The Revolt of the Poor: The Demise of Intellectual Property?

Three years ago I published a book of shortfrom the economic point of view. Intellectual
stories in Israel. The publishing house belongs toproducts are very price sensitive and highly elastic.
Israel's leading (and exceedingly wealthy)Lower prices will be more than compensated for
newspaper. I signed a contract which stated thatby a much higher sales volume. There is no other
I am entitled to receive 8% of the income fromway to explain the pirate industries : evidently, at
the sales of the book after commissions payablethe right price a lot of people are willing to buy
to distributors, shops, etc. A few months laterthese products. High prices are an implicit
(1997), I won the coveted Prize of the Ministry oftrade-off favouring small, elite, select, rich world
Education (for short prose). The prize money (aclientele. This raises a moral issue : are the children
few thousand DMs) was snatched by theof Macedonia less worthy of education and
publishing house on the legal grounds that all theaccess to the latest in human knowledge and
money generated by the book belongs to themcreation ?Two developments threaten the future
because they own the copyright.In the mythologyof intellectual property rights. One is the Internet.
generated by capitalism to pacify the masses, theAcademics, fed up with the monopolistic practices
myth of intellectual property stands out. It goesof professional publications - already publish on the
like this : if the rights to intellectual property wereweb in big numbers. I published a few book on
not defined and enforced, commercialthe Internet and they can be freely downloaded
entrepreneurs would not have taken on the risksby anyone who has a computer or a modem.
associated with publishing books, recordingThe full text of electronic magazines, trade
records, and preparing multimedia products. As ajournals, billboards, professional publications, and
result, creative people will have suffered becausethousands of books is available online. Hackers
they will have found no way to make their workseven made sites available from which it is possible
accessible to the public. Ultimately, it is the publicto download whole software and multimedia
which pays the price of piracy, goes theproducts. It is very easy and cheap to publish on
refrain.But this is factually untrue. In the USAthe Internet, the barriers to entry are virtually nil.
there is a very limited group of authors whoWeb pages are hosted free of charge, and
actually live by their pen. Only select musiciansauthoring and publishing software tools are
eke out a living from their noisy vocation (mostincorporated in most word processors and
of them rock stars who own their labels - Georgebrowser applications. As the Internet acquires
Michael had to fight Sony to do just that) andmore impressive sound and video capabilities it will
very few actors come close to derivingproceed to threaten the monopoly of the record
subsistence level income from their profession. Allcompanies, the movie studios and so on.The
these can no longer be thought of as mostlysecond development is also technological. The
creative people. Forced to defend their intellectualoft-vindicated Moore's law predicts the doubling of
property rights and the interests of Big Money,computer memory capacity every 18 months.
Madonna, Michael Jackson, Schwarzenegger andBut memory is only one aspect of computing
Grisham are businessmen at least as much aspower. Another is the rapid simultaneous advance
they are artists.Economically and rationally, weon all technological fronts. Miniaturization and
should expect that the costlier a work of art is toconcurrent empowerment by software tools
produce and the narrower its market - the morehave made it possible for individuals to emulate
emphasized its intellectual property rights.Considermuch larger scale organizations successfully. A
a publishing house.A book which costs 50,000 DMsingle person, sitting at home with 5000 USD
to produce with a potential audience of 1000worth of equipment can fully compete with the
purchasers (certain academic texts are like this) -best products of the best printing houses
would have to be priced at a a minimum of 100anywhere. CD-ROMs can be written on, stamped
DM to recoup only the direct costs. If illegallyand copied in house. A complete music studio with
copied (thereby shrinking the potential market asthe latest in digital technology has been condensed
some people will prefer to buy the cheaper illegalto the dimensions of a single chip. This will lead to
copies) - its price would have to go uppersonal publishing, personal music recording, and
prohibitively to recoup costs, thus driving outthe to the digitization of plastic art. But this is only
potential buyers. The story is different if a bookone side of the story.The relative advantage of
costs 10,000 DM to produce and is priced at 20the intellectual property corporation does not
DM a copy with a potential readership ofconsist exclusively in its technological prowess.
1,000,000 readers. Piracy (illegal copying) should inRather it lies in its vast pool of capital, its
this case be more readily tolerated as a marginalmarketing clout, market positioning, sales
phenomenon.This is the theory. But the facts areorganization, and distribution network.Nowadays,
tellingly different. The less the cost of productionanyone can print a visually impressive book, using
(brought down by digital technologies) - the fiercerthe above-mentioned cheap equipment. But in an
the battle against piracy. The bigger the market -age of information glut, it is the marketing, the
the more pressure is applied to clamp down onmedia campaign, the distribution, and the sales
samizdat entrepreneurs.Governments, from Chinathat determine the economic outcome.This
to Macedonia, are introducing intellectual propertyadvantage, however, is also being eroded.First,
laws (under pressure from rich world countries)there is a psychological shift, a reaction to the
and enforcing them belatedly. But where onecommercialization of intellect and spirit. Creative
factory is closed on shore (as has been the casepeople are repelled by what they regard as an
in mainland China) - two sprout off shore (as isoligarchic establishment of institutionalized, lowest
the case in Hong Kong and in Bulgaria).But thiscommon denominator art and they are fighting
defies logic : the market today is global, the costsback.Secondly, the Internet is a huge (200 million
of production are lower (with the exception ofpeople), truly cosmopolitan market, with its own
the music and film industries), the marketingmarketing channels freely available to all. Even by
channels more numerous (half of the income ofdefault, with a minimum investment, the likelihood
movie studios emanates from video cassetteof being seen by surprisingly large numbers of
sales), the speedy recouping of the investmentconsumers is high.I published one book the
virtually guaranteed. Moreover, piracy thrives intraditional way - and another on the Internet. In
very poor markets in which the population would50 months, I have received 6500 written
anyhow not have paid the legal price. The illegalresponses regarding my electronic book. Well over
product is inferior to the legal copy (it comes with500,000 people read it (my Link Exchange meter
no literature, warranties or support). So whyregistered c. 2,000,000 impressions since
should the big manufacturers, publishing houses,November 1998). It is a textbook (in
record companies, software companies andpsychopathology) - and 500,000 readers is a lot
fashion houses worry?The answer lurks in history.for this kind of publication. I am so satisfied that I
Intellectual property is a relatively new notion. Inam not sure that I will ever consider a traditional
the near past, no one considered knowledge orpublisher again. Indeed, my last book was
the fruits of creativity (art, design) as 'patentable',published in the very same way.The demise of
or as someone's 'property'. The artist was but aintellectual property has lately become abundantly
mere channel through which divine grace flowed.clear. The old intellectual property industries are
Texts, discoveries, inventions, works of art andfighting tooth and nail to preserve their
music, designs - all belonged to the communitymonopolies (patents, trademarks, copyright) and
and could be replicated freely. True, the chosentheir cost advantages in manufacturing and
ones, the conduits, were honoured but weremarketing.But they are faced with three
rarely financially rewarded. They wereinexorable processes which are likely to render
commissioned to produce their works of art andtheir efforts vain:The Newspaper PackagingPrint
were salaried, in most cases. Only with thenewspapers offer package deals of cheap
advent of the Industrial Revolution were thecontent subsidized by advertising. In other words,
embryonic precursors of intellectual propertythe advertisers pay for content formation and
introduced but they were still limited to industrialgeneration and the reader has no choice but be
designs and processes, mainly as embedded inexposed to commercial messages as he or she
machinery. The patent was born. The morestudies the content.This model - adopted earlier
massive the market, the more sophisticated theby radio and television - rules the internet now
sales and marketing techniques, the bigger theand will rule the wireless internet in the future.
financial stakes - the larger loomed the issue ofContent will be made available free of all pecuniary
intellectual property. It spread from machinery tocharges. The consumer will pay by providing his
designs, processes, books, newspapers, anypersonal data (demographic data, consumption
printed matter, works of art and music, filmspatterns and preferences and so on) and by being
(which, at their beginning were not consideredexposed to advertising. Subscription based models
art), software, software embedded in hardware,are bound to fail.Thus, content creators will
processes, business methods, and even untobenefit only by sharing in the advertising cake.
genetic material.Intellectual property rights -They will find it increasingly difficult to implement
despite their noble title - are less about thethe old models of royalties paid for access or of
intellect and more about property. This is Bigownership of intellectual
Money : the markets in intellectual propertyproperty.DisintermediationA lot of ink has been
outweigh the total industrial production in thespilt regarding this important trend. The removal
world. The aim is to secure a monopoly on aof layers of brokering and intermediation - mainly
specific work. This is an especially grave matter inon the manufacturing and marketing levels - is a
academic publishing where small- circulationhistoric development (though the continuation of a
magazines do not allow their content to belong term trend).Consider music for instance.
quoted or published even for non-commercialStreaming audio on the internet or downloadable
purposes. The monopolists of knowledge andMP3 files will render the CD obsolete. The internet
intellectual products cannot allow competitionalso provides a venue for the marketing of niche
anywhere in the world - because theirs is a worldproducts and reduces the barriers to entry
market. A pirate in Skopje is in direct competitionpreviously imposed by the need to engage in
with Bill Gates. When he sells a pirated Microsoftcostly marketing ("branding") campaigns and
product - he is depriving Microsoft not only of itsmanufacturing activities.This trend is also likely to
income, but of a client (=future income), of itsrestore the balance between artist and the
monopolistic status (cheap copies can becommercial exploiters of his product. The very
smuggled into other markets), and of itsdefinition of "artist" will expand to include all
competition-deterring image (a major monopolycreative people. One will seek to distinguish
preserving asset). This is a threat which Microsoftoneself, to "brand" oneself and to auction off
cannot tolerate. Hence its efforts to eradicateone's services, ideas, products, designs,
piracy - successful in China and an utter failure inexperience, etc. This is a return to pre-industrial
legally-relaxed Russia.But what Microsoft fails totimes when artisans ruled the economic scene.
understand is that the problem lies with its pricingWork stability will vanish and work mobility will
policy - not with the pirates. When faced with aincrease in a landscape of shifting allegiances, head
global marketplace, a company can adopt one ofhunting, remote collaboration and similar labour
two policies: either to adjust the price of itsmarket trends.Market FragmentationIn a
products to a world average of purchasing powerfragmented market with a myriad of mutually
- or to use discretionary differential pricing (asexclusive market niches, consumer preferences
pharmaceutical companies were forced to do inand marketing and sales channels - economies of
Brazil and South Africa). A Macedonian with anscale in manufacturing and distribution are
average monthly income of 160 USD clearlymeaningless. Narrowcasting replaces broadcasting,
cannot afford to buy the Encyclopaedia Encartamass customization replaces mass production, a
Deluxe. In America, 50 USD is the incomenetwork of shifting affiliations replaces the rigid
generated in 4 hours of an average job. Inowned-branch system. The decentralized,
Macedonian terms, therefore, the Encarta is 20intrapreneurship-based corporation is a late
times more expensive. Either the price should beresponse to these trends. The mega-corporation
lowered in the Macedonian market - or anof the future is more likely to act as a collective
average world price should be fixed which willof start-ups than as a homogeneous, uniform
reflect an average global purchasing(and, to conspiracy theorists, sinister) juggernaut it
power.Something must be done about it not onlyonce was.