Monday, February 17, 2014

Intellectual Property and Economic Development

Rod Hunter writes:
Some activists and government officials get the relationship between strong IP protection and economic growth backwards, claiming that IP rights are an obstacle to development, and thus should not be enforced until after countries achieve high-income status. This attitude is particularly prevalent in India, which recently put trade negotiations with the EU on hold, and it was central to the failure of the Doha Round of global trade talks. As Indian Commerce Minister Anand Sharma put it, “inherent flexibilities must be provided to developing countries.”

But the bottom line is that the ideas protected by IP rights are the dynamo of growth for developed and developing countries alike. Instead of diluting IP rights, developing countries like India should recognize that strengthening IP protection is a prerequisite for attracting the foreign investment that they need to help their economies grow, create jobs, and improve their citizens’ capacity to consume.

Today, IP accounts for much of the value at large companies. One study found that in 2009, across a variety of industries in the US, intellectual capital – patents, copyrights, databases, brands, and organizational knowledge – held a 44% share of firms’ overall market value. Such companies have little desire to put their IP at risk of erosion or outright theft; they want to do business where they know that their IP is safe.

Developing countries have a lot to gain from attracting multinational firms. Such companies bring technologically advanced imports and new management techniques that foster growth in domestic firms, while spurring industrial modernization. They also spawn new local companies that serve as suppliers, thereby boosting employment, augmenting workers’ skills, improving productivity, and increasing government revenue.

Currently, India attracts a mere 2.7% of global spending on research and development; China, with its stronger IP rights, attracts close to 18%; and the US brings in 31%. United Nations data show that India’s stock of foreign direct investment (FDI) was equivalent to just 11.8% of its GDP from 2010 to 2012 – far lower than the developing-economy average of roughly 30%.

According to a new study by the economists Robert Shapiro and Aparna Mathur, if India achieved Chinese levels of IP protection, its annual FDI inflows would increase by 33% annually. In the pharmaceutical sector – which is particularly vulnerable to IP infringement – a stronger IP regime could increase FDI inflows from $1.5 billion this year to $8.3 billion in 2020, with pharmaceutical R&D doubling to $1.3 billion over the same period.

Note:  Rod Hunter was a senior director for international economics on the White House's National Security Council under President George W. Bush and is presently a senior vice president at the Pharmaceutical Research and Manufacturers of America. He appears to be supporting the views of those who write his paycheck, crony big pharma. That said, I believe the data he presents offers a significant challenge to those who claim that IP protection is always a negative for an economy.

I want to further add that my view on IP protection differs from Hunter's in that I believe independent discovery should be the criteria for IP protection and not the current system which, for example, in the area of patents grants monopolistic patent protection to only the first inventor.

17 comments:

  1. How in your view is independent discovery determined/established?

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    1. It'd have to be via private courts to be consistent with libertarian principles.

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  2. IP Commies: Please go here https://strangerousthoughts.wordpress.com/2010/11/14/the-economic-principles-of-intellectual-property-and-the-fallacies-of-intellectual-communism/

    before commenting on this article.

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    1. "IP Commies"

      You are the one that wants the government to give you the power to tell me what I can and can not do with my own property.

      Commies don't believe private property rights exist, and neither do you.

      I believe every individual has the right to use and control their own property. I have the right to decide what product I want to produce with my own means of production. Not you, you want to decide for me what I can and can not produce with my privately owned means of production. You commie.

      You either support the free market and property rights or you do not. You clearly do not.

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    2. "Commies don't believe private property rights exist"

      So strange, you just made an argument that the name 'IP Commies' is accurate by acknowledging that anti-Ipers don't believe in IP as property.

      I'm not even sure what you are arguing.

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    3. To Anonymous troll: do you even realize that your "argument" is circular? You call something property and then call others commies for being anti-property just because they don't think your definition of property is valid. YOU are anti-property because I do not think you recognize my ownership of the Universe. Yes, stupid, the Universe is my property. Because I said so. And YOU (and your fellow IP proponents) are commies.

      Now, having settled that not everything is property - on which exactly grounds do you consider "IP" to be property? ...crickets...

      (The only justification I've heard so far - that somebody laboured to create the "IP" and is therefore entitled to the sole ownership of value in it - is nothing more than rephrasing of Marxist labour theory of value. Now who exactly is commie here?)

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    4. As usual, assuming "IP" is property is QUESTION BEGGING. This is what is under argument. You are assuming the premise that is under contention. Why do pro-IP people not even understand what is at argument? This is endemic.

      And I'm tired of people linking to this "Strangerous" blog post that is like three years old, as if it's not been answered before. It's as IP heads don't know how to use Google.

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    5. "is nothing more than rephrasing of Marxist labour theory of value. "

      Ohhhh...I would tread lightly there because is far, FAR different...so much so Rothbard uses it...Menger, Locke, and a host of others.

      Would you like to claim Rothbard a Commie or any of the others?

      "As usual, assuming "IP" is property is QUESTION BEGGING."

      You mean, like this?

      "You are the one that wants the government to give you the power to tell me what I can and can not do with my own property."

      You anti property people are funny.

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    6. Here's the crowning absurdity of the Anti-IPers:

      "I harmed you by taking your IP or violating a EULA by taking someone else's IP, but IP isn't property! So no hearings or anything, K? Otherwise you're an aggressor if you want a hearings because I didn't violate the NAP! You did! Not me!"

      "Oh, and if you want hearings then you are pro government!"

      It's all so laughable, except the part that people actually believe it.

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    7. @ averros

      you say:

      "(The only justification I've heard so far - that somebody laboured to create the "IP" and is therefore entitled to the sole ownership of value in it - is nothing more than rephrasing of Marxist labour theory of value. Now who exactly is commie here?)"

      I have yet to hear a theory of property that is not based on labor. First user? Use is labor. First occupier? Occupation is an act of labor. Just because a property theory is based on labor does not make it the LTOV. LTOV states that the AMOUNT of labor is what determines value. Pro-IP people are not claiming that the AMOUNT of labor used to create a piece of IP determine the VALUE of the piece of IP. Being pro-IP is no more LTOV than claiming a first occupier rule is LTOV.

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  3. For what it's worth, at least pertaining to copyright:

    http://bionicmosquito.blogspot.com/2012/11/copyright-law-standing-in-way-of.html

    In the 19th century, technological development advanced rather quickly in Germany - catching up to Britain after centuries of lagging behind. According to this researcher, the reason can be found in the lack of copyright protection in Germany, and the state-enforced copyright protection in Britain.

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  4. "I want to further add that my view on IP protection differs from Hunter's in that I believe independent discovery should be the criteria for IP protection... "

    RW, what do you mean by "independent discovery"?

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  5. You can't either be for physical real property rights or intellectual property rights. You can't be for both because one violates the other.

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  6. -- Developing countries have a lot to gain from attracting multinational firms. --

    Indeed, and if those governments would just grant these multinational firms the monopoly status that they so deserve through made-up "property rights" people call (with a very sick sense of humor) "Intellectual", everything would be so hunky-dory - except for those entrepreneurs who want to compete and establish their own cottage industries. Nope, sorry! IP trumps your puny and insignificant right to real property, pals!

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  7. Intellectual property rights can be viewed as a tragedy of the commons created by governments. This is because there is no property to 'steal' and when information is copied, there is no physical loss to the original owner. The 'economic' loss is subjective, much like the economic gain of education is subjective, mostly because there is absolutely no possible way to measure the capital gained or lost. In fact, one could argue there is an economic gain to having your trade secrets copied by someone else. Intellectual Property has no price because it is not rare. So anyone arguing that ideas are property and that IP rights are rights needs to explain these things away first, and without splitting hair. One can still argue that a system of IP Property rights is desirable, but it is clearly an artificial framework created by government power and nothing else. On that basis, the 'government program' of IP protection deserves inspection. The protection afforded by IP rights is a subsidy granted to some citizens - at the expense of others -, a free-for-all 'protection' that has no safeguards against consumption, causing first-takers to have an advantage over later consumers of the subsidy, and politically connected players to have a stronger advantage than others. This is by definition a tragedy of the commons. Because the 'commons' perimeter in this case is not measurable, it is limited by the government's capacity to defend the rights it created out of thin air. This is the *only* reason India is at a disadvantage in that regard. But I'll go further. Because there cannot be a 'border' around intellectual property, naturally preventing ideas from flowing freely across any government's borders, the free-for all is a worldwide arena and the competition of states for control over enforcement of these rights is also a tragedy of the commons playing itself over the only real capital resource capable of producing anything: you. Arguing that India's stance is good or bad has no economic value, it is merely a posturing between states. Robert: I'm shocked that you would be 'in favor' of anything resembling IP protection.

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    1. "Because there cannot be a 'border' around intellectual property, naturally preventing ideas from flowing freely across any government's borders, the free-for all is a worldwide arena and the competition of states for control over enforcement of these rights is also a tragedy of the commons playing itself over the only real capital resource capable of producing anything: you."

      Murray Rothbard himself argued that the application of labor was a necessary component even over a fence(enclosure):

      "If Columbus lands on a new continent, is it legitimate for him to proclaim all the new continent his own, or even that sector 'as far as his eye can see'? Clearly, this would not be the case in the free society that we are postulating. Columbus or Crusoe would have to use the land, to 'cultivate' it in some way, before he could be asserted to own it.... If there is more land than can be used by a limited labor supply, then the unused land must simply remain unowned until a first user arrives on the scene."

      "Intellectual Property has no price because it is not rare."

      Really? Are you completely unaware of the number of contracts in existence and created on an ongoing basis for things that are not "rare" as you put it?

      "One can still argue that a system of IP Property rights is desirable, but it is clearly an artificial framework created by government power and nothing else."

      The question is one of paradigms, just because government currently dominates how IP is handled does not mean that there is no room for a society that would respect IP on its own-do a search here at EPJ on RW's consideration that "all rights are designed", which seems to be a valid point.

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