Protocol Economy Easier Said Than Done
In his latest column, “The Protocol Society,” David Brooks argues that,
In the 19th and 20th centuries we made stuff: corn and steel and trucks. Now, we make protocols: sets of instructions. A software program is a protocol for organizing information. A new drug is a protocol for organizing chemicals. Wal-Mart produces protocols for moving and marketing consumer goods. Even when you are buying a car, you are mostly paying for the knowledge embedded in its design, not the metal and glass.
He stretches this point to the breaking point, since it’s not entirely clear why the trucks of the 20th century are “stuff” whereas the cars of today are mostly “knowledge.” Let alone why, as he argues later, a mall food court is some magical network of protocols while businesses from a few years ago were just blood, sweat, toil, and tears.
But he’s right on the larger point that much of what we now “make” is valuable to those who make it by virtue of governmental monopoly.
[I]f you are making steel, it costs a medium amount to make your first piece of steel and then a significant amount for each additional piece. If, on the other hand, you are making a new drug, it costs an incredible amount to invent your first pill. But then it’s nearly free to copy it millions of times. You’re only going to invest the money to make that first pill if you can have a temporary monopoly to sell the copies. So a nation has to find a way to protect intellectual property while still encouraging the flow of ideas.
I seem to recall various methods for more efficiently manufacturing steel being patented. Still, at the end of the day the product being sold was the steel, not the recipe for making it. Not so for modern pharmaceuticals.
Dean Baker unfairly and inaccurately labels Brooks’ economy as “protectionist.” Brooks isn’t advocating barriers to imports. Further, providing for intellectual property rights is as old as the Republic; indeed, it’s one of the few things Congress does that’s actually in the Constitution.
But there’s much merit to his retort that, “There are two fundamental problems with the Brooks story.”
The first, for us econ wonk types, he is describing an economy that is incredibly inefficient. It is almost certainly true that patents and copyrights are not the most efficient way to promote innovation and creative work, or at least not in most areas. (Here, here, and here are a few short pieces describing possible alternative mechanisms. One will look in vain for economic research that establishes the superiority of patents and copyrights, economists are too bust arguing against tariffs on tires.)
The second problem is that he is describing an economy that almost certainly cannot work. While Brooks creative friends may have enough power to control the government in the United States and therefore use its policy power to break into dorm rooms and take the other steps necessary to impose his intellectual property claims, they don’t have this power in China and other countries. Why on earth would China, India and the rest of the world pay Brooks’ creative friends for their intellectual “property” when they can just have the knowledge for free.
The links in the first paragraph go to PDF copies of papers Baker wrote for his Center for Economic and Policy Research. Evaluating those alternatives goes beyond the scope of this post, not to mention my expertise.
The free rider problem is hard to solve but certainly not impossible. Indeed, China is already at the stage of development where it is beginning to find itself on the other side of this issue — trying to protect itself from theft by other countries. The answer, oddly enough, is in protocols. Countries abide by international rules in order to get the benefits of an orderly system. We’ve been remarkably successful over the past several decades of spreading these rules. The difficulty is in coming up with rules that make sense for producer nations and consuming nations in a given transaction.