Saturday, March 9, 2013

Boldrin and Levine's Inept Anti-IP Argument

Authors Boldrin & Levine have given a book "Against Intellectual Monopoly". As the title implies, they characterize all IP as a state-granted monopoly, which can be criticized on both moral and utilitarian grounds. They then present a real-world case study which purports to show that authors and publishers could still profit in a world without copyright.


As the authors correctly note, it is widely appreciated by economists that a monopoly will lead to economic inefficiencies.  The correct (Austro-Libertarian) understanding of “monopoly” is the coercive power by one business to exclude others from offering the same type of product. The lack of market competition must logically result in higher prices and / or lower quality goods than what would prevail with competition.


It is certainly true that a copyright confers authority on its holder to exclude others from the use of the copyrighted work. But such is the nature of a property right, any property right. I own a house, and I am the sole arbiter of the use and control over it. I have the authority to exclude others. Does my ownership constitute a “monopoly”? We could call it that, I suppose, but that is not what is ordinarily meant by “monopoly”.


Indeed, many different people mean many different things by “monopoly”.  For instance, without having exercised any coercion to exclude anyone from the computer operating system market, the Microsoft Corporation was prosecuted as a "monopoly" for simply having achieved a very large market share. The term “monopoly” is elusive.


And yet, despite their title and some 360 instances of the word in their book, Boldrin & Levine never actually bother to define “monopoly”. Consequently, they do not attempt to explain how the various alleged examples of “intellectual monopoly” they cite might or might not fit the definition.  Instead they ask:


Why, however, should creators have the right to control how purchasers make use of an idea or creation? This gives creators a monopoly over the idea. We refer to this right as “intellectual monopoly,” to emphasize that it is this monopoly over all copies of an idea that is controversial, not the right to buy and sell copies. The government does not ordinarily enforce monopolies for producers of other goods. This is because it is widely recognized that monopoly creates many social costs. Intellectual monopoly is no different in this respect.[1]


A possible answer as to why creators should have the right to control the use of their creations is that there is a legitimate property right involved. Boldrin & Levine would have done well to examine that possibility and argue, on theoretical grounds, why such a property claim is untenable. But these economists ignore the importance of property altogether, and present a positivist, empirical, utilitarian treatment. [2]


After informing us that theirs “is a book about economics”, Boldrin & Levine proceed to deliver what is surely one of the poorest economic analyses ever written. They want to show that profits could be realized on book publishing in the absence of copyright, yet completely fail to consider costs. They ask us to consider the publication of the 9/11 Commission Report, which, being a government report, was exempt from copyright protection:


[Norton Publishing Co.] struck an unusual publishing deal with the 9/11 commission back in May: Norton agreed to issue the paperback version of the report on the day of its public release.…Norton did not pay for the publishing rights, but had to foot the bill for a rush printing and shipping job; the commission did not hand over the manuscript until the last possible moment, in order to prevent leaks. The company will not reveal how much this cost, or when precisely it obtained the report. But expedited printings always cost extra, making it that much more difficult for Norton to realize a profit.[3]


Having paid nothing to the author of the work, but facing the fact that other publishers could legally copy and sell the report, Norton invested its own money in printing physical copies of the book, and was ultimately able to garner some $600,000 in profit. The authors ask us to accept this as evidence that books could be profitable without copyright laws.


The economic analysis by Boldrin & Levine is spectacularly, monumentally inept. First, like any government agency, the 9/11 Commission is a coercive monopoly, deriving its income by force. In that the authors’ thesis is to portray copyright as a “monopoly” and therefore harmfully disruptive of market signals, this would seem important to point out.


More important to the economic analysis,   the 9/11 Commission spent $15,000,000 of taxpayer money authoring the book, not counting the salaries of the principal authors.  These Ph.D economists are purporting to analyze profitability without bothering to count costs.


Looking at both sides of the balance sheet, the 9/11 Commission Report was a gigantic net loss. It was only profitable to Norton Publishing because they were spared the initial expense of actually having to create the work, something that would never be the case on the free market. Whether it is books or widgets, whether involving intellectual property or physical, virtually any product can be “profitable” if some third party is made to bear the expense of producing it.


Instead of analyzing it this way, Boldrin & Levine simply assume the existence of the intellectual work, and proceed from there. This is the same way socialists have advanced their ideological arguments for centuries – assuming a certain amount of wealth, and discussing how it should be divvied up. Missing completely is the question of incentive. Would the Norton publishing company have been willing or able to pay $15,000,000 to fund a project they hoped would make $600,000 back? I dare say not.


Furthermore, it is highly doubtful Norton would have made even this amount had the “author” not been the U.S. Federal Government. Part of Norton’s deal with the 9/11 Commission was the right to print the word “authorized” on the book cover. Even though the law is clear that government publications are not protected by copyright, it is fair to assume that many would-be re-publishers of the report were intimidated out of doing so by that one word: “authorized”. I certainly wouldn’t feel comfortable re-publishing a major government study on 9/11 terrorism that was “unauthorized”. Would you?


Are property rights over intangible goods an economically harmful “intellectual monopoly?” Or an example of the profoundly beneficial type of “monopoly” known as property? The empirical, positivist approach of Boldrin & Levine cannot hope to shed light on this question. The answer will instead turn on whether or not intellectual objects behave as physical objects do, when subjected to the same praxeological scrutiny.


[1] Boldrin & Levine “Against Intellectual Monopoly” p. 9.

[2] See Hoppe, H “Praxeology and Economic Science”, sect. II for a discussion of the intractable problems with an empirical approach to economics. History says nothing about cause and effect.

[3] Boldrin & Levine “Against Intellectual Monopoly p. 26, emphasis added.

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