The most surprising aspect of the steel war launched by the United States last week is that anyone is surprised. For all the talk of increasing freedom, the only certain and consistent trend in global trade rules over the past ten years has been the drift towards protectionism.
The rich nations have repeatedly promised to phase out agricultural subsidies and to remove the tariffs on textiles imported from the poor world, but those promises have been broken. Instead, they have battened down the hatches, by granting to the corporations they shelter new laws defending “intellectual property”.
At the world trade talks in November, the poor nations appeared to win some ground. They would be allowed to continue to import cheap copies of the patented drugs required to fight epidemics. But, though few people spotted it, there was a catch.
While nations will be permitted to buy these drugs, by 2005 the countries manufacturing them will be forbidden to sell them, with the result that the rules defending public health won’t be worth the paper they’re written on. At a meeting last week, the European Union seemed prepared to compromise on this issue, but the US wouldn’t budge.
New global trade rules have also allowed big corporations to patent crop varieties and, in effect, the genes of plants, animals and human beings. This has grave implications both for food security and the accessibility of medicines. But the corporations argue that this new protectionism is essential to stimulate both innovation and investment.
There are many ways in which this claim could be challenged, but I think I have just stumbled across a new and fascinating one. It is contained within the histories of the very companies which now insist that intellectual property rights are the pre-requisites of development.
In “Industrialisation Without National Patents”, published in 1971, the economic historian Eric Schiff tells the story of the emergence of some of Europe’s biggest corporations. They came into being in Switzerland and the Netherlands during the period (1850-1907 in Switzerland; 1869-1912 in the Netherlands) in which neither country recognised patents. Some of them appear to owe their very existence to this exemption.
In the Netherlands the old patent laws were clumsy and poorly drafted. The government decided they were unreformable, and simply scrapped them. In Switzerland, the confederation developed without them, and decided to keep it that way. Contrary to all current predictions of what the impact of such abrogations would be, in both nations they appear to have contributed to massive economic growth and innovation.
Switzerland was a poor country without many natural resources, whose economy was largely reliant on farming. But in 1859 a small company based in Basel “borrowed” the aniline dying process which had been developed and patented in Britain two years before. The company, later called Ciba, soon became a massive industrial enterprise, swiftly outstripping competing firms in Britain.
In 1995, Ciba merged with another Swiss firm, Sandoz, to form the conglomerate Novartis. Novartis was one of the companies which successfully lobbied for the European convention allowing companies to patent genes. It was also one of the firms which spent three years fighting the South African government’s attempt to buy cheap copies of its patented drugs, in order to treat patients infected with HIV.
Now, having merged with Zeneca to form an even bigger company, Syngenta, it is extending its intellectual property rights still further by developing seeds which don’t reproduce.
But Switzerland’s economic growth during this period did not rely solely upon purloining other nations’ patented processes. Industrial innovation flourished, especially in food technology. No country, Schiff notes, has ever contributed “as many basic inventions in this field as did Switzerland during her patentless period.”
In 1875, for example, Daniel Peter invented milk chocolate. In 1879, Rudolf Lindt developed chocolat fondant. In 1886, Julius Maggi invented powdered soup. A few years later he developed stock cubes. All these men founded companies which still bear their names today. But the biggest food firm to emerge in this period took root in 1865, when Henri Nestle developed a cereal for children.
In 1998, the International Chamber of Commerce lobbied the World Trade Organisation in support of corporate rights over plants, animals and genes. It argued that “the protection of intellectual property” is “essential for economic growth”. Its chairman at the time was Helmut Maucher, who was also the chief executive of Nestle, the company which arose and conquered the world without any intellectual property protection whatever.
In the Netherlands too, the absence of patents appears to have done little to arrest the growth of manufacturing industry. In the early 1870s, two companies, Jurgens and Van den Bergh, commandeered a patented French recipe and started manufacturing a brand new product called margarine. They soon became Europe’s biggest producers.
Jurgens and Van den Bergh later merged with a British company to form the conglomerate Unilever. Like Novartis and Nestle, Unilever is one of the most influential members of Europabio, the lobby group now pressing for ever stricter patent protections for big corporations.
In the 1890s, Gerard Philips, unhampered by intellectual property laws, started manufacturing the incandesent lamps developed by Thomas Edison in the United States. The absence of patent protection did not prevent him either from holding off European competition or from developing several important new designs. But, in its recent submission to the European Commission’s consultation on patent rights, Philips insists that intellectual property “is one of its key business tools”.
Switzerland and the Netherlands eventually adopted patent laws in response to threats from other industrialised nations. This, Schiff argues, was a political decision, not an economic one. It is, he notes, “difficult to avoid the impression” that the absence of patent laws “furthered, rather than hampered development.” The two countries relied for their growth not upon exclusive rights but upon high educational standards and technical ability.
These examples do not necessarily suggest that the abandonment of patent protection is an essential pre-condition for development. But they do indicate that it can, in the right circumstances, be an effective tool. This tool has been denied to poor nations, partly as a result of energetic lobbying by the very companies which once made use of it.
Those of us who have challenged the inequalities of global trade have pointed to the fact that some of the world’s richest nations once used tariff barriers to devastating effect in building their economies. But the history of patent protection suggests that that is not the only means by which the rich nations have raised the drawbridge after entering the castle.
When it suits the rich countries to impose free trade, they do so. When it suits them to impose protectionism, they argue that this is the only path to development. But woe betide the poor nation which seeks to apply the lessons of the past.