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The global IP regime
A crack in the door of monopoly capitalism
For decades, intellectual property rules have been at the heart of a hidden private tax system that transfers wealth away from ordinary people. But now the global mood is changing, writes NICK SHAXSON.
A few years ago, economists who followed these things noticed a weird thing happening in Ireland: a staggering 26% jump in the size of its economy in 2015, and a bunch of other indicators going haywire. Nothing stranger than usual was happening on the streets of Dublin – so what the hell was going on?
After a bit of digging, the answer became clear. Ireland, a corporate tax haven, had changed its tax rules, encouraging Apple and a bunch of other multinationals to shift their corporate structures and bring a trove of ‘intellectual property’ such as patents, brands and trade secrets into their affiliates in Ireland. An estimated €250 billion worth of these ‘intangible assets’ had suddenly whooshed in, though it hardly touched the sides – except for perhaps helping a handful of Irish tax advisors to upgrade their Porsches. It made the Irish national statistics a laughing stock: the economist Paul Krugman dubbed this tax haven activity “Leprechaun Economics”.
We now live in a global economy which transfers resources on a vast scale from ordinary people to billionaires, from the productive economy to the financial sector, from the public to the private sectors, in ways that both redistribute wealth upwards and reduce prosperity. They can do this, in particular, by monopolising markets and dodging taxes. In reality, this is what the socalled ‘free’ market increasingly looks like – a system of offshore monopoly capitalism. Intellectual property (IP) – essentially, the business of government-enforced monopolies over ideas and inventions – sits at the core of this system.
IP has become a lifeblood of our modern global economy, sewn into its fabric via a nest of legal rules and heavyweight political protection. These monopolies over patents, copyrights and trademarks constitute a hidden private tax system levied by private interests over wider populations.
There is a role to play for patents in a modern economy, but the system has been rigged by vested interests. In an earlier age, when government policies in many countries struck a better balance between private property rights and the interests of citizens, there was a surge of new wonder drugs under development. The rise of private power to exert choke holds over markets has dramatically tightened the innovation tap.
AT THE HEART OF TAX INJUSTICE
We’re often told that tax is bad: that the less tax we pay, the freer we are. This ideology has helped vested interests push official levels of corporate and personal income taxes down to very low levels. As the heiress Leona Helmsley once said, tax is for the little people. She was right. Worse, many of us pay large private taxes on top of our normal taxes, through the power that intellectual property gives to big business.
We pay four layers of these hidden private taxes for these knowledge monopolies, in fact.
First, nearly all the high-technology goods and services we consume were funded,
Right: The campaign to suspend patents on Covid-19 vaccines and treatments is putting new pressure on the global intellectual property regime.
to a large degree, by taxpayerfunded public research, which citizens ultimately pay for. The private sector typically only invests after the “entrepreneurial state”, as the economist Mariana Mazzucato puts it, has made the bold, high-risk investments. To take a recent example, it’s estimated that $100 billion of public money has been pushed into the research and production of Covid-19 medicines.
The second layer is what Leprechaun Economics measures: the way multinational firms can park their intellectual property in tax havens to escape paying their taxes – freeriding on the taxes that the rest of us, in countries rich and poor, then essentially must pay on their behalf.
The third tax is bigger. Companies routinely use these super-strength monopolising patents and trademarks to make us pay more as consumers, just as tollkeepers at key road junctions used to (and sometimes still do) shake down hapless travellers and traders passing by. According to an estimate by the US economist Dean Baker, Americans paid $315 billion more in 2018 for prescription drugs than they would have in a competitive market with the patent protections relaxed. Add in software, pesticides, medical equipment and all the rest, and he estimates the cost at $1 trillion annually, over $3,000 in monopoly taxes for each American citizen, each year.
There is a fourth tax on top of this, which is the result of this monopolistic system reducing economic growth and stunting innovation and economic dynamism. This happens through various economy-wide effects. For example, if monopolistic companies generally set their prices far above what an open market would warrant, people buy less, firms produce less, and they demand less labour. This
Many of us pay not only pushes wages down – but it also shrinks the economy. Or when large private fierce patent rules shift money from taxes on top of poor people, who consume a high share of their income, to rich people, our normal taxes, through the power who consume a lower share, then consumption and economic activity shrinks. Or, most pertinent for climate that intellectual change or Covid drugs, these restrictive systems smother innovation. property gives to Monopolising patents are used big business. routinely to block new technologies and potential rivals. Thickets of multiple, obscure, overlapping patents often surround profitable products, any one of which can trip up others trying to enter the market or build upon earlier technologies. A company can easily refuse to licence others who they fear might develop the understanding and know-how that goes along with producing something, and subsequently become rivals. The spread of innovation is slowed, often very vividly between
rich and poor countries – whether that shows up in access to vaccines and medicines or being stuck with old, off-patent climate technologies when we need the whole planet to be using cutting edge solutions as fast as possible.
In short, the first three private taxes redistribute the pie unfavourably; the fourth shrinks the pie. The rigged system stifles innovation, worsens inequality, threatens jobs, undermines democracy and harms the planet.
ENSHRINED IN INTERNATIONAL LAW
The global system of intellectual property, underpinned and enforced by global trade rules, has at its heart a system called TRIPS (Trade-Related Aspects of Intellectual Property Rights). It was one of the foundational agreements in the newly formed World Trade Organization in 1995, turning the patchwork of intellectual property rules which existed up to that point into a single, binding piece of international trade law.
TRIPS is a billionaire factory, a monopolists’ charter, which forces countries around the world to accept rules that allow multinationals to barricade their goods and services with ferocious legal fortresses, to exclude anyone else from using their inventions, for exceptionally long periods. But right now, things may be changing.
TRIPS received a shocking jolt last year when the US trade representative Katherine Tai announced in May that her administration would support a waiver of the IP protections for Covid vaccines. This followed similar demands from a range of other countries, from scientists, from medical experts and from a wide spectrum of campaigners, for an exemption from TRIPS. For decades, the United States had led a granite-like global resistance to any weakening of TRIPS, so experienced activists were stunned by Tai's words. As one of them, Cory Doctorow, said: “I’ve been in global IP circles for nearly twenty years now, and I’ve been in rooms with the US trade representative many times. I have never seen a [US trade representative] – let alone the head of the USTR – make a statement that was in the same galaxy as this one.”
Almost immediately a chorus of lobbyists for Big Pharma companies and for the broader global IP regime – boosters ranging from the software monopolist Bill Gates, via a multitude of commercial lobby groups, to the then German leader Angela Merkel – came out of the woodwork to attack the US’ heresy. Tai’s efforts to change the story hit heavy political waters, almost as soon as she uttered the words – and the stand-off has dragged on for more than a year.
Those who have been campaigning against the system for decades, who have never been able to get traction on this Teflon issue, may feel disheartened at the pushback. Yet now is not the time for despair, for at last we see a chance, an opening, for true change. This rigged system, which has literally killed millions of people and impoverished hundreds of millions of others, is now vulnerable.
Policies on international trade or tax change only very slowly, but with immense momentum. Once a new direction is set, it is very hard to deflect. Katherine Tai’s words are less important in themselves, than in the fact that they reflect a deep and enduring sea change in the global public mood, which has steadily in recent years been turning against the outdated old ideologies of low taxes, weak regulations, lax enforcement, and strong protections for IP monopolies.
There is an opening here, which we haven’t seen for a very long time. It is time to get our collective foot in this crack in the door, organise, and push hard.
US Mission photo/Eric Bridiers (CC BY-ND 2.0)
US trade representative Katherine Tai made the shock announcement last year. Nick Shaxson is a journalist and author of The Finance Curse: How Global Finance is Making Us All Poorer. This is an extract from a longer article on the history of patent monopolies available at
