Big business vs. free enterprise

Ezra Klein tells about young conservative think-tanker Derek Khanna, who wrote at his bosses’ behest a paper criticizing the heavy-handed use of copyright law to inhibit competition. Conservatives praised the paper, but then pushback from corporate funders caused the think tank to pull the paper and fire its author.

Khanna had unwittingly stumbled into a deep fissure in today’s Republican Party. The party sees itself as the champion of private enterprise. But which private enterprises? The ones that exist today? Or the ones that might exist tomorrow?

There’s a difference between being the party of free markets and the party of existing businesses. Excessively tough copyright law is good for big businesses with large legal departments but bad for new businesses that can’t afford a lawyer. And while Khanna, like many young conservative thinkers, believes in free markets, the Republican Party is heavily funded by big businesses.

To see how this play outs, consider the debate taking place in conservative circles over financial regulation. A growing cadre of thinkers are coming to the conclusion that the big banks have become a kind of oligopoly protected by the inescapable taxpayer subsidy for financial institutions that are too big to fail. The pro-market solution to this, some Republicans argue, is to get rid of too-big-to-fail banks altogether — that’s the only way to foster a competitive market.

“Capping bank size, limiting bank activities, higher equity capital requirements,” writes Jim Pethokoukis at the conservative American Enterprise Institute, “all tools in the toolbox for eliminating the crony capitalist subsidy of the US financial system by government.” This thinking is leading to some unexpected alliances. Sen. David Vitter (R-La.), a hard-core conservative, is co-sponsoring legislation with Sen. Sherrod Brown (D-Ohio), a leading liberal, that would break up the big banks.

But the rebellion hasn’t spread far, and it probably can’t spread very far. As Ramesh Ponnuru, an influential conservative writer, told Politico, “if [breaking up the banks] even got to the stage where politicians were talking about it, then there would be a discussion of, ‘Well, how are we ever going to fund our campaigns?’”

via Derek Khanna wants you to be able to unlock your cellphone.

Is this another fissure between establishment conservatives and the new breed of conservatives, as evident in the controversy over Rand Paul’s filibuster over the drones?

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Random Lutheran

Capitalism works for everyone when rules are enforced and no one can buy the gameboard. When rules can be purchased, or those who either enforce or make them are bought and sold, things tend toward feudalism. The problematical result of this is that the problem (unfairness, mistreatment, favoritism) is diagnosed as capitalism, and many turn to communism/socialism/communitarianism (whichever) as the solution, rather than working for an even field of play.
DonS

This story is a lot misleading, which figures, because Ezra Klein is a liberal, and he has an angle of picking on Republicans and exploiting what he sees as divisions in Republican ranks.

A little background. I am an intellectual property attorney. I don’t handle a lot of copyright matters, but I’ve had run-ins with the DMCA (Digital Millennium Copyright Act) a time or two. It was passed in 1998 by a Republican Congress, unanimously or nearly so, and signed by Clinton. It was completely non-controversial, because its passage was for the purposes of implementing the 1996 WIPO treaty on copyrights. Same with increasing copyright terms to life plus 70 years. They were bipartisan measures passed to harmonize U.S. law with world copyright law. Not controversial, and supported by politicians of both parties.

The drivers behind liberalizing world copyright laws were the big media companies, especially the music and film industries. Hardly Republican bastions — they are largely Democratic cronies. As long as these companies have strong allies in Washington I don’t think we’ll see any cutbacks in the protections afforded by copyright laws.

The larger problem of crony capitalism is real. I’ve been arguing against it for a long time on this blog. Big business is not conservative. It is anti-competitive. It has a lot of bureaucracy to handle heavy regulation, and likes regulation because high barriers to market entry freeze out smaller competitors. Both parties ally with big business because of money. And both parties support campaign finance reform because funding restrictions keep little guys from joining forces and pooling their resources to play the political game.

The reason why I support Republicans is because there is an element in the Republican party, like Mr. Khanna, who are true believers in liberty and keep the dream alive — fighting the special interests that own D.C. and most statehouses. There are no such folks in the Democratic party. It is completely captive to special interests, both unions and big business, all with their hands out. I’m hopeful that this new generation of young, articulate Republicans will finally be able to gain enough of a toe hold in D.C. to shed some light on this corruption, like Mr. Khanna is doing, before it’s too late.
Pete

Great observations, DonS!
Kirk

Along with what Don said, there are, from my limited understanding, a few issue with the ways patents are issued, particularly in regards to program code. Code straddles this interesting divide between something that is intangible while simultaneously having a real world effect. It’s not a physical product, like a cotton gin, but it does make things in the real world happen. Furthermore, code builds upon code. The code for the original email program is the grandfather of Gmail, but, aside from the general concept, it bears almost no relation to Gmail.

So, the question is how to address code as intellectual property. Is it an invention or an original work? Should it be covered by patent or copyright? Right now, it’s treated like an invention. What that means is the guys who go it early on patenting base software that makes many of the things that we do today possible (remote updates, instant messaging, etc) sold their patents to large corporations, who now demand licensing fees from other developers that use their concepts for their own inventions. That is sometimes used to stifle competition, it’s sometimes used to force settlements from “patent infringers” (there are companies whose sole business model is to buy patents and then sue everyone), it’s sometimes used to collect licensing fees, and most frequently its just used for protection from law suit.

Since code is written and based on a finite language, it seems silly to me to consider it an invention. It’s basically like considering the word “the” as an intention and then allowing the first writer to patent to word to sue everyone at the NY Times for using it. The simplest solution is to switch from patenting to copyrighting code to stop the patent trolls from suing everyone and forcing tech companies to spend billions hording patents. The problem is that we’re too little too late. Companies have already spent so much money on patents that it’d destroy them to see their investment flushed down the drain at the stoke of a pen.

A little off topic, but worth understanding.
Kirk

Don @2: “There are no such folks in the Democratic party. It is completely captive to special interests, both unions and big business, all with their hands out.”

Two words: Citizen’s United.

I don’t entirely disagree with you, but it’s interesting that, at present, Democrats are the ones attempting to push big business out of campaigns, not Republicans.
sg

@4 Reminds me of Aaron Swartz.
sg

What if patents or copyrights were only good for ten years? Would bigger companies buy them up cheap because smaller players wouldn’t be able to get them up and going before their patent/copyrights were expired? So something would be better than nothing?
Steve Bauer

The life +70 rule passed without any opposition because money (and politicians’ fascination with Hollywood and celebrity) trumps principle every time. The rule happened because Mickey Mouse was about to go into the public domain. I predict that when Mickey’s copyright once again nears the life +70 limit, you will see a push to expand copyright even further, because its obvious that Walt hasn’t yet received a decent return on his creation. The balance that should exist between rights holders and the general public in copyright law has long been sacrificed.
Klasie Kraalogies

DonS, you’ll be able to give some input, but here is a short summary of the Canadian Intellectual property laws:

1. Copyright – pertains to expressions of words and data in original form (think books, movies, etc etc). Doesn’t require registration, protected for a term of 50 years after the end of the calender year the author / last living author dies.

2. Patent – “any new and useful art, process, machine, manufacture or composition of matter, or any useful improvement of the same”. This requires a costly, lengthy and stringent application process. Lasts for 20 years from the date of filing.

3. Trademark – marks used to distinguish goods or services – most commonly the name associated with a product, but could also cover designs (classical example – glass coke bottle). Has to be registered, and term of protection is 15 years, but can be renewed indefinitely.

4. Industrial design – protects the shape, configuration and general look of mass-produced items (furniture, toys, vehicles etc.). Note that the design must be original and note purely utilitarian – an aesthetic purpose is required. Registration required, 10 years of protection.

5. Integrated circuits – ie motherboards etc. Originality required, 10 years of protection.

So yes, this might shed some more light – I would guess US law is quite similar in this regard? As Kirk notes, code is a difficult one, as it could fall under either (1) or (2). Of course, proving code theft is really difficult, as it is inherently a logical process, and the rules of logic don’t change, and programming styles are not necessarily entirely unique.
Klasie Kraalogies

Random Lutheran @ 1 – you are quite correct here. The best economic theory that looks at the playing field, and the desired universal (ie, country as a whole) economic outcome, is Ordoliberalism, which is the model followed in postwar Germany, and to some extent in Canada today, as well as some other Northern European countries (although there is some bedevilment due to influence from the less successful countries in the EU). This is neither socialism, nor unbridled capitalism.
theoldadam

Give Obama a few more terms. He will come up with the perfect system. I’m sure of it.
sg

the model followed in postwar Germany, and to some extent in Canada today, as well as some other Northern European countries

What else do these countries have in common? Hmm, what can it be? Hmm?
Klasie Kraalogies

sg @ 12: Please tell the class what you are evidently so excited about.
Kirk

@sg

They’re both a reserved people?
Klasie Kraalogies

Kirk @ 14 – they all freeze their cahones off every winter, maybe?
Kirk

@15

It can’t be bacon. German’s have a generally proper understanding of what bacon is.
Klasie Kraalogies

Kirk @ 16 – sadly, I’d have to agree: The best bacon I’ve ever had was at an airport restaurant (!) in Frankfurt.
DonS

Kirk @ 4 & 5: Good stuff on patents! Actually, that is my main job — patent attorney. The problem with software patents, really, is that they weren’t considered to be statutory until the 1970’s, after a couple of critical Supreme Court decisions. Prior to that, software was only protectable by copyright. However, once software became patentable, the Patent Office issued very broad ones, because they had no prior art in the office (since software was previously not patentable) to use to reject patent claims as being anticipated or obvious. Clearly invalid patents were issued, and then enforced against software companies that had been doing the same things being patented for years. As a result, companies like Microsoft became very anti-patent. IT company opposition to patents have driven us to the impending implementation of what most patent experts consider to be a significantly worse and weaker patent system beginning next week.

Copyright protects expression, patents protect ideas. Two different concepts, and two entirely different scopes of protection. Software should be protectable by patent if it embeds unobvious and novel new ideas and those ideas can be recited in a statutory method claim. But the industry and the courts have never really been able to figure out what a statutory software method claim looks like.

As for your comment @ 5, Citizens United is exactly the kind of case I am talking about. The wealthy will never be denied access to the media markets to advocate their political opinions. They can buy the time on their own, without any restrictions because of free speech protections clearly protected by the Courts. We of lesser means obviously have no such access on our own. Citizens United is about the ability of people of lesser means to combine forces to have the same kind of access the wealthy do. And the opposition to Citizens United by those supporting campaign finance “reform” is really rooted in the desire of those who have access to protect their exclusivity and keep opposition away. It’s incumbency protection at its worst.
DonS

sg @ 7: Patents are only good for 20 years from the date of filing as it is. Which leaves about 17 years of protection from the time the patent issues, on average. So, that is not a particularly long time. Shortening that period further would discourage innovation, in my opinion, because there wouldn’t be time to recoup the costs of patenting and have an opportunity to establish oneself in the market before competition which didn’t have the same costs of development came into the market.

I liked the old copyright law. Two sequential 28 year terms, with a requirement that a renewal be filed to obtain the second term. Again, this provided adequate time to earn returns for creating the work, including film rights, etc., before the work went into the public domain, but wasn’t absurdly long, as copyright terms are now.
DonS

Steve @ 8. Mickey Mouse will always be well protected. Trademark protection is also available for such characters. Registered trademarks are renewable every ten years, indefinitely, as long as commercial use of the mark continues.
DonS

Klasie @ 9:

Very nice summary 🙂

In the U.S., the copyright term is 70 years from death of the author, or (I think — it’s changed several times in recent years) a flat 75 years for a business entity’s work for hire. Copyright does not protect ideas, only the expression of ideas. So, you can use or restate the ideas expressed in a copyrighted work in your own words. Registration is not required unless you want to litigate a copyright.

The trademark term in the U.S. is ten years, renewable indefinitely.

In the U.S., industrial design protection is called a design patent. The term is 14 years from issuance.

I’m not aware of any provisions in U.S. law for protecting integrated circuits, other than as a part of copyright law (the DCMA), but I don’t practice in that area.
kerner

DonS:

Weren’t the revisions lengthening the terms of copyright largely the brainchild of Sonny Bono when he was in Congress. And weren’t the reasons for them mainly to protect composers of popular music? Or is that an urban legend?
Kirk

We never learned what Germans and Canadians have in common….
Klasie Kraalogies

Kirk: I noticed that.
sg

@23 @24

They all score well on corruption index, making a system like ordoliberalism workable. 😀

http://www.transparency.org/cpi2012/results
Klasie Kraalogies

#25: Chicken or egg?
sg

Would a corrupt country want ordoliberalism? Could ordoliberalism be instituted in a corrupt country? If corrupt country tried to implement it, could it work with continued high levels of corruption? I don’t see ordoliberalism as workable without high levels of voluntary compliance.
sg

My favorite is when people cite that China now has lots of new patents each year. I mean, seriously, what is the point? How much good does that do the Chinese patent holder?

http://en.wikipedia.org/wiki/Intellectual_property_in_China
Steve Bauer

DonS @20
This is true. I was using Mickey as a stand-in for the entire Media Conglomerate. Perhaps he wasn’t the best choice for my synecdoche. As a Lutheran I’m not very good at symbolic language.
kerner

Klassie et al:

I’m not sure I’m sold on Ordoliberalism. I suppose that no economic system is going to be completely free from government interference, but I still believe that the less interference the better. For a decent example of how to build a prosperous modern economy out of a third world colony, consider Hong Kong:

http://www.economist.com/node/16591088

By purposefullly avoiding the usual government interference so popular in the late 20th Century, Hong Kong became one of the wealthiest places in Asia. Oddly, this took place under the rule of British colonial administration even as Britain itself became more and more socialistic. During the last few years Hong Kong is beginning to succumb to the same temptation that afflicts the industrialized world. The pernicious idea that government bureaucrats can “help” make particular, supposedly desirable, outcomes happen if they just get to regulate enough. Sometimes it seems to work. But, if I may suggest, I think it seems to work most often when a country has some other characteristic that outweighs the damaging aspects of the regulation. If I may (without researching the point very much), I suspect Canada is one such country, because it has been willing to develop its natural resources to the point at which those revenues are able to fund the social wefare state without too much obvious pain.

But the bureaucracy and the welfare state have a way of catching up with a country, and those institutions, once in place, are very difficult to dislodge or even reduce. Look at all the angst we are being treated to in the US after the “sequestration” went into effect. On a smaller scale, the political battles we went through in Wisconsin, and are still going through, as we try to beat back government interference are agonizing. I become ever more committed to my belief that relying on market principles as much as possible to guide progress is far superior to the meddling of the government, however well meaning the government says it is (even when it the government is sincerely trying to help). Ronald Reagan said the the scariest words in the English language are: “I am from the government and I am here to help you.” He was right.
Klasie Kraalogies

Kerner, sure, we cannot have a cookie-cutter economic model. What works in what amounts to a city state (Hong Kong, Singapore), will not necessarily work in an Industrialised economy (Germany), a mixed Industrialised-Resource economy (Canada), or a rising economy (BRICS, Indonesia etc).

I mean, norway does pretty well, with a strong resource sector, and a very socialized government, as does Sweden. Note though, that in those cases, while the government etc is very socialized, the economy is not. If one looks at the major growing economies, from the big ones (India, China), to the small ones Ghana, Mongolia etc, the conditions and policies differ widely:

China is strongly state controlled. India only started real growth when it abandoned state control and created a Free Market economy. Ghana is a mixture – strong state involvement in agriculture boosted that sector, while other sectors are more private. Mongolia is an interesting case. A quote from wikipedia:

According to the World Bank and International Monetary Fund estimates, real GDP growth reduced from 8% to 2.7% in 2009, and exports shrunk 26% from $2.5Bn to $1.9Bn after a promisingly steady increase up until 2008.[6] Because of this, it was projected that between 20,000 and 40,000 fewer Mongolians (0.7% and 1.4% of the population respectively) will be lifted out of poverty, than would have been the case without the global financial crisis.
In late 2009 and the beginning of 2010, however, the market has begun to recover once again. Having identified and learnt from its previous economic instabilities, legislative reform and a tightened fiscal policy promises to guide the country onwards and upwards.

That sounds more like Ordoliberalism, but not quite, than the others, even though the economy is largely resource based.

The key seems to be that an intelligent guiding, or stage-setting, but no heavy hand, by the government is a key component. This requires less ideology, and more technocracy, if I can call it that.

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Big business vs. free enterprise