Why IP is not like other property

Peter Mandelson has not thought this through:

First, taking something for nothing, without permission, and with no compensation for the person who created and owns it, is wrong. Simple as that.

With respect, it is not as simple as that.

The reason this looks plausible is the use of the word “taking”.   If I take something from you, that implies that I now have it and you no longer do.  If it was yours to start with, that would be unfair (or, in Mr Mandelson’s word, “wrong”).  But the challenge for making good policy about intellectual property is that the goods in question are non rival – meaning that one person’s consumption does not come at the expense of another person’s consumption of the same good.  If I make a copy of a song and listen to it on my MP3 player, that in no way reduces your ability to listen to it.   So I have not “taken” it from you.  We can both listen to it.  The marginal cost to society of my listening to the song is zero.

Mr Mandelson may have meant by “take” the idea that if I neglect to pay you for something, you lose out.  But this isn’t necessarily wrong.  As Chris Dillow points out, if I give a lift to a friend, I deprive a taxi company of revenue.  The taxi company might not be very happy about that. They might lobby the Business Minister over cocktails on a yacht, requesting that taxi companies be given a monopoly on giving rides in the area they serve.  (After all, they have spent a lot of money on cars and offices.)  The Business Minister should tell them to get stuffed.   There is no basic right to make money on your investments, and being deprived of potential revenue is not the same thing as a cost.

As I explained in more detail here, the economics of non-rival goods is quite different from the other kinds of goods.   Intellectual property rights are a social construct to create temporary monopolies which, unlike other forms of property, worsen rather than increase static allocative efficiency.  For non-rival goods, allocative efficiency requires that the price is zero, but dynamic efficiency may require some sort of remuneration for the creators of the products.  A society may choose to restrict access to a product as a way to create financial incentives for innovation. This may be worth doing if the welfare gains from the incentives to innovate exceed the welfare costs of reducing access to the products.  But that trade-off does not automatically and necessarily come down in favour of having intellectual property rights, nor is the creation of intellectual property rights the only or the necessarily the best way to create incentives to innovate.

This is not a wholesale argument against intellectual property rights.  But it is an argument against the daft claim that intellectual property rights are just the same as rights to rival goods such as physical property.   Property rights for rival goods increase, or at any rate do not diminish, allocative efficiency and hence welfare;  property rights for non-rival goods decrease allocative efficiency, and that is a welfare loss that has to be justified by a welfare gain elsewhere.

We do need to reward and incentivize innovation and creativity appropriately.  But I am struck by the lack of imagination and innovation in the current debate about how we do it.  Intellectual property rights are one approach, but they have important drawbacks.  We should not forget other possible approaches – such as prizes, buy-outs, or public funding – which might secure many of the same benefits without the costs.

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