Economic Foundations of Intellectual Property Rights

By Stiglitz, Joseph E. | Duke Law Journal, April 2008 | Go to article overview

Economic Foundations of Intellectual Property Rights


Stiglitz, Joseph E., Duke Law Journal


INTRODUCTION

My work in the economics of innovation began some forty years ago. I realized, as I was beginning my work on the Economics of Information, that knowledge and information are very similar. (1) In fact, you can view information as a particular kind of knowledge, and so the problems that I was analyzing at the time, such as how well the market economy deals with information, corresponded to the question of how well the market economy deals with knowledge. My work showed that the standard paradigm (the neoclassical model, which argued that well-functioning markets solved all economic problems) just did not work when information was imperfect and endogenous (that is, could be affected by what individuals or firms did), and, by extension, when knowledge is endogenous (that is, when technology is changing). Adam Smith's theory argued that individuals in pursuit of their self-interest (firms in pursuit of maximizing profits) were led as if by an invisible hand to the general well-being of society. (2) One of the important results of my work, developed in a number of my papers, was that the invisible hand often seemed invisible because it was not there. (3)

This led me to a certain degree of skepticism about the standard perspectives on intellectual property. When I was at the Council of Economic Advisors (4) we opposed the Trade-Related Aspects of Intellectual Property Rights agreement (TRIPS), part of the Uruguay Round of trade negotiations. Interestingly, so did the Office of Science and Technology Policy. We were not alone in our opposition; indeed, it was a view held by many, if not most, of the people who understood the issues. These views stood in contrast to the views of most of the people who had some special interest on this issue, particularly from the pharmaceutical and entertainment industries, who argued that the stronger the intellectual property rights the better. When I went to the World Bank, (5) I continued to be involved in the issue. We had concluded that what separates developed and developing countries is not just the disparity, the gap, in resources, but also the disparity in knowledge, and closing that gap in knowledge is an essential part of successful development. We had become concerned that TRIPS might make access to knowledge more difficult--and thus make closing the knowledge gap, and development more generally, more difficult. We also worried about the effects of TRIPS on access to life-saving medicines; TRIPS attempted (successfully) to restrict access to generic medicines, putting these drugs out of the financial reach of most in the developing countries. The World Bank has an annual report called the World Development Report, which highlights a key development issue every year. During the first year I was at the World Bank, we focused on the problems of knowledge for development. (6) That year's report argued that TRIPS imposed an unbalanced intellectual property regime. (7)

Intellectual property has become one of the major issues of our global society. Globalization is one of the most important issues of the day, and intellectual property is one of the most important aspects of globalization, especially as the world moves toward a knowledge economy. (8) How we regulate and manage the production of knowledge and the right of access to knowledge is at the center of how well this new economy, the knowledge economy, works and of who benefits. At stake are matters of both distribution and efficiency.

Like most academics, I have ambivalent feelings about intellectual property, illustrated by two personal stories. About twenty years ago I received a letter from a Chinese publisher asking me to write a preface to a pirated edition of one of my textbooks. As an academic, I was enthusiastic about the idea. The motivation of much academic writing is not to make money but to influence ideas and to shape the intellectual debate. China at the time was beginning the transition to a market economy: if my book helped shape that transition in a way that enhanced its likely success in raising the living standards of more than a billion people, it would have been a major accomplishment. …

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