In Pursuit of Virtue – May Edition
A friend of a friend posted this argument contra Intellectual Property a few days ago on Facebook, and I thought it was perfect for replication here. This is the best argument against Intellectual Property (copyright, patents, and trademarks) that I have ever encountered. SOPA is no longer an issue (more on an even more dangerous and disturbing law that has replaced it to come) for now, but the implications of IP mean that the war will not be won until people understand that IP is a moral, economic, and technological hindrance.
I especially love the insights within the first paragraph, which have implications far beyond IP law. This argument is one that all of us need to keep in mind when we examine utilitarian arguments. I hope you enjoy this argument as much as I did…
The moral argument in opposition to IP law.
One reason I often favor the moral approach is, quite frankly, the moral approach is much harder to fool than the utilitarian/economic one. It is much easier to construct non sequiturs with utilitarian approaches. A classic example of this is the rise of Eugenics in the early part of the 20th century. It was claimed that society would be much better off if only well-bred, productive offspring were allowed to be born. Clearly, the moral approach would not ever have been fooled by this proposition. Yet the utilitarians were indeed made fools of by their support of eugenics. That happened because they made the oldest mistake of all: presuming what one intends to prove. While it might be very easy to construct a believable anecdotal scenario (a posteriori), in which a particular criminal, cripple, or other dreg of society harms this nebulous productivity of society, that is not evidence that such can be predicted a priori. If utilitarians had formulated their model correctly upon examining the merits of eugenics, I hold they would have arrived at the very same result as would moralists. Anecdotal evidence will forever trick utilitarians, but it rarely affects principled moralists to a significant degree.
But on to IP, and here I will focus on so-called economic/utilitarian issues. After all, IP laws were added to the US Constitution based upon a utilitarian argument. It was believed that if a limited monopoly was given to inventors (e.g., an opportunity to utilize monopoly pricing for a term of years), then those inventors would have a greater incentive to invent, and the result would be a more technologically advanced society. Jefferson went along with this utilitarian argument, but he appeared to keep it in perspective by asking the relevant question. In essence, Jefferson’s view was: *IF* the limited monopoly does as claimed, then I will support it. Yet, Jefferson was always skeptical, and so am I. In fact, I believe this utilitarian argument, like so many others is clouded by inductive reasoning and non-sequiturs. Had the utilitarian argument been properly formulated, it would arrive at a very different result, a result identical to the principled moral arguments. In fact, for a laugh, consider that several years ago, the US Federal Circuit (or maybe it was the supreme court) took a case in which a doctor patented a medical procedure relating to transplanting organs. It was a great procedure that worked wonders for patients versus conventional methods. However, the court struck down the patent and further ruled that medical procedures could not be patented. Their rationale: medical procedure are “too important.” This begs the obvious question: If one truly believes that the grant of a monopoly will lead to better results in a given field, say the field of saving lives via new medical procedures, then shouldn’t medical procedures actually be granted even greater incentives, and therefore even stronger patent protection? If that’s the theory one relies on, which the US patent laws do, then medical devices ought to have been given a special 40 year term instead of the 20 year term—or something similar…but instead they were deemed not patentable at all!
At any rate, from your previous posts, you have presented a coherent scenario in which (due to what is otherwise known as competition) an inventor of a product cannot compete with one who copies his product. Admittedly, there is certainly a probability the scenario you constructed would occur if there were no IP laws. In response, I offered a very different scenario in which, with IP laws, the little guy (you) manufactures his famous RZ widgets (whether patented or not, it does not matter), whereas the evil, well-moneyed guy (me) has patented my famous PB widgets that appeal to a similar class of consumers. I will certainly leverage my legal privilege granted via patent to shut down your manufacturing because that destroys a competitor of mine. If we assume (1) that RZ widgets do actually infringe PB widgets, then what I did (destroying competition, which results in higher profits for me at the expense of the consumer) must be deemed utilitarian. If we assume (2) that RZ widgets do NOT infringe my patent, then the utilitarian would claim you can go on selling your RZ widgets to consumers who want them. But in the case of (2), that’s not how it really works. In reality, you are shut down anyway because you do not have the multiple millions of dollars to pay for the examination of whether or not you infringe my patents. We can reverse this as well. Suppose you have a patent on RZ widgets and I do infringe with my PB widgets. In theory you can sue me to stop my competition. But that’s not how it works in the real world. Recall you are, by definition, from that sympathetic set of inventors who are not economically able to compete after investing in R&D. You will note, this is the set of actors who your scenario claims to help (indeed, it is for this set of actors alone that ostensibly justifies IP law). You will note that because you are in that set of actors, you are also clearly unable to enforce your patent against me. You cannot afford the millions it would take to get to the legal conclusion that I infringe your patent. My in-house attorney will just laugh at you and hang up because, in the end, the enforcement mechanisms of patents are only available to the economically well-off, and this is a much higher economic bar than merely being able to compete in a free market.
In light of these two scenarios (yours, which is hypothetical, since IP laws do exist) and mine (which is actual and quite well-known), the utilitarian must determine which of the two optimizes productivity. The utilitarian must examine a tiny set of small inventors that are unable to compete in supplying consumers with what they want (due to sunk R&D). Based upon that examination, the utilitarian must compare the two outcomes: (i) we subsidized these inventors (at the expense of the consumer) in order to encourage their inventions. This will also demand that a much larger set of small manufacturers who currently already compete in a free market and already give consumers what they want must be sacrificed upon the alter of expensive litigation; or (ii) we do not subsidize the small set of inventors, yet we obtain a much larger set of small manufacturers. So any legitimate utilitarian examination must compare the benefits of receiving otherwise discouraged (supposedly) new inventions from a tiny set of inventors vs. the benefits of competing products from a much larger set of small manufacturers. Perhaps I am jumping the gun, but for me, there really is no real comparison here.
Moreover, that examination frames the issue much too narrowly. To step back, consider the following statement: ALL forms of economic protectionism are inefficient. The Keynesian school of economics would reject that statement. Given your libertarian leanings, I’m guessing you probably also have exposure to real economic theory as well as the Keynes and company pseudo variety. For example, Smith and Ricardo would support the above statement, even if Keynes would not. So, I will assume here (and leave to you to reject it) that from an economic perspective, you generally agree with the statement: that all forms of economic protectionism are inefficient. Not surprisingly, the principled moralist would add all forms of economic protectionism are immoral.
All forms of economic protectionism are inefficient for the very same reasons they are immoral, viz. they replace voluntary transactions (e.g., the most efficient type) with coerced ones (which are less efficient even without presuming corruption, which otherwise could not exist, but is now guaranteed). They grant a special legal privilege to a few at the expense of the many—indeed if the coerced transaction had utilitarian value, then it would be selected voluntarily by the market without the need for coercion. Most importantly, economic protectionism is always, ALWAYS harmful to the consumer, yet it should be the consumer who is the central focus of all utilitarian-based economic theory.
However, the biggest probably with protectionism as I see it is not merely that it is economically destructive, but rather that it can be so persuasively argued in favor of a sympathetic actor. A few decades ago, the US decided it would apply economic protectionism to the steel industry (if I recall the UK did so as well). Those damn foreign socialist governments were subsidizing their own steel industries, so now our (so-called) capitalist steel industry was at an unfair disadvantage and could not compete. Then, as now, economists (nearly exclusively Keynesian) looked at that picture, the act of foreign govts subsidizing their own steel industries, and saw only the following: US steel producers = victims; Foreign steel producers = unfairly advantaged. They clearly missed the critical examination, which has nothing to do with producers, but rather with CONSUMERS. As a result of foreign govt subsidies, steel consumers, both in the US and elsewhere received an enormous benefit. Indeed, US steel consumers probably received the bulk of the benefits so dearly purchased by foreign govts when subsidizing their own steel industries. These global consumer benefits manifested in lower prices on steel.
So in comes the US with protectionist tariffs aimed at the warm, fuzzy goal of ‘saving our steel industry’ (a sympathetic actor). Before the tariffs, suppose the following:
– US companies could sell steel at $2/ton
– Foreign subsidized company (call it China) could sell steel at $1/ton
– As a result, all steel consumers in the world could acquire steel at $1/ton.
After the tariff:
– No US company can buy steel for less than $2/ton.
– All US steel consumers must buy their steel from US producers at $2/ton (or more).
– Problem solved, now US steel has no trouble competing.
– But wait. Even though we’ve helped US steel producers, we did so at the expense of US steel consumers.
– Clearly, we’ve created the situation in which US steel consumers must pay at least $2/ton for their steel, whereas FOREIGN steel consumers can get steel for $1/ton.
– So by ‘helping” US steel producers, we have destroyed US steel consumers. Automakers, builders, appliance makers, etc. ALL must pay twice as much for their steel than their foreign competitors—and therefore cannot compete with foreign competition.
So protecting 1 industry directly wrecked a dozen other industries, and the US steel industry died anyway, but not before it was able to crush many other industries and tie up lots of resources (capital and labor) that might otherwise been utilized in more productive endeavors. It did this by focusing on a sympathetic producer, which enabled it to ignore the real utilitarian/moral focus: CONSUMERS. So even though utilitarian and moral considerations will yield the same result, the utilitarians appear to be more readily able to accept a false premise (e.g., protecting our steel industry is good for the economy).
It is the same for why Keynesians rave about the great benefits to exporters when their money printing ruins the currency (Keynesians almost never look at the consumer, the proper focus of any economic investigation if one wanted to be utilitarian). In truth, exporters are perfectly irrelevant to an economy. No vibrant, healthy economy requires exporters, as domestic production is the true benchmark of health, productivity, and success. Providing for the wants, needs, and desires of consumers (with no requirement that they be foreign) is what makes an economy strong. That is proved by merely considering the global economy (as opposed to a national economy). The global economy does not import/export to a peer, yet it could be robust nonetheless.
So, holistically, if it is true that all forms of protectionism are economically harmful, then IP laws cannot be justified from a utilitarian perspective, as IP laws are clearly protectionist, and clearly harm the consumer (by preventing competition that would benefit the consumer).
More narrowly, consider the case where IP laws are not leveraged. Let’s pretend you start your own garden and you notice over the last several years that when you apply your homemade compost, your yield increases by 100%. So you decide to package your excess compost and sell it to your neighbors. As you are the only one in the area selling this compost, you charge a lot and have very high margins. Even so, the consumers are happy with the results, even though some would be happier if it were cheaper (so they could devote the saved resources to other productive ends), while others (a very small minority) just decide to make their own compost. Regardless, this is just the type of activity that aids in economic growth: voluntary trade that furthers specialization via comparative advantage. Then one day, one of your neighbors, who has been thus far happy to make his own compost at a fraction of the price you charge, notices your huge margins and decides to enter the market as a competitor.
In that case, are you a victim, either morally or economically? The argument is you had the great idea to produce and sell the compost to your neighbors…they are happy for the service as evidenced by your profits. But now, this Johnny-come-lately has the gall to compete with you. Your profit margins dropped from 400% to a mere 10% due to the competition—you might even go out of business. Your (natural) monopoly pricing, available to you before there was competition is no longer available. This is totally unfair because what about all those other vendors who could not exist but for their monopoly pricing? Would those arguments succeed with you? Are they utilitarian? Because certainly the consumer is greatly benefitted by the introduction of competition, yet in this example no one claims the little producer should be protected. Indeed, it is high margins that will attract competition, but when margins drop enough (due to competition), future competition will rarely enter the market (preferring to go to greener pastures). Competition is the true source of utilitarian benefits (because that is the ultimate stopgap on producer control of consumers), yet competition is exactly what IP laws destroy. Why is the small inventor viewed with a different lens vs. the small producer of the example above? In one case, IP advocates would rail against competition (if you had patented your compost mixture), whereas in the other those same people would see no problem (e.g., they would see no sympathetic victim) Why does one garner sympathy to the point of protectionism, but the other does not? Small producers can and do compete with the big ones every day, even without being subsidized and even DESPITE patent laws used to destroy them. Why is it so hard to accept the same from small inventors?
Moreover, making money is not what drives inventors, at least not small inventors. Almost all US patents are filed by large corporations, which typically pay their inventors a flat fee for each filing, usually about $100-$500 (which makes sense, as large corporations are typically the only ones that can leverage the legal privileges enforcement means provided by patents). For small inventors, none invent by looking at profitable ventures, at least not the successful ones. Rather, small inventors invent to solve problems, almost always problems they frequently encounter personally. If they can make millions with their solution, you sure would not get an argument from them, but if those millions are not in the cards, they will still invent, if for no other reason than to make their own lives easier. If they can market and distribute their invention efficiently, they can still make their millions, even without patents, but rather by satisfying the CONSUMER.
[Edit: More succinct thoughts from IE.]
What SOPA & PIPA would have done: