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September 02, 2005

Is Intellectual Property Theft?

Posted by William Coleman

Are current intellectual property rules a fundamental underpinning of the market economy? Dr William Coleman - Senior Lecturer in Economics at the Australian National University - argues that far from being a central underpinning of the market, these rules may in fact produce the opposite of competitive markets.

12.01 a.m. BST 16th July. Like many, many others I am standing in a queue in a bookshop, balloons and children in hand, waiting for a woman in witch’s hat to hand me a book. 30 minutes later I am down the price of two decent bottles of wine, and up one copy of Harry Potter and the Half-Blood Prince. Over the next 24 hours, say the pundits, 10 million copies will be sold. Retailing at £16.99, and figuring on a 15 percent royalty, J.K. Rowling in that single July day was up about £26 million.

£26 million: that is roughly the total of the lifetime incomes, appropriately discounted, of the 40 persons who were in the queue.

We may put this down as one of the marvels of copyright. But it left me wondering: are too many things property? Or to put the same query in a far more drastic formulation: why have any property at all?

From 2500 years of pondering this question, four leading arguments for property can be isolated:

1. Justice: "I made it: it's mine". The name of John Locke is usually tagged to this thought.

2. Incentives: A lack of property may amount to a 100% marginal tax rates on exertion and thrift. So without property, work is not done. And capital, being un-owned, is consumed, by whoever can get their hands on it first, in a race to beat others consuming it instead. The tale of oyster beds conveys this moral well [See The French, the English and the Oyster, Robert Neild, Quiller Press, 2001]. Oyster beds were once abundant in both England and France. But in France oyster beds were property. While in England they were anyone's: in an official inquiry he led into the matter in 1865, Thomas Huxley declared it was a freeborn Englishman's right to collect how many oysters he pleased. The defect with this precept was that the railways to London had opened up a massive demand for fresh oysters. And soon there weren't any English oysterbeds left.

3. The economisation of violence: In the absence of a code of property, resources are wasted in force and violence to take possession, and defend possession.

4. Allocational efficiency: If property is alienable, then the invisible hand of the market will place goods where they are most valued, and factors where they are most productive.

The last argument is the favourite of economists. So taken are they by the merits of tradeable property that since the revival of economic liberalism there has been something of an aspiration to make everything property, and thereby solve both overexploitation, and inefficient allocation. Are whales threatened with extinction by hunting? Make each and every whale a piece of property. Is airport noise destroying the "amenity" of nearby residential accommodation? Make the airport a piece a property. The owner has every incentive to also buy the housing, and then adjust noise levels so as to maximise the summed rentals of housing and airport facilities, and thereby achieve a socially efficient outcome (at least under competitive conditions).

But should we really make everything property? Arguments against property can also be marshalled.

The argument from justice instanced earlier in favour of property can be without difficulty deployed against property. Obviously, not all property falls into the "you made it: you own it" category. Most property does not. And for such property, the Lockean precept seems to spell, "you didn't make it: you don't own it". In this frame of mind, J. S. Mill once complained that landlords "become rich in their sleep". His Georgeist progeny distilled Mill's discontent with landlords' property rights into a political program to expropriate the incomes of these (sometimes) wealthy slumberers.

Adam Smith also argued on equity grounds against certain forms, or rights, of property; in particular entails in real property. In Smith's analysis this form of property gave one generation - the earlier generation - a privilege over the later generations. But all generations, said Smith, should have what we would call an "equal opportunity" to worldly goods.

The wrong sort of property can also be destructive of the right sort of markets. Slavery, to be specific, destroys the market for labour. You cannot contract with a slave. The master may promise; but no promise can be enforced. The exchange of labour disappears, and all the benefits that Smith extolled of the division of labour vanish. This difference is concretely illustrated in the convict system in Van Dieman's land, the destination of approximately half the convicts ever sent to Australia. In the first generation of settlement, convicts were "assigned" to landowners. The relation was essentially one of master and slave. Discipline was fierce. Masters could not personally flog their convicts; but they could, and did, dispatch them to the ever obliging local magistrate for the lash. Yet for all this menace, convict labour was not very productive. After the first generation, convicts were then no longer assigned, but entitled to sell their labour, and the productivity that comes with a free labour contract emerged. [See 'Contracting Convicts. The Convict Labour Market in Van Dieman's Land 1840 - 1857', David Meredith and Edith Oxley, Australian Economic History Review, March 2005].

The point is that it is the conjunction of property and markets that is valuable, and that property may sometime injure markets. Property may, in fact, foster the opposite of a true (that is, competitive) markets: it may foster monopoly - monopoly that raises price, and reduces production, investment, employment and product quality.

And this takes me back to Harry Potter. "Intellectual property" - copyright, patents, and trademarks - appears to grant a degree of monopoly that other property rights do not.

So should there be intellectual property? The arguments from justice and incentive in favour of property can be retrialled in this context.

The argument from justice retains force, but with a restricted scope. "I made it: it's mine" is doubtless a salient sentiment in the mind of the creator of an artistic work. And for genuine artistic works the premise is also valid: they did create it. But it rationalises much less well patents. No one "creates" knowledge. It is discovered. And if discovery is to count as "creation" then, by the Lockean precept, anyone who discovered it has just as much right to it as anyone else. But under the patent system they do not, unless they get their patent in first.

The argument from incentive has force. But it is exaggerated for artistic creation. Dickens was massively and regularly pirated during his lifetime. And he did not like it (although it seems it was the unauthorised abridgements that offended him as much as the income forgone). But it did not stop him writing. If Dickens' copyright had been zealously enforced, the same number of novels would certainly have been written, their copies would have been fewer and more expensive, and Dickens would have been considerably richer. And would the world have been a better place for it?

The stretch of these laws reveals not an enlightened policy to preserve the springs of creativity, but a quest for monopoly. Consider how the time span of copyright protection in the USA has been progressively extended:
1710: fourteen years, renewable for fourteen more if the author was alive upon expiration;
1831: twenty eight years, with the possibility of a fourteen year extension;
1909: twenty eight years, with a possible renewal for a further twenty eight;
1976: life of the author plus fifty years;
1998: life of the author plus seventy years.

The remorseless extension is also manifest in patent laws. In recent decades US patent law has been extended to include "business practises" (things that cannot be patented in Britain), along with "mental acts, or methods of playing a game". Opening presents on a Christmas Day, say critics, could now be patented.

The enforcers of such "property" have in recent years passed from zealotry to insolence. In the United States yoga positions have been copyrighted, and the copyright aggressively and successfully pursued. In Australia, Cadbury attempted to trade mark a colour (purple). The Wiggles, who have been earning Australian $45m a year, successfully saw off in court an outfit that called themselves The Giggles. There is something disagreeable in the prospect of several men, flush in fortune, using lawyers to harass a group of persons earning a small, but honest, income. And I say "honest" deliberately. Nobody will mistake The Giggles for The Wiggles. It might be a knock-off , but it is not "passing off".

But the irony is that "passing off" for you and me is not passing off for the successful author, well-armoured by "intellectual property". It is an open secret in children's publishing that many authors of successful novel series do not write the new addition to the series that appears regularly every year. The new addition is ghosted. If the ghoster was to bring out their ghosting under their own name they would be in scary legal trouble, all under the aegis of intellectual property. But if an "author" arranges for the ghosting to appear under the "author's" name, that is not "passing off". Oh no. All is well. And the product is guarded by copyright.

But what to do? With copyright, monopoly could be relaxed, and yet incentives still preserved by permitting royalties only up to a ceiling. This is not so onerous to authors. It would not prevent J. K. Rowling, to select one haplessly prominent example, signing a contract for the sale of 10 million copies, and including a handsome royalty. But it would mean that in the year 2100 copyright would not still be collected and paid (under US law) to the author's estate.

An alternative reform, favoured by Mill, was to abolish copyright as property, but to impose a royalty payable to the author on every copy sold.

Either response seems less satisfactory in dealing with patents, given the massive costs and unpredictable results of research.

Perhaps what would best serve the public interest in considering intellectual property law is, not a specific reform, but a general recognition that in any economic life there exist two distinct, contrary, and ubiquitous spirits: the spirit of creation, and the spirit of annexation. One is fruitful of good things, the other shrivelling. One will be honoured by any economic system that thrives, and the other will be dishonoured by any such economic system. What will be for the good is a realisation that the present pressure for intellectual property is not a piece of deference to the spirit of creation, but an expression of the spirit of annexation.

Dr William Coleman is Senior Lecturer in Economics at the Australian National University and the author of Economics and its Enemies: Two Centuries of Anti-Economics, (Palgrave Macmillan, 2002).

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I wonder if Dr Coleman's difficulty isn't yet more fundamental.

To continue with Harry Potter as an example, the author is well-known for having said that she planned the series as a whole in advance, and the only effect of her success seems to have been to increase the lengths of the novels, although even this is uncertain. If this is a response to a market signal, it is certainly not one that could have been predicted - and certainly her publishers might well have preferred more but shorter novels!

The deeper problem is surely that of the assumption of rationality to actors. Or rather, the particular meaning that economists ascribe to rationality. In that latter, narrow meaning, Rowling - and all creative artists - are only semi-rational. And surely economic rationality is supposed to apply in its full rigour only to consumption, not production. Would we really want to to live in a world in which an architect, say, passes up the chance to design a beautiful building on an important site because a rival client offers an extra 0.001% on his fee to do something else?

I wouldn't, and I don't believe Dr Coleman would, either.

Posted by: Innocent Abroad at September 3, 2005 06:49 PM

3. The economisation of violence: In the absence of a code of property, resources are wasted in force and violence to take possession, and defend possession.

In the case of copyright, much more waste and violence is involved in the effort to break and enforce property than would be the case if there were no copyright. So this reason is not just gone, it is reversed.

Posted by: Andrew McGuinness at September 5, 2005 10:48 AM

I think, continuing the Potter analogy, that anybody can write a story about a young wizard. The idea of the character and even the adventures date back to Merlin or Christ or even Peter Pan. But Jo Rawling put a set of ideas to paper, using her own implementations of those concepts and spent a lot of effort making them attractive to herself as the author and storyteller, and also to us as the readers. If she has done that so well that we are all willing to spend our seventeen pound per copy then she deserves the moral and legal right to exercise her control over who can profit from her efforts. Anything else is like riding the tube without paying a fare, or taking the neighbour's car for a joyride without their permission, you're benefiting from the efforts of someone else, without compensating them. And to me that's a form of theft.

Posted by: Starpod Abroad at September 15, 2005 01:26 PM
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