Date Posted
17 December 2024 13:12 GMT

Monopolies of knowledge are making the rich richer

By Tomás Rotta

The growing significance of intellectual property has reshaped the global economy, positioning it as a central pillar of wealth creation and corporate strategy. Over recent decades, patents, copyrights, and trademarks have become indispensable assets for some of the largest and most influential corporations, contributing substantially to their market dominance.

Stronger intellectual property rights have powerful advocates including the patent offices of the US and EU, the UN’s World Intellectual Property Organisation and the World Trade Organisation.

Proponents of intellectual property argue that it fosters innovation and drives long-term economic growth, benefiting both businesses and workers. Supporters such as WIPO and the WTO maintain that companies would not invest in new technologies and processes if competitors or consumers could easily free-ride on them.

However, a growing body of literature challenges the assumption that intellectual property is universally beneficial. Critics argue that the concentration of intellectual property can create intellectual monopolies, exacerbating disparities between winners and losers, both domestically and globally.

Cecilia Rikap has examined networks of scientific publications, patents, and mergers and acquisitions in the technology and pharmaceutical sectors to show that leading firms establish self-reinforcing intellectual monopolies over diverse innovations, often relying on the privatisation of publicly funded research. These intellectual monopolies exacerbate inequality by disadvantaging lower-skilled workers, peripheral countries and firms lacking ownership of key intellectual properties.

The concept of intellectual monopoly extends beyond the exclusive legal rights granted through patents, copyrights, or trademarks. It encompasses the control or dominance over intangible assets such as ideas, knowledge, or information, whether this control is based on legal rights or other mechanisms such as trade secrets, proprietary processes, or exclusive access to vital information.

Intellectual monopolies, whether legally sanctioned or informally maintained, can significantly influence competition, innovation, and market dynamics by creating barriers to entry or restricting the free exchange of ideas and knowledge.

Empirical studies on intellectual property have primarily focused on its effects on economic growth, with less attention given to its implications for income distribution. Drawing on aggregate data from 1948 to 2021 in the United States, my research demonstrates that the accumulation of intellectual property has primarily benefited people in the top 10 per cent income bracket, while simultaneously reducing the income shares of individuals with lower and medium skill levels.

 

Why intellectual monopolies make for higher inequality

There are three key channels through which the concentration of proprietary knowledge and the persistent, cumulative nature of intellectual monopolies contribute to rising income inequality:

Firstly, intellectual monopolies can suppress real wages by increasing corporate mark-ups and firms’ market power relative to consumers.

Secondly, this monopolisation exacerbates inequality between firms by creating artificial barriers to competition and concentrating the assets and gains from proprietary knowledge in a few dominant companies.

Thirdly, within firms, knowledge monopolisation increases inequality by disproportionately benefiting highly skilled employees, particularly those involved in creating and commodifying knowledge for their employers.

My econometric approach employs control variables to estimate the net effect of intellectual property accumulation on income distribution, combined with instrumental variables to mitigate reverse causality. Control variables include the capital stock per employed person (the capital/labour ratio as a proxy for technical change), unemployment duration, union density, female labour force participation, and current account openness. Instrumental variables include lags in the manufacturing share of employment, China’s share of world exports, U.S. terms of trade, real minimum wage per hour, number of strikes per year, and lags of the control variables.

 

Higher-income earners benefit more

The results of my research indicate that the accumulation of intellectual property has contributed to rising income inequality over the long term by benefiting high-income earners at the expense of low-skilled, medium-skilled and non-supervisory workers.

Between 1948 and 2021, American companies transferred a significant portion of knowledge rents from profits to wages. Although this transfer contributed positively to the aggregate wage share in the United States, the benefits were unevenly distributed, primarily favouring the top 10 per cent of earners.

The accumulation of proprietary knowledge reduced the share of total income which went to the bottom 50 per cent of earners, while increasing the income share of the top 10 per cent and the Gini coefficient, a measure of inequality.

In the private sector alone — spanning software, chemical formulas, pharmaceuticals, literature, film, television, music, and manufacturing blueprints for electronics, computers, semiconductors, vehicles, and aircraft — proprietary knowledge accounts for 19 per cent of the increase in the top 10 per cent’s income share.

These detrimental effects become even more significant when proprietary knowledge generated by the public sector is included, such as software and research and development by state agencies and public universities for both defence and non-defence purposes. Then this figure rises to 23 per cent.

In the United States, public-sector proprietary knowledge includes research by national defence agencies such as DARPA, which was instrumental in the creation of the Internet, the global positioning system (GPS), and various technologies now embedded in products developed by large private-sector tech companies, from military equipment to smartphones.

The negative impact of intellectual property on income inequality would likely be even greater if the data encompassed all forms of intangible assets, including brands, expertise, and trade secrets.

Although knowledge rents from intellectual property accumulation have increased the income share of the top 10 per cent of earners, the effect on the top one per cent is statistically insignificant. This suggests that intellectual property has benefited managers and highly skilled labour more than it has capital incomes and profits, with the significant impact occurring in the 90–99 per cent income range.

In contrast, the rise in the income share of the top one per cent of earners is largely attributable to the decline of unions. The reduction in union density and the rise in unemployment duration (both instrumented by the decline in manufacturing employment) have contributed to rising inequality across all income groups, underscoring the critical role of deindustrialisation and the erosion of worker power in widening income disparities.

 

What needs to be done

To prevent further exacerbation of inequality, policymakers and legislators must craft a new institutional framework in which the benefits of intellectual property are more equitably shared. Policy reforms could include:

· shortening copyright and patent terms to bring proprietary knowledge more quickly into the public domain;

· implementing use-based copyright that requires creators to demonstrate active use;

· mandating open access for publicly funded research;

· reforming patents to discourage patent trolling and litigation;

· enforcing compulsory licensing for patented technologies or copyrighted works in the public interest;

· enacting anti-monopoly laws to prevent the concentration of intellectual property and reduce monopolistic practices that stifle competition and innovation;

· maintaining public domain repositories;

· providing exceptions for educational and non-commercial use of copyrighted materials; and,

· negotiating international agreements that balance intellectual property rights protection with equitable access.

 

Tomás Rotta is Senior Lecturer and Programme Director of Economics at Goldsmiths College, University of London in the UK.

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