Subverting the Global Economy through Local Action Part 2

[part 1 here]

For a while, I had intended to write this post all by myself and make it a masterpiece of bloggery, so I started looking around for inspiration and links.

And I found others have already mastered this topic.

So I'm not going to write an article, post, diatribe, or paean: I'm going to stop right here and link to others' works that cover the topic far more thoroughly than I could in a single article. The overriding thesis: we don't need to do anything particularly organised to overturn the current economic order. All we need to do is reduce our overall need for money. That can be done through sharing, gifting, cooperation, crafting, making, and swapping - all of which is fun and builds community, which is far more useful than money. But don't take my word for it:

The concept of Earthship Village Ecologies links ecological concepts by creating work and resource flows rather than currency flows, and creating community instead of economy.

This is a good core article on the economic underpinnings of the Sharing Economy, and how we can resuscitate it for the modern age.

The Creative Commons is a global open-source style movement that gives a legal basis for sharing IP without giving corporations or individuals the opportunity to monetise or acquire the rights to an idea, product, or piece of work. A good example is this website for the sharing of free designs for 3d printing, in this case featuring designs for how to print an entire flying quadcopter. It's quite simply a fact that IP stifles small-scale economic development and in many cases is counterproductive. The people who realise this can share their concepts and code through these above movements so that their ideas serve the greater good of the community and allow small-scale economic development to expand.

The anti-colonial and anti-enclosure movement rising in (primarily) the third world seeks to defend cultural legacy from corporate patents.

The Transition Towns movement seeks to create regional and local economic autonomy and development from the "great powering down" that is starting now. The link is a practical primer on how to get local research to assist in economic development on a local level.

This is just the tip of the iceberg, but countless groups are looking at a less cash-intensive future that is more community-based, sustainable, and happy. Less money can mean less security in these cash-intensive times, but less need for money means greater security, more community, and in the end, more happiness for all concerned (except the bankers, who might actually have to learn to work for a living).

Subverting the Global Economy through Local Action, Part 1

It's a common and nonetheless sad story that, no matter where or who we are, we assume that the only way to change our lot in life is to rally behind a figure who, inevitably, betrays his or her ideals once in a position of power. The politicians who win elections can bend but won't act, and those who won't bend and would act: don't win. Leaders are, on the whole, incapable of NOT doing what the system is set up to make them do. In a democracy, politicians appeal to their base with stirring rhetoric to get elected, and once in power, must compromise and please the majority. That's the democratic system. On the other hand, authoritarian concentration of power comes greater need to offer power and wealth to the people who support you, and no matter how benevolent the despot, his innate sense of entitlement and ability to rationalise make it impossible for him to resist the trappings of power and reject its substance. So much for leaders.

So what have we got to rely on? First, we must take power over ourselves. Power over oneself is the greatest of powers, but we just happened to have become acculturated to giving this power up to authority to the point that we don’t know that it’s gone. Next, realise that there’s a lot more in this society than just governments and individuals. We're not only talking about ourselves, but the communities that we left behind to inhabit our soulless suburbia. Building on a few of my previous articles, I wanted to talk about how to use your personal power to make the world a better place. No, this isn't intended to be some kind of self-help or inspirational article. This is a blueprint for a peaceful and insidious revolution that just happens to be inspiring.

The global economy has made many goods very affordable. The more globalised we become, the cheaper everyday items seem to get. Economies of scale, container ships, and big box stores are efficient: they are able to produce the most amount of widgets for the lowest price. Efficiency is exactly what the global economy is about. Companies can move production of widgets to the countries with the lowest-cost workforce, countries that provide the most favourable tax laws, or countries that subsidise corporate inputs. Given the smorgasbord of potential options for cost externalisation (fancy language for how corporations make other people pay for the stuff they use) and arbitrage (fancy talk for simultaneously exploiting the margin in price between two regions for profit), companies can naturally make their homes in locations that offer them lowest cost for their operations.

The problem with this efficiency is that it means one thing: concentration. Profits become concentrated when corporations operate in an environment where they are free to reduce or externalise their costs. As much as I believe in the free market, I believe that everything from lower salaries and cheap electricity to favourable tax legislation and undervalued currencies are externalities naturally produced by the current way of doing business. My definition of a truly free market is as free of these corporate advantages as it is free of hindrances. All externalities must be internalised to create a truly free market. Economies work best when all actors have an even playing field. When the field is uneven, groups can effectively arbitrage (for example) the high-currency consumer power of country A with the low currency and tiny salaries of country B. There are plenty of multinationals that would be unable to survive if it wasn't for these arbitrages and externalities. In my opinion, they shouldn't survive: they are poster-children for unfair business practices and unsustainability... but I also understand that, when the only goal of a corporation is to expand share value, they will naturally act amorally to achieve these ends.

The WTO (formerly GATT) has facilitated a kind of corporate wonderland where corporations (through their governmental proxies) can take countries to court for throwing up trade barriers. Trade barriers, in this case, can mean even something as simple as health legislation (where the US forced the EU to accept hormone-laden beef that has been linked with increased risk for cancer) or environmental protection legislation (where Venezuela forced the US to allow them - effectively - to sell more polluted gasoline on the US market than extant EPA legislation allowed), or indeed human rights legislation (where Massachusetts was forced to deal with Myanmar even though they had made legislation that disallowed them to deal directly with despotic regimes). This is simply in their nature: corporations act to increase share value. They will use all tools at their disposal to grow, and prying open other markets is one of the things necessary for growth past a certain point. It is no surprise that GATT became the WTO and the WTO may likely expand to the TPP. It's a natural evolution. Predictable, really.

We need a way for economic proverbial Davids to compete against proverbial economic Goliaths. The purpose is not to abolish the WTO, throw out the multinationals, eat the rich, and establish a dictatorship of the unions. That can't be done, especially not through any kind of direct conflict. No, the purpose is to make the people in your immediate area able to compete against money. Not simply against this company or that company, or this product or that product, but against the fundamental underpinnings of the entire neoliberal economy: money itself. 

More in the next instalment. Read this for a taste of the direction we're going. A shout out to The Valhalla Movement, a step in the right direction.

Fiscal Responsibility - Part 2: Markets and Innovation, Chapter IV: Patent Catch 22

There are two very divergent and very vitriolic extremities on the spectrum of thought regarding Intellectual Property. There are those who espouse the necessity to control and maintain IP rights as strongly as possible as the best way to foster innovation. The fundamental argument of this side is that an inventor should be able to profit from his or her labour. Without the inducement of the ability to profit from labour, innovation would be rare indeed - or so they argue. Then there are those who argue for the freedom of information and the abolition of IP. They argue that ideas happen no matter what you do, and the best way for us to advance is to disseminate and propagate those ideas as fast as possible. An example of the former - IP protection - would be the pharmaceutical industry, which expends billions on research and needs IP protection to realise profit. An example of the latter - open source - would be fashion design, which must advance by constantly re-creating itself. The conflict between to IP or not to IP is, at its core, one between concentration and diffusion.

There are both good and bad on both sides of the argument, and the only real way to reckon which is the superior would be to determine which of the factors is more important in the marketplace: whether concentrating IP in the hands of the people with the profit motive is a better motivator for invention or diffusion into the hands of the greatest number of potential inventors is a greater motivator for invention. Both sides agree invention is good, but disagree on how best to encourage it. Obviously, we all want to have our cake and eat it too... we'd like to be able to have the benefits of profit motive - the fact that individuals can devote their lives to invention, or the fact that corporations will spend billions on research - combined with the benefits of diffusion - the fact that thousands of programmers will converge on open source code and advance the industry, or the fact that fashion designers have to keep coming up with new stuff or become irrelevant. We also don't want the negative sides of each argument - like the recording industry, that effectively buys up rights to the work of artists and proceeds to squeeze far more profits out of those rights than the artists themselves will ever see. We also don't want the wild west of outright piracy, where the sweat and toil of innovators are ripped out from under them. Here's a thought, though, to put things in perspective a little: the question of IP is not simply about the rights of inventors and artists to profit from their work - it's about the entire economy of ideas. This is a systems problem. IP defines the recording industry. The companies that profit from IP do so because they structured themselves to use the tool of IP to make money. If IP was yanked out from under them, they would have to find a completely new way to make money because the incentive of IP effectively structures the payout matrix of the whole system. Some companies might live and some might die, but they'd have nothing in common with their former selves. IP is one of those "inducements" in the economic system that has enormous power over how the whole of industry organises itself. Fiddling with it does more than just anger Metallica.

MARKETS AND INNOVATION

Deriving the maximum benefit from innovation

How can we talk about IP and speak to all the pitfalls and potential of the system? A couple thought experiments might help. The first things I'd like to talk about are industries driven by innovation that requires little to no initial investment versus industries driven by innovation that require enormous time and investment to succeed. Key examples of these two extremes would be the recording industry and the pharmaceutical industry.

Brainstorm for a moment how the recording industry would look without IP. How would the companies derive profit from the creation and marketing of music? To be honest, several models are emerging currently from bands and fans who realise that music piracy is a fact that's here to stay. Some offer their music online for free, depending on reciprocal goodwill when it comes to purchasing their albums. I know several artists who do this, and are perfectly happy... but they keep their day jobs. Others offer tidbits online in the hopes of driving interest for their tours. A business model could be constructed where a band's real work is their stage performances, and their marketing is their music writing, as opposed to vice versa. You can see how it works... whereas nowadays tours are just promotions to announce a new album, in the no-IP music industry, songwriting would be the advertising and live performance would be how bands brought home the bacon. I don't know enough about the recording industry to speak to this authoritatively, but I'd bet dollars to doughnuts someone is already working this business model. Would it be the same industry as before? Absolutely not. Would music continue to be written? Yes it would.

So what would happen to record labels in such a system? Well, they would cease to exist. The label's sole claim to profit is now IP and the merchandising thereof. Song rights are all they have now. I say that confidently because, if you talk to the owner of a label (and I have), they'll tell you that moving records is more about logistics than music. Labels were the people who had the capital to press the vinyl, the connexions to push the music on to the radio, and the coordination to move the LPs into record stores. Except for the guys who press vinyl nowadays (and they not only exist, but are pretty cool), production and distribution is no longer an issue. As a matter of fact, it's a throwback to a now bygone era that we still purchase CDs at the brick-and-mortar store. There is enough studio time out there for a lot of reasonably-priced recording, so up-front capital isn't an issue. If you are willing to go electronic, you can do it all yourself. The only things a label has are marketing and penetration, and they won't market what they don't own. If IP goes, the entire business model of recording labels ceases to exist. Does music exist because of labels? No. Would the loss of IP matter to the recording industry? Yes... but not as much to the artists; just to the people who profit from artists' work. In sum, the loss of IP for the music industry would just kill off the fat cats. Music would continue to be made, it would just be made under a different market paradigm.

The question of IP becomes far more sticky when we talk about pharmaceuticals. For all their problems, pharmaceutical companies do make stuff that makes people feel better. Some of the stuff they make even makes them better for real. The way they make money is by having a guaranteed window of time in which they can make mammoth profits from their multi-billion dollar research and licensing programs. Unlike music, many pharmaceuticals are necessary to modern existence, and the development thereof should be encouraged. Given the regulatory hoops that pharmaceutical companies have to get through to bring a product to market, such a high-stakes game has to be rewarded with some form of payback. Profit motive being what it is, pharmaceutical companies want to be able to sell high quantities of high-priced goods to the market for as long as possible to recoup costs and make a handy profit. It is, however, in the interest of public safety that the IP reverts to the public domain after a reasonable time so that generic drugs can drive prices down. Does IP work to incentivise research and development of lifesaving drugs and treatments? Yes. What would happen if IP didn't exist in the pharmaceuticals industry?

It would change for certain, but medicine would go on being done by government and university researchers. As a matter of fact, when I hear about possible cures to type I diabetes or the cure for peptic ulcers or, you know, any cure at all... I think about universities and state-funded medical centres, not big pharma. There is a place for pharmaceutical companies in the universe, but the question of whether the incentive of profit moves them to make our lives better is not as cut-and-dried as we might imagine. Cures are not as profitable as treatments. By creating an inducement to incentivise innovation in medical treatment, we neglected to say it should be to find cures rather than symptom management. Still, there is some use to the incentive of IP in this case because bringing a medicine to market does take a lot of work and is highly capital-intensive. Even cures developed by universities must go through rigorous testing that takes a great deal of time and money to accomplish.

Some industries would seem to be served well by IP whereas in others, IP perpetuates an obsolete business model. The problem is that IP is IP is IP, and whether we like it or not, the strength of IP is either exerted on a product or it isn't: it's tough to find a good balance. Diffusion benefits the producers of innovations: generic drug manufacturing depends on it. They compete on price and process, not ideas. Musicians also could compete solely on the merits of their music without the input of labels. However, for some companies, ideas are where they compete. Pharmaceutical companies are a big and important example. Innovators like 3M are another. For each model, there must be a sensible way to handle IP.

My thoughts lean toward diffusion, but not completely. IP must exist in order to act as a carrot for people with good ideas. IP can be used to advance the ends of the government as well as increase the diversity and liveliness of the economy. When deciding how to apply IP, states must consider first whether IP is the right solution to sparking competition and innovation in a market. In fashion, IP would lead to stagnation. In music, some could argue it has already lead to stagnation. Second, the decision has to be made for how long it would be appropriate to allow the IP to be controlled. In my mind, pharmaceutical companies should be allowed to keep IP for longer on cures and shorter on treatments. If cures are what interest us, then the system should be nudged in that direction. On an industry by industry basis, we have to decide whether IP orders the market in a positive or negative direction. IP, like any other policy, is a tool; it is not some Gods-given right to eternal royalty cheques. The government, for its part, should intervene when it is in the interest of the market to do so. For instance, if an innovation in efficiency would spark major gains by being cheaply and broadly disseminated, government should acquire the patent and open it for general use. A few thoughts on this:

1) Open the product for construction only within Canada by Canadian owned companies.

2) Since the patent is Canadian government property, the Canadian government would chase down IP violators outside of the country.

3) The originator of the patent would be reasonably rewarded... but forfeiture of the patent (for said reasonable price) would be mandatory.

This is a quick fix that works within the existing IP system to attempt to derive benefit from both the incentive of IP and the market benefits of diffusion.

I hope that this has made us think of IP in a different way. IP is not a right, it's a policy tool that was conceived in order to drive innovation. It's been around for so long that some people consider it a necessity to technological advancement. It is not. Its use should be studied and understood, and applied only when it is useful to the market. Whether the interests vested in IP are served by its elimination is not my concern here - our concern is the health of the market and the goal of competition through innovation. IP does not always serve that end.