An Argument For IP And Innovation Boosting Development

With the next meeting of the World Intellectual Property Organization (WIPO) Provisional Committee on Proposals related to a WIPO Development Agenda (PCDA) to be held on 11-15 June, James Lewis of the Center for Strategic and International Studies in Washington, DC, presents an argument that innovation and intellectual property protection are good for development.

James Lewis: At times, it is easy to get the impression that intellectual property rights and development are antithetical, that if you have one, you cannot have the other. WIPO [World Intellectual Property Organization] discussions of IP and development will likely open with a catalogue of the sins of IP protection and their risks for development. IP is on the defensive, assailed for creating monopoly and slowing innovation.

The problem with these criticisms is that they are wrong. They are especially wrong when it comes to economies that have not met expectations. To understand this requires attention to the question of innovation. Innovation is the creation of new goods, services and processes. Governments that promote innovation do better for their citizens. Development requires innovation. Finding ways for people to become more productive in their current tasks, like agriculture, and helping them find new tasks that are better at creating wealth requires innovation.

For development, innovation does not require reinventing ideas and processes already created somewhere else. How to accelerate the transfer of these better processes and ideas to developing nations is a crucial point for discussion. It is likely that weak IP protections limit technology transfer, but this is not the greatest danger weak protection poses for development.

Innovation is a complex process and many factors affect the ability to create new knowledge. IP is only one such factor and as many have pointed out, strong IP protection will not by itself produce innovation. On the other hand, a disturbing anomaly confronts the critics of IP. The most innovative economies are those with strong IP protections. Economies with weak IP protections tend to be less innovative and less competitive in the global economy.

The explanation for this anomaly is also complex. IP protection is part of the infrastructure of rules and laws that make economies more productive and more innovative. IP protection reduces the risks associated with innovation – an inventor takes a gamble in creating a new product, whether it is a new soda or a new semiconductor that requires immense R&D investment. IP protections reduce the risk of that gamble. Without IP protection and the incentives they provide, fewer people will accept the risks required for innovation.

A well-constructed IP system accelerates innovation. There is the risk to competition, but this risk is wildly overstated. The keys to controlling anti-competitive risk lie in transparency and in ensuring that the length of time granted for IP protection is just enough to ensure that most innovators are compensated – and the case for IP was damaged by ill-conceived efforts to extend copyright protections for cartoon characters and other entertainments.

Transparency is crucial. The beauty of the patent system is that the ideas behind an innovation are made public. This openness accelerates innovation and eliminates the risk of monopoly. Patent disclosure requirements diffuse technology and allow competing products to be developed. A well designed and enforced patent system is crucial for innovation.

Alternatives to IP protection to promote innovation have been proposed. They tend to be inefficient. IP protection promotes innovation by providing incentives for individual and markets (and this link to markets explains some of its unpopularity). Alternative models emphasise social, communal or ‘open’ efforts. One set of alternatives use government intervention as a replacement for market-driven, individual incentives. There are activities, such as basic or fundamental research, where government action is essential. In most other economic activities, governments are less effective than markets in accelerating development and growth. The contrast of China under Mao and China under Deng and his successors illustrate this. If governments want to accelerate innovation and growth, a good strategy would be to combine adequate IP protections with increased investment in research and education.

The Internet offers another alternative for promoting innovation. It lowers costs and creates new opportunities to organise activities, including production. Open source software provides a model. In open source, a community of developers, motivated by the pleasure and prestige of creation, use the internet to organise their activities, distribute production, and create software. Besides software, there may be a few other intangible products where the combination of social motives and fallings costs will allow open, social models for innovation to work.

But the open model is inadequate for most kinds of innovation. People are more creative when they have both opportunity and incentives. The opportunities and incentives must be proportional to the costs and risks of creation. When costs and risks are low, IP protections are not as important. This is not the case for most products, where the costs of developing the next generation of products or processes have increased dramatically.

The rising cost of innovation means that weak IP has a global consequence. IP protection is part of globalisation (and this also explains some of its unpopularity). Globalisation, the integration of economies and the diffusion of production and technology, has done more to speed development than most official programs. The people of countries that embraced globalisation – Ireland, Singapore, or China – are better off. Weak IP protections undercut globalisation. It increases the risk of trade and slows the overall rate of innovation. Another good strategy for governments that want to accelerate growth is to embrace globalisation and to work to put in place the rules and structures, including IP protections needed for this. The alternative is continued poverty.

Globalisation creates wealth, but this wealth is unevenly and some would say unfairly distributed. What of those whose needs are greatest – they often receive the least. Weak IP protections speed some technology transfers and can be seen as just recompense for exploitation. The problem is that this it does not take into account the effect of weak IP protection on domestic innovation capabilities. Weak IP protection may actually increase dependence, by depressing domestic innovation. This means a greater dependence on foreign IP. Some in China call this the “Qualcomm tax” and the trend has been for fast growing economies like China, Brazil and India to strengthen certain IP protections in order to incentivize domestic innovation. In a global information economy, where the creation of new ideas and knowledge will be the most valuable economic activity, those governments that make it harder to create new knowledge will be doing their citizens and others a disservice.

There are serious concerns over poverty and the need for development, but weaker IP protections are not the best way to address them. Dislike for markets and globalisation or longings for tired ideologies should not drive development policy. Weak IP protections damage growth. More importantly, the damage to developing nations’ own abilities to innovate and grow from weak IP outweighs any temporary benefit. IP protection is not sufficient in itself for innovation and growth, but if innovation, growth and an end to poverty are our goals, strong IP protections are crucial.

James Lewis is Director and Senior Fellow, Technology and Public Policy Program at the Center for Strategic and International Studies in Washington, DC. He is a former diplomat who worked at the US Departments of State and Commerce. Lewis has been at CSIS for five years, where he has written numerous reports, including four reports on the problems of innovation and globalisation. The latest, on IP and innovation, and will be published this summer. Lewis received his Ph.D. from the University of Chicago in 1984.