Does Intellectual Property Law Foster Innovation? Where I question the efficacy of patent and copyright in a socially networked world.
Intellectual Property and the Deflation of the Knowledge Economy - (this post) Where I toy with the idea that the Knowledge Economy may not turn out to be much of an economy, especially when it comes to Intellectual Property
The Economic Reset Button - Where Jeff Jarvis asks Eric Schmidt whether or not this is a fundamental shift in the economic base
Innovative Deflation - Where I ask, "Is the knowledge economy ripe for growth, or is it the means by which traditional economies are shrunk?" ]
Friday night I was discussing the future of intellectual property law with some friends. My argument, in a nutshell:
Every business model relying on intellectual property law (patent and copyright) is heading for massive deflation in our lifetimes. We've seen it with the music industry and newspapers already. The software industry is starting to feel it with the maturity of open source software, and the migration of applications to the cloud. Television, movies, and books are next. I've come to question the ability of copyright and patent law to foster innovation, but leaving that aside, the willingness of people to collaborate and share, and the tools provided for it on the internet, may render these laws obsolete.
Jeff Jarvis seems to be toying with some of the same ideas when he posted When Innovation Yields Efficiency last week. In it, he writes:
But as I thought through the major innovations of the last decade, many of them have not led to economic growth; they haven’t added money to the economy but left it in the economy. Thus measuring innovation’s impact in the revenue, growth, productivity, and market cap of large companies may not be valid. Instead, we are seeing innovation take money out of their pockets, leaving it with their customers.
The problem, if you can call it that, is that many of the customers are also employees that have had their jobs fall victim to efficiency. Jarvis refers to this as "efficiency" or "shrinkage", and he's right on both counts. But the better term for it is "deflation". Journalists, auto workers, record industry players, retail sales clerks, and marketing staff are forced to go looking for work in shrinking markets. These businesses are either suffering from old business models based on increasingly artificial scarcity (newspapers, music, marketing, software development), or are able to do more work with the fewer resources due to the newly created efficiency (retailers). In short, businesses relying on artificial scarcity created by intellectual property law, are businesses most susceptible to deflation.
Why is deflation a better descriptor? Because as businesses whose product is reliant on intellectual property shrink due to Internet-based efficiencies, consumers are reaping the rewards of these efficiencies. Fewer people are employed by this sector, but fewer consumers are having to pay for products previously only produced by this sector.
The knowledge based economy doesn't follow the laws of supply and demand. (Well, sort of.) First, Intellectual property are largely non-rival goods, meaning that I can "consume" news, or music, or software, and it doesn't get used up. Until recently, restrictions on production in the delivery medium (newsprint and CD's) and/or licensing restrictions on consumption have kept the law of supply and demand in place for intellectual property.
The Internet first struck a blow to the restriction on production, because the copying and transmission of IP became nearly free. Now, with the maturation of open source software, social networks, and collaborative platforms, we're moving away from licensing restrictions on consumption: social networks and news aggregators bring us news, blogs bring us opinion pieces, musicians like Nine Inch Nails and Jonathan Coulton are beginning to release their music for free. Musicians don't need the backing of recording studios any longer: They'r recording in home studios, fans spread their music via social media, and fewer people are getting new music from the radio.
Effectively, the restrictions that held supply in check for IP are slowly falling away. As effective supply rises, price plummets. Don't believe me? You probably spend less money now on music than you did 15 years ago, and your collection is larger and more varied than ever. You probably spend less time watching TV news, and less money on newspapers than you did 10 years ago, and are better informed.
I won't go so far as to say that the knowledge economy is going to be no economy at all, but it is a shrinking one in terms of money, both in terms of cost to the consumer, and in terms of the jobs produced in it.
Kevin Kelly of Wired magazine called this "The New Socialism". He's aware of the stigma attached to the word, but he justifies well:
When masses of people who own the means of production work toward a common goal and share their products in common, when they contribute labor without wages and enjoy the fruits free of charge, it's not unreasonable to call that socialism.
He's right. I've always been a capitalist to the core. I have frequently defended this belief by saying that Capitalism is society's best method for the allocation of scarce resources. And I believe that now more than ever. But what happens to markets like intellectual property when "scarcity" no longer exists?