Property rights in the knowledge economy: an explana7on of the crisis Ugo Pagano University of Siena and CEU Maria Alessandra Rossi University of Siena WorkshopThe Global Crisis
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Propertyrightsintheknowledgeeconomy:anexplana7onofthecrisis
UgoPaganoUniversityofSienaandCEU
MariaAlessandraRossiUniversityofSiena
WorkshopTheGlobalCrisis
Outlineoftheargument
SomerootsoftherecentcrisismaybefoundintheglobalconvergencetowardsamodelcharacterizedbystrongprivatepropertyrightsonknowledgeandanextremelylimitedroleaBributedto“openscience”
ThecrystallizaFonofthisownershipstructureoftheknowledgeeconomyduetoinsFtuFonalcomplementariFes:
Atthefirmlevel,givesrisetoa“propertyrightsparadox”thatimpedesanallocaFonofrightscongruentwiththeintrinsiccharacterisFcsofknowledge
Atthegloballevel,inhibitsinvestmentsandwidenstheglobalimbalancesbetweensavingsandinvestments
ThemainpolicysuggesFonisthatanexitfromthecurrentcrisisisrelatedtoatransforma7onofpropertyrela7onsandtoareduc7onofinequalitythroughthepublicsharingofknowledge
The“propertyrightparadox”oftheknowledgeeconomy
• Theknowledge‐intensivecharacterisFcsofthepresenteconomyshouldfavoursmallsizefirms,managed,orevenowned,bythepeopleworkinginthem.
• Bycontrast,firmssizeaswellastradiFonalformsofcapitalistownershipshowliBlesigntoundergoasubstanFalchangeincontemporaryknowledge‐intensiveeconomies
• WhywedonotobservearadicalshiNtowardstheallocaFonoforganizaFonalrightstoworkers?
• Inaphysical‐capital‐intensiveeconomy– EvenifamulFplicityofequilibriaisalwayspossible,thecapital‐hiring‐
laboursoluFonislikelytoprevail.
– Anhighrela7veintensityofphysicalcapitalshouldbecorrelatedtoahighintensityofhigh‐agency‐costcapital.
– Thiswouldmakethelabour‐hiring‐capitalsoluFonveryexpensiveintermsofagencycosts.
• Inaknowledge‐intensiveeconomy:– Disembodiedknowledgecapitalisanon‐rivalgoodandthemarginal
costofitsuseshouldbenegligible.– Knowledgeismostlyembodiedinindividuals– Thisshouldimplythatthelabour‐hiring‐capitalsolu7onshouldhave
loweragencycoststhanthecapital‐hiring‐laboursoluFon.
Physical‐capital‐intensiveeconomyvs.
Knowledge‐intensiveeconomy
• Thefavourabletrendforthelabour‐hiring‐capitalarrangementisbasedontheideathatknowledgeisapublicgoodandthereforeaglobalcommonavailabletoeveryone.
• However,knowledgeisapublicgoodinthesensethatitisanon‐rivalgoodbutexclusionofothersfromintellectualownershipiswellpossible.
• KnowledgeprivaFzaFoninfluencestherelaFveprofitabilityofalternaFvepropertyrightsallocaFons
• Thetypologiesoffirmsthattendtoprevailintheknowledgeeconomywillcruciallydependontheroleandtherela7veweightsoftheins7tu7onsofopenscienceandthedegreeofprivateIPRsprotecFon
• Theprivateownershipofknowledgemaybeevenmoredamagingforthelabour‐hiring‐capitalsoluFonthantheownershipoflargequanFFesofphysicalcapital.
Themissingelement:knowledgeprivaAzaAon
TheimplicaAonsofknowledgeprivaAzaAon
• Non‐rivalry– jfagentscanholdexclusivemonopolyrightsonknowledge,theuseofthe
laBerisgoingtoberatherexpensiveanditislikelytoincreasetheagencycostsoflabour‐hiring‐capitalfirmsevenincomparisontothosewhichmakeanintensiveuseofphysicalcapital.
• Embodiedknowledge– theknowledgeintensiveeconomymayrestrictitshumancapitalintensityto
theindividualswhohaveIPRs.
– thehazardofinvesFnginhumancapitalspecifictoparFcularIPRsisgreaterthanthatofinvesFnginhumancapitalspecifictocertainmachines.
• SizemaHers– eachaddiFonalunitofknowledgewhichisownedproducesmorethan
proporFonallyopportuni7estoexploitthecomplementari7eswiththeothersandmakesitevenmorevaluabletoproduceoracquirefromsmallfirmsaddiFonalknowledge
– thegreatertheconcentraFonofknowledge,thelowertheunitcostofdefendingtheexclusiveownershiprightsoneachunitofknowledge
Priva7zedknowledgeandhumancapital
Theseeffectshaveself‐reinforcingproperFes
↑accumulaFonofIPRs⇆↑investmentinhumancapital
And,vice‐versa
↓accumulaFonofIPRs⇆↓investmentinhumancapital
Wearelikelytohaveviciousandvirtuouscirclesofcumula7vecausa7on,leadingtoasymmetricandincreasinglydivergentinvestmentpaBernsinhumancapital.
Fromthefirm‐tothemacro‐level
• TheextentofknowledgeprivaFzaFoncurrentlycharacterizingtheso‐called"knowledgeeconomy"preventstheshiNapropertyrightsallocaFoncongruentwiththeintrinsicnatureofwhathasbecomethemostimportantfactorofproducFonintheknowledge‐intensiveeconomy.
• ThispropertyrightsallocaFon,inturn,hampersincenFvestoinvestinhumancapitalbyworkers,leadingtoaself‐reinforcingequilibriumwherebytheprevailingpropertyrightsallocaFonwithinthefirmtendstoperpetuateitself.
• Thesamesortofins7tu7onalcomplementari7esthatblockthemicro‐levelchangeinthepropertyrightsstructureoffirmscrystallizeapropertyrightsequilibriumatthemacrolevel,i.e.intheallocaFonofpropertyrightsamongcountries,againwithprofoundimpactsoninvestment.
• Thisstateofaffairs,inturn,tendstodeepenglobalimbalancesintheallocaFonofintellectualcapitalthatmayhaveenduringeffectsontheabilityoftheeconomytorecoverfromthecrisis.
Whydoweobservethecurrent(excessive)extentofknowledgeprivaAzaAon?
• Geopoli7calchangesassociatedtotheColdWar– ThefreecirculaFonofdefence‐sponsoredknowledgeaNertheColdWarcreated
theprecondiFonsfortheriseoftheknowledgeeconomy(Visco,2009)
– absenttradiFonalgeo‐poliFcalbarriers,aprivateneedtorestrictaccesstocrucialknowledgeassetsaroseexactlyataFmewhenthepublicandprivatebenefitsfromtheirunrestrictedcirculaFonwerebecomingmostapparent(TRIPS)
• Economicintegra7on– Inanopeneconomy,thedegreeofknowledge“closeness”chosenbygovernments
tendstobeexcessivebecauseofexternali7es
– Theeffectofprivatelobbiesreinforcesthistendency– Over‐upstreamingreinforcesprivateIPthatactsasaglobaltariffprotecFngthe
mosttechnologicallyadvancedcountries(whicharealsothemostpowerfulones).
• Misleadingintellectualrethoric– Itimplicitlyassumesalinearrela7onshipbetweenthedegreeof"closeness"(i.e.,
appropriability)ofknowledgeandinvestmentinnewknowledgeproducFon
– Itimplicitlyassumesthattheins7tu7onsofopenscienceworkforfree
Knowledgepriva7za7onandtheglobalalloca7onofIPRs
• GlobalIPprotecFoninfluencestheglobaldivisionoflabourandthecompara7veadvantageofdifferentcountries,diminishinginvestmentopportuniFesincountriescharacterizedbylowerIPintensity– itfavourscountrieswithagreater“iniFalendowment”ofIPRs;
– ItfavourscountriesproducingmoreintensivelyintellectualresourceseasilyamenabletoIPprotecFon
Knowledgepriva7za7onandinvestment
• Farfrombeinglinear,therelaFonshipbetweenthedegreeof“closeness”andinvestmentismorelikelytobedescribedasaninverted‐U.– Forlowdegreesof"closeness",short‐termincenFvestoinvest
increasebecauseoftheincreasedappropriabilityofthebenefitsfromone'sinnovaFon.
– However,asthedegreeof"closeness"increases,theextentofblockagetotheproducFveuFlizaFonofknowledgealsoincreases,withtheresultthatinvestmentmaybehampered.
– Theextentofblockageishigher,themoreupstreamistheknowledgeprotectedbyIPRs
Understandingsomerootsofthepresentcrisis…
• TheemergenceofthecrisisisoNenaBributedtotheexistenceof“globalimbalances”andparFcularlytoa“globalsavingsglut”
• ExisFngdatasupportthehypothesisthatthepresentcrisismaybeunderstoodasan“investmentstrike”– stablesavingrateinemergingAsiaexcludingChinaoverthelasttwodecades
(downwardtrendoverthe90sandonlyaslightreboundaNertheyear2000)– inEastAsiainvestmentrateshaveexperiencedadropofmorethan10percentage
pointsofGDPsincethemid‐90sandhaveonlymodestlyrecoveredsince,mainlyonthebasisofasharpincreaseinpublicinvestment
Understandingsomerootsofthepresentcrisis…
SuchinvestmentstrikeistobepartlyaBributedtoaprogressiveclosureofinvestmentopportuni7eslinkedtotheover‐properFzaFonofknowledge:– thescantinvestmentperformanceobservedinthesecondhalfofthe'90
inEastAsia,JapanandEurope‐countrieswithalimitediniFalIPRsendowmentandaknowledgebasecharacterizedpredominantlybyboBom‐upknowledge‐mayberaFonalizedasaconsequenceoflackofaccesstoIPRs
– ThedeclineininvestmentexperiencedinthemostIP‐richcountry‐theUS‐inspiteofasecularlylowcostofcapitalmayfindanexplanaFonintheeffectoftheinverted‐UrelaFonshipbetweenprivaFzaFonandinvestment
WorldSavingsandInvestmentrates,%ofworldGDP
[Source:MoëcandFrey,2006,pag.3]
Aroughindicator…
Receiptsofroyaltyandlicensefeesbygeo‐economicareas(BoP,currentUS$)overtheperiod1990‐2006[WB,2008]
Source:ownelaboraFononWBdata
Overcomingthecrisis:publicknowledgeandthe"super‐mulAplier”
Weproposealong‐runandashort‐runpolicysoluFon:
Inthelongrunthearchitectureofafuturepost‐crisisglobaleconomyshouldhavenewglobalinsFtuFonsfavoringopenscienceandopenmarkets;
Intheshortrun,akeynesian‐stylepolicybasedontheacquisiFonandPDreleaseofexisFngIPRsmaygenerateaninvestment“super‐mulFplier”duetothenon‐rivalryofknowledge
ProperAesofthe“super‐mulAplier”
WhiletheIPRispaidatitsprivatevalue,itistransferredintothepublicarenawhereithasagreaterpublicgoodvalueanddecreasescostsformanyproducers.
TheownersofIPRsreceivefreshfundsbuthavingsoldtheoldIPRs,theyfacetoughcompeFFon.Thus,theyinvestintheproducFonofnewintellectualassets,whichboostsaggregatedemand.
Amonopolypricefortheintellectualassetisreplacedbythelower(zero)compeFFveprice,whichagainhasaposiFveeffectonaggregatedemand.
The“anF‐commons”problemiseasedandmoreinnovaFveinvestmentsaresFmulated.
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