Pro Free Market
Socrates recommended that we begin by defining terms. Small business people, with innovation as their stock in trade, generally ascribe to free markets. The “free” in free market is understood as "free from" and "free to." To be free, a market must be free from subsidies or regulations or both, and free to contract. To most minds, this suggests chaos, devil take the hindmost dog-eat-dog, solitary, poor, nasty, British and short.
Cleck below to read the rest...
But in practice this freedom leads to the spontaneous order out of chaos, with the classic examples of the emergence of a medium of exchange, the law merchant, and the Uniform Commercial Practices promulgated by the International Chamber of Commerce, to name but three. Each of these maket phenomenom emerged absent government, such as the medium of exchange, AKA money, and traditionally gold, which manifest before there were even kingdoms, let alone states. The Law Merchant is a medieval construct, that developed among merchants and in direct opposition to any rights claimed by princes. The Uniform Commercial Practices is a set of fairly modern rules decided by bankers, for the security of bankers, in the matter of payments worldwide. None of these systems were sanctioned by any powers that be, they all emerged among the players, necessarily in competition but keen on order. All of these systems limit the bane of commerce, fraud and violence.
Anarchy is not chaos, it merely means no king, no power concentrated in the hands of a few or one. As you can see from the three examples above, free markets are not without order or rules, they are just without a king. Free markets make no claim to solve all problems, it is merely the spontaneous system for dealing with a sometimes nasty problem of scarcity when it comes to goods and services. There is much under the heavens beyond goods and services, and beyond goods and services, there are other means to address needs. Marriage, altruism and religion are three examples of nonmarket phenomena (although of course some experience both in a commercial way.)
Capitalism is not “free market” since of the many definitions of capitalism, any one of them will have some sort of role for government in the limiting of "freedom from" or "freedom to." In USA we have the tension between the Hamiltonian capitalists and the Jeffersonian free marketers, although designations are largely putative. And in USA the powers at the commanding heights talk Jeffersonian but act Hamiltonian.
As an international trader, I work within the spontaneous order that evolves when there is a lack of hierarchy and jurisdiction. Just as Irish monasteries kept western civilization alive during the dark ages, Hong Kong is an unlikely reservoir of a Jeffersonian free-market ethic. And working in the unique city-state of Hong Kong has allowed me to experience this phenomenon on the practical level. Hong Kong is a curious entity, formed about the same time as the United States by people with the same views as those that informed the creation of the United States of America. It seems that as a rather small city-state (now some 7 million people in 500 square miles) power could never aggregate as it did under the much larger and manifested destiny of the USA. For an example of what once was in USA, to this day private companies issue the currency in Hong Kong: three separate currencies extent in one polity, not to mention any other currency in the world is both welcome and available, at a fair exchange rate. It is an irony that the Jeffersonian ideal is alive and well in Hong Kong, under the aegis of the Communist Party of the Peoples Republic of China. Go figure.
Against Intellectual Property Rights
7 On the practical level, the "free" in free market makes me anti-"intellectual property" rights. Intellectual property rights (IPR) might be better termed "intellectual property monopoly."[1] This includes an antipathy towards copyright law. The conflict starts with choosing which legal theory you use to define property.
Before the recent theory of intellectual property was developed, it had not occurred to anyone to own ideas. Certainly people found it profitable to keep certain ideas secret, and glass workers in Murano who tried to flee were subject to the death penalty, so lucrative was their skill, and their collective industry.
Property law once addressed the problem of scarce resources, and the allocation thereof. Based in natural and common law, property rights recognized labor mixed with natural resources conferred special rights to indivduals, in relation to what resources and what labor employed. For us to have the benefits of specialization, then we must have a division of labor. If you want a steady supply of milk, you have to respect my land, my cow, my tools, my property. And if I want your candles, I must respect your land, your bees, your vats, your stock of wicks. Of course, in a free market I am pursuing my passions and joys, tempered by customer feedback, and I peacefully coexist with you, mainly because I have no interest in working with bees and producing candles, yet I am keen on trading milk for candles.
This polity generally works well, until it doesn’t. It began to change in USA as Martin Horwitz has outlined the degeneration of American law in his classic The Transformation of American Law, 1789 through 1860.
In a very weird twist of logic, property rights were extended to where there was no shortage, and beyond what one could personally perform. The concept of intellectual property extended ownership to that which was neither scarce nor consumable: ideas.
Problems in IPR
In business a buyer and a seller come to terms and make a contract, even if the contract is immediately fulfilled, such as when I pay for a tank of gas. As I drive off, the merchant and I have plenty of pending conditions. His gas better not be cut with water, and my credit card better be good. Our reputations depend on it.
To get to the problem of intellectual property rights, let’s say the gas station owner requires, along with my buying gas, an agreement I take no riders in my car, and the contract forms by filling the tank. The gas station owner has in mind the fewer riders, the more cars needed, the more gas he sells.
So a question is, when does the seller have the right to press extra terms on the buyer, beyond the immediate transaction? There are two kinds of agreements reasonable people do not enforce, the asymmetrical and the trivial.
Already in society, by positive law, we do not enforce gambling debts, contracts formed by minors, and any contract made under duress. Positive law or not, people generally think nothing negative of a gambler who does not pay a million dollar loss, a minor who has a car repossessed, or a vet who declines to join the clergy after promising to do so if he made it out of the foxhole alive. These are all considered asymmetrical contracts.
As to trivial rules, We all scan for meter maids and run into a venue quickly, make a transaction, and run back out without paying the meter fee we are contractually obliged to pay when we take a space. When I was 18 I was told I must go to Vietnam as part of the societal contract. I laughed, and declined. They gave me a piece of paper that said I did not have to go. When Rosa Parks paid her nickel, she was obliged under contract to sit in the back of the bus. She did not. I ordered a mess of etouffe por deux in a shack outside of Metairie, and was told $10, "plus je peux embrasser vous epousee, parce qu'elle tres jolie...." I just laughed and paid my $10. Did I form a contract with that Cajun to kiss my wife? Of course not, in spite of the fact he made the stipulation, and I paid the $10. We only perform the parts of a contract that we freely agree to. We are never obliged to perform any or all of any contract we make whatsoever. We generally only perform those aspects that make sense for both parties. Our guide is our reputation in the eyes of others.
It is fairly certain, should you be confronted with a gas station owner who requires you take no riders, that you would simply agree, fill your tank, and do as you please regardless of the agreement you made by filling your tank. And you would probably tell widely of your encounter with the whimsical gas merchant, fearing nothing for your reputation even as people understand you broke the contract. Nobody would care, there are no sanctions. If any blame is to be assessed, it is with the other side of the contract: who would give a 14 year old a Cadillac on time payments? Who would let a gambler run up a million dollar loss at cards? What denomination would want clergy given to wild oaths under duress? You would be urged not to return to that particular gas merchant.
Intellectual Property Right Is Aggression, In Three Ways
But what if, in positive law, the cost to the gas merchant to enforce the contract is transferred to the taxpayers? This creates the moral hazard in which the gas merchant can and will impose asymmetrical terms on his customers. You have an empty tank, he has gas. Submit to the terms or a third party will pay a fourth party to bring havoc down on you (for there is no other practical way of enforcing such an agreement.) . Asymmetrical terms is the first instance of aggression.
The second instance of aggression is if a driver who had filled up his tank at this gas station, but still took on riders, say his kids to soccer and a wife out to dinner, encounters SWAT teams sent out to bring the customer to compliance. This violent encounter is a second act of aggression.
There is a third facet to the aggression: Say someone puts a contract on the shrink-wrap surrounding a disk containing software, which states the user may not share this software with anyone else. Opening the shrink-wrap constitutes acceptance of these terms.
Here is where the aggression lies: I owned my computer before you wrote your code. Nothing in writing your code gives you the right to say how I may use my computer. For example, I may choose to sell the code you wrote on my website, or run it on multiple machines. How does you writing code confer rights to you on how I use my machines? This argument applies to photcopy machines and books, music players and music.
Usually the objection is finessed by an author stating, “I am not telling you how to use your computer, I am telling you not to use my code. If you do not like my terms, don’t buy my code.”
If we were talking about land, this would make sense: “I leased you my land, do not grow cotton on it, because cotton will deplete the nutrients.” If I break an agreement regarding real property, then you do suffer. (And no doubt society will perceive the wrong, and sanction me accordingly. ) Land is in limited supply, intellectual property is like candlelight, unlimited and never diminished through copying and disribution. Me lighting my taper off your candle costs you nothing.
How does the code writer suffer when I pass around a copy of what he wrote? He got paid when I bought his copy. These people who get copies of copies from me were unlikely customers to begin with. But even if they were, declaring Peter (or whatever the name of the author) by selling a document to Paul, somehow confer rights to Peter that control how Paul and John use their private property, their computers, is an act of aggression, made possible ony in positive law.
In the unfortunate world of positive law, the answer is “because we can.” Since computer are networked and susceptible to spying, enforcement is possible (as long as the cost is borne by third parties.)
Note the difference in rule when tracking activity is not possible. Royalties are collected on newly printed copies of books, but not on resales of used copies. Why? Because as a practical matter there is no way track, and thus to collect royalties, on book resales. So arbitrarily, those who are given to IPR have decided there will be no royalties on resales of books. Paul gave John a used copy of the electronic file. Paul paid his money to Peter. Why is the rule different for electronic versions creative works? Because they can.
In the case of software, doesn’t IPR gives customers a product at less than the cost they would pay to develop it for themselves? This is obfuscation, by inserting the defunct labor theory of pricing as a defense of IPR. Value is subjective in commerce, not objective. The price is what the buyer and seller consent to, not what the seller thinks a buyer must pay, as is held by a labor theory of pricing. By posing the convoluted premise, the questioner misses the fact that free markets already and always have given customers a product at less than the cost they would pay to develop it for themselves.
Aside from the problem that third parties must be taxed to enforce IPR rules, the problem with this argument is it mistakes monopoly control for marketing. Independent of IPR there is already an operating gestalt that is necessary and sufficient. Steve Jobs showed how musicians can make money selling downloads as long as the ease and security of a download is worth more than a persons money. By designing a process online, and the equipment to easily receive the songs, Jobs revolutiozed the music distribution business and Apple computer at the same time. Jobs made it easier to pay for music online than to “steal it.” Jobs has never written a song in his life, but he has earned multi-billions more distributing others creations.
Certainly all of the music on iTunes is copyright, but thefact that iTunes is successful alongside an infinite array of sources to steal the same music demonstrates that absent IPR, iTunes would be successful, if not more so.
Everyone out of marketing 101 knows the 4 “p’s” of business, product price place promotion. In essence these are the facets of an offer that when tuned correctly to customer demand, result in sales. IPR allows the indolent to rely on taxpayers to enforce a contract few want to be a part of. The solution to making money in software, or any other intellectual pursuit, is marketing, not IPR.
Marketing is not for amateurs, but with the changes that made “stealing” IP easy, so came the changes that made marketing cheap and plentiful, with such initiatives googlebooks and google ads and amazon.com, and so on. For market research SAS and R have brought multi-million dollar market analysis down to a few hundred bucks cost.
But why not just maintain integrity: If you don't like the terms offered, then pass on the deal or negotiate more agreeable terms.
The lack of integrity precedes this fine mess. IPR has no basis in natural law. There is no such thing as "intellectual property rights." IPR is a construct in positive law. It is a risible construct, recent and nonfunctioning in the real world.
One might object to the relativism, or outright lawlessness one perceives in this ethic. But that would miss the source of the confusion. In natural law we have no right to aggress; force and fraud are wrong. In the examples above, and very much else is written into agreements, IPR only works because the cost of enforcement is not borne by the parties to the ageement. it is borne by third parties. This create a moral hazard wherein a party with a slight advantage (I have gas, your car is empty) may write in impertinent stipulations. The state, defined in modernity as the entity with a monopoly on violence in a given territory, (cite weber and obama) will enforce the terms. IPR is an artifact of the modern state, a rule introduced for the simple reason, "we can."The idea of intellectual property is an ugly alliance of the raw power of the state to limit access to advantageous ideas ultimately enforced by violence.
One might argue those taxpayers benefit by having the IPR regime in place, what with its benefits to society by promoting innovation and invention. But this principle has not been proven, merely asserted. and by reading Kinsella, a patent attorney, Boldrin and Levine, economists, you will quickly find there is no basis for this assertion in practice (we already know it is not true in theory.)
This system is in such disrepute that the law and scholarly journals talk of nothing but how to reform. Those who came up with Interllectual Property Rights violated natural law, and used positivist law to introduce a chaotic system. Law is at essence a means of bringing order. When statues are written that introduce disorder to an othewise orderly situation, then the system fails, it is not law, and is not binding.
16 Intellectual property laws are under constant review due to their inability to keep pace with changes in culture and society. Patent, copyright and trademark law reform is a continuous process as opposed to the relative stability of property law, law merchant and the UCP regarding letter of credit, all based in natural law.
21 The field of IPR, of which copyrights are a subset, is complex and changing. Stephan Kinsella, a widely-read patent attorney in Houston, himself a patentholder, has demolished the argument for IPR from a legal point of view. In 2008, Michele Boldrin and David Levine went in for the kill from the economist's point of view in their book "Against Intellectual Monopoly." Bodrin and Levine are not some flakes being contrarian just to get attention; they are regime intellectuals and their book is endorsed by three Nobel Laureates and Lawrence Lessig, the somewhat anti-IPR Stanford Law professor.
22 In my seminars, I attack IPR as a bad idea for small business, drawing on what I learned from the highly successful people I worked for long ago and what has proven true being self-employed these last 25 years. In practice, far from harming my business, eschewing IPR gives me a competitive advantage when competing on design as opposed to monopoly or price. As one who must constantly innovate to stay competitive, relying on IPR would actually militate against my success. so many ideas emerge in multiple places at once. I am delighted some of those who have the idea at the same time i do, with prodcuts withhold them from the amrket until they secure patents, or with copyrights immediately lock up their ideas behind registration websites, or better yet “pay to use “ systems. Devotion to IPR causes my competitors to immediately withdraw from the market.
We all love a system that benefits ourselves. We all love a system we think will benefit us. IPR introduces a closed system of publishers, some authors, lawyers, judges and police, all who benefit. Media benefits by an unnatural limit on expression. Those in the commanding heights assure us IPR is crucial to our prosterity and freedom.
Academia supports IPR as well, but as a practical matter with a different emphasis. Plagiarism, a form of outright fraud, has been made a subset of IPR, since plagiarism necessariy means anothers work was abused. With or without IPR, plagiarism would be frowned upon. Plagiarism is a sort of suicide, and should be handled as such. In a Hegelian dialectic, what I synthesize from reading copyrighted works over time ends up new and improved by the time I offer it as an assertion in my work. Neither law requires, nor would common sense dictate, that I cite every source I borrow from, such as the last sentence in the first paragraph of this chapter.
With fame comes scrutiny. Many have pointed out how liberally Bob Dylan borrowed from others. To which Dylan is said to have replied, “yeah, but when I was done it was mine.” This is a neat reversal of Martial’s epigram:
The verse is mine, but friend when you declaim it,
it seems like yours, so grievously you maim it.[6]
A flip side of the IPR problem is many books are out of print, awaiting some legal owner's required compensation. Why cite a work out of print and otherwise unavailable for people to which to refer? Not to mention a wider audience is denied the good of the content of the suppressed book.
The key to success in the world of ideas, and “intellectual property” is credit for the creation. We have a system independent of IPR, called citation. If a writer wishes to be taken seriously, the more sources he cites the more credible his argument. The more widely one is cited, the more likely he attracts buyers for his books. At once we want to be cited widely, and to be successful, we must cite widely.
In spite of the awesome array going for IPR, most citizens could care less about IPR “violations.” We are perplexed when we see the FBI warning notice at the beginning of a Netflix show, that charging viewers could cost us $250,000. We just cannot get excited if Jimmy downloads free Beatles music off the web.
46 It's a little strange to demand monopoly when one’s work is a recapitulation of all those who have gone on before, merely reorganized and presented with a modern twist: Shakespeare borrowed liberally from Plautus. To benefit from open source ideas and then demand monopoly is rather unsporting,.[4]
In a free market, there would likely be a different range of bestsellers and far more worthy books available. Something like 75 % of books sold at retail are out of copyright reprints, copies of mankind’s classics, items free from IP law. The bulk of the 25% we get under IPR is Rush Limbaugh ghost written tomes and Paris Hilton Memoirs. Does IPR kill excellence?
Vast cultural enterprises thrived for millennia with no notion of intellectual property. Although Shakespeare copyrighted nothing, Galileo patented nothing and the most powerful brand in history, SPQR, was never trademarked, lawyers and teachers of today will assert that intellectual property is a hallmark of western cultural superiority, someting lesser cultures must adapt to join the modern era.
At various times, China has been a world center of innovation and creativity. Under foreign rule, some 500 of the last 1000 years, any benefit of innovation would merely accrue to the overlords, and China's contributions diminished. There is a parallel between the result of mulcting of the fruits of others creativity in China of the last millenium, and the sliver of benefit creators get today under IPR.
A few decades go China was urged to adopt the intellectual property regime. They seemed reluctant at first, then on their own schedule, and now expressly for the purpose of using the means western powers used to aggregate hegemony. China has no intention of being a factory floor for the Nike brand; China policy is for China to have such brands as Nike, Tiffany and Coca Cola, enforced world wide by international IPR conventions. cite source.
11 Ideas can form at the same time in different places: Darwin and Wallace, Newton and Leibnitz, Google and Baidu.com, etc. Noting this, one apologist explains that our superior culture has produced the idea of intellectual property to deal with the fact that God's ideas are spread around liberally, but intellectual property rights allows Christians to claim them exclusively (presumably, of course, to be used ad majorem Dei gloriam) cite source? No doubt sometime in the future we’ll be treated to the explanation that since dialectical materialism generates intellectual property, intellectual property rights allows Communists to claim them exclusively.
And there is more to which one might object: IPR violates free association. Say my topic is the art of prevarication, and I wish to be first to review a Bill Clinton book on Amazon.com, and thus gain exposure for me and my topic. (First to review on Amazon.com is a blood sport.) I have no intention of supporting Clinton, but to be first in making a review, I must have a copy early. I see on eBay someone who is in line with amazon.com to get a first copy shipped offers photocopies for sale on ebay, for people like me who are keen on an early copy, but do not care to buy a copy that gives royalties to Clinton. With IPR, I am not free to buy a photocopy. To meet my goals, I must be forced to buy a copy that benefits the Great Prevaricator. I am forced to associate with one I desire not to associate.
Let’s go to one more example, just to stretch the brain in the direction of natural law. there is no such thing as price gouging in natural law. If a disaster makes water scarce, water vendors raise the price to the highest bidder. This at once conserves water for the most critical needs, plus the high price signals to areas outside the crisis zone that water is needed. People who cannot afford the going price make do with alternatives (boiled water, juice, collect rainwater); charities step in and pay the gouge rate and pass out the water to the needy, but otherwise the amount of water, regardless of the amount, is sufficient to meet market demand at a going price. One aspect of gouging not mentioned is the average time for top prices is about 15 minutes.
The key benefit of gouging is the signal to bring more... it is the outsiders who bear risk, by bringing in water for which the price will be, given the resources chasing the premium price, continuously falling. It is likely there will be a regression to the mean in prices, and only when water is lower in price than normal will the emergency supplies cease. The very merchant who was “gouging earlier” is constantly running the risk of finding water sold by a trucker on the corner for half cost below what the merchant an hour ago paid, a trucker who does not care to haul his water back to Pittsburgh.
In natural law, it is about relationships, with everyone. After the crisis, let those who trade with the “price gougers” decide if the vendors did wrong by raising prices, In reality, given the short time the prices are high (enough to get the rumors going and supply coming) no one cares after the fact. There are no sanctions. Only government, with its emphasis on using violence to solve problems that do not exist, take time with such issues as “price gouging.”
The fear here is reducing society to mob rule. Mob rule is only possible when power is aggregated into few hands. Thoreau lamented how few people it took to take a democracy to war (in reference to the war between the states.) What is a more fearful example of mob rule than war, which is always state sanctioned? Working down the scale, Jim Crow laws, witch hunts, lynchings, govt seizure of private propoerty to transfer it to private parties is all mob rule, but it has the cover of legitimacy. In a free market, competition militates against the accretation of power.
If one seeks recourse to IPR, one is missing out on your the potential in gaining compensation for your work. It is a mistake to rely on control and coercion to maintain your customers, when marketing is the key, not coercion.
I do give away all my work for free, and charge $10 or $16, or $20 or $26, for my book, depending on what people want to pay, so i can get all the money possible. People who do not pay were never my customers anyway. My work is out there for the whole world to have, at any price, from nothing to $25,000. The closer the buyer gets to me, the higher the price. What governs my interaction with my market is not prescriptive law, it is natural law, relationship.
IPR takes force and fraud at some point to make it work. In an free market it takes neither. In IPR at the fundamental level there must be some sort of enforcement mechanism, that has a power arrogated unto itself, sought or unsought. In a free market, we need no such aggression. In the examples I laid out, who sanctions my actions? Everyone else, but not you. You are no judge of anything, no individual is, in life. If I comply with some "contract" or not, my mind is on not only my estimation of its validity, but I am solicitous of the estimation of my act to all of my customers, my suppliers and any organization involved in charity (for I may need them someday, what with my reckless behavior). What sanctions I experience are dealt to me by the only judge that matters: everyone else that matters to me.
In natural law, rights can been known rationally, a priori. In the case of a dispute, an appeal can be made to those who matter: In a free market everyone else, not party to the transaction, decides.
And here is the key, the only sanction would be any harm to your reputation, and how people treated you based on your actions. In other words, how the rest of the world, with whom you must interact, views you. It is all about reputations and relationships, subject to the judgment of your society.
Other problems
51 If we didn't have the artificial limitations of the IPR monopoly, would there be too many works on the market, resulting in poverty for all? In practice, we learn that this is not true.
50 Although the likes of Mick Jagger or John Grisham may not have gotten as wealthy as they have without IPR, surely they would have gotten wealthy enough. Without the monopoly system, others could have made it forward, too. I have seen many greats in concert, from Janis Joplin to the Doors to the Beatles and the Rolling Stones. I’ve also been to a few Arnett Howard gigs, he out of Columbus, Ohio. As far as sheer entertainment, Arnett Howard is up there with the best.[7] With contrived limits on access to airwaves, gatekeepers at media houses, and IPR to limit creativity, only a few make it to a very high pinnacle. With no IPR, it is likely we would find a more just distribution of income.
Fantastic amounts of money are spent to market and promote intellectual property. Without intellectul propoerty monopoly, there is no way to recoup this expense. The problem with this argument is yes, it is true fantastic amounts of money are spent to promote a band, but it does not cost so much. The Grateful Dead is notorious for allowing bootleg copies made of their concerts, gathering a phenomenal following without any promotion. Prince, Nickelback and Janis Ian are all making more spending less. In a twist on this, Penn and Teller became vary famous magicians by showing their audience how it's done, which is every bit as entertaining, but a violation of trade secrets. And, as to writing, the number one best-seller ever is the Bible, an anonymous book you can get free anytime for the asking, and no one advertises Bibles. Yet, expensive versions sell well.[3]
IPR even fails those who cold-bloodedly desire its anti-competitive effects. Sometimes competitors offer alternatives, which reduce demand for your product, but alternatives that are not your product. Competition comes from the Greek “to strive with” and your toughest competitors are the ones who make your offerings disinteresting. To stay competitive, you must keep designing, and re-designing. And here is the rub: to keep the design machine humming, you must be a first rate marketer. Even if IPR works in some instances for some players, it invites the very innovations that cannot be battled, the alternative. The entire IPR milieu substitutes monopoly for marketing, so it inevitably leads to degeneration of the enterprise. Customers are the most important thing in business, but getting the products right is the hardest thing. .
Boldrin and Levine compare innovation and non-compete laws in Massachusetts and California, and demonstrate open competition preceded California hegemony in silicon and software.
57 Publishers really do nothing to market your book, if you believe the top-selling authors mentioned in the first chapter. They are dependent on a passive system in which they dump books into the bookstores and guarantee to take them back if they aren't sold. You end up having to do the marketing in any case. With copyrights, publishers simply use monopoly to garner what sales there may be. If anyone tries to sell contrary to copyright rules, then the cost of a publisher's failure to market is transferred to the taxpayers, who must fund the copyright enforcement mechanisms set in place.
Fraud
If someone copies my work with my name on it, and sells the copy he made, how am I taking a loss? Along these lines, what if he takes my work and puts HIS name on it? In either case, he used his paper and ink and his machinery to make the copy. As the inimitable Murray Rothbard asks, “Why should the fact that I wrote a book give me control over what other people can do with their copy equipment and supplies?”
If a plagiarist puts his name on my book and sells it as his, then I am even less concerned than if it's stolen by a pirate. By engaging in fraud, this fellow will soon enough be disgraced.
But to proceed, say the copier of my work uses his marketing to sell it. How am I out? Do you suppose that if he was not selling the copy, people would buy mine? If they buy from him instead of me, then he must be performing some superior marketing. In any event, the consumer has made his preferences known by buying from someone else. It's my job to get the consumer to prefer to buy from me (or my assigns in the distribution channel).
55 As I mentioned earlier, Amazon.com is not concerned if my readers buy from Amazon or from Amazon’s many competitors, which they helpfully advertise on the same page that they advertise my book! This is an example of free market mindset leading to success in the marketplace.
56 Anyone buying from me is my customer. If they are not buying from me, they are not my customer. My job is to work in a way that causes people to prefer to buy from me. In essence, this is marketing.
38 Your customers do not want to buy your product from someone else. If the product is yours, your competitors cannot get it cheaper from your source. They can get a cheaper version than yours, but then, it's not your product designed for your market. They can get your idea made at a cheaper factory, but then, that would necessarily be a second-rate factory, producing second-rate goods, since no two factories are equal. A cheaper version is someone else’s design, not yours, made at another factory, not yours, for another market, not yours. Even if it was ethical to leverage privilege to stop others from copying your product, why would you want to? Why substitute a perfectly happy life where all of your human faculties are completely challenged in commerce, for which you are justly compensated, for time with lawyers and courtrooms pursuing people who are, at worst, flattering you? Indeed, when asked about knockoffs, Karl Lagerfeld said he considered it flattery. People selling what is not yours, made not where you make it , to customers you would not care to serve, are hardly stealing from you.
Pricey Piracy
62 Software sellers, such as Microsoft, complain that people sell “pirated” copies of their software on the streets of China for $10 a copy. Therefore, we taxpayers must shell out hundreds of millions of dollars to pay for law enforcement to combat this outrage. But reflect: the fellow selling the pirated copy for $10 is obviously making money, or he wouldn't do it. Bill Gates has complained that he cannot do business with the poor (although in the context of lamenting their lack of resources and infrastructure, that others should pay for so Microsoft can access more market). Indeed, Microsoft must sell a copy of its software on a 75-cent CD for $400 in China to make any money. Except, $400 is, on average, one year's wages in China. A worker with computer skills in China may make triple the average, in any case Office is out the the question for most budgets in China. Yet, strangely, we see people making money selling Microsoft software in China, but not Microsoft. My airline has about 15 prices for the same section on the same flight. My dentist tells me he has eight prices for any given service. How is it my vendors can manage dynamic pricing, but Microsoft cannot? Only because Microsoft does not have to, since you and I pay for asymmetrical agreements imposed by Microsoft, and enforced by government. Certainly, Microsoft could make money off of people selling copies of their software in China on the street. But when we taxpayers so eagerly fork over the cost of enforcing Microsoft’s IPR in China, why shouldn’t Microsoft compliment our delusions by making us pay for their exercise of injustice?
Free Market Solution
63 Whatever the problem the IPR regime proposed to solve, in the free market business already solved this problem long ago, without IPR or taxpayer-funded intervention. Let’s compare with and without IPR.
With IPR, when I do a first run warranted by orders I have taken for a book, I direct my printer to produce, say, 1000 copies and no more. Being quite reliable and honest, the printer does as he is directed. But in this scenario, assuming copyright law, my honest printer, who has fulfilled his contract, has little interest in whether anyone else happens to be printing my book as well: it's no money out of his pocket. he’s been paid for his performance.
Now, a ne-er-do-well nephew of the printer desires to make a quick buck, sneaks my .pdf file down the street to Ajax Printing and starts making copies. This scenario is complete nonsense for reasons I will demonstrate shortly, but it is the stated fear for which copyright law is the contrived solution. In any case under IPR, my printer could care less about the piracy.
In a free market, without IPR, I direct my printer to produce 1000 copies for me and as many copies as they themselves desire for whatever purpose they may have. If the price to me for my 1000 copies is $3.00 per copy, I tell my printer that, in case he happens to get any orders other than mine, he should charge, say, $3.50 a copy, with the fifty cents directed to my bank account in Hong Kong I provide a local bank account number for the printer to deposit my cut (the 50 cents is just an example; the number can be pretty much anything, but one must not be greedy. Recall that we are getting paid for doing nothing). As a side note, I am obliged to declare this as income to the Internal Revenue Service, and I do. In both cases, the printer earns his requisite $3.00 per copy, but when he sells to a third party, I earn a royalty of sorts.
Now note, in this free market case, should Ajax Printing happen to pirate copies of my book, my printer is, in fact, out the profits he would make printing my book for any markt other than mine. Therefore, in the absence of copyright protection, my printer uses local means to discourage piracy, means effective but of no concern to me. Furthermore, in this scenario I am quite aware of everyone who buys my book; as my printer pays me royalties, he states to whom he sold the extra copies. We both benefit from the arrangement, and at the same time piracy is discouraged.
68 This kind of arrangement is common in small business international trade, though people are often astonished to learn of it. Why would the printer agree to such an arrangement? How can you possibly check up on them? They agree because I ask, and should I come across an unauthorized version, I would move to a printer that was compliant. In any case, the reason I work with this printer is because they are the best and, in fact, are compliant with me and all of their other customers.
As to tracking performance, the explanation is every bit as circular: because we ask, they comply. When making an agreement, both parties consider all terms, and place a cost on all points that can be agreed upon, and simply refuse any stipulations that cannot be agreed upon. there is no reason not to agree to this arrangement, and any cost incurred will be built into the price.
69 This manhood UNC is superior to the copyright arrangement we have in the U.S., because our system gives a false sense of security to authors, who, nonetheless, commonly discover that they have been cheated on royalties. (cite coming to america, frank zappa) In IPR countries, we are oblivious as to any alternative method to achieve justice, aside from slamming people up a against a wall and throwing them in jail.
By these free market means, anyone in China who can make money with a customer I cannot reach will do so, but I have made money at the printery level money already.
As a practical matter, what pirate would build a career on stealing my book? Where is the marginal benefit? How can it be worth anyone’s while? For such theft to be worthwhile, a pirate would have to offer a lot of titles. But the cost of carrying so many titles at such narrow margins would be prohibitive. At any point, an author might issue a "second edition,” making whatever stock the pirate holds of the first edition worthless. This is just as true of a million-copy bestseller, say a Grisham novel. With the stakes much higher, the paper and ink dealers, the printers, the “pirates” and the retailers all want more money up front or more of a share of the profits. And to whom will the books stores return the half million Bill Press opinion books that do not sell? Or better yet, knowing the vendor is illlegitimate, a failing bookseller may just elect not to pay for books. Squabbling quickly degenerates into delays and missed opportunities for those involved. There is no threat from those quarters.
These ideas are alien, esoteric to us. But they are exoteric in other cultures. There are whole systems, coherent and effective, that are alternatives to our own. And at times, they are not in conflict, in spite of the fact that they may have been declared illegal. Some people may be either too dull to perceive that there may be different ways of handling matters in different cultures or so racist as to believe there are simply no honest Chinese. If these errors are motivating actions in the marketplace, that suggests that there are opportunities for those who are more enlightened. Less competition for me! .
Saturday, May 22, 2010
On Intellectual Property Rights
Outrageous Conspiracies
I've blogged somewhere else that conspiracy theories tend to be used to absolve ourselves of any responsibility. If agents of the US government brought down the twin towers on 9-11, then there is a wicked cabal directing things, beyond our control. How comforting.
Of course the plain truth is some 19 Saudi Arabians retaliated on 9-11 for USA occupation of their Holy Lands. Now, had we addressed that on 9-12, it is unlikely we would have invaded Iraq, and Afghanistan, and all of the other crimes we've committed, including the self-inflicted security and economic policy disasters here in USA. Instead we accepted the explanation on 9-12 that "they hate us for our freedoms." (Talk about conspiracy theories!)
It is far easier to revert to conspiracy theories than to study the attackers grievances, their motivations, and to move accordingly.
Read Dr. North Today
Dr. Gary North has an article over at LewRockwell.com that everyone should read. There is a particular quote about entrepreneurs:
Whenever entrepreneurs who have their own money or borrowed money on the line conclude that the likelihood of losing it is just too high until production goods and labor get cheaper, Keynesians call on government to borrow, central banks to inflate, and consumers to spend, spend, spend. Why? In order to keep production goods from getting cheaper and labor from get cheaper. Why? Because when production goods get cheaper, corporate donations to the opposition party's PACs increase. When labor gets cheaper, voters vote for the opposition party.
All over the world, politicians are using borrowed money and newly created money to keep the prices of production goods from falling. This worked until early January. It is no longer working. Commodity prices are falling. They will continue to fall. Why? Because commercial bankers are not lending, and businesses are not borrowing. The American labor market is still crippled. With unemployment in the 10% range, delayed mortgage payments are in the 10% range. Will wonders never cease?
Nonetheless, it is critical, since there is nothing to invest in, to invest in ones own business. The proper way to do it is the means of frequency, that is contiuous minimum orders, so you can quickly adjust to market changes.
Thursday, May 20, 2010
Why Germany Shines in China
GE CEO says Germany does exports to China right, and USA needs to get Obama to lead trade delegations to help us export more. Maybe the Germans listen to their customers better. Or maybe our top CEOs are thinly disguised welfare queens. Hard to say.
Wednesday, May 19, 2010
USA Hong Kong Wine Agreement
Below I reproduce a news release from a Hong Kong trade promotion office, outlining a memorandum of understanding between US and Hong Kong. You can read what it entails.
USA Ag policy has been "get big or get out" for at least 150 years. One exception to this is the wine business, particularly in California, where the state and fed govt subsidized the rich and politically connected to set up wineries and live the charmed life in Northern California.
This subsidy has led to massive overproduction. If you have market locally for 5000 bottles of $49 merlot, but you produce 25000 bottles do you cut your price to move the extra 20,000 bottles? What if the price to move it all is $3 a bottle locally, but that will slaughter your image and no more customers at $49?
The average price paid by Hong Kong importers for red wine from USA is $3 a bottle. (I show you how to research that here...)
5000 bottles at $50 is $250,000. 20,000 at $3 is $60,000, or $310,000 total.
If you price cut here USA, and you market price drifts down to say $5 a bottle, then you'll end up earning 25000 times $5 is $125,000. If you are only getting by at $310,000, you are out of biz at $125,000. Exporting allows you to keep your domestic prices higher than otherwise.
A quick biz to get into is re-importing wines. Know your USA wines. Set up an office in Hong Kong. Buy excellent USA wines cheap.. . negotiate cheap regular shipping, buy the wine from usa, bring it into hong kong, and ship it back. As USA wine it will come in duty free. (If you test this, make sure you do it first with a small shipment, only as much as you would like to drink, if this there is some rule I am not aware of... work with a customsbroker on this.)
This is in essence what was going on the pharmaceutical re-importations and plenty of other products whose exports are subsidized.
It does not surprise me in these times of economic distress the US govt is subsidizing this waste fraud and abuse (and it does not surprise me Hong Kong merchants are smart enough to take the money.) many of those villas in Northern California are owned by politicians, or politically connected, so they voted themselves another pay raise.
Such subsidies distort the markets, and lead to USA consumers overpaying for many items, such as wine.
As for the best way to export USA wine to China without govt subsidies and assistance, I have a video coming up on that. As to the memorandum of understanding, there is not a single element in it that would be useful to a start-up company.
Notes from the Article:
Gist of the HK-US
Memorandum of Understanding (MOU) on
Co-operation in Wine-related Businesses
The MOU is an extensive one, covering some common areas of co-operation that also feature in our MOUs with other wine producing countries/regions, including promotion of wine trading, investment, wine-related tourism, education / manpower training, and combat against counterfeits.
It also embraces a number of special elements relating to :
(i) promoting wine alongside regional and local cuisine – both sides will encourage enhanced partnership to promote food products and culinary arts relating to wine as well as regional and local cuisine;
facilitating as appropriate the organisation of wine auctions in Hong Kong for US wines – for example, Invest Hong Kong stands ready to assist US auction houses to set up a base in Hong Kong and/or identify business partners; and
encouraging the provision of quality wine storage facilities in Hong Kong - for example, the US side may help us publicize the wine storage certification scheme recently launched by the Hong Kong Quality Assurance Agency, which seeks to enhance confidence of wine traders and investors in using Hong Kong’s storage facilities.
The common elements are :
facilitation of business visits, exhibitions and wine-related trade fairs – to strengthen wine-related trading activities, both sides will facilitate business visits and encourage each other’s participation in wine fairs organised in Hong Kong or the US;
investment promotion activities – the investment promotion agencies of the two sides will facilitate exchange of information on wine-related investment activities and services;
education and manpower training – the two governments will encourage the training institutes in Hong Kong and the US to enhance partnership so as to improve education and training on wine-related subjects, such as courses on wine appreciation, wine culture and wine storage, and programs for meeting the manpower needs of enterprises engaged in wine-related businesses;
wine-related tourism and wine culture – we will encourage enhanced partnership on promoting wine-related tourism and wine culture through trade shows, festivals, individual and group travel programs, and exchange activities between Hong Kong and the US; and
co-operation in combating trade in counterfeit wine and smuggling of wine – the two governments will endeavour to provide assistance to each other to prevent, investigate and prosecute illegal activities and illicit trade involving counterfeit wine and smuggling. Hong Kong has a clean record on wine counterfeiting. We will upkeep our vigilance through such enhanced co-operation.
Government of the Hong Kong Special Administrative Region
May 2010
May 2010
Monday, May 17, 2010
Taxes and Self -Employment
Mish Shedlock is exasperated that the new conservative govt is pondering a 50% capital gains tax on second homes etc, rightly predicting this makes such assets a sell call. Of course, which lowers the price of house overall as excess inventory floods in on top of excess inventory. Falling house prices is good and necessary. Expect the next 30 years to be about taxing any fixed assets, so the best strategy is to be a merchant, self employed small business.
Expect policy laundering with the UK... this tax will fly because although onerous, it affects relatively few and those who played the last decade right. Tax winners. Mish expects investment flight. Where to? Bill Bonner hits the "asset allocation" trope. I think the new era calls for activity allocation. Investment in others is over. Investment in self is the future.
How To Pick a Fight
The Miss USA Pageant at the Hard Rock Cafe has a winner, Miss Michigan this year. OK. Big news is she is a Muslim. From the Middles East. Well, um... ok. Check out Miss Michigan, she could have a spot in a Sarah Palin Administration!
Except, if you are in a fight to the death with extremists, whose objection #2 is how you treat women, then why provoke your enemies to anger by flaunting some irrelevant fact?
Saudi Arabians retaliated on 9-11 for our occupation of their Holy Lands. (So says the CIA, Army Intelligence, OBLaden., and the 9-11 commission. The only person who does not know this is Rudy Guiliani.) The other Moslem extremist flash point is how we treat women.
Moslem sense of modesty and propriety is no different than Christian, although in some territories those of the puritanical strain have the upper hand. In USA we condemn Moslem treatment of women, a condemnation which looks pretty hypocrtitical to the Moslem eye.
Treating women as objects, such as in a Miss USA pageant, chemically sterilizing women so they are available to irresponsible men (not to mention the attendant diseases), coercing women into the work force so they can be taxed (especially mothers!), and putting women into combat (mind-boggling) are all facets of Western Culture that some extremists will die to resist.
It is no coincidence a Moslem woman one. Tokenism works. But promoting Miss Michigan (Now Miss USA) as a Moslem is going to provoke too many people to anger.
Sunday, May 16, 2010
Good Morning Vietnam!
Vietnam is a great place to do business, and just to show the help the can use and what opportunities abound check out this common site on a street corner. It reminds me of picture of Manhattan circa 1910.
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