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Tuesday, 29 March 2011

The Enrichment Economy

Or: understanding national governments' seemingly absurd position on strengthening intellectual property rights despite evidence this will damage the overall economy

The measure of economic success is the size of the economy, typically measured as the gross domestic product (GDP).

Wikipedia enlightens us:
GDP refers to the market value of all final goods and services produced within a country in a given period. It is often considered an indicator of a country's standard of living
The digital revolution has raised some very awkward problems surrounding the protection of intellectual property.  I wrote about this last week as the Knowledge Economy Paradox. Digital innovation seems to thrive on the absence of monetary barriers to re-use, as the open source software community have shown.  Similar applies to visual arts with so called mash-ups - remixing photos, art, video and music to create original works as a derivative of other artists' works.

The paradox comes about because without a legal mechanism to protect digital content it's impossible to trade intellectual property, therefore the result of the innovation can't be monetised and count towards a country's GDP.

Since many see GDP as an indication of a country's standard of living it has immense political overtones.  This explains why governments, as well as rights holders with large IP portfolios(!), are keen to see protection of intellectual property strenthened.

The "think of the poor creative artist" argument sounds pretty reasonable, but it's a minor issue compared to the hundreds of billions at stake in the corporate IPR markets.  Besides, when recording studios had a complete monopoly on the industry, music lovers faced escalating album prices whilst many artists continues to receive a pittance in royalties.

For the creative market to work properly, including fair rewards for artists and creators, we might need to look at alternative mechanisms to GDP for measuring how such products improve our standard of living.

I call this the Enrichment Economy - an as-yet undefined measure of how the creative works we consume for free improve our lives.  Whether it's reading a 19th century novel now in the public domain on your Kindle via Project Gutenberg or listening to a public domain audio book by Librivox; researching using the Creative Commons Wikipedia or enjoying a satirical mash-up of a popular song.

The stuff we get for free makes us happy and therefore improves our standard of living.  But it doesn't count towards GDP so it can't be measured and governments can't tout their country's successes.

Clay Shirky in his book Here Comes Everybody: The Power of Organizing Without Organizations uses Coase Theorem to explain why there are some worthwhile activities that the internet enables people to achieve through collaboration, but remain commercially non-viable due to the cost of organising the collaborators.  He uses the concept of a Coasian Floor to describe these.  This excellent podcast explains more.

Using money to reward creation is in some extent flawed for three reasons:
1. The more you pay someone for a creative task isn't necessarily proportional to the results. See Dan Pink on the surprising truth about what motivates us.
2. Strong protection of intellectual property can inhibit innovation (see Knowledge Economy Paradox), and contribute to making the transaction cost of collaboration far outweigh the value of the output of collaboration (Shirky, Coase)
3. Now that economies have abandoned the gold standard, the only physical limiter to the value of currency in circulation is the value of goods.  Once intangible assets are included in the economy there's no physical limiter whatsoever.  Intellectual property like all other assets is worth what a buyer is prepared to pay, but when it sits on a corporate balance sheet it's worth a best-guess estimate.

Just a note on point 3.  I compiled the graph below for a different reason, but I was struck by the red line.  It's the growth in UK GDP since 1900.  Is the massive rise since the 1970's really reflective of an equivalent massive increase in the standard of living? Or is GDP as an economic indicator now unbound and spiralling upwards due to the ethereal nature of Intellectual Property?



  1. It's simple. Make copyrights and patents only holdable by humans, and non-transferable except by inheritance. Corporations wishing to use them could lease them for five years, with automatic renewals disallowed by law, so that the creator would be in the driver's seat.

    I proposed this during the Canadian Copyright Consultation. I understand that Graham Henderson, the President of the Canadian Recording Industry Association was less than pleased with my suggestion, and even less pleased that two years later I still won't shut up about it. In fact he's gotten a bit shrill in opposition.


  2. Thanks MH. Yes, I can see why groups representing rights holders may oppose this view!

    Not sure it solves the problem though of ease of re-licensing for remixing and new innovation built on others' rights.

    In fact it can make it more complex, as will have to hunt-out individuals, not deal with collection agencies.

    I've just read this detailed economic explanation of many of the concepts I mention:

    Not sure how limiting holding to individuals will solve the fundamental problem that nearly all creative works build on existing styles, fashions, trends. In software in particular, where it's easy to identify code chunks as distinguishable entities, restrictions on re-use can stifle innovation.

  3. Pug and Whistle30 March 2011 at 16:34

    From a movie and TV perspective, there are so many issues with The Mad Hatter’s ideas that it is difficult to fit them in a posting so here are just a few:

    Firstly, copyright ownership is a bit of a red herring. Licences often confer rights so broad they are akin to full legal ownership. Equally, it is possible to provide for assignment back to the original owner in certain circumstances. That means that although an emotive topic, ownership at any moment in time may not be particularly relevant.

    Secondly, lawyers would likely get round any licensing/auto-renewal prohibitions. It may be surprising but lawyers can be creative!

    Thirdly, if the prohibition was bullet proof clearing the rights in productions would be a nightmare. If today it takes teams of dedicated production lawyers to clear rights in advance, I can’t imagine the pain of clearing the rights under The Mad Hatter’s model. For certain projects the legal bill alone would mean it wasn’t cost effective.

    Finally, there would be a strangling of finance to parts of the creative industries. Studios/broadcasters/super-indies may well continue to invest in properties that guaranteed payback within the 5 year rights window but:

    1. they’d likely put up less cash than they do now for production budgets, leaving producers to struggle even more than many do today either to raise additional cash or cut the budget;

    2. projects that look likely only to produce payback after the limited rights window may never get financed at all; and

    3. ironically, its not just the niche projects that might suffer - big tent-poll franchises might too. Why invest in a franchise if you’re not guaranteed rights to the sequel? Nobody would miss ‘Police Academy 6’ but they might miss ‘The Dark Knight’.

  4. Even for the 20th century the "P" from GDP should have stood for prosperity rather than Product. Interestingly if you look at the prosperity of Americans for example via similar productivity improvements since the 50s you find that the primary beneficiaries have been a tiny <1% group of plutocrats. I think it is therefore likely that the UK wealth created has been diverted in a similar fashion over that period. If the 21st century is going to become anything other than that slow sucking sound of our common wealth pissing down the plutocrat drain then we need to radically change the rules.



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