An ars technica post, Study: free markets superior to patent monopolies, reports:
Our economic system is based on the expectation that markets can provide optimal solutions more efficiently than monopolies, with one glaring exception: patents, which are structured in a “winner takes all” manner. A study appearing in today’s edition of Science suggests that markets might work here, too.
Now, I know, there are many problems with even evaluating an IP system on utilitarian grounds; but the purported innovation-spurring effects of an IP system are what its advocates usually claim in support of having it. So it’s natural to ask: well, where’s the proof? Never is it provided. Study after study concludes that an IP system’s costs are about equal to, or greater than, any benefits it provides. (See my There’s No Such Thing as a Free Patent; What are the Costs of the Patent System?.) So it’s no wonder yet another study concludes this.
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From Science, (the vanguard of scientistic global warming religion): “The authors argue that there have been some cases where a period of patent-free innovation took place in a way that ensured that the innovators were still rewarded. Their prime example is the case of the mining industry in Cornwall, England, where the expiration of several patents on steam engines spurred a period of openly shared innovations that led to rapid improvements in steam engine design.”
Isn’t expiration of a patent is part of a patent system? Kinsella always builds his arguments from the existing patent system. While it is understandable when he wants to change the system but it is deficient if he wants to obliterate it. In that case he needs to look beyond the system what will happen after cannibalizing the existing innovations.,
I leave it to Silas to elaborate on the impossibility of the proposed “market” alternative without patents. Here pricing and calculations of IP is of course impossible as IP is valued at zero. Only central planning remains, the hallmark of socialism.
andras says:
“…the proposed “market” alternative without patents. Here pricing and calculations of IP is of course impossible as IP is valued at zero.”
not valued at zero, as you state, but (mostly) tending to zero over time.
an example: through my superior geological analysis, and after spending my own money on aerial scanning or data mining, i believe that a listed gold mining company is undervalued. my “ip” represents sunk costs and has no value unless i enter the market to capitalize on my hunch. i buy shares, the price rises, others see my action and copy me (free-riders:technical analysts and momentum players).
who knows, maybe i’ll spill the beans at moe’s tavern, and watch as the share price is boosted by other “copiers” of my ip. as more free-riders pile in, the undervaluation gap is narrowed.
at a given point, i might decide to offload my share parcel, because i believe that my view is fully reflected in the market price. now my sell decision might be pure gut-feel, or it might be my view of the share charts, or i might do involved financial computations, but there is no lack of thought (calculation) on my part. so silas can rest easy.
my actions have been copied by others who have approved of my appraisal; the initial mispricing has been eroded over time; the correct pricebut in that lapse, i’ve made a boatload of money.
that doesn’t sound communistic to me, nor does it cry out for central planning.
“Study after study concludes that an IP system’s costs are about equal to, or greater than, any benefits it provides. … So it’s no wonder yet another study concludes this.”
A conclusion is usually not a proof. Are you Stephan Kinsella aware of any proof for an assertion that “an IP system’s costs are about equal to, or greater than, any benefits it provides”? IP is a vast subject. It applies to inventions of new type of solar energy capturing devices, to typograhical designs, to new nanostructures with amazing new features, to paintings, to poems, to new energy saving schemes, and so on. And when you say “an IP system”, do you really mean any IP system? I don’t defend any IP system, but I care about accuracy.
@Newson: “[IP is] not valued at zero, as you state, but (mostly) tending to zero over time.”
What you claim is the present patent system. IP IS valued at zero under Kinsella’s scheme as it is not recognized. As soon as it gets out of your head it is lost as (potentially) anyone can copy it and eliminate “scarcity”.
Silas has your example on his blog, he calls it arbitrage of IP. I guess he forgot to patent it
.
I have two questions to you:
-How does this example relate to current IP laws?
-What separates false ideas from real ones? Or in other worlds how do you distinguish unlimited number of ideas from scarce solutions?
andras says:
“-What separates false ideas from real ones? Or in other worlds how do you distinguish unlimited number of ideas from scarce solutions?
in my example, had my appraisal been wrongheaded, i would have been punished by the share price moving downwards. if my research (ip, in the sense of my time, money and talent expended) is valid, then over time, others will come around to my point of view, and will copy my market moves.
the copycats may not have my comprehensive understanding, but they will get into the action because technical analysis says that the price action tells you how to react long before the fundamentals become obvious. these technical analysis copycats both lessen my appetite for further share purchases by correcting the original share-price undervaluation, and at the same time increase the value of my existing shareholding. it’s a win-win, all without bureaucratic mazes.
the mere fact of having to risk capital to test my idea sorts out your dilemma re: unlimited ideas and scarce solutions.
“-How does this example relate to current IP laws?”
mine is purely a rebuttal of your incorrect statement: that kinsella’s ip-free world is a world where ip has current zero value. the value is most likely perishable, but not is necessarily instantly zero.
the scarcity value can disappear gradually, rapidly, instantly – depends on how smart the ip holder is in managing the secrecy issues, or what the ip holder’s motives are.
watch hollywood for a while and you’ll see how stars/starlettes intuitively understand this idea. they know fame is fleeting, that their youthful beauty is ephemeral, and so they capitalize on their period in the sun.
they can still make a fortune before the looks fade, notwithstanding your calculation-problem-hypothesis.
“Silas has your example on his blog, he calls it arbitrage of IP”
can you give me the direct link to the article? thanks.
@Newson,
On your first answer: You are not the only participant of the market who tries to manipulate the price. If you add up all these pieces of information it becomes only a noise as you can observe it currently. The feed back from the market to the inventor would be negligible comparing to the current state.
Also the system has to price not only the ideas but every and all factors associated with IP generation, capital, labor, demand etc. A scalar market factor just can not handle all these. Your arguments are very similar to those of the central planners’. As it is socialism as well.
If you want to see direct market feed back here is one:
By announcing Obama’s plan to ease the drug patent laws to cut protection time biotech fell and generics rose. While you may laud this as wonderful, however, it is only for the short term till the opportunists find targets to be cannibalized. It also mean less original research due to less investment. You can expect that by abolishing IP all biotech would go bankrupt.
It is up to social engineering to set the parameters to chose whether IP will be part of external or internal economies (Mises). The less IP recognized the more it shifts to being external.
For Silas’ blog check this address in read the thread.
https://www.blogger.com/comment.g?blogID=1145198247762305957&postID=5384050605351456369
For more details you have to contact him.
andras says:
“Also the system has to price not only the ideas but every and all factors associated with IP generation, capital, labor, demand etc.”
these are factored in by every buyer of stock – subjective valuation. some of those buyers will have “ip” of no value, ie their unique appraisal is wrong, despite the effort expended in forming that opinion. other buyers will have no original insight, but have invested time and money and become competent technical traders, able to copy profitably those who have better fundamental information.
regarding obama: the entire market has been cratering, so it’s playing god to attribute one sector’s fall exclusively to any single factor. but i’ll indulge you and play along…
so generics get a short-term boost and proprietary-drug companies take a hit, that may indeed mean less dollars are spent on original research. how can one possibly know that’s a bad thing? why is it inconceivable that much of the research is geared to obtainment of the patent, with clinical efficacy a secondary issue only? if research is done via many tiny steps, as opposed to fewer larger ones, who is to say there need be any stagnation in medical research?
why do you have no faith in pharmaceutical entrepreneurs being able to accommodate copycat risk without the patent prop?
maybe the changed incentives would mean preventative or surgical medicine becomes more profitable vis-a-vis drug treatment; why is this necessarily a bad outcome?
if the fda were abolished, much of the drug costs would also collapse, offsetting the loss of ip-monopoly profits. i don’t know exactly how the scenario would play out without patents, but i cannot see how you can, either.
“Newson wrote:
i don’t know exactly how the scenario would play out without patents, but i cannot see how you can, either.”
This is obvious. However, private funding of biotech would dry up. We can also look to countries such as the old USSR and China. Certainly, countries that had the scientific knowledge to genetically engineer viruses for warfare had the ability to do drug research. However, they never did.
walt d:
kindly explain how the renaissance occurred without the benefit of ip legislation; in your answer please show how this flourishing of knowledge is similar what occurred in the ussr and the pre-deng xioaping china.
@Newson,
You always invoke the slogan that “you just have to be an entrepreneur”. But what about division of labor? With the no-IP wold comes total secrecy, you can not even communicate your ideas let alone co-operate to develop it. Again, another fall-out of externalization, the price of a false ethics.
to andras:
well, yes, i seem to have more faith in the cunning of entrepreneurs than you. and yes, to maximize the value of your insight, secrecy may be the key (still, that’s not a cost to be passed on to the public at large). petra moser detailed the swiss watch industry, and how they resisted reverse-engineering through a combination of guarding their own-made tools, and banding together in secrecy pacts.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=435483
secrecy may not be essential; the business model could vary dramatically from product to product, and not all innovators would adopt the same payment mode.
It seems to me that secrecy is already essential. This is why we have Non-Disclosure Agreements signed by collaborators. If a collaborator should divulge the secret, they are at the mercy of the terms of the agreement.
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