November 20 2013

What’s the Key Ingredient for Greater Growth and Innovation?

Carrie L. Lukas

The spectacular failure of the healthcare.gov rollout has been an important reminder of government inefficiency and the danger of government trying to do too much.  Really, it is no surprise at all that the government would be ill-suited to run a complicated website that is supposed to link multiple databases and still provide consumers with a positive shopping experience and businesses with the information they need to complete the transaction.  Government really shouldn’t be in the business of trying to run an entire sector of the economy.

With trust in government at a historic low, it’s easy to overlook the important function that government does have in the modern economy, such as securing property rights.  The Property Rights Alliance, for example, just released the 2013 International Property Rights Index, which details the relationship between secure property protections and a growing GDP. Countries that successful protect property rights, including trademarks, patents and other intellectual materials, have more robust economic growth than those that fail on these important measures.

On one level, this comes as no surprise and can be easily understood:  Why work hard to obtain money or possessions if someone can just take them from you?  Why invest in improving your home or opening a business if someone can seize those possessions or the return that you get from them?

But in today’s economy, property is much more than just money and physical goods:  Intellectual property—the right to ideas, inventions, and the content one creates—is the real key.

A hearing held yesterday by the House Judiciary Committee’s subcommittee on Courts, Intellectual Property and the Internet provided an eye-opening look at how the idea of property, and the challenge of protecting property rights, has evolved rapidly in recent years. 

The testimony of Amazon VP Paul Misener was humorous at times as he described his company’s development from an online bookstore to a leading dealer of digital products. Little more than decade ago, Amazon was earnestly describing the value of DVDs to its customers, while reassuring them that VHS was here to stay. 

Why have things changed so dramatically? In part, it’s because our robust property protections encourage innovation that allow content providers to work with distributors to sell their products and be fairly compensated.  That has enabled new businesses to develop that are specifically designed to facilitate the legal exchange of digital products.  It’s also why our entertainment options have exploded—we can access an endless array of songs, movies new and old, and high-quality television shows, including some that are created specifically for use among these new online distribution systems.  It’s an amazing development, that we often take for granted and which has made our lives richer.  

For such innovation to continue, government needs to prevent the abuse of intellectual property right through piracy and counterfeiting.  There are real ramifications to that kind of theft, just as there is with the theft of physical goods:  It drains resources from legal businesses and discourages creativity and the development of new products and content. 

It may be tempting to shrug off violations of property rights when it comes to the entertainment industry—what’s the big deal with stealing a song or a downloaded movie?—but the consequences are just as real. 

Most people working in the entertainment industry aren’t Hollywood celebrities making millions.  As John McCoskey of the Motion Picture Association of America testified, the entertainment industry is a critical sector of our economy, that consists of about 108,000 businesses across the country (85 percent of which have fewer than 10 employees) which together support nearly 2 million American jobs that pay and $104 billion in taxes.

That’s worth taking seriously.  It’s also why government needs to focus on its core functions, and protecting private property is paramount.  

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