Mises Wire

Intellectual Property Advocates Hate Competition

On a recent Mises blog thread, a commenter noted repeated a common argument that IP rights are needed to protect inventors and innovators. The reasoning is that without IP, some large company can just “knock off” your products and outcompete you.

Think about what he is saying: it’s too risky to go into a given business because someone else might compete with you. It is no surprise that the more honest advocates of IP openly admit that the very purpose of patent and copyright is to provide protection from market competition to entrepreneurs whose products are services are more easily copied than others. As I noted in my post IP Rights as Monopolistic Grants to Overcome the Public Goods Problem, IP proponents support these monopoly privileges on explicitly anticompetitive grounds. Take this explicit opening passage in an article by an ardent IP advocate, Jerome H. Reichman, a law professor at Duke:

Governments adopt intellectual property laws in the belief that a privileged, monopolistic domain operating on the margins of the free-market economy promotes long-term cultural and technological progress better than a regime of unbridled competition.

… Intellectual property laws typically provide qualified creators with temporary grants of exclusive property rights that derogate from the norms of free competition in order to overcome the “public goods” problem inherent in the commercial exploitation of intangible creations.1

Here we have an explicit admission that IP grants are monopolistic and derogate from free market norms and are opposed to a regime of “unbridled competition”–i.e., IP is anti-competitive. As is to be expected–after all, it’s a monopoly grant. Also, a recognition that the legitimacy of IP is based on the modern economic idea of “public goods” (see, on this fallacious notion, Hans-Hermann Hoppe, “Fallacies of the Public Goods Theory and the Production of Security,” in The Economics and Ethics of Private Property).

One has to wonder why IP proponents are in favor of a competitive free market economy at all. Apparently they are willing to tolerate competition as long as competition is difficult, as long as there are high barriers to entry. If I build a warehouse business, say, someone else can compete with me but only by buying their own warehouse, building up customers, and so on. It takes a while. Thus, I have enough “incentive” to take a “risk” and invest in my business because I know I’ll be free from competition for some time. But with businesses that rely heavily on information–the sale of software or music of movies that are easily duplicable, the sale of products with inventive features that others can soon emulate–it’s “too easy” for competitors to come in and match what I’m doing. So it’s easy to see that these “fair weather free marketeers” have a completely unprincipled, and apparently contingent and begrudging, tolerance for free market competition: they are willing to tolerate it only if competition is not too easy. Otherwise, the state must step in to dole out monopolistic privileges to protect people and their fledgling, tenuous endeavors from market competition. Their entire mentality is pervaded by bad economics, such as the idea of market failure and public goods.

Which is bizarre, if you think about it, in that most conventional economists hold up as a market ideal the idea of transaction-cost-free and perfect-informational “perfect competition”; and then, when the real world markets do not live up to this unrealistic “ideal,” they accuse the market of failure and–what else?–agitate for state intervention to “fix” the market failure. Yet here we have these mainstreamers recoiling in horror when the market does start to emulate their ideal of perfect competition. After all, wouldn’t profits be harder to make under perfect competition (as they allege is the case in knowledge or information industry products)? Wouldn’t information and knowledge be transmitted more easily, quickly, widely, and cheaply (as they allege is the case with easy copying and emulation of new innovation and patterns and recipes and designs)? Wouldn’t there be much more competition in every industry (as they shudder in fear of in the case of the digital economy)? I think they are schizophrenic: they claim to love the market but it’s obvious they really only favor some unrealistic Platonic ideal (perfect competition) that they use as an excuse to have the state intervene in the real economy; and yet, when a segment of the market economy starts to actually approach aspects of perfect competition, this is also used as an excuse to have the state intervene in the economy to prevent it from approaching perfect competition. Hmm, it makes you wonder if they are nothing but dishonest, insincere, hypocritical, power-grabbing economic illiterates who simply want any excuse they can to regulate, intervene, and control.

It makes one wonder: what will they do if the real-world market economy in standard scarce goods starts to become ever more efficient? Say, because of the Internet or other advances in technology; because of increases in overall prosperity and market efficiency; because of a larger and richer world population and an increasingly complex and rich division and specialization of labor; because of the increasing ability of solo entrepreneurs to outsource over the Internet, to be lean and mean, to use just-in-time production methods or other innovations to come in guns-a-blazing and take over and compete with established industries–hell, Borders just declared bankruptcy, no doubt in significant part because of disruptive competition from Amazon (and the Internet and digital goods); and brash upstart Netflix knocked Blockbuster out. And Google+ is now threatening Twitter and Facebook, just as Facebook replaced MySpace and Twitter replaced … well nothing. It came out of nowhere.

The point is you can imagine a future where competition becomes more and more fierce, and barriers to entry fall. You can imagine a sort of convergence between the allegedly too-fierce competition faced by digital goods and idea purveyors (innovators, artists, etc.), and the brick and mortar economy: where the level of competition in the latter starts to rival that seen in the former. Will the Intellectual Protectionists start to push for a New Mercantilism in the physical economy too–having the state hand out monopoly privileges to “fledgling” businesses where it’s “too hard” for entrepreneurs to make a profit–due to that horrible market competition raging outside the window–so that they “need” the government’s “help”? The state does this already in a growing number of insidious and piecemeal ways–from NASA “spinoff” technology and research, to NIH and other federal research grants, plus the NEA and NEH, to subsidies to academic research and universities, not to mention the military-industrial complex, plus the military, CIA, NSA etc which are all on the dole and use taxdollars to engage in R&D. The FDA does this too–under the guise of protecting consumers it charges expensive fees and causes expensive delays to the large oligopolistic patent-protected corporatist drug-pushers that can afford it, but not smaller competitors who are kept out of the walled garden; thus giving effective protection from competition to Big Pharma aside from the patent monopoly itself. Isn’t this also the excuse trotted out for subsidies given to electric car and solar panel manufacturers? It’s unfair if they have to compete with more efficient internal combustion cars or fossil fuel powered electricity. And of course there are continual calls to ramp up and systematize state funding of innovation by handing out tens of billions of dollars of taxpayers’ money to inventors “deemed” to be “deserving” by a panel of state-appointed bureaucrats and cronies.

So I wonder: at what point will the Intellectual Protectionists “deem” that market economy has advanced too far toward their perfect competition model so that we need a New Mercantilism to stave off and tame “unbridled competition”? To hand out bookstore monopolies to the existing Big Book companies, shoe monopolies for the cobblers, DVD rental monopolies to Hollywood Video? Think of poor Borders, poor Blockbuster. A humane free marketeer wants to protect them, doesn’t he?

Update: See these great comments by Jeff Tucker, in Mises.org in the Context of Publishing History:

When movable-type printing appeared with the Mainz Psalter in 1457, it seemed that the institution of the scribe would be no more, and monks all over Europe debated what to do. On the one hand, the religious communities had the strongest interest in printing advances. On the other hand, the class of professional scribes associated with monasteries of course opposed the advance, in order to protect the high status of their specialized services.

After the development of printing, and then movable type, German abbot Johannes Trithemius exhorted his monks to continue to copy books. He claimed that printing had a shorter life, and that the automated printing technique denied monks the discipline associated with hand scribing. He worried too that the monks would have idle hands if printing became more fashionable.

But this concern didn’t last longer than a few decades. By the late 15th century, the printing houses were working almost exclusively for monasteries, and monasteries themselves had established printing houses. Far from having taken away work for the monks, it became obvious that the new tool made their work more efficient. Their work could be made ever more valuable. The works of Trithemius himself, on a variety of topics, would eventually be printed in many editions.

But there was a threat on the horizon: mercantilism, the theory that producers needed special protection from government in order to remain healthy in an atmosphere of extreme competitive pressure. Producers were beginning to discover then what every business knows today: namely, that one aspect of free enterprise is that it denies long-run profits to producers.

The market process is always driving profits to zero, as profitable companies are imitated by innovative upstarts using cheaper and more efficient methods. Society benefits from this process, but in order for an established firm to stay on top, it can never stop innovating and striving for excellence.

The answer to this reality in many trades was to seek government protection from competition abroad and to ask favors from the prince to be the only and favored producer. This served both as a guarantee that people would continue to be provided with the goods and services they needed, and as a guarantee that the producer would be protected against the distraction of competitive pressure from others. That’s the theory and practice of mercantilism, and it’s a perfect recipe for hobbling progress.

Just as the printers had driven the scribes out of business, the printers were facing extreme competition by the 18th century. They sought protection from more efficient upstarts, often called pirates, who were making life hard for this very profitable industry.

These pirate firms were publishing older works and distributing them very cheaply and widely. The dominant firms claimed that this practice was undermining their ability to fund new works and was thus inhibiting innovation.

The established printers tapped into the mercantilist spirit, but with a special twist. They claimed that words on the page constituted a special form of property. When they were copied by a firm other than the current publisher, they claimed, their property rights were being invaded. Their “intellectual property” was being stolen.

Now, on its face, this is a preposterous claim. Once ideas are known by others, they are copied. They cannot be owned in the conventional sense, or, another way of putting this is that the ownership of the ideas becomes multiplied without end. The only way to possess an idea as exclusive property is to never share it with another person. Once shared, the idea takes flight.

What’s more, the entire industry had been born in the world of copying, not in making original work. Most famously, the most profitable text to publish was the Bible itself and its most ancient transcriptions and translations. In fact, this had been the driving motivation of the invention of the press in the beginning, just as it had been the driving motivation of the scribes.

For this reason, it is crucial to understand the appearance of copyright as nothing other than an aspect of the mercantilist principle. The claims about “intellectual property” were nothing but a ruse offered up by printers as a way of seeking legal protection from competition.On the Continent, no one bought into this gibberish, seeing it for exactly what it was: a sop to producers, which would have inhibited the whole engine of publishing from the ancient world to the present. They saw that copyright does the opposite of the long-established goals. It raises costs. It limits distribution. And it dooms works to a short life, given the uncertainties of the industry.

This was a terrible direction to go, and in only one place in the world did it take hold: England, which was undergoing a terrible religious struggle. Copyright became useful to the crown in order to suppress works incompatible with the official religion, whatever it happened to be at the time. And so in the 18th century, there were endless fights in England over this matter.

Meanwhile, on the Continent, publishing remained competitive and free for the hundred years after the first copyright statute was imposed on England. Even given England’s laws, copyright statutes were largely ineffective at hobbling the market process until the imposition of international copyright law in the late 19th century. Laws have grown tighter and tighter in the 20th century, until we have reached the point of absurdity since 1995 in the United States, with laws that have pretty well doomed a half century of scholarship to ruin.

If you leave the state and state-protected industries in charge long enough, they will strangle progress to the point that civilization completely stagnates. In the publishing industry, digital media couldn’t have come at a better time. It is saving what the state and the dominant publishers are trying to kill.


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