Libertarians and Corporate Power: Actions Speak Louder Than Words

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Dean Baker
CATO Unbound, November 17, 2008

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This essay is one of several in response to "Corporations Versus the Market; or, Whip Conflation Now" by Roderick Long in this month's issue of CATO Unbound by the CATO Institute.

Roderick Long feels that progressives have unfairly maligned libertarians as defenders of corporate power. In response, Matt Yglesias makes the obvious point that many of their prominent political interventions certainly seem to have this effect. Rather than construct the scorecard for the number of times the libertarians have been with the angels (as opposed to the dark side of the force) I'd rather just work with libertarians where there should be a common agenda with progressives.

Long notes several places where corporations use the power of the state to enhance their monopoly power and increase their profits. One item that features prominently on Long's list is intellectual property. It's high on my list too. The economic distortions and inequities created by government-granted patent and copyright monopolies are enormous.

While there may be areas in which patents are an effective policy for promoting innovation, the abuses associated with patents for prescription drugs should be libertarians' poster child for government policy gone crazy. The country is projected to spend almost $250 billion for prescription drugs this year (more than $800 per person). In the absence of government patent monopolies, we would spend close to one-tenth of this amount. Those generic drugs that Wal-Mart can profitably sell for $4 a prescription are not chemically distinct from the brand name drugs that can cost several hundred dollars.

Every self-respecting libertarian knows what happens when government intervention raises prices by several thousand percent above the free market price: we get all sorts of pernicious rent-seeking activity. And we see this pernicious activity in full glory in the pharmaceutical industry.

The pharmaceutical industry employs an army of tens of thousands of "detailers" who go around pushing their drugs on doctors. The detailers are hired for their effectiveness as salespeople (former cheerleaders are hugely over-represented in this group), not their ability to effectively convey relevant medical information. In fact, recent research indicates that the detailers convey little or no accurate medical information in their conversations with doctors. In short, the detailers are an entirely unnecessary cost that may often lead to patients not getting the best drug for their condition.

The abuses don't end with marketing. The pharmaceutical industry controls the flow of information based on the research it conducts. Medical journals constantly struggle to find mechanisms to prevent industry paid pieces from finding their way into print under the guise of neutral scholarship. There is also an ongoing struggle to force the pharmaceutical companies to disclose their research results when they raise questions about the effectiveness of their drugs or indicate harmful side effects.

In addition, the quest for patent rents diverts the bulk of research dollars into the development of copycat drugs that are designed to duplicate the function of already existing drugs, rather than the development of breakthrough drugs that would address conditions for which no treatments currently exist.

We can tell even worse tales about the abuses that result from copyright protection, even though no one dies directly as a result of this form of government intervention. In the absence of copyright monopolies we could download all of the world's music, movies, books, video games, and software at no cost. Instead, we get huge corporations like Disney, Time-Warner, and Microsoft that make enormous profits off these government-created monopolies.

Their enforcement efforts have required terrorizing people for making unauthorized copies of copyrighted material. In a recent case, a single mother was fined several hundred thousand dollars for allowing her computer to be used to download 24 songs over the web. The entertainment industry has gotten the government to prohibit the production of electronic devices because they had inadequate protection against duplicating copyrighted material. They had a Russian computer scientist arrested when he visited the United States because he gave an academic lecture that explained how an encryption lock could be broken. They even went after the Girl Scouts for singing copyrighted songs without permission.

The extraordinary abuses that we see every day as a result of patent protection for prescription drugs and copyright protection should be sending libertarians through the roof, and perhaps it does. But, where are the libertarians' research programs on alternatives to patents for financing drug research or alternatives to copyrights for financing creative and artistic work? (I couldn't find either program on Cato's website.)

I'm not raising these issues as debating points. I absolutely believe that copyrights and patent monopolies for prescription drugs are extremely pernicious forms of government intervention into the market. I can't understand why any serious libertarian would not be as bothered as I am. How can it be okay to threaten to arrest people who would sell a life-saving drug for a few dollars a prescription because the government has given a patent monopoly to the company that sells the same drug for a few thousand dollars a prescription?

I plead agnosticism as to the larger question of whether government intervention is responsible for supporting concentration in industry in general. Clearly in many cases it does and in those cases progressives should have no problem making common cause with libertarians.

In fact, progressives very often get the story quite wrong in characterizing issues as "government versus market." Certainly the current financial crisis provides an obvious example of such confusion. No one was really pushing for "deregulation" in the sense of getting the government completely out of the market.

The financial industry's agenda was to get one-sided deregulation. They wanted to preserve the government security blanket of "too big to fail," while removing prudential controls that limited their ability to take on risk. In effect, what the financial industry wanted (and got) was government insurance that they didn't have to pay for. This surely is not the libertarian agenda; this is the agenda of a politically powerful industry (with allies in both major parties) that will get everything it can out of Washington.

In short, I would like to see more of the anti-corporate side of the libertarian agenda. There may be many areas in which libertarians and progressives take opposing positions, but there are many areas in which we should have common ground. I am not interested in keeping the scorecard. I just want to see libertarians be as aggressive in confronting the interventions that support corporate power as they were in confronting Social Security.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.