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Law should ensure fairness, not just focus on economic efficiency: Stiglitz

Professor Joseph Stiglitz

Professor Joseph Stiglitz  

Staff Reporter

Intellectual property rights cause economic inefficiency by creating monopolies

Kolkata: The rule of law has to be interpreted with sensitivity if the twin aims of economic efficiency as well as social equity are to be achieved, according to Nobel laureate economist Joseph Stiglitz.

While democracy can act as an efficient check on abuses, the key role of law should be to ensure fairness and not just concentrate on economic efficiency, he said, addressing the fourth annual K.C. Basu endowment lecture on economics and law, organised by the National University of Juridical Sciences here on Tuesday.

Property rights

Property rights could not be effective in a democracy unless they were considered legitimate, Prof. Stiglitz said, refuting the simple model propagated by the Chicago school of economists that said that economic efficiency could be enhanced in society by establishing clearly defined property rights.

Citing the example of the states comprising the former Soviet Union as they transitioned from the control economy of the Communist era to a rapid pace of privatisation favoured by the International Monetary Fund (IMF), he said the enormous wealth that the oligarchs seized created discontent in the property rights system as many citizens were denied even the meagre pension to which they were entitled.

The trickle down theory did not work as the absence of good corporate governance laws meant that oligarchs stripped the privatised assets and diverted the capital outside instead of reinvesting it. "Monopolists are not interested in passing laws favouring competition."

Laws, such as those on intellectual property rights, created economic inefficiency by their very nature, creating monopolies and restricting the use of knowledge. While its use by the pharmaceutical industry to restrict the production of generic drugs affected the right to life itself, it also meant creation of "patent thickets" in software industries that resulted in innovation getting impeded. Similarly, bankruptcy laws pushed by the IMF were often not sensitive to equity consideration, and thus stifled innovation.

Cautioning against the pernicious provisions of bilateral multi-trade investment agreements that were being increasingly resorted to, Prof. Stiglitz said they were responsible for promoting business without responsibility, undermining the judicial system in the process. While the problem of asymmetry in laws was best exemplified by the failure of Indian authorities to extradite those responsible for the Bhopal tragedy, provisions such as limited liability were often misused to protect irresponsible action on the part of corporate bodies.

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