The Invisible Hook of the Market
Jan26
Political Economy7

The Invisible Hook of the Market

Why Piracy is Good for the Economy

When the last bastions of the old media go under, it will not be with a bang but a whimper. It will be a long slide, not a cataclysmic collapse. And for this we have piracy to thank.

This is the saving grace of piracy, that it adjusts our economy to changes made necessary by technology. Despite desperate attempts to stop the hemorrhaging with legal band-aids like the DMCA, ACTA, a number of copyright term extensions, and most recently SOPA and PIPA, the market continues to adjust around them. There already exists a professional class of distributors – “pirates” – which are taking over the markets of the old distributors with increased efficiency and variety. As the old habits of physical distribution become more and more anachronistic, jobs will move from the old distributors to other places where they are more needed. No jobs will be lost at the demise of the intellectual property industry – even in the short term – because piracy will have already adjusted our economy to the new state of affairs.

This is indeed the saving grace of speculators, entrepreneurs, and anyone whose business it is to predict the future: they change the structure of production to reflect changed or changing conditions. They give us soft landings instead of hard crashes. The price rises they appear to cause in fact cause us to save in anticipation of a shortage. Changes in supply and demand will happen with or without speculators and entrepreneurs. The only question is, will they take us by surprise, or will we be prepared?

The proliferation of anti-piracy laws serves only to leave the world economy brittle and ill-prepared for the changes being brought about by advances in technology. If there is mass unemployment resulting from the demise of the intellectual property industry, it will be because they have used the strong arm of government to prevent the necessary adjustments in the economy from occurring beforehand. If their predictions pan out, it will be their fault.

It’s come to my attention that Peter Leeson has a book by the same title as this post. But as that book is about real pirates, I’ll keep the title here.

7 Comments

  • 1

    Starving Artist

    Jun 02, 2009 at 17:25 | Reply

    I read this post, as well as the linked post. They put forth a very interesting viewpoint, but one that does not seem fully formed. The Model of Post-Copyright Incentive seems to refer most directly to the music industry, but also seeks to encompass all creative industries. While concerts may fuel the musically-inclined, what incentive does the plan offer other creators, such as visual artists, designers, and writers? Property theft is an extreme deterrent to artists and photographers wishing to share their work online and still make money from it. Writers have no equivalent of the concert (book-signings aren’t particularly lucrative or fun, and they have no awesome groupies), and with the advent of technology like the Kindle, writers, too, are now at the mercy of information pirates, though to a lesser degree. And there are musicians who, for whatever reason, are unable or unwilling to perform at a concert venue (those unable to afford the proper equipment or an agent), but are able to market their music online or in CD format. What recourse does the model offer them? Are they supposed to stop seeing their endeavors as a money-making job and start to see them as a favor to the people or the market? A thief who steals candy bars from a convenience store because they’re too expensive is still a thief, even if he resells them to the poor. Someone is always going to suffer, and in this example, it seems that suffering will only be conveyed from the consumer to the producer. In any case, your writing is excellent, and I look forward to your reply.

    • 2

      thrica

      Jun 02, 2009 at 18:08

      You are right that the Model of Post-Copyright Incentive was not fully formed; I’m considering a new post that incorporates the markets you’ve described. Briefly then, until I get to doing that:

      -Under such a regime there would no doubt be a decline in career authors. However, that does not necessarily mean there would be a decline in books. Most non-fiction books are written by people with independent careers in their areas of expertise. This would extend to fiction as well without copyright.

      -Visual art is unique in that the original has the innate quality of being original, and is thus worth immeasurably more than any duplicates. As far as I’m aware, this has been the case for centuries (compare the price of Picasso prints with the original Guernica).

      -Designers (I myself am a web designer) become contractors, rather than designing simply for its own sake. An architect is employed to design a building for the sake of being unique; likewise designers are hired to make their client stand out in a particular medium. It’s a renewable service, and so something that one could make a reasonable living off of.

      -For musicians with no merchandise or means of live performance (I’m one of those too), there is unfortunately no recourse. I realize it’s unsympathetic, but unless there’s a continuing service provided, there’s no watertight way to assure a continual stream of payment (as is often lamented by the RIAA and their ilk).

      As for the transferral of suffering from the consumer to the producer, I say, great! The fundamental rule of a market economy is consumer sovereignty – that is, to get money, you have to give the market something it wants and is willing to pay for. And since everyone has to act as a producer in some manner in order to consume, this is the best system for setting in motion a constant cycle of innovation, efficiency, and prosperity in every sector.

    • 3

      Starving Artist

      Jun 02, 2009 at 20:32

      I would be very curious to see a post that does incorporate these markets. I’m still not convinced on the “consumer sovereignty” idea, perhaps because your average sovereign consumer usually gravitates towards musicians/artists/writers/designers who are well-known. Your reference to Picasso is a case-in-point; the market economy you describe is lucrative only to big names and those already making money under the current economy. Honestly, one already can hardly make a living on original art, even if they’re making good art, unless A) They’re dead like Picasso, in which case it’s not a living (a deading?), or B) They’re a huge name and they’ve entered into the auction house scene because they’ve happened to meet the right people, even if they’re no better than the artists who sell their work at the state fair. Here, the economic structure fails to take into account the personalities of the individual markets; in the case of the creative industries, the market is often biased by the social scene and cloud of business contacts that surround it. The economy you describe would only exacerbate the unpleasant patterns that already exist, as talented creators who operate on the fringes are already tilled under by the glut of artistic material that enters the market. Consider J.K. Rowling, for instance; she was rejected by dozens of publishers before she got a lucky break, and now she’s making millions. But she did nothing to improve the quality of her material to appeal to the consumer; she submitted the same manuscript dozens of times and just happened to strike one publisher’s fancy. J.K. Rowling herself could still be sitting in bars scribbling on napkins. And that’s where dozens of writers are, because they haven’t had her luck. Writing and art aren’t controlled directly by the consumer, because to be initiated into the market in the first place, that is, to be seen at all by the potential consumer, the artist or writer must act through a middle man who either ensures or ruins his chances for success. It’s very socially-based, and it’s quite unlike the supply-demand push and pull that comes with material goods that everyone needs and won’t go without.

      This rant is tangential from my first comment, but describes my irritation at the market economy as far as it applies to creative pursuits. If they are viewed in a cold light, art, music, and writing are simply products, but consider the fact that they operate within a unique production environment, one that requires creators who aren’t famous to work two or three jobs to support what they would like to be their job in the first place. And there’s no way to streamline the creative process itself or make it more efficient; that’s one thing that has remained the same for thousands of years. So yes, it seems unsympathetic, but no, I don’t think you’re a bastard!

      And for what it’s worth, there’s already been a tremendous decline of books and all other print media. And I know people who pirate e-books! I do believe that books themselves are going the way that the CD has gone, and for many of the same reasons.

    • 4

      thrica

      Jun 02, 2009 at 21:11

      Yes! This is exactly the problem with copyright laws: because the costs of media consumption are currently so high, people being risk-averse aren’t going to try out things they don’t already know about. If I’m a poor student and all I know is that all my friends like Nickelback and Harry Potter, I’m not going to venture much past those media monoliths if it’s expensive to do so.

      This has also been a problem in the past because the costs of acquiring physical media for the consumer and stocking it for the retailer were rather high compared to the breadth of stuff out there. But technology has a tendency to lubricate the market and smooth its imperfections by reducing costs like these: the internet has taken the costs of discovering new media to virtually zero (at least besides the time invested). It’s the record labels/publishers/studios that have an interest in homogenous media: if they can get a sum of money from one act or the same sum of money from 10 smaller acts, the former is obviously a better investment. It’s the internet (especially with the rise of social networks and recommendations; I’m indebted to last.fm for the discovery of so much music) and piracy that obliterates the monoliths and gives people true choice.

      Also, the decline in profits from creative pursuits is balanced by a decline in barriers to entry. If anyone can produce and distribute art and media on the same level as only the big players used to be able to do, it becomes less about “who gets lucky” and more about “who’s good”.

      We’re only in the beginning stages of it now, and the government and media companies are scrambling to stop it, but the monoliths are crumbling. Good riddance, I say.

    • 5

      Starving Artist

      Jun 02, 2009 at 21:38

      One more comment and I’ll shut up. Here’s the thing: it’s not any more expensive to download something eclectic and intelligent off iTunes than it is to download Nickelback (God forbid you download Nickelback). A hard copy of Harry Potter costs just as much or more than something that is more unusual and intellectually stimulating. So it’s not a case of cost hierarchy; it’s a case of not wanting a cost on something, period! You said it yourself, that last.fm helped you discover music; I’ve found a great deal myself through last.fm, Pandora, Imeem, Ruckus, and Spiral Frog, all of which are (were) legal. I still have an issue with the contradiction and seeming dishonesty of phrasing. Piracy does not simply reduce costs, it eliminates them at the expense of the artist, and I disagree heartily with its use as a media discovery tool.

    • 6

      thrica

      Jun 03, 2009 at 1:58

      The point isn’t that it’s more expensive to download something more unusual and intellectually stimulating; it’s that it’s more risky. If I buy the CD of an underground band, which may even be cheaper than that of a mainstream band, I’ve still wasted that money if I end up not liking them. Thus I’m less likely to go exploring beyond what I hear on the radio and know that I like.

      Sidenote: Though there are places to go to preview without the option to download, there’s always the tradeoff between convenience and security: either people will figure out how to get an MP3 out of the preview (Myspace, last.fm), or they will be worthless for figuring out whether you like the song (iTunes 30 second previews). Same with DRM: either it’s strippable (Ruckus, iTunes), or it’s not worth bothering with (at least one abortive Sony attempt).

      The benefit of piracy isn’t just in terms of cost, but in taking out the middlemen. The state of culture you lament, the fact that people have to be selected in order for people to hear about them, that’s the result of these middlemen. It’s dying, and piracy is the guillotine. Consumers and artists are directly transacting with each other en masse for the first time in history, and it’ll only get better as technology improves. The vast majority of the expense of piracy falls upon these middlemen, who have by this point long outlived their usefulness; not the artist.

      Disclaimer: I still speak mostly with regard to the music industry, simply because I’m most familiar with it. Everything also applies to the movie industry however, and to a slightly lesser extent to the publishing industry. You may educate me as to the workings of the visual art sector; I’d be interested to get a perspective on how that goes on.

  • 7

    fallout11

    Nov 14, 2009 at 8:58 | Reply

    Solid discussion, and salient points.
    One final note just to hammer Thrica’s point home – If the next J.K. Rowling could have skipped the “get lucky and finally find a publisher who will accept my work” step and simply self-published electronically, would not he/she been better off? Especially once word got around concerning the popularity or merits of their work?
    This is even more true should that next artist NOT have gotten lucky in the old paradigm (as many noted artists themselves have recently pointed out, namely David Drake and Richard Bachman/ Stephen King among them). Piracy lowers the cost (and randomness/luck factor) of entry to the market, giving greater exposure, accessibility, and proliferation, if at the ‘cost’ of individual item profits. Cory Doctorow has a good piece on this same viewpoint, and makes a solid case.

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Hi, I'm C. Harwick, an economics PhD student in Virginia with an interest in Reformed theology, web development, and folk music.

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