Rethinking Intellectual Property Rights: A Way to Reinvent and Reinvigorate the Global Economy
Aaronson, Susan Ariel, The International Economy
The prime minister of Singapore doesn't usually travel to China to talk about the United States. But Lee Hsien Loong used his September 6 speech at the Central Party School in Beijing to lecture China's future elites. He wanted to remind them that although the United States "is currently facing some very difficult problems ... we should never underestimate the U.S. capacity to reinvigorate and reinvent itself."
With his reelection, President Obama must view reinvigorating the U.S. economy as one of his main tasks. But he can't revive the U.S. economy unless the United States and other countries bolster the World Trade Organization system. In the short run, rising protectionism could thwart global economic recovery. In the longer term, because innovation is one of the main factors driving economic growth, he must find governance strategies that encourage greater productivity and innovation. One way the United States (the world's largest economy, source of much of the world's innovation, and adamant defender of the current approach) could thwart further trade protectionism is to offer a grand bargain. If they agree to maintain their WTO commitments and continue the Doha Round slog, the United States will work with other governments to reform the global system of protecting intellectual property rights.
Rules governing intellectual property rights set the terms of access for users of knowledge, but the current system (which includes rigorous application of patent and copyright laws) can limit the supply of innovation by restricting access to information. Individuals around the world are increasingly critical of that system as inflexible, out of date, and inequitable. With proper reforms, policymakers may be able to provide a greater supply of innovation and reduce the demand for protectionism.
Alas, more governments are turning to protectionism as their economies slow. The World Trade Organization estimates that trade growth will decline from 5 percent in 2011 to 3.7 percent in 2012, while global economic growth will rise a paltry 2.1 percent. The continued downturn in Europe, rapidly rising oil prices, and geopolitical risks threaten even these relatively low growth levels. Moreover, unemployment and underemployment are at record high numbers in many countries. Although multilateral trade liberalization and coordinated strategies to encourage employment may be the best way to stimulate job growth, national leaders have increasingly adopted inward-looking policies. The hegemons of global trade--the United States, China, and the European Union--are unwilling or unable to offer significant concessions as an incentive for trade liberalization. Not surprisingly, the 157 members of the World Trade Organization have made little progress on the Doha Round. The World Trade Organization did agree to monitor protectionism among member states, and from 2008-2011 this increased transparency seemed to hold protectionism in check.
However, in late 2011, many countries introduced new restrictions on trade including both traditional and more opaque regulations such as procurement preferences or administrative procedures for imports. In June 2012, the European Union described the rise in protectionism as "staggering." Clearly, trade policymakers have found ways to reduce imports without falling afoul of WTO rules.
For example, some countries have used capital controls to prevent external adjustments, while other countries have undervalued their currency. Many economists believe that China deliberately undervalues the renminbi, and in so doing reduces demand and output in industrialized countries with high unemployment. China's exchange rate policies also hurt developing countries that produce goods or commodities that compete with China, leading to a "beggar-thy-neighbor" effect. This effect can be particularly harmful to developing countries, which are often more trade dependent than industrialized nations and lack the ability to use monetary or exchange rate policies to encourage growth. …