Monday, August 16, 2004

A Promising Fact

When little Portugal found a route to the Indies and therefore a source of enormous wealth, it’s leaders realized they had a problem. Their monopoly, though recognized by Spain and the Pope, was not backed up with demographic and financial strength at home. They were like a frail grandmother trying to cash a winning lottery ticket in a very bad neighborhood. As narrated in the first volume of Donald Lach’s Asia in the Making of Europe, they did a remarkable job in preserving their advantage; but the penetration of their markets by the Dutch, French, and English was inevitable because their cannonballs and pamphlets could only do so much against the more numerous cannonballs and longer pamphlets of their rivals.

The Portuguese case casts some light on the struggle over intellectual property rights, one of the great themes of contemporary economic history. The Vasco da Gamases (Vascos da Gamas?) of our time are American and European tech outfits, especially pharmaceutical firms, that are trying to extend their temporary monopoly on crucial inventions to maintain competitive advantage in the face of the disparity of size and potential power between the Western nations and Asia. The cannonball part of this program revolves around using the temporary military and political preponderance of the United States to enforce an unrealistically strong system of intellectual property rights on a mostly unwilling world. The Portuguese precedent suggests the limitations of this sort of arm-twisting. Threats and bribes produce a lot more lip service and evasion than compliance. Pamphleteering doesn’t necessarily work any better.

As with any justification of property rights, the defenders of intellectual property run up against a serious problem when they attempt to justify perpetual ownership. John Locke explained the claim of a person over his land by supposing that the proprietor mixed his labor with the land he worked, but this sweat equity rationale fails to explain why the children and grandchildren of the pioneer should maintain their rights without a further investment of effort. In the case of technological research, it makes a lot of sense that the agencies that spend the time and effort to discover and market new drugs or devices be rewarded for a time because that prospect encourages others to undertake fresh research. Why it is either right or beneficial for a firm to keep its monopoly into a second or third generation is far more problematic. Indeed, at some point, the ability to continue squeezing profits out of old discoveries results in a disincentive to innovate—why should the greyhounds keep on running if they can actually catch the rabbit?

Of course very few are promoting the notion that intellectual property rights should be perpetual. Keeping a monopoly as long as it is likely to remain profitable suffices, though the recently proposed extension of the term for copyrights, a boon for the grandchildren of novelists, shows how long that can be. In this issue, the struggle over the mores or lesses does matter, however, especially in the case of efficacious drugs where the dogged defense of intellectual property rights serves the larger purpose of keeping medical costs artificially high.

The Portuguese eventually lost; and the imperial power gradually turned into an inexpensive vacation destination; but that declension hardly harmed the world as a whole. Similarly, a rational revision of the rights of intellectual property would probably hurt the bottom line of Big Pharma, but it might well benefit most people if ways could be found to reward innovators who do an especially good job of giving away their productions once the cost of discovery has been amortized. Anyhow, rights and wrongs aside, it’s hard to see how intellectual property rights can be successfully maintained, let alone expanded, in the face of the underlying realities of power. And the 3-dimensional Xerox machine hasn’t even been invented yet.

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