In a rush to stimulate the economy, the Obama administration is touting various “visionary” plans to make the American economy more progressive, more innovative, and more forward-looking by subsidizing politically-motivated projects like “green” technology. These hands-on policies will be ineffective. Recent research suggests that a much more effective way to accomplish the same goals would be to eliminate intellectual monopoly and to reduce the regulatory burdens on innovators.
According to conventional wisdom in economics, temporary monopoly rights–patents–are necessary to give people incentives to come up with newer, better ideas. After all, if people who came up with new ideas could see those new ideas copied without cost by competitors, why bother spending the time and energy? Hence, we have patents.
But the conventional wisdom is wrong. In their 2008 book Against Intellectual Monopoly, economists Michele Boldrin and David Levine dropped a bombshell that will, I hope, overturn the consensus about rights to ideas. Using carefully developed theory and a host of real-world examples, they show how patents actually reduce, rather than encourage, innovation. Innovators like steam engine pioneer James Watt, devoted enormous amounts of time and energy to defending monopoly rights rather than to creating new value. Innovation and growth proceeded apace once the patents expired. In Boldrin and Levine’s opinion, this delayed the onset of modern economic growth.
As these authors argue, intellectual monopoly is an unnecessary evil. Further, it is a relic of medieval and early-modern mercantilist regulations whereby kings and nobles granted efficiency-reducing monopoly privileges to favored constituents. Eliminating intellectual
monopoly would reduce the incomes of the intellectual monopolists, but it would unleash new creative energies throughout the economy.
In his recent book The Gridlock Economy, legal scholar Michael Heller argued that intellectual monopoly reduces the pace of innovation. He notes that innovative rap music, like Public Enemy’s initial work, was an early casualty of intellectual monopoly. Demands that artists pay royalties for borrowed music sharply restricted rap musicians’ ability to innovate.
While some people might not care about innovative rap music, many care about access to life-saving new medical technologies. Heller explains how this industry is particularly susceptible to the “tragedy of the anti-commons” created by intellectual monopoly. If an invention requires multiple patented innovations to be implemented, then every individual holder of one of the necessary patents can block further innovation. This slows the pace of economic progress.
Consider another example. Would Britney Spears’s artistic output fall if her intellectual monopoly rights were rescinded? I doubt it. Ms. Spears is much wealthier than she would be in the absence of intellectual monopoly, but her wealth is largely what economists refer to as economic rent: income in excess of her opportunity cost. Eliminating her intellectual monopoly very likely would not cause her to choose another occupation, but it would lead to an increase in net creative output.
Progress is also slowed by the regulation of food and drugs, which requires years of extensive and expensive testing before a drug can be approved for sale. This means that some lives are saved because people are restricted to hyper-safe drugs, but the lives saved come at the cost of lives that are lost because the appearance of these drugs on the market is delayed. Further, other drugs that would be useful but might carry greater risks never make it to the market to begin with.
White House Chief-of-Staff Rahm Emanuel suggested that the Administration should not waste the opportunities presented by the present economic and political crisis. Right now, the administration has the opportunity to make a bold move that will stimulate the
economy for generations to come. By eliminating intellectual monopoly and by liberalizing markets, we can encourage further innovation and greater prosperity.
Originally published by the Independent Institute.
