Reject neg ev---neoliberal common sense

The influence of neoliberal ideas over social and economic policy, over the last three decades and on both sides of the Atlantic, cannot be underestimated. Neoliberalism is hard to catalogue; it has been variously defined as a doctrine of political economy (Harvey 2007), an ideology (Turner 2008), and a “thought collective” (Mirowski 2009). For all its internal plurality, its adherents share a fundamental commitment to private property, free markets, and a strong state to enforce the law. The neoliberal defense of free markets acquires a political dimension when it equates freedom with free markets, adding a moral imperative to the classical justification of markets as the most efficient mechanism for the allocation of resources. Furthermore, the neoliberal state ought to be small but strong enough to effectively enforce the law, property rights, and secure the untroubled operation of markets. The dual prescription of unfettered markets and an assertive state have pervaded all policy domains, and in the case at hand, their decisive influence on the Bayh-Dole regime has been amply noted (Mirowski and Sent 2007; Nedeva and Boden 2006; Pestre 2005; Slaughter and Rhoades 2004). In Section The Changing Terms of the Bayh-Dole Debate, I bring these arguments to bear and discuss the centrality of “competitiveness,” as a key public value and a rhetoric trope, to the terms of the Bayh-Dole debate.

The second factor driving the policy drift in Bayh-Dole can be decomposed into two components, “bureaucratic drift” (McCubbins et al. 1987) and “legislative drift” (Horn and Shepsle 1989). Bureaucratic drift—that is, changes to the policy by administrative discretion—resulted from the failure of the enacting coalition to establish administrative procedures that would effectively constrain the profit motive, particularly with respect to exclusive licenses and the emergence of “creative” licensing practices (e.g. reach-through clauses). Legislative drift—that is, subsequent statutory amendments to the law that alter its mechanisms and aims—was the consequence of not providing for institutional mechanisms to replicate the political pressures of the enacting coalition, particularly with respect to limited benefits for large firms and sufficient authority for federal agencies to safeguard the public interest. To understand why the enacting coalition arrived at a compromise with respect to checks on the profit motive, limitations on large firms, and administrative regulatory discretion, I review in Section Changes in the Design of Bayh-Dole the terms of the compromise achieved by the enacting coalition and account for the drift in terms of amendments to Bayh-Dole, and other changes in the patent law and the patent system, including the creation of the Court of Appeals of the Federal Circuit and key Supreme Court rulings on patentable subject matter.

The next two sections will engage respectively with the drift in the debate and the drift in the design setting the stage for the analysis of public value failure in the subsequent section. The last section draws some conclusions from this analysis.

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The Changing Terms of the Bayh-Dole Debate

The impetus for legislative reform does not come as a surprise when one considers that the Bayh-Dole debate has carried on for three decades and that critics of the Act have redoubled efforts to reform it, lately opening a new front of attack. Whereas past critics of the Act worried that the incentives to accelerate the commercialization of public research had a perverse effect on the performance of research itself (Heller and Eisenberg 1998; Heller 1998; Henderson, Jaffe, and Trajtenberg 1998; Merges and Nelson 1990; Mowery et al. 2004; Shapiro 2000), a new generation of critics now worries that Bayh-Dole does not facilitate research commercialization sufficiently well (Litan, Mitchell, and Reedy 2007; Kenney and Patton 2009). This latter group, led by researchers of the Ewing Marion Kauffman Foundation—a steward of entrepreneurship—proposed to amend Bayh-Dole so that inventors retain title to their inventions and be given full discretion over those titles, instead of assigning those rights to their employers, the universities. They claim that the university is a bottleneck in the commercialization of research and that in order to avert a slowing down of innovation, scientists should be free to choose a partner to negotiate the development of their research (Litan, Mitchell, and Reedy 2007). In response, former senator Birch Bayh—one of the Act’s sponsors and its staunchest defender—rebuked the Kauffman Foundation proposal, arguing that the university was an essential partner in the commercialization of public-funded research, and stressed that it was widely believed that Bayh-Dole promoted research commercialization and injected dynamism in the U.S. innovation system (Bayh, Allen, and Bremer 2009). Still, the Kauffman Foundation proposal was welcomed in the business community and endorsed by the influential Harvard Business Review (2010), and what is more, Lesa Mitchell, one of its authors and a vice-president at that foundation, was invited as a witness to the most recent Congressional hearing on Bayh-Dole.

If we remember that the 96th Congress would not have even considered Bayh-Dole in 1980 had the proposed bill not included the university in the equation (see Stevens 2004; Washburn 2005, pp. 63–69), we cannot help to wonder: How did we get here? How can a proposal to exclude the university from technology transfer be given serious consideration? The answer lies in the changing terms of the Bayh-Dole debate, particularly the importance that government officials ascribe to patent protection and an increasingly liberal attitude of university administrators towards patenting and licensing. Regarding patent protection, with few exceptions (particularly chemical and pharmaceutical industries) firms have not used patents as the primary strategy to secure the returns of their R&D investments (Levin et al. 1987; Cohen et al. 2000, 2002). Still, during the last thirty years, all three powers of the U.S. government have strengthened patent protection (Scherer 2009) and even coerced U.S. trade partners to enforce IP law (Haskins 1998). It may seem that these changes to patent policy were driven more by a doctrinaire view of patents than the actual needs of industry.

Regarding the university in the Bayh-Dole regime, the change is visible in the attitudes of university administrators towards generating revenue from licensing intellectual property. While university patenting was increasing before 1980, the prevailing attitude at that time was that patenting was justified only in the public interest, and the public interest was thought best served by promoting wide diffusion of inventions through affordable non-exclusive licenses—this was precisely the case of the famous Cohen-Boyer patents. Today, university administrators are much more interested in supporting regional (or national) economic growth than in promoting the diffusion of inventions. Because they understand that growth is driven by industrial innovation and entrepreneurship, they feel the public interest is best served when universities contribute to the creation of new companies. They also know that the ultimate measure of entrepreneurial success is the firm’s market capitalization (its market value in financial markets). In the case of high-tech start-ups, market capitalization depends on intangible assets, and more specifically, on whether the firm has exclusive rights to key patents. For this reason, university offices of technology transfer have fewer qualms about licensing on exclusive basis than they did thirty years ago; the public interest still guides their actions, only now the public interest is conflated with the university’s financial need and the financial value of the firms taking licenses. Again, this change in the way university administrators construe the public interest seems guided by a doctrinaire view that privileges economic growth over diffusion of innovation—which is a form of economic distribution. Let me stress that these attitudinal changes are not arbitrary; rather, they seem to systematically favor property rights and profit maximizing behavior. This doctrinaire character of the changes is part and parcel of a larger political project called “neoliberalism.” To understand the drift in the Bayh-Dole debate, it is thus necessary to account for the influence of neoliberal ideas on innovation and the patent system.

Let me start by giving some context to the emergence of neoliberal ideas in the U.S. By the time Bayh-Dole was enacted, in 1980, the thin political consensus on the welfare state was wearing thinner in the U.S. The electoral contest of that year brought a direct attack on big government and the institutions that represented, particularly in economic and social policy, the growth of governmental power. The economic debacle of the 1970s was the perfect excuse to declare the failure of any and all government intervention in the economy, including regulatory and redistributive policies. The discourse went beyond simply an electoral platform for it drew from the neoliberal project, a philosophical and political project that by that time had been in the making for nearly four decades. Neoliberalism has been given content by various schools on both sides of the Atlantic and across various disciplines—notably in economics, political philosophy, and law—and it is perhaps best understood as a thought collective rather than single coherent ideology (Mirowski 2009; cf. Harvey 2007; Turner 2008). The greatest affinity among its adherents is their shared desire to propose a practical alternative to the dominant Western traditions of social order: “laissez-faire classical liberalism, social welfare liberalism, and socialism” (Mirowski 2009, p. 431). The variety of intellectual programs and significant personalities (and egos) that conformed the neoliberal thought collective never allowed to enunciate a manifesto or even a statement of founding principles; however, most members share a fundamental belief in unfettered markets, private property, and a minimal but strong state; strong because it must be able to adjudicate property disputes between powerful interests (Plehwe and Walber 2006; Turner 2008). What is more, neoliberals refute the notion that monopolies are antithetical to free markets on the grounds that the prospect of monopolistic profits creates the incentive for firms to invest in R&D; monopolies are thus necessary for innovation.

Although the word neoliberalism is not of common use in the U.S.,2 the most important economic, trade, and regulatory policies introduced by every Administration since Reagan are canonical examples of neoliberal policy-making (Meeropol 1998; Pollin 2003; Van Horn and Mirowski 2009), for instance, deregulation (and later re-regulation), devolution, the 1995 welfare reform, and NAFTA. In the specific case of innovation policy, Slaughter and Rhoades (1996) observed the formation of a political coalition that successfully advanced a neoliberal agenda under the banner of promoting “competitiveness.” The previous political force of innovation policy, the Cold War coalition, underlined the transformative character of basic research as the source of U.S. leadership over the Soviet Union. They believed that the autonomy of science was a necessary condition to unleash the creative forces of basic research and gradually expanded funding for the scientific establishment. The new coalition was formed in response to the emergence of Japan as an economic power and the seeming loss of competitiveness of the U.S. economy. They attributed the economic success of Japan to strong research in engineering and applied programs as well as the adoption of more efficient models of production and commercialization. Consequently, they sought to redirect government resources to support industrial R&D and business interests. Slaughter and Rhoades (1996) are careful not to draw easy distinctions between these coalitions as they recognize that the emergence of the competitiveness coalition did not fully displace the Cold War coalition. However, these authors stress the increasing power of the new coalition in enacting key legislation such as the Bayh-Dole Act itself and its later amendments (see Section Changes in the Design of Bayh-Dole), the creation of the Court of Appeals of the Federal Circuit (P.L. 98-462), the subsidies to private sector R&D through the Small Business Innovation Development Act (P.L. 97-219), the tax-credits for clinical trials of the Orphan Drug Act (P.L. 97-414), and dispensations on anti-trust law, including a seven year market exclusivity for developers of “orphan drugs” and an exempt status for R&D joint ventures under the National Cooperative Research Act (P.L. 98-462). Admittedly, a policy agenda for stronger patent protection, subsidies and tax-credits for industrial R&D, and softer anti-trust legislation, looks distinctly neoliberal.3

The encroachment of neoliberal values in the organization of innovation extended beyond the competitiveness coalition; in fact, it reached the very regime of knowledge production including researchers themselves (Nedeva and Boden 2006; Pestre 2003, 2005). The transition to the new mode of knowledge production, or “Mode 2,” is characterized by greater attention to the context of application (Gibbons et al. 1994; Nowotny, Scott, and Gibbons 2001). This is not the application of theoretical or experimental knowledge typical of Mode 1, but the context of application “describes the total environment in which scientific problems arise, methodologies are developed, outcomes are disseminated, and uses are defined” (Nowotny et al. 2003, p. 186). In a Mode 2 research environment the researcher has professional incentives to produce use-inspired research, and these will be reinforced by the financial incentives attached to those “useful” research findings. To the extend that Mode 2 has not replaced Mode 1, the Bayh-Dole regime is a catalyst of the transition to Mode 2. Consequently, it could be expected a “normalization” of the research culture stylized by the Mode 2 description, including a legitimation of profit-seeking behavior in university patenting.

The drift in the Bayh-Dole debate is thus only a reflection of neoliberal ideas taking hold of policy-making in the U.S. At the legislative level, the competitiveness coalition reformed R&D and patent law. At the university administration level it became more acceptable to engage in patenting and maximizing licensing income. Even at the level of academic research, the uptake of the market values of the Bayh-Dole regime was reinforced by the emergence of fields like information technologies and molecular biology. The changing values at all these levels required a new lexicon to be communicated, and as Slaughter and Rhoades (1996) suggest, the primary rhetorical trope has been “competitiveness.” For this reason, I now turn my attention to this term.

Competitiveness entered elite discourse with force about the same time Bayh-Dole was passed.4 The three foremost voices of elite discourse—political leaders, journalists, and scholars—quickly took up the term. Politicians adopted competitiveness because it transcends party-ideology given that the term fits well with what McCloskey and Zaller (1984) call “the American ethos”: the bipartisan agreement on public values such as personal freedom, self-help, and merit-based organization. In turn, mass communication media is in constant search for words that convey meaning, at once, intuitively and forcefully. Using LexisNexis Academic to track wires of the Associate Press and the print edition of the New York Times, I found that the term was used in the postwar period until 1980 a total of 117 and 201 times respectively; the use exploded in the 1980s to 3,442 and 2,373, stabilized in the 1990s with 3,432 and 2,817, and is likely to remain at that level during the last decade, with the count at 3,401 and 1,448 on July 2009. No less important for the pervasiveness of competitiveness was the host of academic new ideas—in economic theory, public management, corporate culture, and industrial policy—where the term came to symbolize new paradigms. For instance, the efforts to conceptualize competitiveness in economics led to revisions in the theory of “comparative advantage” (for instance, Fagerberg 1988) “conditional convergence” (for a theoretical and empirical synthesis, see Baumol, Nelson, and Wolff 1994). In public administration, competitiveness was central to the emergence of the “new public management” school (Hood 1991; surveys in Pollit and Bouckaert 2004, and Hood and Peters 2004). Corporate culture and industrial policy were influenced by the notion of “competitive advantage” pioneered by Porter (1980, 1990).

More than any specific meaning or definition, the pervasiveness of the term in elite discourse impressed on the public imagination the notion that competitiveness is a public value of consensus, similar in its unqualified virtue to justice or freedom. At that point, a whole array of social problems could begin to be articulated in terms of their deleterious effects on competitiveness: A deficient educational system creates less competitive workers; poor public health reduces the productivity of the labor force; higher taxes and welfare benefits undermine the incentives for getting ahead in life; government intervention creates frictions in otherwise competitive markets. Competitiveness became, in the words of Paul Krugman (1994), an obsession that bore the serious risk of lowering the quality of policy discussion: “If top government officials are committed to a particular economic doctrine, inevitably that sets the tone for policy-making on all issues, even those which may seem to have nothing to do with that doctrine” (p. 42).

Competitiveness became an all-purpose goal (if not an obsession) in policy discussions and it was elevated to be a public value of consensus in the public imagination. Unsurprisingly, Bayh-Dole and its subsequent amendments have been justified in terms of promoting competitiveness; Senator Bayh himself offered this reasoning during the hearings in 1980:

One of the greatest threats to our economic (and ultimately political) well-being is the recent slump in American innovation and productivity… American industry is simply not keeping up with its international competition in too many fields. While Government patent policy is by no means the only cause of this problem, it is certainly a contributing factor (U.S. Senate 1980).

The popularity of competitiveness, however, does not logically link patent policy and this value. There was indeed a more formal explanation that linked patent rights to competitiveness. First, economists define competitiveness in terms of national productivity—measured usually as national product per hour of labor. More precisely, competitiveness is the relative position of an economy in terms of productivity (Hatsopoulos, Krugman, and Summers 1988; see also Klein 1988). Second, economic theory since the 1960s has re-invigorated the old notion that innovation is the driver of long-term productivity gains, and consequently, of sustained economic growth. While the fluctuations of the business cycle are explained by the fluctuations in employment of the factors of production, in the long run, the size of the economy is capped by its productive capacity at full employment. Hence, only technological innovation can expand the frontier of production possibilities by making labor, capital, and land increasingly more productive. Third, the other old notion that patents introduce an incentive for innovation is also alive and well—although it had suffered some setbacks from the Progressive Era through the 1960s as policy-makers and the courts had favored, in some instances, anti-trust arguments over industrial patent rights. Fourth, and in relation to the previous point, it was believed that patent rights to public research (i.e. federally-funded research) were not clearly assigned because, unless prior agreement existed between research contractor and federal agencies, the government retained rights to those patents. I will elaborate on the latter point further in the next section, but here it is sufficient to stress that it was thought necessary to clearly assign patent rights to public research for the private sector to invest in the development and commercialization of that research. This linear causal relation—from public support of research, to assignation of patents for private exploitation, to innovation, to productivity gains, to national competitiveness—linked Bayh-Dole to competitiveness and made of it a national cause.

I have argued thus far that the ascendancy of neoliberal ideas over policy-making and particularly over the innovation system were the primary source of drift in the Bayh-Dole debate, and that competitiveness is a good point of reference to identify neoliberal justifications of the Act and posterior reforms to its design. It is to that aspect that I now turn my attention, the drift in the design of Bayh-Dole.