Prizes encourage innovation in many sectors --- they should be considered off-patent to ensure their effective use

Earlier this week, Ezra Klein published a column at the Times pegged to the very intriguing announcement from the Biden administration about a new government agency called Advanced Research Projects Agency-Health or ARPA-H, modeled after the legendary DARPA that helped bring the age of networked digital computers into being. The launch of ARPA-H alone was an interesting development, and certainly one worth tracking over the coming years. But it was another, almost parenthetical, reference in Klein’s piece that caught my eye. In talking about potential approaches that the government could take to support risk-taking and innovation, he mentioned an initiative that I have long been fascinated by:

Bernie Sanders used to promote an idea for creating a system of prizes to run parallel to the patents we normally use to make drug development profitable. The government could identify, say, 12 conditions that it wants to see a drug developed for. The first group to develop and prove out such a drug would get a princely sum — $100 million, or $500 million, or a billion dollars, depending on the condition and the efficacy. In return, that drug would be immediately off-patent, available for any generic drug producer to manufacture for a pittance (and available for other countries, particularly poor countries, to produce immediately).

About a decade ago, in my book Future Perfect, I had written about Sanders’ original proposal: two bills introduced in 2011 called the Medical Innovation Prize Fund Act and the Prize Fund For HIV/AIDS Act. I had been drawn to them because I was interested in mechanisms that would use financial incentives to encourage the spread of useful innovations, while avoiding the restrictions and monopoly pricing of patents. It’s very hard to do true open source development of new pharmaceutical drugs given the cost involved, but once developed, generic versions of drugs obviously offer a much wider benefit to society.

I was also interested in Sanders’ proposal because it belonged to a longer tradition of prize-backed challenges, a tradition that at least partly originates in the eighteenth century coffeehouse, which as most of you know is a longstanding obsession of mine. It also happens to connect with something I wrote about in Wonderland: the strange way in which the single most disruptive event in human history—the industrial revolution—was set in motion by a seemingly frivolous breakthrough: soft cotton fabrics dyed in attractive colors.

The antecedent to the Sanders proposal began with what seemed at the time to be a major economic vulnerability for England in the mid 1750s: the lack of a red dye that could be produced on British soil. The shrub Rubia tinctorum, commonly known as madder, had been employed by Indian and Turkish dyers for centuries to produce a brilliant hue that came to be known as “Turkey red,” thanks to a molecular compound called alizarin, which absorbs the blue and green wavelengths of light. By the 1700s, the method had been emulated by European artisans, and madder plants were cultivated extensively in the Low Countries. Among the well-to-do British population of the eighteenth century, fabric dyed with Turkey red was in high demand. Yet the British Isles lacked a meaningful supply of Rubia tinctorum in its fields. Although the Industrial Revolution had triggered a historically unprecedented explosion in the textile industry, a key impediment remained for any cloth that needed to be dyed Turkey red: it had to be shipped across the channel to Flanders.

On March 22, 1754, a small group of men gathered at Rawthmell’s Coffeehouse in Covent Garden and decided to do something about the problem of Turkey red. At this initial meeting, there were eleven of them, a loose network of colleagues and acquaintances, with a strikingly diverse array of professions: naturalists and merchants, watchmakers and surgeons. A drawing teacher and amateur inventor named William Shipley had assembled the group, with the hope of forming a society that would encourage innovation in the arts and in manufacturing. Shipley’s idea was that the group would offer awards—called, in the parlance of the day, “premiums”—for solutions to urgent problems that the group itself would identify. Members would “subscribe” to a fund that would allow the society to announce and promote the premiums, and dole out cash awards when the challenges were successfully met. They called themselves the Society for the Encouragement of Arts, Manufacturers and Commerce in Great Britain, though in the early days they were also known as the “Premium Society,” given the visibility of the awards they offered. Today the institution is known as the RSA, short for the The Royal Society for Arts, Manufactures and Commerce. I’ve been fortunate enough to speak several times at the RSA headquarters in London, and the animated whiteboard video we did for Where Good Ideas Come From was directly inspired by a similar series produced by them known as RSA Animates.

At that initial meeting at Rawthmell’s Coffeehouse, the eleven men agreed to create two premiums as their inaugural act. Each involved a crucial material for dyeing cloth. One premium offered a reward for the discovery of cobalt ore within the kingdom, thereby facilitating the production of cobalt-blue dyes, and smalt for the creation of blue ceramics. The second premium offered a reward for the cultivation of madder plants on British soil. The premiums were backed by thirty-eight guineas from the initial subscribers, including the Earl of Shaftesbury, and within a few weeks of the initial meeting, an advertisement ran, announcing the awards to the general public. All those who successfully demonstrated that they had produced madder in their fields would be paid five pounds per acre grown. The Royal Society of Arts would go on to create premiums—and deliver awards—for thousands of innovations: spinning wheels, mechanical telegraphs, naval construction, brocade weaving. But their first act as a group had an almost elemental simplicity to it. They were funding the creation of red and blue.

The Sanders version of the prize-backed challenge differs from the premiums of the RSA in a few obvious ways: the government is deciding which problems are worthy of prizes, instead of a handful of gentlemen in a coffeehouse. But philosophically, there are many crucial similarities. From the very beginning, the RSA possessed an explicit aversion to patents. The Rules and Orders published by the Society in 1765 spelled it out in no uncertain terms: “No person will be admitted a candidate for any premium offered by the Society who has obtained a patent for the exclusive right of making or performing anything for which such premium is offered.” Prohibiting patents meant that solutions could circulate more quickly through society, and could be easily improved upon by subsequent inventors or scientists. The RSA wanted you to profit from your idea. They just didn’t want you to own it.

The same principle underlies the Sanders approach. By creating an outlandish award for a successful health breakthrough, Sanders seeks to increase the network of organizations attacking the problem. And by mandating that the innovations not be shackled to the artificial monopolies of patents, these bills increase the network of people who can enhance and refine those innovations. And of course, the bills ensure that breakthrough drugs arrive on the market at generic prices, which benefits both consumers and the health insurance industry. The Sanders bills are not examples of the state itself trying to come up with breakthrough drugs, or even making direct decisions on which firms to back in pursuing those goals. And it’s certainly not the same old solution of letting the market solve the problem on its own. Instead, what the bills try to do is use government dollars—and publicity—to widen the network involved in solving these crucial problems, and to make it easier to share the solutions that emerge.