There Was No Housing Bubble and Everyone Agrees We Have to Crack Down On China's Practices on Intellectual Property

January 16, 2020

I am speaking here in my capacity as “no one,” as in “no one saw the housing bubble and the risks it posed to the economy.” The reason for my comeback is the new consensus that we have to do something about China’s “bad practices,” which generally mean its lack of respect for the intellectual property claims of U.S. corporations.

This Washington Post piece gives us a good example, telling us:

“There is now a wide consensus in the United States to challenge China on its worst actions. After this agreement, U.S. firms in China are no longer supposed to be forced to hand their technology over to Chinese companies, a long-standing problem.”

Okay, at the risk of not getting included in the happy consensus, I will make a few points here.

The first should be the obvious one, if U.S. corporations don’t have to worry about being forced to transfer technology when they set up operations in China, then they will be more likely to set up operations in China. That’s pretty much Econ 101. Boeing obviously is happier when it is not forced to transfer technology to a future competitor, Boeings’ workers have no reason to be happy about more of their jobs going to China.

The second point is that China’s economy is already 30 percent larger than the U.S. economy. By the end of the decade it will almost certainly be more than twice as large as the U.S. economy. It spends roughly the same share of its GDP on research and development as the United States.

I know that the media are dominated by America First Trumper types, but if a country is spending twice as much on R&D as the U.S. it is likely to have more technology that we will want from them, then we will have technology that they will want from us. A trade policy that actually looked to benefit the United States and the world would be looking to share innovation as quickly as possible rather than lock down the patent and copyright monopolies of U.S. corporations.

Think of how much we could gain if clean technologies developed in both countries were immediately available for the whole world to use. The same applies to breakthroughs in health care and other areas. Yeah patents might have been a great system in the 16th century, but it might be worth a bit of rethinking on whether they are the best way to promote innovation in the 21st century. (This is the topic of chapter 5 in Rigged [it’s free].)

Finally, stronger and longer patent and copyright monopolies give more money to the people in a position to benefit from the rents from patent and copyrights (think Bill Gates). One of the great pieces of idiocy in economics (there are many) is the idea that technology is responsible for the upward redistribution of the last four decades. Sorry folks, it was not technology, it was our policy on technology. In a world without patents and copyrights, Bill Gates would probably still be working for a living. (Actually he is old enough to be getting Social Security.)

It was our policies on technology which allowed some people to get hugely rich while devaluing the skills of tens of millions of others. It is possible to argue that these policies were still best for the country as a whole in that they provided incentives to develop new technologies (that seems a hard argument, given the pathetic productivity growth of the last fifteen years), but the point is that it was a policy choice that redistributed income upward, not the technology itself.

The China case is just a classic example of this story. We are being told about the wide consensus by our media, without any indication that there is actually a policy choice here. That is the simple and obvious point that no one is saying.


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