Continuing our series analyzing Dean Baker’s The Conservative Nanny State, we’ll touch on a few key features quite effective in funneling wealth upward with no obvious systemic advantage : undercutting of collective bargaining and bestowal of monopoly status for intellectual property. Baker argues, astutely, that neither of these features really make sense in a free market system, as collective bargaining is a market-based strategy for assuring at least a living wage for tradespersons vying for limited jobs, and government-conferred monopolies are illogical when producing, say a life-saving drug, is incredibly cheap.
Repeat After Me : Unions are Evil, Unions are Evil…
Baker touches briefly on elite hostility to organized labor for mid-to-lower income tradespersons, arguing that it’s an important feature of the conservative nanny state. It’s certainly easy to see why, as trade unions, as we’ve discussed previously, generated most of the benefits we derive from employment, including paid holidays, vacation, healthcare, weekends off, and the like. Yet the prevailing sentiment is often quite negative, as documented by Gallup since 1936. Even in my own work experience have I witnessed the effects of this propaganda. In working for the aforementioned defense contractor, I remember a strike executed by union members when the parent company chose to slash benefits. Coworkers scoffed at and mocked the picketers, bemusing of the scabs and the internal contortions to cover the labor loss. I heard internally that an upper level manager actually physically assaulted one of the picketers after a heated exchange. The strike failed, the union workers sustained a more undesirable benefits package than had been offered previously, a remarkable victory for anti-unionists among the elites.
My own personal experiences in corporate America offer further revealing data regarding elite hostility toward unionization : both in working for corporate Uber and Amazon, I encountered many of the low wage employees (dubiously mislabeled as free contractors) among the drivers, cabbies in the case of Uber and delivery drivers in the case of Amazon. I met probably seventy drivers while working for Uber, as the company would spring for free Uber rides home if I remained in the office past ten o’clock at night. Though the drivers were understandably reticent to discuss with me, a corporate employee at the time, their opinions on Uber’s downward pressure on their wages, I generally could ease them into opening up after I shared the long labor history of America with them. The picture was universally bleak : living, breathing people trying to survive sharp increases in the cost-of-living in San Francisco found themselves in a harsh, highly competitive trade with a quite hostile corporate sponsor. Uber routinely would fire drivers with little or no warning, all based on a very arbitrary rating system with very little means of disputing a bogus negative rating. Uber also sharply cut wages on these drivers. The picture among Amazon drivers was very similar : no benefits and fast firings were the law of the jungle, true even in more liberal democracies such as the United Kingdom. I informed virtually all of these drivers I met that the only proven means of driving wages upward is collective bargaining through unionization, something the drivers tell me Uber harshly demonizes; see The Verge for a discussion on Seattle’s efforts to protect Uber drivers.
America’s sordidly violent labor history features an unusually sharp hostility toward trade unions for semi-to-unskilled labor, as they are harmful to profits. A rather salient piece to the puzzle is the National Labor Relations Act (or Wagner Act) of 1935, conferring the right of private sector employees to organize unions and participate in collective bargaining; the National Labor Relations Board received special attention during my Uber employee orientation, as one of the chief legal officers lambasted the committee as desperate bureaucrats hell-bent on squeezing money out of the innocent drivers. In remarkably effective legalese rhetoric, she argued that the NLRB is out-of-touch and irrelevant in a world where Uber drivers can nab a fortune in driving, thus, it’s a charity to classify drivers as contractors. Though she aptly described the experience some of the earlier “contractors” enjoyed, an unnervingly large fraction of latter-day drivers never managed to attain this golden driver’s seat. Certainly, Uber represents something of a revolution in ride-sharing, but why not support one’s workforce?
Returning more to the historical context, the Taft-Hartley Act of 1947 outlawed secondary strikes, strikes instigated by workers of one trade expressed in solidarity with another trade’s ongoing strike. You read that correctly : a painter’s union cannot legally strike in solidarity with carpenters participating in a union strike. Though there is much to discuss on the topic of organized labor (and we’ll touch briefly on a few of Baker’s further points momentarily), suffice it to say the corporate nanny state mythology somehow manages to convince highly-compensated workers that not only is labor solidarity unnecessary (the market argument), but that they themselves derive no protectionism from said nanny state or any other well-to-do analog of the trade union, the former of which is a remarkable feat of propaganda, the latter of which Baker quite powerfully decimates as we discussed earlier.
Patent Trolls and Copyright Cows : The Geese Laying Golden Eggs
Baker turns attention to two extremely powerful, state granted protections for individuals and corporations : patents and copyrights. Again, conservative nanny state apologists might consider these instruments to be laws of nature, naturally forming optimal strategies in the fantasy land of free markets. By contrast, Baker aptly describes them correctly as “government-granted monopol[ies].” That is, an agency, be it individual, government, non-profit, or corporation, can apply for patent or copyright protection on an invention, idea, artistic expression, and so on, ensuring that agency time-limited monopolistic control over usage and sales. The argument in favor of these anti-market practices is that they encourage innovation and creativity, generally socially positive notions. In fact, the power derives directly from the U.S. Constitution : under Article I, Section 8, we have that Congress has the power
[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.
This power owes to the guild and apprentice system from the Middle Ages, Baker explains, as a means of increasing innovation and scientific discovery. Yet, are these the most optimal means of doing so? Certainly, executives of Merck, Pfizer, Apple, Google, Amazon, and a lengthy list of other companies are quite wealthy. But do these state-guaranteed monopolies efficiently generate innovation? My own background includes an understanding of the evolution of software development, and the open source standard (free and open to the public) has grown tremendously in popularity in recent years. Well-known to software developers is the superior reliability in Unix-based operating systems relative to that of proprietary models. It’s reasonably understood history that the biggest software firms in large part owe their success to IBM’s PC open architecture strategy, suggesting an open OS standard could have created a proliferation of competitive products in both basic kernel (OS) space operations and those in the user space. Though we have many advances now in personal computing, much of the game-changing advancement has occurred either in the state sector (discussed in previous posts) or in highly competitive, less monopolistic settings.
Baker describes an interesting economic parallel : dead-weight loss is the difference between patent-protected and market-based prices, though he scoffs that his fellow economists find no fault with this loss with respect to pharmaceutical prices, despite their hostility toward the same loss incurred in tariffs. Technical economics aside, Baker poses the critical question : are patents and copyrights the most optimal instruments of their kind for encouraging and rewarding innovation?
To answer the question, Baker points to a highly controversial beneficiary of the patent system : the drug research lobby. If we are to believe conservative nanny state apologists, he argues, the patent system should be the most capable protection in assuring innovation in medical advances and lifesaving technology. Patents account for a factor four multiplier in drug costs, meaning if a generic costs one dollar, the corresponding brand-name drug costs four dollars, according to the final Statistical Abstract of the United States, the 2012 edition. (We could discuss the highly politicized, stupid decision to discontinue this long running report published by the U.S. Census Bureau, but we’ll defer for now.) As of the publishing date of the book, the factor was three, meaning the divide has grown by thirty-three percent. Pharmaceutical companies offer exactly the argument as described above, despite large fractions of profits wasted on marketing and executive salaries. Overall, Baker reports $220 billion in drug sales in 2004, confirmed by the aforementioned report. By 2010, this number grew to nearly $270 billion.
Because patent protection ensures higher drug prices than could otherwise be paid, literally millions of Americans each year skip medications to save money. Harvard Health Publications reported in 2015 cites a survey by researchers Robin Cohen and Maria Villarroel that eight percent of all Americans fail to take medications as directed because of lack of money. As expected, older and less well-insured Americans missed dosages in higher numbers, but astonishingly, six percent of Americans with private insurance skimped on their medications. That is to say, the private insurance system, adored by conservative nanny state apologists, forces Americans further into poverty and costs too much. A report in 2012 by The Huffington Post indicates that these pharmaceutical companies spend nineteen times as much on marketing as they do on research, suggesting that the huge windfall of patent protection isn’t really going to good use.
Baker points to an even more serious consequence of artificially ballooning prices : black market drugs. A strategy comparable to “medical tourism,” discussed earlier, leads Americans to order potentially dangerous drugs from foreign countries. This steady flow of both illegally and legally obtained medicines is completely expected under a system in which these millions of Americans self-report failing to take drugs for lack of money, a failure of the patent system.
Perhaps most damning is Baker’s argument with regard to copycat drugs, or drugs designed to mimic the behavior of a patented, available drug. Pharmaceutical companies have discovered that hitching themselves onto bandwagons of popular, patent-protected drugs of high import (such as allergy, diarrhea, and heartburn medications) is extremely lucrative. That is, rather than invest money and energy on new lifesaving drugs and technologies, they try to replicate something in the mainstream by tweaking a few formulas. As of 2004, two-thirds of all newly approved drugs in America were copycats, according to the Food and Drug Administration. That leads to a startling number with regard to where the research money goes : sixty percent of research dollars goes to such wasteful creations. So sixty percent of medical dollars, private and public, do not promote innovation at all, because of the patent system. Other inefficiencies of said system appear in a 2015 report by BBC : for instance, many drug companies employee “floors of lawyers” to fight in court for patent extensions, a strategy interestingly called evergreening. Dr. Marcia Angell, former editor for The England Journal of Medicine, discussed in The Canadian Medical Association Journal drug companies copying their own drugs for patent extensions, an example being Nexium and Prilosec developed by AstraZeneca : the drug company hiked the price on the outgoing to migrate patients onto the incoming, hoping to retain marketshare once the patent expired on the outgoing.
The aforementioned pair of drugs are examples of enantiomers, or drug molecules equivalent in structure and form, one a mirror image of the other. These arise naturally in the course of development, often with very similar physiological interactions; thus, the practice of patenting both separately is rather suspect. In “Enantiomer Patents: Innovative or Obvious?” appearing in the Pharmaceutical Law & Industry Report, Brian Sodikoff, et al. discusses the legal standards in doing so, suggesting the patent system overly caters to the corporations. A few other examples of double-dipping are Lexapro and Celexa, and Ritalin and Focalin.
It turns out that drug companies leverage several tricks in the spirit of the foregoing to stretch the lifetimes of patents, including
- rebranding mixtures of existing drugs, such as Prozac and Zyprexa to obtain Symbiax,
- morphing generic drugs into new drugs by adjusting dosages, such as Doxepin into Silenor,
- repackaging an existing drug as is for a new purpose, such as Wellbutrin and Zyban, and Prozac and Sarafem,
- creation of extended release variants of existing drugs by established mechanisms, such as Ambien and Ambien CR, and Wellbutrin and Wellbutrin XL,
- changes of delivery mechanisms, such as Ritalin as a pill and Daytrana as a topical patch,
among others. In each of these cases, big pharma manages to hike the price substantially, even when cheaper generics are available with adjustable dosages. These corporations argue they should receive full patent protection as though they devoted the same amount of resources for researching the copycat as they did for developing a brand-new therapy from scratch, a preposterous claim. What’s worse, drug reps, or prettified agents armed with high discretionary credit routinely accost physicians, offering expensive samples and lavish luncheons for free; NPR reported earlier this year that the drug rep interaction significantly increases the number of costly prescriptions written by doctors. Though we could discuss these inefficiencies and contradictions more, we’ll leave it at that.
By the previous arguments, we certainly can begin to believe that patents and copyrights probably aren’t the most efficient means of promoting innovation, as Baker correctly asserts. So how does one promote innovation? Baker suggests raising government investment in research, establishing a grant and prize system aimed at spurring innovation. Researchers would strive toward successful development of lifesaving medical technology, competing jointly for grants to fund their work. Upon successful innovation, they could receive prize money commensurate with the societal benefit. Upon acceptance and approval, their contributions would become public domain, so drug manufacturers could compete on the open market for the cheapest way to produce the drugs, much like application developers could leverage IBM’s open architecture. As Baker observes, this isn’t the only approach, but it certainly is worth trying, considering the current system is so remarkably wasteful. Since the government confers the patents and copyrights for the public good, the government could ostensibly leverage other instruments to promote “the Progress of Science and Art.”
Next time, we’ll consider Baker’s arguments on bankruptcy, torts, and takes.
Shyam Kirti Gupta and Shyam Kelly Gupta contributed to this article.