international agencies
9. World Bank to have a global public good window
10. Petrol tax in the US

Ever fizzing with ideas, Nancy throws in a few others: endow think tanks in low-income countries; increase capital at development banks; Climate Investment Funds to bring private investment money;  Cash On Delivery Aid; new insurance and risk management instruments at the multilateral development banks.

Well I agree with all those, of course (and not just because I’m a visiting Fellow at CGD!).   She asks for other suggestions.  Here are my ten:

1. Global standards for transparency and traceability of all aid to increase accountability and effectiveness
2. Climate justice – every person in the world to have equal, tradeable, carbon emission rights, capped overall at the level scientists tell us is safe
3. Global information sharing among tax authorities to prevent tax evasion
4. Unbundling of aid funding from aid delivery, complete untying and global standardised output and outcome indicators to enable cost comparisons
5. A global minimum income guarantee backed by cash payments to the world’s poorest people
6. Product traceability from sweatshop to supermarket using barcodes
7. A complete ban on exports of small arms
8. A standing, professional  UN peacekeeping force to be deployed by a reformed Security Council
9. Reform of intellectual property to permit free access in the lowest value markets
10. Increasing the share of aid to LDCs from 38% of global aid today to 90% by 2012.

Update 25 February: On Twitter, Nancy Birdsall (@nancymbirdsall) says: “@OwenBarder has 3 more actionable ideas (and 7 dreamy ones)”.  This is a good game: which of these does Nancy think are actionable and which are dreamy?  My guess is she thinks (1), (3) and (9) are actionable and the rest dreamy.   But what do you think?

I think they are all realistic – but then I’m with John Lennon: “You may say that I’m a dreamer, but I’m not the only one. I hope some day you’ll join us, and the wo-o-rld will live as one”.

On the first World Pneumonia Day, spare a thought for the mothers and fathers of the five thousand children who will be killed today by pneumonia.

Pause for a moment in silent thanks to the staff of the GAVI Alliance which works to get immunisation to children in developing countries.

If you pay taxes in Italy, the UK, Canada, Norway, or Russia, pat yourself on the back.  Your government has contributed to a market-based financing mechanism called the Advance Market Commitment, or AMC.  This provides  an incentive for vaccine makers to produce suitable vaccines in the necessary quantities at an affordable price for developing countries. The result is that GAVI has been able to reduce the current price of existing pneumococcal vaccines by up to 90%.

In the past, it often took 15 or 20 years before vaccines developed for rich countries were sold at affordable prices in developing countries.  Because of the Advance Market Commitment, four vaccine suppliers are now offering pneumo vaccines, specifically developed for the the developing world at affordable prices.

This is aid at its best: creating financial incentives for companies to bring their expertise and innovation to the table to solve some of the world’s most pressing problems.  Donors only pay for vaccines that actually get delivered and used. This money will save the lives of about seven million children over the next 20 years.

We owe a debt to Michael Kremer and Rachel Glennerster for the idea, to the Center for Global Development (especially Ruth Levine) for developing a practical proposal, to Carlos Monticelli from the Italian Finance Ministry who steered a group of donors to make it happen, to the Bill and Melinda Gates Foundation for paying for background research, to Orin Levine, Gargee Ghosh, Amy Batson, John Hurvitz, Andrew Jones, Susan McAdams, and many others for making it happen.

And to the countless bureaucrats and nay-sayers who thought it could never happen: yah-booh-sucks.

George Osborne told the Conservative Party Conference eight times:

we are all in this together.

This is a powerful message.

When 15 million people  face starvation in East Africa this Christmas, let us say:

we are all in this together.

When twenty thousand children die tomorrow from easily preventable and treatable diseases, purely because they don’t have enough money to buy drugs that cost cents to produce but for which we charge rich world prices, let us say:

we are all in this together.

When the developing world demands proper compensation for their part of the atmosphere, which we have filled up with carbon emissions far beyond our share, resulting in the risk of destruction to entire nations, let us say:

we are all in this together.

When the people of the Niger Delta demand a share of the wealth lying beneath their ground, and an end to the environmental destruction caused by our oil companies so that we can drive our cars and cool our houses, let us say:

we are all in this together.

When we complain about corruption in the developing world, forgetting that all the money that pays for those bribes comes from us, and then choose not to prosecute our own companies that pay the bribes, let us say:

we are all in this together.

When we continue to be one of the largest manufacturers and exporters of arms in the world, fuelling conflict all around the world, but are more concerned about a hundred jobs on the Isle of Wight, let us say:

we are all in this together.

When people are forced to leave their homes, their family and their country because they lack freedom or face persecution, or because they cannot find work that pays them enough to support their family, and they look for a new beginning in rich countries, and we decide how we will treat asylum seekers and immigrants, let us say:

we are all in this together.

When the world’s poor demand fair payment for their coffee, cocoa, and minerals, and for their labour which provides us with the cheap clothes and electronics which we take for granted, let us say:

we are all in this together.

When the world economy recovers, companies of the rich world begin to prosper, when bankers get their bonuses again and the rich start to become richer, and we decide how to share the proceeds of that growth within and between nations, let us say:

we are all in this together.

Over on Huffington Post, Seth Berkley and Orin Levine make a plea for the United States to consider an Advance Market Commitment for an AIDS vaccine:

Traditionally it has taken up to 20 years for new vaccines to reach children in developing countries. The AMC can fix this inequity. Through the pneumococcal AMC, and with the support of the GAVI Alliance which administers it, children in Rwanda and the Gambia are benefiting from pneumococcal vaccines even before children in wealthy countries such as Austria and Japan. What’s more, the mechanism is spurring development and deployment of two newer vaccines that extend protection against strains of pneumococcal disease most common in the developing world. Thanks to such advances, the accelerated use of pneumococcal vaccination is projected to save 5 to 7 million lives by 2030.

The idea (which is mainly down to Michael Kremer at Harvard) is simple: donors promise in advance that if somebody invents and delivers a vaccine that meets certain requirements, then donors will  pay for it to be bought in large quantities.  That promise may provide sufficient certainty for the private sector to invest in developing new products, and to build large-scale manufacturing facilities.  Take a look at this video to see what a difference Michael’s idea is already making.

From a public policy point of view, a nice feature of this schemes is that if it doesn’t work, it doesn’t cost anything.  If you make a promise to purchase an AIDS vaccine when one is developed, but scientists are unable to crack the puzzle, then you have not spent a dime.  You are only committed to buying an AIDS vaccine when it is developed – which, let’s face it, you would have done anyway. By making a firm commitment in advance, you change the incentives for the private sector.  (The economics is set out here in an article in The Economists’ Voice.)

This scheme is designed to tackle an economic problem that runs deep in most market  economies. We typically set up incentives for firms to innovate by promising them a temporary monopoly (through patents) if they are successful. This enables a firm to charge a premium for a limited period to recoup its investment and to compensate it for the risk it has taken.  But this scheme only works if the consumers are willing and able to pay that premium.  (And even then, it has a social and economic cost because it excludes consumers too poor to pay the premium).  The scheme doesn’t work at all for products most of whose consumers are very poor – such as people who get malaria or who need cassava plants that are resistant to attack by the mosaic virus.  That’s why firms spend ten times as much hunting for a cure for baldness as they do hunting for a cure for malaria.  The Advance Market Commitment makes investment in those products much more attractive to the private sector, because now there is an opportunity to charge a premium (paid by the donors) even though the ultimate consumers are poor.

We will be in a better position to judge the effectiveness of the pneumococcal AMC when kids are actually getting injections paid for under the AMC. An important test will be whether we see pharmaceutical firms returning to the development and large-scale production of vaccines for developing countries (and there are some early signs that this is happening).

But the Pneumococcal AMC has already taught us that it is possible to navigate the legal, financial, commercial and political waters to put in place a legally-binding multi-donor commitment to buy a future product. This is the result of outstanding work done by the Center for Global Development (in which I am proud to have played a small, walk-on part).  Early nay-sayers complained that an AMC was theoretically attractive but impossible in practice.  CGD played a critical role by developing a practical way of implementing the idea, which opened the door to the implementation of the pneumo AMC.

Now that it has been shown that an AMC is technically possible, we should be looking at:

• designing an AMC for an “early stage” vaccine such as AIDS;
  It is occasionally said that an AMC works for a late stage product – ie one that has already been largely developed but needs incentives to get it produced – but that it would not be appropriate for products still requiring substantial research and development.  There is no logic to this argument. The original modelling for an AMC was done for an early stage vaccine, and I have never seen a cogent case against using the approach (alongside conventional government funding for basic research) for products at an early stage of development.
• how to get the United States involved
  This approach – of providing incentives for private sector entrepreneurship and risk taking  to be involved in products for developing countries – ought to appeal to US policy-makers, and I have never understood why the US stood aside from the first AMC. There are some technicalities involved making commitments in the US budget process but these are not insurmountable.  Let’s hope the US will be part of the next AMCs.
• using the AMC approach for other health products
  In principle, the AMC could be used to encourage the development and manufacture of a range of other health products such as drugs, diagnostics and surgical instruments
• using the AMC to promote other forms of other research and development
  we should consider whether the AMC might be a good approach for donor funding of other forms of research and development for products mainly used in the developing world, such as new agricultural varieties, solar energy products, and ways of providing clean water.
• the possibilities for other forms of “pull” incentive for research and development
  The AMC is not the only possible pull mechanism to incentivise research for products needed in developing countries. For example, donors might set up schemes to buy out patents, prizes or other rewards for success (e.g. payments linked to DALY’s averted or social rates of return). We should look again at the costs and benefits of these different ways of getting the private sector involved.

Peter Mandelson has not thought this through:

First, taking something for nothing, without permission, and with no compensation for the person who created and owns it, is wrong. Simple as that.

With respect, it is not as simple as that.

The reason this looks plausible is the use of the word “taking”.   If I take something from you, that implies that I now have it and you no longer do.  If it was yours to start with, that would be unfair (or, in Mr Mandelson’s word, “wrong”).  But the challenge for making good policy about intellectual property is that the goods in question are non rival – meaning that one person’s consumption does not come at the expense of another person’s consumption of the same good.  If I make a copy of a song and listen to it on my MP3 player, that in no way reduces your ability to listen to it.   So I have not “taken” it from you.  We can both listen to it.  The marginal cost to society of my listening to the song is zero.

Mr Mandelson may have meant by “take” the idea that if I neglect to pay you for something, you lose out.  But this isn’t necessarily wrong.  As Chris Dillow points out, if I give a lift to a friend, I deprive a taxi company of revenue.  The taxi company might not be very happy about that. They might lobby the Business Minister over cocktails on a yacht, requesting that taxi companies be given a monopoly on giving rides in the area they serve.  (After all, they have spent a lot of money on cars and offices.)  The Business Minister should tell them to get stuffed.   There is no basic right to make money on your investments, and being deprived of potential revenue is not the same thing as a cost.

As I explained in more detail here, the economics of non-rival goods is quite different from the other kinds of goods.   Intellectual property rights are a social construct to create temporary monopolies which, unlike other forms of property, worsen rather than increase static allocative efficiency.  For non-rival goods, allocative efficiency requires that the price is zero, but dynamic efficiency may require some sort of remuneration for the creators of the products.  A society may choose to restrict access to a product as a way to create financial incentives for innovation. This may be worth doing if the welfare gains from the incentives to innovate exceed the welfare costs of reducing access to the products.  But that trade-off does not automatically and necessarily come down in favour of having intellectual property rights, nor is the creation of intellectual property rights the only or the necessarily the best way to create incentives to innovate.

This is not a wholesale argument against intellectual property rights.  But it is an argument against the daft claim that intellectual property rights are just the same as rights to rival goods such as physical property.   Property rights for rival goods increase, or at any rate do not diminish, allocative efficiency and hence welfare;  property rights for non-rival goods decrease allocative efficiency, and that is a welfare loss that has to be justified by a welfare gain elsewhere.

We do need to reward and incentivize innovation and creativity appropriately.  But I am struck by the lack of imagination and innovation in the current debate about how we do it.  Intellectual property rights are one approach, but they have important drawbacks.  We should not forget other possible approaches – such as prizes, buy-outs, or public funding – which might secure many of the same benefits without the costs.

Edinburgh University forces firms to supply cheap medicines to developing world:

Edinburgh is to become the first British university to help make cheap medicines available to the developing world by licensing research to pharmaceutical companies only on condition that poorer communities get life-saving drugs at cost price.

That’s great. Differential pricing is good for everyone. (Here’s why).

The ever-excellent James Surowiecki, writes in The New Yorker

The point isn’t that private property is a bad thing, or that the state should be able to run roughshod over the rights of individual owners. Property rights (including patents) are essential to economic growth, providing incentives to innovate and invest. But property rights need to be limited to be effective. The more we divide common resources like science and culture into small, fenced-off lots, Heller shows, the more difficult we make it for people to do business and to build something new. Innovation, investment, and growth end up being stifled.

But for the reason I have set out here in more detail, this critique of intellectual property rights concedes too much.

It is true that society needs economic incentives to invest in research and
innovation, and that one way to do that is to create artificial temporary
monopolies (such as those provided by so-called “intellectual property rights”). But
we should not be seduced by the language of “property rights” into
thinking that ideas protected by patent are like other kinds of “property”. There is an important econmic difference between the consumption of ideas and the consumption of other things: consumption of ideas is “non-rival” – that is, my use of an idea does not preclude you from using the same idea. So if we prevent someone from using someone else’s idea, we deprive them of a benefit that would have cost the rest of us nothing at all, and that is generally bad economics. (That is why some free-market economists are also sceptical of intellectual property.)

The state is “riding roughshed” over its citizen’s rights not, as Surowiecki has it, when it does not enforce patents, but rather when it creates them in the first place. That doesn’t mean there should not be any intellectual property rights – there is a defensible utilitarian argument for granting some temporary monopolies to create returns for innovators – but we should be clear that it is the establishment and enforcement of patents, not limiting them, that amounts to state interference in the freedoms of the individual.

Hat tip: Tom Watson

Scientific American discusses the need for better forecasting of need for drugs and vaccines:

Unpredictable demand creates a three-way catch-22 problem, as pointed out in a 2002 study commissioned by the GAVI Alliance, formerly the Global Alliance for Vaccines and Immunization. Poor countries have to know the price of a vaccine to see if they can afford it. Manufacturers, however, are hesitant to set a price unless they know how many doses will be bought. And aid donors cannot be sure they can subsidize a purchase without knowing the price and quantity of the sale. Vaccine purchases have occurred anyway, but not without difficulty. In 2002, when GAVI convinced suppliers to manufacture extra courses of an existing vaccine against Haemophilus influenzae type b, poor countries were slow to buy it. "We were very naive at that time and thought countries would take up the vaccine much faster than they did," recalls Michel Zaffran, the group's deputy executive secretary. "The tools that we had available were very poor."

I am not personally convinced that the problem is forecasting demand in the sense of uncertainty about how many doses of vaccine we are likely to need. In principle, the number of children in a cohort, the extent to which they are at risk of particular diseases, and the the capacity of health services to reach them with vaccines, are all likely to vary little from one year to another. 

The big driver of uncertainty in demand seems to be the behaviour of donors, capriciously moving money from one priority to another according to the latest political priority or development fad, or unpredictably dumping their unspent budget at the end of the year on easy-to-buy goods such as pharmaceutical companies.  As well as improving our techniques for forecasting demand, we need to take a long hard look at how we can make aid budgets more predictable, so that developing countries have much more information with which to plan, long in advance, how many drugs and vaccines they will be able to afford.

Interesting article in The Grauniad by Laura Barton who claims that 2005 has seen a decline in the monopoly control of the marketing departments of music companies:

This has been the year fans have increasingly taken music into their own hands, rejecting the over-processed diet served up by many major labels in favour of something a little more homemade. In the process they have notched up numerous high-profile successes, including Arctic Monkeys, Arcade Fire, Clap Your Hands Say Yeah, Spinto Band and Nizlopi.

It does seem to me broadly right that it is in the interest of songwriters and performers that people should be able to share music, rather as many of us did with cassette tapes many years ago.