In economics as well as karma, everything is somehow connected. The ability to perceive often subtle interconnections is a gift that can help us understand the world we live in.
But sometimes it can seem a bit manic.
That happened to me the other evening as I scanned a weekly magazine while watching the evening news. I was reading about Donald Trump’s populistic arguments against trade and Bernie Sanders’ condemnation of income inequality.
The TV news about the Zika virus outbreak ended with allegations that Brazilian regulations limiting the export of biological specimens are hampering research that might help curb the epidemic or its harm to pregnant women. And just before sitting down, I had read an Internet news account of the legal mega-battle emerging over new gene-splicing technology.
My brain began to flit — Brazilian flautist — son’s alma mater — swashbuckling bio-pirate. I saw these as links between all these news items. But they are not obvious, so bear with me.
Brazil is indeed highly bureaucratic in a way that often limits useful initiatives. There always is history, however.
In the late 1930s, Arturo Toscanini embarked his 100-member NBC Radio Orchestra on a tour of South America. The famed conductor knew Brazilian music as he had made his conducting debut in Rio de Janeiro more than five decades earlier. When in that city, he led his musicians in exploring the virtuosity of popular local artists, including Alfredo da Rocha Vianna, better known as “Pixinguinha,” a superb flautist.
Amazed by the creativity and skill of the locals, NBC managers invited many to the ship to jam and perform numbers for a direct broadcast back the North America. It was a historic session. However, performers were not told they were also being recorded or that many of these records would be sold in the States and Europe. Nor were they paid a dime.
Yet, when the records were out and Brazilians tried to get copies to issue in their country, the U.S. copyright owners demanded stiff royalties. The Brazilians had to pay for their own art that had been taken from them surreptitiously. Yes, Toscanini did lavish praise on the Brazilians, calling Pixinguinha “the greatest flautist the world has ever known.” But business was business, and talk is cheap.
Go back another century and cross the Andes to Peru. That country had a monopoly on production of chinchona bark, used to produce quinine, the antidote to malaria increasingly important in the 1800s as Britain and France spread their colonial domination across Africa and Asia.
The British Foreign Office sent Clements Markham, a 29-year-old explorer, to Peru to collect chinchona plants and seeds. Exporting these required a license, and Peruvian producers knew they would be harmed by losing their monopoly. But Markham made “arrangements” with customs officials and got the genetic material on a ship. Cultivation in British India soon flooded the market with quinine, to the benefit of humanity but the detriment of Peruvian industry.
Markham’s earlier explorations in that country earned him a place in its history, prompting British expatriates in Lima to name the British boys’ school, one my son attended, after Markham.
Markham’s spiriting of chinchona out of Peru was the precedent for his protégé Henry Wickham’s smuggling rubber tree seeds out of Brazil 17 years later. Thus, Brazilians see him as a “bio-pirate.” While his defenders argue that what he did was not strictly against Brazilian law at that time, the spread of rubber cultivation to British, French and Dutch colonies condemned Brazilian rubber to a minor role. From the point of view of the global economy, this burgeoning production was positive, but Brazil and Peru, also a rubber producer, lost out.
In the 1970s and 1980s, First World pharmaceutical companies discovered the potential of substances from tropical plants. Botanists fetched myriad samples and new drugs emerged. Once again, the countries from which the plants were taken usually got no payment, but had to lay out copious sums in the form of drug royalties.
Brazilian limits on exports of biological materials thus are rooted in history, not mere bureaucratic obstructionism. Exporting Zika and mosquito samples now well may speed measures to curb the disease scourging the country. But will it be a one-way street again?
The enormous fight over patent rights to the new CRISPR-Cas9 technology for gene splicing says yes. There are billions to be earned in biotechnology. Four universities in three countries are involved in some way in the suit. Moreover, there are several entirely new companies funded by hundreds of millions of dollars of venture capital. These center on key researchers who have bailed out of academic labs into industry, where they potentially can earn amounts two orders of magnitude greater than academic salaries.
The huge pots of money in biotech send a message that if one gives away key biological material, someone else may get rich on it. And international law, codified in the form of new trade agreements, may well mean that you will have to pay to get your own stuff back.
This brings us to Donald and Bernie. They are largely wrong, or at least incomplete, in their condemnation of trade agreements. Moreover, they don’t understand the implications of the sharp reversal of long-established national policy that they advocate. But they make valid points.
Their assertion that trade deals lowered U.S. tariffs, thus opening the door to a flood of imports, is overstated, because the U.S. already had near-zero tariffs well before NAFTA or the WTO or the TPP. Yes, some tariffs dropped, and quotas were eliminated. But the deals mostly involved our nation giving marginally greater access to U.S. markets in return for unprecedented access to other countries for Wall Street financial firms and markedly increased protection for “intellectual property rights” such as patents and copyrights.
Such rights are specified in the U.S. constitution in one of its few economic clauses. The justification is a very pragmatic one, “to promote the progress of science and useful arts” rather than an abstract Lockean appeal to innate rights of property.
Wise use of patents and copyrights always involves balancing sufficient incentives for innovation against monopolistic abuses of consumers. In recent decades, the scales have been increasingly tilted against consumers and toward patent and copyright holders, both in U.S. law and in international agreements. The TPP contains unprecedented restrictions on the patent policies of other countries along with offering unprecedented advantages to large financial firms.
These bring us to Sanders’ emphasis on income inequality. Economists take refuge in the microeconomic argument that income depends on the value of marginal contributions of skill and effort. We are, they argue, in an era where skills-based labor, as in information- and biotechnology, gets paid. Unskilled labor loses out to Bangladesh and Mexico. There is truth in this.
However, income distribution also depends in great part on how a market economy’s “rules of the game” are written. These involve regulations over labor, including union activity, wages and benefits, financial services practices and trade. They also include the rights of patent and copyright holders. In virtually all cases, the trend over the past 40 years has been to skew the game in favor of financial firms, employers, traders and owners of capital and of intellectual property rights generally. While no single factor is the “cause” of increased inequality, nearly all these move the economy in that direction.
If some in rich nations are harmed by, among other things, trade agreements, and poorer countries are, too, wouldn’t the world be better off with a return to widespread trade and investment barriers?
No, on the whole, that would cause great harm. But we need to be honest about the undue weight of big investment banks and biotechnology, pharmaceutical and information technology firms in the emerging international trade regime.