-----Original Message-----
From: Doug Henwood <dhenwood at panix.com>
>But how much are we really talking about here? The culture industry
>and software, for sure, but what else? Economically speaking, these
>are rather small, though of course the culture industry's importance
>is mainly nonmonetary.
As far as "pure IP" industries, you can't forget pharmaceuticals as well, but IP actually pervades all industries, with patents and trade secrets a key part of the economic portfolios of companies ranging from oil companies to the car industry to the whole retail sector. As I noted, the key issue is not what is the value of IP as a percentage of revenues, but IP's value in determining profits.
Basic economics (in both capitalist and Marxist varieties) generally argue that profits should tend towards zero, and there is a lot of ink spilled explaining why companies create profits, especially profits above the cost of money. One explanation is the Schumpeterian argument of continual innovation and destruction, with profits deriving essentially from "first mover" getting market dividends. That no doubt has some truth, but does not quite jibe with the sense of more established industries- even if you argue for such Schumpeterian disruption in more localized aspects of the industry.
In the past, the heavy investment needed in machinery helped companies lock-in advantages that few rivals could match, or would match if their investments would be obliterated in competitive drops in prices. Even if a rival was making nice profits, it would make little sense to invest massive money to compete if the only result could conceivably be massive losses on both sides. This created what economists traditionally called the "quasi-rent" returns from many forms of industrial investment.
The problem today with many forms of computerized machinery is that rivals often have similar machines that can be easily reconfigured to match any innovation, so such quasi-rents are often impossible. In a sense, the Internet is the newest, most pervasive example of such a reconfigurable machine used by many competitors. In a purely free market of ideas, this threatens profits to the core.
Similarly, and more dramatically, workers in an industry might be key innovators in the ideas embodied in such machinery, but in the past if they quit their jobs, they could take the ideas but they were useless in the absence of such machinery investments. Today, the ideas in a worker's head are much more valuable if the costs of reconfiguring machinery drops. This makes the departure of key ideas of innovation a much greater threat for companies than in the past.
The upshot is the massive expansion of IP rights, where companies can now patent not only dramatic technical breakthroughs but any kind of innovative business practice (based on the so-called STATE STREET Supreme Court decision). Trade secret suits have moved from being a rarely used tool to prevent top management from defecting to rivals with customer lists to becoming a chronic threat against even lower-level skilled employees who seek new employment.
(I should note that I think trade secret law is a bit of a holy grail in this analysis, since it involves the key axis of class conflict in the new information economy, and the value of its assets are no doubt far higher than all copyrighted and patented IP assets. It also sheds dramatic light on the whole debate over unions and teams, since trade secrets are exactly the kind of innovation - usually uncompensated to employees - that team innovation produces. This is where my current research is concentrated right now.)
The point is that IP law becomes a critical tool for companies in maintaining their profits through control of the dissemination of innovation. In a certain sense, the nutso Internet stock prices reflect not just investments in companies in an industry seen as super-profitable, but a meta-bet on an industry seen as potentially key in shaping the control of dissemination of all innovation. If dissemination of information is a key to profits, than control over the means of dissemination is a potential key to the highest profits of all.
--Nathan Newman