“Intellectual Property” and the Global Economy

Download: “Intellectual Property”: A Libertarian Critique

I. The Ethics of “Intellectual Property”
II. Privilege as Economic Irrationality
III. “Intellectual Property” and the Structure of the American Domestic Economy
IV. “Intellectual Property” and the Global Economy
V. “Intellectual Property,” Business Models and Product Design
VI. Is “Intellectual Property” a Necessary Incentive?

In the contemporary global economy, “intellectual property” plays the same protectionist role for TNCs that tariffs performed in the old national economies. Michael Perelman argues that the upsurge in “intellectual property” protection since the late 1960s has been an integral part of the neoliberal revolution.

Although many old line industries could no longer compete effectively in world markets, exports of intellectual property in the form of royalties and copyright fees soared.

I have not seen hard data regarding the effect of intellectual property rights on the rate of profit, but I am convinced that it is substantial. Just think about Microsoft and the pharmaceutical industry with their low marginal costs relative to their market prices. For example, Microsoft reported that it makes 85 percent margin on its Windows system…. [68]

Elsewhere he cites figures showing that revenues on “intellectual property” rose, between 1947 and the early 1990s, from ten percent to over half of all American exports. In 1999 export revenues from royalties and licensing revenue reached $37 billion, exceeding the revenue from aircraft export ($29 billion). [69]

It’s hardly coincidental that the dominant industrial sectors in the global corporate economy are all heavily dependent on “intellectual property”: software, entertainment, biotech, pharmaceuticals, and electronics. And the central focus of the neoliberal regime, which has been falsely identified with “free trade” and “free markets,” is on strengthening corporate control over “intellectual property” in the face of the threats we saw described by Michel Bauwens earlier in this paper.

This is the Nike business model, simultaneously celebrated by Tom Peters and condemned by Naomi Klein: outsource production to networked supply chains, with the corporate headquarters retaining control over trademarks and other “intellectual property,” finance, and marketing.

In addition, patents are used on a global scale to lock transnational manufacturing corporations into a permanent monopoly of productive technology. The single most totalitarian provision of the Uruguay Round is probably its “industrial property” provisions. [70] The developed world has pushed particularly hard to protect industries relying on or producing “generic technologies,” and to restrict diffusion of “dual use” technologies. The U. S.-Japanese trade agreement on semi-conductors, for example, is a “cartel-like, ‘managed trade’ agreement.” So much for “free trade.” [71]

The central motivation in the GATT intellectual property regime, however, is to permanently lock in the collective monopoly of advanced technology by TNCs, and prevent independent competition from ever arising in the Third World. It would, as Martin Khor Kok Peng writes, “effectively prevent the diffusion of technology to the Third World, and would tremendously increase monopoly royalties of the TNCs whilst curbing the potential development of Third World technology.” [72]

Raghavan summed up nicely the effect on the Third World:

Given the vast outlays in R and D and investments, as well as the short life cycle of some of these products, the leading Industrial Nations are trying to prevent emergence of competition by controlling… the flows of technology to others. The Uruguay round is being sought to be used to create export monopolies for the products of Industrial Nations, and block or slow down the rise of competitive rivals, particularly in the newly industrializing Third World countries. At the same time the technologies of senescent industries of the north are sought to be exported to the South under conditions of assured rentier income. [73]

But to repeat once again: the good news is that, in both the domestic and global economies, this business model is doomed. As argued by a wide range of authors, it sows the seeds of its own destruction.

The shift from physical to human capital as the primary source of productive capacity in so many industries, along with the imploding price and widespread dispersion of ownership of capital equipment in so many industries, means that corporate employers are increasingly hollowed out and only maintain control over the physical production process through legal fictions. When so much of actual physical production is outsourced to the small sweatshop or the home shop, the corporation becomes a redundant “node” that can be bypassed; the worker can simply switch to independent production, cut out the middleman, and deal directly with suppliers and outlets.

David Pollard, writing from the imaginary perspective of 2015, remarked on the vulnerability of corporations that follow the Nike model of hollowing themselves out and outsourcing everything:

In the early 2000s, large corporations that were once hierarchical end-to-end business enterprises began shedding everything that was not deemed ‘core competency’, in some cases to the point where the only things left were business acumen, market knowledge, experience, decision-making ability, brand name, and aggregation skills. This ‘hollowing out’ allowed multinationals to achieve enormous leverage and margin. It also made them enormously vulnerable and potentially dispensable.

As outsourcing accelerated, some small companies discovered how to exploit this very vulnerability. When, for example, they identified North American manufacturers outsourcing domestic production to third world plants in the interest of ‘increasing productivity’, they went directly to the third world manufacturers, offered them a bit more, and then went directly to the North American retailers, and offered to charge them less. The expensive outsourcers quickly found themselves unnecessary middlemen…. The large corporations, having shed everything they thought was non ‘core competency’, learned to their chagrin that in the connected, information economy, the value of their core competency was much less than the inflated value of their stock, and they have lost much of their market share to new federations of small entrepreneurial businesses. [74]

To take the example of Nike shoes themselves, the larger the percentage that brand-name markup contributes to total retail price, over and above actual costs of production, the greater the incentives will become for the factories producing the actual shoes to defect from the international “intellectual property” regime. By producing identical shoes (perhaps with the Swoosh in a red circle-and-slashbar) and cutting Nike out of the loop, the factories can eliminate the brand-name markup, raise wages by several hundred percent, and lower prices sufficiently to market their shoes domestically instead of for export to Western consumers. Likewise, the small, networked flexible manufacturing firms in industrial districts like Emilia-Romagna, to the extent that they still participate in the supply chains of transnational manufacturing corporations, by simply ignoring “intellectual property” laws can bypass the large manufacturers and offer better, cheaper competing versions of their own products.

One of the greatest services libertarians can render to the cause of freedom is to agitate for mass defection from international “intellectual property” agreements like WIPO and TRIPS, and at the same time to promote the development of technical means of circumventing enforcement of copyright law.

Notes:

68. Michael Perelman, “Intellectual Property Rights and the Commodity Form: New Dimensions in the Legislative Transfer of Surplus Value,” Review of Radical Political Economics 35:3 (Summer 2003), pp. 307-308.

69. Perelman, Steal This Idea: Intellectual Property Rights and the Corporate Confiscation of Creativity (New York: Palgrave, 2002), p. 36.

70. Chakravarthi Raghavan, Recolonization: GATT, the Uruguay Round & the Third World (Penang, Malaysia: Third World Network, 1990), pp. 119-20.

71. Dieter Ernst, Technology, Economic Security and Latecomer Industrialization, quoted in Raghavan, Recolonization, pp. 39-40.

72. Martin Khor Kok Peng, The Uruguay Round and Third World Sovereignty (Penang, Malaysia: Third World Network, 1990), pp. 29-30.

73. Raghavan, Recolonization, p. 96.

74. David Pollard, “The Future of Business,” How to Save the World, January 14, 2004 <http://blogs.salon.com/0002007/2004/01/14.html>.

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