The World Economic Forum recently published its 2009 Global Competitiveness Report, and I was struck by one particular statistic, as well as the conclusion drawn from it by the US Chamber of Commerce.  One of the many statistical tables in the WEF report ranks the perceived strength of national protection for intellectual property.  The United States ranks 19th on this chart, out of 133 countries rated.  As this blog post from IP Watch reports, that ranking prompted The US Chamber of Commerce to call for stronger protection measures in the US.

As someone who believes that IP protection in the US is certainly strong enough and is often over-enforced, I was struck by several flaws in the reasoning of the Chamber of Commerce or, at least, differences about what I think the report could mean.

First, the Chamber of Commerce thinks that 19 out of 133 is a low ranking, a judgment that seems questionable at best.

Second, it is important to note that this chart reports “executive perceptions” about the strength of IP protection in a country.  While that may make sense for a report about international competitiveness, it is too subjective a measure to cause Congress to hasten to strengthen our copyright laws.

Finally, I wonder how strength of IP protection actually correlates to economic growth.  There is a pretty good correlation between perceived strength of protection and competitiveness in the WEF report, but of course, those books are cooked, since the results of the survey are part of the data on which conclusions are based.  I decided to try an experiment, which even as a non-economist I recognize to be crude, albeit interesting.  I started with this list of countries based on economic growth (the growth rate of the Gross Domestic Product) using data from the CIA World Fact Book.  The US is 67th in GDP growth rate, and I made a list of ten countries from the G-20 group of nations with higher growth rates than that of the US and compared that list of ten countries to the rankings of perceived strength of IP protection.  All ten of these countries, it turns out, are perceived to have weaker IP protection than the US.  To choose an obvious example, China has the fastest economic growth rate of any of the G-20 economies, but is ranked far below the US — at 61st — on the list of strong IP protectors.

It is easy to lie with statistics, of course, but this simple comparison suggests that weaker IP protections might actually correlate with economic growth, or that in any case there is a median position where IP protection is correctly calibrated to encourage economic growth, and the US has passed that point.  This search for the correct level of protection, I think, is something the World Intellectual Property Organization is struggling with as it considers its “development agenda” recommendations.  At the very least, nations need to preserve flexibility in their IP laws and recognize that the what is best for Big Content is not necessarily good for a nation.

 

5 Responses to The joy of statistics

  1. aisha says:

    “I wonder how strength of IP protection actually correlates to economic growth.”
    Kevin, I couldn’t agree with you more on this point.

  2. Lonnie E. Holder says:

    Albert G.Z. Hu and I.P.L. Png, in their extremely well researched paper “Patent Rights and Economic Growth: Cross-Country Evidence,” found a positive mathematical relationship between patents and economic growth. From their conclusion:

    Using an ISIC 3-digit industry level database that spans 54 manufacturing industries in 72 countries between 1981-2000, we found evidence that stronger property rights were associated with faster industrial growth measured by value added. The impact of stronger patent righs was both statistically and economically significant in three of the four periods we analyzed: 1981-85, 1991-95, and 1996-2000, and had become stronger in the 1990s compared to the in the 1980s.

    Our analysis also showed that the stronger patent rights promoted industrial growth through technical progress in the 1981-85 and 1996-2000 periods and through more rapid factor accumulation in the 1991-95 period.

  3. Competitiveness says:

    I find one significant flaw with your analysis. One would expect larger, established economies to have a lower GDP growth, for a variety of reasons. On the flip side, note that most of the countries on your list that had lower GDP growth were also listed in the World Economic Forum report as being among the most competitive countries on earth. Tie competitiveness to IP and suddenly there is a positive correlation between the two.

    Switzerland is number 1 on the global competitiveness index. If you want correlation, note that Switzerland has high spending on R&D and among the world’s best scientific research institutions, along with strong intellectual property protection & an extremely high patenting rate.

    Argue that weak IP protection correlates with higher GDP growth, but it does not correlate well with competitiveness. On the other hand, countries with high GDP growth are far behind the most developed countries and they need a higher GDP growth to try to catch up. Also, note that high GDP growth is hard to sustain for the length of time it takes to catch up to the most developed countries. Few nations have been able to sustain sufficient GDP growth to enable them to catch up.

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  5. Pete Williams says:

    Your admittedly crude experiment (really not an experiment with controlled variables, but rather a simple correlation) ignored two very important effects that are commonly understood: The catching up effects of growth and free-riding in public goods. Are your ‘weak IP protection’ countries also lesser developed? Then they are likely to have higher growth rates even with the same IP protections. Further, in weak IP protected countries, do the producers free ride on the innovations from countries with strong protections? Such inexpensive acquisition of technology reduces capital costs, stimulating growth in those free-riding countries. How much of the Chinese economic miracle comes from violations of US patents and copyrights?