State of Innovation

Patents and Innovation Economics

Why Government Funded R&D Cannot Replace the Patent System

It is quite common for academic economists and others to suggest that the incentive of the patent system could be replaced with government funding of Research and Development.  In fact, this argument was made by Mayo in their brief to the Supreme Court in the Mayo v. Prometheus case.  These academic economists often complain that patents lead to rent seeking and are monopolies.  There are two fundamental flaws in their arguments.  One is that patents are a property right and protection of property rights is not only necessary for economic growth (see the Frasier Institute and Heritage/Wall Street Journal survey of economic freedom), but necessary for a just society.  Second, the real rent seeking happens when governments attempt to fund R&D and act as a source of venture capital as two excellent articles showed this week.  Solyndra is only the latest in a long line of failed government investment that prove this point.

Almost every major technological advance made in the US was due mainly to property rights provided by the patent system.  These property rights made it possible to invest in creating and deploying these technologies and without the patent system they would never have made it into the marketplace.  Among these technologies are the telegraph, the telephone, the technology behind drilling for oil, the technology of fracturing oil, the airplane, the copy machine, radio, television, the computer industry, the electronics industry, and yes the internet.  While DARPA can claim that their funding creating the basic building blocks of the internet, it did not create the advances that were necessary to make it a viable commercial product.  The Patent Office is a totally self funded agency, which means it receives no federal tax dollars.  The American people received this benefit without any cost to themselves.  For those who argue that there were social costs to these patents, please look at North Korea or the USSR and see the true costs of a patent system.

What great technologies can government funding claim?  The atomic bomb, sonar, some improvements in radar, and some credit for getting the American System of Manufacturing started.  Government funding is good at creating weapons technology, which is a legitimate role for government.  Two great articles point out the fallacy of government replacing the patent system.  One is Before Solyndra, a long history of failed government energy projects, By Steven Mufson. Mr. Munson documents the abject failure of government investments in the energy field.  These failed investments represent tens of trillions of wasted taxpayer money.  The article points out that:

Not a single one of these much-ballyhooed initiatives is producing or saving a drop or a watt or a whiff of energy, but they have managed to burn through far more taxpayer money than the ill-fated Solyndra. An Energy Department report in 2008 estimated that the federal government had spent $172 billion since 1961 on basic research and the development of advanced energy technologies.

Another great article showing the fallacy of government investment is Solyndra Case Reveals Gateway Between Administration Loans, Obama Allies.  This article points out that “government investment” is always politically connected.  According to the article “This is a payoff to people who are your political backers and supporters. And this is really a wealth transfer from middle class taxpayers to billionaires, Schweizer said.”  Schweizer is author of the book, “Throw Them All Out,”   This is the system that these academic economists suggest can replace the patent system.  This is the system that is suppose to replace the supposed “rent seeking” of patents.

 

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November 16, 2011 - Posted by | -Economics, Innovation, News | , , , , , ,

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