Thursday, October 12, 2006

Tory spouts nonsense on intellectual property

John Whittingdale MPI suppose it is hardly news that the Conservative chairman of the Commons Select Committee on Culture, Media and Sport (and chairman of the All-Party Group on Intellectual Property) has been entirely captured by the copyright lobby.

I had the misfortune last week to hear John Whittingdale spout five minutes of decade-old clichés about copyright infringement, ranging from the tired old comparison between filesharing and CD theft, to the "fact" that car boot sales are funding terrorism, and that Digital Rights Management tools are the answers to everyone's prayers. David Cameron had somehow caused me to expect better at this year's Conservative party conference.

Only slightly less absurd were the claims from the British Phonographic Industry: they need longer copyright in sound recordings to create a larger asset base to allow riskier investment decisions regarding new bands. They really seem to believe this phony piece of economics; it is obviously convincing enough to politicians to cause them to keep repeating it in public. I spent 20 minutes after hearing the claims at the equivalent Labour party event debating the point to see if it had any merit whatsoever. You will be unsurprised to hear that I am more convinced by the views of Nobel-winning economists such as Milton Friedman and Ronald Coase who wrote in 2002:

"One might argue that the windfall to authors of existing copyrights has a positive consequence, by providing them with more resources for additional creative projects. However, this argument ignores the profit maximization decision of a producer, which takes into account the producer's cost of capital for a given investment. In general, a profit-maximizing producer should fund the set of projects that have an expected return equal to or greater than their cost of capital. If a producer lacks the cash on hand to fund a profitable project, the producer can secure additional funding from financial institutions or investors. If the producer has resources remaining, after funding all the projects whose expected returns are higher than the cost of capital, this remainder should be invested elsewhere, not in sub-par projects that happen to be available to the firm. If a producer pursues the same set of projects in any event, then its incentives will not be improved from the mere fact of a windfall from consumers."

Paula le Dieu, Jill Johnstone (National Consumer Council) and Lynne Brindley (British Library) did a good job in putting forward a saner perspective. But it's exhausting having to argue such basic economic points as the benefits of competition at a meeting of supposedly free-market political activists.

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