China is indicating that it will upgrade its intellectual property laws and there’s some claim to the thought that it’s the Trump Administration putting pressure on the country that is responsible. Well, yes, could be, over the exact timing at least. It’s just that protecting IP is what developing countries do at some point for if they don’t then they rapidly stop developing. Thus we can say two things about this. If the Trump Admin is responsible then good, this will make China – and 1.1 billion people – richer in future. And the second, well, it was going to happen at some point anyway, wasn’t it?
Beijing is promising new measures to protect foreign companies operating in China, its latest apparent move to mollify US President Donald Trump. The Communist government on Sunday submitted a draft of a new law to the Standing Committee of the National People’s Congress, the country’s rubber-stamp parliament, highlighting provisions aimed at better protecting foreign companies’ intellectual property.
The proposed foreign investment law would prohibit forced technology transfer from foreign firms to their Chinese partners, a major grievance of Trump and other critics.
Here’s the thing. Intellectual property is really that knowledge which makes a place rich. Invention, innovation, they’re the drivers of technology and rising labour productivity. Pretty much by definition a rich place is using the latest and greatest of these, a poor place isn’t. So, poor places using the more modern stuff makes them richer – this is a useful definition of development, that they get closer to the edge of the technological envelope.
But, obviously enough, those people who have developed those better technologies would like to get paid. This is the whole point of intellectual property laws themselves. The IP itself is akin to a public good, expensive to create initially and easy to copy. Thus people won’t create as much of it as we think optimal, we’re poorer as a result. We thus invent these intellectual property rights, people get to charge for their ideas to encourage people to have more of them.
But we also want poor people to adopt them so that they become less poor. International law gets this the wrong way around. We all desperately try to make poor people in poor places pay full whack for these latest techs. But they’ve not got any money, so they can’t. So, they remain poor. A better idea is to allow the poor to have the stuff for free – yea, even to steal it. Glaxo is one drug company that does this very well indeed. It charges richer people in richer places as much as it can under the IP laws in place. Poor people in poor places get the same drugs at some fraction over manufacturing cost. On the very reasonable basis that they’ve not got enough cash to contribute to those invention expenses so it’s either a special price or they die.
And yes, in one sense, it does make sense to extend this to people entirely ripping off, say, Windows. They can’t pay for it but we would like them to get richer – let them steal it.
However, at some point as an economy gets richer it will be producing its own IP internally. And we’d not like people to steal that – for that IP creation is that very process of the place becoming richer. So, we’d like policy to switch. At some unknown point we’d like them to go from not protecting foreign IP to protecting IP. And we’d like foreigners to protect their IP elsewhere too. The optimal solution is that where the losses from a not poor any more place have from protecting foreign IP are equal to the gains they make from their own IP being protected, then they start to protect all IP. For once they start to protect our IP we shall reciprocally protect their.
It’s usefully arguable that China is well past this point. But then economies, politics, don’t work at optimal points but often overshoot them.
Thing is though, we can see this working the other way. China is currently protecting Qualcomm’s IP against Apple in Chinese courts. So the basic idea is already happening.
We shouldn’t have insisted, in the recent past when China was poor, upon IP protection. But China now, as it is much richer, should be desiring and thus enforcing IP protection so as to have its own protected. If the Trump Admin has pushed this along then great. But do note that the real beneficiaries are going to be those future Chinese generators of IP. Which is a good thing, even if not quite what has been intended.