Rethinking Innovation

Patents may not bolster innovation, as commonly thought:

A new study challenges the traditional view that patents foster innovation, suggesting instead that they may hinder technological progress, economic activity and societal wealth. These results could have important policy implications, because many countries count on patent systems to spur new technology and promote economic growth.

[…]

PatentSim features an abstract model of the innovation process, a database of potential innovations and a network through which users can interact with one another to license, assign, buy, infringe and enforce patents. The software allows players to simulate the innovation process under a traditional patent system; a “commons” system, in which no patent protection is available; or a system with both patents and open-source protection.

“In PatentSim, we found that the patent system did not work to spur innovation,” said Tomlinson, associate professor of informatics. “In fact, participants were more likely to innovate when there was no intellectual property protection at all, or when they could open-source their innovations and share them with other people.”

Read the article here.

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“The New Socialism”

From Wired:

Bill Gates once derided open source advocates with the worst epithet a capitalist can muster. These folks, he said, were a “new modern-day sort of communists,” a malevolent force bent on destroying the monopolistic incentive that helps support the American dream. Gates was wrong: Open source zealots are more likely to be libertarians than commie pinkos. Yet there is some truth to his allegation. The frantic global rush to connect everyone to everyone, all the time, is quietly giving rise to a revised version of socialism. […]

The more we benefit from such collaboration, the more open we become to socialist institutions in government. The coercive, soul-smashing system of North Korea is dead; the future is a hybrid that takes cues from both Wikipedia and the moderate socialism of Sweden. How close to a noncapitalistic, open source, peer-production society can this movement take us? Every time that question has been asked, the answer has been: closer than we thought.

[…]

A similar thing happened with free markets over the past century. Every day, someone asked: What can’t markets do? We took a long list of problems that seemed to require rational planning or paternal government and instead applied marketplace logic. In most cases, the market solution worked significantly better. Much of the prosperity in recent decades was gained by unleashing market forces on social problems.

Now we’re trying the same trick with collaborative social technology, applying digital socialism to a growing list of wishes—and occasionally to problems that the free market couldn’t solve—to see if it works. So far, the results have been startling. At nearly every turn, the power of sharing, cooperation, collaboration, openness, free pricing, and transparency has proven to be more practical than we capitalists thought possible. Each time we try it, we find that the power of the new socialism is bigger than we imagined.

Read the whole thing.

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“Adam Smith and Web 2.0”

Gavin Kennedy’s blog, Adam Smith’s Lost Legacy, reproduces an article (h/t Thoma) written by Nicholas Gruen. Gruen writes,

The internet boom involved companies using the net to broadcast to customers — like ads on TV — or to automate the sales process: for instance, with customers booking their own airline tickets or ordering books. Today Web 2.0, or collaborative web, is enabling armies of volunteers to build a better world. Some are building and giving away public goods such as open-source software (Linux and Firefox) and reference resources (Wikipedia). Others provide expert analysis and commentary on blogs, often surpassing professional journalists. Others, such as Facebook, connect people with something in common.

These phenomena can’t be easily explained within economists’ standard framework, in which economic decision-makers are reduced to the ideal type known in the trade as homo economicus…

Enter Adam Smith’s Theory of Moral Sentiments, published 250 years ago last month, a book he intended partly as a theoretical foundation for his later economics. As Smith sees it, we begin our lives as blobs of infantile egoism — infans economicus, if you like. But from then on Smith sees the process that we now call socialisation deepening and transforming us…

In modern economics, the attraction of great power, fame or wealth is simple greed for more. Smith’s richer psychology offers a more plausible explanation. “(T)o what purpose is all the toil and bustle of this world?” Smith asks. What human drive lies behind avarice and ambition?…

Smith was an advocate of self-interest in human affairs, but in a much richer, more interesting way than is usually thought. In advocating a larger role for self-interest, Smith identified the public goods that are prerequisites for self-interest becoming socially constructive. Within economics the invisible hand only works in a peaceful, lawful society, and with strong, free competition.

Within society more generally, self-interest becomes a rich ethical meal, not the morally anorectic egoism of homo economicus. Our natural sociality enriches and educates our self-interest. Craving esteem and imagining ourselves as others see us, we gain some objective appreciation of our own moral worth. And this is ultimately a spur towards virtue as we strive to be worthy of the esteem we crave (although, of course, as we are mere mortals there is much stumbling on our journey).

Web 2.0 is scaling up the scope for human sociality and opening up new vistas for the expression of self-interest. And yet profit-seeking is only a small part of how that self-interest is manifesting itself…

Even Smith’s description of a market was inherently social — he toyed with the idea that the fundamental human drive behind bargaining was the desire we each have to persuade others to see it our way. Smith would have understood the foundational proposition of an early Web 2.0 credo, “the cluetrain manifesto” — “Markets are conversations”.

As Web 2.0 burgeons, its denizens pursue their interests like the merchants in Smith’s Wealth of Nations, posting and commenting on blogs, making and exchanging programming code and mash-ups of each other’s content, making connections based on social or practical needs. Some serve practical needs — perhaps they need some software bug fixed. Others are “know-alls” proving their superior knowledge. Some express their love of a subject.

And just as the miracle of a healthy market enables the merchant’s self-interest to serve the common good, so this new alchemy of the web aggregates individual efforts into freely available public goods.

The article pretty much stands for itself as an application of Adam Smith. I suppose Smith would be proud that this richer notion of self-interest is manifesting itself in places like Wikipedia. On the other hand, you have instances like Google trying to claim exclusive rights to orphan books, claiming it is in the best interest of society that Google digitize the information. I would say the jury is still out on whether truly public goods come out of the second Web boom.

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A Worker’s Paradise

The NYT has an article today about Hime, an island off the coast of Japan, which has carved out a socialist niche for itself:

If Marxism had ever produced a functional, prosperous society, it might have looked something like this tiny southern Japanese island…

The 2,519 mostly graying islanders subsist on fishing and shrimp farming, and every summer hold a Shinto religious festival featuring dancers dressed as foxes…

it invented its own version of work-sharing four decades before the current economic crisis popularized the term.

Under Hime’s system, village employees earn about a third less pay than public servants elsewhere in Japan, though they work the same hours. This has allowed the village to create more jobs: it now directly or indirectly employs a fifth of all working islanders. Most of the rest are engaged in fishing, also government-subsidized. In fact, village officials say, there are few fully private-sector jobs on the island.

Islanders admit to the socialist parallels, even while proclaiming themselves political conservatives who vote for the governing right-wing Liberal Democratic Party. Some jokingly take the analogy a step further, comparing themselves to a much more repressive family-run regime in Japan’s geopolitical neighborhood.

“Hime Island is North Korea, just a livable version,” Naokazu Koiwa said with a laugh. Mr. Koiwa, 32, repairs fishing boats…

Now, with the current crisis causing a national questioning of American-style laissez-faire economics, and business leaders and unions seeking alternatives to widespread job cuts, Hime’s work-sharing scheme is suddenly being held up as a new model. Islanders call it ironic that the current crisis has made traditional values appear progressive, even utopian.

Nor does the island’s penchant for equality stop at work-sharing. At an annual village ceremony to mark the coming of age of 20-year-old islanders, women are forbidden to wear traditional kimonos for fear the differences in quality could reveal their households’ economic status.

No utopia is perfect:

the island decided to choose mayors by consensus, finding someone on whom everyone could agree beforehand. Last year, Mr. Fujimoto won his seventh straight four-year term, once again by default in an uncontested election.

“My job is to prevent elections by keeping everyone equal, and thus happy,” said Mr. Fujimoto, 65, sitting in a modest office in the village hall. His only visible sign of authority was a buzzer on his desk that he pushed to summon an assistant.

Mr. Fujimoto said he would resign immediately if a serious rival appeared in an election. “That would be a sign the village has lost confidence in me,” he said…

The island and its mayor also have outside critics. Keizo Nagai, the ombudsman for Oita prefecture, which includes Hime, calls the island the least transparent local government in the prefecture. He criticized it for refusing to make information like detailed budget records available to non-islanders, which he attributed to a closed local culture rather than to a cover-up of wrongdoing.

“Hime Island acts like an independent kingdom,” Mr. Nagai said.

Many islanders say they accept the status quo simply because life here is comfortable. They say rocking the boat would only ostracize them on an island where everyone knows one another…

“Everyone is basically satisfied,” said Shusaku Akaishi, 29, who works at his family’s gas station. “This is a conservative place.”

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The Fight Over Free News

From Michael Wolff:

A little history:

Here’s a brief recap of how publishers originally came to give away their store: The early and fierce Internet mantra on the part of the digital elite was about information wanting to be free. Sharing was the Internet’s singular function. So from the get go, traditional publishers found themselves not only competing with free information, but also wanting to be cool digital guys themselves, and, as well, to get as many “hits” as possible—free, therefore, became everybody’s approach. This was okay until publishers figured out they couldn’t make in online advertising what they used to make in old-fashioned advertising and that the Internet was destroying their profitable businesses.

What’s next?:

The proposition now is that there will be “official” content produced by “official” journalists that will be paid for, existing like an island amid the sea of Internet content, which will be free. The idea is that the former is so evidently more valuable than the latter consumers will line up with their credit cards.

Hmmm…

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