Marketplace, January 28, 2004
Connect the dots: The pharmaceutical industry cracks down on cheap imitation drug imports from Canada. The music industry sues Internet pirates who are downloading and reproducing new CDs. Movie studios litigates against knock-off videos. Software companies sue those who are pirating the software and selling it at a tiny fraction of the original retail price.
In all these instances, royalties that were supposed to go back to the companies and individuals who invented, researched, developed, designed, composed, or performed all sorts of new products are rapidly disappearing. And lawsuits are multiplying.
We are coming to the ultimate contradiction of a knowledge economy. On the one hand, more and more of the value of what's sold depends on creativity and innovation up front. On the other hand, the cost of reproducing the innovation is almost zero. Digitized information whether in he form of a formula for a new drug, or music or video, or a software code whatever can be copied and distributed with the click of a computer key.
So you see the problem. It's completely understandable why consumers are saying: 'Why can't I have this for free, or at most a nominal charge? It costs virtually nothing to make another copy for me!' But it's also understandable why producers are saying: 'If everyone pays only the tiny or zero cost of making the copy, then how in the world are we going to make money on this? We won't bother creating the new drug or music or movie or software or design in the first place if there's no money to be made!'
This problem didn't exist in the old economy. Most of the cost of any given product was in the making of it. But in the knowledge-based, digitized economy almost anyone can pirate almost anything, almost right away. In other words, the old rules about private property no longer work. There's no obvious way to balance the claims of producers to a reasonable return on their efforts, with the claims of consumers to pay no more than the cost of reproducing whatever it is they want. What's the answer? Not a lot of lawsuits. Lawyers may like them but they're just about the least efficient way of balancing these two sets of claims.
My prediction is that the balance will be found in new technologies that will be able to extract a small fee from each of a very large number of consumers all over the world who want to hear or see or otherwise make use of some creation. When added up, these fees will give innovators enough to compensate them for their efforts, while at the same time giving consumers access to all sorts of new creative products very cheaply. And all this without lawyers.
