Against Intellectual Monopoly

first introduction
of legislation allowing for patents - we would expect innovation to increase,
as the revenues from innovating go up, but costs will not increase until
some time in the future when many ideas have been patented. Strikingly -
from a theoretical point of view - it is possible that, in the short run, introducing patents leads to more innovation and eliminating patents after they
have been in place for a while, by reducing the cost of innovation, increases
innovation as well.
    A similar paradox is likely to underlie the long-run experience of Western societies. A number of economic historians, Douglass North and his
followers foremost among them, have argued that the great acceleration in
innovation and productivity we associate with the Industrial Revolution
was caused by the development of ways to protect the right of inventors,
allowing them to profit from their innovations.' Central among such ways
was the attribution of patents to inventors, and their upholding either by
Parliament or by the courts. Relative to the very poorly defined contractual
rights of pre-seventeenth-century Europe, plagued by royal and aristocratic
abuses of property and contracts, there is no doubt that allowing individuals
a temporary but well-defined monopoly over the fruits of their inventive
effort was a major step forward. Even monopolistic property is much better than a system that allows arbitrary seizure by the rich and powerful. This
does not, however, contradict our claim that widespread and ever-growing
monopolistic rights are not as socially beneficial as well-defined competitive
property rights.

    To put it differently, about four centuries ago, as Western societies moved
away from postmedieval absolutist regimes, the establishment of patents
constituted a step forward for the creation of a system of property rights
that favored entrepreneurship and free market interaction. By the force
of the same reasoning, the abolition of patents and of the distortionary
monopolistic rights they entail may well result, now, in an analogous boost
to entrepreneurial effort and free competition.
    By the same token, theory suggests that small countries with low intellectual property (or IP) protection should witness a surge in the inflow of
IP-related investment after protection is increased, as they capture investments from other countries where intellectual monopoly is protected less.
The latter, unfortunately, appears to have gone beyond a mere theoretical
possibility. What is not obvious, once again, is what the outcome will be
once every country adopts the same high degree of protection. Leave aside
the more or less terrifying scenarios of escalation - in which countries outdo
one another trying to allure IP-related investments by progressively increasing their local protection of intellectual monopoly. It is still worth asking
whether a world where everyone has the same degree of IP protection as,
say, the United States currently does, is a world with a higher or lower rate
of innovation and a higher or lower social welfare than a world with much
less protection.3
    The issue, then, is the one we posed at the outset: does monopoly really
lead to more innovation, on average, than competition? Theory gives an
ambiguous answer, so, let us look at evidence, supported by a bit of statistical
common sense.
    What is the evidence? Given the continued extension of patent protection
to new areas - business practices and computer software, for example - one
might hope that there is strong evidence that the introduction of patent
protection has led to a substantial increase in innovation in recent years.
These hopes, alas, are not to be fulfilled: it is already apparent that the recent
explosion of patents in the United States, the European Union, and Japan
has not brought about anything comparable in terms of useful innovations
and aggregate productivity. Nevertheless, one may claim that it is too early to
judge and that the process of progressive extension of intellectual monopoly
to almost every area of human endeavor has not yet run its full course. Beneficial results will come, but in due time, so be patient and let the tide of intellectual monopoly run its course. To us, as it should be clear by now, the
tide of intellectual monopoly resembles more those of destructive tsunamis
or hurricanes than the benevolent one that supposedly lifts all boats. Hence,
instead of letting it run