Catallaxy Files

polymathic pontification, bleeding heart economic rationalism and liberal secularist contrarianism

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    Thursday, February 19, 2004
    Latham and the welfare state
    The ideologically eclectic Social Entrepreneurs Network which boasts Noel Pearson, Peter Botsman and Race Mathews as among its supporters has reproduced a paper delivered by Mark Latham to their conference in June 2001. This is the real, unadulterated Mark Latham, ideas man, speaking:

    Anyone who believes in the likelihood of huge increases in welfare spending is off with the pixies. Alternative strategies need to be found. Government alone cannot solve the problems of poverty. Increasingly, welfare reformers need to look beyond the limits of the welfare state. Society's most entrenched problems require a cross-sectoral approach - harnessing the creativity and resources of the public, social and business sectors.

    These social partnerships are the best way of creating successful communities. They adopt a policy of "all shoulders to the wheel" - governments, corporations, community organisations and welfare recipients, all doing more to end the curse of social exclusion.

    In Werriwa's public housing estates this is seen as a commonsense strategy. Contrary to the rhetoric of Left-wing politics, poor people have little faith in the role of government. They already live in the equivalent of socialist suburbs, with 90 percent of the income and assets owned by government. Yet unhappily, this is a sign of their poverty rather than a solution to it. The hatred of the bureaucratic failings of the Department of Housing, Social Security and the Child Support Agency is palpable ...

    Research has shown that the problems of disadvantaged neighbourhoods are much greater than the personal characteristics of their residents. (5) Networks of social exclusion feed off each other and compound the problems of poor areas. Significantly, the new geography of poverty has a multiplier effect ...

    The new role for government is to facilitate asset accumulation among the victims of poverty and economic insecurity. It needs to develop a stakeholder welfare state, in which all citizens have access to various forms of capital. Each of its welfare programs needs to include an assets strategy for the disadvantaged. In summary, stakeholder welfare aims to:

    Disperse the ownership of economic assets, especially through participation on the stock market. The Federal Government, for instance, should introduce a First Shareowners Scheme to strengthen Australia's credentials as a share-owning democracy, especially among low-income groups. (19)
    Establish a network of welfare savings accounts, with strong incentives for poor people to put money aside and accumulate assets. The accounts would be available for a range of purposes, such as education, home ownership and equity investment. (20)
    Create a highly skilled and capable population. This means ensuring that people have access to a bank of resources from which they can meet the costs of lifelong learning. A proposal for Lifelong Learning Accounts is set out in my book, What Did You Learn Today? (21)
    Develop new and innovative ways of creating social capital in disadvantaged communities. This means creating an alternative welfare system based on social entrepreneurs and social venture capital.

    The recent riot in Redfern is another illustration of the marginalising effect of the way current welfare services are delivered.
    Update on patent scepticism
    Kim Weatherall picks up on an error in my previous post on patents where I said Australia currently didn't have a patent regime for computer sofrware:

    To be patentable, an "invention" must be "a mode or manner of achieving an end result which is an artificially created state of affairs of utility in the field of economic endeavour" (NRDC case). In CCom v Jiejing, the Federal Court upheld the patentability of a method of characterisation of Chinese character strokes by operating the programmed computer to select the appropriate Chinese characters required for word processing: this shows that software with clearly articulated results can be patented.

    The rest of her post, on business method patents, is also worth reading.

    Wednesday, February 18, 2004
    Patent scepticism
    As Electronic Frontiers Australia noted in this media release, the increase in the term of copyright protection may only be the beginning of additional measures to increase intellectual property protection. The FTA also foreshadows harmonisation of patent law - and the most radical possibility is that as part of such harmonisation, Australia might end up adopting patents for computer software, which it currently does not have. The US experience may not augur well for this development in terms of promoting innovation in Australia. Ironically, policymakers and regulators within the US itself are very sceptical of the trend towards increased IP protection that their country seems to be promoting. Last year, for example, the Federal Trade Commission released this report (PDF file) on the interaction between patent law and antitrust policy.

    The report is useful on many levels, not just in promoting some useful patent scepticism but also as a primer for grappling with the economic arguments for patent law. It begins by setting out the perennial tradeoffs and complementarities between competition and IP laws. Both institutions are supposed to be complementary in their pro-innovation effects. The increased competition promoted by competition laws can manifest itself as a race to innovate because in some industries, there is a ‘first mover advantage’ conferred on an innovator for a limited period of time for coming up with a special product or production process. However, it is argued that relying on such ‘first mover advantages’ is insufficient for promoting appropriate levels of innovation in the economy because on average, innovators are unable to recoup the full cost of investments if competitors can copy their inventions and compete down the price of the commercialised product. IP laws such as patent laws are meant to remedy this by granting an exclusive right to make, sell and use an invention for a certain period of time to the innovator.

    There are tradeoffs between the two laws because errors in the application or interpretation of one can undermine the effectiveness of the other. If competition law erroneously condemns as anti-competitive what is really an efficient use of a patent then this will undermine the incentivising effect of the patent by diluting the associated value of the property right. On the other hand, if too many inventions are patentable, patent law can grant unjustified market power to firms, thus undermining competition law.

    However, more to the point, the FTC highlights two emerging problems in the US with respect to the administration of patent law - the granting of excessively broad patents (those that cover an excessively wide range of follow-on activities) and the granting of too many trivial patents (setting the bar too low). If all innovation proceeded in lumpy once-off revolutions by Teslas and Edisons, this maladministration would be less of a problem than if, as is realistically the case, most innovation is instead cumulative - as in the latter case setting the bar of patenting too low and granting patents that are too broad can increase the input costs of follow-on innovators (there is an analogy here with the arguments by Posner and Landes with respect to copyright [1]. Excessively broad patents can undermine cumulative innovation because prospective follow-on innovators may forego further research into the areas covered by the broad patent rather than risk having their hard-won results infringe the patent while the granting of too many ‘trivial’ patents can
    (1) increase transaction costs as prospective innovators must expend resources on patent searches to avoid infringement and on negotiating the patent licences required ;
    (2) lead to an environment of ‘defensive patenting’ whereby firms take out patents merely for the purpose of using them as ‘bargaining chips’ in case they need to obtain access to other parties’ patents that cover areas overlapping with their own work.
    (3) encourage aggressive patenting whereby a firm could strategically use its patent portfolio to burden its competitors with patent infringement suits which are costly to defend.

    The third issue is explored in depth in a recent paper by Daniel Rubinfeld (PDF file). I'll end this little overview with some choice excerpts from Rubinfeld's paper which also contains a case study of a recent patent litigation which fit this model:

    The strategic use of intellectual property to raise rivals’ could come in a number of forms. First, a firm could employ a litigation strategy that burdens its rivals with patent suits which are costly to defend and which increase the rival’s uncertainty about its ability to sell competing products. Such a litigation strategy could entail substantial costs for the patent holder. Because the patent holder is in control of which patents to assert, one might suspect, however, that the patent holder can choose to assert claims that are costlier to defend than to prosecute. Second, short of litigating patents, a firm might threaten lawsuits to compel all or some of its competitors to accept licenses. Apart from the litigation costs that this imposes on others, the royalty payments associated any patents that are licensed can also put rivals at a cost disadvantage. Moreover, forcing rivals to accept a license for a package of patents, some of which might include technology that the rival does not need or want, can be highly profitable. This is especially true if the royalty that the firm is able to obtain is an increasing function of the number, but not the relevance or quality, of patents in the package.

    A successful raising rivals’ costs strategy can serve to foreclose competition and/or to be predatory; the higher costs imposed on rivals allows the predator to profitably undercut rivals’ prices, to gain market share, and in some cases, to drive firms from the market. Further, in a dynamically competitive market, where innovation is an important aspect of the competition between firms, the abuse of intellectual property that reduces rivals’ incentives to innovate may lessen innovation competition and thereby lessen consumer welfare.

    This paper emphasizes one particular raising rivals’ costs strategy -- coercive package licensing. A firm with a large patent portfolio can offer to license patents on an all or nothing package basis. Individual competitors may not have a need for a license that includes the full package, either because they believe that certain patents are not valid or do not infringe. If the patent holder refuses to license, the competition is faced with the choice of litigating and/or designing around all of the patents. The cost of either of these actions is increasing in the number of patents in the package. Even if there are no complementarities associated with the acquisition of the bundle of patents, the patent holder will be able to obtain a license fee for the package that is greater than it could obtain from licensing patents individually. In some sense, the risks and costs of litigation may induce a license fee that does not otherwise accurately reflect the value of individual patents in the portfolio.

    [1] "An Economic Analysis of Copyright Law," 18 Journal of Legal Studies 325 (1989)
    Bring back CAEs?

    John Dawkins' policy of merging the old Colleges of Advanced Education with universities, or simply renaming them universities, was never a popular one. In The Age this morning former education bureaucrat Vivienne Roche calls for CAEs to be brought back, because they are cheaper to run than universities, since they don't do research.

    I'd agree with that, in as far as it goes. The other major reason for creating CAE-type institutions is so that at least some places in the higher education system make teaching their top priority. Though attitudes are slowly changing, teaching is a very distant second priority after research in many universities.

    We don't, however, need to re-create a formal 'binary' system. We should just relax the rules governing what constitutes a university, so that teaching-only institutions qualify.

    Tuesday, February 17, 2004
    Shattered Glass

    It is a pity that the rare film that portrays a journalist as a fraud, rather than a brave exposer of corporate or political wrong-doing, has to be set in the offices of one of my favourite magazines, The New Republic, and be true.

    Shattered Glass is about a young reporter, Stephen Glass, who was one of the TNR's rising stars. Unfortunately he was making up most of his stories, a fact that only came to light after another journalist, upset that he had been scooped, decided to check some facts. After Glass has been caught out on that one, many of his other stories were found to be fabrications.

    The film works so well because it focuses on the tension between Glass and his editor, Charles Lane, as Lane becomes more suspicious and Glass more defensive, and between Lane and the rest of the office - most of whom want to believe the best about Glass, who was by all accounts a very likeable person. (After he being sacked he went on to complete a law degree, and write a novel called, appropriately, The Fabulist.)

    For those who don't mind films without sex, violence or special effects I recommend this one.

    Sunday, February 15, 2004
    Politics and romantic compatibility
    Well, Saturday was Valentine's Day, and therefore an excuse for a lighthearted post. I thought this little email that Tyler Cowen over at the Volokh Conspiracy received from a reader would be of topical interest:

    "Prof. Cowen, just a flippant note about the difference between men who describe themselves as libertarians and men who describe themselves as conservatives:

    Male libertarians are generally conservatives who want to date liberal women. For example, in law school, when guys that I knew held conservative positions would start talking to me (a liberal) in flirtatious tones, I would ask, "Aren't you a conservative"? They would always answer, "Actually, I'm a libertarian." I'm not sure if any man ever described himself to me as a conservative, and I went to law school in Texas."

    Heh. Speaking as one who regards himself as a legit libertarian-leaning liberal rather than a conservative, I've attended as many libertarian gatherings as it is possible to muster numbers for in Australia and the testosterone concentration is usually 99%. I'm not so sure that libertarianism is more 'women friendly' than traditional conservatism or middle of the road liberal-conservatism of the cucumber sandwiches variety one finds among the blue rinse safe Liberal branches (Andrew, as the resident psephologist would know more about this, but my understanding is the male-female vote does not divide as strongly along Left-Right lines as it does in the US).

    But from experience it is definitely true that for left leaning women libertarianism in a partner is likely to be more tolerable than either of the varieties of conservatism. My significant other claims to be apolitical, but being a member of what my co-blogger Andrew would call the luvvies crowd (as are almost all of her friends), she doesn't really hold any view which I can remotely characterise as right-wing and has probably voted Green and Democrat in the few years more often than I ever would in my life. Fortunately because politics isn't a high priority for her our differences aren't a major issue but I suspect I would need more redeeming qualities to even up the balance if I was a member of the John Howard fan club, so it's just as well that I'm not. At least we agree on almost all social policy issues. I have also managed to convince her that capitalism is a necessary evil (not a great rhetorical achievement, I know - she still has a strong aversion to the idea of relying on the profit motive as one of the organising principles of society, to put it mildly) and that economics has something of value to contribute to environmental policy (a bigger win, in my book).

    I suspect to the majority of the population who do not have a particularly strong enthusiasm for debate on political and public affairs issues, the politics of one's significant other isn't even an issue at all. Personally I'd have to admit the general philosophical outlook (i.e. pro-Enlightenment and rationalist rather than reactionary/pre-Enlightenment or New Age) of my partner is important to me, but not the specific politics as such. It would be interesting to hear from other bloggers about their own personal experiences on this - do birds of a feather flock together? how much do political opposites attract or repel (as the case may be)?
    Virus Wars

    The Code-Warriors are at it again. Following the havoc of the MyDoom virus recently, a new version of the Nachi virus has emerged that detects and cleans MyDoom from infected PCs before downloading the Microsoft security patch needed to protect the machine from the virii.
    Blix (Free Speech) Australia

    I don't have the time I once did to devote to following the censorship debate. Which is why it si so encouraging to find the Blix (Free Speech) blog. Although posting appears to be sporadic, the author is a very active contributor to EFA's "Stop Censorship" mailing list, so hopefulyl more of the discussions from that list will make their way onto the blog.

    The rich get richer, the poor get ...

    The biggest thing in Australian social science at the moment is the Household Income and Labour Dynamics in Australia survey. Unlike most statistics, which are snapshots in time, HILDA tracks the same people over time, giving us a much better view of the dynamics of social and economic change.

    Though it is early days yet, results from HILDA's 2003 Annual Report suggest that we need to view statistics on income inequality (to which large amounts of time are devoted) rather differently. When it is said that the 'rich are getting richer' because, for example, the top 20% are taking a larger share of all income, there is an implicit assumption that it is much the same people who are 'winning', with everyone else 'losing'.

    Common sense suggests that individual and household income fluctuates, but HILDA's initial findings suggest greater movement in and out of the top 10% than I would have guessed - 50.9% moving out over a 12 month period. So the rich don't always get richer. Most were still in top quartile, but 13% fell to the bottom half. 60% of those in the lowest 10% weren't there a year later, suggesting a lot of movement at both ends of the income spectrum.

    The Age reports Clive Hamilton as saying the data represents a "new fluidity in Australian society". It might be, though the high labour market and residential mobility recorded by HILDA are consistent with ABS data going back decades. We also know from earlier work by Ann Harding that household size has a big effect on household income distribution. Much of the "disappearing middle" of the income distribution she reported on in the 1990s was disappearing people rather than disappearing dollars. Unsurprisingly, households with fewer earners earn less. It may be that HILDA is merely recording an old fluidity that other survey methods have trouble detecting.

    Continuing with the food theme started by Andrew , comes an article by Julia Baird in the SMH. Baird’s article discusses the trend to ‘super-size’ our take-away , and food in general. It’s actually a fairly even-handed article, which encourages the reader to think about the issue rather than simply parroting the usual accusations against the fast-food giants and calling for more regulation. Some extracts from the article.

    “Possibly the most crucial issue, whether hopping into carbs, fats or any other food, is portion size. A nanny-state approach to controlling people's weight isn't particularly appealing. And junk food is not the only problem. But it seems as though we are being subtly skewed towards eating more than we need. Value meals, mega combos, supersize and king size. Foot-long Subway sandwiches, extra large chips, fist-wide muffins, pails of popcorn, triple-decker burgers and the steroid "king-size" chocolate bars which seem to have replaced all others at petrol stations.

    Now, this is no fast food conspiracy, although it's pretty irresponsible. What you choose to buy, how big the burger, is your choice, along with where you buy your food. Homer Simpson would jump for joy at a value combo; others might not. You could eat half a supersize Crunchie and throw the rest away. But it's more likely that over time we will adjust our eating habits. What kid would turn down supersized anything?”

    The comment about portion size is something I’d particularly have to agree with. Last year I lost 14kg over a period of about 12 weeks. Exercise contributed to that, however what I believe made the biggest difference was something very simple. Eating less. I still eat fast-food , but I eat it less often and I eat smaller serves ( a small burger by itself instead of a combo – unless I’m sharing the combo). In the end, it is just a matter of willpower.

    Baird also discusses the documentary “Supersize Me” by Morgan Spurlock, who thought a good way to make a statement would be to eat three meals a day at Maccas and film the consequences. Spurlock apparently had three culinary rules:

    “he could eat only what was available over the counter; he would only take supersize meals if offered, and he had to eat every item on the menu at least once.”

    Predictably, Spurlock put on weight and suffered a range of health problem. He might want to claim this as some sort of revelation or political statement. But I think the only real message from this is that anyone who deliberately and repeatedly does something to themselves that they know is unhealthy – and then tries to make any sort of statement about anything other than their own gross stupidity, is a supersized d!ckhead.




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