Misplaced opposition

Misplaced opposition

The net impact of compulsory licensing on the global economy would depend upon the loss to the multinational producer.

Sixteen business federations including the United States Chamber of Commerce have asked President Barak Obama to put pressure on the Indian Government to uphold the patent laws. They have asked him to make a joint strategy with the European Union to this end. They have alleged that decisions given by Indian courts and policies made by the government are leading to loss of American jobs. 

This much is clear that India’s policies are likely to be harmful for the US companies. The US economy is heavily knowledge based. 40 per cent of its GDP and 74 per cent of exports come from knowledge-based products. The major innovations of the last century—assembly line, atomic energy, jet airplane, personal computer, internet and iPod have all happened in America. Compulsory licensing and piracy of patents clearly have a negative impact on the US companies. Microsoft is selling the Windows 8 software for about Rs 6,000 in India. Every pirated version that is installed leads to a loss of such amount to Microsoft. Compulsory licensing of drugs similarly leads to loss of profits for multinational drug companies. Remember there is a provision in the WTO treaty that if a patented drug is not made available in a country or sold at high price then the affected country can give “Compulsory Licence” to a domestic company to produce that drug. This provision has been used by India, Thailand and Italy, among others, to make available certain drugs to their people. 

These measures would certainly lead to a loss for the American companies and workers. The mandate of the Government of India, however, is to secure the welfare of the people of India, not America. A drug becomes available to a large number of sick persons when compulsorily manufactured in India. This leads to improved productivity of the Indian peoples. More numbers of people can work for longer period. This adds to the global production. The net impact of compulsory licensing on the global economy would depend upon the loss to the multinational producer and the gain from the use of cheaper drug. Thus the argument put forth by the US Chamber of Commerce does not hold from a global standpoint. 

Or take the impact of piracy of software. Fewer persons will be able to use the software if piracy is put to stop because they cannot pay the price. As a result their productivity will be less. Microsoft and the US lose Rs 6,000 for every pirated copy of Windows 8 that is installed. But the use of the pirated software leads to increased productivity by the user. He can do more work during the day. The value of increased production by the use of the pirated software may be more than Rs 6,000. The net impact on the Indian- and global economy of piracy could, therefore, be positive.

We also have to consider the impact of these policies on innovation. Multinational drug companies allegedly spend billions of dollars on research on new drugs though this is disputed. Studies have indicated that much research undertaken by MNCs is actually funded from public money. Expenditure made by the MNCs from their own earnings is reportedly much less. Despite this fact we may give the benefit of the doubt and let us proceed on the assumption that investment in research will be less. That may lead to development of fewer innovative drugs down the line. But innovation also takes place outside the four walls of MNCs. 

Small budget innovation

Indian drug companies have shown that they can innovate with much smaller budgets. The success of Indian drug companies owes itself to reverse engineering. Previously India had “process” patents regime. An Indian manufacturer could produce a drug if he used a different process than the one patented. Indian companies produced cheap drugs by innovating cheaper processes. Innovation of new drugs could also take place though state sponsored projects. The Linux open source software is being used by large number of computer professionals. Different individuals are making innovations and sharing them. Thus loosening of patents leads to less innovation by Microsoft but more innovation by millions of users. 

The UPA government had unveiled its policy to allow multinationals to enter multi-brand retail with great fanfare about a year ago. But there have been no takers yet. One major stumbling block has been the requirement that the MNC retailer will purchase 30 percent of the goods from local producers. MNCs are not happy with this provision as it will lead to increase in cost. An imported TV may cost them Rs 20,000 while domestically manufactured TV may cost Rs 25,000 putting them to a  loss. But this is only part of the story. Let us say Wal Mart starts buying 30 per cent of goods from Indian producers. This will lead to spread of entrepreneurship, knowledge and management practices. In due time the Indian companies may be able to produce the same TV for, say, Rs 15,000—cheaper than the imported one. Industries being set up in backward areas were given subsidies on the cost of machineries they installed. The idea was that this would lead to spread of entrepreneurship. Or local sourcing can be compared to investment in education. A young man chooses to go to college after having passed high school. He loses money in the short run. But he gains in the long run. He gets a better job.

The argument made by the US Chamber of Commerce does not hold. This much is true that compulsory licencing, software piracy and local sourcing will lead to immediate losses to the US companies. However, the impact on India will most certainly be positive because availability of cheap drugs and opportunity to use patented information for further research will help expand our economy. The global impact of loosening of patents too may be positive because the increase in GDP from the availability of cheap drugs and software in the developing countries may be much more than the loss incurred by American MNCs.

We must be proactive in meeting this new attack by America and Europe. We must make an alliance with other developing countries and demand removal of TRIPS from the WTO. Offence is the best form of defence.