23 February 2010

Oh, Tell Me the Truth about Patents

One of the pernicious effects of the highly-successful campaign to re-brand intellectual monopolies as "intellectual property" is the abiding belief that whatever the local faults, globally the system is working well. Well, maybe not:

For those with a principled, libertarian view of property rights, it is obvious that patent and copyright laws are unjust and should be completely abolished. Total abolition is, however, exceedingly unlikely at present. Further, most people favor IP for less principled, utilitarian reasons. They take a wealth-maximization approach to policy making. They favor patent and copyright law because they believe that it generates net wealth — that the value of the innovation stimulated by IP law is significantly greater than the costs of these laws.

What is striking is that this myth is widely believed even though the IP proponents can adduce no evidence in favor of this hypothesis. There are literally no studies clearly showing any net gains from IP. If anything, it appears that the patent system, for example, imposes a gigantic net cost on the economy (approximately $31 billion a year, in my estimate). In any case, even those who support IP on cost-benefit grounds have to acknowledge the costs of the system, and they should not oppose changes to IP law that significantly reduce these costs, so long as the change does not drastically reduce the innovation gains that IP purportedly stimulates. In other words, according to the reasoning of IP advocates, if weakening patent strength reduces costs more than it reduces gains, this results in a net gain.

Well, $31 billion: that's a high price to pay for something we don't need... (Via Tim Bray.)

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2 comments:

Andrew Katz said...

There are two problems. One is that GDP calculations are flawed, so any economic activity, whether it tends to increase overall wealth of a nation or not, adds to GDP, as Partha Dasgupta recently pointed out (summarised by George Monbiot here: http://www.guardian.co.uk/commentisfree/2010/jan/04/standard-of-living-spending-consumerism). I leave aside for the moment the separate question of whether relentless increase in GDP is to be regarded as a good thing in its own right.

The other problem is that half of the picture is missing. Although the "wealth" generated by IPR can be offset against the costs of its protection and enforcement and so-on, another significant issue is the loss of value to the commons, and precious few economists (an egregious exception being Rufus Pollock) are prepared to analyse this vital part of the equation.

One point that arises, however, and is rarely discussed, is that the commons is not directly taxable (or otherwise directly benefits the treasury). Thus making OS map data closed generates tangible revenue for Exchequer, as does term extension. I can see how arguments within Government are always going to be favour the tangible and measurable (and taxable), as against the more elusive benefit of a commons.

If we apply this view to Kinsella's analysis, then we can see that both the creation of IPR generates taxable revenues for the treasury, as does the IP protection and enforcement industry, so it would be very difficult to argue in Government that dramatic reduction of taxable revenue on both sides, even if the greater good is clear, is a good idea. Pollock's work is, therefore, absolutely crucial.

To put it another way, what minister, with Brown or Darling on his (or her) case, is going to argue in favour of a policy generating measurable and identifiable job-losses and reduction in tax take, when the "greater good" which you and I are convinced would ensue are less tangible, and the issue is one in which, to be realistic, the vast majority of the voting populace are (understandably) totally uninterested (but emphatically not disinterested)? Until we have more data on the commons side of the equation, I fear that the enclosure and extension argument will always win.

glyn moody said...

@Andrew: thanks, excellent points as ever.

Yes, we need a new way of looking at the *value* of things, rather than just in monetary terms.

And of course your second point generalises to the ultimate commons: our environment. Because there are few studies of the *cost* of business in terms of its environmental impact (the externalities), it's rarely taken into account. If it were, the way we use resources - and make stuff - would be dramatically different.