Intellectual Property Rights and Global Capitalism: The Political Economy of the Trips Agreement

1 Introduction and Background My puipose in writing this book is to examine of the origins and impact of the agreement ...

Author: Donald G. Richards

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1 Introduction and Background

My puipose in writing this book is to examine of the origins and impact of the agreement on trade-related aspects of intellectual property rights (TRIPS) negotiated during the Uruguay Round of talks of the General Agreement on Tariffs and Trade (GATT). The principle theme of the book is that the TRIPS agreement is not in the best social welfare interest of the poor countries and that its effective imposition on them by the rich countries has far more to do with the exercise of real political and economic power than it does with the positive economic benefits the agreement's Supporters claim it can deliver. To support this assertion, I provide a critical examination of the theoretical literature and empirical evidence as they pertain to the impact of intellectual property rights (IPRs) on such important economic variables as export performance, foreign investment, and economic Igrowth. This examination demonstrates the overall weakness of the positivist economic case in favor of a strong international IPR regime, at least as it applies to the poor countries.1 The book then proceeds to provide a political and economic analysis that explains why the poor countries acceded to the TRIPS agreement notwithstanding the lack of positivist economic evidence in favor of its benefits. The analysis here is driven by a theory of the state in the global system which is itself the product of a method I choose to describe as "critical eclecticism." By this term I mean that the approach to state theory I adopt is inspired by several well-established traditions in radical;political economy and international relations theory that speak to, or carry implications for, the relations between the state and civil society. The constituent approaches are (1) world systems theory, (2) Gramscian hegemony, and (3) internationalization of capital. My method is critical in two senses of the word. First, it is critical in the same sense that these constituent traditions are critical. That is, it calls into question the dominant institutional infrastructure by which the global system is administered, and it advocates fundamental reforms to benefit the world's marginalized majority. Second, it is critical in the sense that it does not attempt to include or reconcile all aspects of each of the three component radical research traditions. It recognizes that each tradition has differences of emphasis and strength and draws on these as they advance the analysis at

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INTELLECTUAL PROPERTY RIGHTS

hand. I do argue that the three approaches are in fact mutually consistent at a fundamental level. I do not pretend to settle old debates among and between the schools that have often taken on a polemical character in the past. Having advanced the general political and economic analysis of the TRIPS agreement, the book then proceeds to illustrate with a pair of case studies of two important industries where the struggle over IP is especially strongly waged. These are the pharmaceutical and agricultural biotechnology sectors. In each of these cases, an attempt is made to specify the IPR issues and demonstrate how the TRIPS agreement operates to define and extend capitalist social relations of production on a global scale. It does this in part, I argue, by operating as a mechanism of (Gramscian) consensual hegemony. At the same time, it is recognized that ideological struggle is not strictly determined and that the door is open for counterhegemonic efforts. These cases reveal the conditions under which counterhegemony is more likely to succeed. TRIPS is a relatively recent phenomenon and the literature devoted to its analysis is still relatively undeveloped. Most of the work that has been done in this area by scholars from the developed countries tends to promote the benefits of a strong international IPR regime. I know of no work in this area that approaches the general case of the TRIPS agreement from a radical perspective of political and economic international relations of the type I develop here. Later in this chapter I review some of the recent related literature and show how my own contribution extends, improves on, and/or corrects this work. The TRIPS Agreement in Basic Outline The TRIPS agreement is not a sui generis system for the international protection of intellectual property rights. It traces its historical and juridical roots to several earlier international agreements, two of which date back to the nineteenth century. The Paris Convention for the Protection of Industrial Property of 1883 and the Berne Convention for the Protection of Literary and Artistic Works of 1886 were precursors of the TRIPS agreement. The Paris agreement required signatory nations to provide national treatment for foreign innovations in the areas of patents, trademarks, industrial designs, appellations of origin, and utility models, while the Berne Convention did the same for copyrights. National treatment, however, does not require nations to provide any particular standard of protection. It merely requires that whatever level is provided to domestic works also be provided to foreign works. Essentially, then, the Paris and Berne conventions amount to nondiscrimination agreements in the area of IPRs rather than agreements that establish

INTRODUCTION AND BACKGROUND 5

minimum standards. Nonetheless, the two conventions were not universally embraced: some countries chose not to becomie signatories in the belief that the agreements represented constraints on the countries' abilities to reap the benefits of technological transfer and development.2 In 1893 the Paris and Berne conventions were merged into a single secretariat to be administered by the World Intellectual Property Organization (WIPO)(Ryan 1998, p. 126). WIPO subsequently becameapart of the United Nations system in 1974. Its mission is to help nations develop multilateral norms governing IP, help nations develop national legislation, and facilitate the negotiation of international treaties. As Ryjan notes, however, WIPO operated under the same constraints as its predecessor agreements. That is, while some members of WIPO attempted to| press for effective minimum standards for IP protection, there was within the organization considerable resistance to these attempts as well. Neither was WIPO endowed with an effective mechanism to enable it to enforce what minimum provisions its membership was able to agree to. The inadequacies of WIPO can fairly be identified as the inspiration motivating the movement to establish the TRIPS agreement as part of the multilateral trade negotiating system and institutional framework. The demonstrated effectiveness of the latter in liberalizing trade, its effectiveness in enforcing its various provisions, and its ability to settle disputes, or at least limit their negative fallout, made the GATT/World Trade Organization (WTO) an obvious choice for those who advocated a strengthening of the international IPR regime. The basic function of the TRIPS agreement is to establish and enforce minimum international standards for the protection of intellectual property. As such, it does not literally seek to bring about the international harmonization of IPRs inasmuch as nations are free to adopt national IPR regimes that provide more extensive protection than that called for by the agreement. It does require that nations adhere to the main provisions of the Paris and Berne conventions while calling for nothing that derogates nations' obligations to one another under those agreements. Thus, for example, the basic principles of national treatment and most favored nation are strongly enshrined in the TRIPS agreement.3 | Beyond this, as noted, the TRIPS agreement stipulates that certain minimum requirements for IP protection be met by the WTO nations. In the area of copyright, works are afforded a period of exclusionary protection equal to fifty years after the life of the author, and copyright protection is extended beyond printed matter to include sound and video recordings (Articles 12 and 14). Copyright protection is also provided to computer software programs as well as to compilations of data that represent a necessary degree of intellectual creativity.4 Minimum patent protection is established at twenty

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INTRODUCTION AND BACKGROUND

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years and is extended by the prohibition of patent discrimination based on the place of invention, field of technology, or whether products are imported or locally produced (Article 27.1). Industrial designs are given similar protection for periods of at least ten years (Article 26.1). Article 18 allows for the registration of trademarks for periods of seven years that are indefinitely renewable, while Article 16 grants exclusive right of use of a registered trademark. Geographical indications are protected by Articles 22 and 23. There are also some especially notable exceptions to the protections offered by the TRIPS agreement. Where patents are concerned, exceptions apply to living organisms developed by traditional methods. Compulsory licensing of patented products or processes is not allowed except in cases of national emergency. Transitional arrangements are allowed to enable poorer countries to update their legislation and establish the necessary administrative machinery to apply and enforce the law. Five years' grace is granted to less developed and transition countries with an additional five years for the poorest of these. All countries are expected to be compliant by 2005.

were especially prominent. Opposing the agreement were many middle and less developed countries, particularly India imd Brazil, which seek to nurture incipient knowledge-intensive industries of their own. Predictably, the scholarly literature is also represented by voices that stand in support of the agreement, however qualified in some instancesjand those that are opposed to it. I shall state at the outset my own view that the TRIPS agreement is not in the best interests of the poor countries of the \yorld. More accurately, I do not believe it to be in the best material interests of the poor majorities who live and work in these countries. Neither is it cle|ar that the agreement operates in the best interests of workers and consumers in general. A major task of this book is to explicate the reasons for such skepticism. A second major task is to provide an ex post facto explanation for the accession to the agreement by those very same poor countries. This explanation, I argue, must properly be conducted in political economic terms—a type of analysis I shall define in due course. Before delving into these and other related questions, however, a consideration of the relevant academic context is in order.

Recent Literature

Mainstream Economics Justifications of the TRIPS Agreement

There have been a number of recent book-length publications (monographs and collected editions) devoted to the internationalization of intellectual property rights. In this brief review, I shall call attention to the strengths and weaknesses of a representative sample of these works in a manner that I hope makes clear the need for a political economic analysis of the type that I propose of the prevailing IPR regime. Some of the recent works are supportive of the prevailing IPR system, albeit with qualifications, while others are highly critical. Some of the recent scholarship may be considered, at least as I understand the concept, political economic in character while other works focus on the sociological, philosophical, or juridical aspects of IPRs. In drawing attention to these distinctions, I do not wish to denigrate the valuable contributions made by authors who write from a disciplinary emphasis that differs from my own. I wish only to convince the reader that a space exists that my own contribution seeks to fill. It will also be clear that I disagree with several of the general perspectives as well as the particular interpretations of the salient issues offered by the authors I review. This should come as no surprise to those even distantly familiar with the nature of intellectual property discussions.

Standard economics justifications for intellectual property rights typically commence by recognizing that IPRs entail an inherent contradiction. On the one hand, welfare is maximized in a competitive economy by the free and complete availability of information. On the other hand, the production of knowledge and knowledge-intensive goods requires, as does any production in a market-based economy, incentives. Such incentives will be lacking in a regime that does not provide some restrictions on the access to information. This contradiction has led many economists to pose the problem in terms of "optimal" IPRs. Primo Braga (1990), in an early survey of the literature cites seminal contributions by Arrow (1962), NorcJhaus (1969), and Scherer (1972) in his discussion of the optimal patent length, for example. Primo Braga recognizes that more recent theoretical developments, involving such dynamic considerations as the cost of patent races and the pace and reach of knowledge diffusion, call into question: these early results. His general conclusion, however, is that there is a greater danger of insufficient investment in research and development (R&D) in developing countries rather than overinvestment.

The negotiations leading up to the establishment of the TRIPS agreement were extremely contentious. Leading the effort to establish the TRIPS were the United States, several European countries, and Japan. In these efforts, the U.S.-based pharmaceutical, telecommunications, and computer companies

In a more recent World Bank discussion paper, Primo Braga and coauthors Fink and Paz Sepulveda (2000) provide an updated survey of the economic impact of IPRs in the post-TRIPS environment. These writers once again note the welfare ambiguity of IPRs, paying particular attention to the questions of knowledge production and diffusion. They make the argument

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that while the short-term static impact of a strong IPR regime may well involve a welfare loss, owing to the exercise of monopoly power on the part of sellers of knowledge-based commodities and production processes, the longterm effects may be beneficial given the presence of additional, largely institutional, conditions. They note in particular the need for an effective competition policy that operates to ensure that the benefits of increased R&D expected to follow from a stronger regime are widely spread. The development of the "human resource base" of the poorer countries is seen as necessary to increasing these benefits, as are greater macroeconomic stability and more open trade and investment regimes (p. 48). Even more fundamental for Braga, Fink, and Paz Sepulveda is the necessity of promoting a pro-IPR consensus among the broad swath of national stakeholders. They write: A first step for a developing country reforming its IPR regime should be to support initiatives that promote consensus. It is important to bring together all affected parties—local "pirates," research-based companies, universities, consumer groups, government agencies, industrial property offices, IPRs lawyers, and others—to discuss what IPRs "do" and "don't do," while attempting to evaluate the economic impact of IPRs reforms. Such an exercise can provide useful input for the formulation of new laws and help in identifying adversely affected groups and in the design of appropriate compensatory mechanisms, (p. 47) This particular quotation raises a number of interesting issues. The first is the implicit admission that a fundamental task faced by proponents of a stronger IPR regime such as that embodied by the TRIPS agreement is to create a propitious ideological climate as a precondition for the success of such a regime. Apparently for these World Bank economists, the success of the TRIPS is primarily a problem of winning the confidence of those for whom the agreement can be expected to have potentially profound material consequences, even "local 'pirates."' What is especially peculiar about this advice is that it comes on the heels of the admission by the authors that the available theoretical and empirical evidence is unable to demonstrate conclusively the alleged benefits of the enhanced regime. The authors give not a moment's consideration to the possibility that strengthening the IPR regime might be the wrong thing to do for a poor country. Second, the authors make reference to "compensatory mechanisms" designed to reduce the burden of a stronger regime on those who are adversely affected. They refer in this case to the use of such options as parallel imports, compulsory licenses, and price controls as tools to be used to alter the distributional impacts of stricter control over intellectual property. These tools


will be discussed in later chapters. The important questions to raise here are ones that the authors ignore altogether: What are the political economic conditions required for a country to successfully employ such measures and under what conditions will these measures be adequate to the country's developmental and distributional goals? Just as the establishment of the TRIPS agreement represented a struggle between Contending international as well as intranational interests, the continuing application and interpretation of the agreement can be expected to be no less contentious. The authors' emphasis on consensus thus appears naive at best and disingenuous at worst. Another recent work that takes an.essentially positive view of the TRIPS agreement is Keith Maskus's IntellectuaUProperty Rights in the Global Economy (2000). Like the other authors already cited, Maskus notes that IPRs have basically contradictory effects on! (at least) short-term welfare. He argues that the theoretical prediction of the outcome of a strengthening of the IPR regime depends on the particular assumptions invoked. In his review of the available empirical evidence, including his own work, however, Maskus finds much to recommend the agreement and argues that its long-term net benefits are likely to outweigh its short-term costs. In particular, Maskus is optimistic about the agreement's potential 1:0 promote for the poorer countries higher levels of international trade ard investment, foreign direct investment, and economic growth, each of which he believes is critical for promoting economic development. Once aj;ain, Maskus's optimism is contingent on the willingness and ability of th; developing country to adopt a wide range of additional market reforms. He notes especially the importance of policies to bring greater flexibility to the labor market, to promote and regulate industrial competition, and to promote free trade. Many of these policy suggestions will be recognizable to anyone familiar with the so-called Washington consensus of the 1990s. Given the similarities between Maskus's analysis and that of the authors discussed earlier, it should not come as a surprise to find that the former suffers from substantially the same shortcomings as the latter. Most prominently, Maskus, writing from a purely ieco'homic perspective, fails to give due recognition to the play of political forces and events. He pays little attention, for example, to the global political context in which the Uruguay Round of the GATT was conducted. While he recognizes in passing that the poorer nations faced considerable political pressure to assent to the TRIPS agreement, he does not examine the class-based origins or consequences of that pressure. Mainstream economists frequently justify their choice to minimize or marginalize political considerations in their analyses by suggesting that such considerations are outside of their disciplinary purview and more properly

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require the attention of political scientists and/or international relations specialists. I would argue, however, that the tendency to consider apparently pure economic categories and evidence in isolation often results in a misinterpretation of that evidence. Take, for example, Maskus's data that show a correlation between strength of IPR regime and trade openness. Maskus interprets this correlation as a limited proof that a successful IPR regime must be accompanied by a liberal trading regime. But another interpretation is possible. Dependency theory might argue that strong IPR regimes together with a high degree of trade openness are typical of small nations and reflect dependency on external economic relationships and vulnerability to political pressure emanating from the more powerful countries. It is well known, for example, that certain former colonies of the nineteenth-century European powers adopted in wholesale fashion the strong IPR regimes of their colonizers. These former colonies also remain highly dependent on international trade, often with these same developed countries. Lacking a broader analytical framework, Maskus does not consider such a possibility. The TRIPS Agreement and International Law Standard economic interpretations of the TRIPS agreement, such as those discussed above, note the theoretical ambiguity of its likely impacts on the poorer countries yet still generally come down in favor of the agreement. The willingness to endorse the agreement may be driven by a belief in its historical inevitability and fueled by the expanding sense of market triumphaiism that characterized the close of the Uruguay Round. This same attitude of final victory, in fact, resides at the heart of the Washington consensus and defines the aggressive neoliberalism of the 1990s typical of NorthSouth economic relations.5 The suggestion that the TRIPS agreement is now an unavoidable part of the international political economic superstructure seems to be at the heart of Carlos M. Correa's recent analysis in his Intellectual Property Rights, the WTO and Developing Countries (2000). Correa is an Argentine lawyer who considers the likely impact of the agreement on the southern nations that remain largely technologically and economically dependent on the North. He regards the agreement as a form of "technological protectionism" imposed by the United States with the aim of consolidating an international division of labor under which northern countries generate innovations and southern countries constitute the market for the resulting products and services (p. 5). As I shall argue in later chapters, in my estimation this is not far off from an accurate description of the agreement's effective motivation. Correa goes on to discuss rather convincingly the limited potential impact of


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the agreement in terms of its alleged long-term benefits. He suggests, for example, that DFI flows are not likely to bfe an important benefit inasmuch as IPRs are but one, and not the most important, determinant of these flows. Also, once IPRs reach a certain level of Harmonization among the southern economies, they cease being a basis of differentiation between them for potential foreign investors and are, therefore!, less relevant to DFI decisions (p. 30). Neither does Correa consider technology transfer from North to South as a necessary outcome of the TRIPS agreement. While the TRIPS may create the conditions for such a transfer, it may also operate to impair the ability of the southern economies to negotiate favorable terms. Given Correa's skepticism regarding the motivation and likely consequences of the agreement, one might expect him to advocate its outright renunciation by the South. Rather than choose this course, Correa instead suggests that the poorer countries seek ways to adopt the agreement in a fashion that will yield them benefits. He; asserts, "Despite the origins and main forces behind the TRIPS Agreement... this Agreement still contains elements that, duly applied, may permit a certain balance in its implementation" (p. 6). The main body of Correa's book then is devoted to a legal parsing of the agreement's sections and subsections in a search for language that will enable an interpretation of the TRIPS iiseful to southern interests. Correa supplements his legal analysis with suppo ting case law citations on relevant IPR disputes that judicial authorities, including those that adjudicate WTO dispute settlements procedures (DSP) hearings, presumably would find persuasive. Thus, Correa maintains that Articles 7 and 8 permit member countries to take into account their own public interests in devising and implementing IPR law. In the area of pater ;t law, less developed countries are free to define the concept of "invention" through their own national legislation or through administrative and judicial practice. There is no obligation under the TRIPS agreement to adhere to aiunique concept of "invention" nor to adhere to a definition inspired by the expansive approach that exists in a developed country such as the United States (p. 51). This flexibility would be especially relevant in devising IPR policies in evolving and incompletely settled areas of IP, such as living orgahisms and computer software. Correa notes that plant varieties may be! protected by a less demanding sui generis approach to IPRs that permit farmers and researchers greater rights than would a patent system of protection. More generally, he argues that less developed countries (LDCs) may choose interpretations of the TRIPS agreement as it bears on plant genetic resources consistent with recently struck international agreements supported by the United Nations, such as the International Undertaking (IU) and the Convention on Biological Diversity (CBD), that seek to guarantee access tothese materials. He also argues that the

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TRIPS agreement provides latitude with respect to the permissibility of parallel imports, compulsory licenses, and exclusions to IPRs based on a variety of national concerns considered to be of overriding importance—for example, public order or morality. To his credit, Correa does a much better job than Primo Braga, Fink, and Sepulveda in setting out the conditions under which such "compensatory mechanisms" might be applicable. Moreover, in general, he provides prospective opponents of the TRIPS with useful legal advice and guidelines for challenging the agreement on its own terms and in its own language. Ultimately, however, Correa's approach confronts several important limitations in both its analytical reach and its practical, political usefulness. The most important constraint faced by those who would adopt Correa's legalistic approach is that although the agreement is worded in a manner that allows a variety of competing and conflicting interpretations of many important issues, as a practical matter, such conflicts will be resolved within the WTO's disputes settlements procedures (DSP). Even nonlawyers know that judicial reviews are hardly ever simply a matter of equally capable and wellendowed parties submitting their claims to otherwise disinterested judges for dispassionate consideration and resolution. The settlement of conflicts in the real world depends on the technical expertise and other resources that the contending parties can bring to bear in presenting their respective cases. As Correa is well aware, however, one of the many inequalities that separate the North and South resides precisely in their respective capabilities to marshal legal, technical, and administrative resources in defense of their interests in national and international forums. Even on those occasions when poor countries do manage to win a favorable ruling in the WTO, it is an open question as to how effective or binding the judgment will be on the behavior of the richer country or corporate producers it represents. The GATTAVTO DSP operates by permitting compensatory retaliation toward countries that are found in violation of its provisions. Large developed countries can much more easily absorb such measures than can smaller, less developed ones. This has been historically true of normal trade disputes and we should expect it to be no less true of disputes involving IPRs. A country like the United States can be expected, then, to ignore DSP judgments rendered against it when they are not very costly and yet still take advantage of the mechanism to press its own complaints. Neither can we expect the United States to abandon its tendency to resort to unilateral pressures when the WTO does not work as efficaciously as it would like. Correa himself notes that the United States has recently imposed unilateral punishments against Argentina for alleged IPR violations although such unilateral actions stand in contradiction to the TRIPS agreement (p. 9). He also notes that the United States has aggressively employed other bilateral pressures to


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convince other Latin American and Caribbean nations to make extra TRIPS concessions (p. 110). Finally, a limiting feature of Correa's legal approach is that it envisions nation-states acting on behalf of an imagined national interest. This is entirely understandable insofar as the TRIPS is in fact an agreement struck by nation-states. But it can hardly be realistically assumed that nations are homogeneous entities whose interests on IPRs and other matters can be univocally expressed. The TRIPS agreement!, however interpreted, provides no mechanism or agency for the expression of nonofficial perspectives. Even when these perspectives are expressed via the agency of nongovernmental organizations (NGOs), their impact on TRIPS deliberations must necessarily pass through the filter of the state. It is a shortcoming of Correa's book that it provides no discussion of how state institutions and policies mediate between domestic groups and classes and their international counterparts in the context of the IPR debate. As I shall demonstrate, this shortcoming is shared by a substantial portion of the recent literature in this area. The TRIPS and International Capital Duncan Matthews's Globalising Intellectucl Property Rights: The TRIPS Agreement (2002) is an authentically political ^conomy treatment of the TRIPS agreement. What makes it so is the author's concern to detail the origins of the agreement as arising from the pressure exerted on policy makers by corporate interests to include the issue of IPRs on the negotiating agenda of the GATT Uruguay Round. Moreover, unlike seme previous studies (i.e., Ryan 1998), Matthews demonstrates that these inte rests were not exclusively U.S.based, but instead included well-organized industrial groups in Europe and Japan. He argues in fact that had the Europeans and Japanese corporations not lobbied heavily in favor of including IPRs in the negotiations, the TRIPS agreement would never have been realized. The difference between U.S., on the one hand, and European and Japanese!corporate involvement, on the other, in promoting the agreement, according to Matthews, was more a matter of lobbying style than it was commitment to the objective of strengthening the global IPR regime. Whereas U.S. busiriess interests were able to operate in a very direct way to influence policy making by the United States Trade Representative (USTR), European- and Japanese-based companies needed to negotiate a more complicated and multilayered bureaucracy to influence policy. In the case of Europe, the problem of arriving at a consensus strategy for including IPRs in the negotiations was made more complicated by the emergence of the European Union. Matthews also provides a much needed corrective to the tendency to

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view corporate, capitalist competitors as representing essentially national actors engaged in a global, competitive arena. He stresses instead the multinational character of the enterprises most likely to benefit from a strengthened global IPR regime. The role played by the global pharmaceutical industry is particularly salient in this regard. It is this same global, capitalist alliance that has also assumed major responsibility for seeing that the agreement is enforced. Matthews shows that the institutional mechanisms for the enforcement of the TRIPS, the WTO and WIPO, lack the oversight capabilities necessary for monitoring member-country compliance to its provisions. This function then is effectively relegated to private sector concerns who file complaints with the official regulatory bodies when they believe a violation has occurred. While the corporations themselves cannot play the role of plaintiff in WTO mediated disputes, they can, in Matthews's words, act as "the eyes and ears" of the developed country members in the disputes settlements procedures and in formulating legislation and administrative procedures (p. 4). The object of this regulatory activity is, of course, primarily the poorer, less developed countries. Matthews does a good job of describing the potential costs and benefits of the agreement and their likely uneven incidence on the populations of the LDCs. He recognizes that the TRIPS agreement is bound to generate sympathizers among those groups that are-able by virtue of training and connections to forge productive connections as input providers to the large transnational corporations who are the prime movers behind the agreement. These winners from the "talented class" will not be required to emigrate in order to advance their careers. Overall, however, according to the author, the results of the agreement will be to exacerbate the economic dependence of the poor countries on the developed world, which owns and controls the large share of the world's patents. The question of effective enforcement of the TRIPS agreement raises for Matthews interesting questions about its long-term viability.6 In particular, he is concerned about the ultimate cohesiveness of the international capitalist alliance required for its functioning. This cohesiveness is threatened by the fact that nation-states typically pursue multifaceted foreign policies that inevitably bring them into conflict. While these developed nation-states may be able to form a temporary alliance to bring into-existence a regulatory instrument that addresses a mutually felt need and general purpose, the actual functioning of the regime may well bring them into conflict with one another as well as with the LDCs. Moreover, national policies must address themselves to a wide range of national and international concerns—for example, international security or human rights—that in some circumstances dominate and conflict with those associated with IPRs and their administra-


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tion. There can be no presumption that the developed nation-states will achieve the same unanimity of outlook in these other areas that they have in the area of IPRs. While these concerns of Matthews are logical, I do not agree that they constitute realistic obstacles to the future functioning of the TRIPS agreement. Moreover, I believe that Matthews's overestimation of their severity derives from the lack in his analysis ofia sufficiently articulated theory of the state in the global economy. Mattheivs seems at times to operate on the basis of an implicit instrumentalist theory of state power wherein corporate actors are able to manipulate, directly or indirectly via access to key officials, the policy-making apparatus.7 WJiile there is at times some truth to this perspective, it fails to account for the ability of the state at other times to resist or ignore particular corporate! interests in order to attend to the general conditions required by capitalism for its expansion and reproduction on a global scale. The TRIPS agreement is precisely a part of this sort of general condition, which in recent decades has been identified as global neoliberalism. Neoliberal reform should not be oversimplified as implying the wholesale retreat of the state. It should be understood rather as constituting the sorts of structural changes in the global economic system that provide the best conditions for general capitalist reproduction. Clearly, this commitment by the state may conflict at times with the demands of particular segments of capital, including those relating to intellectual property. It should not come as a surprise, then, when particular IPRs are not given priority of treatment by the state. A second criticism to make of Mattiews's analysis concerns his treatment of class relations, which results in some inconsistencies and confusion. At times, Matthews makes clear that the TRIPS agreement is the result of the lobbying efforts of a transnational capitalist class. At other times, he writes as if policy outcomes, including those related to the interpretation and enforcement of IPRs, were strictly a matter of contending struggles between domestic class fractions. Moreover, he seems to regard differences in national policy agendas as a potential deterrent to the long-term success of the agreement. I believe that a less j contradictory interpretation of the intraclass struggle over the TRIPS has more to do with the distinction that separates competitive from monopoly capital than it does with the national versus transnational origins of capital. The IPR debate is mostly a matter of the desire of monopoly capital to capture the firm-specific rents associated with knowledge-based outputs and processes. Certainly there are competitive firms as well as other domestic class fractions that will seek to challenge the terms and conditions under which commodified knowledge is traded in the marketplace. At times, this challenge is bound to be presented in

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thoroughly nationalistic discursive forms and cultural appeals. Those who wish to contest the hegemony exercised by noncompetitive transnational firms, however, would do well to keep in mind that the desire of these firms for profit provides a better guide to their behavior than their imagined nationalistic allegiances. Ideology and Intellectual Property Rights In contrast to neorealist interpretations of IPR policy such as that provided by Matthews, it is interesting to consider the views of others who see the issue in terms of ideology. Susan Sell, for example, in her Power and Ideas: North-South Politics of Intellectual Property and Antitrust (1998), places ideology at the center of an analytical approach she describes as "interpretivist neoliberal theory." Interpretivism, according to Sell, emphasizes "the intersubjective dimensions of international politics and treats interests as endogenous" (pp. 11-12). It privileges the force of ideas as compared to the materialism Sell associates with the more established analytical traditions that dominate international relations theory (p. 22). Individual nation-states, according to the author, are "unit-level learners and actors" who define and redefine a negotiating agenda in the pursuit of national self-interest. She then describes the rise and decline of the negotiating positions of southern states relative to northern states in such areas as restrictive business practices, technology transfer, antitrust, and IPRs, paying particular attention to the post1970 period. Sell asserts that while northern states have managed to win the hearts and minds of southern states in some of these areas—for example, antitrust, they must still resort to coercion to enforce IPRs. Sell is optimistic, however, that southern unit-level actors (i.e., national governments) possess the capacity to learn from experiences, consider new ideas, and develop new negotiating positions. The ideological shift necessary for the success of the TRIPS agreement may be currently under way as nascent indigenous capitalist groups with an interest in strengthening local IPR regimes begin to emerge in some southern states. In this context, Sell cites several opportunities for collaboration between southern-based companies to work with northern-based corporations and business associations to develop the needed incentives (pp. 212-214). Sell's book, with its emphasis on the power of ideas, provides a welcome offset to the tendency of much international relations analysis to ignore the role played by ideology altogether. She seems, however, to set up a false dichotomy between explanations that appeal either to materialist factors or to ideological factors without giving due consideration to those that emphasize the interaction of such forces. Interestingly, she does allow for precisely


this last possibility in her admission that Gramscian approaches provide this sort of interaction.8 She writes that Gramsbian approaches "take ideas seriously and stress the close relationship betvyeen power structures and ideas" (p. 12). She unreflectively rejects this option, however, on the grounds that Gramscian theories themselves privilege structural explanations over those that emphasize the autonomous influence; of ideas. Again she opts instead for an interpretivist position that allows for a greater role played by "voluntarism and choice" (p. 13). i The problem is that this "interpretivist' perspective is ultimately unconvincing. While it is easy to show that policies of nations undergo changes over time, the chances of these policies becoming effective in the long run clearly have a great deal to do with such matters as technology, economic crises, and other conjunctural (structural) events. Sell herself seems to realize this at several points in her argument where she demonstrates the importance of stmctural factors in shaping the "learning" experiences of both developed and developing nations during the 1970s and 1980s. The economic crisis of the 1980s, for example, forced the developing countries to abandon their demands for a code of conduct for the regulation of transnational corporation behavior that sought to advance the development goals of the poorer countries (p. 97). The flaw in Sell's own structural analysis is her insistence on treating nation-states as "unit-level actors." This reatment leaves the indefensible impression that nations are univocal and obscures the fact that they are composed of competing, often conflicting, classes and that classes themselves may be characterized by divisions. This fa lure to recognize class dynamics has important implications for Sell's analysis of the state and its policy-making apparatus. Rather than reify the state as a univocal, unit-level "learner," it makes much more historical sense to interpret it as an arena within which a (class-based) struggle for power takes plabe. By extension, then, it makes more sense to speak of regime change than of state learning to describe the shifts that characterize the redirections !of state exercise of power and policy making. Once again Sell herself does aigoqd job of illustrating precisely this point in her description of the conjunctural problems of external debt and economic crises that plagued many developing countries during the 1980s. On an ideological level, these problems had the result of replacing antidependency development policies with new ruling groups and elites who were more favorably inclined to a proinarket, neoliberal vision. The latter view, not coincidentally, was the one being espoused by the International Monetary Fund and the commercial bank establishment, upon whom these countries depended for relief. If this ideological transformation could be called "unit-level learning," it is a narrow and coerced type of learning indeed.

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As noted earlier, Sell ultimately modifies her argument to admit that structural and material forces do act in concert with ideological ones. By way of conclusion she writes: Overall, this book presented proximate causes for particular changes in intellectual property and antitrust attitudes and policies. Perhaps this analysis could be made compatible with structural and instrumentalist/rationalist theories. The explanations presented here might well fit into a broader Gramscian analysis, (emphasis added, p. 229) I think that Sell is correct to describe her explanations as "proximate causes." This suggests that deeper, more fundamental forces are at work. I also believe that her qualified intimation that Gramscian analysis might have something significant to offer after all needs to be taken seriously. Unfortunately, she never pursues this line of investigation. A superior job of describing the interplay between power, ideas, and intellectual property is provided by Christopher May in his book A Global Political Economy of Intellectual Property Rights (2000). In this work, May is primarily interested in examining IP from the standpoint of its ideological or philosophical justification. He begins by considering IPRs from the perspective of two well-established philosophical traditions. The first of these, associated with the seventeenth-century British philosopher John Locke, is described by May as an instrumentalist justification on the grounds that the establishment of property is "instrumental" to the ends of promoting profitable human activities (p. 25). The second tradition, associated with the eighteenth-century German philosopher Georg Hegel, is called a "self-developmental" justification insofar as property enables individuals to establish and realize their full human personalities. May also considers a pragmatic, or economic, justification for IP that is based in the utilitarian tradition. He argues that most ideological justifications of IP involve some combination of these traditional philosophical defenses of property and property right. May recognizes that the philosophical justification of IP is necessarily conducted within a historically defined social structure. Such a structure is defined as a set of institutions and behavioral norms that are themselves the outcome of the exercise of power. May borrows from Susan Strange (1988) the useful notion of the "knowledge structure" to describe that portion of the social structure specifically concerned with defining the limits of "acceptable knowledge." The knowledge structure is one of several structures that govern the functioning of the international political economy. Others include the security, financial, and productive structures. These structures interact to produce material outcomes with definite distributional consequences. That


is to say, the outcomes produced are in no way class-neutral. The exercise of class power determines both the content of die knowledge structure and how this and other structures condition the functioning of the international political economy.9 Strange and May's concept of the knowledge structure provides an effective means of overcoming the false dichotomy between ideological and structural forces posed by Sell. May argues that the knowledge structure interacts with other structures in a dialectical fashion to influence the course of develi

opment of the international economy over time (p. 39) and shows how this development encourages the conversion of knowledge into commodities. This conversion process he aptly terms the "newf enclosure" and notes that the TRIPS agreement is its most recent and effective instrument. Like several of the other works I have considered in this review (Matthews is the exception), May's analysis is constrained by its essentially nationalist perspective. For May, the TRIPS agreement appears as a victory for certain fractions of U.S. corporate capital, especially those firms in the pharmaceutical, entertainment, and informatics industries. This perspective, I believe, underestimates the degree to which the agreement advances the interests of a transnational capitalist class. The corporations served by the agreement, as Matthews demonstrates, are largely transnational ones which, while headquartered in particular geographical locations, seek to maximize profits on their global operations. The goal of profit maximization dominates considerations of national allegiance or identity. May also runs into problems in his treatment of the state and the exercise of state power. In fact, he never explicitly add -esses these questions but seems to operate implicitly on neorealist assumptions. This perspective and its limitations will be discussed in detail in Chapter 4. For now, it is sufficient to point out that neorealist theories posit the state as a collective maximizing agent seeking to advance a well-defined national interest. From this perspective, the TRIPS would be understood as ah agreement imposed by strong nations on weaker ones. The problem with subh an interpretation, once again, is that it offers a distorted understanding ofj a global economic system that has broken the bounds of national production and accumulation. I shall close this review with a few comments on a third book that looks at the question of intellectual property rights from a largely ideological perspective. In Shamans, Software, and Spleens: Law and the Construction of the Information Society (1996), James Boyle considers the issue of intellectual property largely from a legal standpoint. Unlike Carlos Correa's investigation considered earlier, however, Boyle is less interested in discussing the technical aspects of the law as it applies to an interpretation of the TRIPS than he is in understanding the ideological context within which our under-

20



standing of IP has emerged. To employ May's terminology, Boyle is interested in providing a description of how the knowledge structure as it applies to IP came to be constructed; "constructed" is Bolye's characterization and is typical of much "postmodern" analysis. At the base of this construction, says Boyle, is the image of the "romantic author." This concept refers to those individuals who are taken to be the original creators, or transformers, of knowledge and its applications and on whom property rights are conferred as an incentive or reward for their original contributions. Boyle believes, however, that the concept has been pushed too far: "I argue that this is a bad thing for reasons of both efficiency and justice; it leads us to have too many intellectual property rights, to confer them on the wrong people, and dramatically to undervalue the interests of both the sources of and the audiences for the information we commodify" (pp. x-xi). Boyle's work is dedicated to an examination of a variety of information issues that he describes as "puzzles." The legal concept of copyright is laden with contradictions concerning the reach of ownership rights. He asks, for example, why blackmail and insider trading are illegal. Such practices, after all, involve the use of information to advance a position of market advantage, just as do more acceptable forms such as copyrights. Key to Boyle's analysis of such puzzles is the distinction between the public and private spheres, which, following Karl Marx, is fundamental to an understanding of the functioning of law in the modern liberal state. In the public sphere, we are, as citizens, all equal—distinctions of class have no standing. In the private sphere, however, differences of wealth, social background, and opportunity are determinative of real outcomes for individuals and their communities. For Boyle, the public-private distinction enables the inhabitants of a modern liberal state to ideologically reconcile a sort of social cognitive dissonance. It is also on this axis of public-private distinction that many questions involving IPRs are resolved (pp. 26-27). Applying the author-centered paradigm to IPRs, Boyle argues that the concept stands as a gateway through which one must pass to acquire IPRs. Not all innovations, however, pass easily through. A widely disproportionate share, in fact, is claimed by rich countries and far fewer by poor countries. Boyle notes: Curare, batik, myths, and the dance "lambada" flow out of the developing countries, unprotected by a suite of intellectual property rights, while Prozac, Levis, Grisham, and the movie Lambada! flow in—protected by a suite of intellectual property laws, which in turn are backed by the threat of trade sanctions, (p. 125)

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Boyle argues that this disparity is not entirely a consequence of the operation of the IP system. However, the system operates to exacerbate the disparity owing to a centuries-old international division of labor in which poor countries specialize in providing primary products and raw materials for which the "authorial regime" assigns a value of zero in terms of IP (p. 126). Scientists are deemed to be "authors" who transform nature. Farmers, on the other hand, are seen as a part of the naturally evolvjing community operating on the basis of an unchanging tradition. The contributions of farmers are consequently made invisible and unlikely to command a high reward in the market, even when they can be shown to be economically productive. It is an easy leap to attribute such contributions to! the public sphere, a commons whose exploitation then becomes the target |of the private sphere by the authentic "author" (p. 130). The result is a system characterized by its colossal unfairness as well as its inefficiency. In speculating about the character of and! alternatives to the prevailing IP system, Boyle asks a number of useful questions. Does this system rest on evidence or on faith? Do we want to consider a system that would have more protection for information production and less protection for the production of innovation? Do all the types of innovation that get protection actually need it? If not, is it necessary, for reasons of administration and formal realiz ibility, to cast our net so wide? In its overall effects, does this system disp-oportionately help or hurt developing countries and the individual author or creator? Does this system undervalue the public domain and, if so, will it actually end up diminishing future innovation and impeding future innovators? (pp. 140-141) Boyle makes the extremely important point that a single "Procrustean" concept of information production and ownership will not be able to satisfactorily address this list of questions for the diverse types of production in which human societies are engaged. And yet such! a concept is precisely what the TRIPS agreement seeks to impose. Overview of the Chapters Chapter 2 provides a critical review of the' traditional philosophical approaches to the concept of property right. It includes a discussion of the Lockean labor theory of property, the Hegelian personality justification, and the utilitarian justification (both in its familiar Benthamite version and its less familiar, but useful, Godwinian interpretation). The approaches inspired by Locke and Hegel are found to fail to offer compelling justifications for private property

22


in ideas. The utilitarian philosophies, especially that associated with Bentham, also have difficulties. Parallels may be drawn between the applicability of these philosophic approaches to IPRs and to proposals calling for an international agreement on minimum labor standards for workers. One might well ask why there is no such agreement on trade-related international labor standards (TPJLS) that would provide for workers a degree of the protection such as that offered by the TRIPS for those who claim ownership of intellectual property. The answer is that advocates for a TRILS agreement have not been able to mobilize nearly as effectively to imprint the emerging international regulatory infrastructure as have the proponents for stronger IPRs. Chapter 3 examines the institution of intellectual property from the perspective of positivist economic science. By positivist economic science I refer to the research tradition that places primary emphasis on the formulation and tests of hypotheses drawn from abstract models of economic processes. It is well known that this is the dominant research tradition among academic and professional economists. In the examination of this literature, I do not pretend, however, to endorse the positivist approach as a preferred one. To the contrary, I tend to believe that it often results in a very selective and ideologically biased presentation of evidence. It does, however, present evidence of a type nonetheless with which critical social science should contend rather than ignore. By critical social science, including critical economics, I refer to those research traditions that challenge both the substantive assertions and the methodological premises of the dominant discourse. As opposed to the ahistorical and methodological individualism of positivist economics, critical social science has typically emphasized the importance of historical context and the central role played by groups, including classes. In this chapter I review recent theoretical treatments of the effect of patents on various measures of economic welfare and/or important economic policy targets. The findings are generally ambiguous, though the general conclusions seem to suggest that poor nations are better off if left to their own devices in forming an optimal national IPR regime. I also review the available econometric evidence on the impact of the strength of IPR regime on certain target variables, such as exports, direct foreign investment (DFI), and the rate of economic growth. Included in this review is my own respecification and test of an empirical model presented in an often cited paper by Lee and Mansfield (1996) that purports to show the beneficial effects of strong IPRs on DFI. These results overturn Lee and Mansfield's findings. In general, the empirical evidence is shown to be too weak to support the contention that the TRIPS agreement offers adequate short- or mediumterm benefits to justify its accession by poor countries. The central argument advanced in Chapter 4 is that a political economic


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analysis of IPRs requires corresponding theories of the state, class, and capital as they operate in the global econohry. Several candidate theories from international political economy and international relations theory are available. Three in particular provide useful insights for the analytical task at hand. These are world systems theory, associated with writers such as Immanuel Wallerstein (1974), Samir Amin (1974), and Arghiri Emmanuel (1972); hegemony theory, inspired by Antonio Gramsci (1971) and developed by Giovanni Arrighi (1993), Roberjt Cox (1996), and Stephen Gill (1993) among others; and internationalization of capital, theorized by Christian Palloix (1977) and more recently developed by Dick Bryan (1995). For some social scientists the sort of theoretical eclecticism represented by the selective use of elements from this collection of theories may be initially offputting. I hope to convince the reader, however, that a critical eclecticism is both appropriate and even necessary to the issues at hand. Chapter 5 applies the findings of the preceding chapter to provide an explanation for the establishment of the TRIPS agreement as part of the international institutional infrastructure governing the capitalist world system. This explanation appeals equally to the concepts of Gramscian (consensual) hegemony and direct (bilateral) coercion. Where the latter is concerned, the role of U.S. trade policy is given emphasis. In this explanation, however, the United States is represented not as an aspiring hegemonic state in the spirit of hegemonic stability theory, but as the representative of a transnational capitalist class. The limitations of other competing interpretations (Van Grasstek 1990; Ryan 1998) are discussed. Chapter 6 is one of two case studies < )f the application of the TRIPS agreement to specific industrial contexts. The pharmaceutical industry is chosen because it is among the most important to discuss from the perspective of global human welfare and because of the disproportionate influence that transnational drug producers had in influencing the negotiations leading to the establishment of the agreement. The failure of the international pharmaceutical industry to address the health problems of poor countries is discussed, as is the likely (negative) consequences for the ability of poor countries to devise indigenous solutions to those problems in the face of the TRIPS. The pharmaceutical industry is also presented as a case for which the prospects for counterhegemonic organization and struggle are very good, as evidenced by the recent Doha Declaration. The second of the two case studies, in Chapter 7, concerns the impact of a strengthened global IPR regime on-biotechnology and agriculture. This case study is included because agricultural biotech has important environmental implications as well as tremendous implications for the ability of the world's impoverished to provide themselves with the basic necessities of life. The

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case makes a useful contrast to.the pharmaceutical case study for at least a couple of reasons. First, ag biotech in its IPR dimensions involves not just new commodities, but also new production processes. This fact has important implications for the process of internationalization of capital discussed in other chapters. A second, and perhaps related, reason concerns the apparently reduced prospects for successful, counterhegemonic resistance to the power of transnational capital. Conclusions and lessons for action are considered in the final chapter. This chapter provides a brief discussion of the future of the TRIPS agreement. It then concentrates on drawing general lessons from the two case studies provided in chapters 6 and 7. These lessons are of two sorts. The first set attempts to show how the cases provide support for the general political economic interpretation of the TRIPS agreement as it is set out in Chapter 5. The second set concerns the conditions and limitations of counterhegemonic action and organization.

2 The Ideology of Intellectual Property

With the close of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and the establishment of the World Trade Organization (WTO) in 1995, several nontariff, trade-related issues achieved a new or heightened visibility in international economic negotiations. The official position of the United States required t$e inclusion of so-called intellectual property rights (IPRs) as a topic of GAIT negotiation. The view of the U.S. Trade Representative was that respect for intellectual property (IP) was a sufficiently contentious issue involving actual and potential violations of patents, copyrights, trademarks, and so on that it required international institutional oversight and, if necessary, trade-related sanctions. These functions were seen as appropriately falling within the purview of the WTO. It is highly likely that in the absence of an agreemeit on trade-related intellectual property rights (TRIPS), the United States would have withdrawn its support for the Uruguay Round of GATT talks and i he agreement establishing the WTO would never have been ratified. The Uruguay Round of GATT was rotable for several other innovations instrumental to a rationalization of the global capitalist system. Agreements were reached on liberalizing trade in services, increasing market access to previously protected areas such as textiles and agriculture, and strengthening the disputes settlements mechanisml Equally notable in recent years has been the increased willingness of groups who have been left out of formal negotiations to assert their own claims and to challenge the outcomes of the official international process. These groups include, among others, trade unionists, environmental and human rights activists, and animal rights advocates. They have called for modifications of the WTO principles and procedures to take due recognition of the negative fallout of a global system of production and distribution whose njotor force is unconstrained profit maximization. These calls have been met in the mainstream press with a combination of condescending explanations of the benefits of unrestrained trade and outright derision.1 ; The mainstream press critique of; civil society's demands have been supported by much academic analysis that argues for the exceptionalism of in25

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tellectual property rights within the context of the WTO—an exceptionalism that does not apply to minimum international labor standards, for example. Maskus (1999) argues that WTO oversight of intellectual property rights is justified by the fact that IPRs are inextricably linked to the international exchange of goods and services. A weak regime of protection weakens the incentive to export to markets where the threat of imitation is high. Moreover, a generally weak international regime of uniform IPRs may have a discouraging effect on innovation (Aoki and Prusa 1993). Weak IPRs then act as a barrier to exports, resulting in reduced welfare. An understanding of the legitimacy of TRIPS involves presuppositions about what we regard as the legitimate reach of the concept of property and property rights, about the relationship between these, however understood, and about the role of the market in a global economy. In this chapter I shall examine some of the well-known and widely discussed theories of property and property right.2 The writers whose ideas will be examined had little to say about intellectual property as such. An important part of the task here will be to show the applicability and/or limitations of these theories to intellectual property, as well as evaluate their internal cogency when applied to knowledge and knowledge-based commodities. It is not the position taken here that traditional justificatory arguments relating to private property rights provide an adequate explanation for the emergence of the TRIPS agreement. Any such explanation would necessarily involve considerations of political economy. Nonetheless, negotiations and debate that lead to international agreements are rarely exercises in raw geopolitical power wherein the strong impose terms on the weak without any recourse to ideological justification. This review will provide a useful context within which to critically evaluate the competing claims surrounding the debate on TRIPS and the place of intellectual property in the global economic system. Philosophic Interpretations of Property and Property Right \ The term property conjures up for most people images of land and/or material possessions that confer on their owners rights of use as well as the right to exclude others from their use. A moment's reflection, however, reveals this conception to be overly narrow for our purposes. The notion of intellectual property, for example, refers to something decidedly less tangible, although no less useful, than this. What intellectual property has in common with other forms, however, is at least the possibility of exclusivity of use. The notion of exclusion itself raises the question of organized and legitimate force. An understanding of legitimate force helps us to get nearer a generalized concept of property as a socially and politically contingent category.

THE IDEOLOGY OF INTELLECTUAL PROPERTY

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Put simply, property is what the law defines it to be. Laws relating to property are, in turn, grounded in justificatory theories. Some of these theories involve notions of moral right while others !are more instrumental in character. Locke's Labor Theory of Property John Locke is perhaps the quintessential itheorist of property as right. Property right, like all rights according to Locke, is derived from natural law. Natural law philosophy posits God as the creator of humankind, from which view follow various obligations owed by humankind to him. According to this view, God is a creator and therefore owner of his creation, including us. Humankind's fundamental obligation (and right) is to preserve God's creation. Toward this end God has made available to humanity his nonhuman creation. God's nonhuman creation then:is appropriated by humanity as its common property for the purposes of its common preservation. Locke writes in his Second Treatise (1698): God, who hath given the World to Men in common, hath also given them reason to make use of it to the best advantage of Life, and convenience. The Earth, and all that is therein, is given to Men for the Support and Comfort of their being. And though all ihe Fruits it naturally produces, and Beasts it feeds, belong to Mankind in common, as they are produced by the spontaneous hand of Nature; and no x>dy has originally a private Dominion, exclusive of the rest of Mankind, in any of them, as they are thus in their natural state: yet being given for the use of Men, there must of necessity be a means to appropriate them some way or other before they can be of any use, or at all beneficial to any particular Man. (1963, chapter 5, section 26) The problem for Locke is how to demonstrate that the need to appropriate God's natural gift leads us to (justifies) the notion of private property right. Locke manages this demonstration by drawing a distinction between humankind's common property given by the creator and the individual's acquisition in that property. Locke shows :hat this acquisition derives from a fundamental, inviolate principle of self-ownership: Though the Earth, and all inferior Creatures be common to all Men, yet every Man has a property in his o>vn Person. This no Body has any Right to but himself. The Labour of his body, and the Work of his Hands, we may say, are properly his. Whatsoever then he removes out of the State that Nature hath provided, and left it in, he hath mixed his Labour with, and joyned to it something that is his own, and thereby makes it his Property. It being by him

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removed from the common state Nature placed it in, hath by this labour something annexed to it, that excludes the common right of other Men. For this Labour being the unquestionable Property of the Labourer, no Man but he can have a right to what that is once joyned to, at least where there is enough, and as good left in common for others, (section 27) According to Locke, the much greater part of the value of property is that which we may attribute to the labor that people "mix" with God's gift of nature. Undeveloped nature, in fact, provides very little that could be considered useful to human beings considered singly or in society. The mere appropriation of food in its natural state—for example, picking berries in the woods—requires the expenditure of labor that adds to the food's value and therefore confers on it the status of private property owned by those who expended the effort. It is apparent from this oft quoted statement of Locke's that his conception of private property right, grounded in natural law philosophy, is not an unlimited or unconditional one. The concluding qualifying clause, "at least where there is enough, and as good left in common for others," suggests that Locke recognizes the logical possibility of an overaccumulation of property that would not be morally justified. Accumulation beyond the use and convenience of individuals that results in waste is regarded by Locke as an infringement on the rights of others to "as good." As a practical problem, however, Locke is unconcerned with this possibility for two reasons. First, the resource-to-population ratio is sufficiently high to permit anyone to have "as good" as anyone else. Locke repeatedly points to the abundance of land and other resources that remain in a state of nature in America, waiting to be taken under production by the application of European labor. Second, even in the comparatively developed English society of his day, where the enclosure movement had definitively established private property in land, the invention of money resulted in a means to accumulate property in a manner that does not lead to waste even as it permits the expansion of individual estates. He argues: But since Gold and Silver, being little useful to the life of Man in proportion to Food, Rayment, and Carriage, has its value only from the consent of Men, whereof Labour yet makes, in great part, the measure, it is plain, that Men have agreed to disproportionate and unequal Possession of the Earth, they having by a tacit and voluntary consent found out a way, how a man may fairly possess more land than he himself can use the product of, by receiving in exchange for the overplus, Gold and Silver, which may be hoarded up without injury to any one, these metalls not spoiling or decay-


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ing in the hands of the possessor. This partage of things, in an inequality of private possessions, men have made practicable out of the bounds of Societie, and without compact, only by putting a value on gold and silver and tacitly agreeing in the use of Money. For in Governments the Laws regulate the right of property, and the possession of land is determined by positive constitutions, (section 50) From this passage we see that Locke regards the accumulation of money as an essentially benign process inasmuch as it "may be hoarded up without injury to any one." This interpretation in ttarn might suggest that he does not have a conception of money as finance capital or that he does not see finance capital as playing a particularly limiting function in society at large. Quite to the contrary, however, Locke explicitly interprets the role of private accumulation, in money form or otherwise, as playing a positive, utilitarian role in the development of society according to divine mandate. What is remarkable from the above passage is that Locke suggests that the emergence of money is a matter of consent—that is, "tacitly agreeing in the use of Money." Locke provides no explicit justification for the assumption that the money economy is the result of a broad-based agreement. The implied evidence for this assertion is that money has evolved as a generally acceptable means of payment in a world of voluntary exchange. Even more remarkable is that for Lrjcke private property itself is both logically and historically prior to the sta;e. We see in Commons, which remain so by Compact, that 'tis the taking any part of what is common, and removing it out of the state Nature leaves it in, which begins the Property; without which the Common is of no use. And the taking of this or that part, does not depend on the express consent of all the Commoners. Thus the Grass my'Horse has bit; the Turfs my Servant has cut; and the Ore I have digg'd in any place where I have a right to them in common with others, become my Property, without the assignation or consent of any body, (section 28) The fact that consent is not required to validate private property suggests that property exists in a state of nature rather than as the result of a socially created law and state. The obvious question; then is, What is the function of civil society (law and the state) in relation to property? For Locke, the answer is clear; the function of civil society is precisely the defense of the natural right to property. In Chapter 9 of the Second Treatise he writes, "The great and chief end therefore, of Mens uniting into Commonwealths, and putting themselves under government, is the Preservation of their Property." Govern-

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ment, then, has in Locke's conception a largely negative function of defending those rights that already exist in a state of nature. This is necessary, according to Locke, since while humans are endowed with reason by their creator, they are not all equally so endowed. God gave the World to Men in Common;... He gave it to the use of the Industrious and Rational, (and Labour was to be his Title to it;) not to the Fancy and Covetousness of the Quarrelsom and Contentious. He that had as good left for his Improvement, as was already taken up, needed not complain, ought not to meddle with what was already improved by another's Labour, (chapter 5, section 34) To ensure that the more "Quarrelsom and Contentious" do not infringe on the property of the "Industrious and Rational," humans have entered freely into a commonwealth wherein they relinquish their individual sovereignty in favor of laws and institutions that operate in the interests of preserving the property of all. Ryan (1984, p. 41) argues that Locke's defense of the inequality engendered by private property might be on firmer ground if appeal is made to the essentially utilitarian argument that such inequality makes possible a higher level of productivity out of which the landless peasant or worker may enjoy a higher standard of living than would otherwise be the case. Ryan also cbrrectly notes that such a comparison involves additional unsubstantiated assumptions about how we could make valid comparisons given the impossibility of testing the hypothesis. Locke's own preference for comparing the landless laborer of his own time and place with the wild savage in a state of nature is hardly adequate, given the impossibility of assessing the subjective evaluation of their respective social and material positions.


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provides ideological justification for unlimited private accumulation. He argues that Locke was steeped in the assumptions that motivated the bourgeois political economy of his time. Among these was the notion that human beings had a natural propensity for accumulation. Accumulation in fact was equated with moral rationality. In the primitive stage of the state of nature, accumulation could be condemned when it resulted in spoilage. The invention of money in the second, more advanced stage of the state of nature, however, enabled productive accumulation to occur. Productive accumulation was morally praiseworthy (rational) precisely because, far from depriving others of the means to a living, it provided those who did not possess more than their own labor power with su|ch a means. Once again, what is especially remarkable about Locke's argument here is the assumption that differential accumulation beyond the needs of an individual or a family occurs logically prior to the establishment of the state and civil society. For Locke, the emergence of money and markets somehow becomes a matter of universal human consent. The emergence of civil society and the state then serves the negative purposes of protecting private property. Not only does Locke provide us with a justification of differential property rights grounded in his philosophy of natural law and natural rights, but he also derives a corresponding theory of class and class-based political rights. According to Locke, the accumulation of p roperty for productive purposes is the rational expression of natural law. Insofar as individuals do not accumulate, this is taken as evidence of their imperfect rationality. The mass of propertyless laborers are thus taken to be less than fully rational and therefore incapable of full participation in the political life of civil society. The Utilitarians

The question is frequently posed concerning the political intent of the Lockean doctrine of property. Reasonable arguments can be marshaled that Locke's theory was an attempt to undermine the political and economic prerogatives of vestigial medieval authority as well as provide ideological legitimacy to Britain's emergent capitalist class. The first of these arguments is well posed by Tully (1980), who notes that Locke sought to undermine the "Adamite theory" of property, according to which God gave the world to Adam to distribute in turn to his progeny. By extension, property has come under the dominion of the aristocracy, which traces its own lineage to these first owners. Locke in his approach to natural law and natural rights logically undermines not only this property claim but also the divine rights origin of aristocratic rule.

It is well known that a keystone philosophic concept supporting much of the neoclassical economic edifice is provided by utilitarianism. Utility maximization is taken to be a guiding behavioral assumption driving rational agents in an efficient resource-allocating market syst ;m. It is not at all surprising to find notions familiar to utilitarian philosophy providing justification for property in such a system. At the same time, however, a certain strain of utilitarianism also plays a strong justificatory role in support of social arrangements that place a greater premium on egalitarianism than is provided by market capitalism.

We can contrast this aspect of Locke's thinking with the interpretation, offered for example by Macpherson (1964), that Locke's theory of property

In his An Enquiry Concerning Political Justice (1793), the nineteenth-century British philosopher William Godwin poses the following question:

Godwin's "Genuine System of Property"

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What is the criterion that must determine whether this or that substance capable of contributing to the benefit of a human being ought to be considered as your property or mine? To this question there can be but one answer— Justice. Let us then recur to the principle of justice. (1926, vol. 2, book 8) Godwin's understanding of justice is a thoroughly utilitarian one. As it relates to property, justice is entirely a matter of who will benefit the most from ownership. From this perspective, Godwin condemns the prevailing system of private property, which he regards as both unjust and irrational, and provides a vision of a just and rational alternative based on strictly egalitarian principles. Implicit in both his critique and his vision are definite notions as to what constitutes the good—that is, well-led—life and the just society. Neither of these objectives can be realized, according to Godwin, if society is characterized by large inequalities in the distribution of income and wealth. The poor who toil long hours for the bare means of subsistence will never have the leisure to pursue higher callings involving the cultivation of the mind and spirit. Likewise, those who dedicate themselves to the pursuit of material luxuries are distracted from these same higher callings and mistakenly confuse the status gained by the ownership of large estates with that associated with substantial accomplishments. It is only such accomplishments, however, that win their possessors the social distinction and approbation for which human beings long. Godwin is something of a minimalist in his views concerning the real material needs and wants of rational human beings. Beyond the basic needs of food, clothing, and shelter, and these in modest quantities, the fundamental material requirements for the well-lived life are exceedingly few and could easily be satisfied with a correspondingly limited amount of labor and exertion. Allowing for the equitable sharing of this labor and its fruits, the human race could be liberated from the injustice and oppression that follows from a system in which the great masses toil in service to an elite that is overindulged in sensual pleasures but otherwise spiritually and intellectually impoverished. Godwin does not provide us with a historical explanation as to how or why the prevailing, socially dysfunctional system of property ownership came to be established. He is certain, however, that once it is replaced by what he calls the "genuine system of property" ("genuine" based on his understanding of justice), the new system will prove its worth and become a permanent basis for human social relations. This is ensured by Godwin's assumption regarding the essential rationality of humankind. Godwin is convinced that once having experienced the benefits of an egalitarian society, individuals will have no incentive to resort to unnecessary accumulation of property.


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There will be no need to accumulate to guard against adverse contingencies since society as a whole will address such possibilities collectively. Status will no longer attach to property, removing this as a possible inducement to individual accumulation. According to Godwin, in fact, any tendency toward such accumulation will come to be regarded as a sort of social pathology akin to murder. Godwin also responds to what he anticipates to be the likely practical objections to his alternative system of genuine property. To the argument, for example, that an egalitarian distribution of property would remove incentive to work and inventiveness (industry), he replies that, to the contrary, equality will result in moral and intellectual improvement which will in turn work against the tendency toward indolence. Also, as already noted, under Godwin's "genuine system" the labor requirement is anticipated to be collectively shared and therefore individually light enough so that shirking will not be an issue. To the contrary, argues Godwin, "It is so light a burthen as rather to assume the appearance of agreeable relaxation and gentle exercise than of labour" (chapter 4). Bentham's "Security" Defense If the case for private property on a utilitarian basis is weak in the hands of William Godwin, it receives more than adequate support from that nineteenthcentury thinker who is most closely associated with the utilitarian philosophical tradition—namely, Jeremy Bentham. Bentham's utilitarianism, in contrast to the utopianism of Godwin, is concerned with the practical issue of legislating in a society whose institutioial premise of capitalism, including private property, he took for granted. Not surprisingly, therefore, his ideological defense of property is straightforwardly an ideological justification of capitalism. According to Bentham, human happiness consists in four subordinate ends of the legislative process. These are subsistence, abundance, equality, and security (Bentham 1987, Principles of Civil Code)} Bentham is aware that these four goals are not independent of one another. Abundance, for example, presupposes subsistence. It is also evident that abundance makes subsistence and equality feasible objectives. To the extent that equality and security conflict with one another, Bentham believes that preeminence must be given to security: In legislation, the most important object is security. Though no laws were made directly for subsistence, it might easily be imagined that no one would neglect it. But unless laws are made directly for security, it would be quite useless to make them for subsistence. You may order production; you may

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command cultivation; and you will have nothing. But assure to the cultivator the fruits of his industry, and perhaps in that alone you will have done enough.... . . . We cannot arrive at the greatest good, except by the sacrifice of some subordinate good. All the difficulty consists in distinguishing that object which, according to the occasion, merits pre-eminence. For each, in its turn, demands it; and a very complicated calculation is sometimes necessary to avoid being deceived as to the preference due to one or the other, (chapter 3) Bentham's belief that equality is a subordinate goal of legislation is based on his concern for production incentives and the expectations of the producers themselves.


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Secondarily, Bentham believes that; the abundance produced under a regime of secure property rights provides a sort of social insurance during periods of calamity. Societies that lack the ability to produce a surplus find themselves vulnerable to wars or natural disasters. Interestingly, however, he is silent as to how the surplus is to be transferred from its owners to the population at large in the event that it is so required. A possible answer is via taxation. This would seem to involve a change in legislation that would fundamentally upset the expectations that Bentham is so concerned to secure in the first place. There is no mistaking Bentham's understanding as to the meaning of property and the basis for property right. This understanding sharply distinguishes his thought from the natural law theorists such as Locke.

Equality ought not to be favoured except in the cases in which it does not interfere with security; in which it does not thwart the expectations which the law itself has produced; in which it does not derange the order already established. If all property were equally divided, at fixed periods, the sure and certain consequence would be, that presently there would be no property to divide. All would shortly be destroyed. Those whom it was intended to favour, would not suffer less from the division than those at whose expense it was made. If the lot of the industrious was not better than the lot of the idle, there would be no longer any motives for industry, (chapter 3)

The idea of property consists in an established expectation; the persuasion of being able to draw such or such; an advantage from the thing possessed, according to the nature of the case. Now this expectation, this persuasion, can only be the work of law. I cannot count upon the enjoyment of that which I regard as mine, except through the promise of the law which guarantees it to me. It is law alone which permits me to forget my natural weakness. It is only through the protect on of the law that I am able to inclose a field, and to give myself up to its [cultivation with the sure though distant hope of harvest, (chapter 8)

The security that Bentham seeks by legislation to ensure is the knowledge that individuals will enjoy the fruits of their labors. If people did not have this expectation, their willingness to labor, rather than to steal, might well be called into question. Security, then, is a requirement for subsistence. In this there does not seem any particular contradiction between his position and the more egalitarian position of Godwin. How then does Bentham rationalize the substantial inequalities of wealth and property that are unacceptable to Godwin? There are two answers to this question. First, Bentham, unlike Godwin, is far more willing to equate increases in human happiness with expanded human consumption. For Bentham, equality is not an end in itself. Equality in certain limited circumstances may be instrumental to the realization of the utilitarian ideal—the greatest sum of human happiness, but it does not replace this ideal. Abundance is also instrumental to that goal. For abundance to be realized, however, requires what Bentham calls "industry," which in turn requires security. Again he writes, "the attraction of pleasure; the succession of wants; the active desire of increasing happiness, will procure unceasingly, under the reign of security, new efforts towards new acquisitions" (chapter 4).

In anticipation of possible objections from those who insist on a natural rights basis for property, Bentham grants that human beings have also operated on the basis of a natural e. •pectation concerning what they are able to acquire and possess that is anterior to law. He argues, though, that such possession is "miserable and precarious" because it is enforced only by physical force. The corresponding expectation is therefore feeble and momentary, whereas a strong and permanent expectation can result only from law. | Bentham also anticipates objections from those who argue that property rights operate against the interests,of those who lack property. Here he finds convenient the image of man in a state of nature—that is, the uncivilized savage—that was used so effectively by Locke in his own arguments in defense of property. Bentham argues ithat the laws that protect property work to the benefit of the propertyless by; enabling them to rise above the state of nature. Property secured by law enables them to have regular labor and regular wages, rendering them less vulnerable to the vicissitudes and calamities of nature. Moreover, the prospect of accumulation engenders even among the propertyless a desire to possess and overcomes in them an aversion to

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labor. This prospect is effective, however, only when secured by law in the form of property right. It is that right which has vanquished the natural aversion to labour; which has given to man the empire of the earth; which has brought to an end the migratory life of nations; which has produced the love of country and regard for posterity. Men universally desire to enjoy speedily—to enjoy without labour. It is that desire which is terrible; since it arms all who have not against all who have. The law which restrains that desire is the noblest triumph of humanity over itself, (chapter 9) Bentham's defense of property makes clear his commitment to the ascendant capitalism of his day. In considering various arguments that criticize private property, Bentham makes a counterargument that would be familiar to any modern economist who extols the virtues of the capitalist entrepreneur. Essentially Bentham argues that attacks on private property, if allowed, would have the ill effect of destroying the investment climate necessary for capitalist development. Individual capitalists, argues Bentham, are capable of overcoming individual, transitory setbacks. He writes: A transitory calamity, though great, never destroys the spirit of industry. It is seen to spring up, after devouring wars which have impoverished nations, as a robust oak, mutilated by tempests, repairs its losses in a few years and covers itself with new branches. Nothing is sufficient to deaden industry, except the operation of a domestic and permanent cause, such as a tyrannical government, bad legislation, and intolerant religion which drives men from the country, or a minute superstition which stupefies them, (chapter 10) Now while Bentham follows the above observation with passing comments on the destructive effects of various "acts of violence" perpetrated by the despotic state on the industrious spirit, he makes clear that his chief concern is for the security of property: That government, odious to every thinking man, has never known that state cannot grow rich except by an inviolable respect for property. It has never had but two secrets of statesmanship—to sponge the people, and to stupify them. Thus the finest countries of the earth, wasted, barren, and almost abandoned, can hardly be recognized under the hands of barbarous conquerors, (chapter 10) Finally, although Bentham regards the objective of equality as secondary in relation to the security of property, he is fairly sanguine for the prospects


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of greater equality as long as security is ensured. The great equalizer for Bentham is death, since at death particular properties cease to have owners. Bentham has no particular objection to the use of state power for redistributive purposes in the matter of estates. He rationalizes this position by arguing that this sort of redistribution does nothing to disrupt prevailing expectations. Bentham also notes an empirical tendency in the direction of greater equality over time as long as the law is; vigilant in combating monopoly privileges (including entails) and otherwise refrains from establishing obstacles to free commerce. This natural redistribution offers far greater prospects for future prosperity, he argues, than that based on violent upheaval as might attend upon revolutionary redistribution, for example. Here, once again, we see the primacy of security for Bentham as a condition for social progress. Hegel and the Necessity of Private Property The Hegelian theory of property is an example of what Waldron( 1988) typifies as an argument based on general right (GR). A GR-based argument is distinguished from an argument based on special right (SR), which predicates property right on the occurrence o some contingent event or action taken by the individual(s) asserting the right. Thus, for example, Locke's labor theory of ownership is a SR-based argument inasmuch as the right to property follows from the expenditure of labor by those who claim property in that with which their labor becomes mixed. A GR-based argument, by contrast, does not take property right to be based on any such contingent event or action, but rather argues that sorr.e individual interest is sufficiently important inherently to justify a particular property rights regime.3 For Hegel, this compelling individual interest is a matter of what he calls "practical freedom." "Freedom" here is not to be understood in the libertarian sense of "absence of restraint." RauW the Hegelian notion of freedom is the "realization of necessity." Human beings are essentially rational creatures. They possess, therefore, the ability to understand what they rationally must do. That understanding in turn is the essence of their freedom (Ryan 1984, p. 120). In like manner, Hegel is concerned to "explain" the logical necessity of property. Historical progress requires that people develop the capacity to participate in the ethical community (Waldron 1988, p. 347). For this to occur, people must develop personality, understood as a sense of their individual capacities and wills. Property facilitates the development of personality in two ways. First, it enables basic needs to be satisfied. Second and more importantly, property is a vehicle by which the individual makes a transition from an inner, subjective world to the external, objective world.

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The reasonableness of property consists in its satisfying our needs, but in its superseding and replacing the subjective phase of personality. It is in possession first of all that the person becomes rational. The first realization of my freedom in an external object is an imperfect one, it is true, but it is the only realization possible so long as the abstract personality has this first-hand relation to its object. (Hegel 1996, first section, paragraph 41).

and even at the expense of other rights, must win the victory In property my will is personal. But the person, it must be observed, is the particular individual, and, thus, property is ithe embodiment of this particular will. Since property gives visible existence to my will, it must be regarded as "this" and hence as "mine." This is the important doctrine of the necessity of private property. (Hegel 1996, section 46)

Mind or freedom, according to Hegel, is necessarily embodied. At a primitive level it is embodied in particular subjects (human and finite). As it matures and develops, it transcends these limited forms and externalizes itself in a higher and more universal embodiment. The first step in this process of externalization is for the subjective human being to establish the fact of individual personality in the world of material objects. This is done by appropriating, owning, and controlling objects in the material world. As Ryan points out, Hegel's theory effectively amounts to a "first taker" argument for possession. One who appropriates and controls first need not justify possession. The ethical burden of justification falls on the person who would dispossess an established owner. Dispossession that is not justified by a prior claim is unethical inasmuch as it fails to respect the will of the previous possessor. Property ownership as the embodiment of will is an important concept in Hegel's theory. In this regard, property becomes linked to work. This embodiment of will implies, first, that labor has in some way altered some physical object in a sense that can be understood only in relation to the will of the laborer. Second, the altered object effects a change in the will itself. The subjective will then, in altering the material world, also alters itself. How will property-owning contribute to the self-realization of personality? Waldron explains the connection as follows: "Modifying something in the external world changes the subject too. Since he takes responsibility for his production, identifying it as the product of his will, he has to shape his will and his intentions so that they become apt for this sort of stable and constraining vision" (1988, p. 373).

Even where artificial persons are created and endowed with ownership functions, these purely legal entities are only made possible by the individuals who cooperate to create them (Ryan 19,84, p. 128). An additional argument for the private character of property is based on the Hegelian imperative mat human beings command recognition. The need for will to be recognized by other contending wills is the basis for the limits imposed on the latter provided by private property. Law and contract have evolved so as to provide individuals with the concrete "fences" that delimit relationships and permit the subjective: personality to emerge into a public world (Waldron 1988, p. 377). Hegel's view of the political and economic organization of society is decidedly bourgeois. His views on property suggest a nation of small and interdependent property owners who bear responsibility for themselves and their families. Hegel was aware, however, of the increasing commercialization of the society in which he lived. He also recognized the class divisions that characterized society and was concerned with the conditions for social stability. Ryan illustrates this concern'of Hegel's as follows:

The necessarily private character of property derives from the fact that the embodiment of will is the embodiment of individual will. This is true notwithstanding Hegel's concern for the development of the ethical community. The ethical community itself, however, is composed of ethical individuals who realize themselves as such only through the externalization process that requires private property. In the agrarian laws of Rome may be found a conflict between collective and private ownership of land. Private possession is the more reasonable,

Hegel evidently feared that the commercial mind would apply its contractual and calculative schemes to eveify aspect of life. He was fearful that the independent, individualist, rationalist intellect would provide a powerful solvent of political loyalty; and when he did not fear that, he feared that any state in which the urban bourgeoisie held power would be one in which mean-spirited enterprises predominated, not those of a world historical kind. (1984, p. 139) j Given this concern, Hegel believed that government had a role to play in regulating market forces—for example, iprice controls and subsidies. Hegel's concerns about the destabilizing consequences of an unregulated market system included a fear that the system had-a tendency to produce a propertyless class that often struggled (and failed) to keep itself out of poverty. In his view, civil society has a duty to provide for the physical necessities of the impoverished, but he also shares the modern concern about what effect poor relief might have on the incentive to work (Waldron 1988, p. 380).

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Hegel's concern about the destabilizing effects of poverty does not make him an egalitarian by any means. To the contrary, he sees inequality in wealth and income as the natural consequence of the inequality to be found in individual persons' abilities and characters. He writes: Sometimes the demand is made for equality in the division of the soil of the earth, and even of other kinds of wealth. Such a claim is superficial, because differences of wealth are due not only to the accidents of external nature but also to the infinite variety and difference of mind and character. In short, the quality of an individual's possessions depends upon his reason, developed into an organic whole. We cannot say that nature is unjust in distributing wealth and property unequally, because nature is not free and, therefore, neither just nor unjust. It is part a moral desire that all men should have sufficient income for their wants, and when the wish is left in this indefinite form it is well-meant, although it, like everything well-meant, has no counterpart in reality. (Hegel 1996, section 49) Hegel goes on to argue that even if a social scheme could be devised to distribute goods equally, the resultant equality would be temporary inasmuch as the inherent inequalities in the characters and abilities that define individuals would re-create inequality. He argues then, "What does not permit of being carried out, ought not to be attempted." Interestingly, however, notwithstanding manifest inequality in the distribution of goods and property, Hegel insists that everyone must have some property in order to achieve personality. As there are many who possess no property, Hegel seems to imply that not all people are eligible for this distinction. The Ideology of Intellectual Property The thinkers whose ideas I have outlined in the above sections never had much to say about intellectual property as such. Their chief concern was to justify real property, including land. The question we must pose here then is, How well do the theories stand up when they are applied to intellectual property? The Labor Theory of Intellectual Property Justin Hughes (1988) has argued that Locke's labor theory approach applies fairly well. Hughes's position is based on an essentially neo-Platonic interpretation of ideas as existing in an immaterial "commons." When these ideaforms are mixed with individual labor, they become effective in the material world. For Hughes, intellectual laborers are entitled to property rights in a


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manner analogous to those who toil on [the natural commons and thereby create value-added. Hughes, in fact, goes as far as to argue that the Lockean approach applies with greater force to intellectual property than it does to physical property. This is because the essence of the intellectual commons renders unnecessary the "Lockean proviso" that takings leave "enough, and as good" for others. While the proviso might be an important qualification in a developed market economy where scarcities prevail, an important characteristic of intellectual goods is nonrivalryiof use. Hence, any taking from the Platonic ether of potential ideas does nothing to diminish the ability of anyone else from doing likewise. In fact, the development of ideas has a great potential to expand the intellectual commons inasmuch as the development of a particular idea often gives rise to additional intellectual creation. I will argue that Hughes's interpretation of Locke's theory, while interesting, is essentially flawed. The first difficulty is Hughes's argument that ideas are the result of the labor expended by isolated individuals. I find this a dubious proposition both as an explanation of how new ideas emerge and as a valid justification for private property. Ideas as such are the result of social rather than individual creation. This does! not mean that individuals may not make particular contributions to the stockj of intellectual and cultural capital. Clearly, however, such contributions must necessarily work on previously existing ideas that are .themselves the pre duct of a social process. Even the most novel of individual human insights, for example, requires the use of language—a social product for which no one person may take credit. The notion that ideas already have a prior existence in a "common," only waiting to be discovered by individuals, is an absvj rdity. The human race is not somehow endowed with intellectual raw materials out of which new and useful ideas and concepts are developed. Rather, these "raw materials" are themselves entirely the result of a social process and, therefore, a social product. Granting that individuals do make contributions to knowledge in ways that are useful to others, could it be arguecl that they deserve some reward for their effort? Locke's labor theory certainly argues that they do. As Hughes points out, Locke's thinking was grounded in the presumption that labor itself was something that people would Ordinarily seek to avoid in the absence of adequate reward. Property, then, is justified as the proper reward for such labor. How applicable is this sort of argument in the context of intellectual property? Are scientists, inventors, and other creative people well described by this view of human nature? I do not believe they are. Neither do I believe that the creative work usually associated with intellectual property is anathema, or even unpleasant, to the people who typically engage in it. Quite to the contrary, those who engage in intellectual and creative endeavors derive a

.LECTUAL PROPERTY RIGHTS

ount of satisfaction in the creative process itself and find ultimate i^-. .....1 discovery and creation. This view does not require that we take an especially Pollyannaish attitude about human nature. Intellectual and creative people are not indifferent to worldly comforts and material goods. I do not believe, however, that such rewards figure as the primary incentives that explain their works. Most creative people would regard material rewards rather as the coincidental benefits of their success. Marginal increases or decreases in such rewards would not then have an appreciable effect on the rate of creative or inventive activity. Intellectual Property and the Lockean Proviso What about the status of the "Lockean proviso" as it applies to intellectual property? Does the appropriation of intellectual goods leave "enough, and as good" for others? It is in consideration of this question that the differences separating intellectual property from other kinds of property become most apparent. The appropriation and use of most physical property by individuals obviously deprive others, at least temporarily, from its simultaneous possession and/or use. The creation of private property right legitimates this exclusionary relationship. In the case of intellectual property right, on the other hand, the point is to create the basis for and legitimate such a relationship where none would otherwise exist. That is, given the public goods characteristics of intellectual goods, the creation of private property in such goods involves two types of issues. The first is what economists refer to as nonrivalry in use. My use of an idea in no way impedes anyone else's full use of the same idea. Moreover, the marginal cost of use of an idea is zero. The second issue is the difficulty of exclusion. How can those who are not inclined to pay for the use of an idea be excluded from its use? This is the clear purpose of intellectual property right. In a sense, then, the Lockean proviso is both well met and irrelevant. It is well met in the sense that the appropriation of intellectual property certainly does leave "enough, and as good" for others. At the same time, however, the very purpose of copyrights, patents, and the other instruments of institutionalized rights in such property is to prevent free access to such "enough, and as good." Hughes argues that intellectual property provides us with the quintessential Lockean justificatory case for private property. Hughes also argues that because new ideas provide the basis for additional intellectual insights, protection is called for. Intellectual property protection adds to the extensiveness of the "commons" and thereby creates a basis for an expansion of generalized human welfare. Here it is evident that Hughes is appealing to an essentially utilitarian, rather than a rights-based, argument for private property protection. As before, I have my doubts about


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the essential assumption that private property rights are a necessary or appropriate incentive for the creation and dissemination of intellectual goods and services. Why should not a fixed monetary amount or public recognition and approbation be sufficient as a reward? Other issues relevant to the utilitarian perspective will be examined below. Intellectual Property and Efficiency Another qualification to place on the legitimacy of private property in Locke's theory is that it should not result in waste. In Locke's theory, this qualification applies with obvious force to the waste that may result if physical property is accumulated beyond the ability off its possessor to make adequate (efficient) use of it. If land is accumulated,' for example, but remains fallow because its owner lacks the time or other complementary inputs to employ it efficiently, then such accumulation would ;lack legitimacy, particularly if it deprived another of its efficient use. For Locke, this qualification did not amount to an effective limit on the accumulation of private property in a money economy since property could always be accumulated in a fungible and nonperishable form—namely, money capital. The money economy, according to Locke, emerges as a matter of the common assent of humankind. There are a number of questionable poim s regarding this aspect of Locke's theory as it applies to intellectual propert). The first concerns this issue of waste. The relevant question is, To what extent does the monopolization of new and valuable ideas via patents and copyrights involve waste? It would seem a considerable loss to limit the benefits of discovery and innovation when they involve zero marginal cost of pr eduction and very little or no cost of dissemination. Hughes makes the argument that the waste qualification is irrelevant to intellectual property inasmuch as ideas are not perishable. I think this is a very questionable assertion. The history of patents is rife with examples of cases in which new ideas and innovations have been delayed or permanently lost by interests who used patents to prolong their existing intellectual and physical capital stock. The Limitations of Intellectual Property Interestingly, Hughes also suggests that the concept of intellectual property rights is of limited applicability. He \yrites, "Intellectual property systems are more suitable for a Lockean justification than are physical property systems because a growing set of central1 ideas are never permitted to become private property and are held in a permanent common" (emphasis in original, p. 319).

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Hughes identifies certain categories of ideas that are subject to becoming "depropertized." These include common, "everyday ideas"—for example, walking your dog on a leash—and extraordinary ideas—for example, the human genome map. The latter category itself is decomposable into (1) ideas that reveal extraordinary facts about the world—for example, the theory of electromagnetism, and (2) those that have already established widespread use—for example, the use of architectural columns. Hughes cites particular case law that has liberated certain ideas into the sphere of the public domain. The general principle he derives is expressed as follows: In short, some ideas become "depropertized." Originally, they could have been subject to private ownership (unlike the first kind of extraordinary ideas), but the pressure to keep them in the common increases as the ideas become increasingly important to the society. As an idea becomes extraordinary, it is clear the common will not have "enough and as good" if the rights to the idea continue to be privately held. (p. 320) Once again I believe that Hughes's position should be greeted with skepticism. While he asserts that some ideas become "depropertized," he offers no explanation as to how, when, and if this is likely to happen in particular cases. The most problematical case involves what he refers to as "extraordinary ideas." In the current climate of rapid technological change and scientific discovery, many candidates, ranging from biotechnology to a new understanding of the creation of the cosmos, may qualify as falling into this category. Many of these discoveries have the potential to radically modify our understanding of ourselves and our potential. Who is to decide, and under what conditions? What constitutes a sufficiently important and fundamental insight as to qualify it as a public idea? Would, for example, private control over a new drug capable of ridding the world of the AIDS virus leave "enough, and as good" for those not wealthy enough to afford its purchase price? Obviously the answer is "no " The Lockean proviso, then, is clearly violated in such a case. It would seem in fact that for an extraordinary idea to become depropertized, a necessary, and perhaps even sufficient, condition would be that established property rights in it would have to be difficult to enforce, leading to their wholesale violation.4 The typical rejoinder to this argument, of course, is that to the extent that private property rights are not respected or effectively enforced, then the incentive for their creation and development in a market economy is undermined. At this point the justificatory ground has shifted from a Lockean basis to a utilitarian one. Further consideration will be given to the applicability of the utilitarian argument below. First, however, I would like to take up the possibilities offered by the Hegelian, "personality"-based justification as it might apply to intellectual property.


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Freedom, Recognition, and Intellectual Property Recall that Hegel's primary concern is his concept of freedom, which requires the ability of individuals to overcome their narrow subjectivity and "externalize" themselves as part of a higher and larger embodiment, to wit, an ethical community. Property is logically necessary toward this end insofar as it permits people to develop personality. For Hegel, the creative act that results in property and personality simultaneously was viewed primarily as the transformation of a material reality. There seems no reason, however, why his theory could not accommodate intellectual property as well. Certainly the creation and expression of an idea is often a powerful means of extending or externalizing subjectivity. Hughes notes that this is especially true of artistic work. He goes as far as to argue that the personality argument might even preclude certain less artistic types of intellectual property. He writes: A property system protecting personality will have difficulty finding reliable indicia for when people do and do not have a "personality stake" in particular objects. The personality justification also leaves some nagging theoretical questions. Even if we reliably could detect when a person possesses a "personality stake" in an object, we surely would find that personality is manifested to varying degrees in different objects. . .. . . . Poetry seems to lend itself to personality better than trade secrets, symphonies better than microchip masks. Should poetry as a category receive more protection than microch p masks? Should some categories receive no protection at all from the p ysonality justification? (p. 339) In this interpretation I believe that Hughes is taking a narrower understanding of personality than that intended by Hegel. He seems to view property merely as the receptacle of personality rather than the means of development of personality as well. It is true, as Hughes himself argues, that the creation of some types of intellectual property is subject to greater constraints than others. For example, ideas that serve utilitarian objectives—that is, satisfy needs—must often also satisfy efficiency requirements. To the extent that such constraints exist, Hughes claims that the production of ideas reduces the opportunity for personality expression. This interpretation, it seems to me, misses the more general focus of Hegel's views on personality development as a means to overcome the narrowness of individual subjectivity. It would seem by Hegel's requirement that such an overcoming should join the individual to an ethical community that scientific discovery would contribute as much to personality development as conventionally understood artistic expression. Moreover, discoveries;in science and the practical arts certainly provide their discoverers with social recognition, a requirement for personality explicitly recognized by HegelJHughes argues that this recognition fol-

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lows more forcefully from money payments made to the holders of intellectual property rights: "Recognition" involves more than lip service. If I say "this forest is your property" and then proceed to flagrantly trespass, cut your timber, and hunt your deer, I have not recognized your property rights. Similarly, verbal recognition of an intellectual property claim is not equal to the recognition implicit in a payment. Purchasers of a copyright work or licensees of a patent form a circle of people recognizing the creator as a person, (p. 349) There are several problems with this interpretation of Hegel's recognition motivation for private property. First of all, why is monetary payment an appropriate and sufficient means of providing the necessary recognition? Most scholarly work, such as that routinely published in academic journals, for example, provides no direct financial compensation to its creator at all. It does oftentimes, however, provide substantial professional recognition and even, in some cases, wide public acclaim. Second, even if it is admitted that some intellectual property is deserving of a monetary reward, what is the appropriate amount of such reward? Hughes apparently is prepared to grant full rights of monopoly exploitation inherent in copyright and patent protection. How do we know if such rights are appropriate or excessive? In cases where the original creator has alienated the property rights to a third party, what are the appropriate rewards to this new possessor?5 Should they be the same as those of the original creator? However we answer these latter two questions, it would certainly seem that we are fully outside the purview of anything related to Hegel's recognition requirement. Third, what exactly is Hughes claiming recognition for in the above-quoted passage? Clearly it is private property rights in ideas themselves rather than for personality as described by Hegel. Indeed, it is hard to understand how monopoly exploitation of intellectual property can aid in the externalization of the individual into an ethical community, particularly as the uninhibited use of such property in no way deprives the creator of the same use. To the contrary, we can cite many cases in which the free dissemination of ideas provides the opportunity of personality development for creators as well as for the beneficiaries of their creations. The argument that creators need incentive for their creations, once again, takes us into the philosophical ground tilled by the utilitarian school (at least in its Benthamite version), and we turn to a consideration of these arguments next. Intellectual Property and the Greatest Good Utilitarian arguments are by far the most popular defenses of private property and it is not surprising that they find their way into discussions of intel-


47

lectual property. As we have seen in the present discussion, other arguments based on right and personality sometimes appeal to utilitarian considerations to buttress weak spots in their own justificatory edifices. The most commonly encountered version of the utilitarian argument is that private property rights and their economic exploitation 'provide the necessary incentive for the production of useful knowledge. In this sense, the production of intellectual products is not regarded any differently from any other form of capitalist production. That is, the intellectual capitalist is motivated by the prospect of high returns and in their absence will turn his or her talents, time, and effort elsewhere in the economy. This reallocation of intellectual resources, it is presumed, will result in a Pareto inferior state (one that results in a net reduction of social welfare) compared to that in which intellectual property rights are established and respected. As noted earlier, I believe there is reason to doubt that the producers of ideas can realistically be characterized as intellectual capitalists who are most strongly motivated by the prospect of substantial economic profit. Even if we grant, however, that some firms employ creative thinkers for this very reason, the utilitarian justification runs up against a rather formidable and obvious logical difficulty.6 Clearly, the goal! of utility maximization is best served by the widest possible dissemination of new knowledge and the products and services derived from that knowlecge. The purpose of intellectual property rights, however, is precisely to limt this dissemination contingent . on the willingness and ability to pay. Admitt ng that idea-related production might suffer in the absence of some required reward, the important utilitarian question is, What is the minimum required reward necessary to procure the maximum dissemination of new and useful knowledge? I do not believe that any regime of private property rights in ideas or intellectually derived goods and services can be presumed to ahswfer this question. Patents, copyrights, and trademarks create monopoly power that is inconsistent with the maximization of social welfare. Moreover, when private, profit-maximizing firms are given the necessary protection to induce them to produce and market intellectual property and its derivatives, there can be no presumption that such firms will be responsive to human: need that is not effectively represented in the market by purchasing power. ^These facts constitute, then, a double incidence of market failure. The neoclassical economic response tb the problem of market failure is frequently expressed in what is known as the Coase theorem.7 According to this result, economic efficiency is maximized when agents are free to bargain and property rights are clearly specified. Ifmatters little whether the owners of such property are private individuals or a single public authority. The theorem is often applied to the problem of common public goods. In the absence of

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assignable propertyrights,economic agents will have little incentive to engage in the efficient use of such resources, often leading to their overexploitation.8 There are several reasons, however, why the Coase theorem has doubtful application as a defense of private property rights in ideas. First, the need for assignable property rights does not definitely establish an argument for private property rights. There is no reason in principle why government might not efficiently allocate the use of common public goods according to some democratically chosen objective. Second, ideas are not the type of "common public goods" that the theorem has in mind. Air, water, and, in a bygone era, common pasture lands are "public goods" in the sense that they share the characteristic of nonexclusiveness of use. The need to institutionalize exclusive use is the motivation behind assigning property rights. What such goods do not share with ideas, however, is nonrivalry of use. One particular use by a particular individual of "common public goods" such as air, water, and land may indeed preclude other uses by other people. This cannot be said of intellectual "goods and services," since one person's use of an idea in no way conflicts with another's use of it. In fact, where intellectual property is concerned, it probably makes much more sense to speak of the "tragedy of the anticommons" in the manner of Heller and Eisenberg (1998).9 In this scenario, a resource (new knowledge) is subject to underuse when multiple owners of "upstream knowledge" have therightto exclude others, leaving no one with an effective privilege of "downstream" use. This circumstance is perhaps best illustrated by the recent, widely published announcements surrounding the mapping of the human genome. Private profit-seeking companies have taken out patents on thousands of DNA sequences, precluding their study by other scientists. There is a huge speculative aspect to this behavior since the patent-seeking companies are betting that by gaining control over a sequence of DNA they will eventually come to possess the entire gene of which it is a constituent part. The gene in turn could be the key to an important (and profitable) diagnostic or treatment procedure or drug. The tragedy, however, is that this sort of speculation impedes the process of scientific discovery. More typically, market failure calls out for public policy relief in the form of market regulation or the direct provision of public goods. What is clear is that some sort of market intervention seems inevitable where intellectually derived goods and services are concerned. The important question is whether this intervention takes the form of state-established monopoly rights granted to private firms to produce and distribute, or something else— for example, direct state provision or market regulation of intellectual goods and services. It is also clear that to this point much more has been accomplished in providing intellectual property rights with international applica-


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tion than any other imaginable formula for treating the complex of questions surrounding knowledge-based production. The reasons for this preference are to be found in a consideration of]international political economy rather than in philosophically based justificatory arguments. Finally, it is worthwhile to observe that the case for IPRs is not well supported from the perspective of Godwinian utilitarianism, with its emphasis on distributive justice grounded in egalitarianism. Godwin would certainly regard the pursuit of knowledge and its applications as self-sufficient goals of a well-lived life, not requiring pecuniary leewards. The concept of treating knowledge and technology as commodities tp be sold rather than as the means to human liberation would be anathema to this perspective. TRIPS and the Idea of Property It is apparent that the advocates of a TRIPS agreement regard knowledge and technology as commodities to be produced by private enterprises making use of privately owned and employed resources and sold in markets that are increasingly global. If the production of high-tech outputs is differentiated from other sorts of internationally traded commodities, it might be argued, the difference wouldinvolve the substantial outlay in terms of research and development (R&D) that is required before a marketable commodity is ever offered for sale. In the absence of a strong regime of intellectual property rights, the argument follows, intellectual property entrepreneurs would not have the incentive to undertake the necessary investment in inventive activity. The result would be a reduced flow in such activity and a corresponding reduction in the level of aggregate social we] fare.10 This reduction, of course, would have to be weighed against the welfare cost associated with the exercise of monopoly power in new technology, j^ut, say the defenders of TRIPS, the net benefits of property rights enforcement are positive for all concerned. What are we to make of the assumption Ithat knowledge and technology are marketable commodities? As Perelman (1998) points out, knowledge and technology have all the aspects of public g0ods. That is, while the production of applied knowledge and technology ijnay have substantial fixed startup costs, its marginal cost is zero. That i$ to |say, once new knowledge enters the public domain, it exists for anyone to appropriate and make use of. Moreover, as already noted, knowledge has the characteristic of nonrivalry of use. Hence, as Perelman puts it, there is no scarcity value attached to knowledge. For this reason, the only way that the iinitial possessors of this would-be commodity can earn profit is to create a scarcity. Creating scarcities is precisely the objective of enforceable private property rights. This view of knowledge production stands in obvious contradiction to the

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assumption that the resultant products are privately produced and sold in competitive markets. The creation of artificial scarcities via patents, licenses, trademarks, and so on, results in legally sanctioned monopoly power, which, when exercised, reduces quantity and raises prices. The argument that the opportunity to exercise market power is a necessary incentive for firms to recoup the costs of R&D is at face value plausible, but demands critical scrutiny and empirical verification. In this context, two important questions must be addressed. First, to what extent is inventive activity a function of prospective market returns? Second, to what extent are the fixed costs of R&D really privately borne? I have argued that the history of creative human activity does not suggest that the creative impulse is bound, or even largely motivated, by the desire for monetary gain. Scientists, artists, and inventors engage in creation and exploration primarily to give expression to their personalities. Economic exploitation of a novel idea typically occurs after the inventive or creative act. It is implausible, then, that failure to strengthen IPR regimes in peripheral countries will have a negative effect on the rate of innovation in center countries. Innovation will respond to local conditions in center countries. The adoption of center country innovations will proceed at a more rapid rate in the periphery in the absence of strong IPRs that limit the application of innovations or that require high fees and/or prices to be paid for them." On this basis it is hard to see how the uniformity of IPRs sought by the TRIPS agreement would advance social welfare. The development of new ideas into useful commodities is undoubtedly more closely tied to the prospect of material reward. A reasonable case could be made, then, that strong IPRs are required to ensure a flow of such rewards. It needs to be remembered, however, in assessing the likely magnitude of the incentive, that the costs of R&D include a substantial nonprivate, or social, component. Public universities and research institutes, public spending on military and nonmilitary technologies, and public spending on primary and secondary education are all related to the technological capacity of a society and reflect the public good aspects of new knowledge. Correspondingly, such spending ought to reflect the public's claim on the fruits of technological progress even when these may emanate from private enterprises.12 The political economic reality in this age of neoliberalism is that taxsupported research tends to favor subsidization of corporations at the expense of consumer-tax payers. Gorman (2000) reports on the specific case of the pharmaceutical companies who have benefited from several recent changes in U.S. patent law. The Bayh-Dole Act of 1980 made it legal to transfer exclusive licensing rights to private companies for any new scientific discoveries arising from federally financed research. This law was augmented six


51

years later by additional legislation that permitted government researchers at federal laboratories to make deals with corporations to transfer their marketable findings. The result is that important drugs (such as AZT for the treatment of AIDS), although developed by federal research monies, are marketed by private companies (Glaxco Wellcome) at excessively high prices. Given the current magnitude and pace Of scientific breakthroughs and technological change, there is a correspondingly rapid race to capture the real, potential, and merely imagined spoils via the multiplication of new patents. The process has the earmarks of the land rush that characterized frontier settlement in nineteenth-century America. The [problem, as we noted earlier in citing Heller and Eisenberg, is that the new patents themselves inhibit the creative process that might result in additional welfare-enhancing technical progress. This is not an entirely new problem, given that the pace of technical innovation has long been dictated by the desire of capitalist interests to capture as fully as possible the rents associated with their given stock of intellectual and physical capital. Insofar as much of the new science relates to such fundamental areas of human concern as health care and food production and security, however, there is an especially urgent need for this science to be conducted in a manner appropriate to our interests as a species and not narrowly in the interests of profit. The TRIPS agreement does nothing that directly responds to these general interests and, as suggested, may operate against them. In fact, in some of the important areas of technological development that the TRIPS agreement is most concerned to protect, such as pharmaceuticals, it is arguable that competition is exceedingly wasteful. With several large companies each competing t :> develop the same set of new wonder drugs, firms are dedicating billions pf dollars to redundant R&D. The TRIPS agreement adds greater incentive to this wastefulness by increasing the potential payoff to the winners in the race to patent new drugs. Summary and Conclusion The main arguments of this chapter can; be summarized as follows: traditional justificatory defenses of exclusive] private property rights apply very weakly, if at all, to intellectual property, ilockean and Hegelian (personality) justifications are found ultimately to appeal to essentially utilitarian arguments. Utilitarian arguments themselves, however, fail insofar as exclusionary property rights cannot be a priori presumed to promote social welfare, particularly in a world comprising of manifest market imperfections and inequality in the distribution of income; and wealth. It is evident that several important questions raised in this chapter appeal to empirical evidence for their answers. Do the producers of intellectual goods,

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for example, respond primarily to material incentives? Does the flow of innovation change as the legal regime governing intellectual property changes? Is there good reason to expect that these responses are invariant across differences in national income levels and cultures? Economists and others have investigated these and related questions but have not arrived, to my knowledge, at any definitive results.13 Needless to say, however, the lack of widespread agreement on the empirical evidence has not served as a deterrent to the establishment of the TRIPS agreement to protect intellectual property. As will be described in detail in Chapter 5, this establishment was largely the result of efforts made by the U.S. Trade Representative (USTR) on behalf of such patent-sensitive transnational corporations as Pfizer Chemical and IBM.14 These and other companies launched an educational campaign under the aegis of the GATT's Advisory Committee on Trade Policy and Negotiations (ACTPN). This effort was directed at the USTR as well as to members of Congress to get them to understand the benefits that would follow from a stronger global IPR regime. The campaign was successful. The USTR made acceptance of the TRIPS a condition for U.S. participation in the Uruguay Round of the GATT talks and also threatened recalcitrant alleged violators of U.S. IPRs with unilateral sanctions. It borders on the trivial to note that justificatory arguments of the sort we have considered in this chapter are typically ideological rationalizations for the real political power wielded by groups whose interests they serve. It should not for this reason be concluded, however, that the arguments are themselves trivial. The strength or weakness of such ideological rationalizations could be a critically important determinant to the success or failure of an international agreement insofar as they confer apparent legitimacy. While advocates for popular change are not well funded and influential in the official corridors of national and international policy making, they must themselves be able to construct justifications for the positions they criticize as well as espouse.

Intellectual Property and Positivist Economic Science

As noted in Chapter 1, the economics of intellectual property rights (IPRs) is characterized by what Keith Maskus jterms "dancing the dual distortion" (2000, p. 27). By this Maskus refers to the following facts. IPRs are exclusive rights granted to the creators of knowledge-based commodities to market their creations. This grant is deemed necessary in order for the creators to engage in creative activity and production. The grant of these same rights, however, also confers on their possessors monopoly power that can be used to limit access to the creation, resulting in higher than socially optimal prices. There can be no general a priori presumption as to the net welfare consequences of this trade-off. The issue is further complicated when we turn to the open economy and recognize that the world is composed of a variety of national experiences that differ in terms of their needs for and ability to produce knowledge-based goods and services. Not surprisingly, developed countries such as the United States, Japan, and the European nation;; are strong advocates for strengthening the global IPR regime, while the less developed countries face considerable increases in the cost of imported goods, services, and technology transfer as a result of such strengthening. In between is a third group whose position is ambiguous. This group, which includes India, Brazil, Mexico, and several East Asian nations, have in common with the poorer countries a need to access and imitate innovations that emanate from the technologically advanced parts of the world. They are also characterized by increasing, in some cases quite sophisticated, capacities for technological innovation and product development. Correspondingly,;they are characterized by constituencies that both oppose and support stronger IPRs. Notwithstanding their welfare ambiguity, at least from a theoretical point of view, global IPRs have recently bjeen given institutional support and legitimacy in the form of the trade-related intellectual property rights (TRIPS) agreement. The TRIPS was negotiated as a; part of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) largely at the insistence of the United 53

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States, which made the agreement a requirement for its participation in the multilateral discussions. The TRIPS agreement establishes minimum standards for the protection of intellectual property (IP) that all signatory nations must meet. It represents an advance over its historical predecessors (e.g., the Paris Convention on patents, the Berne Convention on copyrights) in some important ways. TRIPS broadens the field of coverage of patent rights to include new areas of technology involving chemical and pharmaceutical products and processes, food products, integrated circuit design, and breeders' rights for new plant varieties. Patent durations have been lengthened to twenty years, which is the standard under U.S. law but substantially longer than for most other countries, including those of the developed world. Moreover, the burden of proof in infringement cases is reversed such that defendants must demonstrate that they are not in violation of protected innovations. The TRIPS agreement also goes well beyond previous international agreements and institutions for the protection of IP in its enforcement powers.1 The agreement provides for border controls, preliminary injunctions, seizure and/or destruction of illegal goods, and civil and criminal penalties. Moreover, disputes involving the agreement will be subject to the settlements procedures applied to alleged trade violations brought before the World Trade Organization (WTO). While most developed countries are already in substantial compliance with the minimum standards called for by the TRIPS, the legal and administrative costs of bringing the IP protection systems of most poor countries into compliance are expected to be quite substantial. Under the circumstances, it might well be asked why the poorer, less developed nations would agree to the inclusion of the TRIPS agreement as part of the multilateral trade negotiation infrastructure. As already suggested, part of the answer is that improving intellectual property rights derives some support from a segment of the populations of poorer countries that is directly involved in research and development (R&D) and product innovation. A far more compelling explanation, however, is provided by the political and economic circumstances surrounding the issue. It may be fairly argued that the developed nations, led by the United States, proffered both a carrot and a stick to induce the less developed countries to agree to the TRIPS. The carrot involved further liberalization of trade in areas of particular importance to the poorer countries; the stick was the explicit threat of unilateral sanctions leveled at violators of national IPR law. Inasmuch as national standards, particularly those of the United States, could be regarded as more demanding than those embodied in the TRIPS, the decision to comply was all the more obvious. It should not be thought, however, that the TRIPS agreement is written in •ete. As is true of any international agreement, it is subject to review, dment, and even, possibly, revocation. It necessarily follows, then, that

INTELLECTUAL PROPERTY AND POSITIVIST ECONOMIC SCIENCE

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a continuous examination of the agreement's costs and benefits to its signatory nations is required. The purpose of this chapter is to provide a critical examination of the available economic evidence to date on the welfare implications of strengthening the global IPR regime, particularly as they apply to the less developed countries. The chapter first considers briefly the main theoretical argument in favor of strengthening the international regime as well as the counterargument that such action is inimical to th $ welfare of poor nations. The bulk of the chapter is concerned with what the existing empirical studies have to tell us about these issues. ! Positivist "versus Critical Method The title of this chapter refers to positivist economic science and the reader may reasonably wonder precisely what this expression refers to and how positivist economic science differs from other kinds of economic science and evidence. The distinction between the modifiers positivist and critical is not peculiar to economics and, in fact, has broad application across the social sciences.2 In general, positivism refers to a research tradition based on the following assumptions: (1) a strict separation between the investigator as subject and the object of investigation; (2) a commitment to the search for evidence in support of universally valid laws and generalizations; (3) a preference for methodological abstraction as revealed, for example, in the construction and use of theoretical models; (4) reliance on quantitative measures for key variables and their use in probabilistic tests of hypotheses. In general, the positivist social science method cerives its inspiration from the success enjoyed by eighteenth- and nine :eenth-century natural sciences, especially physics, that essentially developed along very similar methodological principles.3 Many critics of positivism take exception to virtually each of these assumptions. Those who adopt a "historici >t" methodological stance, for example, take exception to positivism's strict subject/object dichotomy as well as its claims to the universality of its laws.* Cox expresses these objections to positivism in the following terms: The historicist approach to social science does not envisage any general or universally valid laws which can be explained by the development of appropriate generally applicable theories. For historicism, both human nature and the structures of human interaction change, if only very slowly. History is the process of their changing. One cannot therefore speak of "laws" in any generally valid sense transcending historical eras, nor of

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structures as outside of or prior to history. Regularities in human activities may indeed be observed within particular eras, and thus the positivist approach can be fruitful within defined historical limits, though not with the universal pretensions it aspires to. (1986, pp. 243-244) As this passage makes clear, Cox does not reject outright the potential of positivism to present evidence of a type. Rather he rejects the notion that any particular positivist evidence can have universal applicability. Failing to recognize the indeterminacy of human subjects and of the institutions that are constructed by human activity and that constrain human behavior, positivism is ahistorical. As such, positivist research results can neither claim universality nor provide explanations for historical change. The point of critical theory, by contrast, is, in part, precisely to examine the institutional constraints within which people make choices and also to study the process by which institutions themselves are changed. By extension, then, it also examines the process by which human response itself changes. Far less, therefore, is taken as "given" by a critical social science approach than by a positivist one. Putting the difference that separates positivist and critical social science another way, it is fair to say that the critical approach is dynamic insofar as it is concerned with the development of social scientific categories, while positivism is static inasmuch as it treats these same categories as abstract universals. Again, the point here is not to delegitimate positivism, but rather to delimit the range of its relevance. Cox suggests the circumstances under which either the positivist or the critical approach would be an appropriate choice: In choosing between the two approaches, much depends upon one's idea of what theory is for. I have suggested two broad purposes corresponding to the two approaches: a problem-solving purpose, i.e., tacidy assuming the permanency of existing structures, which is served by the positivist approach; and a critical purpose envisaging the possibilities of structural transformation which is served by the historicist approach. The usefulness of all theory, whether problem-solving or critical, is in its applicability to particular situations. But whereas problem-solving theory assimilates particular situations to general rules, providing a kind of programmed method for dealing with them, critical theory seeks out the development potential within the particular. (1986, p. 244) The research that is reviewed in the following sections, then, is based on a problem-solving approach to the question of the economic impact of privately held, exclusionary property rights in intellectual property. It is an approach that takes as given the prevalence of capitalist social relations of


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production as well as the endowments of social, economic, and political advantages that these relations entail. Its concerns are largely with productive and allocative efficiency considered from the perspective of static social welfare. I argue that the evidence presented by this research is worthy of consideration even by those who are otherwise inclined to adopt a critical theoretical stance, among whom I would include myself. This is so for two reasons. First, it is a fact that the world as it exists is indeed dominated by capitalist social relations of production, precisely as is assumed by positivist economic science. Without accepting the prehensions of some that this fact is universal and immutable, there would seem to be inherent intellectual value in exploring regularities of human behavior within this particular historical context. Second, and more importantly, the body of evidence presented by positivist economic science is frequently called upon HI support of the case in favor of the TRIPS agreement. It is an important pillar of May's knowledge structure as it applies to the TRIPS debate. Familiarity with this evidence by those who take a critical attitude toward the agreement then would seem imperative. Theoretical Approaches The basic theoretical justification for TRIPS does not differ in any important way from the arguments that have long; been advanced for the defense of patent and copyright protection in general. While economists have recognized the potential for monopoly abuse of the market power conferred by such protection, it is held that in the absence of exclusive rights to exploit the products of inventiveness the rates of both scientific discovery and innovation will lag, with negative welfare consequences all around. Recognizing the second-best nature of such devices, much of the early theoretical work done by economists has focused on the optimal length of patent and copyright protection, the costs of patent races, and the effects of patents on the rate of technological diffusion.5 Nordhaus (1969,1972) and Scherer (1972), for example, have determined that optimal patent length depends inversely on the elasticity of demand for innovations. This is so since greater elasticity is associated with greater welfare gain derived from increases in consumer surplus.6 Inasmuch as demand elasticities differ across innovations, it would seem that a standard, fixed term length of patent would not be socially efficient. The gains of variable patent lengths, however, have to be measured relative to the administrative costs saved by adoption of a uniform, fixed term. An issue of particular concern as it bears on patent races is the potential for costly duplication of research efforts. Beck (1981) and Dasgupta and

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Stiglitz (1980) have identified conditions under which industrial R&D may exceed the socially optimal levels. Dasgupta (1987) makes a distinction in this instance between basic scientific research and development of innovations. Whereas inventors tend to see innovations in terms of their potential for profit, scientists see their work in terms of contributions to the body of knowledge. The former predictably are far more concerned than the latter with capturing the rents that patents and/or secrecy would provide. As several authors have recently pointed out, however, even university scientists have in recent years become more concerned about the proprietary character of their scientific findings. Knowledge diffusion may also respond to the breadth and depth of IPRs. Innovators will be inspired to promote the absorption of their new products and processes to the extent that the legal superstructure provides them with the incentives for doing so (Burstein 1984). Even compulsory licensing of patented innovations may diffuse knowledge if adequate royalties are provided. Certainly each of these issues has potential importance for less developed countries (LDCs). Patent length, efficient research, and diffusion of technology all have potentially important implications for increasing the standards of living of the majority of people in the world, especially those who are confined to countries where those standards are now particularly low. It is not obvious, however, that the solution to global poverty reduction lies in the direction of making more rigorous the global IPR regime. A number of theoretical studies have focused on the welfare losses imposed on LDCs by tighter IPR standards. Chin and Grossman (1990) find that the welfare interests of the technology-producing and -exporting countries stand in fundamental contradiction to those of the consuming and importing countries. The welfare gains to the first set of countries derive from the oligopolistic pricing power exerted by the producers of knowledge-based outputs. This power is partly exercised in a manner designed to force market exit from the industry by the dominant firms—that is, strategic predation. For the second group of countries, the failure to provide protection to IP improves welfare under certain plausible circumstances. Among these circumstances is that the share in consumption of the innovation of the importing country does not exceed some particularly high threshold level—that is, 88 percent. That this rather demanding criterion will be met is not very likely, given that innovations that originate in developed countries usually respond to market conditions typical of those same countries.7 Chin and Grossman also consider the possibilities for cooperation between the two sets of countries. If the welfare gains enjoyed by the producer/ exporter countries are sufficiently large, then the possibility exists that the consumer/importer countries could be convinced to provide IP protection if

INTELLECTUAL PROPERTY AND POSITIVIST ECONOMIC SCIENCE 59

these gains are shared. Such an "efficient bargaining with compensation" strategy improves global welfare, the authors show, when the productivity of R&D is sufficiently high. For comparatively minor innovations, however, the LDCs are better off imitating innovations originating in the developed countries rather than providing protection. Similar conclusions are reached when the possibility is introduced of licensing otherwise protected IP. The welfare ambiguities of strengthening IPRs are also brought into sharp relief in an article by Subramanian (1991). Making the usual distinctions between developed producer/exporter and less developed consumer/importer nations, as well as between static and dynamic benefits of IP protection, the author notes the high probability of conflict involving IP that is easily imitated. The poorer importing countries,^ obviously, will prefer low levels of protection, while the developed exporters with press for higher levels. Lower levels are the likely outcome under two circumstances. The first is when dynamic: benefits are inconsequential, leaving only the static welfare gains to be realized as a result of free riding. When dynamic benefits are important, low levels of protection are still to be expected in the case where the importing country is too small for its particular IPR regime to have any real effect on the producer/exporter decision to engage in R&D. Another element given consideration by Subramanian, but usually overlooked by other theoretical treatments, s the possibility of discriminatory IP protection. In countries possessing an indigenous R&D capacity, it might make sense to provide domestic inventors and producers with patent protection but deny the same treatment to foreigners. Under the reasonable assumption that the domestic producer i s a relatively high-cost one, there is bound to be some sacrifice of consumer surplus. The author argues, however, that this loss could be more than compensated for by the realization by the domestic producer/inventor of the profits associated with the new product or process. There is also the possibility that providing discriminatory protection to national producers will generate greater technological spillover effects than those apt to flow from even lower-cost foreign producers of the same or similar outputs. This case ther amounts to an "infant-industry" argument for discriminatory IPR protection. There are some cases in which the interests of the two sets of countries are likely to be congruent rather than cohflictual. One such case occurs when the new knowledge-based production is not easily imitated and requires the cooperation of the developed country's inventors to facilitate the transfer of technology. The other case occurs when a group of consumer/importer countries is able to collectively coordinate and strengthen their IPR regimes so as to induce producer/exporters to develop new products and processes that are especially coveted. For the poorer countries, such innovations might be drugs

LLECTUAL PROPERTY RIGHTS

Topical diseases such as malaria, or types of seeds and other inputs That are particularly suitable to tropical and semitropical climates. Deardorff (1992) also argues that extending the reach of IP protection beyond those countries where it finds original support does not necessarily improve welfare. Proceeding from the usual assumptions that innovations originating from some countries find markets around the world, he constructs a model that measures the gain in welfare from an increased flow of new products and processes against the losses emanating from the distortions of monopoly pricing. The problem, as Deardorff sees it, is that the flow of innovations attendant on the extension of patent protection suffers from diminishing returns as more countries are included. At some point, the cost of providing IP protection for existing inventions will outweigh the benefits of providing the incentive to produce new ones. Even if global welfare does improve, there can be no presumption that the welfare of the importing countries will not decline. Once again, a determining factor here is the proportion of the market that resides in the innovation-importing regions. If this is not sufficiently high, then the likelihood is that these regions will suffer a deterioration in welfare as the IPR regime is strengthened. Deardorff arrives at the conclusion that for these reasons the poorest countries of the world should not be held to the same standards for IPRs as the rest of the world. In a dynamic general equilibrium model, Helpman (1993) orice again divides the world into two distinct regions, one that innovates (the North) and the other that imitates (the South). Here the author identifies four avenues via which a tighter international IPR regime would work its welfare effects. These are identified as (1) terms of trade, (2) product composition, (3) availability of products, and (4) intertemporal allocation of consumption. The terms of trade and product composition effects are straightforward. Goods that are not imitated by the South are produced by the North under monopoly conditions and are correspondingly priced at a markup over northern wages, which are taken, reasonably, to be higher than southern wages. An increase in the strength of IPRs reduces southern imitation, resulting in an increase in the proportion of global output produced under such monopoly conditions and, correspondingly, in the level of northern prices relative to southern prices. Strengthening IPRs hurts southern workers two ways here. First, the share of its output from manufacturing declines as such production shifts to the North. Second, the overall terms of trade shift against the South. It is notable that in Helpman's model the welfare of northern workers may also be reduced by the same increase in monopoly power wielded by northern producers under a tighter IPR regime. This is so since these workers are also consumers of goods whose prices rise as the rate of imitation falls. Since the North generally also realizes an increase in monopoly profits under stronger IPRs as well


as improved terms of trade, however, it is not a priori clear what the net welfare consequences will be. j In terms of the availability of products, Helpman recognizes that strengthening intellectual property protection may have an effect on the rate of innovation. The important finding in this regard according to the author's model is that the initial effect of stronger IPRs bn the rate of innovation is positive but that the longer-term effect may be negative. This occurs because stronger IPRs lengthen the expected tenure of a monopolistic supplier in the market while reducing the incentive to innovate, A reduction in innovations is associated with a reduction in the number of available products and, therefore, a reduction in welfare. The negative welfare impact is especially evident for the South, which does not share in monopoly profits associated with innovation. Finally, Helpman shows that even though a temporarily increased rate of innovation may improve product availability and welfare for the South, these improvements are never sufficient to compensate the region for its longer-term losses. The reason for this is that a high rate of subjective discount will result in a larger long-run decline and a smaller short-run increase in the rate of innovation (p. 1266). It is clear from this brief summary of the limited theoretical literature that the welfare consequences of strengthening IPRs are, at best, ambiguous and that there is significant reason, moreover, to believe that the interests of the more developed, innovation-producing rations stand in conflict with those of the less developed, importing or imitating nations. Consideration of the available, though also limited, empirical literature may shed additional light on the debate. Before turning to these studies, however, it may also be useful to examine the TRIPS in light of the findings of the above-reviewed theoretical work. To do this, it will be useful, in turn, to review the specific content of the TRIPS agreement as it applies to patents. The TRIPS agreement provides patent protection for products and processes in all fields of technology, including biotechnology and animal and plant breeders' rights, with some exceptions (Maskus 2000). The minimum length of patent protection is twenty years from the date of application. This minimum period is longer than that provided for by the national laws of virtually every developed country with the exception of the United States, where twenty years is fairly standard. Exclusive rights to production and import are granted to patent holders. Patent holders are not required to carry out domestic production of patented goods and are not required to grant licenses to others for this purpose. Under certain circumstances related to health, nutrition, or some other social purpose, temporary compulsory licenses may be required of a patent holder, though in these cases the license grantor must be provided with adequate, market-based remuneration. The

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adjudication of cases involving the alleged violation of patent rights places the burden of proof on defendants, who must demonstrate that their product or process does not infringe on an existing patent right. While implementation of the TRIPS agreement allows for a grace period of five years for developing and transition countries, the agreement when fully operational is expected to apply on a nondiscriminatory, most-favorednation basis for all WTO members. TRIPS enforcement will require both civil and criminal penalties as well as border measures. The standard WTO dispute settlement function is expected to be applied to TRIPS cases. The cost of bringing national law into compliance and constructing the legal and administrative infrastructure where it does not currently exist in particular countries is anticipated to be quite high. Given these characteristics of the agreement and in light of the theoretical considerations described above, the relevant question to consider is, Is the TRIPS agreement a good deal for the less developed countries? I believe that the tentative answer to this question must be that it is not a good deal for the LDCs. The reasons are as follows: First, it is clear that the TRIPS is primarily motivated by a desire of the United States and other industrialized countries (or, to speak more accurately, the transnational corporations based in these countries) to secure for themselves monopoly power in the production and sale of certain commodities and processes in the global economy at large. These commodities and processes are knowledge-intensive ones and already have large, established markets in the developed countries themselves. While the agreement seeks greater harmonization of IPR standards across the legal systems of the developed countries, it is clear that the greatest efforts at legal and administrative reform must come from the middle and less developed countries. The import of this observation is that the new goods, services, and processes likely to be the objects of TRIPS are not those that are predominately consumed in the poorer countries of the world. The small share of the markets for innovations in poor, and even middle developed, countries is also exacerbated by income inequality and the limited effective demands typical of such countries. Hence the requirement for welfare improvement identified by Chin and Grossman that the importing/imitating country account for a large share of consumption of the protected commodities is unlikely to be met.

Third, the most-favored-nation (MFN) treatment requirement of the TRIPS agreement renders irrelevant the suggestion by Subramanian that discriminatory IP protection in favor of domestic innovators and imitators may be a welfare-superior alternative for the less developed countries. Moreover, the MFN provision of the TRIPS should have precisely the effect predicted by Helpman—that is, strengthening thej international IPR regime should operate to shift knowledge-based production toward those countries that already possess a comparative advantage in technology. In other words, the TRIPS agreement fails to recognize the applicability of an infant-industry argument to knowledge-based productio|n. The MFN provision also obviously precludes the possibility of £)eardorrr's suggestion that a globally welfaresuperior approach to IPRs would exclude the poorest countries from the requirements imposed by the strengthened international regime. In fact, as suggested above, the TRIPS is accurately understood as precisely an effort to bring LDCs into compliance with; behavior that is generally accepted by the developed countries. Finally, as argued by Subramanian, whereas welfare gains by the LDCs are more likely to occur as a result of stronger IPRs if they inspire innovation rather than imitation, the TRIPS agreement was motivated precisely in order to provide stronger global protection to industries whose outputs have been found easy to imitate. Intellectual property is, in fact, often defined as involving commodities characterized b y highfixedcosts but very low, or zero, marginal costs of production. It is precisely the ease of imitation that has given rise to the desire to strengther the global IPR regime. It is to be expected, then, that such a strengthening will result in transforming the welfare gains associated with imitation into producers' rents. This analysis, therefore, seems to remonstrate the following tentative conclusions. A strengthening of global IPRs in the form of the TRIPS agreement would be ambiguous in its effect on global welfare and, probably detrimental to the welfare interests of LDCs. Before we can remove the "tentative" qualifier from these conclusions^ however, it would be useful to consider the relevant empirical studies that have been conducted.

Second, the restrictions on compulsory licensing called for by the TRIPS agreement will limit the potential dynamic benefits associated with technological transfer, knowledge spillovers, and other externalities. Such potential dynamic effects are also limited by the stipulation in the TRIPS that internationally harmonized patent law may not require local production of the protected goods and processes.

Obviously, one way to address theoretically ambiguous results is via empirical investigation. The issues of the size and incidence of standard, static welfare effects are only part of the challenge to empirical researchers concerned with the economic impact of IPRs. Equally, or even more, important are the impacts of IPRs on rates of innovation, technology transfer, skill acquisition, foreign direct investment, and international trade. The empirical literature,

Empirical Studies

64



while still young, has addressed each of these issues to a certain extent. The earliest studies (Stalson 1987; U.S. International Trade Commission 1988; Feinberg and Rousslang 1990) focused on the potential welfare impact of stronger IPRs for the developed, innovating countries. Not surprisingly, these studies have generally found that the failure to enforce the existing international agreements regulating IPRs as codified by the Paris and Berne Conventions cost the developed countries billions of dollars in lost revenues. Yet, when Maskus (1990) extended the Feinberg and Rousslang study to include the LDCs, he concluded that global welfare declined notwithstanding the increase in profits realized by firms who could sell their protected innovations at higher prices. Empirical Measures oflPR Strength Cross-country empirical analysis of the economic impact of IP protection faces the formidable problem of devising measures of the strength of IPRs in a uniform way for a large number of countries. Early studies addressed this issue merely by noting which countries had in fact endorsed the standard international conventions without paying much attention to the degree of actual enforcement. A more sophisticated measure was devised by Rapp and Rozek (1990), who came up with an index of IP protection (here referred to as the RR index). The index is calculated for a nation based on the existence of patent law along with the exclusions allowed by the law. The index does not take into consideration a nation's ability to enforce the law or the law's actual effectiveness. The range of values for the index is 1 to 5, with 1 indicating the virtual absence of patent protection and 5 indicating a system of enforcement and protection close to that found in the United States. A comparison of Rapp and Rozek's index with per capita income clearly shows a direct relationship between the two.8 High-income countries (above US$7,000 for 1985) have an average value on the index of 4.14, middle-income countries (US$2,500-$7,000) have an average of 2.62, and low-income countries (below US$2,500) have an average of 2.46. A more recent attempt to quantify IPRs was undertaken by Ginarte and Park in 1997. Like Rapp and Rozek, Ginarte and Park calculate an index of IPR protection by examining the patent law of individual countries. Their index (here referred to as the GP index) goes beyond the RR approach by examining in greater detail the particular aspects of the law, including duration of protection, extent of coverage, membership in international patent agreements, provisions for loss of protection, and enforcement measures. Moreover, Ginarte and Park make an attempt to assess the degree of strength of the law by considering such matters as the availability of preliminary in-

65

Table 3.1 IPR Index Scores

Full sample N Average Median CV Increases Decreases High-income N Average Median CV Increases Decreases Mid-income N Average Median CV Increases Decreases Low-income N Average Median CV Increases Decreases

RR1984

GP1985

GP1990

GP1995

116 2.90 3 0.49 n.a. n.a.

108 2.44 2.52 0.39 n.a. n.a.

109 2.45 2.52 0.40 9 4

116 2.73 2.71 0.32 34 3

27 4.14 4 0.26 n.a. n.a.

26 3.37 3.32 0.19 n.a. n.a.

28 3.43 3.32 0.23 5 1

30 3.70 3.86 0.17 15 1

33 2.62 2 0.41 n.a. n.a.

27 2.24 2.26 0.29 n.a. n.a.

27 2.29 2.01 0.30 2 2

34 2.54 2.61 0.23 13 1

56 2.46 2 0.56 n.a. n.a.

55 2.11 2.41 0.44 n.a. n.a.

54 2.12 2.41 0.44 2 1

52 2.33 2.57 0.33 6 1

Source: Maskus (2000) , p. 95. Reprinted with permission

junctions, reversibility of burden of proof, and contributory infringement actions. No attempt is made by the GP index, however, to gauge the degree of enforcement. Values are assigned to tie various subcomponents in such a manner that the overall index measures from 0 to 5, with 0 indicating, as in the RR index, the complete absence of IPR protection and 5 indicating maximum protection. The GP index was also calculated for 1985 and 1990 and recently updated for 1995, thus permitting the ability to assess improvement or deterioration in individual countries' IPR regime. Table 3.1, replicated from Maskus (2000), summarizes both the RR and GP index scores for the three categories of countries described above. It is notable, once again, from data on the GP index that there exists a direct relationship between this measure and the level of per capita income

66


as it is identified in the three groups of countries. This is entirely in keeping with the frequently repeated observation that more developed countries possess both the technical means to support research and development as well as the markets to give incentive to product and process innovations. As in the case of the RR measure, we find for the GP index that the difference between average index scores separating the middle-income and low-income groups of countries is quite small for the 1984-85 period. Finally, it is notable that the GP index shows increases for all groups of countries over the 1985-95 decade. The increases are particularly dramatic between 1990 and 1995—an interval that includes the negotiation of the Uruguay Round of GATT and the introduction of the TRIPS agreement. Hypothesis Tests Positivist economic methodology, having established a means by which to measure the phenomenon that it considers to be central to its investigation, proceeds by specifying a model that will yield hypotheses that are testable in the statistical sense. In this subsection we shall consider a variety of such testable hypotheses that economists have considered especially important in the discussion of IPRs and economic development. Trade The first specific empirical relationship to be examined here concerns the impact of IPRs on trade flows between the developed and less developed countries. Maskus and Penubarti (1995) pose the question as follows: Do differential patent laws influence international trade flows? They note the theoretical ambiguity of conflicting "market expansion" and "market power" effects. The first of these occurs when stronger patent rights reduce the cost of exports of knowledge-based goods and services. The second occurs when the monopoly power conferred by patents allows firms to restrict exports in the interest of profit maximization. To test the relative strength of these effects, the authors specify an empirical version of an international trade model first developed by Helpman and Krugman (1985). The empirical model expresses bilateral gross imports as a function of the following variables: production of the exporting country, size of market of the importing country, importer's per capita income, and measures of trade resistance such as tariff rates. The model is augmented by the inclusion of a measure of patent strength—in this case, the RR index. Data for exporters are for the Organization for Economic Cooperation and Development (OECD) countries while importers are represented by a data set for


67

seventy-seven developed and less developed countries. The model is estimated over a pooled data set for twenty-nine categories of manufactured goods as well as separately for each of the twenty-nine industries. Also, the model is estimated by disaggregating the pooled data set into patent-sensitive and patent-insensitive groups. For the largest, pooled data set, Maskus and Penubarti's regression results show a positive and statistically significant result between patent strength and imports. When the data set is disaggregated by industry, however, no such statistically significant relationship between these variables is found among those industries identified as patent-sensitive, although several of the patent-insensitive industries reveal the positive (and significant) relationship. These findings suggest that for patent-sensitive industries the market power effect of stronger patent protection across countries dominates the market expansion effect and vice versa for patent-insensitive industries. One is tempted to conclude from these results that if the goal of the TRIPS agreement is to promote international trade, the agreement ought to be extended only to those industries that are patent-insensitive. The paradox is obvious inasmuch as pressure for the agreement emanates precisely from industries that are in fact patent-sensitive. The authors also estimate a specification of their model that allows for interaction effects between level of development and strength of patent protection. In this specification, the results reveal several industries whose import volumes respond positively to stronger patent rights, particularly for larger developing nations. This is also a potentially interesting result when considered in the context of the TRIPS agreement. The agreement, as noted, seeks virtually universal harmonization of IPRs and, beyond a modest grace period for the very poorest countriesj does not differentiate among more, less, and least developed nations. The MFN approach under which the WTO operates does not discriminate either between nations according to their sizes, levels of development, nor their threats to imitate otherwise patentable goods, services, and productive processes. Ins ofar as such characteristics are important determinants of the market expansion versus market power effects of stronger patent rights, the TRIPS agreement would seem to be an inefficient instrument for promoting trade. A more recent but similar study was conducted by Smith (1999), who poses the question "Are weak patent rights a barrier to US exports?" U.S. state-level data are employed in an estimable gravity model of export performance. The gravity model is specified with the following explanatory variables: per capita income of exporters (states) and importers (countries), the populations of exporters and importers, distance between them, and tariff rates. This framework is augmented by the inclusion of patent right/dummy

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variable interaction terms to test the interesting hypotheses regarding the effects of patent rights on trade. Two alternative sets of dummy variables are chosen to test different hypotheses. The first set identifies different levels of development, while the second identifies different levels of imitation threat. Both the RR and GP indexes of patent strength are employed in the analysis, with very similar results, according to the author, although she reports only those employing the RR measure.9 The results of Smith's empirical analysis show that the strength of patent rights (PR) matters for U.S. exports for only one of the four development groups she identifies, the lower middle income group.10 This group covers 30 percent of the total sample of ninety-six countries. The other patent right/ development group interaction terms turn out to be negative in sign wherever statistical significance is indicated. Thus the market expansion effect seems to dominate only in the case of this particular group of importers, while the market power effect prevails in the other groups, or neither effect outweighs the other. Additional regressions are run that replace the PR/development level terms with PR/threat of imitation interaction effects. Threat of imitation is measured by an index constructed on the basis of data taken from UNESCO to represent a nation's research capabilities and from the United Nations Human Development Report (2001) on educational attainment. Again the countries are divided into four groups ranging from high to low imitative ability. The regression results show, not surprisingly, that the market power effect dominates in the case of the weakest threat of imitation while the market expansion effect dominates in the strongest imitation group. For the intermediate threat to imitate groups, the results are ambiguous in sign and lack statistical significance. It is interesting to note that there are but four countries in Smith's sample that belong to each of the two groups that her empirical analysis identifies as trade susceptible (in a positive sense) to increasing patent strength. These countries are Bolivia, Romania, Tonga, and Turkey, which together represent only 5.5 percent of the LDCs in the analysis." Smith also estimates the effect of stronger patent rights on the volume of U.S. exports and finds that this volume is likely to increase in the case of countries with strong imitative abilities but currently weak rights, and to decrease in the case of countries with weak imitative abilities and weak rights. Again, none of this is surprising. What is rather remarkable, however, is the author's estimate that the combined effect of increasing global patent protection to the levels envisioned by the TRIPS agreement is likely to reduce U.S. exports by anywhere from 2.6 to 5.4 percent in the most patent-sensitive industries over the next ten years. That is, overall, the market power effects


are likely to dominate the market expansion effects by a substantial amount for patent-sensitive U.S. exports. A priori there is no reason that we should expect much different outcomes from other countries that produce and export knowledge-based outputs. Direct Foreign Investment A second question that researchers have attempted to investigate empirically in recent years concerns the relationship between the strength of a nation's IPR regime and its ability to attract direct foreign investment (DFI). The connection between IPRs and DFI is potentially important insofar as the latter is one way that technology may be transferred between nations. It is not necessarily clear, however, precisely how this relationship would work. On the one hand, the perception by investors that the IPR regime is strong or improved may reduce the perceived riskiness or cost of an investment. Risk is reduced when the probabilities are reduced that proprietary knowledge and techniques will be appropriated without compensation. Costs are reduced when firms do not have to;take extraordinary steps to protect such knowledge and techniques. On the other hand, DFI is sometimes viewed by multinational firms as a secpnd-best strategy by which to take advantage of their specific assets and advantages and one that relates negatively to the strength of a country's IPRs. For example, if it is true that export of knowledge-based commodities is discouraged by weakness in IPRs, as is sometimes alleged, then EFI may provide the firm with the opportunity to service a market and exploit its advantages while maintaining arms-length control over the dissem nation of its product and processes. Similarly, DFI may be regarded as preferable to direct licensing of a technology for the same reasons of closer c ontrol. A recent attempt to shed empirical light on the relationship is undertaken by Lee and Mansfield (1996). In this stjudy the authors surveyed a random sample of 100 major U.S. companies spread over six manufacturing industries as to their views of the IPR regimes in fourteen less developed countries. Respondents, mostly top executives or corporate patent attorneys, were asked about their willingness to transfer their latest technologies to wholly owned subsidiaries in these countries as well as' their willingness to enter into jointventure associations with local partner firms. The countries chosen were those that possessed substantial industry capacities and those that had been involved in IP disputes. On the basis of the survey responses, the authors calculate for each of the six industry groups the percentage of firms responding that the IPR regime is too weak to permit the transfer of technology. The mean of these percentages is taken as the measure of IP weakness (PAT) for each country

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Table 3.2 Patent Rights and DFI Variable

Lee and Mansfield model

Modified Lee and Mansfield model

Augmented Lee and Mansfield model

constant

-239 (-0.71) -14.0 (-1.91)* 81.2 (1.92)* 737 (4.47)'* 72.4 (3.94)" -24.7 (-0.73) 16.9 (0.47)

-4,260.067 (-2.193)* -841.270 (-1.259) 559.601 (2.019) 10,920.22 (4.576)** 715.598 (3.250)** 114.505 (0.313) 606.397 (1.840)

-2,656.269 (-1.495) -1,189.111 (-2.027) 364.626 (1.464) 10,012.24 (4.801)** 633.312 (3.321)** -311.820 (-0.877) 136.789 (0.404) 982.646 (2.497)* .81 21

PAT/GP90 MSIZE MEX L1NV IND OPEN INFRA adj. R 2 N

0.57 14

.74 21

and is used as an explanatory variable in the authors' regression analysis. The dependent variable in this analysis is the volume of U.S. direct investment in a particular country and the hypothesis of interest is that this variable is inversely related to the weakness of the country's IPRs. Additional variables are entered on theright-handside of the regression model as controls. These include measures for size of market (MSIZE), level (stock) of prior direct foreign investment (LINV), degree of industrialization (IND), degree of economic openness (OPEN), and a dummy variable to identify Mexico (MEX).12 The authors' least squares estimates are given in column 2 of Table 3.2. The regression results show that several of the signs of the parameter estimates are those predicted by theory. U.S. DFI tends to be directed to larger and more open markets. Economies of agglomeration suggest that flows of DFI are directed where existing stocks of foreign assets are greater. The Mexico dummy variable estimate is positive and highly significant. The estimate attached to the industrialization variable has a sign contrary to the theoretical prediction but turns out to be not statistically significant. Neither is significance indicated in the case of the economic openness variable. The most salient finding of all for Lee and Mansfield concerns the inverse relationship found between patent weakness and U.S. DFI flows. The negative parameter estimate turns out to be significant at the .05 level.13 The important conclusion drawn by the authors then is that patent weak-

ness among these countries tends to discourage DFI by these American firms. A cursory examination of Lee and Mansfjield's method and data suggests that their results should be met with caution1 and perhaps even some skepticism. The sample size for their analysis is 'extremely small and subject to selection bias. These authors analyze only fourteen countries in their sample, including, by their own accounting, those involved in IP disputes. The measure they develop for weakness of patent protection is also subject to bias introduced by the subjective evaluation of evaluators who may themselves be party to these same disputes. It makes a great deal of sense to ask how robust the Lee and Mansfield findings are to changes in both the sample ak well as the measure for IP protection. Toward this end I make the following changes to the Lee and Mansfield estimation model. First, the authors' measure of patent weakness (PAT) is replaced by the Ginarte and Parks index of intellectual propertyrights(GP90). The 1990 values are chosen as coming closest in time to the Lee and Mansfield (LM) study. Substituting the GP measure for Lee and Mansfield's surveybased indicator allows for an expansion of the sample size from fourteen to twenty-one countries. The new sample contains all but one (Taiwan) of the countries used in the LM study. The measures used for the right-hand side explanatory variables are also retained in the modified model, as is the Wheeler and Mody (1992) data source used in the LM analysis. The least squares results of this new estimation are given in column three of Table 3.2. Inspection of these new results shows tnat they are similar to the LM findings (column 1) in several important respects. Nearly all the signs on the coefficients are the same (the exception being the positive sign for IND). In several cases the levels where statistical significance are indicated are also the same. The key important difference in th^ two models, however, turns up when we consider the meanings of their respective coefficients on the measure for strength of IP regime. Recall that in Ithe LM model PAT refers to the weakness of patents, whereas GP90 refers to the strength of the overall IP system. Hence a negative coefficient for the latter variable suggests a conclusion opposite to that arrived at by Lee and Mansfield. That is, the new results suggest greater U.S. DFI flows to those countries with weaker IP regimes. The lack of statistical significance attached to the coefficient prevents us, of course, from embracing this contrary conclusion. Afinalspecification of the model, however, is suggestive. In drawing on the data and arguments of Wheeler and Mody, Lee and Mansfield neglected to include in their version of the regression model several variables examined by the former. Among these were an index of country risk and another that provided a measure of the quality of the nation's physical infrastructure. For obvious reasons, these would be important considerations for international investors.

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Wheeler and Mody themselves found the infrastructure measure to be a significant determinant of foreign investment, but not their risk index variable. Lee and Mansfield excluded the infrastructure variable on the grounds that it is highly correlated with industrialization (IND). Calculating the correlation coefficient between Wheeler and Mody's IND and their measure for quality of infrastructure (INFRA) for the present sample of countries shows a high value (.65) but one that is far from collinearity. When INFRA is included in the specification, the estimation results for this augmented version of the LM model are obtained and shown in column four of Table 3.2. These parameter estimates show, once again, findings very similar to those for the modified LM model (column three). The important differences in this case are the statistically significant impact that infrastructure quality has for DFI flows and the increased statistical significance attached to the negative coefficient linking IPR strength (GP90) to DFI. Here we find the probability of rejecting the null hypothesis reduced to .06. When we use INFRA to substitute for IND, we obtain nearly identical results (not shown), though the probability of rejecting the hypothesis of a negative relationship between IP strength and DFI is raised slightly to .08. Finally, the important point here is not necessarily to empirically establish the negative relationship between strength of IPR regime and flows of U.S. DFI. It is rather to demonstrate the lack of robustness of Lee and Mansfield's findings of a positive relationship between the variables. That is to say, there can be no empirically based presumption that strengthening intellectual property protection via the TRIPS agreement holds out the promise of increased DFI from the United States to the less developed countries of the world. The available evidence clearly indicates, rather, that such characteristics as the prior stock of DFI and the quality of infrastructure are far more important determinants of these flows.14 At this point an important question needs to be asked. Even if it could be shown that strengthening IPRs stimulated DFIflows,could we conclude that such flows are welfare improving to the poorer countries in the short and long runs? Certainly, much has been written about the benefits of foreign capital to growth and development. Among these alleged benefits is the prospect of the transfer of technology and improvements in productive efficiency. It has yet to be empirically demonstrated, however, that these benefits are greater than those that are obtained via the alternative of direct imitation and/ or adaptation of foreign technologies in the absence of strong patent protection. Clearly the primary targets of the TRIPS agreement, as well as those who provided the strongest resistance to the agreement, are constituted by those countries, such as India and Brazil, that have a substantial indigenous research and development capability. An important, but heretofore unexplored


question is, What are the effects of increased DFI on the indigenous technical capacities of countries like these? If DF;I results in the transfer of technology and productivity improvements, then it is possible that it raises the overall level of productive efficiency in the receiving economy as long as these benefits outweigh those realized by the free-riding alternative. If DFI displaces indigenous R&D, however, the probability of a positive net benefit contribution is decidedly reduced. r There is also an important distributional and equity aspect to this issue. To what extent does the transfer of technology via foreign investors aided by stronger patent and copyrights help to raise the well-being of a wide swath of the population of a poor country? While itl may be true that foreign investors pay higher than average wages, there are many well-documented cases in which DFI has had a highly distorting impact on the structure of a LDC's economy and society. Agriculture is a particularly important area of concern. The transfer of techniques developed in!scientifically advanced countries such as the United States often has profound effects on the productivity levels of Third World agriculture. As will be documented in Chapter 7, it also has equally profound, and disastrous, consequences for the patterns of landownership, employment, and well-being jof the rural populations of these countries. Critics of the TRIPS who worry about the agreement's implications for breeders' rights, the cost of seed consequences for landownership and employment are well justified in their concerns. There can be no a priori presumption that these impacts will be benign for the majority of rural residents, Neither does past experience provide a basis for optimism. Economic Growth The third and final empirical relationship to examine here concerns the impact of stronger IPRs on the potential for economic growth in the less developed world. As in the cases of trade and foreign investment already discussed, there is not a wide literature to review. The theoretical case for the growth-promoting benefits of stronger global IPRs is, at least in part, related to the issues already discussed—namely, international trade and foreign investment. That is, insofar as stronger and harmonized IPRs across nations promote international trade and investment, the argument goes, there will result a more globally efficient allocation of resources that will, in general, promote growth. Beyond this, however, it is further argued that stronger global IPRs will promote more innovation, technology transfer, and technological spillovers that in turn provide global economic growth with an additional boost.15

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On the other hand, there exists the possibility that IP protection could have a dampening effect on the propensity to innovate if firms choose to exploit existing market advantages to the neglect of innovative activities. Intellectual property protection in this light acts like any other form of industrial protection.16 If this is the case, then the strengthening of IPRs could conceivably have negative effects on economic growth. Once again, theoretical ambiguity suggests that we appeal to the available empirical evidence. Once again, however, the available empirical evidence is quite thin. In recent years, two studies have been conducted that explore the relationship between IPRs and economic growth for cross-country samples. The first of these is by Gould and Gruben (1996), who draw on the endogenous growth literature to specify a single equation regression model whose dependent variable is the average annual rate of growth of gross domestic product (GDP) per capita over the period I960 to 1988. Several versions of the benchmark model are specified, employing as explanatory variables the level of GDP as of 1960, the investment ratio, and the secondary school rate in 1960, among other measures." The data set includes ninetyfive developed and LDCs and the right-hand-side variable representing the strength of IPRs is the Rapp and Rozek index of patent protection. Out of concern for both measurement error and possible endogeneity of the regressor, the authors choose to take an instrumental variables approach to the estimation. Toward this end, they specify an auxiliary equation with the log of the RR index as a function of several of its underlying determinants, including average duration of patent protection, a set of dummy variables indicating membership (or not) in various international IPR agreements, a set of dummy variables indicating whether or not the country is signatory to agreements on patent protection for particular industries and products, and several other country characteristics. The predicted values from this regression are then used on the right-hand side of the primary growth equation.18 Two versions of the growth model with IPRs are estimated. The first includes only the instrumented version of IP protection among the explanatory variables, while the second employs the instrument along with some additional ancillary regressors.19 In each case, the IPR variable is found significant at least at the .1 level. The fact that statistical significance is reduced when the additional ancillary regressors are added to the model raises question about the robustness of the results. Since few of these variables are found to be significant, we must naturally wonder what the outcome for the IPR variable would be if it was combined with a set of ancillary regressors with greater ability to contribute to the overall explanatory power of the model.20 Gould and Gruben are themselves aware of the potential lack of robust-


ness in their results because the next step; in their analysis is to examine the role played by international competition i|n conditioning economic growth's relation to IPRs. To do this, they specify various alternative dummy variables that identify countries with greater than average levels of economic openness. Employing a variety of specifications, the authors are able to present evidence that suggests that relatively open countries display higher rates of economic growth in the presence of greater IP protection than do relatively closed countries. They conclude on this basis that the character of a country's trade regime plays a role in determining riow IPRs affect economic growth, with more open and competitive economies benefiting more than closed and less competitive ones. A second study to explore the empirical relationship between IPRs and economic growth was published by Park and Ginarte (1997)—the same authors who developed the index of IPRs discussed earlier. One of the improvements that these authors claim for their work is precisely their index, which they argue demonstrates more variability than the Rapp and Rozek measure used in Gould and Gruben's paper. Another contribution they claim is their ability to demonstrate that the effects of stronger IPRs in promoting economic growth occur not in a direct fashion, but rather in their operation through the process of productive factor iccumulation. The modeling strategy of Park and Gin irte is to specify a system of equations to be estimated simultaneously via seemingly unrelated regression (SUR). In the primary equation of interest, the economic growth equation, three explanatory variables are treated as instruments—the investment ratio, schooling, and the R&D ratio. These variables are in turn regressed on a set of additional ancillary variables that includes Ginarte and Park's own index of IPRs. Separate regressions are run for the total sample size of sixty nations as well as for the thirty richer and thiity poorer nations. In no case is the GP index found to be significant in the primary growth equations. The index is found to be a statistically significant determinant of physical capital accumulation and R&D (though not schooling) for the overall sample and for the subsample involving the richer countries. It is not, however, found to be significant for the subset of poorer countries. The authors suggest from these results that either the LDCs do not respond to material incentives in the same way as the developed countries, or that a significant part of their R&D efforts is imitative rather than innovative. The latter of these two possibilities seems the more plausible. More significant are the policy conclusions drawn by the authors. Here they argue that LDCs ought not to be expected to support stronger IPR regimes until they themselves have established substantial abilities and institutions to take advantage of these same rights. As things stand, most poor countries with very limited R&D capacities hardly see the advantage to

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them of limiting their abilities to imitate in favor of providing greater security to foreign providers of innovations. This is especially so given the costs of establishing and enforcing the strengthened regime. As noted earlier, some proponents of the TRIPS agreement have argued that LDCs can give a stimulus to economic growth by strengthening their IP regimes. As afinalexperiment, I would like to consider the following simple regression model that posits economic growth (GROWTH) as the left-handside variable to be explained. The regressors include the average annual rate of gross domestic investment (GDI) and the rate of gross secondary school enrollments (SECED).21 These variables have been identified as robust determinants in cross-country growth models. The regressor of interest here is the change in the GP index of intellectual property rights (DGP) taken between 1970 and 1985. If stronger IPRs are associated with stronger growth, then the coefficient estimate should obviously be positive. The time period over which the model is estimated is 1980 through 1990. As this decade was a traumatic one for several Latin American countries, a dummy variable (LAT) is included in the specification to identify the region. Likewise, an Asian dummy (ASIA) is included that is intended to capture the "booming" behavior of several of the Asian newly industrialized countries—the famous NICS— of that region. The least squares regression results, where values in parentheses are t statistics, are given below. GROWTH = 5.018 CONSTANT - 0.407 DGP + 0.276 GDI - 0.029 SECED - 1.383 LAT (5.594)**

(-0.503)

(5.468)** (-2.656)**

(-2.241)*

+ 1.051 ASIA (1.837) F statistic = 18.396; adjusted R2 = .68; N = 43; ** = .01; * = .05.

The above results suggest that, as in previous models of this type, investment is an important positive determinant of growth. Curiously, however, the human capital variable (SECED) does not turn out to have the predicted positive sign. It may be that the secondary school enrollment ratio is a poor measure for this variable. The most salient result shown is the lack of a positive relationship between improving IPRs (DGP) and economic growth over this period. The estimated coefficient, though not statistically significant, is actually shown to be negative.

Based on this evidence, there would not seem to be any reason to expect the TRIPS agreement to have an immediate; beneficial impact on economic growth. Defenders of TRIPS may reasonably reply that ten years is too short a period over which to definitely assess the impact of an upgrade in the IPR regime on economic growth. I would certainly agree that more time and data are needed to arrive at final conclusions. I would also assert, however, that at this stage of the evidence greater skepticism than optimism is warranted regarding the alleged growth-inducing effects! of the agreement. Conclusion The findings of this review may be briefly |summarized as follows: (1) the theoretical literature suggests that the static welfare consequences of a stronger and harmonized international regime of IPRs are probably negative for the poorer countries of the world; (2) the empirical literature thus far has not been able to establish with a reasonable degree of confidence that stronger IPRs will have benefits for the poorer countries in terms of expanded trade, increased flows of DFI, technology transfer, ;or economic growth; (3) for the foreseeable future, the main beneficiaries o!f harmonized IPRs will be the developed nations from which the large bulk of innovations derive. Advocates of the TRIPS agreement will u ndoubtedly respond that a longterm perspective is required before the success of the agreement in providing its expected benefits for the LDCs will be realized. Some will also argue that TRIPS-related benefits require that a whole range of liberalization measures also be adopted, including free trade, industrial privatization and deregulation, and labor market reform in the direction of greater flexibility. Still others will argue that additional industrial regula :ory institutions will be required to ensure that the benefits of stronger IPR are reaped by producers and consumers in the LDCs. Whatever the merits of these arguments, they do not in themselves constitute an adequate justification for the TRIPS. Thus far, defenders of the agreement have not demonstrated that the TRIPS will provide net benefits that exceed those associated with the alternative of free imitation of technologies developed in the technologically advanced areas of the world. They have not demonstrated that the flow of innovations would be substantially reduced in the absence of the TRIPS nor that the TRIPS has resulted in greater innovation effort in the direction of goods, services, and techniques that are of special concern and benefit to those who reside in poor countries. Clearly, time is required for questions such as these to be resolved. In the meantime, however, there is no compelling case made that LDCs should support the TRIPS agreement. Notwithstanding the available evidence, or lack of it, the TRIPS agree-

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ment is an established fact. This raises the obvious question as to why the LDCs would accede to an agreement whose evident costs-benefits ratio is so high. The answer to this question, alluded in the introduction of this book, is not hard to understand for students of the political economy of multilateral negotiations. Namely—the developed countries, and particularly the United States, introduced additional potential costs and benefits into the negotiating calculus of the poorer nations that could not be ignored. The threat of unilateral punishments of IPR violations combined with the enticement of improved market access for the LDCs' trade proved to be of decisive importance for securing their acceptance of the agreement. The "how?" and "why?" of this political economy is the subject of the chapters to follow. Here it is sufficient to note that future such agreements, or modifications to existing ones, are also likely to be dictated by political economy factors rather than the weight of positive evidence.

Capital, Class, alnd the State in the Global lEconomy

The arguments ana evidence of the previous two chapters demonstrate that the trade-related aspects of intellectual property rights (TRIPS) agreement can hardly be understood as the result of either a compelling philosophical defense of exclusionary property rights in intellectual property or of the ability of its proponents and defenders to provide a convincing case of the agreement's positive potential impact on short-term economic welfare and long-term economic development, particularly as these relate to the poor countries. And yet, as a matter of fact, the TRIPS is currently a part of the international regulatory framework that governs the global capitalist economy. A key objective of this and the following chapter is to provide a reconciliation of this contradiction. Such a reconciliation, it is apparent, must be found in a political economy; an£ lysis. That is, it requires an analysis that focuses on the real power relationships as they exist between those who are well served by the agreement and those who are not. The debate surrounding the TRIPS, as is true of virtually all international agreements of its type, has been represented as a contest between nations. Certainly it is true that the actual negotiations leading up to the signing of the TRIPS were conducted by official representatives of the governments that are members of the multilateral trade system. It shall be argued here, however, that such a view is at best superficial and at worse a deliberate ideological obfuscation of a more fundamental reality grounded in class divisions and, correspondingly, class conflict. Examination of real power relationships at the level of the global economy necessarily requires that we take appropriate consideration of the exercise of state power. This requires in turn that we have an adequate theoretical understanding of the meaning of the state, that we understand how state power is exercised, and that we understand how classes attempt to imprint the particular structures of state power in ways that operate to advance their interests. This discussion of the state is the principle concern of the present chapter. The results of this discussion will then be used to develop a political eco79

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nomic analysis appropriate to the specific issue of the TRIPS agreement in Chapter 5. Political economic analysis, like any other, requires a set of assumptions or theoretical framework for its execution. International political economic theory and its close cousin, international relations theory, provide a number of candidate frameworks from which we might choose. The job of the following section will be to assess the capabilities of three of these models to undertake the analytical task at hand.' Having arrived at an appropriate set of theoretical tools, I shall attempt to craft a coherent interpretation of the capitalist state in the global economy useful for an understanding of the political economy of the TRIPS. Hegemony, World Systems, and the Internationalization of Capital Of the three theoretical frameworks that I wish to examine for their potential insights into the state of the global economy, one is derived from international relations (IR) theory and the other two are drawn from international political economy (IPE). In his textbook Brawley (1998, pp. 405—406) distinguishes between IR and IPE as follows: International political economy is the analysis of the-interaction of power and the processes of wealth creation at the international level; international relations is the study of politics involving an international dimension—that is, relations between states and external actors (states and nonstate actors), as well as between nonstate actors and other external actors (states and nonstate actors), or involving the formulation of a policy with repercussions for actors outside the country. The fundamental difference between IR theory and IPE, at least as I understand it, is the broader overview of the former. That is, whereas IPE tends to focus on economic institutions and relationships between nations through the prism of the exercise of political power, IR theory takes an even wider view. This wider view, while not dismissing the insights of IPE, also pays close attention to broader political factors, including the exercise of military power and international diplomacy. It is also probably fair to say that, generally speaking though not necessarily so, the practitioners of IPE are most likely to be primarily trained in economic theory while those who specialize in IR are more likely trained in political science. Hegemony Theory The theory of hegemonic stability has been an important paradigm of IR theory for several decades. Its most notable proposition is that a liberal world

CAPITAL, CLASS, AND THE STATE IN THE GLOBAL ECONOMY

81

trading system requires that a particular nation-state (the hegemon) impose sufficient order in an otherwise anarchic w|orld to permit the free flow of goods, services, and capital. According to Lake (1993), the theory has at least two distinct variants—leadership theory and hegemony theory. What they have in common is the notion that states operate as unitary political actors who in turn operate as rational maximizers of the national interest. Each theory is also inclined to define national interest in economic terms and to promote a liberal trading and investment system as the best guarantor of that interest. Leadership theory argues that in seeking to maximize national welfare a leader state will promote an international economic infrastructure that has the characteristics of a public good (Kindleberger 1973, 1981). Among the particular elements of this infrastructure are included a stable international medium of exchange, a sufficient source of international liquidity, and adequate guarantees that define and protect basic property rights. The leader country that provides these elements or stimulates their collective, international provision obviously will enjoy their benefits. It is also clear, however, that other nations will also benefit—even those that have no hand at all in their provision. Leadership theory then posits the necessity of a leader state to overcome this free rider problem. Lake notes that an interesting debate that has arisen in the literature concerns the manner in which the leader state is able to "stimulate" the provision of the international economic superstructure. "Benevolent" leadership occurs when the leader state assume; all or a substantial portion of the cost of providing the infrastructure. "Coercive" leadership occurs when the leader state is able to force other nonleader, or follower, states to assume a portion or all of these costs. Coercion is necessary inasmuch as free riders, by definition, are not inclined to beai such costs. If coercion is to be chosen over benevolence, then the question of the efficiency of the coercive mechanism must be considered. Efficient coercion is more likely the greater is the leverage exercised by the leader state over the dependent follower states. Another interesting issue in the literature highlighted by Lake concerns whether the leadership function must be performed by a single state or if a collection of states can perform the task. Lake notes Kindleberger's argument that the difficulties of bargaining among a collection of leaders are likely to frustrate the necessary cooperation required for providing the international infrastructure. Ultimately, then,! a single state will have to take on the responsibility of leadership. Lake, however, is persuaded by the arguments of other public goods theorists that multiple states may reap sufficient net benefits to overcome barriers to cooperation. He concludes that a single

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leader is not necessary for the provision of an adequate international economic infrastructure (1993, p. 465). Hegemony theory differs from leadership theory in assuming that the interests of states may conflict in the international economic arena. One or more states may prefer an open trading system while others may prefer greater autarky. Whether the actual system is more open or closed will depend on the ability of a particular state, the hegemon, to enforce a liberal trading system. The long history of global capitalism suggests that at various periods a hegemon is able to impose such a system. The three regimes that most theorists discuss in this context are the period of Dutch domination during the seventeenth century, the Pax Britannica of the eighteenth and nineteenth centuries, and the American regime of the twentieth century. The fundamental hypothesis of the theory is that the exercise of political, economic, diplomatic, and military power by these hegemonic states at the zeniths of their dominance is correlated with relative liberalism in international trade rela-' tions. Periods of history during which trade protectionism is more likely occur when a hegemonic power finds its control in decline. The decline may be caused by challenges from other would-be hegemons or by global economic, military, or political crisis. In any case, the interim during which no particular state is clearly hegemonic is one of decreased interstate cooperation and relative economic autarky. Hegemony theory has been met with many of the same kinds'of theoretical uncertainties that have plagued leadership theory. Can we be certain that a global hegemon, for example, will perceive its self-interest in terms of a liberal trading system? Optimal tariff theory suggests that a large, powerful trading country will realize an improvement in its terms of trade by erecting an appropriately high, yet nonprohibitive, tariff. This works by reducing domestic demand for imports sufficiently to cause the price of these goods to fall. The new trade theory associated with Krugman and others (1986) argues that appropriate tariff policy of a global technological leader may provide it with a comparative advantage in new industries that produce under conditions of economies of scale and decreasing costs. Is a single hegemon either necessary or sufficient for a stable liberal trading system? Krasner (1976) argues that the fundamental hegemonic actor is actually a system of highly developed states rather than a single dominant nation-state. This collection of highly developed states will have a core set of similar interests—for example, national income, economic growth, social stability—that motivates the construction of the international economic infrastructure that it will impose (if necessary) on those nation-states that perceive their own interests as opposing. At the same time, Krasner takes the standard neoclassical economic view that free trade is Pareto improving. That


83

is, all countries stand to benefit from trade. The conflict between large, powerful states and smaller, dependent ones is largely confined to the issue of who stands to gain more—that is, the distribution of relative benefits. Krasner's view stands in stark contrast to the theory of Gramscian hegemony advanced by theorists Stephen Gill (1993) and Robert Cox (1996). For Gramsci, hegemony was a term used to describe the manner in which one class, or class fraction, sought to control qther classes in a particular society. State power is instrumental in this control but not in itself sufficient inasmuch as the power of the state is largely a matter of coercion. The notion of control favored by Gramsci and Gramscians involves the consent of the controlled classes themselves. The mechanism that ensures such control was termed by Gramsci the extended state, which incorporated important elements of civil society as well as the state apparatus itself. Control is exercised then not only through the coercive capabilities of the state, but via the moral and intellectual leadership of these ;key elements of civil society. The direction of the extended state is the prerogative of what Gramsci terms the historic bloc. Rupert (1993) provides a description of the Gramscian historic bloc as follows: Gramsci's concept of historic bloc bridges the structured separation of state and society in capitalist social formatio is, in so far as the ideological leadership of a class or class fraction provides a measure of coherence to a range of apparently disparate social practices (cultural, political, economic).To the extent that a class orfractionis able to articulate a unifying ideology which presents itself as universal, which can elicit the variety of social practices, it may create the basis of hegemonic leadership in both state and civil society —that is, in Gramsci's expanded or integral state, (p. 80) Based on these Gramscian ideas, the concept of hegemony is here more usefully reformulated to denote, to use Cox's phrase, "a fit between power, ideas, and institutions" (1996, p. 104) that applies not to particular states but rather to a larger world order. Cox is not satisfied to explain the conditions for the stability of a particular world ordet. Rather he seeks to explain why particular world orders come into existenc;, how they operate, and why they are subsequently succeeded by other wor d orders. He sees the interaction between the social relations of production and the material conditions under which production is carried out as being fundamentally important in the determination of a given world order.2 As befits his Gramscian influence, he prefers a historical materialism that emphasizes the reciprocal determination of ideas and the material conditions of production. The neo-Gramscians believe that during the late twentieth century the

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world order evolved in the direction of globalization based on (hyper)liberalism. This evolution, like all such historical change, was dictated by crisis in the prevailing world order and in its corresponding historic bloc. This crisis had a variety of facets, including the collapse of state capitalism both in the western democracies and in the former Soviet Union and the collapse of the Bretton Woods international monetary system. The emphasis on political economic cooperation, planning, and control inherent in the previous world order has given way to a new one based on liberalization of markets (including labor markets), privatization of state enterprises and (some) functions, and the globalization of productive activity. States certainly have a role to play in the transformation of the world order. They are not, however, the fundamental unit of analysis that they are in the neorealist theory of hegemonic stability. They are rather, as Cox puts it, intermediating actors in the relationship between the development of global social forces and the configurations of social forces at the local level. Corresponding to the new global world order is the internationalization of the state, a process that began in the post-World War II period with the establishment of a variety of multinational agencies and institutions, such as the International Monetary Fund (IMF), the World Bank, the General Agreement on Tariffs and Trade (GATT) and the North Atlantic Treaty Organization (NATO). The process accelerated over the last decades of the century corresponding to the crises alluded to above as well as to the emergence of a new, globally defined historic bloc. This dominant bloc is composed at its apex, according to Cox (1986, p. 234), of a transnational managerial class that directs the operations of transnational corporations and financial institutions. It is supported by a plethora of international administrators, officials, and intellectuals who administer and provide surveillance, technical support, and moral justification for the global system. As the neo-Gramscians point out, hegemony in the new world order does not consist in a particular state's dominance in the pursuit of its narrow self-interest, as per the neorealist interpretation, but rather in promoting the interests of the new historic bloc as the consensus interests of an undifferentiated "global welfare." Dependency and World Systems Theory Dependency theory developed in the 1960s as an alternative and critical interpretation of the underdevelopment of what was then referred to as the Third World. It arose as an alternative to various "modernization" theories of economic backwardness that posited this condition in terms of a variety of "obstacles" to development. Such modernization approaches see underdevelopment as deriving from the lack of some key productive factor (e.g.,


85

capital, educated workforce) or from the inadequate development of key institutions (e.g., markets, bureaucratic efficiency). These lacks are perceived as obstacles to be overcome before the i dynamic of capitalist growth and development can take off and propel "backward" societies to higher levels of per capita income and consumption. Several of the modernization theories place emphasis on alleged cultural obstacles in the form of precapitalist institutions and ideologies that impair the impulse to capital accumulation and productive efficiency necessary for economic and social development. Such societies have often been characterized ajs "semifeudal." Dependency theory, on the contrary, argues that the underdeveloped countries are fully capitalist and have been feo since the period of their initial colonization by the European mercantile powers in the fifteenth and sixteenth centuries. The underdevelopment of the Third World in fact owes precisely to its incorporation into the capitalist world system on a subordinate and dependent basis. The particular role of the underdeveloped countries, according to the dependency theorists, has historically been to provide primary commodities in trade to the center, developed countries. The international trading system, via the mechanism of unequal exchange, extracts surplus value from the direct producers (peasants and workers) of the underdeveloped societies. This extracted surplus value in turn provides the basis for both capital accumulation and higher liv.ng standards for those who reside in the center countries. In the peripheral, underdeveloped countries, however, the result of this exploitation is the general impoverishment of direct producers even as local landowners and capitalists enjoy incomes and standards of living approximating those found in the center countries. The similarity between the standards of living and consumption of the local bourgeoisie and those of their center country counterparts is not accidental inasmuch as the former are closely tied to the latter as managers of subsidiaries of transnational corporate operations headqaartered in the center countries, or as suppliers to these same operations. World systems theory (WST) has a £ reat deal in common with dependency theory, including having as part of its motivation the repudiation of modernization theory. Like dependency theory, it sees the world economy as constituted by a single capitalist mode of production that emerged in Europe as early as the sixteenth century. Also, it-posits the existence of an underdeveloped periphery that owes its underdeveloped status to its exploitation by a commercially and militarily more pdwerful center. Unlike the dependency theory, however, the world system perspective also posits the existence of an intermediate strata of nations that it refers to as the semiperiphery (Wallerstein 1974). Countries that occupy a position in the semiperiphery have achieved what the original dependency theorists denied is possible—namely, capital-

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ist development. It is, however, a limited form of capitalist development, involving industries producing commodities for which there exist wellestablished global markets and employing production methods that are far from the technological frontier. Moreover, this limited capitalist development is a highly dependent sort. This is so in two senses. First, much of the production of the industries in semiperiphery nations is the output of transnational firms that are headquartered in the center countries. Alternatively, they may be joint ventures among foreign center capital, local capital, and/or the local state that rely heavily on technology and management provided by center country firms. Second, much of this production is sold as inputs for further production in center country industries. Hence, the industrial production of semiperipheral countries is of a decidedly lower order than the industrial production of center countries, albeit fitting within the globally defined division of labor. WST also differentiates itself from dependency theory in some other ways. The dependency approach typically takes the nation-state as the unit of analysis and seeks to describe the consequences for the peripheral society of its relationship with a capitalist center country. WST, in contrast, eschews the external-internal focus of dependency theory in favor of one that attempts to explore the dynamics of development of the capitalist world economy as a whole (Bomschier and Chase-Dunn 1985, p. 4). WST is also said to be able to resolve the differences that sometimes arise within the dependency school as to the possibility of capitalist development within the periphery itself. It is argued that the peripheral nations may experience a sort of limited development in the sense of an increase in productivity and income while remaining constrained by their position in the global hierarchy of capitalist production. Some countries may even pass from peripheral status to the semiperiphery, and vice versa. At the same time, the theory defines "underdevelopment" as a characteristic of countries whose development potential has been realized and whose limited development has been uneven with regard to different social groups, regions, economic sectors, and institutions. Bornschier and Chase-Dunn argue that there is a moral dimension to this definition in the sense that underdevelopment reflects a perceived discrepancy between the aspirations of people and the ability of the social structure characteristic of the peripheral society to fulfill those aspirations up to and including basic needs (p. 8). WST is thoroughly historical. Its essential task is to provide an understanding of the functioning of the world capitalist system via an examination of its evolution, starting from what has been termed the long sixteenth century. An integral component of the structure and dynamics of the modern (capitalist) world system is the interstate system. The interstate system


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comprises multiple nation-states of varying degrees of power and influence. While no particular state has had complete control over the entire world economy, the history of the modern world system shows that various identifiable subperiods correspond to periods of relative hegemony of particular states. For the seventeenth and lasting into the mid-eighteenth centuries, the hegemonic state was the United (Dutch) Provinces. This was succeeded by the period of British supremacy that lasted until World War I and the collapse of the gold standard, which opened the Way for the period of American hegemony in the twentieth century. j Hegemonic transitions are occasioned by intense rivalry among would-be hegemons for the dominant position in the system.3 This rivalry involves competition in economic, political, diplbmatic, and cultural arenas (Wallerstein, 1984, pp. 38-39). The hegemonic nation-state is the one that carves out a decisive efficiency advantage in production, commerce, and finance. This advantage is secured by a long (thirty-year) period of war, after which the victor constructs an international institutional framework designed to buttress its own hegemony. The dominant position of the winner, however, is not permanent. According to Wallerstein, success in the race for the hegemonic top spot carries with it the conditions for future challenges to that very position. This is particularly so inasmuch as the period of hegemonic consolidation is accompanied by global economic liberalization. Hence, the free flow of goods, capital, and technology both advances the interests of the capitalist class of the hegemonic core ration and legitimizes the system globally. This same liberalization, however, creates opportunities for other potential hegemons. The hegemonic core nation is also made vulnerable by the rising demands of its domestic working class for a share of the spoils provided by unequal exchange. Hegemonic transition oceurs when these tendencies effectively undermine the efficiency advantage of the dominant nation-state, after which ensues another^ long period of intense competition among its potential successors. Out of tfc is competition emerges a new dominant core state that sets the rules for the; next long wave of global capitalist accumulation. Some world systems theorists have argued for a necessary functional interdependence between the interstate system and the capitalist character of the modern world economic system. If the system was dominated by a single state, then the capitalist class would lack the autonomy to pursue its class interests. On the other hand, the international mobility of capital enables it to constrain the power of any particular state from excessive expansion to the point of absolute global hegemony (Chase-Dunn 1981). WST has been subject to multiple lines of criticism both from within the Marxian tradition of which it is ai part and from outside that tradition.4

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World systems theorists have responded to their critics both by accommodating some criticisms with suitable modifications and elaborations of their specific categories and claims and by dismissing other particular criticisms. Thus, for example, WST has been criticized by some for focusing too closely on the economic relationships between nations to the neglect of an adequate discussion of the dynamics of their internal politics and of the relative autonomy of the capitalist state. WST has responded with the argument that the economics versus politics dichotomy is a sterile one for the purposes of understanding the development and functioning of the modern world system. Chase-Dunn (1981) has attempted to elaborate a theory of the interstate system based on the world systems approach. He argues that the development of the interstate system, as well as of its constituent nation-states, occurs alongside and interdependent with the global process and mechanisms of capital accumulation. Hence he finds that economics and politics are not characterized by separate logics in the modern world system, but rather are linked together by a single logic. Giovanni Arrighi (1993) has gone further in developing WST to provide a political economic model of hegemonic crisis and transition over the whole 500-year period of the modern world system.5 While approaches such as these do not grant politics the degree of "relative autonomy" that some would argue they possess, neither'do they reduce political events and actors to mere superstructural appendages of global economic forces. Internationalization of Capital A question that WST has been less successful at addressing concerns the status of class and class relations in the global economy. Some argue that this lacuna in the WST approach stems from its excessive concern with international exchange in the world economy leading to the transfer of surplus from the periphery to the core (the sphere of circulation) at the expense of an adequate examination of the conditions under which surplus value is actually produced (the sphere of production). The internationalization of capital (IOC) approach, on the other hand, seeks to explain the conditions under which capitalism reproduces itself on an international scale. In this the approach draws inspiration from Marx's discussion in volume 2 of Capital (1977) of the circuits of capital. The circuits of commodity capital, money capital, and productive capital have their international counterparts in international trade, international finance, and transnational corporate production. Failure to integrate each of these circuits into the analysis will lead to a distorted and incomplete understanding of global capitalist development in terms of the self-expansion of capital. This latter notion is criti-


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cal if we are to have a proper theory, rather than a mere ad hoc description, of some of the system's tendencies. I Another critically important aspect to a more complete understanding of capitalism's dynamics concerns the nature of capitalist competition. Writing from an IOC approach, Jenkins (1987) argues that many political economists (including some Marxians) interpret bapitalist competition as the number of firms populating an industry or the extent of industrial concentration. Industrial concentration is often measured! in terms of market shares. These theories view capitalist competition, then, k% the polar opposite of monopoly capital. Moreover, capitalist competition is bften viewed as a process whereby market equilibrium is attained until such time as a new exogenous disturbance arises. Jenkins believes that this is incorrect. The emergence of monopoly capital does not suggest a diminution in the competitive struggle among capital and capitalists. Monopoly power may endow particular firms with the ability to exploit their market positions in the pursuit of super profits (surplus value), but these will be short-run opportunities. Competition among large monopolistic producers occurs in a variety of ways other than in terms of price. The introduction of new products and production processes, particularly in new, unexploited markets, is especially important. As innovativefirmsenjoy abovenormal profits, however, the incentive to imitate increases, thus increasing attempts at market entry. As Jenkins puts it then, "Success in achieving a quasi-monopolistic position leads to its ow n destruction" (p. 48). An especially important agent in the IOC approach is the transnational corporation (TNC). The TNC is the purveyor not only of productive capital but also of technology to the host country. In this way the circuits of capital referred to earlier assume international d mensions, first via international trade (circuit of circulation) and subsequently via TNC production (circuit of production) in selected host countries. The transition from international trade to international production by TNCs takes r. lace over distinct historical stages and is promoted by policies adopted by host states. Exchange rate and protectionist trade measures, for example, provide TNCs with the incentive to establish directly productive facilities in rations they might otherwise service via exports. In this way it is apparent that the IOC theory regards the state in the peripheral society as possessing a substantial degree of autonomy from both center capitalist interests as well as center states. Peripheral states are not mere agents in the machinations of center-based capitalists' designs for the organization of the global economy. For a less developed country to be properly characterized as capitalist,according to the IOC approach, it is not sufficient that the three circuits of capital be established within its borders. Rather, as Cypher (1979) claims; it is also necessary that the circuits

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articulate and function together in a manner that results in self-expanding economic growth and capital accumulation. IOC Critique of WST IOC theory has been highly critical of the world systems approach to international political economy. Its most fundamental critique has been that WST limits its understanding and application of the concept of the capitalist mode of production to only one of the three circuits of capitalist circulation, the circuit of circulation. From this fundamental error follows a number of empirical difficulties besetting the WST. Cypher asks: How did "peripheral" nonacting nations create OPEC? What of the Stabex system, the Non-Aligned Movement, UNCTAD and so forth? What are the implications of revolutions in banking which created a world-wide market for credit? What were the implications of the internationalization of production? Why was so much capital exported to build capacity for manufacturing with the end of final sales in less-developed regions? What were the implications of the many and varied programs promulgated by the governments of the less-developed nations which were destined to control or alter the effects of transnational corporations in these regions? How could some "peripheral" nations export sophisticated machine tools to the "core" nations, while others generated their own high technology or failing that bought it outright from the transnationals? Why had so many less-developed nations attained such respectable per capita growth rates? (1979, p. 36) By limiting itself to the sphere of circulation (international trade), says Cypher, the dependency theorists fail to recognize that surplus value is not created in the act of exchange but in the act of production. If surplus value is transfered from the less developed to the more developed countries, this is the result of the weakness of the system of production in the latter. This weakness is related in turn to its noncapitalist character rather than the alleged capitalist character of global commodity exchange. A second serious shortcoming of the WST is its failure to develop an adequate analysis of class and class struggle, particularly as they apply to the less developed social formation. The actual differentiation that we observe among the social formations that constitute the Third World is the result of variation in the dialectical process involving internal social development and external relations. The social formation of any particular less developed country cannot be supposed to arise as a result of its unidirectional imposition by a more powerful external force. It is rather the result of internal class struggle


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and the external movements of core nations. That some less developed nations actually develop while others do not cannot be reduced to the operations of external, core capitalist interests alone. A third mistake of the dependency school identified by Cypher concerns its analysis of the role of technology.^ Unequal exchange for the dependency theorists arises out of unequal methods of production.6 The issue of unequal methods of production, howevdr, does not attach itself exclusively, or even primarily, to the core-periphery dichotomy. For Cypher, it is rather a matter of "imperial capitalist rivalry." By this he means that technological innovation is one of the mechanisms by which capitalist firms seek to appropriate surplus value from one! another, other branches of industry, or other regions and countries. There can be no presumption, however, that this competition is in any sense limited to maneuvers between developed (core) and less developed (peripheral) countries. Quoting Lall (1975), Cypher notes that advanced, industrialized countries may be as "dependent" as less developed ones for particular kinds of technology. Some less developed countries (e.g., Brazil, India) have demonstrated themselves to be as technologically innovative as other countries we typically assume to belong to the core (e.g., Canada, Belgium) (pp. 47—4-8). Moreover, the bargaining position of less developed naticns such as Brazil and Mexico for the transfer of technology appears to be improving over time. This is a point central to the main concerns of the argument surrounding the TRIPS agreement and will be revisited in the chap ers that follow.7 What are we to make of the IOC critique of WST? There can be no doubt that IOC theory provides a necessary corrective to the tendency of the early dependency writers to focus excessively on international trade under conditions of unequal exchange as i mechanism of surplus value transfer from the periphery to the core of the global economic system. IOC theory also provides much needed analysis of the mechanisms of surplus production as well as the dialectics of social formations in historically specific contexts. Notwithstanding t i e contributions of IOC, I do not believe that there are sufficient grounds to argue that this approach displaces WST, nor do I believe that the former is necessarily inconsistent with the latter.8 As noted earlier, WST has evolved considerably since its early expressions in the dependency writings of Frank (1969) and Dos Santos (1970). Moreover, it has evolved in directions that easily accommodate many of the objections of Cypher and other IOC advocates. Most WST writers today embrace the argument that dependent, peripheral nations are capable of economic growth and capitalist (albeit limited and uneven) development. Some pay particular attention to the ways that transnational corporations

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integrate themselves into the periphery and semiperiphery of the global capitalist system. In so doing, they study how foreign capital interacts, constrains, and is constrained by the dynamic of domestic class interactions and the state in the host nation. No serious reader of the WST literature can argue that the theory is fixated on the sphere of circulation to the neglect of the other aspects of the operation of capital. The evolution of WST, in part, undoubtedly represents a response to its critics, including those associated with the IOC perspective. I believe that, at the same time, the WST retains some of its important identifying elements that distinguish it from other approaches, including IOC. The first of these is its vision of a hierarchically organized world capitalist system. It is apparent that capitalist social relations and productive forces continue to develop within the periphery and semiperiphery at a pace and in a manner that make these areas of the world subordinate to those areas characterized by higher per capita incomes, higher standards of health and education, more sophisticated technological capacities, and more powerful military capacities. The latter areas are also the source of the bulk of the world's flows of portfolio and direct foreign investment capital. Not coincidentally, they are also the countries that dominate the international institutions and agencies that have come to be identified in recent years with the phenomenon of neoliberalization. Neoliberalism from theperspective of the less developed countries is best understood as a sort of forced march away from state-directed economic development, typified by import substitution during the 1950s and 1960s and export promotion in the 1980s. It has been accompanied by greater access to markets of less developed countries by transnational capital via relaxation of the laws and restrictions governing their behavior in host country markets. It has also been accompanied by the privatization of formerly state-owned companies and labor market reforms that have reduced the costs of production in these countries. In recent years it has involved financial market reforms that render local financial institutions more accountable to foreign creditors as well as more vulnerable to destabilizing short-run movements of "hot" (portfolio) capital. These developments have rendered the less developed countries less able to pursue autonomous development strategies or even independent short-run stabilization policies. They have made the pursuit of social policies to alleviate poverty all but impossible. Quite to the contrary, neoliberalism has in many cases directly led to an increase in absolute and relative poverty. In sum, we have witnessed since the 1980s a reassertion of the dependency relations described by the WST. It is in this context that we must understand the recent movement toward strengthening and harmonization of intellectual property rights. It will be argued in the sections to follow that the


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TRIPS agreement is a component institution of an emerging international regulatory superstructure designed to facilitate the circulation and accumulation of capital on an international scale. B;efore describing how the TRIPS fits in this general function, it will be useful to examine the more general issue of state power and its evolution in a global context. State Theory and the Global Economy In this section, I wish to examine selected exemplars of the research traditions outlined above and draw from them \Vhat insights they provide for an understanding of the exercise of state power jin the contemporary global capitalist system. In the section to follow, I shall attempt to consolidate what I consider the most salient of these insights into a coherent interpretation of global state power that will aid us in our understanding of the purpose of the TRIPS agreement. The implications of this interpretation for the TRIPS will be suggested at the close of the chapter, and a full discussion of the political economy of the TRIPS will be undertaken in Chapter 5. Some commentators have argued that the development of the global economy since World War II has had the effect of undermining the power of the state. The increased international mobility of capital in particular has rendered far more difficult the exercise of national state power. The argument I wish to make, however, is that far from undermining state power, such developments have forced the emergence of an incipient global capitalist state whose instruments are supranational hegemonic institutions. Among these are the International Monetary Fund, the World Bank, and the World Trade Organization (WTO). The emergence of these supranational institutions by no means portends the end of interstate rivalry. Nation-states will continue to contend with each other to advance both their, own objectives and the interests of the classes and class fractions that are best able to exert pressure on them. The salient point here is that an important areni within which interstate rivalry plays itself out is the determination of the s pecific content of the emergent supranational institutions. In the immediate aftermath of World War II, the United States could well be described as a hegemonic state. Not only was it able to exert a higher degree of domestic economic policy independence than any other developed country in the world economy, but it possessed disproportionate ability to pursue via economic, diplomatic, and military means its interests around the globe. Most importantly for the present purposes, the United States was able to shape the postwar supranational institutions in the interests of its Cold War geopolitical objectives as well as global capitalist expansion.

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The Rise and Fall (and Rise) of U.S. Hegemony Giovanni Arrighi (1993) has insightfully written about the evolutionary process by which particular states have come to occupy a position of world hegemony—a position which he describes as the power of a state to exercise governmental functions over a system of sovereign states. In true Gramscian spirit, he describes a dominant state as hegemonic "if it leads the system in a desired direction and, in so doing, is perceived as pursuing a universal interest" (p. 150). As he notes, however, this definition overlooks the difficult task of defining "a universal interest" within the context of the interstate system. At the level of individual states, hegemony may be pursued in the interests of some conception of "the national interest." At the international level, it is fairly clear that a universal interest must be understood in terms of a universal class. Without identifying this universal class as a capitalist class, Arrighi generally notes as much when he writes: A state may therefore become world hegemonic because it can claim with credibility to be the motor force of a universal expansion of the collective power of rulers vis-a-vis subjects. Or, conversely, a state may become world hegemonic because it can claim with credibility that the expansion of its power relative to some or even all other states is in the general interest of the subjects of all states, (p. 151) In contrast to world systems theorists such as Wallerstein, Arrighi rejects identifying the interstate system with the capitalist world economy. He argues that the division of the world into separate states may or may not facilitate the accumulation of capital from a historical perspective. Whether the benefits of the interstate system of rule exceed the costs depends on how the system organizes and regulates competition between states as well as between enterprises. An interstate system, for example, that relies on costly wars and disrupts international commerce, finance, and the networks of international production does not serve well the end of capitalist accumulation. A particular nation-state that can overcome the contradictions between the (often territorialist) tendencies of the interstate system and the needs of capitalist accumulation on an increasingly global scale is likely to emerge as the hegemonic state. Throughout the history of the modern world (capitalist) system, hegemonic states have been concerned to reduce the cost of its control and direction. Arrighi interprets the concept of "balance of power" in just such terms. He writes:

CAPITAL, CLASS. AND THE STATE IN THE GLOBAL ECONOMY

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The balance of power can be interpreted as an instrument by means of which capitalist rulers can, individually or as a group, reduce protection costs absolutely and relative to competitors and rivals. . . . The secret of capitalist success is to have one's warsifought by others, if feasible for free and, if not, at the least possible cost. (p. 156) Some neoclassical political economists; and neorealist IR theorists would interpret the above argument in terms of jpublic goods theory. The relevant notion here is the external economies associated with providing protection. In the post-World War II era, the United S|tates maintained a global military capability whose goal was the containment of the influence of the Soviet Union and the spread of counterhegemonic revolutions. Financial support for the Marshall Plan helped to rebuild the European and Asian economies necessary for the expansion of U.S. export markets and foreign investment outlets. Funding provided for multilateral agencies such as the World Bank, IMF, and a variety of regional development banks, along with various bilateral trade and foreign assistance programs, also assisted U.S. Cold War and economic objectives in the Third World. While the spending associated with these programs was instrumental for U.S.; capitalism, narrowly considered, clearly it played a vital role in the promotion of a global capitalism as well as global capitalist rivalry. By the 1970s, the world economy had entered into a crisis that was interpreted by many as a crisis of hegemonic stability. The dominant position of the United States in the post-Vietnam period was under challenge by the rising economic might of Europe and, especially, Japan. U.S. fiscal and payments deficits were becoming a source of serious concern. Simultaneous high rates of inflation and unemployment cast doubts on the ability of Keynesian policies to provide desired microeconomic stability, and there was a growing belief that the Western economies had entered a "post-Fordist" era of production relations in which the big-management, big-labor compromise was subject to renegotiation. Trade protectionism was on the rise, notwithstanding the Tokyo Round of the GATT, with import quotas and voluntary export restraints having replaced tariffs as the preferred protectionist instruments. By the end of the decade, it was apparent that the once seemingly unassailable position of the U.S. econoiriy was under challenge by traditional rivals in Europe and Japan, but alsb by the rising East Asian newly industrialized countries (NICs). The response to this situation of crisis, shared to a greater or lesser extent by the European countries and particularly by Great Britain, was a renewed commitment to liberal ideology and policy practice, at least as they applied

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INTELLECTUAL FROPERTY RIGHTS

to social expenditure and labor relations. U.S. foreign policy during the 1980s was an intensification of Cold War rhetoric combined with increased military and diplomatic pressure against regimes (e.g., Sandinistan Nicaragua) that evinced a predisposition toward any model that contradicted in any important way the neoliberal prescription for capitalist economic growth and development. The debt crisis of the 1980s opened the way for the imposition of neoliberal reform in many peripheral and semiperipheral countries. Needing to satisfy IMF conditionality requirements for emergency loans, many of these countries were forced to cut social spending, privatize state-owned enterprises, implement tax reforms, deregulate rules pertaining to foreign investment, remove exchange controls, and introduce so-called labor flexibilization policies.9 In the absence of such reforms, countries found themselves effectively isolated from lines of international bank credit necessary to avoid financial crisis and breakdown. The IMF and its sister institution, the World Bank, then became very powerful, supranational institutions, exercising the function of consensual control characteristic of Gramscian hegemony. The genesis of supranational institutions providing order to the world capitalist trading system is to be found in the various treaties established by the Settlement of Westphalia in 1648, following the Thirty-Year War.10 The purpose of these treaties was to protect the property of noncombatants and to lower trade barriers, thus permitting an expansion of world trade even during periods of intense interstate territorialist rivalry (Arrighi 1993, p. 162). The further development of the required institutions, however, necessitated the eventual supersession of the Westphalia System by what Arrighi refers to as free-trade imperialism. He contrasts the two as follows: The Westphalia System was based on the principle that there was no authority operating above the interstate system. Free-trade imperialism, in contrast, established the principle that the laws operating within and between states were subject to the higher authority of a new metaphysical entity—the "world market"—allegedly endowed with supernatural powers greater than anything pope and emperor had ever mastered in the medieval system of rule. (p. 173) Free-trade imperialism, dominated by Great Britain during the eighteenth and nineteenth centuries, was itself superseded in the twentieth century by a U.S.-led restoration of the Westphalia System. According to Arrighi, this was the result of several factors. First was a process of socialization of war and state making that elevated the claims of political and economic participation of the masses of non-Western peoples and propertyless masses of the


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West. This restoration was accompanied by a process of decolonization of the non-Western parts of the periphery and an increase in state economic management in the West, accompanied byhigh I mass consumption. The United States was uniquely positioned to play a hegemonic role in this restoration in the aftermath of World War II by virtue ;of its commanding economic position. It succeeded in its role, once again, iby virtue of its ability to present its national interests as embodying a universal interest, particularly in the context of the Cold War struggle. Arrighi pays less attention to some jadditional factors that explain the restoration of what he calls a modified Westphalia System under the direction of the United States. First is the advance in the technology of warfare. Nuclear weapons effectively rendered obsolete the notion of interstate rivalry among the industrialized, center countries based on territorialist expansionism. Such rivalry henceforth would have to be based on economic rather than military might.11 Second is the process referred to earlier as the internationalization of capital. With the advent of global finance and production, a territorialist geopolitical strategy is neither required nor justified for capitalist reproduction and expansion. To the contrary, the costs of winning and maintaining a territorial empire are too large relative to its benefits to appeal to a postmodern, profit-maximizing logic. The IOC places a premium on the harmonization of the rules and regulations that govern the treatment of capital. This is an outcome of the mobility of capital and the tendency of states to compete in offerir g a regulatory environment propitious to its reproduction and expansion. The restored Westphalia System of tf.e twentieth and twenty-first centuries is then indeed a modified one, as Arrighi suggests. While the hegemonic state (i.e., the United States) has disproportionate power in defining the general and specific content that constitutes the supranational institutions and their rules of procedure, this same state is also subject to those same institutions and rules. The important point, then, is that under the current interstate system that devolves power to international institutions and agencies, all states, including the hegemonic state, face constraints on their decision making and their ability to act unilaterally. This is often decried as a loss of national sovereignty by those who nostalgically ook back to an earlier era. Hegemony and International Capital A second important implication, again overlooked by Arrighi, who fails to give adequate weight to the IOC perspective, is that the contemporary system under U.S. hegemony is directed by a hegemonic bloc that is not strictly national in its origins and far from nationalist in its motivations and concerns.

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While such institutions as the IMF and World Bank may be disproportionately funded and represented by the United States, their leadership, functionaries, and consultants are actually drawn from all over the world, including even the poorest nations. What the overwhelming majority of these individuals have in common, however, is a shared worldview on neoliberal economic ideology and policy practice that, not coincidentally, is indistinguishable from the dominant view of U.S. academic economists and policy practitioners. This coincidence of perspective is hardly surprising, given that many of the officials of the powerful, supranational agencies, especially those in leadership positions, received their academic training in U.S. (and British) universities. Writing from the IOC perspective, Bryan (1995) argues that the state performs two primary and one secondary function in relation to the accumulation of capital.12 The primary functions involve securing the labor system and securing the monetary system. Securing the labor system refers to establishing the institutions and legal arrangements whereby capital is provided with an adequate supply of labor, without which the production and appropriation of surplus value could not occur. Securing the monetary system refers to provision and regulation of the money supply, without which commodity circulation and capital's realization cannot occur. The secondary function of the state is to mediate between the often conflicting interests of the different parts of social capital. That is, the state sets down the rules within which otherwise anarchic economic competition takes place.13 Ambiguities (contradictions) arise in the specific formulations of state policies inasmuch as divisions exist between particular capitals (portions of overall social capital) as they relate to the process of international accumulation. A task of the state, then, is to mediate among the divergent interests of these fractions of social capital. Bryan writes: In securing the conditions of accumulation, the nation state will implement policies which advance the interests of some parts of capital at the expense of other parts of capital, and not out of some "higher" aggregate good, but simply because competition makes capital's requirements of state policy incompatible. (1995, p. 87) What makes the realization of these functions especially problematical since the 1970s is the increased international mobility of capital. In securing the conditions for the production, circulation, and realization of value under an accumulation regime that includes international mobility of capital, state policy itself assumes an international dimension. Hence it is no more correct to speak of domestic economic policy than it is to speak of domestic capital accumulation.

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Bryan interprets the redirection of maproeconomic policy since the 1970s in terms of the balance of payments constraint. Prior to the 1970s, the conventional maeroeconomic wisdom in dealing with payments deficits involved a reliance on exchange rate adjustments and accommodating short-run capital flows (Keynesianism), or monetary [management (monetarism) to provide long-run internal balance (stable price, full employment equilibrium) and external payments balance. What this conventional wisdom failed to appreciate was that international capital movements during the 1970s were increasingly of the autonomous variety Moreover, they were growing increasingly larger and more destabilizing for the purposes of maeroeconomic management. As a result, maeroeconomic policy became increasingly internationally oriented. The reorientation of maeroeconomic policy in turn has had important implications for international trade policy, with which it is now inextricably linked. Whereas prior to the 1970s the conventional arguments for free trade were couched in terms of the doctrine of comparative advantage, more recently trade policy has turned toward justifications expressed in terms of competitive advantage. The difference between these two is understood as follows. Comparative advantage is said to be based on differences in nations' endowments of productive resources, geography, climates, and other "natural" conditions of production, resulting n differences in relative productive efficiencies leading to differences in autarky prices. The notion of competitive advantage differs inasmuch as it explicitly recognizes the international mobility of capital. It is this mobility, in fact, that accounts for the autonomous capital flows that confounded the expectations of standard maeroeconomic theory and policy. In the context of international trade theory and policy, the implications are equally important. The main implication is that policy makers must be concerned with a nation's ability to attract capital (credit and investment) that is in essence international in its origins and allegiances. More properly, international capital is said to have no national allegiance; its one and only motivation is to secure as high a rate of profit (surplus value) as possible. The ability to attract mobile capital then depends on an industry's ability to achieve and maintain high levels of productivity, or rates of surplus value, in Marxist terminology. Once again, Bryan is keen to point out that the issue of productivity applies to industries rather than to the nation as a whole. Policies, then, are appropriately directed to promoting productivity advances at the industry level. This applies to initiatives that promote advances in existing industries as well as to the promotion of new, technologically sophisticated industries. The search for competitive advantage as an objective of the state has been widely referred to as "industrial policy."

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State policy promotes productivity gains for industries, as noted by Bryan, by securing the money supply and the labor supply. In recent years, securing the labor supply has meant gaining a greater degree of control over institutions whose ostensible function is the representation of labor, including unions and labor laws and regulations. The state must also mediate competition among and between individual capitals inasmuch as individual firms will differ in the manner and conditions that link them in the global accumulation process. In this perspective, the state is an arena of struggle for individual capitals. Under the stimulus provided by the balance of payments constraint, the winners in this struggle to influence the specific content of state policies will be those that are most able to engage in the inherently competitive process of global capital accumulation.

support those policies that promote the position of domestic companies or that make the domestic economy an attractive place for internationally mobile capital to locate. Labor is expected under this nationalistic banner to assume an attitude of cooperation as a sort of junior partner in an arrangement that privileges the requirements of -this capital with the promise that benefits will flow downward in labor's direction as well. The appeal to patriotic policy, says Bryan, is also employed as a means to individuate among and between nations and acts as a sort of nontariff barrier between each nation's workers. In this way, the inherently international process of capital's reproduction and expansion takes on the appearance of nationality and crossnational working-class conflict.

The state's response to this competition among capitals also has implications for the world's working classes. The burden of competition in the pursuit of internationally mobile capital falls primarily on workers, who must offer higher rates of surplus value (i.e., productivity increases) while accepting lower wages. For these same working classes, however, the competition is typically presented not as a global competition among international capitals and the states that attempt to procure for them the necessary conditions for their expanded reproduction, but rather as a competition among and between nations. Like the Gramscian hegemonic theorists, Bryan tells us that the construction of a concept of "national interest" reflects the interests of the dominant part of capital, which seeks the allegiance of labor. This concept of national interest is a misreading of reality, however, when it presupposes that capital accumulation is an inherently national process served by national economic policies. The recent emphasis on "national competitiveness" makes palatable economic policies that promote international accumulation at the level of individual capitals (enterprises) by providing them with a patina of concern for national welfare. Bryan writes:

A Critical and Eclectic Theory of the State in the Global Economy

Yet in applying national policy to international accumulation, there is not an abandonment of national agendas. The contradiction between the internationality of national accumulation and the nationality of state regulation is not solved by the subordination of the latter to the former, but by the role of the state policy being recast so that the dominance of global calculation is presented as beneficial for all nationals. In particular, the working class in each nation must be convinced that the pursuit of international competitiveness is an agenda of labor as well as capital, (p. 186) Bryan elaborates on this important point concerning ideological control by explaining the relevance of "patriotism as economic policy." According to this conception, "patriotism" requires the citizens of a particular nation to

I wish to propose here a theory of the state that is both critical and eclectic. The term "critical" is used here in a dual way. First, "critical" is used to suggest an approach that rejects mainstream (i.e., realist, liberal) interpretations of both the state and of economicj laws and categories as providing ideological justification for prevailing institutions and power relations, including established notions of intellectual property rights as codified in the TRIPS agreement. Second, the term "critical" is also used to refer to an approach that selectively adopts elements from the several theoretical approaches outlined above while rejecting those elements that are found not useful to the particular project at hand—that is, of providing a cogent political economy analysis of the TRIPS a; it applies to the poor countries. My approach is also eclectic in the senss that it combines the useful elements of these same theories, each of which has its roots in the Marxian political economy tradition. This stylized combination of "critical eclecticism" is what I understand to be the essence of a dialectical investigatory method. The idea of confronting theory with historical structures, rather than abstracting from these via invocation of ceteris paribus, also gains endorsement from Cox, who writes as fellows: Dialectic is introduced, first, by deriving the definition of a particular structure, not from some abstract model of a social system or mode of production, but from a study of the historical situation to which it relates, and second, by looking for the emergence of rival structures expressing alternative possibilities of development. (1986, p. 220) An important insight arising from the study of Bryan's IOC approach is simply that, nations are important- By this Bryan means that (1) the func-

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tioning of the international capitalist economy does not have the same effects everywhere in the world, and (2) how particular nations articulate themselves in the global accumulation process depends, in part, on the exercise of state power. What Bryan and the IOC perspective demonstrate is that notwithstanding these facts, no meaningful distinction may be drawn between national accumulation and accumulation on a world scale. What the IOC perspective neglects to give explicit emphasis to, however, is the differences between nations and degree of this articulation of nations with respect to the global accumulation process. A salient contribution of the world systems school, meanwhile, is its ability to explain the historical development by which various nations have become enmeshed in the global capitalist system. In this system, it is undeniably true that nations differ in the concrete mechanisms by which capital is transferred and operates to produce surplus value. Moreover, national differences account for the particular social relations of production by which surplus is appropriated and redirected around the world. All of this is well described by the IOC approach in its treatment of the three circuits of capital. It also seems clear, however, in keeping with the WST approach, that the process of capital accumulation and expanded reproduction has given rise to a particular spatial and hierarchical international division of labor whose form continues to be dictated by international capital in a manner that relegates more exploitative functions to peripheral and semiperipheral locations while maintaining relatively less exploitative functions in the center. It follows that if particular nations enter into the internationalization of capital on different historical terms and conditions, and if they perform differing functions in the process of capital's expansion and reproduction, then particular national states will have both differential limitations and impacts on the functioning of the system itself. Herein resides the meaning of hegemony and of the hegemonic state. While it may be true, as suggested by the IOC view, that the United States government does not ultimately exercise its power and influence in promoting a national capitalist agenda considered apart from the interests of international capital, it remains decidedly true that the U.S. government exercises disproportionate power in the shaping of the infrastructure within which the process of global accumulation takes place. It is also true that the technologically advanced, industrialized countries, referred to by world systems theorists as the center countries, possess greater ability than the peripheral and semiperipheral countries in this same function, even if it is true that they also serve global, rather than national or regional, ends. Identification of the United States as the hegemonic state in the modern world system derives from its ability to impose the necessary order not in the


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interest of U.S. capitalist competitiveness, but rather in the interest of global capital accumulation, in which U.S. capitalism claims a disproportionate share. From this perspective, then, there is no inconsistency in the claims that U.S. international policy initiatives advance ai universal interest. This universal interest is a class interest, rather than a general welfare interest. That the United States rather than some other center country occupies the position of hegemonic state derives from the historical circumstances described above. These historical circumstances explain why U.S. culture, law, and institutions are more completely grounded in economic liberalism than those of any other existing state. The internationalization of capital requires maximum liberalism subject to the constraints identified by Bryan as the functions of state power—securing the rhoney system, securing the labor system, and the mediation of the contradictory interests of different parts of capital. The extension of U.S.-style culture, laws, and institutions to the global economy, designed precisely to secure these functions on behalf of the worldwide corporate bourgeoisie, is what is best understood by the term neoliberalism. Neoliberalism and Hegemony Neoliberalization traces its beginnings to th $ creation of the post-World War II supranational organizations that were desi *ned to promote the internationalization of capital. The most notable of these were the IMF, the World Bank, and the GATT. These institutions had; as their fundamental purpose the establishment of conditions (exchange rate stability, open markets) necessary to the facilitation of international trade ((international circulation of commodity capital) and international investment (international circulation of productive and money capital). Each of them is also distinguished in its historical origins by the heavy hand of U.S. diplomacy and economic dominance in the postwar period.w Voting power in the IMF and World Bank is determined on the basis of contributions of money capital to the organizations. By this formula, the United States has had a dominant voice since the inception of their operations. The administration and operation of the GATT were carried out on a nominally more democratic basis, with each country given equal voting power in resolving trade disputes -and subject to the same codes of conduct. The effective operation of GATT, however, was always a matter of deliberation and negotiation among and between the industrialized (center) countries, with the peripheral and semiperipheral countries assuming a marginal role. The United States was able to shape the character of the world trading system to its advantage through its ability to influence the negotiating agenda and the inclusion of various exceptions and escape clauses. Its

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use of unilateral trade policy also gave the United States an unparalleled advantage over others in dictating the conditions of international exchange, including market access. The ability of GATT to promote a liberal trading system from its inception through the early 1970s (Tokyo Round) was limited at best. Large categories of commodities, such as agriculture, textiles, and services, were largely unaffected. While average levels of tariffs were substantially reduced, nations were able to replicate their protectionist effects via a variety of nontariff barriers (e.g., quotas, voluntary export restraints) as well as widespread invocation of the various escape clauses embedded in the agreement. Domestic political pressure for protection among the center developed countries was driven by continuing economic crisis provoked, in part, by rising international commodity prices and falling profit rates in the center. The 1980s, led by President Ronald Reagan in the United States and Prime Minister Margaret Thatcher in Great Britain, saw the full flowering of neoliberalism, defined domestically by a reduction in taxes and in the industrial regulatory oversight functions of the state. In poor countries, neoliberalism was aided and abetted by an external debt crisis that provided ideological justification and real political leverage for a wide variety of economic reform programs that had the effect of rendering these countries more open both to global market forces as well as to international agreements that facilitated capital's global expansion. Countries seeking relief from the burden of external debt obligations were often forced into negotiations with the IMF and World Bank. Emergency finance is provided by these institutions on the condition that certain changes be made in the structure and functioning of the soliciting countries' social and economic institutions. Often these reforms have as a goal "greater labor marketflexibility,"a euphemism for steps required to dismantle labor unions and other protections for workers. In this regard, the country is frequently enjoined to mimic the labor market conditions that prevail in countries that have achieved higher rates of economic growth. The United States, once again, is found to be the model par excellence for reform, and the ideology of market neoliberalism, combined with liberal structural reform, is advanced as a recipe for securing the conditions for stable economic growth. The neoliberal recipe unabashedly promotes the accumulation and expanded reproduction of capital on an international scale, while it also presents itself as the only good alternative to economic stagnation and even retrogression in the poor countries. Neoliberal doctrines were widely adopted as the basis for policies of new governing elites in so-called transition economies.15 The concept of "transition" is understood to apply to an intellectual, ideological conversion as much as to a structural, institutional transformation.


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That is, neoliberalism had become an integral part of the knowledge structure of the body of policy makers, international consultants, international financial managers, and other opinion makers exerting their influence in all parts of the expanding global system.16 Neoliberalism had become hegemonic. The Emergent Global Capitalist State As noted earlier, the infrastructure for an incipient global capitalist state has been developing since as early as the seventeenth century. This development accelerated during the nineteenth and twentieth centuries, only to be interrupted by world war and economic crisis. It is useful to conceptualize the particular contents of this emergent infrastructure in terms of Bryan's taxonomy of primary and secondary state functions—securing the monetary system, securing the labor supply (primary), and mediating conflict between capitals. The task of securing the international monetary system was performed in the nineteenth century by the classical gold standard, which both provided a source of liquidity necessary to facilitate the international circulation of commodity andfinancecapital (international trade and investment) and provided monetary discipline for the constituent nations that composed the system. Not coincidentally, the gold standard also helped to secure the hegemonic position of England in the international cap: talist system as well. While international crises interrupted the functioning of the gold standard in the first half of the twentieth century, a transformed version of it was established after World War II in the form of the Brettor Woods system. In this version, of course, the U.S. dollar replaced gold as th«; anchor commodity to the international monetary system, just as the United States had replaced Great Britain as the hegemonic power in the global capitalist economy. While the Bretton Woods international monetary system functioned imperfectly for less than thirty years, it did enable a dramatic expansion of trade and international investment. Even after the demise of the formal system of fixed exchange rates in 1971, the Bretton Woods institutions (IMF and World Bank) have continued to play important roles in opening ihe periphery and semiperiphery to capitalist penetration. The problem of securing labor supply on an international level also received some attention by the formation of a supranational organization. The International Labor Organization (ILO) was established early in the twentieth century during a period of intense international struggle for ideological hegemony in the wake of the Russian Revolution. The modus operandi for the ILO was to establish minimally acceptable standards for the treatment of workers by their employers. Signatory Rations to the organization's charter were expected to enact and enforce laws-to ensure that these standards were

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met. These nations' labor practices are regularly monitored and reports are prepared detailing the degree to which particular countries fall short in their commitments. Those that are found to be lacking in compliance to the various conventions promulgated by the organization are then subject to moral suasion to bring about the desired reforms. The limitations of the ILO as an effective advocate for the workers of the world are fairly obvious. The first resides in the organization's tripartite administrative structure. Representatives are chosen from each nation's labor, industrial, and government sectors, each of which is given equal status and powers of representation in the organization's deliberative bodies. Conflict then is endemic to the organization at multiple levels. Within any particular national representation, conflicts, essentially class-based, separate the interests of national labor and national capital. Added to these are conflicts that arise in the struggle for influence or control over (national) state policy in regard to labor rights. A national position on securing labor supply in the context of the ILO, then, becomes a displaced, or reflected, manifestation of domestic class conflict, albeit with an important qualification. Compounding these conflicts are those that represent the competing claims of nations. That is, national differences in labor law and standards are typically treated as part of the struggle for competitive advantage, and labor is faced with a question of dividing loyalties between class and nation. Neither has the ILO ever had an effective enforcement mechanism to protect the rights of workers. Countries have frequently been found in violation of the various conventions without suffering any real, material sanctions, as they might if they had been found in violation of the GATT. Moreover, many signatory nations have never even ratified the ILO's most important conventions. The fact that these gaps exist in the most fundamental aspects of the ILO's administrative capabilities raises serious doubts about its abilities to advance the interests of the world's working population and suggests that its more important function is as an additional pillar in the construction of consensual hegemony. Extending the reach of supranational governmental institutions has also fulfilled the third of Bryan's functional definitions of the state—mediation of conflict between capitals. This functional purpose was given great support in the course of the Uruguay Round of GATT/WTO negotiations by the inclusion of an agreement on trade-related investment measures, or TRIMS.'7 The purpose of the TRIMS agreement was to eliminate restrictions on the ability of international capital to locate anywhere in the world and operate freely in the competitive pursuit of surplus (profit). TRIMS are then understood as those restrictions placed by host governments on TNCs in their operations. An example would be local content requirements that increase the


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demand for domestic inputs in the production process of the corporation and thereby promote domestic employment A second example might involve an export performance requirement that calls for a particular level or percentage of the TNCs local production to be exported in order to alleviate a foreign exchange bottleneck. Still a third [example would require the TNC to transfer technology to local producers in ways that the foreign producer is not inclined in the absence of the requirement. Clearly, the implication of restrictions such as these is the real possibility that the TNC will not be able to realize the same level of profit that itlmight otherwise, since the requirements are imposed by a host government whose objectives are not identical with TNC profit maximization.18 The United States first introduced proposals for a TRIMS agreement following the 1982 meeting of GATT ministers. Support for the proposals was provided by the Organization for Economic Cooperation and Development (OECD) countries with the exception of Australia, and opposition came from a group of semiperipheral and peripheral countries, especially India, Brazil, Argentina, Mexico, Egypt, Hungary, and the Asian NICs. The effort to bring TRIMS into the purview of the GATT proceeded apace during the 1990s and finally bore fruit at the conclusion of the Uruguay Round in 1993 with an agreement to ban all TRIMS that called for local content and trade-balancing requirements. The agreement was to be phased in over five years for the poorer countries and to apply immediately for all others.19 A similar story can be told about U.S. leadership in establishing a new GATT/WTO regime, the General Agreem;mt on Trade Services (GATS). In recent decades, service trade has increasin, ly come to displace trade in merchandise in the U.S. current account. The ategory of service trade includes financial services, which have grown very rapidly, along with the trend toward deregulation and liberalization of the financial sectors of many countries that had previously placed substantial controls on credit markets. The important point here is that beginnir g with the creation of the Bretton Woods institutions following World War II, and accelerating since the crisis years of the 1970s, neoliberalism and globalization have conjoined to create an expanded international regime of accumulation requiring supranational regulatory institutions. This point is expressed very well by Yaghmaian (1998) who writes; The emerging accumulation requires the formation of suitable regulatory mechanisms to guarantee free mobility of all forms of capital and the removal of spatial constraints upon the circuits of money, productive and commodity capital. The internationalization of capital requires the creation of global (supranational) institutions^ and regulatory arrangements to guar-

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antee the smooth reproduction of internationalized wage relations, and secure the regime of international accumulation. The regulatory requirements of international accumulation are institutionalized through the ascendancy of global neoliberalism. (1998, p. 253, emphasis in original) It is in this context that an understanding of the recent TRIPS agreement must be placed. The TRIPS, like the TRIMS and GATS, is another product of the Uruguay Round, a particularly fruitful moment for global capital. The TRIPS fulfills a state function surprisingly overlooked by Bryan in his taxonomy—that of securing (intellectual) property. It does this by defining knowledge as property, transforming passive knowledge into active knowledge, in May's terminology. It then provides the regulatory infrastructure to ensure that active knowledge functions as capital. It is premature to characterize this collection of supranational institutions and regulatory mechanisms as a global state, for several reasons. First, the range and depth of regulatory functions performed by the IMF, World Bank, GATTAVTO, and other entities are insufficient to the tasks demanded by an authentic state, even one committed to neoliberalism. The global political economy has a long way to go before it achieves the degree of integration to be managed by a unitary international authority. And this, of course, is another way of saying that individual nation-states retain a substantial degree of autonomy over their policy making. Even where substantial autonomy has been ceded to the historical movement in the direction of wider integration, the process in many cases seems to have reached a temporary equilibrium at the regional level. Second, what follows is that national policy itself is still obviously important and remains an important arena for intranational class conflict. Thus, it remains true that even for the United States, the hegemonic state in shaping the content and style of the emerging supranational regulatory institutions, contradictions abound in the behavior of the state as it pursues its mediation function. Third, inasmuch as state power remains an object of contention among and between classes at the national level, the increasing global character of class remains obscure. This observation is entirely instrumental to the purposes of the (global) capitalist hegemonic bloc insofar as it operates against the formation of an effective counterhegemonic bloc,At the same time, however, it also renders more difficult the task of resolving the contradictions in state policy alluded to above. Fourth, owing to the still early stages of the process of IOC, it is clear that there remains substantial unevenness in the integration and articulation of national accumulation processes with the process of global accumulation. This unevenness also is the historical legacy of imperialist penetration of the periphery by the capitalist center.


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The result is that the world remains composed of nations and nation-states differentiated in their respective abilities to shape the character of the emerging global economy, its governing regulatory institutions and mechanisms, and the terms of their incorporation intb the global economy. All of this is to suggest that it is far too premature to suggest, as some have done, that we have arrived at a postimperialist age. Having arrived at an interpretation of state power in the global capitalist system, I shall attempt to show in the following chapter how the TRIPS agreement was constructed to perform its specific international regulatory functions. Subsequent chapters will demonstrate the consequences of the agreement for two important lines of productive activity, each of which carries distinctive implications for human Swell-being as well as for the likely future of the TRIPS agreement itself. Appendix: Hymer on the Internationalization of Capital and the Law of Uneven Development An early IOC writer is Stephen Hymer (1979), who sees an oligopolistically organized multinational corporate system as the vehicle facilitating the IOC. He sees the development of this system as analogous to the development of the national corporation in the United Slates in the late nineteenth and early twentieth centuries in terms of the socialization of capital. He writes: [T]he national corporation abolished "private" property through collectivization and gave it a social character as essentially the common capital of a class. The overriding interest of this class is not the war of each against each, but the common need of all to naintain the capitalist society, that is, the rights of property to income and 1 he assurance of an adequate supply of labor to generate that income. Similarly, the multinational corporate system tends to abolish national capital and create a world system in which output is produced cooperatively to i greater degree than ever before, but control remains uneven; capitalists, as trustees of society, continue to pocket a good share of the proceeds, (p. 84; At the same time, however, Hymer sees the emerging world capitalist economy as very uneven in its development and hierarchically arranged in its social and productive organization. Again he writes: [A] regime of North American multinational corporations would tend to produce a hierarchical division of labor between geographical regions corresponding to the vertical division of labor within the firm. It would tend to

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centralize high-level decision-making occupations in a few cities in the advanced countries, surrounded by a number of regional sub-capitals, and confine the rest of the world to lower levels of activity and income, i.e., to the status of towns and villages in a New Imperial System, (p. 55) Hymer seems quite able to reconcile the IOC and WST approaches into a coherent account of the operation of multinational corporations and their consequences for uneven capitalist development. This unevenness is seen to be the outcome of the multinational corporation's ability to reproduce on the scale of the global economy the hierarchical structure that is internal to the firm itself. While technology is instrumental to its ends, the determining factor is the organization of the giant corporation. It must be stressed that the dependency relationship between major and minor cities should not be attributed to technology. The new technology, because it increases interaction, implies greater interdependence but not necessarily a hierarchical structure It is not technology which creates inequality; rather it is organization that imposes a ritual judicial asymmetry on the use of intrinsically symmetrical means of communications and arbitrarily creates unequal capacities to initiate and terminate exchange, to store and retrieve information, and to determine the extent of the exchange and terms of the discussion. Just as colonial powers in the past linked each point in the hinterland to the metropolis and inhibited lateral communications, preventing the growth of independent centers of decision making and creativity, multinational corporations (backed by state powers) centralize control by imposing a hierarchical system, (p. 66) Finally, it is worth noting what Hymer has to say about the implications of the IOC regarding the need for and exercise of state power. Like many commentators on the contemporary globalization process, he believes that the spread of power of the multinational corporation would have the effect of undermining the traditional powers of the national state. As the following quotation makes clear, however, this does not necessarily imply the end of the state as such. International government refers to the erosion of-the traditional powers of nation-states and the emergence of international policy instruments in line with the tendency of the multinational corporation to internationalize capital and labor. When a corporation invests abroad, it not only sends capital and management out, but also establishes a system for drawing foreign capital and labor into an integrated world network. When many firms from many countries do this together on an expanded scale, as has been true over the


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last decade and will be true in the next, they are forming a new world system. They are unifying world capital ^nd world labor into an inter-locking system of cross-penetration that completely changes the system of national economies that has characterized world capitalism for the past three hundred years. This process reduces the independence of nation-states and requires the formation of supranational institutions to handle the increased interdependence. To create a world market where state frontiers disappear, a world system is needed in which the separate interests, laws, governments, and systems of taxation and regulation are lumped together into a unified code of laws on the rights and limits of private property, (p. 76)

THE POLITICAL ECONOMY OF TRIPS

5 The Political Economy of TRIPS

The agreement on trade-related intellectual property rights (TRIPS) became a part of the international regulatory infrastructure as a result of negotiations leading up to and concluding the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) at the close of 1994. The agreement entered into effect in 1995 and bound its signatory nations to an array of obligations that would effectively harmonize the rules regarding patents, trademarks, copyrights, and trade secrets at levels approximating those found in the United States, the nation with undoubtedly the most demanding set of standards for the protection of intellectual property in the world. The agreement is a 'remarkable negotiating and political achievement for several reasons. First, the agreement was struck in spite of the strong initial objections of many of the participants to the negotiations and only the lukewarm support of several others. The countries that most strongly opposed the agreement, such as Brazil, India, and Korea, are characterized by a desire both to have cheap access to foreign knowledge-intensive goods and services and to possess substantial indigenous technology sectors of their own. The countries that supported the TRIPS, in some cases only weakly, have well-developed technology-intensive productive capacities. These countries include the European nations and Japan. In general, these countries have well-developed laws regarding the treatment of intellectual property rights, though in many cases the legal standard is not as demanding as that which exists in the United States. By far, the United States was the dominant voice advocating on behalf of the TRIPS agreement. Second, the agreement does not have a direct bearing on the vast majority of traded goods and services that constitute the bulk of trade in the world system. Rather, its most important application is to a'narrow range of commodities and processes that are characterized by high initial fixed costs of production combined with very low marginal costs of duplication. Under these circumstances, the attractiveness of unauthorized imitation is quite obvious. Outstanding examples of such goods include pharmaceuticals, films and recordings, and computer software. Industries such as these produce 112

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outputs of considerably high value, but they do not involve a large number of producing firms. Third, the agreement was struck in the absence of demonstrable evidence of its necessity to the promotion of the world's welfare. Without a doubt, the agreement will have a very positive effect|on the fortunes of some industries and individuals. Equally doubtless, however, is that these benefits will come at a considerable cost to the welfare of others, at least in the short run. Neither does the available evidence make a Convincing case that the long-run welfare of the world's majority is best served by the global harmonization of intellectual property rights as called for by the TRIPS.1 The question naturally arises then, Why was the TRIPS agreement successfully established as part of the governing regulatory infrastructure for the world economy? The answer is a matter of political economy. That is to say, we can understand why the TRIPS was established, and what role it can be expected to perform, only when we understand the political and economic forces that called forth its existence and the interests they serve. Necessarily, a political economic analysis requires a corresponding theory of the state. This theory was described in the preceding chapter in some detail and is briefly summarized here. Beginning in this aftermath of World War II and accelerating after 1973, the capitalist world system has adopted a new, global regime of accumulation. This regime oi accumulation is characterized by an unprecedented international mobility of capital. Capital is understood in each of its forms of circulation as commodity, money, and productive capital The internationalization of capital has created the need for a set of regulatory, supranational institutions in order n delimit the competition among and between individual capitals while perrritting global capitalist accumulation to proceed. The fact that these supranational institutions have emerged does not mean that individual nation-state s are made irrelevant. Individual nation-states still must mediate among ana between the demands made by the individual capitals within their jurisdictions. Nation-states also attempt to imprint the substance and rules of proce lure of the supranational institutions. A nation is described as hegemonic :f it possesses a disproportionate ability to shape the structure and functioning of these institutions and to otherwise dictate the terms on which global capitalist accumulation occurs. It does not follow from this that the hegemonic state exercises hegemony strictly in the interests of a domestic class or classes. Given the current global regime of accumulation based on internationalization of capital, hegemony is necessarily exercised based on the requirements for the expanded reproduction of global capital. In class terms, hegemony is exercised on behalf of the objective needs of an international hegemonic (historic) bloc that seeks to present its own class interest as the universal interest.

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The TRIPS agreement is best understood as one of several regulatory mechanisms designed to facilitate the international accumulation of capital. It operates to define and protect international property rights and thereby mediate in the international competition among and between individual capitals whose interests in regards to knowledge-based production often conflict. The purpose of this chapter is to trace the historic evolution of the agreement within the context of the theory of the state just described. It is also to demonstrate how the agreement should be expected to operate in service to the needs of global capital accumulation and the implications of its operation for the reproduction of social (class) relations on which accumulation is based. The Precursors to TRIPS The TRIPS agreement is not a sui generis institution. It is historically and logically predated by a number of international agreements that have advanced the cause of protection for intellectual property. The two most important of these, the Paris and Berne conventions, were established in the late nineteenth century. The Paris Convention The Paris Convention for the Protection of Intellectual Property was signed in 1883 to provide protection to holders of patents, trademarks, industrial designs, and marks of origin by the "repression of unfair competition." The Paris Convention does not stipulate minimum common standards across countries for the protection of intellectual property (IP). Neither does it require that a nation provide protection to specific forms of IP nor that it conform to particular rules as regards compulsory licensing, for example. It does require that signatory nations provide national treatment for the IP that emanates from all other signatory nations. That is to say, a nation's IP law must be applied on an equal basis to foreign and domestic claim-holders, and foreigners have recourse to the same legal remedies in cases involving alleged infringements of rights. The convention also provides a means by which claims of priority in an invention may be established throughout the membership, should disputes arise surrounding such claims. While the Paris Convention was initially established as an agreement among countries that were like-minded in their treatments of intellectual property rights, it has been modified and expanded over time in both its specific content and in the number of signatory nations. Today, over one hundred nations are signatories to the convention, most of which are less developed countries (LDCs).


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The Berne Convention The Berne Convention for the Protection of Literary and Artistic Works was signed in 1886 and amended over the years to provide copyright protection for published works, defined broadly to include books, articles, pamphlets, musical compositions, drawings, paintings, ;and other forms of artistic expression. Protection of the latter is not provided to particular performances, but only to the works themselves. Neither may "ideas" as such, as they might be embodied in a published work, for exarriple, enjoy protection, but only the particular writing itself. The minimum p|eriod of protection required by the convention is fifty years after the lifetinjte of the author. Like the Paris Convention, the Berne Convention is based oh the principles of nondiscrimination and national treatment. The range of membership for the Berne Convention is substantially broader than for the Paris Convention. One interpretation for the disparity is that less developed (peripheral) countries are more likely to have artists and performers who would demand such protection than they would have inventors who demand patent protection. Interestingly, until; 1988 the United States was not a Berne signatory because its national copyright law failed to conform to the requirements of the convention. In particular, U.S. copyright law differed from the Beme requirements insofar as the 'moral rights" of authors were concerned. Moral rights are those that have nothing necessarily to do with economic issues but bear on such matters as the rights of authors after original copyright has been transferred to another party.2 The Berne Convention stipulates that these rights be protected, while the U.S. federal statute was less demanding. As an alternative to the Berne Convention, the United States negotiated under the auspices of the United Nations Educational, Scientific, and Cultural Organization (UNESCO) the Universal Copyright Convention (UCC) in 1952. While the UCC was fully consistent with U.S;. law, it included fewer signatories nations as members and provided less protection than the Berne agreement. Moreover, it carried the proviso that English language works published by U.S. authors be printed in the United State (Stalson 1987, pp. 25-26). The World Intellectual Property Organization and Its Limitations The supranational institution that held primary responsibility for the administration of intellectual property rights agreements for most of the twentieth century was the World Intellectual Property Organization (WIPO), headquartered in Geneva. WIPO operated informally; as the combined secretariat of the Paris and Berne conventions and was formally established in 1967. It

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became part of the United Nations system in 1974 (Ryan 1998, pp. 126127). WIPO is regarded as the preeminent institution in the world as regards technical matters bearing on intellectual property rights (IPRs). It is also regarded, particularly by those with a keen interest in strengthening IPRs, as an institution with very serious limitations—limitations that are shared by the international agreements it is charged with administering. The major limitation of the Paris Convention from the perspective of U.S. businesses, according to Stalson (1987), is the agreement's inability to defend patents. The convention does not stipulate that signatory countries meet any particular standard for patent provision and protection. All it requires is that the national standard be applied in a nondiscriminatory fashion. Logically, then, if a country's law provides no patent protection to domestic individuals or firms, it is perfectly compliant in providing no such protection to foreign claimants. A second major limitation of the Paris Convention often cited by its critics is its treatment of compulsory licensing. The original convention stipulated that a member nation retained the right to compel a patent holder to issue a license whenever the patent holder's monopoly on the patented product or process threatened abuses of monopoly power. Abuse of monopoly power certainly would include restriction of output with a view toward pushing prices high above the cost of production in pursuit of surplus profit. The most frequently cited abuse, however, involves the failure to produce at all— that is, the failure to "work the patent." From the patent holder's perspective, the profit-maximizing logic might require that the patent be worked in only a few locations and other, far-flung markets served by exports. From the patentgranting country's perspective, however, patent rights that do not contribute employment and technology transfer are of very limited usefulness. Compulsory licensing is often also invoked for products and production processes that serve some necessary and immediate social welfare purpose, such as fighting disease or an environmental calamity.3 Still a third shortcoming of the Paris Convention identified by U.S. businesses with IP interests is its neglect of process patents. In some cases, patents on particular products have lapsed or have been deemed impermissible, but the process for their production may be novel and especially efficient. The developer of such a process will then have an interest in an exclusionary right to employ or sell the process. Stalson argues that while most developed countries recognize the legitimacy of such claims and extend the reach of their patent law to include process patents, the same cannot be said for LDCs. Many LDCs, in fact, lack the legal discovery procedures that would force alleged patent infringers to reveal sufficient information on their production methods necessary to bring a complaint (1987, p. 24).


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WIPO is unique among United Nations organizations in that its activities render the organization capable of self-finance. In particular, WIPO provides patent application services, for which it charges a fee, under the Patent Cooperation Treaty (PCT). Under the PCT, those who wish to establish a patent in multiple countries submit a single application to WIPO, which acts as a clearinghouse for all member countries! simultaneous consideration. The process establishes the applicant's priority of claim to the patent and saves substantial time and expense that would! otherwise be incurred in multiple national application procedures. Given the increase in applications submitted to WIPO under the PCT, the WIPO's dependence on country contributions to sustain its activities has been reduced to almost trivial levels. Ryan estimates, for example, that the portion df WIPO's budget accounted for by U.S. official contributions was 1.5 percent of the organization's total budget in 1990 (1998, p. 129). This is a far srhaller portion than for most other United Nations agencies and substantially less than for the budgets of such powerful supranational institutions as the International Monetary Fund (IMF) and World Bank. The self-financing ability of WIPO is a two-edged sword for the United States and the business interests it represents. Unlike decision making in the IMF and World Bank, where effective control is related to financial contribution, WIPO decision making is more eveily dispersed over its membership, which is numerically dominated by peripieral and semiperipheral countries. WIPO does not lend itself, then, to easy hegemonic manipulation. Ryan suggests the frustration of global capital in t lis respect very well: Business enterprises from the industrialized countries praise the teaching function of WIPO—when they know about it. But in general the intellectual property-intensive firms were dissatisfied with the level of protection offered by the international regime administered by the organization. Like other institutions associated with the! United Nations (with its dominance by developing countries), the international intellectual property regime developed with loose rules, weak dispute settlements mechanisms, and no ability to enforce provisions of international treaties. (1998, p. 131) In contrast to the weak enforcement' capabilities of WIPO, the GATT has proven itself quite capable of imposing penalties on countries that were recalcitrant in meeting their obligations as signatory nations. Countries found to be in violation of GATT's provisions are required to desist from the objectionable practices. If they do not, they are subject to compensatory retaliation. While it can hardly be said to operate in an equitable manner, GATT's dispute settlements procedures have operated as an effective

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mechanism to facilitate market access and the circulation of commodity capital around the globe. 4 The GATT is also characterized by an institutional feature that strongly enhances its power as an instrument of hegemonic control. This is the requirement that all signatory nations adhere to all provisions of the GATT. In other words, a nation is not at liberty to pick and choose which provisions of the agreement it will abide by and which it will ignore. Rather, any nation that rejects a particular provision, or side agreement, negotiated under the aegis and constitutive of the GATT will find itself outside of the protections and advantages of the agreement as a whole. Thus the strategy for the transformation of the existing international IPRs regime from a mere statement of ideals into an effective legal infrastructure complete with powers of enforcement became clear—it was made part of the GATT. The Historic Bloc and the Creation of Global Hegemony Gramsci describes his concept of historic bloc as follows: "Structures and superstructures form an 'historic bloc.' That is to say the complex, contradictory and discordant ensemble of the superstructures is the reflection of the ensemble of the social relations of production" (1971, p. 366). This "complex contradictory and discordant ensemble" unites to present its class interest as the universal interest. It necessarily then must sublimate the individual, often conflicting, short-run interests of its constituent parts in order to achieve a more lasting collective objective—namely, hegemony. Rupert elaborates on this notion: An historic bloc articulates a world view, grounded in historically specific socio-political conditions and production relations, which lends substance and ideological coherence to its social power. It follows, then, that hegemonies and historic blocs have specific qualities relating to particular constellations, their underlying class forces and productive relations. They can be conservative or revolutionary. (1993, p. 81) If we accept Rupert's conception, it follows that historic blocs must necessarily adapt to changing historical conditions (namely, specific sociopolitical conditions and production relations). While Gramsci was especially concerned with the requirements for hegemony at the level of the Italian nation-state in the first half of the twentieth century, the question that confronts us at the beginning of the twenty-first century concerns the composition of the historic bloc in the face of the internationalization of capital. Beyond this, we also wish to understand how this adapted historic bloc confronts the problem of the internationalization of IPRs.


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Robert Cox (1993) provides insight into the first of these two questions with his own interpretation of Gramsciaiji hegemony as it bears on the issue of international relations theory. Here Cbx takes care to emphasize that by "hegemony" is not meant the domination of one or several state(s) by another. It is not to be confused with what is ordinarily understood as imperialism (pp. 59-60). Rather, particular states are hegemonic insofar as they are critical to the formation of a historic blocl This bloc, however, is universal in its vision. Cox writes: ! On the basis of this tentative notatipn, it would appear that, historically, to become hegemonic, a state would have to found and protect a world order which was universal in conception, i.e., not an order in which one state directly exploits others but an; order which most states (or at least those within reach of the hegemony) could find compatible with their interests. . . . It would most likely give prominence to opportunities for the forces of civil society to operate on the world scale (or on the scale of the sphere within which hegemony prevails). The hegemonic concept of world order is founded not only upon the regulation of inter-state conflict but also upon a globally conceived civil society, i.e., a mode of production of global extent which brings about links among social classes of the countries encompassed by it. (1993, p. 61) By Cox's criteria, the hegemonic state is not only powerful in its own right but able to project its culture, institutions, technology, and social relations abroad so that they become model > to be emulated even by those nations that have not achieved the same level of development of the material forces and conditions of production. He adds to his description of hegemony the following: Hegemony at the international leve' is thus not merely an order among states. It is an order within a worlct economy with a dominant mode of production which penetrates into all countries and links into other subordinate modes of production. It is also a complex of international social relationships which connect the social classes of the different countries. . . . World hegemony, furthermore, is expressed in universal norms, institutions and mechanisms which lay down general rules of behavior for states and for those forces of civil society that act across national boundaries— rules which support the dominant mode of production. (1993, p. 62) Cox's description suggests that the historic bloc is not composed solely by official (i.e., governmental) elements. Civil society plays at least as important a role in its constitution. As the function of this bloc is to propagate

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universal norms and rules of behavior, it is clear that intellectuals and other cultural standard-bearers have at least as strong an influence in their formulation as lawmakers. The resulting institutions and mechanisms that give operational significance to these norms and rules reflect the real and perceived interests of cross-national classes. Finally, Cox recognizes that one of the important mechanisms of world hegemony is international (supranational) organizations. Such organizations, he argues, possess certain features that are expressive of their hegemonic function: (1) they embody the rules that facilitate the expansion of hegemonic world orders; (2) they are themselves the product of the hegemonic world order; (3) they ideologically legitimate the norms of the world order; (4) they co-opt the elites from peripheral countries; (5) they absorb counterhegemonic ideas. The argument to be made here is that the TRIPS agreement performs precisely these functions. TRIPS and the Extended Global State By institutionalizing on a global scale the IPR regime that exists in the United States, the system's most liberal (from capital's perspective) constituent member nation-state, the TRIPS agreement facilitates the expansion of global capitalism while reinforcing the currently prevailing hierarchy of production and power relations. The technological advantages that capitalism's imperialist history confers on the center of the system are solidified by a harmonization of patent laws. These laws act as an obstacle to the transfer and adaptation of knowledge to the needs of workers and consumers worldwide, especially those residing in the periphery, while preserving for the center-based transnational corporations (TNCs) technological superiority and control. The TRIPS agreement in essence institutionalizes a global division of labor in which an international elite, residing primarily in but not confined to the United States, Europe, and Japan, protects the competitive advantage of these powerful TNCs. The harmonization of IPRs likewise reduces the risk and cost associated with international investment, thus promoting an increase in the circulation of both commodity and money capital, which, again, originates primarily in the center and acts to extract surplus throughout its global operations. In all its aspects then, the TRIPS agreement has the potential to aid in the expansion of the prevailing hegemonic order. The TRIPS agreement was manifestly the product of intense efforts of the hegemonic historic bloc to impose its vision first on the decision-making process of the U.S. state and later on the multilateral negotiations leading up to the Uruguay Round of GATT. Leading this effort were executives of Pfizer Chemical and IBM. Pfizer is one of the largest chemical and pharmaceutical transnational corporations in the world, while IBM is the well-known com-


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puter giant. These companies made effective use of the Advisory Committee on Trade Polity and Negotiation (ACTPN^ set up by the United States Trade Representative (USTR). ACTPN allows businesses to help the USTR articulate its negotiating strategy in bilateral and multilateral forums. In 1986, at the beginning of the Uruguay Round of GATT, the ACTPN was chaired by Edmund T. Pratt, chief executive officer (CJEO) of Pfizer (Ryan 1998, p. 68). Pratt emphasized the importance of making IPRs a priority negotiating issue in the upcoming trade talks. The committee also worked closely with the Pharmaceutical Research and Manufacturers of America (PhRMA), which undertook a heavy lobbying effort in the U.S. Congress to convince legislators of the importance of strengthening patent protection across the globe. Also, Pratt and IBM's CEO, John Opel, organized the Intellectual Property Committee (IPC) to coordinate the lobbying efforts of a number of large TNCs on the issue of IPRs and trade. Among the companies represented were chemical and pharmaceutical firms Merck, Johnson & Johnson, Dupont, Bristol-Myers, and Monsanto; entertainment conglomerate Warner Communications; and computer giant Hewlett-Packard (Ryan 1998, p. 69). The IPC not only functions as a lobbying organization for the firms it represents, but also works very closely with the USTR in formulating policy and negotiating strategy. The organization, for example, has a direct hand in formulating reports on the compliance records of foreign countries in regard to domestic IP law and international agreements. This organization also makes recommendations to the USTR regarding unilateial sanctions on countries it deems to be engaging in "unfair trading practices" based on alleged IPR violations. A fundamental task of the historic bloc is to provide ideological legitimacy to the push for the harmonization of IPRs. An important function of such agencies as ACTPN and IPC is to "educate" domestic and international policy makers on IP problems and issues J.S interpreted by the transnational corporate perspective. The agencies are supported in this task by legal experts, public relations specialists, economists, and other communications experts. The fact that the media industries have such a keen interest in the strict interpretation of information as private property is a tremendous advantage for the bloc as a whole. As Chapter 2 made clear, ideological defenses of private property rights in information have encompassed a wide range of philosophic traditions, running from natural law approaches in the seventeenth century to more familiar arguments grounded in the utilitarian tradition. Perhaps the most effective approach in recent years, however, is that which links the necessity for a strong and harmonized global IPR regime to the more general call for global neoliberalism. Neoliberalism preaches that strong economic growth can come about only in the presence of reforms that remove the

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heavy hand of government regulation from the functioning of otherwise efficient private markets. Thus states are urged (often required) to privatize state-owned enterprises, reduce government spending and indebtedness, make labor markets more flexible, remove protectionist trade policies, and reduce or eliminate restrictions on foreign investment, foreign exchange transactions, and international capital movements. The fact that many countries have not arrived at the promised land of economic growth and prosperity despite enacting many of these reforms has not dissuaded the conventional wisdom away from the neoliberal prescriptions. Rather, it has been noted that these reforms are necessary but not in themselves sufficient. In addition to these structural economic reforms, goes the argument, it is necessary also to carry out a number of institutional and juridical reforms. These include all manner of legislation and institution building designed to combat corruption, promote efficiency and transparency, and increase the protection of property. It is in the context of these so-called second-stage reforms that the call for stronger IPRs must be understood. The important point to make here is that by aligning the TRIPS with these neoliberal reforms, the agreement takes on an air of historical necessity and inevitability that is virtually impossible, or at best foolish, to oppose. We can understand from this vantage point, then, the feelings of isolation that the Indian negotiating team felt in its ultimately futile opposition to the TRIPS agreement. In discussing the global contextual factors within which the agreement was negotiated, Sen (2001) writes: The third reason, which was perhaps the most significant, was the debt crisis. This effectively put a large number of countries, including some of the more powerful developing countries, into receivership. International Monetary Fund and World Bank conditionalities were based upon an export dependent strategy, and many of these countries were "advised" to participate constructively in the Uruguay Round negotiations as part of the strategy for recovery. The debt crisis, and the institutional response, also reflected the intellectual ascendancy of the neo-liberal model . . . The cumulative impact of these developments was to erode developing country solidarity, isolate them [Indian negotiators] intellectually, and weaken them tactically. India's efforts to defy this-process within the negotiating process were therefore a little too ambitious, (pp. 8-9) The inevitability hypothesis carries with it the injunction to either "get the institutions right" or otherwise fall further behind in the race to catch up'to the global leaders, or even the late developers, in terms of technical capacity, economic productivity, and, ultimately, a high material standard of living.

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Negotiations and Co-optation A certain amount of co-optation of developing country elites in the context of the Uruguay Round multilateral economic negotiations was virtually required as a matter of the definition of the success of the negotiations. The GATT World Trade Organization (WTO) negotiations require a consensus agreement in order to arrive at closure! Moreover, as noted earlier, acceptance of the overall GATT/WTO agreement, and whatever perceived benefits derived, requires that the agreement be accepted in its entirety. This requirement, then, presupposes that initial opposition to particular parts of any agreement, such as the TRIPS in thb Uruguay Round, be overcome. One way of overcoming opposition is to seek a genuine compromise on basic issues of disagreement. Alternatively, consensus could be reached by eliminating from the basic negotiating agreement the subtexts that prove especially difficult for some participants to accept. Neither of these was the route chosen during the Uruguay Round in the negotiation of the TRIPS. Rather, the TRIPS was effectively imposed by primarily center country interests by a combination of hegemonic consensus seeking and coercion. Hegemonic consensus seeking operated by expanding the historic bloc to include key elements of the bourgeoisie of the peripheral and semi peripheral countries which were made to see the recessity of the agreement by a process identified as "linkage bargaining;' Linkage bargaining, according to Ryan (1998, p. 12), occurs when a negotiator offers something of value to a counterpart as a means of convincing th(; counterpart to offer concessions on matters considered valuable to the negotiator. This sort of "horse trading" proved especially effective in co-opting elites in the otherwise recalcitrant countries. It was also, I shall argue, consistent with the objectives of what I have referred to as the internationalization of capital. It was not, however, itself a sufficient approach. As will be shown next, blatant coercion also played a key role in the negotiating process. U.S. Trade Policy and Hegemonic Coercion: Alternative Interpretations Recently several international political economy (IPE) and international relations (IR) interpretations of the TRIPS agreement have been advanced that focus oh the role of the United States as a "global hegemon." In contrast to the Gramscian use of the term, the concept of hegemony in this context has more in common with the notion of coercion than it does with ideological consensus. In this section, I would; like to offer a critical review of these interpretations as a means of explicating my own understanding of how the

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TRIPS functions as an instrument of hegemonic coercion and of the role played by the U.S. state. The functioning of the TRIPS as a mechanism of consensual hegemony will be addressed in the succeeding section. Hegemonic Stability and the TRIPS A 1990 study sponsored by United Nations Conference on Trade and Development (UNCTAD) (Van Grasstek 1990) interprets the TRIPS agreement from the perspective of hegemonic stability theory. Here the argument is made that hegemonic countries become more interested in the issue of IPRs and their protection when their hegemonic position in the world economy comes under threat. This occurs at a relatively late stage in the period of their dominance when other countries have emerged as competitive threats. The formal assertion of IPRs then represents a defensive step to protect the erosion of international economic dominance. In the case of the TRIPS, according to the UNCTAD study, the particular hegemon under threat is the United States, though it is recognized that even a relative technological latecomer like Japan has a common interest in the strengthening of IPRs on an international scale. The primary targets of the TRIPS are those developing countries that have sufficient indigenous technological capacity to qualify as potential innovators but are more likely, in the short to medium terms, to be imitators, or outright appropriators, of imported technology. Because it is not necessarily apparent to these countries that a regime of strong IPRs serves the long-run purpose of enhancing global economic welfare, the United States assumes the role of hegemonic leader by bringing the issue into the international forum of GATT7WTO multilateral negotiations. In the context of international trade liberalization discussions, the United States hopes to convince its recalcitrant trading partners of the mutual benefits of an IPR regime that bears a striking resemblance to U.S. law on patents, trademarks, copyrights, and trade secrets. The UNCTAD study appropriately lays important emphasis on the role of hegemony, but like most studies of hegemonic stability it interprets hegemony strictly in terms of the struggle for global power among nation-states. It is clear, however, that in regard to the TRIPS agreement it is the power of transnational capital that is being served by the USTR rather than the United States as a nation. One of the primary objectives of privatelyfinanced,quasiofficial organizations such as the IPC was to eliminate so-called parallel imports. Parallel imports occur when a country is able to import commodities that have been produced under conditions involving alleged IPR violations. Such prohibitions under U.S. law, for example, prevent U.S. consumers from purchasing generic substitutes for expensive, patented pharmaceuticals from


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Canada. Clearly the intent of this law is to preserve the monopoly pricing power of the giant multinational drug manufacturers. The UNCTAD report is more on the rriark in its description of "coercive bilateralism" (Van Grasstek 1990, p. 104). Coercive bilateralism refers to the use of national trade policy to force a nation's trading partners into trade agreements (bilateral or multilateral) that they wjould otherwise eschew. U.S. trade law is well stocked with weapons to be usejd for this purpose. These weapons include two pieces of legislation passed during the Reagan administration. The first is the 1984 Trade and Tariff Act,! which authorizes the president to negotiate international agreements for intellectual property with trading partner countries and to lower trade barriers involving knowledge-based goods and services. The second law is the Omnibus Trade and Competitiveness Act of 1988, which is particularly important as a means of U.S. coercive bilateralism. Specifically, the 1988 law contains a provision known as "Special 301," which calls for commercial retaliation against countries that fail to upgrade their IP law to be more consistent with U.S. law. Special 301 was in turn combined with an update of the 1974 U.S. Trade Law called "Super 301" that identified a list of particular countries that Iwere considered guilty of "unfair trading practices," including those that desalt with knowledge-based goods and services. Super 301 also goes well beyond previous incarnations of aggressive bilateralism inasmuch as it seeks r. erformance standards as opposed to mere procedural standards against which to assess foreign trading partners' willingness to engage in fair trade. This means that the effective test of trade "fairness" is the increase in the U.S. share of trading partner imports and not merely the rules that govern trade in particular commodities. These laws have been used by the United States Trade Representative both to debar imports into the United States that involve production considered to be in violation of U.S. IP law as well as to force access to foreign markets for knowledge-intensive exports. Milner (1991) notes that large exporters and transnational corporations are apt to view the value of Section 301-type legislation in terms of its ability to force open markets, while domestically oriented firms and labor unions are more concerned with the market protection it affords. Clearly, corporations with an interest in the promotion of a strong and harmonized international IPR regime are more likely to fall into the former category. Section 301 law for these capitals then has instrumental value in advancing the multilateral trading system rather than limiting its reach. The target countries include both industrialized as well as less developed countries, though a disproportionate number of actions have been taken against the LDCs. This group includes the more technologically advanced among the less developed countries, or semiperiphery, inasmuch as these countries are sophisticated enough to have both indigenous and poten-

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tially competitive high-tech capacities as well as internal markets for their outputs. The U.S. State: "Liberal, Pluralist Hegemon" or Vanguard of the Global Historic Bloc? In his book-length study entitled Playing by the Rules: American Trade Power and Diplomacy in the Pacific (1995), Michael Ryan pays particular attention to the impact of U.S.-East Asian economic relations on the development of political momentum resulting in the TRIPS agreement. He notes that the USTR has concentrated its Section 301 weapons disproportionately on East Asian countries because the region embraced aggressive export promotion, with the United States as a prime target market, as the basis for its development strategy during the 1970s and 1980s. Ryan's analysis is grounded in a theoretical model that combines the classical realism of international relations theory with liberal political economy. Classical realism argues that foreign policy is driven by state actors who wish to maximize national power, security, and wealth. While linkage bargaining is often instrumental in bilateral negotiations, coercion is as likely to dictate policy decisions. Liberal political economy places a greater emphasis on the prospects for international cooperation and assigns a prominent role to international organizations, including multinational corporations, as agents. From this perspective, the goals of nation states involve absolute economic gains. Multilateral negotiations are understood as positive-sum games. Within this interpretative framework, Ryan argues that trade diplomacy may be characterized along a continuum of strategies, ranging from poweroriented to rule-oriented. Power-oriented trade diplomacy, a notion akin to coercive bilateralism, is based on the unilateral imposition by more powerful parties of dispute settlements arrangements on weaker parties. Rule-oriented diplomacy arrives at dispute settlements via appeal to internationally (multilaterally) arrived-at norms and procedures. Late twentieth-century trade diplomacy, argues Ryan, is neither purely power-oriented nor purely rule-oriented. Rather, a combination of both approaches prevails, with the GATT providing the rules-based elements but with elements (such as Section 301 trade law) of power diplomacy also in use. Based on an analysis of forty U.S. trade disputes with three East Asian nations (Japan, Korea, and Taiwan) from 1974 to 1989, Ryan derives what he considers to be two important generalizations as regards the practice of trade diplomacy. The first is that two explanatory variables account for the willingness of the USTR to undertake the application of Section 301 complaints against alleged unfair trading practices by East Asian countries. These


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variables are (1) the commercial competitiveness of the complaining industry and (2) the GATT regime utility of the ciase. The first of these refers to the ability of the complaining firms or industry to possess at least a potential competitive advantage in world markets. The argument is made that USTR will not consume limited resources and diplomatic capital on cases that do not involve internationally competitive producers. GATT regime utility refers to the GATT-based rules consistency pf the complaint. By this is meant, does the complaint clearly identify a violation of the rules established by the GATT for the multilateral trading system? These generalizations are logically consistent, says Ryan; with the characterization of the United States as a "pluralist, liberal regulatory hegemon." By the "pluralist, liberal" characterization, Ryan means that the United States is a weak state with limited powers and checks and balances that grew without major external security threats and with increasing wealth and relative egalitarianism. The U.S. pursues a liberal regulatory industrial-policy strategy, which asserts that markets allocate resources more efficiently, give incentives to produce what the public wants, give incentives to workers to acquire useful skills, conserve scarce gotids by setting their prices high, offer a high degree of economic freedom, an in living organisms. It is clear, in fact, that the agreements are qualified and constrained so as to be rhetorically consistent with the stipulations of the TRIPS agreement to which they are effectively and juridically subject. The secondary status the agreements possess relative to the TRIPS owes much to the fact that the TRIPS, unlike the other agreements, enjoys (1) international legal status and (2) an enforcement mechanism. Second, the United States, headquarters to many of the world's transnational corporations that seek unrestricted access to the world's germplasm reserves as well as the protection of IPRs in genetically modified organisms, stands opposed to the agreements. This opposition, as we have

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seen, is rooted in a belief that the agreements, notwithstanding their claims of consistency with privately claimed IPRs, do not go far enough in providing protection to intellectual innovations in biotechnology. Benefit sharing is also rejected on the basis of its presumed impracticality and the inappropriateness of assigning the responsibility for determining the administration of such proposals to international bodies. Official opposition by the United States, spurred by the organized interests of international capital, can be expected to render the form and content of these qualifying agreements contested terrain for the foreseeable future. I will argue here that, in this struggle for ideological hegemony, international capital currently commands the high ground. The reason is that the would-be counterhegemonic agreements (the International Undertaking, the CBD, the Leipzig Declaration) have allowed the hegemonic bloc to define the terms of the discourse. They have, to borrow May's terminology, embraced the knowledge structure of the international capitalist hegemonic bloc. In so doing, they have conceded what properly must be resisted, the commodification of knowledge and its insertion into the circuit of capital. In other words, once it is admitted that knowledge is "ownable," the worldview of global capitalism is provided fundamental support. What is left after this is established are negotiations over the terms of trade between the center and the periphery. Given the disparities that exist between center and periphery countries regarding market characteristics, information asymmetries, and the typical leverage exercised by capital in its relation to labor characteristic of capitalist production, unequal exchange in knowledge-based commodities is virtually inevitable. Moreover, in embracing the concept of knowledge as commodity and productive capital, the agreements also embrace the entire logic of capitalist accumulation and its attendant neoliberal ideology. Considered from this vantage point, the would-be counterhegemonic resistance must be considered a fundamental victory for international capital that reaches well beyond the narrower consideration of "who owns knowledge." It represents rather a solidification of the neoliberal myth of global market forces as guarantor of a socially optimal allocation of resources, maximizer of productive efficiency, promoter of growth, and so on. It helps to narrow the field of technically and socially imaginable alternatives that might impinge on the freedom of international capital. Ultimately, then, this form of would-be counterhegemonic resistance must be considered "counter-counterhegemonic." The Coase Theorem and the (De)construction of Hegemony The limitations of the Convention on Biological Diversity are made clear in a recent article by Boisvert and Caron (2002). These authors note that the

AGRICULTURAL BIOTECHNOLOGY REVOLUTION

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CBD has carried out a radical break with previous international approaches to the issue of conserving biological diversity by replacing an emphasis on direct institutional regulation with a variant of the Coase theorem. As noted in Chapter 2, the Coase theorem, named after economist Ronald Coase, argues that the problem of optimal resource conservation necessitates clearly defined property rights in the relevant Resources. If resources are treated as public goods available to all, there exists no particular agent charged with either their efficient use or their long-run optimal use. The likely result is their dissipation through overuse or by neglect of their husbandry. By the assignment of definite, exclusive property rights, on the other hand, the potential for the profitable exploitation of the resources creates the conditions for the development of markets wherein they can be traded and thus allocated to their highest-valued uses. Applied to living organisms, this theorem suggests the abandonment of the "common heritage of mankind" view of raw plant germplasm in favor of assigning property rights in such resources to farmers and indigenous groups who have traditionally developed and cultivated them from wild landraces. Ownership of the remaining landraces themselves would be assigned to public or quasi-public agencies in the countries where they are maintained in situ. As Boisvert and Caron point out, the very notion of plant germplasm as an exploitable resource adopted by the CBD represents a sea change in interpretation. Whereas former approaches of environmental law strove toward preservation and aimed at preventing exploitation, the Convention on Biological Diversity combines conservation with the use of biological resources for commercial purposes. Exploitation is not only restored to favor and no longer considered a threat to the environment, it is the very heart of the institutional device designed by the Convention. (2002, p. 152) Ideological embrace of the Coase theorem requires what the authors term the "apology of private property." By this they mean the belief that privately held property rights are the necessary and sufficient condition for the socially efficient use of scarce resources. Common property institutions are considered unable to avoid the "tragedy of the commons" identified by Hardin (1968) and briefly described above. Boisvert and Caron usefully point out the fallacies in this position, however. First, it is a false comparison to suggest that the only alternatives to resource allocation involve the unrestricted access implied by free common goods and the restricted access provided by exclusionary private property rights. This dichotomy ignores the possibilities of limited access inherent in control over common resources by a public authority. The neoclassical economic rejoinder to this possibility is to argue

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that governments possess neither sufficient incentives nor information to allocate resources to their socially optimal uses. This is the familiar "government failure" argument. It is apparent, however, that market failure is a larger threat to biodiversity than government failure. The threats of genetic erosion and genetic uniformity that the world currently faces follow, after all, not from excessive public control of genetic resources, but rather from their private exploitation for profit. Moreover, while it is undoubtedly true that public stewardship of genetic raw materials would result in a pattern for their social use different from that which would prevail under their privatization, there can be no presumption that the latter is socially superior to the former. A second fallacy identified by Boisvert and Caron relates to the proper interpretation of Coase's 1960 article. The widespread misinterpretation known as the "Coase theorem" neglects two important qualifying conditions identified by the author. The first is that private market allocation of scarce resources is efficient in the absence of transactions costs. The second is that property rights can be unambiguously defined. These qualifying characteristics are frequently violated in markets that trade traditionally recognized commodities—that is, those involving physical or material attributes that imply exclusivity or rivalry in use. When applied to commodified knowledge derived from traditional production methods in poor countries, the severe limitations of the theorem should be obvious. Put plainly, what is the likelihood that well-informed, equitable contracts embodying the true social value of genetic exchange-values will be struck between center country-based, biotech TNCs and their poor country negotiating counterparts? Boisvert and Caron suggest an answer:

AGRICULTURAL BIOTECHNOLOGY REVOLUTION

197

Neither can it be seriously argued, as per the requirements made by Coase himself, that property rights in genetic resources can be unambiguously assigned. Those who have developed and maintained the coveted materials are in fact difficult or impossible to identify. This is, in fact, one of the principle arguments made by center-based opponents of the benefit-sharing provisions of the CBD. If it is rejoined that while individual cultivators may not be identifiable, it may be possible to compensate the communities from which the resources are drawn, the problem of identification is merely displaced to a broader and more general level. Genetic material is developed by overlapping communities over many generations. In addition, this development is never merely an economic matter: it involves;an indissoluble cultural element that defies pecuniary expression. Therefore', the concept of bioprospecting cannot pretend to legitimacy in communities where contract relationships run counter to traditional understandings of plant cultivation. Brush (1999) describes the inherent contradictions in the following terms: [T]he contract mode and its ensuing relationships for obtaining biological resources are incongruous with the nature of indigenous knowledge and management of biological resources. These resources and their attendant knowledge are products of "bio-coopeiation," and their collective management is intimately connected to the ecology of subsistence agriculture and crop evolution, (p. 537)

There is no such thing as a global standard agreement in the Convention [on Biological Diversity] that could be used as a blueprint when drafting such contracts. The Convention promotes bilateral negotiations between States, or at least public institutions, on the one hand and private bilateral organizations on the other hand, to define the terms of the contracts of access to and exploitation of biological resources. Such agreements, the terms of which are often kept secret, are subject to no external arbitration. The benefit-sharing measures they provide for strongly depend on the respective powers and negotiating skills of the parties. HCHR Resolution 2001/33 (April). . 2002. Access to medication in the context of pandemics such as HIV/AIDS: Report of the Secretary-General. United Nations Economic and Social Council, E/CN.4/2002/52, January: 1-17. UNAIDS. 2002a. Fact Sheet 2002: Sub-Sahatan Africa. Joint United Nations Programme on HIV/AIDS, July, www.unaids.org/en/defaykt.asp. . 2002b. Report on the global HIV/AIDSi epidemic July 2002. Joint United Nations Programme on HIV/AIDS, www.unaids.org/en/resources/publications/ corporate+publications/report+on+the+global+hiv_aids+epidemic+2002+.asp U.S. International Trade Commission. 1988. Foreign Protection of Intellectual Property Rights and the Effect on U.S. Industry and Trade. Washington, DC: Government Printing Office. Van Grasstek, Greg. 1990- "Trade-related intellectual property rights: United States trade policy, developing countries and the! Uruguay Round." In Uruguay Round: Further Papers on Selected Issues. Geneva: UNCTAD.

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REFERENCES

Vemon, Raymond. 1966. "International investment and international trade in the product cycle" Quarterly Journal of Economics 80, no. 2 (May): 197-207. Vesely, Milan. 2000. "Why curing baldness is more lucrative than saving African lives." African Business 256 (July/August): 39. Vico, Giambattista. 1774/1970. The New Science of Giambattista Vico. Trans, from the third edition by Thomas Goddard Bergin and Max Harold Fisch. Ithaca: Cornell University Press. Wagner, J. Martin. 2000. "The WTO's interpretation of the SPS agreement has undermined the right of governments to establish appropriate levels of protection against risk." Law and Policy in International Business 31, no. 3 (Spring): 855-859. Waldron, Jeremy. 1988. The Right to Private Property. Oxford: Oxford University Press. Wallerstein, Immanuel. 1974. The Modern World System. Vol. 1. New York: Academic Press. . 1984. The Politics of the World-Economy: The States, the Movements and the Civilizations. Cambridge: Cambridge University Press. Watal, Jayashree. 2000. "Pharmaceutical patents, prices and welfare losses: Policy options for India under the WTO TRIPS agreement." World Economy 23, no. 5 (May): 733-752. Watanabe, Chihiro, Makoto Takayama, Akira Nagamatsu, Takashi Tagami, and Charla Griffy-Brown. 2002. "Technology spillover as a complement for high-level R&D intensity in the pharmaceutical industry." Technovation 22, no. 4 (April): 245-258. Watson, Rory. 2001. "Oxfam accuses Pfizer of 'moral bankruptcy.'" British Medical Journal 323, no. 7306 (July): 186. Wharton, Clifton R., Jr. 1969. "The green revolution: Cornucopia or Pandora's box." Foreign Affairs 47, no. 3 (April): 464-476. Wheeler, David, and Ashoka Mody. 1992. "International investment location decisions." Journal of International Economics 33, no. 1/2 (August): 57-76 Whipple, Dan. 1999. "Seeds of controversy." Futurist 33, no. 8 (October): 10-12. Williamson, John. 1983. "On seeking to improve IMF conditionality." American Economic Review 73, no. 2 (May): 354-358. Winestock, Geoff, and Helene Cooper. 2001. "Activists outmaneuver drug makers at WTO—poor nations can ignore patents to meet public-health needs." Wall Street Journal, November 14: A2. World Development Indicators. 1988. Washington, DC: World Bank. Yaghmaian, Behzad. 1998. "Globalization and the state: The political economy of global accumulation and its emerging mode of regulation " Science and Society 62, no. 2 (Summer): 241-265. Zimmerman, Rachel. 2001. "Some question whether drug makers play too large a role in vaccine fund." Wall Street Journal, December 3: A12.

Index

acquired immune deficiency syndrome (AIDS), 44, 51, 131, 143, 150-51, 158, 207 Adams, Chris, 224n8.2 Advisory Committee on Trade Policy Negotiation (ACTPN), 121 aggregate measure of support (AMS), 136 Agreement on Agriculture (AA), 134-37 Agreement on Textiles and Clothing (ATC), 133-34 agriculture, 73 biotechnology, 170-75 B.t. corn, 171 research and development, 168,176,187 and trade, 168 American Seed Traders Association, 176 Amin, Samir, 23 Aoki, Reiko, 26 Argentina, 153 GM crops, 200-1 Arrighi, Giovnanni, 218n4.5 Arrow, Kenneth, 7 Asian NICs, 76, 95, 107 ATC, 221n5.8 Australia, 134 AZT, 51, 159 Ballance, Robert, 144-45 Barakat, Pierre, 146 Barrow, Clyde, 215nl.9 Bass, Naomi, 156, 222n6.12 Bayer AG, 162 Bayh-Dole Act, 50 Beck, R.L., 57

Backer, Elizabeth, 222n6.15 Belgium, 91 Bentham, Jeremy, 33-37, 216n2.3 Berlan, Jean-Pierre, 223n7.7 Berne Convention, 4, 54, 64, 114-15, 215nl.2 as compared to U.S. copyright law, 155, 220n5.2 Bertram, Robert, 189 Bhagwati, Jagdish, 127 Bijman, W.J.J., 191 tiopiracy, 197 t ioprospecting, 197-98 biotechnology revolution (BR), 187, 191, 207 implications for workers, 199-200 Boisvert, Valerie, 194-96 Bolivia, 68 Borlaug, Norman, 184 Borlaug wheat, 184,186 ijlornschier, Volker, 86 Bosnian, Maarten, 148 Boyle, James, 19-21, 205-6 Braga, Helson, 218n3.16 Brawley, Mark, 80 Brazil, 72, 91, 107, 112, 133, 137, 142, 153 agricultural biotech, 201 j Industrial Property Law (IPL), 157-58, 160 HIV infections, 159 pharmaceutical industry, 157 TRIPS negotiations, 7, 53 Brennan, Terrence, 160, 222n6.13 Bretton Woods, 84, 105 235

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