The Economics of Amateurism

Interesting paper from Dan Hunter and John Quiggin:

In the economy of the 21st century, economic and technical innovation is increasingly based on developments that don't rely on economic incentive or public provision. Unlike 20th century innovation, the most important developments in innovation have been driven not by research funded by governments or developed by corporations but by the collaborative interactions of individuals. In most cases, this modality of innovation has not been motivated by economic concerns or the prospect of profit. This raises the possibility of a world in which some of the sectors of the economy particularly the ones dealing with innovation and creativity are driven by social interactions of various kinds, rather than by profit-oriented investment. This Article examines the development of this amateur modality of creative production, and explains how it came to exist. It then deals with why this modality is different from and potentially inconsistent with the typical modalities of production that are at the heart of modern views of innovation policy. It provides a number of policy prescriptions that should be used by governments to recognize the significance of amateur innovation, and to further the development of amateur productivity.

One often-underlooked element of the intellectual property debate is the ability of the IP regime to effect the balance. Some things are done on a commercial basis and some are done on an amateur basis. Strong IP makes it more difficult for commercial and non-commercial actors alike to be able to innovate. It compensates for erecting this financial hurdle by creating unique financial incentives toward innovation -- incentives that only help a commercial actor. In a world with weaker IP, more and more work should come from hobbyists, amateurs, and non-profit organizations.

Comments

Not to seem to nasty, Matt, but are you going to bother summarizing Hunter and Quiggin's research, or should we just accept the assertions of their abstract as some kind of real support for your position?

Posted by James Gary | May 18, 2008 9:44 AM

So, in your IP-free utopia, rewards accrue to the entities that exploit innovation rather than those who innovate?

Do you have money invested in the telecoms?

Posted by RaeF | May 18, 2008 9:45 AM

At first glance I have a really, really hard time believing this is true. I guess I'll have to read the paper.

Posted by Marshall | May 18, 2008 9:50 AM

Matt,

I don't understand what you mean by strong v. weak IP. Do you mean narrowing IP's scope (i.e, IP affects fewer industries), or do you mean limiting IP's impact (i.e., shortening the time that patents last for prescription drugs), something else, or all of the above?

Posted by Kuros | May 18, 2008 10:19 AM

I have no comment (or much knowledge) about IP, but this line from the abstract doesn't seem well-supported:

Unlike 20th century innovation, the most important developments in innovation have been driven not by research funded by governments or developed by corporations but by the collaborative interactions of individuals.

The paper seems to base this judgment mainly on innovation in open-source software and amateur content generation (e.g., blogs). Personally, I don't think that these are the most important developments in innovation; they don't have the scope or scale of, say, the innovation that resulted in the development of the computer chip or the Internet. Not to mention innovation in fundamental scientific research. But I haven't read the paper carefully.

Posted by RSA | May 18, 2008 10:40 AM

Whoops, I didn't realize the actual paper was downloadable.

Having perused it, I offer for others the complete list of Quiggin and Hunter's cited examples: Open-source operating systems. Blogs. Wikipedia. Game mods.

Although three of the four are undeniably useful, whether that list constitutes "the most important developments in innovation" of the 21st Century seems debatable.

Posted by James Gary | May 18, 2008 11:03 AM

Okay, I haven't read it in full, but I would say this: the sections on blogs, wikis, and file-sharing are trivial. The section on open-source software is not trivial and constitutes a bona fide anomaly to the innovation paradigm. A bunch of people came up with a series of innovations that had great economic importance. Those innovations were not motivated by profit, but for that very reason secondary actors who WERE motivated by profit stepped in and operationalized the profits. Crucially, only then did the actual promise of the innovation become widely available.

We can talk all day long about why the open source software innovators acted the way they did, but I contend the following: it doesn't matter. The fact that there are significant deviations from economic models in the world is what makes social science an interesting field, but in this case the deviations don't have a real consequence for public policy. We're not losing out on some great advance because the IP establishment is captive. The farthest I'm willing to go is that the returns to innovation are being mis-allocated in a way that favors politically powerful interests.

Furthermore, the article's narrative about the history of innovation could not be more wrong and frankly laugh-out-loud misplaced. The article is in the literary tradition of Thomas Friedman.

Posted by Marshall | May 18, 2008 11:11 AM

There has always been some non-economically driven creative ferment that eventually makes it into the commercial world. Nobody ever fooled around with a garage band because they thought the IP regimen then in force made it the best way to maximize their economic potential.
Linux is just a garage band for geeks.

Posted by peter | May 18, 2008 11:19 AM

If you look at open source software, there is a huge government subsidy involved. Who do you think is paying the people sitting around at universities or national research labs who have helped in open source software?

In the U.S., groups like ANSI who develop consensus standards are dominated by government and academia (once again, a group heavily subsidized with government grants). What in many cases looks like a group of people getting together is realy a bunch of government employees and contractors getting together.

Posted by superdestroyer | May 18, 2008 11:19 AM

If you look at open source software, there is a huge government subsidy involved. Who do you think is paying the people sitting around at universities or national research labs who have helped in open source software?

In the U.S., groups like ANSI who develop consensus standards are dominated by government and academia (once again, a group heavily subsidized with government grants). What in many cases looks like a group of people getting together is realy a bunch of government employees and contractors getting together.

Posted by superdestroyer | May 18, 2008 11:28 AM

The farthest I'm willing to go is that the returns to innovation are being mis-allocated in a way that favors politically powerful interests.

And Matthew Yglesias favors further shunting of financial rewards for innovation away from the innovators themselves.

Posted by RaeF | May 18, 2008 11:30 AM

And Matthew Yglesias favors further shunting of financial rewards for innovation away from the innovators themselves.

I fail to see how.

Posted by Marshall | May 18, 2008 11:47 AM

And Matthew Yglesias favors further shunting of financial rewards for innovation away from the innovators themselves.

Just as the profits of many innovators in the arts (say, bluesmen of the '20s and '30's) didn't receive the lions share of the profits made from that innovation, I rather suspect that many of the technical innovators are, in fact, ripped off by The Man...

Posted by MR Bill | May 18, 2008 11:49 AM

Nobody ever fooled around with a garage band because they thought the IP regimen then in force made it the best way to maximize their economic potential.
Linux is just a garage band for geeks.

Bullshit. I'm an active developer in the open source community, and I can tell you that except for a handful of high-profile eccentrics (Stallman) we aren't altruists.

Some of us are employed by companies who pay us to develop -- some work full-time on open-source projects, like Guido Van Rossum at Google or Rasmus Lehrdorf at Yahoo, but many split their hours, e.g. lots of people at various Linux vendors. Some make money off of the consulting/support model, from individuals up through MySQL AB and IBM.

Open-source software proliferates in the marketplace because it's *better*, not because it's low cost. (It isn't -- deploying and maintaining software of any kind costs money.) And we authors have a moral right to be compensated by the marketplace for the value we produce.

It is in the interest of society at large to ensure that individual innovators receive returns proportionate to the value of their innovations. That encourages more innovators, more competition, improved productivity, and a higher standard of living for us all.

Posted by RaeF | May 18, 2008 12:32 PM

It is in the interest of society at large to ensure that individual innovators receive returns proportionate to the value of their innovations.

It sounds like you believe that Yglesias' favored IP policies would harm you and suppress innovation. By what mechanism would they do that? And what's your take on Quiggin's view of open source as an example of amateur innovation supplanting the profit-driven model?

Posted by Marshall | May 18, 2008 12:43 PM

Innovation still requires work. These "social interactions" are not just some kind of tea party. If that work is not being compensated in any way, then we have an unjust situation where some work of great social value is not being compensated either in proportion to the energy expended or in proportion to the value produced, and is being exploited by people doing less socially valuable work, and whose main area of expertise is in figuring out how to steer the product of the labors of others into their own pockets. The people doing this innovative work need figure out how to reap a just share of the value it produces.

But the comment of superdestroyer is apt. It is easy to overlook who is subsidizing the time put into the group innovation generated by the informal side-productions of information professionals.

Posted by Dan Kervick | May 18, 2008 12:44 PM

many innovators in the arts (say, bluesmen of the '20s and '30's) didn't receive the lions share of the profits made from that innovation,

But since those are "amateurs" nobody owes them anything, right?

Posted by RaeF | May 18, 2008 12:44 PM

Innovation still requires work. These "social interactions" are not just some kind of tea party. If that work is not being compensated in any way, then we have an unjust situation where some work of great social value is not being compensated either in proportion to the energy expended or in proportion to the value produced, and is being exploited by people doing less socially valuable work, and whose main area of expertise is in figuring out how to steer the product of the labors of others into their own pockets. The people doing this innovative work need figure out how to reap a just share of the value it produces.

But the comment of superdestroyer is apt. It is easy to overlook who is subsidizing the time put into the group innovation generated by the informal side-productions of information professionals.

Posted by Dan Kervick | May 18, 2008 12:45 PM

Haven't read the essay but I notice it heavily references Yochai Benkler's book The Wealth of Networks: How Social Production Transforms Markets and Freedoms. Lawrence Lessig calls Benkler the "leading intellectual of the information age." David Weinberger of Harvard's Berkman Center For Internet and Society recommended the book in a presentation I heard.

Posted by doug | May 18, 2008 12:51 PM

Well, in the "AGW Century" we will either make public investments on a scale that dwarfs all previous human achievement, or see the world roasted like a peanut.

It's kind of incredible that Hunter and Quiggen can live in a world so divorced from reality and not actually look crazy.

Posted by serial catowner | May 18, 2008 1:29 PM

Speaking as a patent agent, it looks like this argument is heavily slanted towards software, which quite a few people think shouldn't be under patent at all (and a lot of countries don't allow patents on software.)

The US is at the moment trying to figure out whether to go to a "first-to-file" position rather than a "first to invent", which has been argued to shift the playing ground even further towards the big players. (BTW, the last attempt to revise the USPTO's rules just backfired when they were slapped down by a judge as going beyond their authority. So it's been kicked back into the laps of Congress again.)

Based on what I have seen, I would also argue that there's a heck of a lot of potential protection that the stereotypical "inventor in a garage" is NOT using. Please, please, please, use provisional applications and PCT applications. Know enough about patent rules to know what actions will be bars to patenting. And do some due diligence and prior art research, particularly if you want to hold down costs. And most of all, have a realistic idea of what you get with a patent and how important your invention really is--don't be a flake!

Posted by grumpy realist | May 18, 2008 1:39 PM

when they were slapped down by a judge as going beyond their authority

I heard an NPR story on that this week: a professor of administrative law correctly noticed that the patent judges had been appointed by sub-cabinet level political appointees, which seems to me a matter similar to the US Attorney/politicization of Dept. of Justice. As a civil servant, apparently, have you anything to say on this?

Posted by Marshall | May 18, 2008 1:56 PM

He's got alot wrong. It's not so much about unconnected individuals in houses alone doing this stuff. He is right that noneconomic motives are vital - people are choosing to give away more than make money. But even programmers and bloggers have to pay rent.

It's more like the addition of an engineering discipline to the domain of free science. It's conducted by a COALITION of, yes, individuals on their own, but also academic and industrial researchers and developers, and small innovators who make consulting or other $$$. And, yes, like science since the 17th century, it's terribly modeled by intellectual property regimes and ideas. Newton doesn't appear to have done his thing to get patents.

I'm not sure eBay, Red Hat Linux, and Google would agree with him that the dotcom thing was a waste of time. No, what's really going on here is NOT the replacement of commercial by free activity so much as the monetization of the newly opened software and content markets. Money is both involved and needed - it's just moving to a different, more productive, and less profitable model. Nor are these activities really characterized rightly as being amateur.

Posted by Jon Kay | May 18, 2008 3:31 PM

Hunter and Quiggin are off base. They are not technical enough themselves to know what technology is behind the things they see. Of course, there's the government sponsored internet. Then there's government and big business sponsored research in machine learning, visualization, databases, distributed computing, etc. that make computer games and wikis possible.

Posted by lgm | May 18, 2008 3:32 PM

It's always been true, by the way, that lawyers come after every expansion of frontiers, and steal on paper what others have built. It's still true today. In cooperation with USPTO incentives that reward giving patents rather than being skeptical of them, tons of patents are being awarded on existing work. Sometimes even thirty-year-old, utterly known as past work to any programmer.

We're not losing out on some great advance because the IP establishment is captive.

I see we didn't pay attention to what happened to Vonage and RIM (Blackberry), or the various IP-based legal threats against Linux.

IMHO, the Mouse must be freed, patents must be shortened to reflect per-industry product cycles (2yrs for software, not the 20+yrs that patents exist), and the (tens of?) thousands of wrongly issued patents MUST be reversed for this to stop being an issue. It'd also help if civil courts were freed from slavery.

Posted by Jon Kay | May 18, 2008 3:42 PM

RaeF -
It would have been more accurate for me to say Linux was a garage band for geeks - in the band analogy, it has long since entered the world of record companies, promoters and studio musicians.
And, I agree open source is often better - I use it all the time.
My point was that this new way of innovation, isn't. There have always been creative communities that generated things, often not strictly for economic reasons, that eventually acquire economic value (and the commercial infrastructure that comes with it). In the absence of some convincing numbers, I don't see any reason to think this is becoming a relatively more important source of innovation.

The economic tension between the people who know how to create things and the people who know how to commercialize things is an old, old problem. I agree we'd all benefit if the rewards for economically valuable innovation were more reliable.

Posted by peter | May 18, 2008 3:59 PM

I once had an argument with Stallman on how I couldn't see how software patents would prevent innovation -- that's to say, private or under-the-radar projects can advance without reference to or interference from IP claims.

Where it does kick in is when projects advance to the point where corporations want to invest or adopt them. So it's not so much innovation that suffers as implementation and compensation, when a patent-mill or random punter who got granted a patent for an abstract process description gets rewarded disproportionately to those who wrote the actual code.

Please, please, please, use provisional applications and PCT applications. Know enough about patent rules to know what actions will be bars to patenting. And do some due diligence and prior art research, particularly if you want to hold down costs.

Or, better: adapt the patent regime to reflect the fact that writing code and writing abstract algorithms or process descriptions are two very different things. 'Prior art research' has its value, but if you search for 'foo' and find nothing, that doesn't stop the holders of abstractly-worded patent 'bar' from claiming infringement. And it's just the case that the standard OSS development story -- J. Random Hacker puts together something to solve a nagging problem or personal gripe -- doesn't happen with a patent lawyer at one side.

(Should Matt run his draft blog posts through Google -- as opposed to a spelling/grammar checker -- before he hits publish?)

Posted by pseudonymous in nc | May 18, 2008 5:22 PM

Open Source software is an interesting example of a case where value is being added without traditional IP protection (the GPL, of course, is a form of IP protection, but one that doesn't involve payments).

But you can validly question both (a) how innovative it is and (b) whether it includes "the most important developments in innovation" this century. There are a lot of great free software tools aimed at developers, because that's the community that, well, develops them. There isn't a freeware office productivity suite that is clearly ahead of MS Office in its feature set (Star Office is solid, but it's not in any way head-and-shoulders above Office in ways that matter to end users). Linux has many virtues, but it doesn't have many features that aren't in some sense in other OSes. In general, Open Source has proved to be very good at implementing existing ideas well, but except in the field of developing software tools it's a stretch to call it innovative.

Even granting whether it's innovative, though, it's a stretch to call it the most innovative. Tyler Cowen would certainly point to biomedical research as delivering a greater volume of useful innovation; others would point to nanotechnology. In general, these are areas that are still dominated by big companies and patent seeking and holding.

I think a lot of the success (and high profile) of Open Source comes from the fact that the price of materials has been brought down to the point where the perceived cost of making something new is simply the maker's time. You need a computer anyway, you need an internet connection anyway, and thought is cheap.

But this is also where a lot of the anti-IP feeling comes from. If you're in biotech or nanotechnology, the basic equipment is extremely expensive. This means the cost of licensing a patent to do research in that area is just another cost. You pay that cost too, you factor it into your running costs, and you move on with your work. In contrast, since coding is cheap and anyone can do it, it means individuals who had thought an activity was free in fact are being asked to pay a license fee -- often a license fee in the thousands or more of dollars, which isn't necessarily huge if you're planning to make money off a piece of software yourself, but *is* huge if you want to give it away.

Creative writers are in the same situation, of course -- writing a novel is cheap in absolute terms, and something that feels like you can do on your own: being pulled up and told you can't do something (or have to pay to do it) is very jarring.

I would expect that as the cost of equipment goes down we'll see pressure for looser patent regimes in biotech, etc, as well, again because the fraction of total hassle caused by dealing with patents will increase.

None of this is meant to express support for a specific approach to IP licensing (you may have guessed that I work for a company that licenses software). But I think it illustrates that there are good reasons to have different IP regimes for different areas and good reasons to expect the appropriate IP regime to change over time.

Posted by william | May 18, 2008 6:30 PM

They're living in a closet. While open source programming is an interesting phenomenon, the rest of the technical community is going the other way. It's easy to be misled like this, since regular people use programming, but don't use most cutting edge research. Patents are being stressed over publications in the physics, chemistry, biology and various engineering departments all over the country. Professors who used to publish in open literature, now collect patents to leverage venture capital for starting small businesses.

They have the trend exactly backwards. Today's Newtons are doing their thing to get patents.

Posted by Njorl | May 19, 2008 1:46 AM

In general, Open Source has proved to be very good at implementing existing ideas well, but except in the field of developing software tools it's a stretch to call it innovative.

I agree that the overall idea isn't all that new, as I explained above. There's WAY too much overexcitement about it. BUT, it does make innovation easier for the (yep. low-capital) programming discipline.

IMHO, there's really been just big, solid, OS advance in the past 5 years, and that'd be the Open-Source-invented LiveCD (ever tried one? they're truly amazing). The best language to start new projects in is widely felt to be the innovative, Open-Source Python. The biggest software innovation of the last five years? BitTorrent. I challenge you to come up with bigger closed-source software developments.

While open source programming is an interesting phenomenon, the rest of the technical community is going the other way.

There's alot of truth here, simply because it's getting ungodly expensive to pursue innovation in many of these fields. Especially pharma and aerospace. But, I bet such closedness takes a toll on the innovation rate. Pharma and aerospace are 10X slower and effectively far less innovative than software. BUT, there are innovations like 3d printers and increasingly cheap lab equipment. It'll be interesting to see how that lowers capital requirments in various fields (OK, it's hopeless for pharma because of trial requirements).

The IP field CAN address both sets of requirements, if the reforms I mentioned above are implemented.

Posted by Jon Kay | May 19, 2008 2:31 AM

I find it interesting that you chose the word "effect" rather than "affect" here.

Posted by Anthony Damiani | May 19, 2008 4:19 AM

Marshall, you said:

We're not losing out on some great advance because the IP establishment is captive.

Maybe not thus far, but we're getting there pretty quickly. For example, Walt Disney built an entertainment company by combining a then-new technology with bits of American and European storytelling and folklore, illustrated by animal and humanoid characters.

He built upon existing stories and situations, added unique artwork and dialog (for which he received a time-limited copyright), and profited.

50 years later, Walt's successors, profiting beyond the dreams of avarice, find that the copyright on some of the artwork and dialog is about to expire. Enter the Sonny Bono Term Extension Act, and the threat to a few stock options recedes.

The action in today's US IP market replicates the Disney situation over a vast body of knowledge: find what's out there, put a bow around it, claim it as "yours." Then, go to court and try to make everyone else pay through the nose.

This was neither the letter nor the intent of Congress when they originally legislated IP law, and I fail to see how the subsequent reforms in copyright and patent law have encouraged the advancement of the useful arts and sciences.

Posted by cmholm | May 19, 2008 4:20 PM