Thomas Piketty, Capital in the 21st Century (2014):
Consider first the mechanisms pushing toward convergence, that is, toward reduction and compression of inequalities. The main forces for convergence are the diffusion of knowledge and investment in training and skills. The law of supply and demand, as well as the mobility of capital and labor, which is a variant of that law, may always tend toward convergence as well, but the influence of this economic law is less powerful than the diffusion of knowledge and skill and is frequently ambiguous or contradictory in its implications. Knowledge and skill diffusion is the key to overall productivity growth as well as the reduction of inequality both within and between countries. We see this at present in the advances made by a number of previously poor countries, led by China. These emergent economies are now in the process of catching up with the advanced ones. By adopting the modes of production of the rich countries and acquiring skills comparable to those found elsewhere, the less developed countries have leapt forward in productivity and increased their national incomes. The technological convergence process may be abetted by open borders for trade, but it is fundamentally a process of the diffusion and sharing of knowledge—the public good par excellence—rather than a market mechanism.
Over a long period of time, the main force in favor of greater equality has been the diffusion of knowledge and skills.
I don’t recall seeing this claim made so explicitly before. My poor reading and forgetfulness notwithstanding, the claim is fairly conventional, implied by much discourse emphasizing education and catch up growth. (I noticed this claim repeated in A Commons Approach to European Knowledge Policy, which I recommend and will comment on later.)
The crucial fact is that no matter how potent a force the diffusion of knowledge and skills may be, especially in promoting convergence between countries, it can nevertheless be thwarted and overwhelmed by powerful forces pushing in the opposite direction, toward greater inequality. It is obvious that lack of adequate investment in training can exclude entire social groups from the benefits of economic growth. Growth can harm some groups while benefiting others (witness the recent displacement of workers in the more advanced economies by workers in China). In short, the principal force for convergence—the diffusion of knowledge—is only partly natural and spontaneous. It also depends in large part on educational policies, access to training and to the acquisition of appropriate skills and associated institutions.
Treating knowledge as property has a doubly negative impact on this main force in favor of greater equality. First, access and thus diffusion is restricted. Second, rents from intellectual property serve to increase inequality. Piketty does include intellectual property in his concept of capital:
To be clear, although my concept of capital excludes human capital (which cannot be exchanged on any market in nonslave societies), it is not limited to “physical” capital (land, buildings, infrastructure, and other material goods). I include “immaterial” capital such as patents and other intellectual property, which are counted either as nonfinancial assets (if individuals hold patents directly) or as financial assets (when an individual owns shares of a corporation that holds patents, as is more commonly the case).
But, he only makes one tangential mention of intellectual property as a policy issue, in a discussion of how to approach warding off environmental catastrophe:
If we are talking about private investment, we need to be clear about the manner of public financing and who will own the resulting technologies and patents.
I will guess that he does not focus on making the main force for increasing equality work better, because:
the process of accumulation and concentration of wealth when growth is weak and the return on capital is high…no doubt represents the principal threat to an equal distribution of wealth over the long run.
This is Piketty’s r > g thesis in a nutshell. Let’s take that as a given for now.
Is mitigating, up to abolition, the regressive regulation that is intellectual property, a useful and even high priority intervention, if one is concerned about wealth inequality? Plenty of reviewers of Piketty’s book have said so to varying degrees, e.g., Dean Baker, Lawrence Summers, Danny Vinik, James Wimberly, and Matthew Yglesias.
Needless to say I agree, but I was happy to find an opposing opinion from Matt Bruenig, critiquing Baker’s review. Bruenig’s four paragraphs on intellectual property with my comments interspersed:
Baker’s second argument is that our patent system allows a healthy chunk of companies to charge monopoly rents, e.g. drug companies and tech companies. If we reformed our patent system, we could cut down the amount of rents flowing to such companies. Before getting into this point, it’s important to just note that the argument doesn’t move at all if we can’t actually reform our patent system. So if you think, as seems reasonable, that our country’s politics are not able to accomplish intellectual property reform, the point doesn’t matter.
A fair point, particularly considering it has been made countless times to discount Piketty’s recommended interventions (steeply progressive income taxes and wealth taxes). I don’t think it’s reasonable to write off either as an impossibility, especially in the medium- and long-term, but I contend that intellectual property reform is feasible in two ways that will be meaningful and positive for equality even with zero changes to U.S. (“our country” above) patent or copyright law.
First, commons-favoring policy (such as open access and open source mandates) are incremental and sustainable, shrinking the profits of and constituency for intellectual property dependent industries while increasing the constituency and policy imagination for commons-based production.
Second, intellectual property reform anywhere in the world, whether direct or indirect, impacts both global and within-U.S. distribution. Of course the U.S. (a massive global intellectual property rentier) is pushing countries to agree to reform in the direction of increasing restrictiveness, but for both drugs (India especially) and software (numerous) initiatives to break U.S.-based intellectual monopolies are well underway.
But suppose we could achieve patent reform of the sort Baker favors, what exactly would that do? You could try to argue that it would cause more economic growth by making it easy for people to use technologies, though this is not Baker’s argument.
I don’t know whether Baker responded directly to Bruenig’s critique (both are prolific; pointer appreciated), but he has argued that elsewhere: “Baker’s proposals were interesting in that they were designed to lower ‘r’ while at the same time raising ‘g.’”
A one-off elimination or reform of patents would essentially be a form of expropriation, which would eliminate a good deal of capital (defined as asset values), something that would be reflected in the value of the stock of the companies that rely upon patents for rents. A one-off wealth expropriation is neat, but it does not, by itself, disrupt the long-run dynamics predicted by Piketty.
To disrupt those long-run dynamics, a patent reform would have to reduce the overall rate of return on capital. This is possible, but it’s hard to imagine it reducing it by much. The rent-capturing abilities of patents should already be capitalized into stock prices. A patent reform would cause a one-off downward revision of those prices, but it’s not clear how it would significantly reduce the rate of return of stock assets going forward. If the overall rate of return on capital holds steady, this reform would just push Piketty’s wealth inequality end-state down the road a bit.
By removing a set of investment options, investors would have to choose lower return investments post-reform. It seems reasonable to me that the effect could become very significant, given that the knowledge economy is ascendant. If software is eating the world but capitalists can only get a return from atoms, there’s both the question of how ‘r’ is affected, but also whether they any longer control the most important arrangements and whether existing measures of ‘g’ make sense (see PostCapitalism).
In 2013 Bruenig argued that “distributive policy is the thing that matters.” Let me emphasize that intellectual property is a distributive policy. But he concludes “If the rich elites continue to run the show, it doesn’t matter what you do. […] What ultimately matters for inequality is who has the power to control the levers of distribution management and what result they are aiming to produce. Everything else — technology, education, competition, and so on — is completely secondary.” I don’t know how Bruenig proposes to end rich elites’ control, but I emphasize the dynamism of the situation and suggest knowledge policy is the issue with greatest leverage for determining how much control rich elites will have going forward.
I admit my claims of the importance of knowledge policy and the structure of the knowledge economy for equality (and freedom, security, and a good future generally) are speculative. Perhaps given the widely acknowledged importance of innovation (on the level that only politics matters for distribution, only innovation matters for growth) there exists some Piketty-like figure now gathering data that will invigorate debate on knowledge policy and outcomes when released some number of years hence.