Suppose we lived in a world where Bill Gates could not get copyright or patent protection for Windows and other Microsoft products. Anyone who wanted could duplicate these products without charge, sending Bill Gates a thank you note, if they were so inspired.
In that world, Bill Gates would certainly not be the world’s richest human with a fortune of more than $70 billion. Even without copyright protection Mr. Gates would probably still be doing fine – he seems reasonably bright, works hard, and comes from a wealthy family – but he would not have amassed his huge fortune if he could not get government granted monopolies on his software.
This simple and obvious point matters because it is popular in many circles to claim that income inequality is just an inevitable, even if unfortunate, result of technology and globalization. In fact, there is nothing inevitable about patent and copyright protection, these monopolies exist as a result of government policy. The fact that Bill Gates and many others have gotten hugely rich as a result of these protections is a result of government policy, not an inevitable outcome of technological progress.
And, there is a huge amount of money at stake here. The fortunes going to Bill Gates and other beneficiaries of intellectual property protection come out of the pockets of the rest of us. The clearest case is prescription drugs where we will spend over $440 billion this year for drugs that would likely sell for less than $80 billion in a free market.
The difference of $360 billion a year is a bit less than 2.0 percent of GDP. If we carry this out over the course of a decade we’re likely talking about more than $4 trillion. By comparison, the battle on repealing Obamacare largely boils down to a fight over $600 billion in tax cuts for the rich, an amount that is less than one-sixth this size.
And this is just the money at stake with prescription drugs. Patent and copyright protection also hugely inflate the cost of medical equipment, software and computers, pesticides and fertilizers, video games, and recorded movies and music. Adding these all together, we can easily be talking about an amount that is more than twice as large.
While it is not really debatable that Bill Gates is immensely rich because of a government policy that has allowed him to become immensely rich, the relevant question is whether there are alternatives. We have copyrights and patents to give people an incentive to innovate and do creative work.
Even if we decide these government granted monopolies are necessary, we could still make them shorter and weaker. In the last four decades, policy has gone in the opposite direction. We have made patents and copyrights both longer and stronger.