Economics is like karma: Everything is connected. That shows in recent news articles. These dealt with a patent lawsuit, Donald Trump’s arguments against trade, Bernie Sanders’ condemnation of income inequality and the Zika virus. All tied together.
Start with the news about the virus outbreak. It charged that Brazilian laws limiting the export of biological specimens hamper research that might end the epidemic. True, but here always is history.
In the 1930s, Arturo Toscanini took the NBC Radio Orchestra to South America. In Rio de Janeiro, the visitors were amazed by the virtuosity of Brazilian artists, including Alfredo da Rocha Vianna, better known as “Pixinguinha,” a superb flautist.
NBC managers invited many to play for a direct broadcast back the North America. However, the Brazilians were not told they were being recorded for disks to be sold in the States and Europe. They never were paid a dime.
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When the Brazilians later tried to get copies for their country, the U.S. copyright owners demanded stiff royalties. The Brazilians had to pay for their own art that had been taken from them surreptitiously. It was a case of international “intellectual property rights” laws working unfairly.
Go back another century and cross to Peru. That country had a monopoly on chinchona bark to produce quinine, the malaria drug important in the 1800s as Britain and France spread colonies across Africa and Asia.
The British Foreign Office sent Clements Markham to Peru to collect chinchona plants and seeds. Exporting these required a license, and Peruvian producers knew they would lose their monopoly. But Markham “made arrangements” with customs officials to ship the genetic material anyway. Cultivation in British India soon flooded the market with quinine, benefiting humanity but harming Peru.
Markham’s spiriting of chinchona out of Peru was the precedent for Henry Wickham’s smuggling rubber seeds out of Brazil 17 years later. Brazilians see him as a “biopirate.” Rubber cultivation in British, French and Dutch colonies condemned Brazilian rubber to a minor role. For the entire global economy, this burgeoning production was positive, but Brazil and Peru, also a rubber producer, lost out.
In the 1970s and 1980s, First World pharmaceutical companies discovered the potential of substances from tropical plants. Botanists fetched myriad samples. New drugs emerged. Once again, the countries from which the plants came often received no payment but had to pay copious drug royalties.
Brazilian limits on exports of biological materials thus are rooted in history. Exporting Zika samples now may speed measures to curb the disease. But will it be a one-way street again?
The enormous fight over patent rights to the new CRISPR-Cas9 technology for gene splicing says yes. Billions can be earned in biotechnology. Four universities are involved in the suit. Moreover, there are several new companies funded by venture capital. These center on key researchers who bailed out of academia into industry, where they can earn multiples of their academic salaries.
Huge pots of money in biotech send a message that if one gives away key biological material, someone else may get rich on it. International law, codified in the form of new trade agreements, may well mean that you will have to pay to get your own stuff back.
This brings us to Donald and Bernie. They are largely wrong, or at least incomplete, in their condemnation of trade agreements. Moreover, they do not understand implications of the reversal of long-established national policy that they advocate. But they make some valid points.
Their assertion that trade deals lowered U.S. tariffs, thus opening the door to a flood of imports, is overstated, because the U.S. already had near-zero tariffs well before NAFTA or the WTO or the TPP. Yes, some tariffs dropped, and quotas were eliminated. But the deals mostly gave slightly greater access to U.S. markets in return for unprecedented access to other countries for Wall Street firms and much greater protection for U.S. patent and copyright holders.
Wise use of patents and copyrights always involves balancing sufficient incentives for innovation against monopolistic abuses of consumers. In recent decades, the scales have been increasingly tilted against consumers and toward patent and copyright holders, both in U.S. law and in international agreements. The TPP contains unprecedented restrictions on the patent policies of other countries along with offering unprecedented advantages to large financial firms.
These bring us to Sanders’ emphasis on income inequality. Economists make the microeconomic argument that income depends on the value of marginal contributions of skill and effort. We are, they argue, in an era where skills-based labor, as in information- and bio-technology, gets paid. Unskilled labor loses out to Bangladesh and Mexico. There is truth in this.
However, income distribution also depends on how an economy’s “rules of the game” are written. These involve regulations over labor, including union activity, wages and benefits, financial services practices and trade. They also include the rights of patent holders. The trend over 40 years has been to skew the game in favor of financial firms, employers, traders and owners of capital and patent holders and against labor. While no single factor is the “cause” of increased inequality, nearly all these move the economy in that direction.
If some in rich nations are harmed by trade agreements, and poorer countries are, too, wouldn’t the world be better off with a return to widespread trade barriers?
No. On the whole, that would cause great harm. But we need to be honest about the undue weight of big investment banks and biotechnology, pharmaceutical and information-technology firms in the emerging international trade regime.
St. Paul economist and writer Edward Lotterman can be reached at email@example.com.