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Reason on IP Protection and Creativity
rnturn writes "A long but interesting article over at Reasononline discusses a paper written by a pair of economists and published by the Federal Reserve Bank of Minneapolis (!) and the reactions to it of several other economists. A snippet from the article: 'Moreover, U.S. court decisions in the 1980s that strengthened patent protection for software led to less innovation. "Far from unleashing a flurry of new innovative activity," Maskin and Bessen write, "these stronger property rights ushered in a period of stagnant, if not declining, R&D among those industries and firms that patented most."' Not exactly news to most readers but it appears that their paper is making waves in economic circles."
The basic idea of civil society, as articulated by the great enlightenment social contract philosophers, is this: You give up your "natural rights", that is, the right to take by force whatever you have the power to take, to the state, and in return, you are granted "civil rights", such as the right to your own property, the right to freely enter into contracts, freedom of speech, and so on.
Now, most copyright and patent infringement advocates don't have a problem with private ownership of material property, even though this is also an artificial construct which takes away their "right" to steal whatever they like and gives whoever acquires ownership of property through lawful market transactions a "monopoly" over its use. So why do they claim that intellectual property is any different? Usually the answer is a hodgepodge of weak analogies, claiming it is similar to such things as oxygen and water, unsubstantiated slogans like "information wants to be free", and of course the favorite retort of totalitarian zealots, "its inevitable".
But the most insidious of them all is the recent pronouncement that copyright, and intellectual property laws in general, create "monopolies", and so in fact are in opposition to the principles of free market economics. This is a gross perversion of the term monopoly, as it usually applies to monolithic, stifling state-supported enterprises. You might consider the case of the Coca-Cola corporation: They sell a popular soft drink which you may be familiar with. The secret to its popularity is great taste, and this is because of a time-tested, proprietary formula. In order to produce this beverage, naturally, operators of bottling plants have to enter into agreements with the Coca-Cola corporation, and pay royalties. If one is to follow the analogy favored by piracy advocates, Coca-Cola has "monopoly" on this drink, and it is unfair that only they are allowed to sell it, and it impedes the operation of free markets. But just ask their competitors: This idea is ridiculous. Just because they can't sell beverages made according to the exact Coca-Cola formula doesn't mean that they are prevented from selling soft drinks. It just means that in order to compete, you are forced to innovate yourself, and this results in the diversity that a market economy should provide: Pepsi, RC Cola, Jolt, and many other unique varieties of cola are available, and they are all able to profit because of their distinctive taste and branding. Why should they not be rewarded for their investment in research and development? And why should someone who rights software, books, or music not also be rewarded?
Of course an individual or corporation ought to have rights to the unique result of their own creative work, and they should also have the right to transfer these rights to anyone they please if it is in their own interest. Exclusive rights over something like the text of a particular, source code to a particular program, or a particular performance of a popular song, do not translate into a "monopoly" in the general case: It only forces competitors to produce their own original products, which produces diversity that we as consumers should value anyway. It isn't like Oxygen or water: Every O2 or H2O molecule is the same, but Microsoft Windows XP is the result of billions of dollars of research and development money invested over 20 years. And maybe it wants to be free, but perhaps so does your car: That doesn't mean that someone who tries to steal if from shouldn't be thrown in jail. We accept these abrogations of "natural law" because the result is more prosperity and more fairness for everybody.
It is such a relief to hear this. Intellectual property is not free market, or even a valid form of property. People just take it on faith that just because the government calls something a property, that it is - and has all the advantages of free market property ownership. In fact if you don't believe in it, you are even called socialist. Identifying myself as libertarian, this irks me even more. They just don't get it, IP is not about property at all - it is about controll.
This is such a refreshing article which finally attempts to put good economic theory to work rather than the extremes on both sides: artists will dies f starvation, or IP will make it illegal to think.
I particularly found interesting the concept of rent-seeking bahvior,
I sure would like to have seen a deeper exploration of that theory, as I feel that is where the most problems lie with the whole IP issue. Consider for instance the cost of the patent itself. The article does a good job of analyzing the cost of R&D; the initial investment in technology. But it doesn't talk about patents in their own as an object of value. How many IP-hoarding companies exist soley to accumulate patents, and have never made any investment into research or innovation?
The patent has an inherent value separate from that of the technology that it may describe.
I would also like to see more thought about the issue of the interaction of patents with each other. The article seems to concentrate solely on one idea at a time...that each patent or IP instrument exists in isolation of all others. It does not deal with the deadlock of interdependent patents. When company A has a patent on idea X and company B has a patent on idea Y, it becomes an impediment to invent idea Z which is created from both. And in the real world, this deadlocking of ideas is out of control.
And finally, the article does not consider fully the costs imposed by the patent or IP system itself. Especially since patents are written in such a manner as to be maximally ambiguous and stealthy it becomes an extreme economic burden on any inventor to know if the ideas being developed have already been claimed. Thus why we are seeing such strange imbalances; you know, 10 lawyers for every engineer.
why create something if your competitors are free to copy it immediately and glut the market?
This is something I noticed in the article. Especially when they talked about pharmaceuticals. One company develops a drug, and it costs tons of money. Then another company copies the drug and sells it for much much less money. This causes the developing company to lose.
The first thing that came to mind, that they didn't address, was why doesn't the developing company glut the market? I mean nowadays the generic drugs are cheap and the brand name drugs cost a fortune. The brand name supposedly is the inventor of the drug, and thus should know how to make more of it faster and cheaper. I mean they invented it after all. If bigdrugco makes a cure for eldiseaso, they should make a shitload of it and sell it for less than anyone else. Pure old capitalistic price competition. The result will be that other companies wont profit if they undercut bigdrugco's prices. If a vaccine for eldiseaso comes along, the company developed that will become profitable and bigdrugco better have something new, unless of course they made the vaccine themselves.
If someone comes along who can manufacture the drug cheaper than biddrugco, then bigdrugco loses. The company which can produce the drug in the greatest ratio of quantity/quality/price will win in the end. The advantage of developing a drug is that you have the first and best opportunity to be that company.
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Hmmm... well people on /. have been saying all sorts of stuff for years. The difference between wild speculation (i.e. what happens on /. most of the time) and rigorous accademic inquiry (like the papers produced by Boldrin and Levine) is that the later produces theories which can be tested against the facts, refined, put into use, etc.
Anyone can say "intellectual property is BS". Few can give a rigorous proof of why intellectual property is BS.
Excellent point and perhaps the quote was taken out of context in the article or I just read too much into it. However, it seemed to have an air of, "well, gee I didn't think of that".
Also, while not a scientific study, I have seen some pretty good arguements before this paper with data to back it up. I have seen companies get crushed and reamed over IP. So, at the same time, it isn't as if there weren't good arguements against it. Personally, I am for some kind of IP, but I think it has been taken way, way too far and last too long.
Oh, really. Allow me to retort: Too bad people don't judge on actual merits than on imagined hobgoblins. The bad reputation of ARI (which I guess you're making some reference to as ReasonOnline is an objectivist magazine, and ARI being the "official" objectivist organization (with a earned bad rep)) needn't spill over to ReasonOnline. Personally I have always found their articles very well written. Capitalism Magazine on the other hand...
Civilization is the process of setting man free from men.
And to quote the article: Much of Arrow's article examines economic means of dealing with uncertainty, none of them completely successful.
So it seems that the granting of monopolies for innovators is also not completely successful. So it goes...
That is all.
However, it seemed to have an air of, "well, gee I didn't think of that".
I think the surprising part for economists was the extent to which the predictions of earlier models depended on certain simplifying assumptions. Economic models always contain assumptions that are unrealistic, and usually this is fine as long as the predictions obtained from a model remain approximately accurate even when its assumptions are relaxed a bit. In this case economists had assumed that intellectual goods are entirely non-rival and that copying costs nothing at all. At first glance these look like pretty reasonable assumptions because they are actually pretty close to the truth - economists often use assumptions that are far more unrealistic. What is surprising here is that even very slight changes to these assumptions - a small degree of rivalry and a small copying cost - make a big difference to the predicted results. Some economists were surprised to see just how big that difference can be.
The difference between wild speculation (i.e. what happens on /. most of the time) and rigorous accademic inquiry (like the papers produced by Boldrin and Levine) is that the later produces theories which can be tested against the facts, refined, put into use, etc.
Not all slashdot posts are pointless speculative drivel, and many "rigorous academic inquiries" are pompous, pedantic, and obfuscated. The medium through which a thing is said does not inherently render it good or bad. Granted, you didn't say that, but I feel the need to point it out regardless.
Anyone can say "intellectual property is BS". Few can give a rigorous proof of why intellectual property is BS.
AFAICS, formally educated economists have done nothing but support conventional wisdom for the past few decades. If they have done anything great, I haven't heard of it, probably because I'm not an economist and "those in the know" do not feel obligated to explain to the public (in words we can understand) why their theories should govern us.
Anyone can support intellectual property by reiterating conventional wisdom. Frankly, I'm not comfortable with a system that isn't constantly being challenged. If the academics aren't gonna do it, I'm more than happy to have the slashdot trolls fill the void.
I believe the real reason why Boldrin and Levine are getting an audience is because economists don't care to listen to people who aren't of their ilk. Although I suppose I'll have to make a "rigorous academic inquiry" into that hypothesis before anybody listens.
What is surprising here is that even very slight changes to these assumptions [...] make a big difference to the predicted results.
And that's what is significant and eye-opening. When a system or relationship previously assumed to be linear is shown to be non-linear, that throws off everything -- all analyses and assumptions based on that have to be re-evaluated. It also raises the question: what other relationships have we assumed to be linear but aren't? (IOW, how much of what we thought we knew is wrong?)
-- Alastair
AFAICS, formally educated economists have done nothing but support conventional wisdom for the past few decades.
I am not an economist either, but I do have to read a fair bit of economics in my line of work. To me it looks like economists have done some very useful work in recent decades. Some of that work has been surprising, and has been turned to good use. Take for example the work of Arrow (and many others) in comming up with the (now) old model of the production of intellectual goods. One of their predictions was that intellectual goods were being under-produced. In turn this led to a massive expansion of public and private R&D expenditure in the US. All the evidence suggests that this increased spending has produced a large part of the growth that the US economy has seen over the last decade or two. Sure it now looks like they were too enthusiastic about strengthening intellectual property law, but in other ways their predictions have turned out to be accurate.