Greenspan, the Knowledge Economy, and Mickey Mouse

Deciding on how to deal with copyright says volumes on how we want to lubricate the economy

By Nicholas Imparato

Most people agree with the Federal Reserve's intention to cut interest rates to stimulate the economy. The logic is straightforward: Reduce the cost of borrowing, and commercial activity will increase. Businesses will feel more comfortable making capital outlays or hiring new employees; consumers will have more cash left over after paying credit-card or mortgage debt to spend on goods and services. The heart of the idea is simple - unfreeze the grease that keeps the wheels of commerce spinning. Even in the face of other variables that might inhibit a resurgence in economic activity, such as a hangover from exuberant capital spending through the end of 2000, Alan Greenspan's recipe for rate reduction still makes sense.

Meanwhile, most people I know also agree that regardless of where the NASDAQ is now and regardless of how many hits talking heads and columnists give high-tech executives (especially those who live in California), we are in an economy that is genuinely different from that which existed before. Most people believe we are in a knowledge economy.

PROTECTING THE COPYRIGHT

Although the words "knowledge economy" roll off the lips easily, the implications for our own political economy are still not entirely understood. We are learning to fly the airplane while we are building it. Yet, if the prescription for injecting vigor into the economy calls for speeding the movement of money through the nooks and crannies of our commercial life, then logically, in a knowledge economy we want to speed the movement of knowledge work as well.

Although not totally independent from money, knowledge work has its own rules of promotion and inhibition. A specific example is the set of rules around copyrights and protections for intellectual property. And deciding on how to deal with copyrights and patents speaks volumes on how, as a society, we judge the best way to lubricate the system.

If copyright enforcement is too weak, we risk losing incentives for the creation of product. I can't overemphasize that the only right specified in the Constitution as originally adopted by the 13 states dealt with the rewards from invention. The founders had studied history and concluded that protecting the rights of creators was absolutely essential to assure national economic growth.

In today's setting, for example, the Internet might be a great medium for reach, interactivity, and all the other attributes we have come to know and love, but its Achilles' heel (and Golden Goose) is content. If Disney does not have adequate protections for Mickey Mouse or the Lion King, the networked world will eventually lose them and the excitement they bring (first to consumers, then to investors, and then to new and competing creators).

On the other hand, economists are willing to tell you that protections for intellectual property can be too strict as well, diminishing the likelihood of innovation or discovery or simply assuring the monopoly transfer from one agent to another without any added social value. Either way, if you want to spur the economy while worrying just about interest rates (or any aspect of monetary or fiscal policy, for that matter) without dealing with the incentives around intellectual property, you are dealing with half the deck.

TOO IMPORTANT FOR THE LAWYERS

So where you and I come down on the challenge of intellectual property matters. By our actions, and even by our passivity, we influence policy makers. Keep this in mind: Over the past year, I have asked dozens of people at various meetings about whether they thought intellectual property, copyright, and patents were crucial elements of their jobs and careers. Virtually 90 percent said, "Yes." (Actually, this was an informal survey, and I think the real number is 100 percent, but I want to give myself some wiggle room.) At the same time, only one in four of those people said they had spent any time in the past month reading, discussing, or even thinking about how the rule of law and intellectual property are developing - and those who did were almost unanimously focused on either Napster or Microsoft.

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Good policy needs the widespread engagement of the public in order to overcome persistent challenges to a pro-growth intellectual property regime. Sloppiness - namely bureaucratic complexity and arcane legal language - hurts. The overpowering influence of one interest group or another and public disinterest also do damage in dealing with intellectual property issues. Together they eventually put a wrench in the works of commerce, which affects everyone. Even Greenspan-the-magician can't change that.

Nicholas Imparato [imparato@hoover.stanford.edu] is editor of Public Policy and the Internet (Hoover Institution Press, 2000).