HPU
Property rights now to ensure a better future for all
Author: Jasson UrbachDate: 7 December 2011

For most of human history, life was nasty, brutish and short. If you wanted something from your ‘neighbour’ you simply took it – with force if necessary. With no laws to guard the fruits of your labour or any property that you may have acquired, you lived in constant fear of losing it all. Under these circumstances, you had to dedicate a significant amount of your time and resources to protect which you knew was yours. But this occurred to the detriment of other more productive economic activities.

Over time, laws were developed to protect the property people acquired in a legal manner. Laws which made it possible for individuals to participate in other economic activities and make better use of scarce resources. Instead of protecting and guarding, thieving and looting, people were free to peaceably exchange items they owned for ones they desired more and thus engage in mutually beneficial trade agreements. With the right to own property, if a person’s stash of ready money was not enough, they now had the option to offer up their more valuable assets as collateral to back a loan. With property rights, people were able to spend time developing their skills and start building a life for themselves and their families.

Recognising the fundamental importance of property rights for the advancement and prosperity of South Africa’s citizens, the Free Market Foundation was instrumental in pushing for the inclusion of a property rights clause in the Constitution. Without this pressure there would arguably have been no property rights clause.

Most, if not all of the commentary on the ANC Youth League’s proposal to nationalise strategic sectors has focussed on tangible property, such as the mines and banks. But what has largely been overlooked is intangible property or intellectual property. If the Youth League’s proposal is adopted, an amendment to our constitution would be required and all manner of property, including intellectual property rights will be in jeopardy of arbitrary confiscation by government.

What exactly is intellectual property (IP)? The World Intellectual Property Organisation refers to IP as creations of the mind, for example, inventions, literary and artistic work, and symbols, names, images and designs used in commerce. IP is ubiquitous and surrounds us in nearly everything we do during the course of our everyday lives.

The intangible nature of IP should not detract from its importance to society. Indeed, the International Chamber of Commerce states, “The protection of intellectual property stimulates international trade, creates a favourable environment for foreign direct investment, and encourages innovation, transfer of technology, and the development of local industry, all of which are essential for sustainable economic growth, and its concomitant benefits for public health”. IP has a tremendous ability to reach a vast number of people at one time. Given its intangible nature, innovators face a challenge to capitalise on the economic benefits of their ideas. In order to overcome this problem, governments grant intellectual property rights to assist innovators and provide incentives for innovation and IP dissemination.

Consider, for example, the pharmaceutical industry. Advancements in health care technology and the medical field are important contributors to improved health and longevity globally. The development of innovative pharmaceutical products plays a significant role in this. In order to encourage the continued development of pharmaceutical products, it is essential for there to be economic incentives to bring to market these technological innovations.

The price mechanism and laws, such as IP laws, provide pharmaceutical companies with the economic incentives to produce the drug in the first place and then to capitalise on their idea thereafter.

Intellectual property rights protection for pharmaceutical innovations specifically, is generally granted by government for a maximum period of 20 years. After this ‘window of opportunity’ to capitalise on an idea, the product then falls into the public domain, where in the case of pharmaceutical drugs, generic companies are then permitted to copy and benefit financially from the original idea. However, without intellectual property rights protection, private organisations, which bring to market the vast majority of new developments, would be less able to assume the costs and risks associated with the production and marketing of their innovations.

The ‘window of opportunity’ strikes a balance by rewarding innovators for their ideas as well as encouraging future developments, whilst also maximising scientific progress and access to these new innovations. This policy ensures that innovative companies can recoup the enormous amounts of time and expense that goes into developing new drugs, whilst promoting generic competition after the expiration of the patent term.

Intellectual property rights protection is not limited to pharmaceutical companies only but applies more broadly to any company that wants to capitalise on its ideas. It is therefore a necessary prerequisite to attract innovative companies to invest in South Africa. Poor enforcement or the lack of intellectual property protection discourages investment by multinational companies. In the case of pharmaceuticals, a lack of innovator medicines in the country would lead to a stagnant generic drug market which would have dire consequences for all South Africans, regardless of their socio-economic or property owning status.

South Africa has a proud record of upholding intellectual property rights, which has generally been lacking elsewhere on the African continent. This has been one of the factors that has attracted a high level of foreign investment to our country and contributed to the development of the local industry. It has also resulted in South Africans being able to access some of the world’s most advanced goods and services, which has ultimately allowed us to become wealthier and healthier.

Given the current discourse surrounding the nationalisation of key sectors within the economy there is a threat of, not only an erosion of our tangible property rights protections, but also our IP rights protections. The outcome of such erosion is entirely predictable – South Africans will experience a material decline in their overall health and wellbeing.

South Africans love their freedom. Every South African therefore needs to make a concerted effort and demand that our property rights regime be strengthened, not diminished. Such a stand will attract foreign direct investment and give confidence to every ordinary South African citizen that whatever property they acquire legally (both tangible and intangible) will be protected and will still be there for their children and grandchildren to inherit in the years to come.

AUTHOR  Jasson Urbach is an economist with the Free Market Foundation and a director of the Health Policy Unit. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

HPU Feature Article / 06 December 2011