The Permission Problem

[Zeno Swijtink]

THE FINANCIAL PAGE
THE PERMISSION PROBLEM
by James Surowiecki
AUGUST 11, 2008

KEYWORDS
Economic Gridlock; Anticommons; Heller, Michael; “The Gridlock Economy”; Property Rights; Copyright; Patents

In the second decade of the twentieth century, it was almost impossible to build an airplane in the United States. That was the result of a chaotic legal battle among the dozens of companies—including one owned by Orville Wright—that held patents on the various components that made a plane go. No one could manufacture aircraft without fear of being hauled into court. The First World War got the industry started again, because Congress realized that something needed to be done to get planes in the air. It created a “patent pool,” putting all the aircraft patents under the control of a new association and letting manufacturers license them for a fee. Had Congress not stepped in, we might still be flying around in blimps.

The situation that grounded the U.S. aircraft industry is an example of what the Columbia law professor Michael Heller, in his new book, “The Gridlock Economy,” calls the “anticommons.” We hear a lot about the “tragedy of the commons”: if a valuable asset (a grazing field, say) is held in common, each individual will try to exploit as much of it as possible. Villagers will send all their cows out to graze at the same time, and soon the field will be useless. When there’s no ownership, the pursuit of individual self-interest can make everyone worse off. But Heller shows that having too much ownership creates its own problems. If too many people own individual parts of a valuable asset, it’s easy to end up with gridlock, since any one person can simply veto the use of the asset.

The commons leads to overuse and destruction; the anticommons leads to underuse and waste. In the cultural sphere, ever tighter restrictions on copyright and fair use limit artists’ abilities to sample and build on older works of art. In biotechnology, the explosion of patenting over the past twenty-five years—particularly efforts to patent things like gene fragments—may be retarding drug development, by making it hard to create a new drug without licensing myriad previous patents. Even divided land ownership can have unforeseen consequences. Wind power, for instance, could reliably supply up to twenty per cent of America’s energy needs—but only if new transmission lines were built, allowing the efficient movement of power from the places where it’s generated to the places where it’s consumed. Don’t count on that happening anytime soon. Most of the land that the grid would pass through is owned by individuals, and nobody wants power lines running through his back yard.

The point isn’t that private property is a bad thing, or that the state should be able to run roughshod over the rights of individual owners. Property rights (including patents) are essential to economic growth, providing incentives to innovate and invest. But property rights need to be limited to be effective. The more we divide common resources like science and culture into small, fenced-off lots, Heller shows, the more difficult we make it for people to do business and to build something new. Innovation, investment, and growth end up being stifled.

Opportunities forgone aren’t always easy to see. The effects of overuse are generally unmistakable—you can’t miss the empty nets of fishing boats working overfished oceans, or the scrub that covers an overgrazed field. But the effects of underuse created by too much ownership are often invisible. They’re mainly things that don’t happen: inventions that don’t get made, useful drugs that never get to market.

In theory, one should be able to break a gridlock by striking a deal that would leave all sides better off. Sometimes that happens. Just the other week, for instance, Nokia and Qualcomm settled a three-year-long patent battle, which could accelerate the spread of third-generation cell-phone technology here and in Europe. In a less contentious fashion, products like the DVD player quickly became mainstream and affordable because many companies worked together to form patent pools. Even the fact that there’s music on the radio is the result of songwriters’ collectively allowing two main groups, ASCAP and BMI, to handle the licensing of their songs to radio stations.

One reason deals founder is that there are simply too many interested parties. If, in order to create a new drug, you have to strike bargains with thirty or forty other companies, it’s easy to decide that the price is too high. But often things go awry because owners won’t make a deal at a reasonable price, as with America’s nascent aircraft industry. Or take a problem that bedevils the oil-and-gas industry. When different companies own adjacent patches of an oil field, each will be tempted not only to drill its own patch but also to try to suck out the resources of its neighbor’s patch. For geological reasons, overdrilling actually reduces the total amount of oil you can get out of the field—all sides end up worse off. An obvious solution is to have one company do the drilling and share the revenues with the other players. But, as the economics professor Gary Libecap has shown in a historical analysis, such agreements are often reached only belatedly, if ever.

Recent experimental work by the psychologist Sven Vanneste and the legal scholar Ben Depoorter helps explain why. When something you own is necessary to the success of a venture, even if its contribution is small, you’ll tend to ask for an amount close to the full value of the venture. And since everyone in your position also thinks he deserves a huge sum, the venture quickly becomes unviable. So the next time we start handing out new ownership rights—whether via patents or copyright or privatization schemes—we’d better try to weigh all the good things that won’t happen as a result. Otherwise, we won’t know what we’ve been missing. ?

[elienos]

This is kinda funny in a sick twisted sort of way...just waiting for the implosion over here...

The tragedy of the commons has got to be one of the biggest lies thought up by the elite classes. Spend a day touring Mexico and its agricultural "commons" and privately owned agriculture and the lie is quite obvious. On a world scale, overuse has increased as privitization has increased. In caitalism, exploiters gain power, thus gain private property and exploit it to gain max profits. Most Us agricultural land is worthless, a dry sponge, dependant of cheap petroleum based fertilizers to be of any use. Whats going to happen when petroleum based fertilizers aren't cheap anymore. The land will be abandoned and useless. Sorry, that wasn't your point when posting this. Nice article...by a brainwashed buffoon.


Arg! I won't even go into the pharma companies attack on indigenous knowledge and their attempt to steal and "privitize" it.

[podfish]

The 'tragedy of the commons' example, with the peasant and his cow acting in isolation, is pretty oversimplistic. It can serve to highlight a potential problem, but the isolation from the community that it implies never really happens. It's an academic construct that at best helps explain some factors at play, and at worst is just a starting point for a paper or book that occupies some professor's next six month's time.
Try a sports analogy - in a basketball game, there's only one ball. A player may want to keep it to himself, dribbling and shooting on his own, but the result is often better for the team if he moves it around. And he shares in the team's success. So the players are all continually balancing their actions between personal and team goals. There are also subtle team mechanisms to help pressure individuals to cooperate.
That model's good enough for psych students to spin into experiments, papers and economic books too!