Compulsory licensing no solution to health problems in poor countries, say experts from India, Argentina, Canada and South Africa.

In a collection of papers published today, a group of experts from around the world contradict the claim that compulsory licensing of 'essential' medicines will benefit the world's poor. They point out that patents and other forms of intellectual property are an essential component in economic development. Interfering with intellectual property by compulsory licensing or price controls will undermine investments and cause more harm than good. They call instead for stronger protection of intellectual property globally.

Policymakers Summary

Strong Institutions are the Key to Improving Health
Martin Krause, Professor of Economics at the University of Buenos Aires and a native Argentine, blames the sorry state of his country on the lack of stable, transparent institutions.

Abrogation of property rights combined with political corruption and general lack of legal certainty has undermined investment and led to slower improvements in the health of Argentinians relative to people in countries where property rights and the rule of law prevail.

Dr Krause gives as an example the reputed US$30 million bribe paid to government officials by one of Argentina's largest generic pharmaceutical companies in return for being permitted to write the patent law (thereby enabling it to continue manufacturing some on-patent drugs without the payment of royalties).

Intellectual Property Rights Help the Poor
Dr Bibek Debroy, Director of Research at the Rajiv Gandhi Institute in Delhi, points out that rights to property in land provide strong incentives for owners to improve that land.

Moreover, property rights enable owners are able to acquire capital (in the form of mortgages or loans) with which to invest in businesses and thereby to improve their lot.

Likewise, rights to intellectual property provide both incentives to invention and creation, and also enable people to acquire the capital to develop products based on their IP. As a result, IP has become one of the building blocks of economic development.

Whilst it is important that individual countries provide strong protection for intellectual property, in a globalised world it is also important that countries recognise the products of intellectual property developed elsewhere.

Without such mutual recognition, pirates operating in countries without strong IP protection will prevent IP owners from benefiting fully from their investments and thereby will undermine the incentives to develop new inventions and creations.

International treaties such as the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) are a way of preventing such problems.

Dr Debroy argues that it is in the best interest of poor countries to comply with the requirements of TRIPS and to limit the use of compulsory licensing.

The introduction of product patents may adversely affect some powerful vested interests (especially generic pharmaceutical manufacturers) and thereby will have an economic and political cost in the short term.

However, the benefits of IP protection in the medium to long term - in the form of increased foreign direct investment, technology transfer, and local product development - far outweigh these transitional costs.

Price Controls Undermine Investments and Harm the Poor
Owen Lippert, research fellow at the Fraser Institute in Vancouver, Canada, and adjunct scholar at the Instituto Libertad y Desarrollo in Santiago, Chile, shows that the World Health Organisation proposal to impose price controls on pharmaceuticals would be counterproductive.

If enacted the WHO's proposal would undermine investments in pharmaceutical research, thereby ensuring that fewer new drugs were produced, especially in the class of 'essential medicines'.

A far better way to ensure that pharmaceuticals are supplied to the world's poorest would be to deregulate the pharmaceutical industry, enhance patent protection for pharmaceuticals, and enable pharmaceutical companies to price discriminate.

AIDS is not the only - or even the most important - disease of the poor
Dr Roger Bate and Richard Tren, co-Directors of Africa Fighting Malaria, a healthcare charity based in South Africa, offer a critique of the current obsession with HIV/AIDS, pointing out that globally other diseases are more worthy of attention.

Many of these other diseases, including TB, diarrhoea, malaria and hepatitis, are not only treatable but also curable. By contrast, current pharmaceutical treatments for HIV - whilst making a valuable contribution to improving quality of life and in some cases reducing the likelihood of transfer from mother to child - ultimately are not cures for the disease.

If international health policy were to focus instead on these other diseases, it would bring a much more immediate improvement to the health of the world's poor.

Meanwhile, if these and other diseases (including AIDS) are to be eradicated in the longer term, then there must also be a commitment to enabling companies to profit from the production and sale of pharmaceuticals and vaccines.

This means, at least, ensuring that product patents are enforced across the world and limiting the extent of compulsory licensing.

If it Ain't Broke Don't Fix It
All first year undergraduate economists learn about the perverse effects of imposing price controls on housing. The short-term effect is to reduce the costs to some people. But the long-term effects are to discourage investments in maintenance of the housing stock and to discourage the construction of new properties. As a result, there is insufficient housing to meet demand.

In other words, price controls benefit the few in the short-term at the expense of the many in the long-term. Precisely the same effects are at work when price restrictions are imposed in other markets.

Whilst government officials in poor countries may be under pressure to delay implementation of TRIPS, they should be aware that the short-term advantages of such a decision come at a long-term cost.

In particular their countries are likely to experience lower levels of foreign investment, slower technology transfer, less local investment in research and development and delays in the development of drugs for the diseases that most adversely affect their people.

Poor countries will not eradicate diseases through the compulsory licensing of 'essential medicines'. In fact the opposite is more likely because of the negative signal that such a decision would send to companies contemplating investment in knowledge-based industries.

It would be a tragedy if long-term economic development and consequent improvements in the health of the poor were to be undermined by short-sighted policies aimed at placating narrow vested interests.