Is Piracy The Leading Indicator Of Innovation?

from the yes-and-no dept

I am a big believer that removing artificial scarcity almost always leads to larger markets. The reasoning behind this is not all that hard to comprehend if you understand the economics of infinite goods. Traditional economics was always about efficient resource allocation in the presence of scarcity (i.e., how do we most fairly distribute the limited stuff we have). When there’s a lack of scarcity, there isn’t a question of how do you allocate things — because anyone who wants it can take it. Now, if those infinite goods make scarce goods more valuable, by their very nature they’re increasing the size of any market. It is those infinite goods that are the key to economic growth — as many economists have been noting in research over the past two decades. Because they’re limitless, and because they increase the value of other goods, they are the economic engine of growth. Limiting them with artificial scarcity then would hinder growth. Perhaps an easier way of thinking about it is to just shift your thinking about any infinite good. Stop thinking of it as a product to be sold, and start thinking of it as a resource or an input in any other market. If you had unlimited resources that could be used to grow any other market, of course those infinite goods are going to help grow markets. You just need to recognize it’s a non-zero-sum game, thanks to infinite resources. One of my favorite quotes from economist Paul Romer sums this up nicely:

Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.

With that in mind, it’s great to hear about a new book that has just come out, entitled The Pirate’s Dilemma, by Matt Mason. Mason has written up a short article at Torrent Freak that eloquently lays out what he believes this dilemma is really about. It’s a quick and interesting read and there’s much to agree with in there. The points he makes are that “piracy” is often a harbinger of innovation. It happens when people are trying to make things more efficient (applying those infinite ideas to making scarce goods more valuable), building new markets and creating growth. Those who stand against it are often those who are actually fighting growth in an attempt to protect an existing business model.

“We live in a world where it is legal for a company to patent pigs, or any other living thing except for a full birth human being, but copying a CD you bought onto your hard drive is considered an infringement of someone else?s rights. A place where an average law abiding citizen could owe more than $12 million dollars in fines if they were sued every time they accidentally violated copyright law in a single day. A society where it?s ok for each of us to be hit with 5,000 advertising messages every 24 hours, usually without our permission, but creating a piece of art and placing it in public yourself without permission can land you in prison. This isn?t just about the pros and cons of file sharing – this is about an entire species losing its sense of perspective, failing to understand the potential of one of its most precious (and yet most abundant) resources.

The book then goes on to point out example after example where what some may consider “piracy” actually resulted in a much larger market where more money could be made. It looks to be a fantastic resource of evidence to support much of what we talk about here. I have two small quibbles with the setup of the book, however. The first is the idea that there’s any “dilemma” at all between trying to build walls of artificial scarcity and embracing the infinite and abundant nature of certain goods. If you understand the economics and how you can benefit from them, there’s no dilemma at all. I recognize that it may just be a device that Mason is using to set up the book, but it comes a little too close to the idea that there needs to be a balance and that there’s a zero-sum game going on here. The second is that, at least in the way the book is pitched, it can be read as a defense of piracy, which is a line I’m careful to avoid. I still think the best thing is to focus on convincing people that it’s in their own best interests to ignore the intellectual property rights they hold (for all the reasons listed above, such as the ability to create a much larger market) rather than to say it’s okay to ignore the intellectual property rights of others. That may be an idealistic position, with this book presenting a more realistic view of what content creators are facing, however. Either way, the book sounds like it’s well worth reading.

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Comments on “Is Piracy The Leading Indicator Of Innovation?”

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Troll King says:

Re: BS

So sad to see second rate trolling going on. I mean, that didn’t even take any effort. If people took you seriously they’d think you were a hypocrite for calling Mike lazy.

Most people probably don’t take you seriously since you shrug off actual economics terms as “BS” let alone a potentially serious economic issue.

Learn2Troll man, you’re making the rest of us look bad.

Anonymous Coward says:

Re: Re:

A great example of this is the original XBOX. A modified xbox had a lot of great features like the xbox media center and emulators that let you play ROMS of classic games. Microsoft, Nintendo and Sony all copied this feature in their current generation of consoles. XBox Live for the 360 and Virtual Console for Wii both make Microsoft and Nintendo a lot of money. This was copied straight from the pirated, modified XBOX.

Mike (profile) says:

Re: Re:

I fail to see how copying something and selling it is innovation.

Well there are two key points that you’re missing — and I apologize if I didn’t explain them clearly.

The first is that it’s showing innovation in distribution, by making the distribution more efficient and effective.

The second is that combining this with other things to make them more valuable is innovation.

And, note, we’re not talking about theoretical possibilities, but looking back at historical examples. In almost every case, the tools of “piracy” were later the tools of innovation. The printing press. Recorded music. Radio. The player piano. The cassette tape. The VCR. These were all tools of “piracy” originally — allowing people to “copy something.” You claim that no innovation came out of any of them? Yet, when you look, each and every one opened up HUGE new markets where more money than ever before was available.

DisGuysed says:

From what I see going on, you can either see the industry in the future with the record labels or without. The internets changed or are changing distribution. The labels blanketed under RIAA know this and they are shitting bricks because it is quite possible that a small group of web sites could be designed to work together to replace everything that the record labels do. They know they are only just middle men. They know because they love having the job of making money off other people and not having to pay those people much. (things might be different if they were required to pay artists more, but i am not for govt intervention).

Solburn (user link) says:

Kitchen Metaphor

“I fail to see how copying something and selling it is innovation.”

I think the point here is not that you are copying and reselling the same thing, but copying and using that thing you copied to make something else more valuable.

For instance. You pirated MS Office. Now you could resell MS Office, but you instead use Office to run a small business selling something online that is now more valuable/desirable than MS Office by itself.

Using the Kitchen Metaphor, MS Office is an ingredient that is used to create a new recipe.

Anonymous Coward says:

The second is that, at least in the way the book is pitched, it can be read as a defense of piracy, which is a line I’m careful to avoid. I still think the best thing is to focus on convincing people that it’s in their own best interests to ignore the intellectual property rights they hold (for all the reasons listed above, such as the ability to create a much larger market) rather than to say it’s okay to ignore the intellectual property rights of others. That may be an idealistic position …

Yes, I’d say this is an idealistic position and one held by many idealistic positions.

It is possible to ignore rights you hold and actively allow people to also ignore those rights through actions or words. That is probably the only way that those “violating” those same rights aren’t ignoring those rights.

There is a difference between encouraging and giving free reign to others to use and improve on something you have rights to and passively allowing that same use to occur. In the first you’ve essentially given up the control of the idea or expression of the idea, in the second you’re not enforcing your control over it.

From your (the rights holder) viewpoint there’s no change, others are able to take your idea and do whatever with it, whether you’ve expressed that permission explicitly or passively by not punishing those who use it. Where it changes is from the viewpoint of the others. If you’ve not expressly given permission anyone who violates the rights to that idea have ignored the rights to that item even if they won’t be prosecuted.

raistlehoff says:


Just curious… Years ago, a thing called the VCR was created… what was it created for? To copy other vcr tapes, whether legally or illegaly and to record off of television. Ok, since this is now common and virtually everyone owns a vcr.. and a lot of the television shows can be purchased now, then why is it still ok to record them off of the tv? The same goes for recording cd’s onto audiocassettes when our friends got the new cd… who didn’t do that? Is there truly any point in policing piracy? It’s been done and will continue to be done. If new ways are developed to stop it, then others will create new ways to get around it.

Anonymous Coward says:

I think the point here is not that you are copying and reselling the same thing, but copying and using that thing you copied to make something else more valuable.

I agree, maybe the term piracy shouldn’t be used in the article then.

That being said, I think piracy does chase innovation but I doubt it causes it. You only pirate what is new and exciting. Almost like why people rob banks. Thats where the money is.

Anonymous Coward says:

If there is no to little “piracy” in a particular section of an industry, that mean that sector is friendly to consumers and embraced the business model that Mike has suggested.

It is also destined to do great things in the economy and the most likely to survive the changing the market.

Such example is free/open source software. Once you can sell free softwares for quite a bit of money. As internet connection got faster, it is no longer practical to sell softwares at such a high price. Eventually, it become almost impossible.

Now we have a fledging and growing software sector that is conquering markets and taking away market shares from their proprietary competitors.

Scorpiaux says:

“… if those infinite goods make scarce goods more valuable, …”


Exactly who is going to produce these “infinite goods” and will they be doing this for free?

I understand that there are hydrogen-powered cars being prototyped, possibly even being produced for a mass market. Hydrogen, I suppose, could be looked at as an infinite good and shouldn’t cost much of anything. Bet it won’t be free, though, when the cars are on the mass market.

I wonder if these various economic theories ever consider the intangible costs and their impacts on the quality of life? Turns out that the oceans are not cost-free infinite dumps for garbage. Same with our air that now carries with it the components for acid-rain, an expensive cost to clean it up that we all have to share even though the benefits were too often concentrated in the possessions of a few.

“Economics is a form of employment for economists.” – John Kenneth Galbraith.

Mike (profile) says:

Re: Re:

Exactly who is going to produce these “infinite goods” and will they be doing this for free?

Those who stand to benefit from the sale of the more valuable scarce goods. If you make money putting on concerts, and you know that more people will come to your concerts if they know about your music, you now have incentive to create that music. If you sell IT services where you help companies manage their IT departments and you know those services are more valuable when there’s a great free operating system, you throw a lot of resources at that free operating system.

This isn’t theory, this is reality.

If you can create a larger market, as you can in these situations, the incentive is for those who will benefit to pay for the creation of those infinite goods.

another mike says:

try this metaphor on for size

Trees are a scarce resource. There’s only a certain number of them and lots of competition, from eco-tourists to paper mills to guys who like to cook outside. Air is an infinite resource. We can all breathe freely (there’s obviously some debate as to whether this should be allowed). But ask any New England tourism board in autumn, are people there to breathe or look at trees?

Matt Mason (user link) says:

Re: Re:

I agree, I’d love to put the e-version online, and I’m taling to my publishers about doing that as we speak. It’s my mouth sure enough, but it’s their money – so they decide, not me.

More on my feelings on this here:

Matt Mason (user link) says:

Thanks Mike

For this mention, really appreciate it – email me and I’ll get a review copy out to you.

I see your point on defending artificial scarcity – but the dilemma arises because piracy doesn’t just affect things that are artificially scarce, it also affects things that are scarce, like medicine and handbags.

As for defending piracy outright, I also steer away from this because sometimes piracy is indefensible. I believe in IP and copyrights I just think we need to take a more nuanced view in many cases. I’ll let you make up your own mind.

Thanks again and all the best,

Matt Mason

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