Capitalism, Power and Innovation

Intellectual Monopoly Capitalism Uncovered

Cecilia Rikap

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000368758
• Edition: 1
• Topic: Economía
• Subtopic: Economía del desarrollo

In contemporary global capitalism, the most powerful corporations are innovation or intellectual monopolies. The book's unique perspective focuses on how private ownership and control of knowledge and data have become a major source of rent and power. The author explains how at the one pole, these corporations concentrate income, property and power in the United States, China, and in a handful of intellectual monopolies, particularly from digital and pharmaceutical industries, while at the other pole developing countries are left further behind.

The book includes detailed empirical mappings of how intellectual monopolies develop and transform knowledge from universities and open-source collaborations into intangible assets. The result is a strategy that combines undermining the commons through privatization with harvesting from the same commons. The book ends with provoking reflections to tilt the scale against intellectual monopoly capitalism and arguing that desired changes require democratic mobilization of workers and citizens at large.

This book represents one of the first attempts to capture the contours of an emerging new era where old perspectives lead us astray, and the old policy toolbox is hopelessly inadequate. This is true for the idea that the best, or only, way to promote innovation is to transform knowledge into private property. It is also true for anti-trust policies focusing exclusively on consumer prices. The formation of global infrastructures that lead to natural monopolies calls for public rather than private ownership.

Scholars and professionals from the social sciences and humanities (in particular economics, sociology, political science, geography, educational science and science and technology studies) will enjoy a clear and all-embracing depiction of innovation dynamics in contemporary capitalism, with a particular focus on asymmetries between actors, regions and topics. In fact, its topical issue broadens the book's scope to those curious about how innovation networks shape our world.

Capitalism, Power and Innovation has won the Joan Robinson Prize, which is awarded biennially for the best monograph on a theme broadly in accord with the European Association for Evolutionary Political Economy (EAEPE) theoretical perspectives.

1
Introduction

1 Introduction

What is new with contemporary (global) leading corporations? If gigantic monopolies are a repeated phenomenon in capitalism’s history, why all the fuz we see everyday regarding high concentration? It is not concentration in itself, but why and how it happened, as well as the socio-economic and political consequences of capital concentration what should be answered to identify where the novelty arises.

Leading corporations of the 21st century are intellectual monopolies. Eight of the top ten companies in market capitalization can be considered as such (PWC, 2019, 2020). They rely on a permanent and expanding monopoly over portions of society’s knowledge. The private appropriation of knowledge results in intangible assets,¹ triggering what has been dubbed intellectual, knowledge or technoscientific rents (Birch, 2019; Durand & Milberg, 2019; Foley, 2013; Pagano, 2014; Rikap, 2018; Teixeira & Rotta, 2012), and concentration of intangible assets has become the main driver of capital concentration.

What is missing in other analyses on the rise of intangibles is the concept of predation, briefly defined as a direct relation of spoliation. Predation is at the basis of the higher concentration of intangible assets by intellectual monopolies. Intellectual monopolies, as we will show throughout this book, predate knowledge from other organizations. Intellectual monopolies may not monopolize the markets they operate, which can even be competitive markets like Amazon’s marketplace, where Amazon sells its products with millions of other sellers. Their monopolistic condition relies on their capacity to significantly and systematically monopolize knowledge, which generally – but not always – contributes to market concentration.

Therefore, this is a stage within capitalism where we see a continuous reinforcement of knowledge monopolies. The result is a broken tie between innovation² and growth explained – at least in part – by the perpetuation of intellectual rentierism and predation.

Figures 1.1 and 1.2 show the evolution of GDP growth and GDP per capita growth (imperfect but the best available indicators with long-term data for economic growth).³ Besides their cyclical behaviour, the downward trend that starts in the 1970s but further expands since the 1980s is self-evident. There is a prevailing idea of secular stagnation, as popularized by Larry Summers from the IMF in 2013, led by low private (tangible) investment in a context of low interest rates (Haskel & Westlake, 2018; Summers, 2016). Figure 1.3 presents the evolution of applied and issued patents of the United States Patent and Trademark Office (USPTO). Patenting is not a sufficient proxy for innovation since it only covers disclosed inventions, and it is subject to patent thickets and includes patents providing zero royalties. Nevertheless, Figure 1.3 provides evidence of expanding inventions and, more importantly, of an expanding knowledge monopoly, since the 1990s and accelerating more than ever in the past decade, in line with the spread of digital capitalism. In this century, it was not only – and not mainly – patents that present an impressive rise. Figure 1.4 presents data for the top 20 world intellectual property rights offices on patents, trademark and industrial designs’ applications for the period 2004–18. The rise in trademarks stands out.

Figure 1.1 World GDP annual growth.

Source: World Bank.

Figure 1.2 World GDP per capita annual growth.

Source: World Bank.

Figure 1.3 Applied and granted patents per year.

Source: USPTO.

Figure 1.4 Patents, industrial designs and trademark. Application class counts for the top 20 offices (in millions).

Source: WIPO.

As the link between innovation and growth weakened, different authors have shown that the share of corporate profits is growing (Haskel & Westlake, 2018; Rotta, 2018) and that the concentration of intangible assets is driving the concentration of profits. Overall, the 0.001% of global largest corporations earn around one-third of all corporate profits (Wier & Reynolds, 2018). Intangible intensive corporations enjoy the highest profit rates (Covarrubias et al., 2020; Orhangazi, 2018). A recent OECD report analysed firms’ mark-ups across 26 countries (the United States and a sample of European and Asian economies) between 2001 and 2014 and found that increases in mark-ups were concentrated at the top of the mark-up distribution. Mark-ups remained flat for companies at the bottom half. Moreover, mark-ups were higher in digital-intensive sectors, and the spread in mark-ups between digitally intensive and less digitally intensive sectors has significantly augmented (Calligaris et al., 2018).

The concentration of intangible assets is a general phenomenon. Clarivate Analytics (2019) defines the top 100 innovators by considering their total number of granted patents together with indicators of success, globalization and influence.⁴ Since 2011, when the ranking was created, only 204 organizations made it at least once to the top 100 innovators, 35 of which appeared every year. This strong core of organizations profiting from intellectual rents is dominated by multinationals (97 of the 100 organizations in 2018–19). Moreover, in 2018–19, this data shows that the top 100 innovators’ patent portfolios are becoming more successful, global and influential compared with the rest of the patenting organizations, which showed little growth or even fell for these indicators. Figures are particularly shocking for US listed corporations. In 1975, only 17% of S&P 500 assets were intangibles, by 2018 that figure was 84%. Intangibles already represented 80% of S&P 500 assets in 2005 but the total assets value was half of the 2018 figure. Overall, in the 21st century, intangible assets accumulate at an increasing pace and lay in the hands of leading global corporations from core countries.⁵

What we are witnessing is the climax of a process that began almost half a century ago with the formation of Global Value Chains (GVC) led by multinational corporations that retained the exclusive knowledge on how to integrate the supply chain. It was also in the 1970s that the big pharma blockbuster drug model emerged signalling a turning point in terms of intellectual property and rents. And, as Chapter 4 explains in detail, the initial policy transformations that paved the way for intellectual monopoly capitalism date from the 1980s. Hence, even if we focus on a 21st century phenomenon, intellectual monopoly capitalism has a history that we also address in this book.

In our epoch, intangibles assets’ rise cannot be understood detached from the digital economy. As shown by UNCTAD (2019), Global Internet Protocol (IP) traffic, which is a proxy for data flows, grew between 2002 and 2017 from about 100 gigabytes (GB) to more than 45,000 GB per second. And it keeps growing at an exponential speed, with estimations at 150,700 GB per second by 2022, a forecast made before the Covid-19 pandemic that has resulted in an unprecedented acceleration of the digital economy. As Microsoft’s CEO claimed by late April 2020, “We’ve seen two years’ worth of digital transformation in two months”.⁶

The digital economy is highly asymmetric. By the time this is being written, its five leading corporations represent over 25% of the S&P 500. The combined market capitalization of Google, Apple, Facebook, Amazon and Microsoft (GAFAM) (5.587 trillion USD)⁷ is even above Japan’s 2019 GDP (5.01 trillion USD).⁸ As well as their counterparts in China (Baidu, Alibaba, Tencent and Huawei, hereon BATH), GAFAM concentrate profits and (tangible and intangible) capital based on monetizing knowledge and data. Their continuous innovations rely on their exclusive access to big data sources, thus predating from society by curtailing access to an input that was socially constructed. Furthermore, they analyse data with artificial intelligence algorithms that, more often than not, were developed by a myriad of (other) organizations. They use that data to orient their business and innovate based on customized models that are capable of predicting and shaping each individual’s behaviours with the greatest existing accuracy. Besides high-tech, data-driven intellectual rents are being harvested in healthcare industries, with the pioneering example of Myriad and 23andMe (primarily owned by Google since 2010) mapping the human genome (Pistor, 2019; Rose & Rose, 2014).

Beyond GAFAM and BATH, by 2019, the United States (US) and China concentrated 90% of the market capitalization value of the 70 largest digital platforms of the world (UNCTAD, 2019). These two countries are absolute leaders in artificial intelligence (Castro et al., 2019). Moreover, three giant US corporations (Amazon, Microsoft and Google) and a Chinese one (Alibaba) concentrate around 75% of the public cloud computing market. Amazon Web Services (AWS) alone has around 40% of the market, followed by Microsoft, with almost 20% (Synergy Research Group, 2019).

Although at the forefront of this new stage in capitalism, intellectual monopoly capitalism goes beyond digital industries. It was also in this century, in particular in the last ten years, that the exhaustion of the blockbuster drug model forced big pharmaceuticals to reinvent themselves. Under this latter model, large pharmaceuticals invested in drugs to treat pathologies affecting as many people as possible. The aim was to achieve sales of over 1 billion USD. At least since the 2000s, new blockbuster drugs became more the exception than the rule, while old blockbusters’ patents expired (Collier, 2011; Lazonick et al., 2017). To retain their intellectual monopolies, thus keep granting extraordinary profits, two main knowledge management strategies became a too frequent practice: the organization of global innovation networks where big pharmaceuticals subordinate research institutions and start-ups and the latter’s acquisitions (in particular in the sub-field of biotechnology) (Baranes, 2016; Montalban & Sakinç, 2013; Rikap, 2019). Legal monopoly based on patents is still the primary source of intellectual rents for big pharmaceuticals. However, they also became predators that monetize inventions produced and funded elsewhere, thus not only relying – as it had been the case in the past – on basic knowledge produced in academic research institutions and public research organizations but actually outsourcing almost every step of their innovation processes while keeping the economic profits.

All in all, two industries drive the concentration of intangible assets. Together, ICT and health industries concentrate almost 60% of the world’s top 2,500 corporations’ business expenditure in R&D (BERD) (European Commission, 2019). Intellectual monopolies are also emerging in other industries, such as the automobile industry. Led by Tesla, the whole industry is becoming intangible driven. For instance, Toyota and Mitsubishi are among the top 20 artificial intelligence patent applicants worldwide. Siemens is the world leader in artificial intelligence patents applied to life and medical sciences, in particular related to medical images (World Intellectual Property Organization, 2019). Even the State Grid Corporation of China (SGCC), a utility company, has become an intellectual monopoly (see Chapter 9). Overall, the XXI century exhibit...