Trademark ban and health alarmism

* This is my column in BusinessWorld last Wednesday, August 01.


Health alarmism is the practice of frequently looking at health conditions pessimistically and then calling for more government regulations, taxation, and prohibitions supposedly to ameliorate the perceived pessimism.

Smoking is something that many people indulge in despite awareness of its dangers. The reason is that people own their body, not the government or doctors or NGOs. That is why many people also engage in dangerous activities like rock climbing, sky jumping, downhill bicycle racing, deep sea diving, full contact sports like boxing and UFC, and so on.

So aside from high and ever-rising tobacco taxes, advertising ban, smoking ban in public places, graphic warning in packs, the most extreme perhaps is mandatory plain packaging — no more branding and logos, only graphic warnings, pictures of damaged lungs, throat, tongue, etc. Their purpose is to further discourage people from smoking on top of existing measures mentioned.


One thing noticeable in the health alarmism of “more deaths due to non-communicable diseases (NCDs) due to smoking” is its inconsistency with data on rising life expectancy. From developing to developed coun- tries, people are living longer and healthier.

In addition, smoking prevalence among adults has been declining in many countries all these years even without plain packaging and related extremist measures.

When people have rising incomes, they also increase their appetite for travel, to live longer and naturally reduce substance abuse. Rising tobacco taxes and similar restrictions of course have also contributed to such reductions.

Based on the numbers, there seems to be little correlation between smoking prevalence and life expectancy. Japan has high smoking prevalence of 34% or twice of Australia’s 17% and yet Japan has higher life expectancy of 84 years compared to Australia’s 82.5 years. South Korea has smoking prevalence of 50% or three times that of Australia and yet they have similar life expectancy.

Australia is the first country in the world to legislate plain packaging in December 2012. Several tobacco-exporting countries like Indonesia and Honduras went to the World Trade Organization (WTO) to complain the measure as non-tariff barrier to trade. In late June 2018, WTO made a ruling that Australia’s law is valid.

If we bring in the above numbers to this case, it is clear that the plain packaging law is not really a health measure but a political measure to shut out some legitimate businesses while unintentionally aiding illegitimate businesses including criminal and terrorist groups whose main fund-raising activity is smuggling and illicit trade.

The decline in smoking prevalence/incidence in many countries all these years can be explained by (a) people’s awareness of the dangers of smoking, (b) effects of high cigarette taxes, smoking bans in public places, etc.

Another possible explanation is (c) people are smoking fewer products from legitimate manufacturers but actually smoking more products from smugglers and illegal sources as the latter’s prices are much cheaper.

In the case of Australia, a KPMG study last year showed that after the plain packaging law in 2012, the estimated share of illicit and smuggled tobacco rose from 11.5% of total tobacco consumption in 2012 to 13.5% in 2013 and since then stayed at around 14.2% average from 2014-2016 (source: KPMG, “Illicit Tobacco in Australia, 2016 Full Year Report,” March 2017.)

The Philippines has no plain packaging law or legislative proposal yet but only rising tobacco taxes: P30/pack under the Sin Tax law of 2012 (RA 10351), became P35/pack this year and P40/pack in 2020 under the TRAIN law of 2017 (RA 10963), then another push towards P90/pack as proposed by Sen. JV Ejercito and many health NGOs.

The impact on cigarette smuggling seems to be big. See for instance a BusinessWorld report on May 01, 2018, “DoF warns cigarette smuggling may be helping finance terrorism.” The report quoted DoF Secretary Sonny Dominguez as saying that “Illegal money can end up funding terrorist activities” while Customs Commissioner Caesar Dulay said that “smuggled cigarettes are currently flooding the market.”

The twin measures of more tobacco taxes and plain packaging policy are perfect formula to encourage more tobacco smuggling, more fake products that are cheap and can encourage more smoking and more smokers. And more money to criminal and terrorist groups that are engaged in illicit trade.

Newton’s third law of motion (“for every action there is an equal opposite reaction”) can also apply in economics and trade policy: For every taxation and prohibition, there is an equal and opposite distortion.


Tobacco taxation, smuggling and plain packaging

* This is my column in BusinessWorld last June 04, 2018.

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“To cease smoking is the easiest thing I ever did, I ought to know because I’ve done it a thousand times.” — Mark Twain

On May 29, 2018, I attended the “Health for Juan and Juana” conference on universal health care (UHC) at the PICC, jointly sponsored by the DoH, ADB, PHAP, MeTA, Havas, AC Health, others.

It was a big event with many participants and high-powered speakers and facilitators from national and local governments, multilaterals, NGOs, academe and private players.

Listening to the health officials of Davao, Makati, Bataan, and South Cotabato, I got the impression that with the way they provide health care to their constituents, it is possible to abolish the DoH and realign its budget to LGUs.

The keynote speaker was Sen. JV Ejercito, Chairman of the Senate Committee on Health and Demography and he talked about his UHC bill, the public consultations, the financing including his proposal to further hike tobacco tax to P90/pack. It is a far-out number compared with P30/pack in 2017 under Sin Tax law of 2012 (RA 10351), to become P35/pack in 2018, P37.50 in 2019, then P40/pack in 2022 under TRAIN law (RA 10963).

Since corruption in government remains high, higher tax rates mean higher tax avoidance. Lots of cigarette smuggling occurred in 2015-2016 involving billions of pesos of avoided taxes. In February 2017 for instance, the Bureau of Customs estimated that some P50B of foregone taxes in 2016 were due to smuggling, about P16B of it was from cigarette smuggling.

If the numbers are correct and if we divide P16B over P29/pack excise tax in 2016, that was equivalent to 552 million packs of cheap cigarettes. Cheap cigarettes encourage more smoking and, as a result, higher tobacco taxes achieve an opposite result.

With higher tobacco tax this year because of TRAIN law, cigarette smuggling has continued.

For instance, a BusinessWorld report on May 01, 2018 said “DoF warns cigarette smuggling may be helping finance terrorism.”

DoF Secretary Sonny Dominguez was quoted, “Illegal money can end up funding terrorist activities” while Customs Commissioner Caesar Dulay said that “smuggled cigarettes are currently flooding the market.”

High taxation and explicit prohibitions are often two sides of the same coin. One policy done by governments abroad is the prohibition of displaying the tobacco companies’ names, logos, and brands via plain packaging policy. So all cigarette packs by all players, old and new, established or fly-by-night, will display similar designs and graphic warnings.

After implementing plain packaging policies since December 2012, illegal tobacco consumption in Australia has increased from an estimated 11.5% to 13.5% in 2012 to up to 15.0% in 2017 (source: KPMG, “Illicit Tobacco in Australia, Full Year 2017 Report,” April 20, 2018).

This because many new players, including those engaged in criminality and terrorism, have come in, produced cheap cigarettes since plain packaging is much easier to copy, and attracted more buyers and smokers.

The United Kingdom also enacted the plain packaging policy in May 2017 and after one year, (1) no significant decline in smoking incidence happened, partly or largely because (2) cheap counterfeit plain packs surfaced.

The counterfeits were found to have high tar, nicotine, and carbon monoxide than those allowed in UK, and in some cases, are found to contain heavy metals such as arsenic, cadmium, and lead, along with other toxic contaminants: asbestos, mold, dust, dead flies, rat droppings — and even human excrement. (Sources: The Times, “Illegal tobacco tainted by asbestos and rats,” May 16, 2017; Evening Standard, “Sniffer dogs with GoPro bodycams help uncover 30,000 fake cigarettes in Soho crackdown,” May 24, 2017).

Meanwhile, the World Justice Project (WJP) produces an annual study, the “Rule of Law Index” (RoLI) and score countries based on their performance on 8 factors and 44 sub-factors. The RoLI 2017-2018 Report involves more than 110,000 households as respondents and 3,000 expert surveyors in 113 countries and jurisdictions.

A summary is shown below, focused on Factor 6: Regulatory Enforcement (Government regulations are effectively enforced, applied and enforced without improper influence; Administrative proceedings are conducted without unreasonable delay, etc.)


So if Australia and the UK with better rule of law implementation have experienced high and rising incidence of illicit trade and smuggling of cheap cigarettes, how much more for developing countries like the Philippines?

If the Philippines will consider imposing higher tobacco taxes like the P90/pack proposal by Sen. Ejercito, and/or if it is to consider plain packaging policy, given its low rule of law culture and poor regulatory enforcement, a doubling of current extent of illicit trade and smuggling can be expected.

Which means more fake and cheap cigarettes will come in, and there will be more smoking and smokers, not less.

More government taxation and prohibitions create adverse selection problems; the law of unintended consequences always kicks in as nature abhors a vacuum.


Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.

Intellectual property, innovation, and prosperity

* This is my column in BusinessWorld last May 10, 2018.


The BusinessWorld Economic Forum 2018 is fast approaching this coming May 18 and it has a timely theme, “Disruptor or Disrupted? The Philippines at the Crossroads.” Focus is on the challenges, risks and potentials of artificial intelligence (AI) and other technological advances.

Endless trial and error, research and development, intangible and intellectual creations, are at the heart of innovation and economic disruptions. The role of property rights protection in general and intellectual property rights (IPR) in particular cannot be overlooked.

Here are some numbers showing the degree of competition among countries and economies in encouraging and protecting innovation and IPR as shown by three data sources. These are the

(1) World Intellectual Property Organization (WIPO), INSEAD, and Cornel SC Johnson College of Business, “The Global Innovation Index 2017” (GII); (2) Property Rights Alliance (PRA) — International Property Rights Index 2017 (IPRI); and the (3) US Chamber of Commerce (USCC) — Global Innovation Policy Center (GIPC), International IP Index (IIPI) 2018.

WIPO’s methodology is interesting.

The overall GII score is computed by getting the simple average of the Input and Output Sub-Index scores. The Innovation Input Sub-Index is comprised of five pillars: (1) Institutions, (2) Human capital and research, (3) Infrastructure, (4) Market sophistication, and (5) Business sophistication. The Innovation Output Sub-Index is composed of two pillars: (6) Knowledge and technology outputs and (7) Creative outputs.

Each pillar is divided into three sub-pillars and each sub-pillar is composed of individual indicators, for a total of 81 indicators. Cool.

Data on GDP per capita income at purchasing power parity (PPP) $ values are from the International Monetary Fund (IMF), World Economic Outlook database, April 2018. The numbers in parenthesis of each report (WIPO-GII, IPRI, IIPI) represent the total number of countries included in their respective reports (see table).


These numbers show the following:

One, countries with high global rank and scores in innovation and IPR index are also those with high per capita income. Conversely, countries with low global rank in innovation also have low per capita income.

Two, the Philippines in particular exhibits this low ranking. Placing only 73rd out of 127 countries in WIPO-GII 2017 report, 64th out of 127 countries in PRA-IPRI 2017 report, and 38th out of 50 countries in the GIPC-IIPI 2018 report. Our GDP per capita income of only $8,300 at PPP values is low, and even lower if nominal GDP prices are used, less than $3,000.

Three, many East Asian economies are rising in ranking, landing in the top 25% in global ranks.

To further reiterate the importance of intellectual property (IP) and innovation, 70 independent and free market-oriented think tanks and institutes worldwide sent an open letter to WIPO Director General Dr. Francis Gurry, during the 2018 World IP Day last week, April 26.

The letter was spearheaded by the PRA in the US and Minimal Government Thinkers is among the 70 co-signatories. The letter was also sent to UN Secretary-General Antonio Guterres, and Director-General of the World Health Organization (WHO) Tedros Adhanom Ghebreyesus.

The letter highlighted some important facts, among them:

* In 2016, a record 3.1 million new patents were filed worldwide. These patents protected groundbreaking technological processes, helped cure devastating diseases, and modernized everyday conveniences.

* Copying is not the same as inventing and enforcement of IP rights helps prevent counterfeits that undermine innovation and help finance criminal organizations. This shadow economy of counterfeits is responsible for nearly 2.5% of global imports, amounting to nearly $461 billion.

* 10% of global pharmaceutical trade is thought to be counterfeit. These “medicines” have serious health consequences, including death. New medicines require research, trials, $2.8 billion, and up to 12 years. IP Rights incentivize commitment and collaboration.

* Removing trademarks through plain packaging has costly economic, health, and security consequences. $300 billion is the implied loss to the beverage industry if such packaging is applied to alcohol and sugary drinks.

Another global group, the Biotechnology Innovation Organization (BIO) is also promoting innovation in biotechnology of innovative health care, agricultural, industrial, and environmental products.

Governments, national and multilaterals like the UN and WHO, should help encourage and respect IPR and innovation. Some cases however show that they do otherwise.

For instance, the 2016 UN High-Level Panel on Access to Medicines, their report has portrayed patents and IP as harmful to global development and human rights. Backward thinking.

The enemy of public health and human rights are counterfeits and substandards — medicine, food, and drinks — and the criminal organizations that manufacture and sell these products.

Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.

Intellectual property rights in East Asia

* This is my column in BusinessWorld last April 19, 2018.


The degree of wealth and economic size of East Asian economies generally correlate with their degree of private property rights protection, both physical and non-physical or intellectual property. While protection of physical properties like houses, cars, and land are easier to see and measure, the protection of intellectual property rights (IPR) like patents, copyrights, trademarks, and trade secrets are not so tangible.

IPRs are important because they represent the “heart and soul” of private enterprises and the goods and services that they produce.

For instance, people differentiate and choose shoes made by companies as represented by their logos such as a big check, three striped leaves, or letter F. These same people also choose products from food companies with logos of a double arch, a happy insect, or a smiling young female.

Here are some numbers showing the degree of IPR protection of selected East Asian economies. (Data and report sources are (1) Property Rights Alliance (PRA)- International Property Rights Index (IPRI) 2017 Report, (2) US Chamber of Commerce (USCC)- Global Innovation Policy Center (GIPC), International IP Index (IIPI) 2018, and (3) World Economic Forum (WEF), Global Competitiveness Report (GCR) 2017-2018. The numbers in parenthesis beside each report represent the number of countries or economies covered. The WEF’s GCR is composed of 12 pillars and pillar #1 is about Institutions; among the sub-pillars there is IPR protection).


These numbers show that East Asian tiger economies also rank high in IPR protection. Conversely, emerging economies aspiring to join the club of tiger and developed countries tend to have medium to low ranking in IPR protection. The exception is Brunei, a developed economy in terms of per capita income (thanks to its high gas exports and small population) but it is low in IPR protection.

The issue of IPR protection in the region was tackled by a symposium early this week entitled “Intellectual Property Rights in the ASEAN Economic Community: Challenges and Potentials” at Intercontinental Kuala Lumpur, Malaysia. The event was organized by the Institute for Democracy and Economic Affairs (IDEAS), Malaysia’s first and most dynamic free market think tank.

There are moves to abolish the trademark, corporate logos and branding of products deemed “unhealthy” in many countries.

For instance, plain packaging of tobacco products has been legislated in Australia and France, and is currently considered to be legislated in Singapore too. Such trademark busting policies are also considered as extended to other “unhealthy” products like alcohol, sugary food like chocolates, confectionery and candies.

IDEAS commissioned a study that was presented in the symposium entitled “Challenges in Improving Intellectual Property Rights in ASEAN: Case study of Singapore, Malaysia, Indonesia, Thailand and Philippines” by Adidarmawan, S.H. and Marolita Setiati.

In the paper, the two authors noted that:

“Trademark promotes freedom of choice and enable consumers to make quick, confident and safe purchasing decisions. Standardizing… packaging for tobacco products that would restrict the use of brands, trademarks and trade… concern is if brand marks are eroded, then consumers are not able to differentiate between inferior products and those with a reputation for reliability that may create an environment in which companies may end up competing on price instead of quality. In addition, plain packaging is easier for counterfeiters to copy and could result in an increase in inferior — and more dangerous — imitations. The counterfeiters will have an easier time duping the consumer into buying products that are sub-standard. Brand restriction sets an unfortunate precedent, opening the door for IP rights to be weakened in other industries.”

A BusinessWorld report early this week entitled “Excise tax increase triggers widespread cigarette smuggling” also underscores these concerns.

High taxes, rising regulations and plain packaging have similar effects — they make the consumption of legal and branded products like tobacco and alcohol more restricted and more costly, which open up more space and markets for illicit, illegal, smuggled, and cheaper products. This results in more smoking, more drinking, more consumption of the restricted products.

Governments should focus on protecting private property rights, both physical and intellectual. Weakening such property rights will also lead to a weakened state and strengthen the powers of smugglers and criminal syndicates who do not pay taxes and do not respect brands and intellectual property.


Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.

IPR in the ASEAN and plain packaging in the West

* This is my column in BusinessWorld on March 27, 2018.

Last week, March 22, a global coalition of 62 market-oriented independent or nongovernment think tanks and institutes sent a letter to the World Health Organization (WHO) on the subject, “Five years of failure: Global coalition letter against plain packaging.” Three institutes from ASEAN countries were among the signatories: the Center for Indonesian Policy Studies (CIPS) in Jakarta, the Institute for Democracy and Economic Affairs (IDEAS) in Kuala Lumpur, and Minimal Government Thinkers (MGT) in Manila, my think tank.

The statement was circulated well in social media particularly by signatory-institutes. The paper noted,

“After Australia implemented the policy, other industries have been targeted around the world: alcohol, sugary beverages, fatty foods, even toys. These industries employ millions and any regulation that would deny key IP assets would have a devastating global economic impact. The trademark value alone of only twelve companies associated with these sectors is estimated to be more than $1.8 trillion.

The costs of plain packaging are enormous: the loss of the innovation incentive, the mutilation of established international IP law, the market carve-out to illicit actors, including terrorists. We urge the WHO and governments around the world to stop infringing on intellectual property rights with plain packaging policies.”

This coming April 18, IDEAS will hold a public forum on “Intellectual Property Rights in the ASEAN Economic Community: Challenges and Potentials” to be held at Intercontinental Kuala Lumpur. The forum will partly cover an emerging big issue in international trade — the proliferation of illicit products.

The proliferation of illicit trade and smuggling is ironic in a period of overall tariff reduction and trade liberalization in the ASEAN and many other regions in the world.

What explains this irony?

It is non-tariff barriers (NTBs) or non-tariff measures (NTMs). After all, these require additional permits, sanitary and phytosanitary measures (SPS), and technical barriers to trade (TBTs).

And, as mentioned in the letter, the emerging attack on IPR — plain packaging, abolition of trademark and logo, abolition of corporate branding, initially for tobacco products. Then advocates will move to other “unhealthy” goods like alcohol, sugary drinks, confectionery and candies, and so on.

Australia is the first country in the world to legislate and implement plain packaging or standardized packaging in December 2012. The estimated consumption of illicit and smuggled tobacco products was 12.2% of overall tobacco consumption in 2011 and 11.5% in 2012.

When plain packaging was implemented, the estimated illicit consumption went up: 13.5% in 2013, 14.5% in 2014, 14.1% in 2015, 13.9% in 2016 (source: KPMG, March 2017. “Illicit Tobacco in Australia, 2016 Full Year Report”).

Removing the trademark, logo and brand via plain packaging is less of an assault on tobacco companies with long years of corporate existence but more of an assault on a country’s tradition of protecting private property rights.

Below are some numbers showing average wealth and IPR protection in 15 economies, ASEAN + five in Northeast Asia. Data sources are (a) IMF’s World Economic Outlook (WEO) for GDP per capita, (b) Property Rights Alliance (PRA) International Property Rights Index (IPRI) 2017 Report, and (c) World Economic Forum (WEF) Global Competitiveness Report (GCR) 2017-2018.

The GCR is composed of 12 pillars and pillar #1 is about Institutions; among the sub-pillars there is IPR protection (see table).

These numbers show that countries with high per capita GDP whether in current or nominal prices or in purchasing power parity (PPP) values are also those with high scores and global ranking in intellectual property rights (IPR) protection. And countries with low per capita income also have low scores and ranking in IPR protection. The exception to this trend is Brunei in the IPRI Report, and South Korea in the GCR.

High and rising taxes and now plain packaging as measures to discourage smoking is successful only in reducing smoking of legal and branded tobacco products. Not mentioned by advocates is that these measures are highly favorable to producers and distributors of illicit, fake, non-branded, and cheap tobacco products.

Since brand and product differentiation is effectively abolished, producers and manufacturers, old and new players, will only compete in pricing. So more cheap tobacco will be introduced and this will encourage more smoking.

To further reduce smoking incidence, governments and NGOs should continue public education about the dangers of smoking. But almost all smokers already know the dangers of smoking, the same way that cliff and plane jumpers, high wall/rock climbers, motorcycle stunt drivers, extreme bicycle downhill riders, deep sea scuba divers, MMA/UFC fighters, etc. know the dangers of their sports and passion but they keep doing it anyway, repeatedly.

People own their body, not governments or health NGOs. There is a limit to state nannyism and very often, such nannyism results in adverse, unintended consequences.

Governments should instead focus on protecting private property as a way to encourage more economic prosperity.

Coalition letter to WHO re plain packaging

Today, a global coalition of 62 market-oriented independent or non-government think tanks and institutes sent a letter to the WHO. Three institutes from ASEAN countries were among the signatories — CIPS in Indonesia, IDEAS in Malaysia, and MGT in the Philippines.

Cover page re PP
Dr. Tedros Adhanom Ghebreyesus
World Health Organization

December 01, 2017, marked the five-year anniversary of the full implementation of plain packaging in Australia. The removal of brands and trademarks from packaging remains a gross violation of intellectual property rights and has failed to achieve its intended goal. As a global coalition of sixty-two think tanks, advocacy groups and civil-society organizations that have been critical of plain packaging for any product, we write in response to proposed plain packaging tobacco control measures and to the announcements by several countries of their interest in pursuing these policies.

Intellectual property rights are human rights enshrined in the Universal Declaration of Human Rights: Article 17, the right to ownership; Article 19, the right to freedom of expression; and Article 27, the right to protection of material interests. In this regard, even if plain packaging is effective, it should still be repealed, as rights are inalienable and should not be discarded for political purposes.

International trade law, the UNDHR, and historic international treaties are designed to protect intellectual property for this very purpose. The innovation incentive created by trademarks fuels competition and produces amazing products demanded by consumers like affordable medical advances that save lives. Obviously, any loophole should be closed, not exploited….

After Australia implemented the policy, other industries have been targeted around the world: alcohol, sugary beverages, fatty foods, even toys. These industries employ millions and any regulation that would deny key IP assets would have a devastating global economic impact. The trademark value alone of only twelve companies associated with these sectors is estimated to be more than $1.8 trillion.

The costs of plain packaging are enormous: the loss of the innovation incentive to the economy and society are inestimable, the mutilation of established international IP law is unprecedented, and the market carve-out to illicit actors, including terrorists, is reprehensible. It is beyond reason that such a policy continues to be pursued, even after it has failed to achieve its intended goal.

We urge the WHO and governments around the world to stop infringing on intellectual property rights with plain packaging policies.

(Full letter and names of institute heads, co-signatories, see:, or

Governments and the UN on patent prizes

Reposting another article by Philip published in BusinessWorld on February 14, 2018.

How governments can screw up the development of new drugs
by Philip Stevens

THE PATENT-BASED system of drug development will come under further pressure from key countries aiming to increase access to medicines at the executive board meeting World Health Organization in March.

Critics of the system want reform, arguing it makes drugs too expensive and fails to provide cures for those in need who may be unable to pay, such as people in developing countries. They want to slash drug prices by replacing intellectual property rights with government-funded prizes as the primary innovation incentive for medicines.

Developers of new drugs would gain government cash prize rewards for the successful development of a new medicine.

In return, companies would be forced to hand over their intellectual property rights to the government, allowing generic manufacturers to enter the market immediately. Competition between generic drug manufacturers would boost access to those in need as new drugs would be sold at their marginal cost of manufacture, so the theory goes.

Meanwhile, governments would control and plan what disease areas are rewarded by prizes, ensuring that funding is allocated to health priorities in a fair and transparent fashion.

“Delinking” the cost of R&D from the final price paid for a medicine, and making governments the funders and planners of drug development, sounds like a simple public health care solution. But so far, no country has taken the plunge.

This is not surprising; “delinkage” is not the silver bullet claimed by its supporters.

One charge leveled against the patent-based system is that it creates losses for patients by inflating medicine prices well beyond their manufacturing costs. This downplays the economic benefits of new medical technologies from averted hospitalization and fewer sick days for workers. But more to the point, an innovation system based on prizes could create just as many, if not more, economic losses.

The prizes fund would have to come from taxpayers; their burden would be at least the $141 billion spent by the private sector on R&D each year. Income tax hikes would distort labor markets and interfere with job creation.

Then there would be the added costs of the enormous new bureaucracy to manage the prizes system.

In the absence of private sector investment, which country would be willing to fill this funding gap? Here the rhetoric of many countries, including India, at World Health Organization meetings in Geneva has not been matched by serious action. Even modest WHO R&D delinkage “demonstration projects” fall $73 million short of the $85 million required, with contributions from only 10 countries.

This new world of government-funded prizes to drive medicine innovation does not look promising.

Money apart, designing prizes that work is even more of a problem. Government committees would struggle to determine the true economic and social value of medicine before it is even created.

With estimates for developing a new medicine between $1.2 billion and $2.6 billion, this matters a whole lot.

Stevens-021418-768x402For prizes lower than the true market value of the invention, drug developers — and the venture capitalists so instrumental for start-ups — would direct their capital away from medicine R&D towards politically safer but less socially useful areas. New medicines would dry up.

If a government prize committee overvalues the prize, it would trigger duplication of R&D as competitors swarm. Curious then that proponents of these prizes argue they will end the supposedly “wasteful” and duplicative R&D under the patent system.

Finally, there is the problem of politicization. A prize system would hand significant new discretionary powers to government officials as the judges of which medicines win prizes. Political factors would influence decisions on where to allocate funding, rather than clinical need. Diseases that could summon the most vocal lobby groups would get attention from prize bureaucrats, while less fashionable diseases may be ignored.

Political connections and lobbying could both play a role in securing a prize, while elected officials may attempt to influence R&D spending by government agencies.

Patents, on the other hand, represent a far less arbitrary form of innovation incentive. Government merely sets the framework of patent law, under which all companies compete. And competition is the key to innovation.

Take hepatitis C, until recently an incurable disease afflicting around 12 million Indians. Since 2013, no fewer than 10 new treatments have come onto the market, offering clinicians a huge range of options. Such breadth and speed of innovation under a winner-takes-all prize system is hard to picture.

Despite their superficial attraction, no country (other than the technologically backward former Soviet Union) has yet replaced intellectual property rights with prizes. The reasons are clear. Prizes risk economic distortions, undermining incentives for innovators, and adding a new layer of bureaucratization and politics. Be warned, therefore: delinkage and drug development do not go hand in hand.


Philip Stevens is director of Geneva Network, a UK-based research organization focusing on trade, innovation and health policy.