Convergences

Biosimilars, Data Exclusivity & Innovation

Tied up in the big health care debate are many small duels, some of which will have profound impacts. One of these is "data exclusivity" for biosimilars.

Developing biological drugs, which is the frontier of pharma research, costs bales of money. To make the investments, developers need exclusivity for long enough to recoup the costs. Generic companies, of course, want shorter periods so they can free ride on the investment in research sooner. (You can guess which side I am on -- see Saving the Goose: Intellectual Property and Follow-On Biologics (FOB).)

The pro-developer side won a round in the Senate this week when the HELP committee voted for a period of 12 years rather than the 7 demanded by the generics and their allies, such as the FTC and the AARP. (That is one reason I do not belong to the AARP -- it focuses on price reductions for existing biosimilars without regard for the health of the overall ecosystem that creates such drugs. As a senior, I regard that as a definition of the old adage "penny wise, pound foolish." My interests are aligned with the venture capitalists, who must have a longer period or they will look for opportunities elsewhere.)

For an excellent analysis and many links, see Newsfeed Researcher's wrap-up.

Free Association about Chrome OS

Last week, Google announced its new netbook Web-focused operating system -- Chrome OS, to match its browser. The OS will be open source, a variation on Linux, so Google will be able to tap into the strength of that community from the get-go, and of course free ride on the  work supported by IBM, HP, and the other tech companies who fund Linux.

There is a lot of cross-talk in the press and web about how this is or is not a deadly or minor threat to Microsoft's core Windows business, done with or without deliberate malice by Google, and how it is a disruptive or minor innovation that can be extended up the value chain (unless it is not), and how Microsoft must be very worried or perhaps highly amused.

The day before, I was at Google's DC office to hear Chris Anderson talk about his new book Free: The Future of a Radical Price. One point he made is that there is a big psychological distance between "free" and even a trivial cost and that the business models of the future must cater to this. This does indeed seem to be a pre-occupation of the tech world, which thus assumes that Google's free OS should sweep the board, except of course for the power of those Microsoft people who seem to cheat by charging for their products.

China & Land Reform

Property rights may be taking a beating in the U.S. lately, but they are prospering in China. The Li & Fung Research Centre reports on the recent rural land reforms:

On 12 October, the 3rd Plenary Session of the 17th Central Committee of the Chinese Communist Party was concluded. A long-term goal of doubling farmers’ income by 2020 from the 2008 level was set. A “rural land reform” plan was announced, which is viewed as one of the most important and ambitious government policies in recent years.

According to the “rural land reform” plan:

1. Farmers are allowed to transfer, sub-contract, lease, exchange, or to offer/transfer through a shareholding system the use rights of their farmland
2. Government will establish markets for the lease of contracted farmland and the transfer of farmland-use rights.

Before the reform, farmers can only lease farmland for long-term use, typically 30 years. While individual farmer only leases small plots of farmland, the agricultural production in China is mostly in small scale. After the reform, farmers can choose how to exercise their farmland-use rights and hence, economic efficiency can be boosted.

The reform is expected to encourage farmland consolidation. With larger farmland, farmers will have more incentive to make investments and raise the mechanization level of the agricultural production. Meanwhile, the process of urbanization would be accelerated as farmers can be compensated for leaving rural areas and moving into cities.

The “rural land reform” is one of the major policies to develop both rural and urban economies, and is consistent with the government strategy to stimulate domestic demand – which has become particularly important amidst the global economic slowdown. We expect more capital will be attracted to the countryside for developing a modern agricultural industry. Besides, rural residents’ wealth will increase, as they are entitled to the income from their land-use rights. In addition, it is expected that a lot of rural residents will leave the rural areas and migrate to cities. This will greatly stimulate the demand for housing (and related products and services) in the urban areas.

The bf sentence is important. One of the major corruptions in China is that local Party officials have been able to cream off the value of changes in land use. By making the farmers the de facto owners, the government is not only increasing economic efficiency and removing a major cause of rural unrest, it is removing a source of income from the local officials and increasing the control of the central government over the Party itself.

For the present circumstances of China, this is a good thing.

Too Many Property Rights

Property rights aren't always a good idea.

Tens of thousands of teachers are blocking highways and seizing government buildings across Mexico to protest a federal education reform ending their longtime practice of selling their jobs or giving them to their children.

(From Marginal Revolution)

Of course, if one pursues this line of thought it raises serious questions about the tenure that is a universal feature of U.S. higher education, since it gives a prof a property right (a life estate) in his job. It is tenure that frees up portions of the academic class to become activist opposers of other people's property rights, since academic productivity is no longer required.

DeLong on Zittrain

The Fall issue of the Claremont Review of Books is now available. CRB is, in my opinion, the most consistently thoughtful and rewarding opinion journal in existence, and anyone who does not subscribe is missing out on a good thing.

The issue has my review of Jonathan Zittrain's The Future of the Internet -- and How to Stop It. Among my points:

[O]ne must realize that it is not a stand-alone work. Zittrain is part of a movement of cyber-world legal academics centered at Harvard and Stanford, but with outposts at Berkeley, Duke, Yale, and other major schools. Its creed is drawn from works by, inter alia, Lawrence Lessig of Stanford, who has written a series of books on the open internet and the deleterious impacts of intellectual property; Yochai Benkler of Harvard, who argues that "social production" by peers acting on communitarian rather than market incentives constitutes a new mode of production that will rival capitalism; Tim Wu of Columbia, who says Wikipedia "is best known for popularizing the concept of network neutrality"; and William Fisher of Harvard, who wrote a book on sources of support for intellectual creativity in a world where property rights are both undesirable and unenforceable.

The movement can be characterized by five core sentiments, which include communitarian and democratic idealism, disdain for property rights (especially intellectual property), antipathy toward markets, social libertarianism, and hostility to a group of corporate enemies-among them the content companies (especially the music industry), the telecom carriers (Verizon, AT&T, and Comcast), and Microsoft.

My judgment of the movement is skeptical: 

Free and easy with the fundamentals of economic thought, blind to the illuminations of history, and enamored with the wisdom of crowds (which easily turns into the madness of mobs), the movement floats off into abstractions about net neutrality, universal generativity, communitarian sharing, and semiotic democracy.

(Come on, Jim -- stop the pussy-footing and tell us what you really think!)

The review will be available on the Claremont website in a few weeks -- or you can do what you should do anyway and subscribe.

Initial Post

CONVERGENCES is the weblog of the Convergence Law Institute LLC, a consulting firm that characterizes itself as "a private think tank" devoted to analysis and advocacy of government policies.

The premise of our work, and of this blog, is that our many areas of interest – telecom regulation; intellectual property; knowledge as a form of capital; competition policy; globalization of markets; financial affairs (and disasters); energy; administrative law – are interconnected in ways both obvious and obscure.

Our perspective is that the institutions of property rights and free markets provide the best foundation for economic activity. Our clients are firms that share a dedication to these institutions and build their business models upon them (as opposed to models based on rent-seeking, government subsidies, and "venture socialism").

However, property rights and markets must adapt with changes in technology and societal structure. Rigid fundamentalism is seldom wise. And, it must be noted, governments have always had a crucial role in creating and shaping both property rights and markets, so any discussion that tries to draw a sharp line between "government" and "the market" is certain to be bootless, especially in a time of economic crisis. One cannot hope to make markets work without making governments work. One of our activities is to consider how to promote adaptations that will enable the institutions of property rights and markets to survive in the Darwinian struggles of the real world.