Property rights: overrated?

A friend of mine posted on an interesting topic, and I thought it might be worth actually posting a response to theoncominghope's most recent post, "Piracy: Capitalism at work."

While I agree that piracy involves stealing and violating rights, remains a major concern amongst almost all sectors, and for the person whose product has been pirated the experience is far from pleasant, I'm not sure if one can make the leap from 'piracy' to the 'annihilation' of property rights.

For example, in the context of pharmaceuticals, I think you have to look at why piracy occurs to begin with - that is, the unavailability of certain pharmaceuticals. If everyone had access to most drugs when they needed it for a reasonable cost, I don't think you would have the same kind of problem of 'piracy' (or in this case, violation of intellectual property rights). On the one hand, such a situation would virtually nullify any incentive to reproduce a drug because it wouldn't make economic sense; if you can purchase it at a reasonable price/cost, then why spend the time, effort, and money to reproduce it? On the other hand, the same situation would also incentivise those who think they can reproduce the drug at a lower cost, supply it at the same price as the original, and make a profit.

In either of those scenarios, property rights aren't completely annihilated, because while pirated products do tend to find themselves distributed widely, the market for the original product continues to exist (albeit arguably in a less dominant manner than in previous generations). The products and processes used to create that product have been adapted. And for all intents and purposes, until a new form of technology comes along (which is probably more just a matter of time), or the downsides of a less-quality product are heartfelt by its consumers, the effects of one act of piracy are quite temporary.

This, of course, is not to say that the various consequences of these actions are any less significant, and I will get to this point shortly.

Either way, whether or not property rights are destroyed in either of the abovementioned scenarios is a mull point, because neither of those situations currently exist in the pharmaceutical sector. Certain pharmaceutical products are either unreadily available because the cost of production is too high for mass production, or are mass-produce-able but supply is limited, demand is uncontrolled and unsatiated, thus artificially pushing up prices, allowing companies to make a large profit. My humble opinion is that, given the political economy of pharmaceuticals, a little bit of piracy might actually do some good.

And to quickly address the profit-making incentive: government subsidies for R&D coming out of taxation, and removal of any taxes in the production of pharmaceuticals.

I suppose the problem is that from my macro perspective, piracy, or the infringement of (I)PR, or whatever you want to call it, is actually not such a 'big deal', for a lack of a better phrase. The reality is, much like financial services regulation, people will always find new ways to produce something for a lesser cost. Not even the prospect of the death penalty, or national deportation, will stop them; in fact, the higher you raise the stakes, the more profitable, and more criminal, of an industry it will become. If you really wanted to address 'piracy', you have to look at what incentives are, either by chance or purpose, in place that are driving certain people to forge a product.

The other issue I have with the violation of IPP/property rights in general from a more philosophical standpoint (wince!), is our continued obsession with the territoriality of material things. It's not that I've turned into a materialism-hating hippie overnight, but that the obsession itself is unsustainable. The reason why I take issue is because the world is changing. The best example is media. In about two or three decades, there will no longer be CD's - in fact, they will be super-expensive to produce and buy. Around the same time, broadsheets will disappear, as will consumer magazines, books, concert tickets, and flyers. My not-very-well-thought-out but gut-feeling is that the pulp and paper industry will actually turn into a consumer discretionary sector from the non-cyclical industrial sector it is now. This is to say that paper will become a luxury item, and there will only be a select few companies that will produce it. In fact, it's already starting. A Canadian newsprint company, AbitibiBowater, filed for bankruptcy in April this year, because newsprint consumption in the US fell off the cliff by 29%.

The music industry has already changed in this way. We went through a period where music became a hotly demanded commodity, and it was a ludicrous business on the production side to enter as long as you were at the right place at the right time with the right shit. On the consumer side, before MP3's became rampantly distributed, we all had to buy CD's or tapes, which we then developed the technology to copy at home and then re-distribute to our friends. But with the advent of MP3s and other alternative digital sound files that are easily distributable, CDs, tapes, and records became massively expensive to produce, and hugely inconvenient to purchase. The demand for music hardware (CDs) from consumers went down, pushing down supply (as well as the incentive to supply), while the production side of the music industry wanted to maintain the same level of income and profit. The business model is completely unsustainable. Something has to give.

Unfortunately, it will remain unsustainable until the music industry figures out a different way to fix the imbalance, or else the economy will do it on its own by scrapping the current music industry-model all together. Most likely - and this is where I stand with theoncominghope - not only will musicians have to be more creative in the way they produce and distribute their work, but their expectations for profit will also have to come down, especially given that the advertising industry will also undergo a massive change in the next few years. What the greater implications are of such changes - well, I'll leave it to your imagination to speculate.

Now, to address the more tangible issues arising from piracy: the micro perspective. Even though I basically say above in a more nuanced way, that property rights are somewhat overrated, the protection of individual rights to property ownership is quite important. In the far, tiny land of East Timor, one of the major obstacles to infrastructural development and peace, no less, is the lack of a legal framework about property rights. During its conflict with Indonesia, the Timorese underwent a series of uprooting from, and redistribution of, land the people formerly lived on. In post-conflict Timor-Leste, people continue to fight - physically and legally (in the latter case, as much as they could) - over ownership of certain pieces of land. It doesn't help that the country had been in conflict for so long that not only are 'official' records unavailble, the people themselves don't exactly have matching accounts of their ownership. The cases are also exacerbated by each party's familial (read: ancestral) attachment to the land and are wrapped up in many layers of tradition and practice with regards to conflict resolution. Many NGOs and IOs working on consultation programmes, therefore, have unilaterally pointed to the lack of property rights law as one of the most signficant obstacles to peace in Timor-Leste.

So at the micro-level, property rights are far from overrated. However, whether they are implicated in the music industry or in a small, undeveloped, post-conflict country, the importance of active regulation of property rights should be emphasised. But, that's not to say that you can just overburden them with regulation. The question to consider is the type of incentives, to place where, and when, and also recognising that even with adequate incentives, people will find ways to get around it. The fear is not underregulation, but overregulation. Some freedom - read: leniency and ability to change - will be key.