2012-01-19

SOPA, PIPA, and Other Things That Sound Like Baby-Talk

Faithful Stationary Waves reader IL asks:
Why haven't you written about SOPA? Shouldn't it be a Things That Used To Be Legal?
Technically, no... not yet. Until the legislation passes, it's more of a "things that will soon be illegal." That said, IL is right. The SOPA/PIPA issue is certainly an issue that falls within the scope of the blog. Why haven't I written about the issue yet?

One reason I haven't written about SOPA is because I see the legislation as being totally inevitable. I'm not a pessimist, but my past experience with all-things-federal-legislation leads me to believe that there is no point protesting "raising awareness about" the issue. This legislation will pass. The question is not if, but when.

Another question might be, why will this legislation pass?

The Great IP Debate
The answer is that virtually everyone in the world believes that "Intellectual Property," ("IP" in the libertarian vernacular) copyrights, patents, etc. needs to be protected.

Arguments in favor of laws protecting IP are typically based on the claim that unless we grant monopoly protection to the originator of an idea, no one will have any incentive to ever come up with an idea. Whether or not you agree with this claim, the simple fact of the matter is that the evidence that backs up this claim is truthfully very weak. It is difficult if not impossible to empirically demonstrate that no good ideas would ever be had if we opted out of granting monopoly protection to the originators of ideas.

On the other hand, there is certainly a lot of anecdotal evidence in support of the claim that ideas (and markets, and profits) flourish when patents are eliminated. A really great anecdotal example of this is the Chinese black market. There, you can find piles and piles of "cheap Chinese knock-offs." The thing is, those "cheap Chinese knock-offs" are really just "inexpensive Chinese knock-offs." In other words, they are in every way identical to their "genuine" counterparts, at a fraction of the price.

And we're not just talking about clothing here. There are great knock-offs of electronics, computers, phones, pharmaceuticals, and so forth. The question is, if someone manages to produce a great shirt or a great phone, why shouldn't they be allowed to sell it?

The only argument that has ever been put forth against this question is the idea that if Chinese knock-offs were allowed to flourish, poor Gloria Vanderbilt or Ralph Lauren would no longer have financial incentives to manufacture their own designs. But does anyone actually believe this?

Goodwill: Capitalism's Forgotten Middle Child
In the world that existed prior to Pat Riley's trademark on the portmanteau "three-peat," companies used to actively pursue an intangible market asset called goodwill.

Of course, the idiocy of the accounting industry has turned the concept of goodwill into little more than a slack variable that sops up any amount of business valuation that cannot be fully accounted-for by financial statements. (These folks have virtually no cognitive time-horizon whatsoever.)

Originally, though, everyone knew what goodwill was. Goodwill is your ability to know with certainty that when you walk into a Starbuck's and place an order, you will get a Starbuck's-quality cup of coffee every time. There may be other, superior coffee shops out there, but none with the same level of goodwill enjoyed by Starbuck's.

What this means is that when you find yourself in a strange city and you want a cup of coffee, you don't have to "guess" about the quality of a local coffee shop. You can go straight for the Starbuck's brand and know exactly what you can expect.

There is nothing stopping Ralph Lauren from acquiring true goodwill without IP monopoly protection. What that would require is that Ralph Lauren's clothing would have to be of a cut and quality that justified its comparatively higher price. People would need to acquire confidence (earned by hard work on Ralph Lauren's part) that each and every time they purchase a Ralph Lauren garment, they're getting something that will last a long time and that will remain in style for more than a single season.

You see, someone might be able to roast a coffee bean as well as Starbuck's. They might even be able to come up with a roast that tasted identical to a popular Starbuck's blend. But unless they put in the hard work winning over customers by offering a superior product at an attractive price, they will never acquire the same level of goodwill enjoyed by Starbuck's.

Clothing counterfeiters (and, for that matter, producers of generic pharmaceuticals) may very well be able to copy an existing product exactly. But unless they are capable of offering a consistently good-quality product at an attractive price, they will never win market share over their "reference product."

Similarly, I can learn how to play all of Prince's songs, hit the club scene and aim for fortune and fame; but I will never be as good a musician, songwriter, and performer as Prince, so I will never be able to "steal" Prince's music from the standpoint of real market share and comparability. I need goodwill to do that. I need to be as original and virtuosic as Prince. That's the difference.

Conclusiong
Goodwill, when allowed to flourish, makes or breaks a producer in a way that "Intellectual Property" will never be able to do. At best, these government monopoly protections are a pale imitation of what free markets produce on their own, naturally.

At worst, these monopoly protections will squash the few remaining freedoms we enjoy today, all in the name of protecting millionaire film makers who already receive sizable federal grants to produce movies that simply aren't as fun as they used to be.

But there is no point protesting. The lobbyists always win. They can win the legal battle, but please do not allow them to win the philosophical battle. There is no tenable argument in favor of intellectual property. Remember this, and remember that in absence of intellectual property, we have something better: Goodwill.

Note: I have provided Wikipedia links in this article in solidarity against SOPA.