I was originally going to entitle this post “What is property?” But that’s not really the question, is it?

Tangible products such as bicycles and haircuts and food are considered by economists to be rival goods, consumption of the good by one person prevents its use by another.  Non-rival goods include things like broadcast TV.  If I tune in to Seinfeld, it doesn’t prevent another person from tuning in to the same show.  For that reasons, private broadcast TV companies were not able to charge money for their service, and instead relied on advertising revenue. (The publicly-owned BBC was a different story.)

Most intellectual property has a non-rival characteristic.  Use of an idea by one person doesn’t prevent the use of the idea by another.  So should ideas be regarded as private property?  In other words, should inventions be granted intellectual property rights? And if so, to what degree?

Our intuition about these issues is not very helpful, as concepts such as “property” and “theft” were formed in a period when there were mostly rival goods.  Stealing meant depriving the other person of the thing you stole.  But stealing IP means not rewarding the other person for the thing you stole.  That’s not the same.

Think about “small p” progressivism.  I don’t mean left-wing progressivism; I mean the general notion that it would be a good thing to bring the fruits of the modern world to the billions that still live in poverty in places such as Africa, South Asia and elsewhere.  As far as I know, every single development economist favors some sort of economic development.  As far as I know, every single development expert believes that development involves, among other things, educating poor areas with ideas mostly created in the West.  As far as I know, there has never been a single instance of people shouting “IP theft” when textbooks were donated for free to a poor country.  Most well-meaning people think it’s a really good thing if poor uneducated peasants can learn what is already being taught in rich country schools: chemistry, accounting, math, etc.  No one thinks poor countries should have to pay the original creators of the fruits of Western civilization.

At the same time, most people have an intuition that there is some value (perhaps even “fairness”) in certain forms of IP rights.  How can companies be expected to invent new drugs if the recipe cannot be patented?

Commenter mbka provided an example that gets right at the heart of this dilemma.  The two short quotes are mine, and then he responds:

“I’d add that Americans might still be concerned about the practice, but in my view there’s really not much that can be done about it.”

It’s common practice within and between countries. Example, ten years back or so I once talked to a German engineer / businessman who was in Asia trying to sell knowledge of the exact proportions for mixing the components of epoxy in the production of fiberglass hulls. Apparently that’s still a kind of an art, even when the basic component chemistry is known for many decades. I was taken aback, it’s clearly a morally ambiguous thing to try and sell out hard-won experience from his current or former company, but very likely, not even a patentable thing to begin with.

“I recall reading that 200 years ago the British were worried that Americans would steal their manufacturing techniques and bring them to America.”

De Tocqueville at the time commented how American industry practices were fast and loose as compared to the European stalwarts, how the quality was low and ships sank more often in the quest for a quick buck. Anyhow, the reputation of Japan, then Taiwan, then Korea, and now China, goes through the same cycle, from “low quality copycat” to “unfair price undercutting” to “we can’t match their quality”. Come to think of, that’s half the theory of Jane Jacobs’ “The economy of cities”, https://www.amazon.com/Economy-Cities-Jane-Jacobs/dp/039470584X

The German case is really interesting, because it crosses over the two categories I mentioned.  It’s kind of like some basic idea in chemistry, which ought to be freely available to everyone in the world.  Something out of a chemistry textbook.  But it’s also sort of like the output of pharma research, which deserves patent protection.

I don’t have strong views on “where to draw the line”, and indeed would defer to people who know much more about this than I do.  (Alex Tabarrok often does excellent posts on this topic.)  But I do have strong views that no one else knows exactly where society should draw the line.

Some libertarians believe that property rights are a “natural right”. But I doubt that there’s a single person who believes that “nature” tells us that patents should last for 17 years, not 16 or 18 years.  Property rights are clearly a concept that is at least to some extent created by humans for utilitarian reasons, not simply a natural right to be discovered by thinking about the world.

If you believe in “free markets”, then you believe people should be able to produce and sell anything they wish, without government interference.  If you believe in IP rights, then you don’t believe that people should be able to produce and sell anything they wish without government interference.  Both free markets and property rights are key principles of classical liberalism, and they are in conflict.

If we leave the realm of IP rights and look at regulation more broadly, what do we see?  We see a political process that is too pro-business, and not enough pro-consumer.  We see all sorts of regulations protecting business from competition, at the expense of consumers. (Think auto dealers, health care, occupational licensing, taxis, sugar quotas, steel tariffs, etc., etc.) Given that obvious public policy bias, if I knew absolutely nothing about IP law, I’d guess that these laws are also too pro-business and too anti-consumer.  That is, I’d assume that the laws provide too much IP protection.  Even in a closed economy.  If we go to an open economy, I’d expect the “mercantilist bias” to be even worse, in order to exploit foreigners.  Think about the example of Parmesan cheese in my previous post.  The EU obviously cares much more about protecting cheese makers than providing cheap cheese to consumers.

That doesn’t mean that all IP protection is bad; I believe some is appropriate.  Rather, at the margin, any reduction in IP protection is likely to be slightly beneficial.  That needs to be taken into account when evaluating the cost of IP theft.