Is gun-boat diplomacy good for the economy?

My RMIT colleague Jason Potts and I have a new working paper “The Stationary Bandit Model of Intellectual Property” up at SSRN.

From the introduction:

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The first duty of government is to protect its citizens. Put the other way, the value to a citizen of a strong government is to protect their life, liberty and property from the depredations of others. In the political romantic view, this is the protection of the weak by the strong. But the real nature of the bargain is that the weak must then pay tribute to the strong. In his anti-‘social contract’ model of the origin of government, Mancur Olson (1993) argued that governments offering protection are essentially ‘roving bandits’ who have settled down to establish a monopoly on theft as ‘stationary bandits’ who protect their tributes—now called tax-paying citizens—from external threats. Stationary bandits still plunder their captives to the maximum extent, but they do so rationally, leaving them sufficient resources and furnishing peaceful order and public goods to maximize the future stream of taxes.

We propose a new model of intellectual property based on the stationary bandit model of government.[1] We argue that new ideas—of the sort that become patents, copyrights and trademarks—emerge as economic rights[2], born global as it were into a world of roving bandits. They seek protection from a stationary bandit, who extracts tribute in return. The key insight of our new model, however, is a sharper distinction of who those bandits are.

In the standard model of intellectual property, benevolent national governments grant a temporary monopoly privilege to protect the creative inventor citizen from the unscrupulous depredations of corporations, or teenage pirates. The argument goes that without a prohibition on copying (institutionally defined as theft), a competitive market will provide only weak incentives to invest in creating new ideas—i.e. there will be market failure (Arrow 1962) and society will suffer a sub-optimally low level of creative-inventive activity. In the standard model, government protects from private theft, making the nation safe for private creativity.

Now private theft is certainly a problem, but we maintain that public theft is much worse. The main predators on intellectual property, we argue, are not competing inventors or teenagers, but other governments through their client services and cronies, who variously engage in outright theft or coercive measures to diminish and deplete the value of their property (Ezell et al 2016). A common example is the treatment of biopharma, routinely subject to outright theft, compulsory licensing, and other practices that diminish its value (Wu and Ezell 2016). In our new model, vulnerable subjects seek protection for their private economic property from the banditry of other governments, by registering their property with their own government, whom they trust to be powerful enough to protect it as they peacefully engage in trade and commerce throughout the world. The origin of intellectual property is when one of these roving bandits finds it worthwhile to become a stationary bandit by protecting the idea (the entrepreneurial discovery and the economic asset) from competitive theft from other governments, and settling down as a monopoly exploiter.

This sort of public action on behalf of private citizens should not be confused with rent-seeking or cronyism, where agents seek private benefit from insider markets to public power (Dourado and Tabarrok 2015). This is important, because the standard model of intellectual property is in effect a benevolent form of rent-creation—producing novelty, and making it public, in return for a government granted monopoly—thus creating a mechanism to transfer resources from other agents in the economy to the target. But in our model of intellectual property when a private agent seeks protection they are not seeking to exploit insider political markets, or to transfer resources from other groups of citizens (Olson 1965), but rather to have their property rights represented and extended as far as possible. In return, they grant that government an exclusive right to exploit them through perpetual taxation of the property. The other side of the intellectual property is not market failure, but a monopoly on taxation.

A better model of this exchange is ‘gunboat diplomacy’, as a type of government action to protect the rights of citizens operating beyond the nation state through the threatening deployment of naval assets. When the US Commodore Perry sailed into Edo (now Tokyo) harbor in 1853 to open Japan to trade with the West; or the British Naval fleet ended the Opium wars with China in 1839-42, resulting in the Treaty of Nanking that opened Hong Kong to foreign trade; or the US defeated the Barbary States, ending tribute to the pirates under protection of the Ottoman empire, enabling US and European merchants to trade along the North African coast without harassment, we have governments protecting private property against the depredations of other governments.[3] Governments have long used force to open markets when acting as agents on behalf of their merchant citizens seeking to extend their property rights, and therefore opportunities for exchange and commerce, into new territories. This sort of engagement is widely misrepresented as imperialist venturing, implying a political empire-building motive. But these actions can be better understood as tax policy, because the crucial part of the equation is that the displays of government force—through the posturing of naval assets, say—are on behalf of those who the government has monopoly tax rights over.

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[1] Our approach also builds on Barzel’s (2002) Hobbesean model of the state as a violent third party enforcement mechanism that citizens consent to power when safeguards are in place to mitigate abuse.

[2] In the Allen and Alchian (1977: 114) sense of ‘economic rights’ as the expectation of benefiting from the value of the assets created, for which they then seek third party enforcement.

[3] While more common during the 19th century, US carrier groups still patrol the South China Sea and coalition task forces protect merchant shipping in the Straights of Malacca and off the Somalia coast.

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16 Responses to Is gun-boat diplomacy good for the economy?

  1. Joe

    Intellectual property IS NOT property. It’s a state granted right of banditry imposed on all others that wish to use an idea – whether they thought of it themselves or not.

    That the state is the primary usurper of “I.P.” can be of no surprise, as what the state grants the state can deny.

  2. Tim Neilson

    Joe
    #2059624, posted on June 16, 2016 at 3:41 pm
    It is exactly the same as any other form of property. Land is “property” only because you can get the force of the State to help you get rid of squatters etc. Your car is “property” only because carjackers can be sent to jail. A debt owing to you by someone you did work for is “property” 0nly because you can ultimately get a judgement debt enforced, or sell it to an agency who can then do likewise. Shares, bank accounts etc. are property likewise only to the extent that the legal regime surrpounding them gives the owner of them certain enforceable rights by which that item of “property” is defined. People who deny that intellectual property is property merely demonstrate their ignorance of what “property” is.

  3. .

    Intellectual property is good and real.

    Intellectual property law however – not so much.

    Literature is preserved for 75 years after the author’s death in the US.

    This is ridiculous.

    Harry Potter won’t be public domain until about 2120.

  4. Empire

    An important issue that needs air. I’m sympathetic to your ideas.

    We propose a new model of intellectual property based on the stationary bandit model of government

    …provided the stationary bandit is small and severely constitutionally restrained.

    Literature is preserved for 75 years after the author’s death in the US.

    Dot

    The period of protection is nuts, but does it really impact anyone other than US citizens? I’m not familiar with the side deals in the FTA, but have we acquiesced to this?

  5. Joe

    Tim,

    Except for the simple fact that you cannot TRANSFER an idea as property. There is no way, short of excising a portion of the brain to remove the property from one owner and transfer it to another such that the original owner NO LONGER HAS IT. The best that can be done is prevention of COPYING.

    Intellectual property is invented to give the worthless ideas of the idea classes some worth. It has direct antecedents of aristocracy and title of PATENT. The non-western world thinks our veneration of I.P. is a joke and they pay lip service to it as they copy the ideas and get ahead by not having to pay rent seekers for the ideas.

    I think, therefore I can seek rent forever!

  6. Stimpson J. Cat

    I’m not sure if I agree with this I.P. thing
    Intellectual property is invented to give the worthless ideas of the idea classes some worth. It has direct antecedents of aristocracy and title of PATENT. The non-western world thinks our veneration of I.P. is a joke and they pay lip service to it as they copy the ideas and get ahead by not having to pay rent seekers for the ideas. The best that can be done is prevention of COPYING. It’s important that people be protected from those who would copy their ideas.
    🙂

  7. Empire

    Except for the simple fact that you cannot TRANSFER an idea as property

    Sure you can. I recently purchased a schematic for an amplifier. Downloaded as a pdf. The designers idea, visually represented and now I can replicate his invention.

  8. Joe

    TRANSFER as in the original owner NO LONGER HAS ACCESS to the property.
    Is there some meaning of the word TRANSFER that I have not had access to?

    What you have done is to COPY the idea. The Owner still owns the property. At best you can be said to have rented the property. However, unlike renting land, the owner can re-lease the property as many times as he likes without you having any recourse to action based on the fact that you now own/rented the property. It’s an infinite license to print money based on the fact that you can simultaneously rent the property to multiple parties. This flies in the face of any definition of the word property as regards to natural rights.

    Property is an attribute assigned to SCARCE resources. Ideas are hardly scarce.

  9. Tel

    Intellectual property is invented to give the worthless ideas of the idea classes some worth. It has direct antecedents of aristocracy and title of PATENT. The non-western world thinks our veneration of I.P. is a joke and they pay lip service to it as they copy the ideas and get ahead by not having to pay rent seekers for the ideas.

    Hmmm, that’s a fairly poor description of intellectual property. Multiple things fall under the category of intellectual property:

    * A secret, is a natural right (i.e. doesn’t require government, you are born with the ability to keep secrets).

    * A Copyright is (as the name implies) the license to make copies of a work. It does depend on government, and it can be transferred just like any title deed.

    * A Patent is a government granted monopoly on an idea, for a limited time. It’s supposed to be narrow, but some are overly broad. Some argue it’s a poor quality implementation of a property right, others argue it’s stupid from the get go.

    * Other rights exist that are slightly similar to Copyright such as the protection of a product shape (i.e. industrial design protection).

  10. Tel

    TRANSFER as in the original owner NO LONGER HAS ACCESS to the property.
    Is there some meaning of the word TRANSFER that I have not had access to?

    If you transfer a title deed for a piece of land, the original owner can physically still walk across that land (possibly climb a fence) but they cannot legally do so. It’s a transfer of legal rights between individuals, but the land itself just sits there, doesn’t go anywhere.

  11. Joe

    If you transfer a title deed for a piece of land, the original owner can physically still walk across that land (possibly climb a fence) but they cannot legally do so.

    So what.

  12. Joe

    Tel and I have reached an impasse.

    I cannot convince him that ephemeral ideas are different to material objects and he cannot convince me that they are the same.

    c’est la vie.

  13. I cannot convince him that ephemeral ideas are different to material objects and he cannot convince me that they are the same.

    That’s because you are both barking up the wrong tree. An idea is nothing, and is of no value. You can neither copyright, nor patent, a mere idea. You cannot copyright the mere idea for a rip-roaring good sci-fi novel. You have to write a novel based on the idea, then the novel is copyright.

    You cannot patent a mere idea for a warp speed interstellar space drive. You have to supply plans in sufficient detail so as to convince the Patent Office that your idea is capable of being built, will work as described, and is unique.

    In both cases your idea has now been transformed from an “ephemeral idea” which is intangible and worthless, to a valuable, tangible, material object which can be copyrighted or patented.

  14. .

    Might be timely to bring this up:

    https://en.wikipedia.org/wiki/Eric_Maskin#Software_patents

    Maskin suggested that software patents inhibit innovation rather than stimulate progress. Software, semiconductor, and computer industries have been innovative despite historically weak patent protection, he argued. Innovation in those industries has been sequential and complementary, so competition can increase firms’ future profits. In such a dynamic industry, “patent protection may reduce overall innovation and social welfare”. A natural experiment occurred in the 1980s when patent protection was extended to software”, wrote Maskin with co-author James Bessen. “Standard arguments would predict that R&D intensity and productivity should have increased among patenting firms. Consistent with our model, however, these increases did not occur”. Other evidence supporting this model includes a distinctive pattern of cross-licensing and a positive relationship between rates of innovation and firm entry.[6]

  15. Leigh Lowe

    Is gun-boat diplomacy good for the economy?

    Only if the gunboats are built in Adelaide … very slowly.

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