It takes a lot of courage to defy the folks who make tens of billions a year selling drugs. We will find out soon whether President Obama has the backbone to stand up to Merck, Pfizer and the other major drug companies in order to protect the health and lives of hundreds of millions of people living in the world's poorest countries.
The immediate issue is an extension of the period until the poorest countries must adopt US-type patent protections for drugs under the World Trade Organizations (WTO) rules. In 1994, the Clinton administration inserted the trade related trade aspects of intellectual property rights, or TRIPS, provisions into the agreement that established the WTO. The TRIPS provisions effectively required all WTO members to adopt US-type patent and copyright laws.
This would imply an enormous increase in the price of many items, especially drugs, which had been readily available in the developing world at the free market price. Generic versions of drugs are generally cheap, since it is rarely expensive to manufacture and distribute drugs. When we see drugs selling for tens of thousands or even hundreds of thousands of dollars it is almost always because a drug company holds a government-granted patent monopoly on its sale.
President Clinton added the TRIPS provisions to the WTO, after years of negotiations, at the urging of the pharmaceutical and entertainment industries. By imposing US-type patent and copyright protections they would be able to extract more profits from the developing world. However harmful this policy might be to developing countries, they had little choice unless they wanted to be left out of the WTO.
In recognition of the burden these protections impose, the world's least developed countries were given until 2005 before they were required to meet the patent and copyright standards. This period was later extended to 2013, with the patent rules for drugs not being required until 2016. These countries are now seeking a further extension, under which patent protection for drugs would not be required as long as countries still fall in the least developed category.
This issue will likely be decided at a WTO meeting next month. At this point the Obama administration has refused to indicate what its position is on the issue.
This is an issue that on policy grounds should be a slam dank. The countries in the least developed category have an average per capita income of less than $1,000 a year. Virtually no one in these countries can afford the patent protected price for drugs nor can the governments.
The proponents of applying patent rules argue that drug companies will provide discounts and private charities will help cover the costs of many drugs. But the billions of people living in these countries should not have to count on Bill Clinton flying around the world with billionaires to get the money needed to pay for their drugs. The drugs would be affordable without the imposition of patent monopolies. Why should the United States be creating artificial obstacles to poor people getting the health care they need?
The drug industry argues that the additional money they will get from developing countries will help to finance research. We could be more sympathetic to this argument if the patent system was a good way to finance research.
This is hardly the case. By creating monopolies that allow companies to sell drugs for prices that are several thousand percent above the free market price, patents encourage all the abuses that economic theory predicts result from protectionism. Drug companies spend tens of billions of dollars pushing their drugs, often in situations where it is not the best treatment. They lobby members of Congress and other public officials to pay more for their drugs and for legislation requiring insurers to cover the cost. And, they mislead the public about the safety and effectiveness of their drugs, leading to bad health outcomes and avoidable deaths.
The reality is that patent monopolies are a relic of the feudal guild system. They are poorly suited as a mechanism to finance research in a 21st century economy. If it were not for the enormous political power of the drug industry we would be looking at developing modern alternatives.
It may be too much to expect President Obama to actually talk about reforming our mechanisms for subsidizing research, but it shouldn't be too much to ask him to join the EU in supporting the indefinite extension for developing countries. It may not be as much fun as flying around the world with billionaires for charity, but it will do much more to help poor people.