by From Dean Baker We are still getting through a worldwide pandemic that has taken tens of millions of lives. While we did develop effective vaccines, they were not produced and distributed quickly enough to prevent enormous loss of life. This is a tragedy that should force us to ask how we could have done better. On the other side, some people did manage to get enormously rich from the pandemic. Specifically, those who had patent monopolies on the mRNA vaccines did very well, as the stock prices of both Pfizer and Moderna soared during the pandemic. Back in April, Forbes identified 40 people who became billionaires as a direct result of their ownership of stock in companies that were profiting off the pandemic. Three of these were from Moderna alone. The number has surely grown, as the
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from Dean Baker
We are still getting through a worldwide pandemic that has taken tens of millions of lives. While we did develop effective vaccines, they were not produced and distributed quickly enough to prevent enormous loss of life. This is a tragedy that should force us to ask how we could have done better.
On the other side, some people did manage to get enormously rich from the pandemic. Specifically, those who had patent monopolies on the mRNA vaccines did very well, as the stock prices of both Pfizer and Moderna soared during the pandemic. Back in April, Forbes identified 40 people who became billionaires as a direct result of their ownership of stock in companies that were profiting off the pandemic. Three of these were from Moderna alone. The number has surely grown, as the stock market has gone up further in the last seven months.
The reason why the Moderna billionaires might be especially upsetting is that so much of what they did was with government funding. The development of mRNA technology, beginning in the early 1980s, was accomplished almost entirely on the government’s dime. While Moderna did do further research to develop a foundation for producing vaccines, the money to actually develop and test Moderna’s vaccine came entirely from the government through Operation Warp Speed. The government also signed a large advance purchase agreement, which would have required it to pay for several million Moderna vaccines, even if other vaccines were superior.
In spite of all this government assistance, Moderna was allowed to gain control over key patents and other intellectual property claims. It can therefore restrict the distribution of its vaccine and charge whatever price it chooses.
In short, we structured the relationship with Moderna so that it was able to profit enormously. Its profits come directly at the expense of lives. While we could have insisted that all the work on pandemic vaccines, tests, and treatments be fully open (at least those projects relying on government funding or past government-funded research), we instead had the taxpayers pick up the tab and then give Moderna, Pfizer, Merck, and the rest patent monopolies.
That’s a great plan if the goal is to make some people incredibly rich, as we’ve done. It is a terrible path to follow if the point is to bring the pandemic under control as quickly as possible and minimize death and disease.
If we had gone the open route, there could have been many more manufacturers of all the vaccines. Anyone with the expertise, which would be freely available, could have manufactured the vaccines. We could have had large stockpiles waiting to be distributed as soon as they were approved by the Food and Drug Administration. Of course, this might have meant accumulating hundreds of millions of doses of a vaccine that proved ineffective, but so what? The benefit from getting hundreds of millions of people vaccinated a few months earlier dwarfs the money involved in manufacturing vaccines that may go to waste.
But curbing the pandemic and saving lives was not on the agenda. The key issue was maintaining a market structure that allowed a small number of people to get incredibly rich. It seems that is again the case with climate change. The U.S and other governments want to maintain a market structure that will allow some people to get rich off of green technology rather than adopting the most efficient mechanisms for saving the planet.
Green Technology, If Saving the Planet Were the Goal
As is the case with the pandemic, we face a situation with global warming where we should want any new technology to be distributed as widely as possible as quickly as possible. Intellectual property claims like patents, copyrights, and industrial secrets are obstacles to this goal. Just as Moderna and other vaccine makers have been able to use their control over technology to limit the production of vaccines, these forms of intellectual property will limit the ability to manufacture solar panels, wind turbines, batteries, and other technologies needed to reduce the emission of greenhouse gases.
We should want all of these items to sell at just their cost of production, without having their prices jacked up by these government-granted monopolies. In the case of drugs and vaccines, the mark-ups associated with these protections are typically several thousand percent. Drugs and vaccines are almost always cheap to manufacture and distribute, they are expensive because the monopolies resulting from intellectual property allow companies to charge prices that vastly exceed the free market price.
The mark-ups from intellectual property associated with green technologies are likely to be lower in percentage terms, because it is considerably more costly to build things like a wind turbine than to manufacture and distribute a bottle of pills. But, we can still assume that the added cost associated with intellectual property claims will be considerable, thereby slowing the adoption of green technology.
The would-be climate billionaires will counter this argument by pointing out that they need incentives to develop the technology needed to save the planet. That point is true, but it tells us nothing about the need for intellectual property.
Patent monopolies and other forms of intellectual property are one way of providing incentives, but economists have discovered an alternative mechanism for providing incentive: money. According to economic theory, many people can be persuaded to work for money.
We got a great model of the use of money to promote innovation in the pandemic, with Operation Warp Speed, which gave billions of dollars to the pharmaceutical industry to speed the development of vaccines, treatments, and tests. There was a huge payoff with this spending, as the industry quickly responded with effective vaccines and treatments.
Applying the same plan with climate change, we would also use public funds, with a couple of differences. First, we would be thinking of longer-term funding. Speed was essential for saving lives with the pandemic. Speed is essential in addressing climate change as well, but no one thinks that we will have developed all the necessary technology for producing and storing clean energy in a year or two. We will need longer-term contracts that finance development of new technologies over three, five, or even ten years.
The other more important point is that this time the research will be open. We aren’t going to pay companies to develop better solar panels or batteries and then give them a patent monopoly that allows them to charge whatever they want. The government pays them once for their innovation, not twice.
If they sign a contract to develop clean technology and storage, then everything they develop is fully open. This means any manufacturer in the country or the world can use the technology at no cost. (I’ll come back to the international issue.)
This story is exactly what we should want to see if the world is going to move away from fossil fuels as quickly as possible. Imagine the price of solar panels, wind turbines, and batteries fall by 30-40 percent because there are no patents or related protections associated with them. They would be hugely more competitive with fossil fuels, leading to far more rapid adoption. Why would we not want this?
The System of Public Funding
Making new technology available at zero cost would be an enormous benefit over the current system, but that may not even be the biggest advantage of a system of open publicly funded research.[1] Under this sort of system, a condition of getting money would be that all findings are fully open, which means that results would be posted on the web as soon as practical. This would allow scientists all over the world to quickly benefit from each other’s successes and failures. As a result, the technology should advance far more quickly.
The companies currently in the industry may resist changing their business model, but it is possible to force the issue. Suppose the government is putting up funding for developing solar panels, with the condition that all the technology would be fully open. If a solar panel manufacturer chose to remain outside the system, they are soon likely to find themselves competing with panels that are sold at much lower prices, since they don’t have to cover the cost of the technology. (We need a provision like “copyleft” developed by the free software movement that prohibits the use of the technology developed through this system by anyone who themselves claim patent or other IP protection.)
This prospect is likely to lead most of the companies currently involved in producing clean energy to join the system. Since the government payments are meant to be an alternative to patent monopolies, rather than a supplement, they will have to be larger relative to the research spending than we saw under OWL. It will likely be necessary in many cases to compensate companies for intellectual property claims they already possess to persuade them to join the system.
In some cases, this would also include industrial secrets, which are not quite the same as patent or copyright monopolies. Industrial secrets are protected by non-disclosure agreements that the relevant employees are forced to sign. As a condition of receiving public money, these agreements would be made unenforceable. This means that if a company develops some process or technique, which is not directly protected by patents or another form of intellectual property, any employee would have the option to leave and work for another company and share everything they know, which should already be posted on the web in any case.
International Cooperation
There is obviously a need to share research and development costs internationally rather than having the United States foot the bill alone. We would need an international agreement on this cost-sharing. The basic principle should be straightforward. We would want countries to contribute in proportion to their size and wealth.
There also need to be some criteria for what spending qualifies as being part of a country’s contribution. A million dollars paid to a company or researchers with a well-established track record has to count for more than a million dollars paid to a company controlled by a country’s president’s brother, with no track record whatsoever.
It would take time to work out an agreement, just as it takes time to work out trade deals like the Trans-Pacific Partnership. But that should not be an excuse not to move forward. The United States and other countries in general agreement on this sort of process could start the process and begin funding research immediately, with the plan that adjustments and payments between nations could be decided later. That is what we would do if, for example, we faced an invasion from space aliens.
More of the Same and a Warming Planet
But, we know that fighting global warming is not really at the top of anyone’s agenda. And no one, including most liberal types, don’t want to do anything that might prevent us from creating more climate change billionaires – after all, they would then have less occasion to complain about inequality. In short, the threat of global warming is not a big enough deal to get our intellectual types to do any serious thinking – not much is.
[1] I give an outline of how this system could work for prescription drugs in chapter 5 of Rigged (it’s free). Our system of military contracting can be seen as a loose model for this system. Military contractors can still take out patents, but they rely on government payments for the vast majority of their revenue. A major difference is that military contractors can keep their work secret for obvious reasons. There is no reason we should want any development in clean technology to be kept secret.