The Scourge of Upward Redistribution (IP extract)

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The Scourge of Upward Redistribution by Steven M. Teles in National Affairs is similar to his Restrain Regressive Rent Seeking (mentioned in an IP extract of a forum on ‘reviving economic growth’) but longer. I highly recommend a close reading of The Scourge; I missed some of Teles’ insights in the shorter piece, probably somewhat attributable to my skimming of the forum entries.

Following are extracts from The Scourge particularly pertinent to intellectual property:

Those who hold intellectual property in the technology, pharmaceutical, and entertainment industries are also a large presence at the very pinnacle of the income distribution. Nearly all returns in these fields result from patents and copyrights because the marginal cost of producing copies in these areas is close to zero. While some intellectual-property protection is necessary to incentivize production in areas like entertainment and the arts, the same does not appear to be the case with pharmaceuticals. Dean Baker has shown that other policy approaches, such as offering prizes for developing drugs, could produce superior medical benefits with vastly superior distributive outcomes.

Good regarding drugs, though much more showing through doing is necessary to switch the usual granting of drugs as one of the signal cases for intellectual property. This is one reason I keep coming back to prioritizing spurring open innovation above patent reform, and will again in this very post.

Teles doesn’t call out movies in particular, but that is the usual other signal case for IP, the most capital intensive subset of “entertainment and the arts”. I find it doubly bizarre that one could accept that it has been shown that non-property policy approaches can work for drug development at the same time as accepting the necessity of property for incentivizing entertainment. First, there is no need for entertainment like there is for drugs: we’re drowning in it and dying for their lack, respectively. Second, for entertainment the non-property policies for incentivizing production are utterly trivial: public funding (anti-tax people: IP holders are deputized tax collectors), even in the form of prizes. Prizes are not necessary in either case, but if something as complicated as major drug development can be incented with prizes, how could entertainment spectacle not be? (Someone should write that up; tell me if it exists.)

The increasing importance of intellectual property in generating inequality is not simply a natural outgrowth of the expansion of markets and technology, since legal protection in national and international law has increased substantially over the last third of a century. According to Harvard’s Yochai Benkler, this expansion has happened in highly obscure, largely uncontested ways. For instance, the Copyright Term Extension Act of 1998 extended protection of existing copyrights, substantially increasing the wealth of all existing copyright holders. The law drew almost no lobbying among opponents, as economists Michele Boldrin and David Levine have shown — remarkable for a law that redistributed such an enormous amount of wealth.

Even more dramatically, a series of trade deals since the late 1980s extended the reach of American intellectual-property law globally. The Office of the United States Trade Representative provided American technology and content companies with exceptional access to its deliberations and helped frame the issue of intellectual-property protection in quasi-mercantilist terms. By entrenching such rules in trade law, which must be renegotiated multilaterally, the beneficiaries of strict intellectual-property rules have made the destruction of their rents all but impossible.

Well said, but again is why I emphasize shifting the knowledge economy toward commons-based production; destroying proprietary rents through competition, gradually diminishing the constituency for IP while increasing the constituency and imagination for commons-favoring knowledge policy.

We do not currently have good estimates of the share of rent in the income or wealth of the top strata of American society, but there is sufficient evidence across these different areas to look to the suppression of competition as a core driver of skyrocketing inequality. Land-use regulation has increased over the last third of a century. Intellectual-property protection is stronger than it once was. Banks are larger, as is the pool of securitized finance and subsidized private savings. We have seen a huge increase in occupational licensing. Contracting and privatization have increased. The last third of a century, in short, has been an era in which inequality has been driven at least as much by an expansion of regulation as by the emancipation of markets.

I suspect having such good metrics is necessary for making rents including IP a top policy consideration in discourse about inequality. I should collect data points in one place, but I would love pointers to anyone studying the matter systematically and quantitatively.

Reducing upward redistribution requires, therefore, that we somehow solve the collective-action problem. The only way that we have durably figured out how to do so in the United States over the last half-century is through what the late political scientist Jack Walker called “third-party support” — funding from something other than the affected group itself. The entertainment and pharmaceutical industries will never have a problem raising money to pay for the organizational structure necessary to protect their intellectual property. Car dealers do not face any fundamental organizational problems raising money to make their presence known in every state capital in the United States — their survival is at stake, after all. But because the interests of the other side are so diffuse, the process of organizing a counterforce is far more challenging.

Again, this is a reason to foster commons-based knowledge production, creating concentrated interests with a competitive advantage in such production and an interest in excluding entities with a competitive advantage in property-based production.

Instead of throwing up our hands and deciding that government necessarily falls into the service of wealthy interests, we should focus instead on giving particularly vulnerable and sensitive agencies — like the Securities and Exchange Commission and the Patent Office — greater insulation from the interests they are called upon to regulate. Focusing on recruiting and retaining talented officials is one important way to insulate such agencies, as the constant circulation of individuals between an agency and industry firms brings the cultures of both dangerously close. We should consider giving sensitive agencies additional resources, higher salaries for senior officials, and a strong internal promotion track.

Where national-level rents are concerned, like those in finance and intellectual property, reforms to Congress are even more important for reducing rent-seeking policy changes in the executive branch. As Lee Drutman and I argue in a recent Washington Monthly article, lobbyists have so much power because they control information. Lobbyists for investment banks, pharmaceutical companies, and the entertainment industry simply understand the complex economic and legal contexts involved with governing these industries better than Congress itself does. This is partially a function of the immense resources that these industries have to spend on lobbyists, but it is also increasingly driven by the reduced analytical capacity of Congress. We have dramatically cut Congressional staff over the last few decades while leaving in place the patronage structure of Congressional personnel. As a consequence, Congress has less internal ability to master arcane issues, even as the environment it seeks to govern becomes more complex. This information asymmetry ensures that Congress has to rely for expertise on the lobbyists who represent the regressive rent-seekers themselves.

Congress should moderately increase the number of its permanent, committee-based staff while substantially increasing their pay and providing incentives to remain on Capitol Hill rather than heading to K Street lobbying firms. By providing greater independent capacity to evaluate the merits of highly technical — but very lucrative — legislation, this could go a long way to immunize Congress against the entreaties of regressive rent-seekers.

These ideas would seem to both complement the idea that public funding of electoral campaigns is a key reform but also contradict claims that the latter is the key reform. It is curious that Teles doesn’t even mention election reform with similar aims (more). Note another common critique of prioritizing money in politics reform (and presumably would apply to Teles’ capacity building ideas above) is that wealth inequality is the real problem which needs to be attacked directly. I’m not committed to any of these positions, but one of the things that causes me to prioritize commons-favoring reform is that it does directly attack wealth inequality. But as above, estimates of how much it does so are badly needed for it to be taken seriously.

The capture of social resources on this scale can occur only through extraordinary social power rather than simply through direct monetary investments in politics. The financial sector has prevented attacks on its rents through “cultural capture,” legal scholar James Kwak has argued, meaning the perception among regulators, legislators, and others that practitioners of financial engineering are unusually intelligent and engage in activities beyond the capacity of ordinary decision-makers to comprehend. And the decline of Congress’s internal analytic capacity has rendered policymakers dependent on the financial sector for knowledge of the effects of regulation, as Lee Drutman of the New America Foundation and I have pointed out.

These rent-seeking arrangements are also protected by wealthy rent-seekers’ reputations among policymakers for sophistication, intelligence, and responsibility — the “cultural capture” discussed above. The professional status of doctors and dentists comes with a reputation built over decades for serving the public interest. In housing, those opposed to new development in cities draw on the widely accepted (if intellectually backward) belief that development hurts the environment and only serves the interests of developers and wealthy gentrifiers. Defenders of strict intellectual-property rules claim that they are protecting the preconditions for economic and cultural creativity, as well as providing an incentive for the preservation of culture. Real-estate agents spend considerable energy convincing Americans that their very high, collusive fees ensure that American home buyers are well-advised and informed. While these arguments are typically wrong, the evidence for them does not need to be particularly strong if nobody actively seeks to present the other side.

Organizational imbalance, venue control, and protective policy images are all reinforced in their power by the disproportionate wealth of regressive rent-seekers. As Martin Gilens shows in his book Affluence and Influence, the public-policy preferences of the wealthy, and not those of the middle and working classes, are typically what get enacted. Additionally, Gilens finds that this influence is independent of the wealthy class’s investment in lobbying and comes from a deeper relationship: Public officials tend to be disproportionately wealthy and have common social and educational experiences with those seeking high-end rents. Thus, when policymakers consider the claims of people like them — financiers, car dealers, undertakers, dentists, and doctors — they are likely to be sympathetic, especially when these claims are made outside of the brightest glare of public attention.

I’ll have to read more on “cultural capture” to see whether my impression of the state of knowledge policy discourse (granting innovation and production of spectacle as top goals, assumption of practical necessity of property for those goals, assignment of moral weight to property, linking of professionalism and status to property, consideration of “intellectual property scholarship” as a legitimate topic separate from “innovation policy” or better “commons policy”…) fits the concept.

I highly recommend reading Teles’ full piece extracted above, The Scourge of Upward Redistribution. It is very U.S.-focused. I would enjoy very much seeing similar analyses focused on other jurisdictions or globally, especially if buttressed by quantitative estimates of upward redistribution from regressive regulation, IP in particular!

there is no need for entertainment like there is for drugs

I think that’s commonly a reason people see the need for property incentives for entertainment. Since drugs are needed, people will both develop and buy them. Since entertainment is not, perhaps it would go away without incentives.

Of course, in reality, many entertainers produce without such incentives, and also we have so much we’d be good for awhile anyway :slight_smile:

I don’t recall hearing that particular combination (drugs don’t need property, entertainment does) before, whatever the rationale. Would be interested in other examples if you recall or run across any. The closest I could come to a reasonable rationale would not concern whether development of drugs or movies require property, but whether property is an acceptable arrangement for each; maybe it is more acceptable to allow private taxation of entertainment than of drugs because the latter is more directly needed.