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Sunday, April 01, 2007

Joseph Stiglitz on IP and world trade

Joseph Stiglitz, the Columbia economics professor and former chief economist for the World Bank, spoke to a theater full of Columbia University alumni on Saturday, March 31st, during the school's annual craven appeal for cash from alumni Dean's day. I attended the lecture, and my notes are below. Stiglitz said the themes here are expanded in detail in his recent books Globalization and Its Discontents and Making Globalization Work.

Note that the talk was not on the record and that the below is my interpretation of Stiglitz's talk from my brief notes. These are not direct quotes, and even the gist might be more me than him. My comments are in parenthesis. -Ben Wheeler

Stiglitz: One problem you're seeing with globalization is that few countries in the world are wholly accepting the US model, and few buy completely the story that the US is successful because it followed the model it's prescribing through the WTO, IMF and World Bank. There are significant moments in history where the US violated these principles, sometimes for the good of the economy in the long term.

The example of Scandinavia is often held up as an alternative to the US. There are huge social protections, a high tax rate, and the measures of social well being are higher than the US. And in France, you see people protesting as they did last year, demanding that a better way be found for integrating into the global economy that doesn't mean eroding worker protections.

(Note: I wonder -- isn't there horrible indebtedness in Scandinavia, worse than US? Also, I wonder at the long-term viability of the model, given what seems anecdotally to be the disincentives to innovation there; friends from Finland and Sweden tell me that few young people have motivation to become entrepreneurs or invest in their professional value, since they can live so comfortably with low-wage jobs. There's something repulsive to me about that, which I suppose is just a cultural difference. As for France, it seems like the tradeoff involved in making it hard to fire people is a bad one; you get some job security, but you've got to lose some hiring in the first place from companies worried about not being able to fire if they need to downsize.)

Stiglitz: One area where we're in trouble is intellectual property (IP). There's a growing awareness in the business and academic communities in this country that our approach to intellectual property isn't working, and it's getting worse, with copyright extensions and patents being applied to new areas where the patent office isn't competent to figure out what should and shouldn't be patentable. You see this awareness most in the software industry, where even giant patent holders like IBM are realizing that they can do better using their organizational competence and doing a better job than the next company, than they can just be seizing whatever IP they can and exploiting it.

The term of IP has been being extended too, which just goes against the principles that IP was founded on in this country. Thomas Jefferson famously used the analogy of a candle: if you light my candle, it doesn't diminish the flame in yours; thus ideas should be held to a looser standard of property control than physical objects and land. And you see that in Africa: there are millions of people who can never pay the $10,000 per year for a typical regime of AIDS drugs, whether this is paid by the government or by individuals. A generic version might be $150 per year, but that is generally illegal under these countries' trade agreements with the US unless the companies specifically make a deal and allow it, And yet what's lost if the pharmaceudicals allow the generic to be produced in the third world? Only a tiny part of their market. Granting an outright monopoly on an idea, even a brilliant innovation, is absurd.

Twenty years ago, I was approached by a Chinese publisher, with a request for me to write a forward to their pirated edition of my book. To tell the truth, I was excited at the idea. From my perspective, 1.4 billion people was a big market for my ideas, but when I asked my publisher what he thought, he didn't share my enthusiasm! But if we can't get a cheap, mass-market version of the book out and into stores there, and someone else can, it's not so bad that they do.

Question from audience: should borders be opened more to flows of labor?

Stiglitz: In Mexico and Central and South America, the fence we're building across the US-Mexico border is seen as very offensive. I helped draft and push NAFTA, which on the whole was a good idea at the time, but the effect has been very disappointing. It wasn't free trade that it created, but managed trade; if it was free trade, the document would have been hundreds of pages shorter! No, it managed trade, including protecting imbalances like US agricultural subsidies. It's been said that US corn farmers don't farm corn -- they farm Washington.

Question from the audience: but isn't there justification in granting a temporary monopoly a crucial incentive to promote development of ideas and innovations?

Stiglitz: Yes and no. I certainly think that some scaled back form of our current patent system is necessary, and that the incentives are real. Something needs to pay for development. But when you look at the details of how it works now, it's not so dire as the big companies claim. Pharmaceudicals spend more on advertising than on research, so they're clearly happy to capitalize on the IP they get.

(I wonder -- could you argue that the advertising-research imbalance supports the notion that companies don't have enough of an incentive to innovate? If we took away all IP, they'd spend everything on advertising, and if we made IP eternal and ironclad, they'd spend more on research, surely.)

You had the example of the Blackberry company recently, Research In Motion, which had to pay a $600 million fee--a ransom, really--just to stay in production. What happened was a group of lawyers bought up a patent for an obvious technology, which was bound to be invalidated eventually--it's been invalidated in two countries already, but not the US--and used that to get money from a legitimate business that was increasing worker productivity. In Europe, you always get a chance to challenge a patent before it is granted, but not in the US; and once it's granted, and with the right legalese it's easy to get very broad patents even if you never produce a thing, you can bring somebody to court and get a court order that they shut down operations on the grounds of trespassing--that they are tresspassing on your intellectual property, your patent. RIM tried to say, we'll pay you, but if the patent is eventually ruled invalid, we get our money back. But the patent holders said no, pay us now or shut down, period, no strings attached. And thanks to our backwards IP system, it worked, and they had to pay.

All this relates to the declining role of the US as an innovator and creator of new technologies and businesses. Right now one of our biggest exports is treasury bills, which China and Japan and others buy billions of each year; so we're exporting T-bills, but not automobiles, as someone put it. We're not creating new jobs.

On Keynes: Keynes argued that UK growth slowed because of reliance on sterling as a foreign reserve currency that other countries were buying as a safe place for their money. The ability to sell sterling let the UK be lazy about innovation and long-term growth. Same is happening with US now -- we're replacing valuable economic power with hot air every year.

(I'm wondering at this moment -- couldn't what Stiglitz is saying be applied to liberal programs like welfare? Isn't it more important for companies to be able to make business decisions unencumbered by complicated red tape than, for example, having restrictive laws that hinder firing workers?)

As for alternatives to our IP regime, I want to be clear that the current elements must be part of the IP portfolio of policies, but they should be reduced in scope and made more fair. There should be a much bigger role of prizes. For examples in history, look at the Edinburgh, Scotland city government, which saw that boys working as chimney sweeps were, well, not tremendously healthy. The government offered a prize for anyone who could invent a mechanical sweeping tool or machine. They got tons of submissions, found a successful design, paid the prize, and released the design to the public domain, and everyone was better off and able to continue to innovate and compete for efficient production and servicing. Our government should identify prize-worthy goals, such as environmental ones.

Question from audience: China is a huge source of IP piracy, but the US played a similar role in the 19th and early 20th century with European art and books, which is why writers like Arthur Conan Doyle went on big tours of the US -- it was their only way to make money in our big market, which was saturated by pirated versions of their work that our government wouldn't go after. So my question is, when are you going on a tour of China? [laughter]

Stiglitz: Remember that US does plenty of piracy; just look at music downloading, and increasing film downloading.

Too effective an IP regime would impede China and India's growth. Now that they have passed some laws to respect US and European IP, we'll see what happens. One example is that in China, the government distributes seeds, and they also provide a guarantee of seed output -- that if you plant, and there's drought or another problem that means you don't get the average output, the government will pay you for the difference. In India, they had this, but they've cut it back to come in like with international trade policy demands. At the same time in the countryside in India, there is a plague of suicides of farmers who are so deep in debt that they are spiraling out of control. Thousands have killed themselves, it's eroding social cohesion disastrously.

(I wonder about this -- could the market provide insurance for this kind of thing, perhaps more efficiently than the government? Or would the ability to push desperate farmers towards exploitative patterns of debt be irresistible to the private sector, so this can only be trusted to government?)

More examples of misguided IP: in US, patents have been granted for basmati rice, and for chemicals in turmeric, whose healing properties have been known in India for thousands of years. But they never documented this knowledge, and so it's being claimed by sophisticated lawyers in the West. Ironically, that turmeric patent was Indian scientists who came to the US. Think about what this means: if an Indian company distributes turmeric extract, they could be forced to pay a bunch of US lawyers, who are often the only people at companies that exist only to make money from patents, or they would have to cease and desist.

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