Intellectual property and YOU

[Eugene Coyle <eugenecoyle@xxxxxxx>]

Today's front page column in the Wall St. Journal is on intellectual property. 
It emphasizes how seriously the ruling class takes the issue.  "Next
week some of the nation's brightest minds will gather at ... Jackson Hole
to grapple with how intellectual-property businesses are changing the fundamental
dynamics of the market economy."

    Actually, some of the brightest minds are on PEN-L and we should be laying out policy options for the world.

    Leading off in Jackson Hole will be Larry Summers, presenting a paper co-authored by Brad DeLong.  Perhaps Brad will share that with us.  From other Summers utterances I know he has been quite confused about the issue.

    The Wall St. Journal story follows.

Gene Coyle
 
 
 
 
 

>      [WSJ.com]
>                                August 23, 2001
>
> Capital
>
> As Businesses Innovate,
> Regulators Must Follow Suit
>
> YOU CAN ALMOST feel sorry for Microsoft Corp. Last year, when the company
> was looking like the techno-has-been of the Internet age, its antitrust
> problems seemed to be fading. But now, with the upstarts put down -- and
> with interesting new products on the horizon -- Microsoft's business
> prospects have been revived. So, too, have its antitrust woes. Antitrust
> scrutiny seems to be an inevitable byproduct of success.
>
> "I suspect that as long as we keep doing a good job, the level of interest
> in our business will not go away from competitors nor from appropriate
> government authorities," complains Chief Executive Steve Ballmer.
>
> Much of Microsoft's problem is of its own making. The company's exclusionary
> contracts and other competitive practices were custom-made to attract the
> scrutiny of antitrust cops. But much, too, may be an inevitable outgrowth of
> the kind of business Microsoft is in.
>
> It's increasingly clear that products whose primary value lies in
> intellectual property -- products such as software, pharmaceuticals, movies,
> records and any of the other things that drive today's economy-- are
> fundamentally different from staples of the industrial economy such as autos
> and steel, or service-economy products such as banking and insurance. And
> those fundamental differences are wreaking havoc with traditional notions of
> economics that underlie antitrust laws, patent laws, copyright laws and
> indeed, the whole public policy underpinnings of today's economy.
>
> Businessmen, economists and policymakers are
> struggling with the profound implications of
> those differences. Mr. Gates took a stab at
> describing them in a speech he gave during his
> CEO summit in May.
>
> "With intellectual property, the upfront costs
> are what it's all about," he explained to the
> business titans assembled at the Redmond, Wash.,
> campus. "Say a piece of software costs $10
> million to create and the marginal costs, because
> it's going to be distributed electronically, are basically zero." Once the
> costs of development have been recouped, "every single additional unit is
> pure profit." But if someone comes along with a significantly superior
> product, "your demand can literally almost drop to zero." That's different
> from a manufacturing or service business that's subject to capacity
> constraints. You either win big -- like Microsoft -- or lose big -- like the
> pile of dot-com carcasses building up in Nasdaq's wreckage. In these
> industries, there is no Avis.
>
> THE PROBLEM for policy makers in such a world is that it's not clear you can
> rely on Adam Smith's invisible hand to look after society's interests. Smith
> imagined a world in which competition among producers would drive prices
> down to something close to marginal cost. But Mr. Gates lives in a world
> where the marginal cost is zero. Smithian competition destroys the business.
> The only way to make money is to have monopoly power.
>
> The implications in all of this go well beyond antitrust policy. Next week,
> some of the nation's brightest economic minds will gather at the Federal
> Reserve Bank of Kansas City's annual conference in Jackson Hole, Wyo., to
> grapple with how intellectual-property businesses are changing the
> fundamental dynamics of the market economy. Former Treasury Secretary
> Lawrence Summers, now president of Harvard, will lead off the discussion
> with a paper co-authored by University of California at Berkeley economist
> Bradford DeLong. Hal Varian, co-author of the book "Information Rules," will
> show how these changes lead to higher levels of concentration in many
> industries. Others will explore the implications for overall economic
> performance and for the conduct of monetary policy. And Fed Chairman Alan
> Greenspan will weigh in with his own views on the topic.
>
> THE SAME ISSUES are being fought out in a host of different public-policy
> settings. The U.S. Congress, the United Nations, and other world policy
> makers are struggling to balance the interests of pharmaceutical companies,
> eager to recoup their research costs, against those of consumers, rebelling
> against the high price tag on drugs that cost little to produce. The courts
> are trying to balance the rights of songwriters and producers to control
> distribution of their work against the desire of music lovers to use
> Napster-like technologies to share their favorite songs. And trade officials
> are trying to figure out how to retool rules designed for auto makers and
> insurance companies to fit the peculiar realities of products that travel
> over fiber-optic lines at the speed of light. In each case, the old rules of
> economics provide no clear guidance. New rules are being made up as they go
> along.
>
> In each of these cases, as in the Microsoft antitrust case, there is always
> the danger that government policymakers and the courts could end up doing
> more harm than good. But a simple hands-off approach by government won't
> work. In a world where intellectual property serves as the source of
> greatest value, antitrust policy, patent rules, copyright rules and
> successful monetary policy may turn out to be more important than ever
> before. That means the government and the courts face a greater challenge to
> get it right.
>
>                                                               -- Alan Murray
>
> Write to Alan Murray at capital@xxxxxxxx