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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  1. identicon
    Anonymous Coward, 10 Jan 2008 @ 1:43pm

    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.

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