Let me give you a life example that’s happening right now. Some years ago, I published an article in a science magazine outlining the basic idea, the idea that too many owners can lead to too little prosperity.
As part of that discussion around that article, I was contacted by a number of drug company executives and one of them told me, “I’m pretty confident that I have a drug that will substantially advance treatment of Alzheimer’s which could affect millions of lives.” And if the drug came to market, it could earn his company billions of dollars. But he had sold the drug. I’m not bringing this drug to market and I asked him why. What he explained was that to develop the drug, to bring it to market, he was going to need to acquire licenses to dozens and dozens of patents.
Now, imagine this guy walking into an auditorium and imagine each of those patents that’s relevant to his drug owned by a separate person, usually by some small biotech company, and they would sit in their little chair with their patent on their lap, and every one of those owners believes that their patent like their child is the most special and important patent in the world.
For the drug developer, to bring his drug to market, he needed to successfully negotiate to every single person in that room. Now, it’s hard enough getting a group of friends to decide where to offer dinner to a restaurant, but it’s really impossible when you have dozens or hundreds of separate patent owners. Each one of them believes that their patent is the most important to get every one of them to come together and agree to let this drug go forward. And the drug developer discovered that he simply wasn’t able to do it. The negotiations were too hard. Each of the separate patent owners, the men with such a high price that in some, the demanded more in the potential profits from that drug. So what he did is he shoved that Alzheimer’s cure. He gave up the billions of dollars potentially that was on the table because he simply couldn’t find a way—there’s lots of impediments to drug research. Lots of drugs don’t work or they have side effects. But one of the problems in drug development that hasn’t really been focused on that I’ve discovered and then talked about in this book is a separate problem, not the side effects, but ownership effects. There are too many owners. And what happens there is that—what he did, with this drug developer, he went to a spin off of existing drugs that he already had intellectual property for so he can make money from spin offs but he gave up the real new blockbuster drug that could have saved a lot of lives.
Now, that is not an isolated example. In the last 30 years, we’ve seen drug research investment, drug RND money going up and up and up. More and more money is going to the RND. We have a whole new biotech industry based on drug RND. Be the number of new drugs treat disease has gone down and down and down. That’s really shocking. What you have is an increase in spending and a decrease in cures. You have a drug discovery gap and that gap isn’t an accident. That gap is caused by good luck. We have lots more inventions of the pieces, of the input that you need to make drugs which is great but fewer of the drugs that actually saved lives coming out of the other end of he drug RND pipeline.
This isn’t just an accident. This doesn’t just automatically work this way. This is the outcome of the set of positive choices that the United States made about less than 30 years ago. We decided that we wanted to get more private money into basic science, and the way that you do that is that you give more property rights if you discover stuff. So we changed the patent law and we changed how we encourage universities to deal with their scientists. Now, scientists are told in universities to patent what you discover, commercialize it. And that’s great. So the upside of those changes and the patent and in how we treat university scientists over the last 30 years is that we create the biotech revolution and an enormous amount discoveries come with that. There are almost 40,000 DNA drug patents in the last 30 years.
So the upside of those changes or the choices that we made was to create the biotech revolution. But the downside, that part that no one considered before we made those changes, that was invisible, that was hard to see, the gridlock side of the story is that—now say for example, you want to make a diagnostic, some sort of medical tool that’s going to diagnose something on your gene. And to make that tool, we need dozens or hundreds of little gene fragments. And if each of those little gene fragments is owned separately, we can’t make the gene shift. It’s just too hard to negotiate. That’s another are. Medical diagnostics is another area where we have a lot more information because of this biotech revolution but a lot fewer of the tools that actually save human life. More ownership and less prosperity, that’s good luck.
What we have now is a patent with drugs that should exist and could exist not coming to market. But it’s not just drugs that are suffering from the problem of gridlock. We’re seeing gridlock all across the entire wealth creation frontier. This is a basic problem for the structure of innovation in America. Let me give you a very different kind of example from drug, the one that’s maybe even more costly economically even if maybe non costly in terms of human life—let me rephrase that as a question. The question is this, what’s the most underused natural resource in America? It turns out that it is the airwaves. Over 90% of the airwaves in America is dead air. It’s completely wasted. And what that means is that it’s very hard to find the spectrum to create all of the next generation of technology that exist in many parts of the world and can’t be brought into the United States. So the United States, just a generation ago, was the global leader in all the information economy in wireless, in broadband and the kinds of technology that made this conversation between possible. That is really hard to imagine in this country in part because we’ve done such a bad job in organizing ownership of spectrum. The way that we own spectrum in this country is again, nothing is visible just like drugs are invisible.
We first set spectrum ownership in the 1920’s and we haven’t really updated it very much since that. So what you have is thousands and thousands of owners of small tiny bits of spectrum dispersed across the country and dispersed across the radio dial. So if you want to have, you want to create a technology that requires or that lets you transmit some national wireless signal, that’s incredibly hard to put together. You have to assemble all these little bits from all over the country which is prohibitively expensive. For example, if you have a next telephone with the push to talk, the way that NexTel is able to assemble its network was by buying a bunch of taxi dispatch and pizza delivery licenses. So we have a system that creates pizza delivery licenses but that makes it really hard to have a national wireless. So when you sort of compare those values, what we have is a system that creates laws for a lot of fragmented low value uses that makes it really hard to create the next generation, for example, 3G wireless broadband. Really high speed wireless broadband that let’s you watch television in real time on your cell phone. You can do that in Japan. You can’t do it here. The reason you can’t do it is too many fragment owners and gridlock.
Let me ask you this, why does Hip Hopper like Chuck D from Public Enemy today usually rap over a single sample. The early Public Enemy sound is the one that have this collage of sound. He would rap over a wall of clips that he assembled from dozens or usually even hundreds of different sources. That’s totally gone. That collage sound in rap music is totally gone. Now, some people may think, “It’s just a change in taste.” But it’s not. The reason that we don’t have the collage sound and rap anymore is also the problem of gridlock. Record company started expansively interpreting what it meant to own the copyright shrinking the zone of what’s understood to be fair used, the use that we can make without payment of other people’s copyrighted works. And the result has been that rappers and all kinds of other new media artists and creators are scared off from creating the kinds of mashups and remixes that have led to so much of the real creativity at the cutting edge of art in the last generation. It’s really just being shut down.
One more example, green power. We talk a lot about drilling in the Arctic or drilling offshore. But the United States has the ability to create most electricity that it needs from renewable sources right here at home already. So for example, wind power in this country, it’s just 1% of our total energy supply. It could be easily be 20%. Most of the really powerful win in this country is in the Midwestern plains from Texas to the Dakotas. We cannot get wind power from the plains to the place that people really want at the coastal cities. People are willing to actually pay more for renewable power. Why? Because to get power from the plains to the cities, we have to transmit and the transmission system in this country has broken up at among roughly 500 different companies each of which protects a little piece and non of whom are willing to work together across state lines. We also have the problem of each state having its own regulatory system being unwilling to cooperate with the next state over. So we have the capacity to have clean renewable wind power that would provide a significant percentage of the energy that this country needs. We can’t get it from the places where it’s windy, the places that people wanted.
The point is that these puzzles are nothing fancy. There’s nothing fancy going on here. The problem with gridlock is something that’s all around you once you know where to look. All the problems that I have given are really the same problem. Profit ownership usually creates wealth but too much ownership has the opposite effect. It creates gridlock.
Transcription by:
Scribe4you Transcription Services