It seems simple, really

I have to start by saying that I am not an economist, and I know just enough to understand that economic analysis is never simple or straightforward.  And yet, when these two different news items came to my attention in a short time frame, the link between the two of them still seemed pretty obvious.

Yesterday, Reuters news service ran an article about a rating of eleven countries based on their enforcement of intellectual property rights.  The index was prepared at the behest of the U.S. Chamber of Commerce by a group called The Global Intellectual Property Center, and it ranks the U.S. at the top of the list in terms of strong IP protection (23.73 points on a scale from 0 – 25).  But what is interesting is who scored lowest (out of the eleven countries that were ranked).  The four “worst” countries for providing the strong IP protection important to the Chamber of Commerce were the four countries known as BRIC — Brazil, India, Russia and China.

So what else do we know about these four nations?  In fact, why were they originally grouped together under the acronym BRIC?  The answer is that the term was coined because these four countries were the fastest growing emerging economies, showing growth rates between 5 and 9 percent in their gross domestic products (compared with US growth averaging 3.2 over the past 65 years).  The source of these averages for the BRIC nations is this report from PriceWaterhouseCoopers, dated February 2012, which contains this conclusion: “We expect the BRIC economies to continue to drive world economic growth in 2012.”

So the four countries driving economic growth are also the four countries with the weakest IP protection regimes, amongst those 11 rated by the Chamber of Commerce report.  Doesn’t the conclusion seem simple, that weaker IP enforcement is part of the picture for economic growth?  We need to acknowledge that the growth of the BRIC countries is slowing, as reflected in this news report about the conclusions of the Goldman Sachs Group, which originally coined the acronym.  But the very fact that the news report refers to the “BRIC decade” is significant; over an extended period all four BRIC economies have grown very fast, and all of them have done so without strong protection over intellectual property.

Correlations can be tricky things, but I think some modest conclusions are justified.  First, obviously, ratcheting up IP protection is no guarantee of economic prosperity.  As we will discuss further in a moment, it is very possible for nations, industries and even individual creators to thrive without relying on a strong government-created monopoly over the products of the human intellect.  Second, I think it is also clear that there is a point where IP protections can be too rigorously enforced, to the extent that they impede economic progress.  Indeed, it seems likely that the US, with its high score on the survey described above, has reached that point; at a recent forum sponsored by Federal Trade Commission, Professor Collen Chien of Santa Clara University pointed out that for the first time in 2012, a majority of patent lawsuits were brought by so-called “patent trolls” — companies that do not invent or create anything but exist simply to buy up patents and then demand licensing fees from companies that are trying to create and invent.  These licensing fees can reach the point where they are nothing more than a government-enforced tax on innovation. The situation developing in the US with patent “thickets” and patent trolling is a painful example of how broad grants and strict enforcement of IP rights can inhibit economic development.

If we move from the level of national economies to that of industries and creators, these two conclusions seem to hold up.

Consider the example of the Nigerian film industry, often referred to at Nollywood.  The Nigerian film industry has boomed over the past two decades, largely by becoming one of the world’s leading producers of digital video films.  And they have done this in a environment that “has not historically had robust intellectual property enforcement.”  As this research paper from the University of California, Irvine Law School suggests, IP protection is, at least a double edged sword.  Piracy can reduce revenues, but it also helps to create distribution channels and grow markets.  So creative industries seeking to grow in the digital economy need to do more than try, futilely, to eradicate piracy, they need to seek ways to shape their markets and their marketing to exploit the audiences that it can create.

Indeed, a recent book from Oxford University Press, called “The Knockoff Economy,” describes how several major industries, including fashion and food, can not only thrive in the absence of IP protection but can turn the shadow industries that develop around “knockoffs” into part of an overall economic strategy.  And the story of the US film industry, as told in Hollywood’s Copyright Wars, actually confirms the role of unauthorized copying in the growth of new industries and suggests a model for internal negotiations to control and benefit from such “piracy” that are more effective than rigorously enforced IP laws.

Finally, if we want a very current, individual example, we need look no further than the Korean pop star Psy, whose “Gangnam Style” video is now the most watched YouTube video in history and who stands to make $8.1 million dollars from the fame that he has gained by not enforcing his copyright.  Very few of us had probably heard of Psy before the Gangnam Style video became the subject of the many parodies and remakes that flooded YouTube, blogs, college campuses, etc.  He took no action to prevent those “knock offs,” as many artists and production companies would have done.  Instead, his fame grew to the point where he could license his song and his image for commercial uses at levels he could only have dreamed off if he enforced his copyright rigorously.  In short, he found a way to monetize “piracy.”

So, slippery as such conclusions can be, I feel comfortable with these two assertions.  First, creative people and creative industries can thrive without strong IP protections.  In fact, if you are continually looking to the government to increase IP enforcement on your behalf, your industry is probably already in bad trouble.  Second, it is perfectly possible to over-enforce IP rights to the point where creativity and economic growth are stifled.  There is good evidence that the US has passed that point, and the example of the BRIC nations should suggest to us that we need to reverse our course.

8 thoughts on “It seems simple, really”

  1. Speaking as someone who deals in selling digital content, and who does business in China (as well as a Duke alum), I feel this is a seriously misguided post.

    Are you actually recommending that the US adopt IP policies like those in Russia or China? Do you have any experience in dealing with content sales in those countries? It’s a joke. The fact that anyone can and does steal digital content in China has destroyed countless content providers in that country. It’s the very opposite of what you describe – far from encouraging creativity, it destroys it.

    Any economist will tell you that the reason why the BRIC countries have high growth and low IP protection is because their economies are starting at a very low level of GDP and tend to deal in low value added goods such as agriculture or basic manufacturing. They have no content industry to protect. Those high-tech Apple factories in China would not exist without strong IP protection, which was won only after decades of hard-fought lobbying by US corporations.

    Pundits extolling the virtues of limiting copyright invariably ignore the plight of content providers like myself and focus only on patent trolls or Steamboat Willie.

  2. You sir, are on a roll! The sad part about IP enforcement, is that it stopped being about creativity years ago, when instead, it merely addressed the bottom lines of the large companies who had done the best at buying up IP property, as if it were real estate. How can IP encourage creativity, when the long periods of ownership continue to grow? Company X has no need to support new talent, if their back catalog continues to generate large royalties with little or no investment. Arrrrgggh! Anyway, after a weekend full of horror, your post made me smile.

  3. I would like to suggest that some of these commentators reread what I wrote more carefully. I did not suggest that the US should adopt laws like those in China or Russia, although international agreements have meant that our current laws are not all that different. The conclusions I drew are more modest, and they should be clear upon a calmer rereading. I am mostly trying to refute that common argument that economic growth depends on ever-stricter enforcement of IP rules.

  4. It should be noted that IP rights were weakly enforced in the US in the 19th century, when America saw her greatest economic growth. In fact, industrial espionage was the rule of the day, most of America’s mill technology having been stolen from Britain.

    How is it possible that the BRIC nations and 19th c. America could have rapid economic growth without IP protection? Quite simple: cheap labor.

    Jarden, Inc., for example, is a company that specializes is buying up American companies, firing the workforce, and moving the manufacturing operations to China, where trade unions are illegal. Recently, they acquired Sunbeam (makers of blenders and Mr. Coffee) and pink slipped 25,000 workers, including all but two of Sunbeam’s patent attorneys. Reason? Jarden doesn’t need patents to exclude others, they exclude you by manufacturing products so cheap you cannot possibly compete. This is how all the BRIC nations operate, that’s how 19th c. America operated.

    Remember, trade unions are just as much a monopoly as patents and copyrights. In a world without IP, where makers of technology can no longer raise the price of their products, it will be critical to reduce the costs. Labor unions MUST be eliminated along with IP rights for the scheme to work.

    This is not as draconian as it seems. With IP rights eliminated, the cost of medicines and other technology will drop dramatically enough that non-union labor can afford them, and a minimum wage law affecting all industry across the board would eliminate the “wage slave” problem.

    Make no mistake, tough. The BRIC countries succeed only because labor has no voice in those nations.

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