Against Intellectual Monopoly

- that of Travelpro - the inventor of the modern wheeled
roll-on suitcase with a retractable handle. Obviously, such an idea cannot
both be useful and be secret - and once you see a wheeled roll-on suitcase
it is not difficult to figure out how to make one of your own. Needless to
say, Travelpro was quickly imitated - and you probably have never even
heard of the company. Nevertheless - despite Travelpro's inability to garner
an intellectual monopoly over its invention - it found it worthwhile to
innovate, and it still does a lucrative business today, claiming "425,000
Flight Crew Members Worldwide Choose Travelpro Luggage." 12
Quantifying Unpriced Spillovers
    The widespread belief in the free availability of ideas is sometime due to
poor inspection of data and historical documents, but most often it is the
consequence of a common cognitive bias. Every day we are surrounded, one might say bombarded, by references to and the effects of so many ideas that
we often feel as if we knew them all or could know and use them all if we
only wanted to. But that is just a pious illusion, as we should have all learned
when our seven-year-old child asked for an explanation of how the chip in
our wondrous cellular phone really worked. For most ideas, we may have
heard about them, we may even know where to find a manual or an expert
who could teach us about them, but we are very far from being able to put
them into productive economic usage. Take, for example, the famous idea
E = mc2. This is commonly known, in the sense that many people can
quote the formula. But how many people actually know what it means or
can put it to any productive use? The two of us, for starters, have no idea of
what to do with it.

    Most productive ideas these days especially, but certainly since at least the
times of the Renaissance, are much more complicated and less self-evident
than the wheelbarrow or the wheeled suitcase. One does not learn the
formula for a new drug by staring at the pill, and while the formula may be
divined in a chemical lab, the procedure for producing it may not be. Billions
of people have drunk billions of gallons of Coca-Cola, but the formula is still
famously a well-kept secret. Even the steam engine invented by this book's
designated scoundrel, James Watt, was not easy to copy: twenty or thirty
years after it had been introduced, purchasers still needed the expertise of
Mr. Watt and his assistants to erect and operate it. More to the point, almost
forty years after Honda and Toyota invaded the U.S. market, General Motors
and Ford, not to speak of Fiat and Rover, are still incapable of producing
cars with the same quality, reliability, and fuel consumption. Millions of
books have described the recipe for tortelloni di zucca to millions of people
around the world for decades, but we are sorry to inform you that those
they make in the area between Mantua and Modena are still unbeatable,
not to speak of those that the mother-in-law of one of us cooks, yearly, on
December 24.
    The point should be clear by now: when one looks at the world of
productive ideas, there is little prima facie evidence of spillover externalities
from economically valuable innovations. This makes the fact that little
justification for the assumption is given in the economics literature rather
suspicious. If we take the role of devil's advocate in support of the spillover
theory, the most likely culprit would seem to be employees moving from
firm to firm, carrying trade secrets with them as they move. However, as
Gary Becker astutely observed: "Firms introducing innovations are alleged
to be forced to share their knowledge with competitors through the bidding
away of employees who are privy to their secrets. This may well be a common practice, but if employees benefit from access to salable information about
secrets, they would be willing to work more cheaply than otherwise."13
Plenty of supporting evidence, from apprentices' wages to the practice of
pricing the academic quality of a department into the salary of new assistant
professors, makes Becker's observation compelling.

    The empirical justification for the idea of unpriced spillovers seems to
come largely from the notion of agglomeration - that similar firms locate
near one another to take advantage of positive externalities in the form
of ideas that are "in the air." But notice that firms would have incentive
to locate nearby even if spillovers