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The Revolt of the Poor – The Demise of Intellectual Property

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Three years ago I published a book of short stories in Israel. The publishing house belongs to Israel’s leading (and exceedingly wealthy) newspaper. I signed a contract which stated that I am entitled to receive 8% of the income from the sales of the book after commissions payable to distributors, shops, etc. A few months later, I won the coveted Prize of the Ministry of Education (for short prose). The prize money (a few thousand DMs) was snatched by the publishing house on the legal grounds that all the money generated by the book belongs to them because they own the copyright.

In the mythology generated by capitalism to pacify the masses, the myth of intellectual property stands out. It goes like this : if the rights to intellectual property were not defined and enforced, commercial entrepreneurs would not have taken on the risks associated with publishing books, recording records and preparing multimedia products. As a result, creative people will have suffered because they will have found no way to make their works accessible to the public. Ultimately, it is the public which pays the price of piracy, goes the refrain.

But this is factually untrue. In the USA there is a very limited group of authors who actually live by their pen. Only select musicians eke out a living from their noisy vocation (most of them rock stars who own their labels – George Michael had to fight Sony to do just that) and very few actors come close to deriving subsistence level income from their profession. All these can no longer be thought of as mostly creative people. Forced to defend thie intellectual property rights and the interests of Big Money, Madonna, Michael Jackson, Schwarzenegger and Grisham are businessmen at least as much as they are artists.

Economically and rationally, we should expect that the costlier a work of art is to produce and the narrower its market – the more its intellectual property rights will be emphasized. Consider a publishing house. A book which costs 50,000 DM to produce with a potential audience of 1000 purchasers (certain academic texts are like this) – would have to be priced at a a minimum of 100 DM to recoup only the direct costs. If illegally copied (thereby shrinking the potential market – some people will prefer to buy the cheaper illegal copies) – its price would have to go up prohibitively, thus driving out potential buyers. The story is different if a book costs 10,000 DM to produce and is priced at 20 DM a copy with a potential readership of 1,000,000 readers. Piracy (illegal copying) will in this case have been more readily tolerated as a marginal phenomenon.

This is the theory. But the facts are tellingly different. The less the cost of production (brought down by digital technologies) – the fiercer the battle against piracy. The bigger the market – the more pressure is applied to clamp down on the samizdat entrepreneurs. Governments, from China to Macedonia, are introducing intellectual property laws (under pressure from rich world countries) and enforcing them belatedly. But where one factory is closed on shore (as has been the case in mainland China) – two sprout off shore (as is the case in Hong Kong and in Bulgaria).

But this defies logic : the market today is huge, the costs of production and lower (with the exception of the music and film industries), the marketing channels more numerous (half of the income of movie studios emanates from video cassette sales), the speedy recouping of the investment virtually guaranteed. Moreover, piracy thrives in very poor markets in which the population would anyhow not have paid the legal price. The illegal product is inferior to the legal copy (it comes with no literature, warranties or support). So why should the big manufacturers, publishing houses, record companies, software companies and fashion houses worry ?

The answer lurks in history. Intellectual property is a relatively new notion. In the near past, no one considered knowledge or the fruits of creativity (art, design) as “patentable”, or as someone “property”. The artist was but a mere channel through which divine grace flowed. Texts, discoveries, inventions, works of art and music, designs – all belonged to the community and could be replicated freely. True, the chosen ones, the conduits, were honoured but were rarely financially rewarded. They were commissioned to produce their works of art and were salaried, in most cases. Only with the advent of the Industrial Revolution were the embryonic precursors of intellectual property introduced but they were still limited to industrial designs and processes, mainly as embedded in machinery. The patent was born. The more massified the market, the more sophisticated the sales and marketing techniques, the bigger the financial stakes – the larger loomed the issue of intellectual property. It spread from machinery to designs, processes, books, newspapers, any printed matter, works of art and music, films (which, at their beginning were not considered art), software, software embedded in hardware and even unto genetic material.

Intellectual property rights – despite their noble title – are less about the intellect and more about property. This is Big Money : the markets in intellectual property outweigh the total industrial production in the world. The aim is to secure a monopoly on a specific work. This is an especially grave matter in academic publishing where small- circulation magazines do not allow their content to be quoted or published even for non-commercial purposes. The monopolists of knowledge and intellectual products cannot allow competition anywhere in the world – because theirs is a world market. A pirate in Skopje is in direct competition will Bill Gates. When selling a pirated Microsoft product – he is depriving Microsoft not only of its income, but of a client (=future income), of its monopolistic status (cheap copies can be smuggled into other markets) and of its competition-deterring image (a major monopoly preserving asset). This is a threat which Microsoft cannot tolerate. Hence its efforts to eradicate piracy – successful China and an utter failure in legally-relaxed Russia.

But what Microsoft fails to understand is that the problem lies with its pricing policy – not with the pirates. When faced with a global marketplace, a company can adopt one of two policies: either to adjust the price of its products to a world average of purchasing power – or to use discretionary pricing. A Macedonian with an average monthly income of of 160 USD clearly cannot afford to buy the Encyclopaedia Encarta Deluxe. In America, 100 USD is the income generated in average day’s work. In Macedonian terms, therefore, the Encarta is 20 times more expensive. Either the price should be lowered in the Macedonian market – or an average world price should be fixed which will reflect an average global purchasing power.

Something must be done about it not only from the economic point of view. Intellectual products are very price sensitive and highly elastic. Lower prices will be more than compensated for by a much higher sales volume. There is no other way to explain the pirate industries : evidently, at the right price a lot of people are willing to buy these products. High prices are an implicit trade-off favouring small, elite, select, rich world clientele. This raises a moral issue : are the children of Macedonia less worthy of education and access to the latest in human knowledge and creation ?

Two developments threaten the future of intellectual property rights. One is the Internet. Academics – fed up with the monopolistic practices of professional publications – already publish there in big numbers. I published a few book on the Internet and they can be freely downloaded by anyone who has a computer or a modem. There are electronic magazines, trade journals, billboards, professional publications, thousand of books are available full text. Hackers even made sites available from which it is possible to download whole software and multimedia products. It is very easy and cheap to publish in the Internet, the barriers to entry are virtually nil, pardon the pun. Web addresses are provided free of charge, authoring and publishing software tools are incorporated in most word processors and browser applications. As the Internet acquires more impressive sound and video capabilities it will proceed to threaten the monopoly of the record companies, the movie studios and so on.

The second development is also technological. The oft-vindicated Moore’s law predicted the doubling of computer memory capacity every 18 months. But memory is only one aspect. Another is the rapid simultaneous advance on all technological fronts. Miniaturization and concurrent empowerment of the tools available has made it possible for individuals to emulate much larger scale organizations successfully. A single person, sitting at home with 5000 USD worth of equipment can fully compete with the best products of the best printing houses anywhere. CD-ROMs can be written on, stamped and copied in house. A complete music studio with the latest in digital technology has been condensed to the dimensions of a single software. This will lead to personal publishing, personal music recording and the digitization of plastic art. But this is only one side of the story.

The relative advantage of the intellectual property corporation was not to be found exclusively in its technological prowess. Rather it was in its vast pool of capital and its marketing clout, market positioning, sales and distribution. Nowadays, anyone can print an visually impressive book, using the above-mentioned cheap equipment. But in an age of an information glut, it is the marketing, the media campaigns, the distribution and the sales that used to determine the economic outcome.

This advantage, however, is also being eroded. First, there is a psychological shift, a reaction to the commercialization of intellect and spirit. Creative people are repelled by what they regard as an oligarchic establishment of institutionalized, lowest common denominator art and they are fighting back. Secondly, the Internet is a huge (200 million people), truly cosmopolitan market with its own marketing channels freely available to all. Even by default, with a minimum investment, the likelihood of being seen by surprisingly large numbers of consumers is high.

I published one book the traditional way – and another on the Internet. In 30 months, I have received 2500 written responses regarding my electronic book. This means that well over 75,000 people read it (the industry average is a 3% response rate and my Link Exchange meter indicates that 160,000 people visited the site by February 2000, with well over 630,000 impressions in the last 15 months alone). It is a textbook (in psychopathology) – and 75,000 people (let alone 160,000) is a lot for this kind of publication. I am so satisfied that I am not sure that I will ever consider a traditional publisher again. Indeed, my next book is being published in the very same way.

The demise of intellectual property has lately become abundantly clear. The old intellectual property industries are fighting tooth and nail to preserve their monopolies (patents, trademarks, copyright) and their cost advantages in manufacturing and marketing.

But they are faced with three inexorable processes which are likely to render their efforts vain:

The Newspaper Packaging

Print newspapers offer package deals of subsidized content (sold for a token amount) and subsidizing advertising. In other words, the advertisers pay for content formation and generation and the reader has no choice but be exposed to commercial messages as he or she studies the contents.

This model – adopted earlier by radio and television – rules the internet now and will rule the wireless internet in the future. Content will be made available free of all pecuniary charges. The consumer will pay by providing his personal data (demographic data, consumption patterns and preferences and so on) and by being exposed to advertising.

Thus, content creators will benefit only by sharing in the advertising cake. They will find it increasingly difficult to implement the old model of royalties paid for access or ownership of intellectual property. The venerable (and expensive) “Encyclopaedia Britannica” is now fully available on-line, free of charge. Its largesse is supported by advertising.

Disintermediation

A lot of ink has been spilt regarding this important trend. The removal of layers of brokering and intermediation – mainly on the manufacturing and marketing levels – is a historic development (though the continuation of a long term trend). Consider music for instance. Streaming audio on the internet or MP3 files which the consumer can download will render the CD obsolete. The internet also provides a venue for the marketing of niche products and reduces the barriers to entry previously imposed by the need to engage in costly marketing (“branding”) campaigns and manufacturing activities.

This trend is also likely to restore the balance between artist and the commercial exploiters of his product. The very definition of “artist” will expand to include all creative people. Everyone will seek to distinguish oneself, to “brand” himself and to auction her services, ideas, products, designs, experience, etc. This is a return to pre-industrial times when artisans ruled the economic scene. Work stability will vanish and work mobility will increase in a landscape of shifting allegiances, head hunting, remote collaboration and similar labour market trends.

Market Fragmentation

In a fragmented market with a myriad of mutually exclusive market niches, consumer preferences and marketing and sales channels – economies of scale in manufacturing and distribution are meaningless. Narrowcasting replaces broadcasting, mass customization replaces mass production, a network of shifting affiliations replaces the rigid owned-branch system. The decentralized, intrapreneurship-based corporation is a late response to these trends. The mega-corporation of the future is more likely to act as a collective of start-ups than as a homogeneous, uniform (and, to conspiracy theorists, sinister) juggernaut it once was.

Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant
Self Love – Narcissism Revisited and After the Rain – How the West
Lost the East. He served as a columnist for Central Europe Review,
PopMatters, Bellaonline, and eBookWeb, a United Press International
(UPI) Senior Business Correspondent, and the editor of mental health
and Central East Europe categories in The Open Directory and
Suite101.

Until recently, he served as the Economic Advisor to the Government
of Macedonia.

Visit Sam’s Web site at http://samvak.tripod.com

The Revolt of the Poor – The Demise of Intellectual Property
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This entry was posted in Business.
About Sam Vaknin
Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He served as a columnist for Central Europe Review, PopMatters, Bellaonline, and eBookWeb, a United Press International (UPI) Senior Business Correspondent, and the editor of mental health and Central East Europe categories in The Open Directory and Suite101.

Until recently, he served as the Economic Advisor to the Government of Macedonia.

Visit Sam's Web site at http://samvak.tripod.com WebProNews Writer


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