The second issue is that there is an enormous amount of money at stake with intellectual property rules. Many items that sell at high prices as a result of patent or copyright protection would be free or nearly free in the absence of these government granted monopolies. Perhaps the most notable example is prescription drugs where we will spend over $420 billion in 2018 in the United States for drugs that would almost certainly cost less than $105 billion in a free market. The difference is $315 billion annually or 1.6 percent of GDP. If we add in software, medical equipment, pesticides, fertilizer, and other areas where these protections account for a large percentage of the cost, the gap between protected prices and free market prices likely approaches $1 trillion annually, a sum that is more than 60 percent of after-tax corporate profits.
The third issue is that the effect of these protections is to redistribute income upward. This can be seen most easily in looking at the origins of the fortunes of some of the country’s richest people, starting with Bill Gates. It also is apparent from looking at the leading companies in terms of market capitalization and profits, starting with Apple.
In addition, the demand for people with advanced skills in computer science, biotechnology, and other technical areas is highly dependent on the patent and copyright monopolies which ultimately pay for their work. With a different set of rules for promoting innovation and creative work, there could be far less demand for their work. While it can be debated whether or not that situation is desirable, the point is that this is a policy decision, not anything that is determined by technology or the natural development of the economy.
Instead of being a sidebar pursued by a small clique of economists and people concerned about access to medicines, rules on intellectual property should play a central role in debates on inequality. There is a huge amount at stake in setting these rules and those concerned about inequality should be paying attention.
Center for Economic and Policy Research