Under Logic Of German 'Pay To Link' Proposal, If A German Publication Wastes My Time, I Can Send Them A Bill

Economics

from the logic-failure dept

For quite some time now, we’ve been following the bizarre effort in Germany to establish “neighboring rights.” This was a plan, first floated a few years ago, to force aggregators to pay to link to news sources. This year, that effort has really ramped up. In March, news came out that such a proposal was being written, and the first draft was released in June, horrifying many who actually understand how the internet works. Basically, if you make money (say via some ads on your site) and link to a source with a short excerpt, you would have to pay. This includes those who do so via their own blog or social network site. Quote an article on a Facebook account, which you also use to make some money (say to promote your business) and you may have to pay.

As is described in a recent comment from Mathias Schindler, who has been attending the various hearings on these neighboring rights proposals, this appears to be a misguided effort by publishers, who have failed to adapt, to capture revenue from anyone who incidentally profits from the information they provide:

“The publishers argued that the bank consultant was only able to advise his clients because of the journalistic work in the published article. So that means the publisher deserves a fair share of any money made from that scenario. This was the proposal from the start.”

We’ve seen this kind of thinking for years, and it really represents a fundamental misunderstanding of economics, driven by a variety of false assumptions, including the idea that the only way to determine value or benefits is through monetary transactions. This is obviously crazy when you put things into context. At the very same time that these publishers are demanding payment to link to their content, they and others are paying search engine optimizers to get more links, recognizing that such traffic is important. Basically, implicitly they recognize that traffic, absent money, is valuable, but they’re now trying to add money on top of that.

One of the most misunderstood aspects of economics is the allocation of benefits. It’s all too common for certain players in a market to assume that they should accrue money for anyone and everyone who benefits from their work. But that is not only impossible, it would actually massively limit growth. Such “externalities” or “spillovers” (depending on which economist you’re talking to) have a major impact on economic growth, which often comes back to help the originator of the work, even if they don’t directly receive payments for it. The research of the “new growth” economists over the past couple decades have really zeroed in on how externalities from information, such as third party benefits, are the key ingredient in economic growth. Clamp down on that, and you clamp down on the ingredient needed for economic growth.

Of course, if you want to demonstrate the fallacy of the publishers’ argument, it’s easy: just flip the situation around. If the publishers truly believe that anyone who uses information found in a publication to profit owes them a cut, then what if information leads to a loss? Say that I rely on information in a German publication to make an investment in a company that goes out of business. Should the publisher now repay me for my losses? Taken to the logical extreme, that’s exactly what the publishers appear to be arguing. Take it one step further: let’s just say that the article I read in a German publication wastes my time and provides no useful information. My time is valuable, and they’ve now wasted it. By their own logic, should I not be able to send them an invoice for wasting my time?

Somehow, of course, that flip side of the equation never gets discussed. Because this is not about logic. This is about publishers who don’t want to adapt looking for protectionism on the upside only, against actual innovators. That the German government appears to be treating such concepts seriously suggests a significant risk for Germany to end up putting a massive chill on innovation and economic growth, by trying to tax the very beneficial externalities of information in a manner designed solely to protect one side of the market for a group of businesses who are trying to stifle competition and innovation. It’s a dangerous move by a government who should be encouraging innovation and growth, not stifling it.

Filed Under: economics, externalities, germany, pay to link