Fighting Climate Change with Patents

World leaders are talking a lot about climate change, not least in their flashy statement on controlling global temperatures at the recent Group of Eight summit in Italy.  One of the smarter ways they can put this determination into effect will be to protect the intellectual property of green innovators from a growing onslaught by developing-world politicians and mistaken activists.

Intellectual property rights are the underappreciated link in the environmentalist chain.  By rewarding inventors and entrepreneurs, well-enforced patents provide the right incentives for the innovation that will produce technologies necessary to manage climate change.  Yet this fact is getting lost.  Access to low carbon technologies has become a central issue in international climate change negotiations as rich countries put more pressure on the poor to cut their emissions.  Understandably the poor aren't prepared to do so unless they are given cheap access to technologies.  Patents are increasingly viewed as the main obstacle to cheap technology transfer.

So a representative of the Brazilian government, Haroldo Machado Filho, this week told a World Intellectual Property Organisation conference in Geneva that leaders should consider the possibility of allowing "compulsory licensing" for green technologies.  This would be a new loophole in international intellectual property rules that would allow developing-country governments to break patents "for the public good";  such a loophole already exists for pharmaceuticals.  In a similar vein, Indian Climate Change Minister Shri Ramesh asserted late last month that access to intellectual property for low-carbon technology is a "global public good".  This kind of thinking lays the intellectual groundwork for patent violations down the road.

Most worrying, opponents of patents have succeeded in having included in the current negotiating text for a post-Kyoto agreement paragraphs to undermine patents.  The final text won't be finalised until at least the December U.N. Copenhagen meeting, but current proposals range from "compulsory licensing" to the "creation of a global technology pool for climate change" that would socialise intellectual property.

These proposals fundamentally misunderstand why low-carbon technology is expensive.  A January report by Copenhagen Economics, a consulting firm, found that the high prices are most likely a result of the immaturity of technologies, not patents.  New technologies are generally more expensive when there are fewer products competing in the market.  As more technologies are innovated the price is likely to drop.  Most promising green technologies are so new they simply haven't had time to decline in price yet.

The Copenhagen Economics report also notes that weakening intellectual property for green technologies would be bad for the developing world countries whose governments advocate such measures.  A growing number of patents on these technologies are held by developing-country innovators.  China is one of the largest owners of solar and fuel-cell technology patents.  The balance is still in favour of developed-world innovators, but the gap is narrowing fast.  Allowing entrepreneurs in poorer countries to profit from their discoveries will be good both for the environment and for developing-country economies.

Undermining patents won't help access to technologies, but it will stop the next generation of technologies being invented, and with it a long-term solution to achieving the twin goals of developing countries to reduce emissions and alleviate poverty.  Rather than breaking patents, policy makers could re-evaluate tariff regimes and other barriers that can add up to 165% to the cost of some imported green technologies, according to a 2007 World Bank study.  The best path to a green future is not to break free-market principles, but to return to them.

Bring Back the Thatcher Revolution

Thirty years ago this week, Margaret Thatcher led her Conservative Party to victory and set the scene for a wave of privatisation and deregulation across the Anglosphere.  From the Keynesian mindset that delivered economic stagflation and turmoil in the 1970s, the U.K. as well as the U.S. and the Antipodes moved to an era of sounder policy and more durable prosperity.  Today, as the cause for small government and free markets appears quixotic, it is easy to forget how depressing things looked three decades ago and how the economic reforms unleashed by the Thatcher Revolution led to a golden age.

In 1979, inflation, unemployment and recession were endemic.  The Soviets had invaded Afghanistan, Islamist fundamentalists had overthrown the Shah in Iran, oil prices had more than doubled, and the West appeared in retreat almost everywhere.  Britain was regarded as the sick man of Europe (think Arthur Scargill's union militancy), the U.S. was suffering a crisis of confidence (think Jimmy Carter's "national malaise" sermon), and Australia and New Zealand were overregulated and overprotected nations, weighed down by chronic inflation (think banana republic).

But things started to change -- even before the Iron Lady's historic election.  In 1976, she met a former California governor for what was scheduled as a routine 20-minute session between two right-of-center politicians from opposite sides of the Atlantic.  The conversation between Lady Thatcher and Reagan instead lasted more than two hours and, as the Gipper later put it, they immediately identified each other as "soul mates" in promoting the cause of small government and economic freedom.

Although John Howard, Australia's conservative treasurer from 1977 to 1983 and later prime minister from 1996 to 2007, never met Reagan, he has confided with Mrs. Thatcher on numerous occasions since 1976.  A leading proponent of free market reforms down under, Mr. Howard played a key role in transforming Australia from a heavily protected closed shop three decades ago into the envy of the industrialised world that could very well be immune to the global recession (as yesterday's new low jobless rate of 5% shows).  Through a combination of circumstance, conviction and competence, these three patron saints of the conservative cause put into practice the classical liberal ideals of Milton Friedman, Friedrich Hayek and Keith Joseph that defined an epoch.

Whereas in the 1970s excessive government regulation and bloated bureaucracies created a crisis of stagflation, the next 30 years witnessed, save a few quarters of negative growth in the early 1990s, uninterrupted economic expansion.  True, there were some policy reversals and setbacks;  even the Iron Lady had no stomach to reform the socialistic National Health System.  But by almost any economic criteria, this free-market agenda of privatisation, deregulation, tax cuts, fiscal prudence and flexible labor relations -- or, as what Mr. Howard's successor Kevin Rudd derisively calls "neo-liberalism" -- has dramatically raised living standards in the Anglosphere and elsewhere.  "Individuals" London's Tory Mayor Boris Johnson put it this week, "were able to take control of their destiny in a new way."

Mrs. Thatcher, Reagan and Mr. Howard reshaped not only their own erstwhile paternalistic parties but the opposition center-left as well.  Tony Blair's New Labour, remember, was the offspring of Thatcherism.

But has the age of Thatcher, Reagan and Howard been consigned to the dustbin of history?  With today's global financial turmoil, U.S. President Barack Obama, U.K. Prime Minister Gordon Brown and Mr. Rudd champion the politics of envy and the discredited economics of the Keynesian welfare state and demand management.

Today's Anglosphere leaders, with the notable exception of New Zealand's John Key, are interpreting this crisis as a mandate for a renewed activist state.  And if that means runaway debts and deficits, so be it.  After all, as John Maynard Keynes put it, in the long run we're all dead.  The specter of big government has returned to haunt the Anglosphere.  Never mind that today's economic ills have more to do with muddled government intervention and poor regulatory oversight of the financial sector than any unfettered global market forces.

The big spending, let-government-solve-it agenda is thus far playing big political dividends, at least in Australia and the U.S., with both Messrs. Rudd and Obama in the polling stratosphere.  Still, they could do no worse than heed Mr. Howard's recent message:

"The notion, gaining traction because of the world's financial turmoil, that in some way markets need extensive re-regulation is based on a false reading of what has happened to the world economy in the past year and also ignores the reasons for the remarkable growth of the middle class in the Asia Pacific region and the consequent reduction in levels of poverty, which have occurred during the past 30 years."  The Gipper and the Iron Lady would say Amen to that.

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