Intellectual Property vs. Human Capital

Walls of Uruk

No man is immortal, but the walls of Uruk are still standing.

Innovations and developments of “intellectual property”, when they are protected by government action, have one and only one result, and it never varies. It moves human capital from one group of people, typically an established group that has been in their trade for a long time, and a larger group that are equipping themselves with the skills to enter that trade (actively increasing their human capital in terms prior to the innovation), to another, usually a small and emerging group that are in the know of the new trade, and also to a very small degree, society at large, who benefit from cheaper goods and services. The obstacles to innovation are pervasive in an unconstitutional democracy, because those who are materially or sufficiently interested, which generally does not include society at large because each individual’s marginal interest is too small to expend the energy necessary to become involved in these power struggles, the many will always seek government interference to retain their human capital, the market value of their work-hours. This, as opposed to a constitutional democracy or republic, provided the limits to government intervention prevent this kind of protectionism. This interest in the status quo can be seen everywhere, but especially in the automotive industry, where to produce a vehicle that can legally travel on roads, the financial barriers–the result, in part, of distorted labor costs (union “bargaining”), import tariffs, and vehicle regulations–are immense (billions of dollars). In rare cases where a status-quo behemoth with considerable political influence innovates, they will seek to use government interference to establish their innovation as a market standard, and ban alternatives. This can easily be seen in the cases of carbon taxes which favor the renewable energy industry (which is not really innovation, because it’s less efficient, but they desperately want it to be) and fluorescent light bulbs (which is also not really innovation, because they provide the users with less satisfaction, and the cost of each fluorescent light bulb outweighs the cost of energy savings as compared to traditional alternatives). The point is, true innovation and ‘intellectual property’ can effect an increase in aggregate human capital (typically on an S curve, where the highest costs are borne by a few, average costs are borne by many, very small benefits are awarded to most, and extreme benefits are awarded to a few), but it does not have any value on its own. To protect innovations from imitation is precisely the mechanism by which the human capital of those materially interested people not in the know is lost. How would the markets respond to intellectual liberation? I believe that if the concept of intellectual property was no longer defined as a resource privy to legal protection, then the interest to innovate would continue to be inextricably linked to the innovator’s perceptions of how much they would personally profit from their innovation, and that they would be forced to innovate expedient market practices that either protect their intellectual property from imitation for a sufficiently long time, or to reach the largest part of the market in a sufficiently short time. Either outcome is beneficial to society at large, while not nearly as detrimental to materially interested individuals not in the know.


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