Unnatural Law Pt 1

by Shihang

Lately, I have become more sceptical about the desirability of intellectual property laws. It is evident that it is an issue that matters, especially in areas like healthcare. As are most people, I am on the side of the underdog in a very Dickensian way.

Before this becomes “academic” or “intellectual” (meaningless labels both), I have to disclose that I have always naively believed in stuff like patents and copyright laws. Never mind I wasn’t very sure what the difference between copyrights and patents was. I think it was those inserts in music CDs or the Machine’s eagerness to drum the importance of these things into our heads.

The obvious arguments for property rights are the promotion of dynamic efficiency (linked to Schumpeter’s argument about monopoly profits being a reward) and response to market failure (the danger that without these, the good becomes a public good, and hence will not be produced). The implications of both these arguments are essentially the same: that without IP laws, firms would not innovate.

The interesting thing about public goods is that we do not usually respond to public goods like that. We do not grant monopoly status to providers of street lights, or otherwise find ways for firms to profit from them. But we do this with innovation. The obvious difference between the two is that it is impossible to make street lights excludable, while it is possible to make information excludable. Makes me wonder whether we would make stuff like street lights excludable if we could. Would it be desirable? (Probably, but we can see the problems. I want to see that street corner with many competing streetlights, and sigh about wasteful competition.)

But in many ways, the defence of IP does make a valuable point, that there will be reduced incentive to innovate. This could be rectified by private charities and government subsidy of course (and it is disheartening to learn that scientists will only work if their paymasters keeps it coming). But the argument against this is that innovation is not important in  itself. Surely innovation must lead to improvements for people around us to have any value.

The problem is that IP laws grant monopolies to the innovating firm, which lead not only to redistribution towards the producer, but also the rise of rent-seeking behaviour, like lobbying, bribing distributors etc. Controversy over AIDS drugs highlight this problem, and news that Thai governments have been able to produce $500-750 drugs for $30 is alarming. Healthcare costs in America are among the highest in the world, with rather uninspiring results, reflecting in part the capture of drug distribution by the major drug firms.

Note that this issue does not affect copyrights as much as patents. Often, copyright holders do not have a monopoly on the market. Alice in Chains only has copyright over their own work and they similarly have to compete against other grunge giants like Soundgarden, Pearl Jam and Nirvana. Harry Potter is also challenged by other fantasy works like um…Eragon? Frankly, I am also sceptical that anybody will stop making music because of unreasonable firms using their music or prose (scum!). Not that I do not support artistes as much as I can!

Furthermore, there is the argument that IP laws infringe on people’s rights, simply because they came first. If I built the first house and my patent forbids everyone else from building a house, even if they have the raw materials, I implicitly have some rights over their property.

CBA. IP laws incentivises innovation, but this does not necessarily translate to any consumer surplus. Instead, there may be loss of consumer surplus due to monopoly. Battles to extent patents (from expiring) also help preserve producer surplus. This leads to higher prices and lower quantities sold.

The ideal solution is to separate innovation and production of course, but it is questionable whether governments should do R&D, or indeed whether state-sponsored R&D can churn out results like cold-blooded, serpent-livered greedy-scoundrel fatted-plutocratic capitalism, red in tooth and claw, can. Failing that, regulation should aim to reduce monopoly power. One way to do this is to shorten patent times. The aim is to still make it worthwhile to innovate, but considerably less so.

If you think about it, this is really the fundamental contradiction of a capitalist system. Capitalism relies on balancing powers and naked self-interest to achieve the best results. But it is so very difficult for governments to achieve a fair and balanced policy.