How Corporations Killed Medicine
HEALTH, 15 Feb 2016
Fran Quigley – Foreign Policy In Focus
For most of human history, life-saving drugs were a public good. Now they’re only good for shareholders.
(Photo: taggartjm / Flickr)
Along the path toward the creation of a global capitalist system, some of the most significant steps were taken by the English enclosure movement.
Between the 15th to 19th centuries, the rich and the powerful fenced off commonly held land and transformed it into private property. Land switched from a source of subsistence to a source of profit, and small farmers were relegated to wage laborers. In Das Kapital, Marx described the process by coining the term land-grabbing. To British historian E.P. Thompson, it was “a plain enough case of class robbery.”
More recently, a similar enclosure movement has taken place. This time, the fenced-off commodity is life-saving medicine. Playing the role of modern-day lords of the manor are pharmaceutical corporations, which have taken a good that was once considered off-limits for private profiteering and turned it into an expensive commodity. Instead of displacing small landholders, this enclosure movement causes suffering and death: Billions of people across the globe go without essential medicines, and 10 million die each year as a result.
Many people curse the for-profit medicine industry. But few know that the enclosure erected around affordable medicines is both relatively new and artificially imposed. For nearly all of human history, attempting to corner the markets on affordable medicines has been considered both immoral and illegal.
It’s time now to reclaim this commons, and reestablish medicines as a public good.
Medicines as a Public Good
Most of us define public goods broadly. We use the term to refer to benefits like law enforcement, street lights, and mass transit, which are collectively provided and deliver shared value to all. Economists narrow down that definition somewhat, saying that public goods are non-rivalrous and non-excludable in their consumption.
Non-rivalrous means that any one person can benefit from a good without reducing others’ opportunity to benefit as well. My eating an apple prevents you from consuming it, so that’s a rivalrous good. But I can watch the same TV show as you without lessening your opportunity to enjoy it as well — that’s non-rivalrous.
Non-excludable means what it sounds like: A person cannot be prevented from consuming the good in question. Clean air is a good that can be enjoyed by all without the possibility of denying access to those who don’t register or pay a fee. But access to a private swimming pool is an excludable good. The classic example of a non-rivalrous, non-excludable public good is a lighthouse: One ship benefitting from its warning doesn’t subtract from any other ships’ chances of enjoying a similar benefit, and there’s no practical way of limiting the lighthouse’s warnings to a select few.
As the English enclosure movement proved, exclusivity can be artificially created by literally or figuratively walling off common access. Exclusivity can be undone as well: The modern open-source software movement takes a good that some have tried to make exclusive — software code — and freely shares it, leading to a plethora of creative developments.
In terms of medicines, an individual pill is rivalrous, but the details of the formula for creating that pill are not. Knowledge is a classic public good, in that it can be shared widely without penalty to the original owner. As Thomas Jefferson said, “He who receives an idea from me, receives instruction himself without lessening me; as he who lights his taper at mine, receives light without darkening me.”
The public health implications of access to medicines generate another core quality of public goods: positive externalities.
One person’s consumption of an essential medicine provides clear benefits beyond the direct consumer. Vaccines, for example, prevent the recipient both from getting ill and from spreading the disease to others. If a society vaccinates widely enough, the chain of disease transmission is broken, leading to the quintessential public good of mass immunity. Global distribution of the smallpox vaccine, for example, has led to the eradication of a disease that once infected 50 million people a year.
Even less obviously social medicines allow their recipients to better contribute to the social fabric and economic productivity of their communities. These medicines save costs for the broader society, too. When a diabetic takes insulin or a person with a risk for heart disease takes cholesterol-reducing medicine, they not only function better: They also lower their prospects of needing more expensive medical treatment, which is a cost often shared across societies.
Conversely, a lack of access to medicine causes enormous social problems in terms of contagion and economy-depressing illnesses.
So it’s little wonder that, for nearly all of human history, societies have treated medicine as a commonly held benefit. Until well past the middle of the 20th century, few countries allowed individuals or companies to hold exclusive rights to produce medicines. And governments have long been involved early and often in the pharmaceutical industry, creating the very opposite of a laissez faire market. Most industrialized governments tightly regulate the production and distribution of medicine, while actively promoting vaccinations and encouraging safe use of other medicines. Governments are both leading funders of medicine research and top purchasers of the end products of that research.
When governments don’t take a sufficiently activist role in the field of medicines, public opinion pushes them further. In the 1990s and 2000s, advocates gave voice to passionate outrage over the devastating human cost of patent-priced HIV/AIDS medicines, which limited access to sufferers who could afford expensive treatments. U.S. activists threw the ashes of AIDS victims on the lawn of the White House, while African activists called treatment-resistant government ministers murderers. The protests led to the dismantling of patent price barriers — and then to massive public programs to distribute the medicine at low or no cost.
Among governments and the public alike, medicines continue to be treated as a good quite distinct from consumer items like cell phones or flat-screen TVs. A human right to access essential medicines has found its way into international treaties and national constitutions. A moral claim for universal access to essential medicines has been put forth not only by faith-based organizations and civil society actors, but also by many drug developers themselves. Jonas Salk, for example, declined to pursue a patent for the polio vaccine, saying the patent belonged to the people. The creator of the first synthetic malaria vaccine donated the patent to the World Health Organization.
As Salk said in 1952: “Would you patent the sun?”
The Enclosure of Essential Medicines
The origins of modern intellectual property law can be traced back to the occasional awards of exclusive rights to artists in ancient Persia and Greece.
“Letters patent,” meaning open letters, were issued in 14th century England to induce foreign craftsmen to relocate there. Attempts to coordinate global intellectual property rules led to the 1883 Paris Convention and the 1886 Berne Convention, and eventually to the creation of the United Nations’ World Intellectual Property Organization in 1967. But nations who signed on to those agreements retained the ability to determine the length of patents and what products would be covered. For many nations, that flexibility meant excluding medicines from patent protection. For example, Germany’s patent law of 1877 labeled medicines as “essential goods,” along with food and chemicals, and prohibited any attempts to patent them.
In the middle of the 20th century, several post-colonial nations adopted similar laws. India’s patent law extended only to the processes for creating medicines, not the drugs themselves. The law opened the door for Indian pharmaceutical manufacturers to reverse-engineer patented drugs and then devise different, cheaper production methods. India soon became known as “the pharmacy of the developing world.” Brazil, Mexico, and other Central and South American countries also adopted limits on the patentability of medicines.
European countries like Italy and Sweden didn’t grant pharmaceutical patents until the 1970s, and Spain refused to do so until 1992. Even when medicine patents were given, many nations granted liberal access to compulsory licenses for patented drugs, meaning that generic manufacturers were free to make the drugs and pay a royalty to the patent holders. During the period between 1962 and 1992, Canada granted 613 licenses to import or manufacture pharmaceutical products.
As commerce became increasingly global, this state of affairs deeply concerned pharmaceutical companies. Over time, an industry that once competed on the basis of manufacturing innovation and price had come to rely on the profits of patent monopolies. At one time in the mid-20th century, for example, Pfizer drew a full 33 percent of its global sales from just two patented drugs. So — as extensively chronicled in Peter Drahos’ and John Braithwaite’s 2002 book, Information Feudalism: Who Owns the Knowledge Economy? — Pfizer took the lead in an ambitious campaign to create a global system of intellectual property protection: an enclosure of essential medicines.
The first step in that effort was countering the dominant international view that medicine compounds were not private property that could or should be owned by companies and individuals. Economists call this process the transformation of a public good into a “club good,” like taking a public park and turning it into a gated dues-required golf course. A July 1982 op-ed in the New York Times by the chair of Pfizer International, entitled “Stealing from the Mind,” started the process of creating that club good. The column charged that U.S. inventions were being “stolen” by governments that didn’t protect patent rights. When governments outside the U.S. refused to block generic manufacturing, the pharmaceutical industry argued, they were indulging acts of piracy.
But there was little in the way of binding international law to back up that position. So the industry pushed directly for the U.S. government to make intellectual property protection a priority in all trade negotiations. Of course, inserting monopoly patent rights into trade agreements runs counter to those agreements’ stated purpose of dismantling barriers to global competition. Yet the pharmaceutical industry, reliably at the top of the list in both lobbying expenditures and political campaign contributions in the United States, quickly found willing partners on Capitol Hill and in the White House. The U.S. soon adopted intellectual property protection as a litmus test for its trade partners.
The approach was to offer carrots to patent-resistant countries — enhanced access to U.S. markets and some reductions in the subsidies of U.S. agricultural exports — while simultaneously brandishing some imposing sticks. In 1984, aggressive pharmaceutical sector lobbying helped amend the U.S. Trade Act to give the president the authority to impose duties on or withdraw trade benefits from any nation that did not provide “adequate and effective” protection for U.S. intellectual property.
A few years later, the law was amended again, this time to give the U.S. trade representative the power to put offending countries on what became known as a Special 301 watch list, a designation dreaded by countries whose economies relied on trade with the United States. The two countries that resisted pharmaceutical patents most vigorously, India and Brazil, were placed in the more serious “priority” watch list.
Against this ominous backdrop, the World Trade Organization in 1986 convened talks to create a global intellectual property agreement. At the time the talks began, more than 40 of the 90 counties involved refused to grant patents for pharmaceutical products, and others that did grant them adopted strict limits. But over the course of years of negotiations, U.S. trade pressure wore down the resistance. By April of 1994, the Agreement on Trade-Related Aspects of Intellectual Property Rights, aka TRIPS, was signed by 123 government ministers. The deal was one of the foundational documents of the World Trade Organization, and immediately became the most significant intellectual property agreement of modern times.
TRIPS transformed an uneven worldwide patchwork of intellectual property law into a blanket of standards mandating protection for holders of patents, copyrights, and trademarks. For patent holders, that protection features at least 20 years of government-granted monopolies on their products, including medicines. TRIPS also requires each nation to award intellectual property rights regardless of national origin, a boon for multinational pharmaceutical corporations and a death blow to their local manufacturing rivals.
The enclosure of essential medicines was complete.
The Fallacy of the Patent Incentive
When pushing for the TRIPS agreement and other mechanisms to extend medicine patent rights, pharmaceutical corporations justify enclosure by claiming that patents are necessary to spur innovation. If medicinal discoveries can be immediately copied and sold to others, the argument goes, no organization will devote the resources needed for research and development of new medicines.
In economic terms, this presents the classic “free rider” problem. Their solution was the temporary patent monopoly, which is lucrative enough to incentivize medical research.
Again, the echoes reverberate from the land enclosure movement, where the justification for massive property appropriation was the so-called “tragedy of the commons”: A good communally held doesn’t provide anyone with the incentive to invest in its development. (The second component of the tragedy of the commons — that freely available goods are subject to overuse — doesn’t apply to the medicine situation. Remember that a medicinal formula is non-rivalrous, so its use by a manufacturer in India doesn’t prevent a Connecticut company from using the same formula as much as it wishes.)
This argument for medicine enclosure presents two important ironies.
First, it concedes the accuracy of one of the core complaints against the modern pharmaceutical industry: Namely, pills can cost up to $1,000 each because their makers enjoy a monopoly, not because they’re so expensive to manufacture. Even many high-priced medicines are produced for just pennies per dose.
And second, the enclosure argument advanced by seemingly uber-capitalist corporations is decidedly socialist in nature. It demands a government-imposed override of the free markets of generic production that have been proven to dramatically push down the cost of medicines. In fact, patents exist to enable one of the most reviled forms of economic behavior: rent-seeking, the act of obtaining economic gain without contributing anything back to society. This state of affairs may be distasteful, pharmaceutical corporations say, but it’s unavoidable. Even Thomas Jefferson conceded that the artificial imposition of intellectual property rights is sometimes a necessary evil.
Yet when it comes to inducing innovation for essential medicines, it turns out that the evil of monopoly patents isn’t at all necessary.
The history of pharmaceutical innovations, especially vaccine developments and life-saving treatments for infectious and chronic diseases, shows that the critical research behind these developments was created outside the patent system. Even in the current post-TRIPS era, patent-seeking private industry still looks to governments to provide funding for pharmaceutical research, especially for essential medicines. The U.S. National Institutes of Health alone provides $30 billion annually for medical research; governments provide tax credits to support corporate research; and government health programs are bulk purchasers of patented medicines priced far above the costs of production.
When it comes to medicines, the taxpayers of the United States and other research-supporting countries are the very opposite of free riders: They pay to build the bus, fill it with fuel, and hire the driver. But they’re still asked to pay a steep fare if they wish to take a seat.
In fact, a decade ago, U.S. economist Dean Baker crunched the numbers and estimated that the U.S. could save over $140 billion a year if its health systems could provide medicines without the artificial mark-up imposed by monopoly patents. That money could fund the replacement of all private industry research and development several times over, while still leaving billions of dollars in remaining public benefit. A significant source of those savings derives from eliminating the for-profit pharmaceutical companies’ expenses on marketing, a cost that exceeds their investment in research and development. As it happens, there are more efficient uses of resources than funding television ads for erectile dysfunction drugs.
The enclosed medicine system inflicts additional damage beyond the artificially inflated cost of patented medicines. The resources of for-profit corporations are inevitably concentrated on the development and promotion of medicines that can be sold at a high mark-up to wealthy consumers. “Lifestyle” drugs that address male pattern baldness or sexual performance are exhaustively researched and marketed, yet the past half-century has seen just one drug developed to treat tuberculosis, which kills more than a million people each year. A landmark study published by the British medical journal The Lancet showed that of the 1,556 new chemical entities marketed between 1975 and 2004, only 21 were for tropical diseases.
When corporations do develop a new drug, it more than likely doesn’t provide much value to society. Remarkably, a full 70 percent of the medicine brought to market by the industry in the past 20 years provided no therapeutic benefit over the products already available. Instead, these “me too” drugs were put forward in order to grab a share of an existing lucrative market.
The inefficiency of the enclosed medicine is paired with the creation of real barriers to medicine innovation across the board. By definition, a reward system based on artificial exclusivity will wall off knowledge from being shared. For-profit pharmaceutical corporations are known for discouraging innovations by creating voluminous “packet thickets” and seeking extended protection for their monopolies in a process known as “evergreening” their patents.
Seen through the lens of a pharmaceutical corporation, all of these approaches are fully rational: The industry is one of the most profitable in recent history. The rest of us are not faring as well. Law professor Michael Heller has labeled the costs associated with over-enclosure and lack of knowledge sharing as the “tragedy of the anti-commons.”
It is an economic theory, of course. But, for the millions of people who die each year from diseases neglected by the current medicine system, the tragedy is not the least bit theoretical.
Opening the Gates to Essential Medicines
The good news is that medicine enclosure is ripe for dismantling.
There’s no shortage of popular frustration with the current system, especially now that the dire effects of enclosure have reached beyond low-income countries to cause real harm to the residents and governments of the Global North. An August 2015 poll showed that nearly a quarter of U.S. residents struggle to pay for prescriptions, and that strong majorities feel that drug costs are unreasonable and believe drug companies prioritize profits over people.
Last year, U.S. social media and politicians exploded with anger when a young pharmaceutical company executive increased the price of a toxiplasmosis drug by some 5,000 percent overnight. Over a hundred leading U.S. cancer physicians co-authored an article decrying the greed of the pharmaceutical industry, noting that the cost of cancer medicine averages over $100,000 per patient annually.
Similarly, there’s no shortage of proposals for reform of the current system. Those plans range from buy-outs of corporate patents to open generic medicine production in low-income countries. Many proposals are grounded in redirecting the enormous government investment in the current patent system to greater support for early-stage research and prize-oriented funding to motivate late-stage drug development. At varying levels, many of these proposals are already in operation.
Popular discontent and ideas for reform don’t always lead to change. After all, the land enclosure movement triggered plenty of passionate protests, but the enclosure proceeded without significant interruption. For the resistance to medicine enclosure to see better results, it needs to make clear the life-and-death nature of the struggle, and highlight the injustice inherent in the collective contribution to private profits.
Some of those messages are already being delivered.
The Nobel Peace Prize-wining medical aid program Médicins Sans Frontières, also known as Doctors Without Borders, conducts a medicine access campaign that includes public education and direct calls for advocacy on issues like vaccine pricing. MSF joined several organizations in using negotiations over the massive Trans-Pacific Partnership agreement as a platform for activism on medicine access. A student-oriented group, Universities Allied for Essential Medicines, has recruited prominent members of the international scientific and academic communities to push for a global medicines research agreement, which would fund research and require medicines to be cheaply available.
A petition now circulating for a global research agreement calls on policymakers to “Make Medicines for People, Not Profit.” For that noble goal to be achieved, the fence surrounding essential medicines will need to be torn down once and for all.
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Fran Quigley is the director of the Health and Human Rights Clinic at Indiana University’s McKinney School of Law. He’s the author of How Human Rights Can Build Haiti (Vanderbilt U. Press, 2014).
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