AUDIO TRANSCRIPT
 

Time	
Podcast Episode Highlights
0:36	Intro. [Recording date: October 29, 2009.] Quote from book:
Private ownership usually creates wealth, but too much ownership has the opposite effect. It creates gridlock. Gridlock is a free-market paradox, when too many people own too many pieces of one thing, cooperation breaks down, wealth disappears, and everybody loses.
Explain. Gridlock--too many owners--riff on familiar concept of tragedy of the commons. In a tragedy of the commons, too few owners, resulting in overuse of the resource. Too few owners in the ocean and people over-fish it; too few owners of the air, and people pollute it. Solution to tragedy of the commons is to privatize--single decision-maker who invests in the lake so there are more fish tomorrow. But privatization can overshoot. Instead of too few owners and a tragedy of the commons, we can have too many owners, and a tragedy of the anticommons. Instead of a resource being wasted in the economic sense through overuse, the resource can be equally wasted through underuse in an anti-commons. Too many owners creates potential of their blocking each other. Let's start with the commons: intuition and parallels and contradictions. Taping just a few weeks after Elinor Ostrom won the Nobel Prize; work talked about in book. What are some of the ways that societies deal with common property to avoid the tragedy? Privatization not the only one. Historically, when people thought about the commons they often thought about what is now called more precisely "open access"--that absolutely anyone can use a resource. Hard to have conservation outcomes in an open-access regime. What privatization does is align individual incentives with the resource. Historically two other solutions noted for the tragedy of the commons. One: state control. Command and control, regulation: state tells you how much you can do. Privatization often seen as a solution to over-regulation in a commons. Ostrom, basis for Nobel Prize: noticing the conditions under which commons property can succeed outside of state control on the one hand and privatization on the other. Circumstances that groups can manage resources effectively even though they are commons to the insiders and private to the outsiders. Ostrom noticed aspects like repeat play--having relationships that go across the resource and other resources; having a small number of people; sharing the same church. She's identified the circumstances in which commons resources can perform economically at a very high level.
4:54	In those situations, norms or informal rules emerge through the cooperation of those players; and they are enforced not by the state but by repeat play or connections between people that would create affection or some sort of altruistic play between them. Altruistic on the one hand, but also wealth-maximizing on the other. Don't need to look to the leviathan or complete atomization--intermediate solution. Altruism: if I personally benefit and impose costs on the rest of the group, if I care about the rest of the group that tendency will be mitigated somewhat. What Ostrom showed was this whole range of possibilities between altruism and wealth-maximization between what has long been thought to be the entire spectrum of ownership. In the middle are some interesting institutions. Anticommons idea and what gridlock book suggests is that there is an entire half of property relations and a lot of economic problems on the other side of private property. Commons-to-private is only half the spectrum; the other half spans from private to anti-commons ownership. So, in the anti-commons--how would that work? The commons is familiar. "Overuse" has been a word in English for 400 years. The problem of underuse--of resources being destroyed by being wasted by not being deployed is almost completely invisible. "Underuse" only became a word in English--in Scrabble--three or four years ago. One-way ratchet. Many examples where the real economic problem is that there are multiple owners competing with each other, resource left economically idle. What is the most underused natural resource in America? Airwaves. Artifact of the way we define property rights in broadcast spectrum. We have thousands of owners with non-transferable limited use; virtually impossible to assemble national high-speed wireless network. Because so many fragmented owners, United States has fallen out of the top ten, almost out of the top twenty. Missing wireless and entertainment services that are available in the rest of the world. Tom Hazlett: tragedy of the telecommons, cost the U.S. economy trillions of dollars.
9:38	Hard to take advantage of the potential of the system because of what we would call transactions costs--hard to negotiate with so many owners. One way to understand a tragedy of the anticommons, like a tragedy of the commons, is that these are both different versions of transactions costs failures. In the anticommons, in theory you could purchase all those rights and have control. In open-access story, harder to do. Everyone could agree not to fish. Perfectly symmetrical. Buchanan and Yoon paper: mathematical symmetry. Wireless life pleasant: what would a visitor from overseas notice that is missing? Possibility for a lot more remote medical work, easy and powerful video conferencing; real time multimedia; downloads watching TV in real time on cell phone; shopping beaming advertising and coupons to phone. Nextel network. Hard to know you are missing something if you only look within the United States. Podcast with Hazlett. What is the policy solution that would unlock those resources and get rid of the gridlock? First step is to notice that there is an economic loss from the misspecification of property rights. How we define property rights is more powerful than people realize. We don't know to be upset with the allocation of spectrum licenses because we don't know what we are missing. FCC policy. What can they do? Challenge is how to assemble resources in a low-transactions cost way. Wider array of uses and easier transferability. Make telecom licenses look more like ordinary property. Not so much fragmentation and number of owners as it is the nontransferability and restrictions on use.
14:23	Use of patents: medicine and music. Hidden example of gridlock. A lot of cutting edge treatments, gene therapy, require intervention across a whole range of genes, and each of those genes is separately patented. Diagnostic tool for cancer. Imagine walking into an auditorium and it's filled with all the owners of all the relevant patents. Unless you can get agreement from everyone in the room, the tool or therapy doesn't work. Each of those is usually some small biotech startup and each is usually very committed to the value of their individual patent and each demand the corresponding price. Hold-up problem; complementary input--need all the sections of train track to get from here to there, and if you miss any one of them you get nothing. Separate ownership is sub-optimal. In the drug context, as drug development has moved from a single patent, single molecule, innovation is increasingly breaking down. In the last year, 40,000 gene patents granted; steady increase in drug R&D investment. Number of drugs that treat disease has been going steadily down. Drug discovery gap, due to many problems such as FDA approval; but an important part is patent gridlock. Drugs that could and should exist that aren't being created. Patent system is suppose to spur innovation; paradoxically, too many patents can mean fewer life-saving innovations. Golden rice: tension between over and under patenting. If you want to have some high tech innovation in the world of plants, it use to be the case that you hybridized traits you wanted. Produced the green revolution. Inputs used to all be in the public domain, just like drug discovery. More and more those inputs are being separately patented. Freedom to create new plant products is more and more hedged in by the patents that you confront. Scientists Potrykus and Beyer: child blindness stems from Vitamin A deficiency around the world. Simple way to solve that would be to have the Vitamin A produced by the ordinary rice that is eaten. Figured out a way to do this, but in the process of engineering that new golden rice, they discovered that it infringed on roughly 70 U.S. patents. Rice is ready to go and could save millions of lives, but couldn't bring it to market because to do so they would have to negotiate dozens of separate patents. Already had this valuable product in hand; were able to shame the patent owners to create a humanitarian license. But for similar examples are ones we don't even hear about. Anger that these property rights were preventing him from getting the product to market, but realized that these patents had created the techniques that allowed him ultimately to create his product. Tension there. Fundamental policy question. Some examples in book result of accidents; some result of policy decisions made in the past or private decisions where it's hard to anticipate problems would come down the road. Is it a mistake to allow people to patent a particular gene? Is suggestion that we should have less? zero? What about products that are very expensive to bring to market because of the cost of assembling property rights? Want to extend the debate to include the possibility of hidden cost. Patents are a good thing. If it weren't for patents, there wouldn't be the biotech revolution. Massive inflow of money into biotech research arises because it's possible to get production. What gridlock discussion suggests is that against that general backdrop of patents being a good thing, we need to think about what are the potential costs. Privatization isn't the endpoint--it's an optimum between overuse and underuse, between commons and anticommons. What we are aiming for is not the most amount of property rights, but the best design for property rights. A lot of implications for that insight for patent law. Past week conference on the gridlock economy, podcast online. Particularly salient for semiconductors and telecomm, banking, internet shopping--require assembly of thousands of patents. Several thousand patents involved in a cell phone; no way to do online banking without dealing with ten thousand patents. Impossible to discover the patents you need, and impossible to know whether the claims cover your product or not. Cannot design high tech product that isn't infringing on hundreds of patents. Products that are most successful are subject to hold up by patent owners who can claim willful infringement even if you didn't even know their patent was involved.
25:00	Anticipating that legal cost, a lot of people are uninterested in innovation. Tragedy of anticommons. With a tragedy of the commons, very visible--you can see the pollution in the air or that you are not catching the same number of fish in the ocean. Tragedy of the anticommons tends to be invisible. It's the drugs that aren't invented, cellphones that don't come to market. Invisible tragedy. Michele Boldrin podcast: getting rid of patents. Legal scholars and economists on how to treat intellectual property relative to past treatment. Where are we going? We should be paying more attention to the gridlock features of patents. Mike Meurer , Jim Bessen: Patent Failure. Tried to measure overall effect of patents on economic growth. Leaving aside pharmaceuticals and chemicals, where patents seem to be wealth-producing, the net is that patents are wealth-destroying. Googles of the world would rather live in a world where property is not protected through patents but through other means. Encouraging if true: patent environment is a sort of commons; if all players think we are degrading it then we will probably move toward a different environment down the road. Talk to staffers on the Hill: how do we get patent reform? Bill aimed at patent gridlock; Congress won't go forward without bipartisan agreement, where bipartisan is not Democrat and Republican but pharmaceuticals and Information Technology (IT). True of any common solution--existing set of owners, have to find a way to compensate them if you need their support for a transition. Patent law written in 1952 to support a style of innovation, not the way America innovates any more. Compromise reached fifty years ago. Patent law is not tuned to the new style of innovation.
30:52	Music and documentaries: mashup or bundling of the nature of innovation. In the world of patent, one-patent, one-product. In the world of artistic expression--music or film or TV--today much less trying to put together separate pieces. Eyes on the Prize, documentary on Dr. Martin Luther King put together 20 years ago, Henry Hampton. Hampton pulled video clips from 80 archives; had 300 photos; about 120 fonts; won an Emmy, but disappeared. Couldn't be burned on a DVD, couldn't be shown on TV, because he didn't control all those small pieces of copyrights he needed. Most important film account of the American civil rights movement couldn't be seen. No central registry of copyright owners; even if you can identify them, have to bargain with each of them; can't assemble all the licenses. Clearing rights in the copyright world: half-Sherlock Holmes, half-Monty Hall. Many products don't come to market because even a second can become very costly. Nature of rap music has changed because of this gridlock; if you are a fan of old hip hop, Chuck D, Public Enemy, used to rap over a collage of sound. Rappers today don't do that--instead use single sample because licensing 300 is impossible. Whole style of expression is illegal. Also true for film and television. Would think there would be an exemption for fair use; but publishers and music companies are uneasy about testing that limit. In Russ's last book, wanted to use a quote of about 3 words from a movie; publisher, Princeton U. Press, insisted on permission; negotiation with multiple sources. Copyright in American law is never an absolute right. Want to give authors some protection in order to promote the writing of books. Don't want to give too much or in cases where it will reduce speech. Exemptions where permission isn't required--fair use, built into copyright laws going back to the 1700s. Previously unnoticed virtue of the fair use exemption is that it becomes a place where you can solve gridlock. Wider that exception is, the easier to assemble a collage of small snippets. University presses often on the wrong side of this debate, in favor of strong copyright and limited fair use. Usually professors want the widest dissemination of their work; often willing to give it away for free. Payment to faculty is more in prestige and recognition. Fair use policies are not decided by faculty, but by universities' general counsel office; worried about potential costs of being sued. Reasonable use--what people are actually doing. Trying to brush you back from the plate, like baseball; changes the strike zone. Only way to get right to use that 35 words is to assert it. The person who wrote those 35 words wouldn't mind seeing those words in the book. K-Pax, Kevin Spacey movie--not hurting their sales. Got the rights, easy once right person to talk to was found; relatively cheap. Eye on the Prize--also got the rights. Part of the reason in both cases that that happened is that it had a little of the flavor of the golden rice story--can cajole people when the cause is noble and desirable. Want to design a property rights system that creates a lot of wealth. Gridlock book written at non-technical level, lots of photos--each had to be licensed. Deed to a square inch of land in Alaska from Quaker Oats cereal in boxes in the late 1950s. What if you needed to assemble that land for some purpose? Picture took weeks to track down; worked out a quitclaim agreement. University press books look so boring because most people don't have the patience and curiosity to do all these negotiations.
42:25	One of the costs of this isn't just the back and forth of negotiation--long time listeners, right to use the opening music for EconTalk was given. First choice was the opening bars of If I Had a Million Dollars, by Bare Naked Ladies; had a lot of trouble trying to get the publisher to agree; wanted a very high price. Would like to think that the men of Bare Naked Ladies would be proud to give us the rights. But they don't control those rights. World Copyright Summit. Piracy a big concern. Biggest concern is not piracy any more but gridlock. So difficult to assemble the rights people need that people end up either not using them or being pirates. Piracy is an artifact of breaking through gridlock. Fragmented rights. No central registry: wouldn't that help? There is no central clearing house. Would that be an enterprise worth pushing? Costs and who bears them? We have a registry for land; can pretty much figure out who controls land. Cars--we have the DMV. For copyright, have an enormous number of works and an enormous number of rights in them, which fragments quickly over time as the original creator dies. In music context--lyrics, performer, all different kinds of rights which fragment. Google Books trying to address this problem of fragmented ownership by scanning all the world's books, central pile, jump start a registry of books. Right now they have digitized many works that are in the public domain. Lots of digitized versions of books written before 1923. There are books that are in copyright and in print: publishers control them, can negotiate. But there are roughly 20 million books that are under copyright but not in print. Can't go to publisher and buy them. Bulk of knowledge from 20th century: unless you live near a library no way to access them or search it easily. Google is scanning those books and trying to make them available at the word level--can search by word; if you want to download it, you pay a fee, which goes to the central registry. How can Google do that if they don't own the rights to the books? Suit between authors' guild and Google, which claims what they are doing is fair use. Since they are out of print, the owners aren't making money off them anyway. Can discover it, quote it. Hasn't been settled. Negotiated settlement attracted opposition over the last few months; other countries have objected, anti-trust; settlement pending. Trying to solve a basic gridlock problem. Class action mechanism, aggregates a series of claims no one of which is worth pursuing individually but collectively generates a lot of value.
52:11	Two issues: Example of air space. How did that evolve--flying over your house: could you stop an airplane for trespassing? Intuition: When you own a piece of land you own up to the heavens and down the center of the earth, a column of ownership. Makes sense for 50 feet up, but how about 1000 feet up? Not an issue till the invention of airplanes in the 20th century; no one had ever thought about it before. Overfly from NYC to DC means flying over the property of thousands of people, each one of whom would potentially have a claim against you. Lawyers and policy makers struggled how to make it possible. Part of solution was to say that you own up to the heavens, but as a matter of law, the heavens is 1000 feet up. Solved the gridlock problem and made it possible to fly by a timely redefinition. Airports: hard to build an airport. Public policy solution sometimes invokes eminent domain. A lot of private solutions also work--don't make a public announcement, buy land privately. Public solution feasible for Martin Luther King documentary--could pass a law saying this documentary that showed on TV with all of its citations and visuals, the documentary maker is entitled to them all; same way as with for an airport or shopping mall. Is that likely? Has it been abused? Public choice problems. People hate having their homes taken by eminent domain. You can always solve the problem by eliminating private ownership. Last-best solution in every case. Kelo. In intellectual property rights, in drug area, there already exists a "march in" right--the government already has the right to march in and take patents. If ever exercised, would crush the incentive of drug firms to spend a billion dollars to create a new drug and get it through the FDA approval process. First and most important step is to note that there is a problem. Then think about tools for making it easier for entrepreneurs in the market to assemble rights. Radio play; patent pools: you can pop a DVD disk into a DVD player is the several hundred patents required to make that work have been pooled together and you play one licensing fee to the pool together. What kinds of market institutions might be able to facilitate?
Listen to the  above podcast transcript with Russ Roberts and Michael Heller on gridlock and the tragedy of
the anticommons (posted to Sakai or available through econtalk.org) up to the 34:06
mark1, and respond to the following prompts. Your responses do not need to form a
cohesive essay. Instead focus on concisely responding to each prompt. The last page of this
document provides updates to issues brought up during the 2009 podcast: Authors Guild
Inc. vs. Google Inc., gene patenting, and electromagnetic spectrum allocation. 1. In 2 to 4 sentences, describe what the term “gridlock” or “tragedy of the
anticommons” refers to.