The president, at a press conference six weeks ago:
In addition to the steps that my administration can take on our own, there are also things that Congress could do right now that will help create good jobs. Right now, Congress can send me a bill that would make it easier for entrepreneurs to patent a new product or idea –- because we can’t give innovators in other countries a big leg up when it comes to opening new businesses and creating new jobs.
This is a bad idea in substance, and the rhetoric is silly.
A patent grants the holder a monopoly on production of some item. Since patent holders don’t face direct competition, they charge a monopoly price rather than a market price:
This is why Tupperware is more expensive than the other crappy food storage products out there: Tupperware has a patent on its lid-sealing technology, so other businesses are barred by law from using that technology to offer a product of equal utility. This is also why Tupperware is able to employ a pyramid-scheme sales model which tightly constricts its representatives’ freedom to sell on their own terms. Is the fact that we have to pay high prices for quality food-storage products helping to “create good jobs”? Would it somehow give “other countries” a “leg up” to if we abolished this monopoly and allowed any business to make use of that patented Tupperware burp?
Of course, Tupperware is a trivial example. The realm in which patents really weigh on the economy is in technology. Julian Sanchez offhandedly reports:
A growing body of scholarly literature suggests that two decades of software patents, in particular, have been a hindrance rather than a net plus for innovation, and I think it’s worth thinking a bit about why that’s especially likely to be the case.
Sanchez focuses on “bad” patents, which he sees as likely to become more common as a trade or science becomes more specialized, and its methods difficult to understand. Fair enough. I would make a different point: when a firm is granted patents on each of a successive series of technological developments, this creates a perverse incentive for that firm to withdraw or subvert the earlier versions of its products. This seems to me to be a common feature of the software industry, whose “innovations” often force us to buy updates to older versions that had been working just fine.
In contrast, other developments in the high-tech realm have occurred without recourse to intellectual property claims. IBM’s decision in the 1980s not to claim exclusive right to its PC model allowed the profusion of “IBM-compatible” personal computers that came to dominate the market (because they were cheaper and did exactly the same thing as an IBM!). Codes like HTML and operating systems like UNIX are non-proprietary. Does Obama really think that it would have “create[d] good jobs” and given our country a “leg up” if IBM had retained a monopoly on PC production and someone held patent to HTML and the like? Some people do indeed live very comfortably when trade is restrained in this way, but they do so at the expense of the community.
Making it “easier for entrepreneurs to patent a new product or idea” is a terrible idea. It follows the general direction of public policy over the last thirty years: the intensification of rent-seeking, with redistributionary measures that favor a privileged class rather than the broad public.
My other gripe is that it is wrongheaded to see “other countries” as being fundamentally in competition with ours, though that hasn’t stopped Obama from doing it routinely for most of the last year. If England flourishes, that doesn’t put France out of business. Indeed, if England flourishes, its residents may spend more money on imported French grain, wine, and bicycles, which is good for France (or rather, for the people who live there). The world economy is not a soccer match.