The copyright dilemma: copyright systems, innovation and economic development.

• Author: Park, Walter G.

This paper discusses the potential role of copyright laws in technological and economic development. Although it is more common to think of the patent system as a source of economic and technological development, copyright laws and regulations affect cultural industries such as art, films, music and literature. These industries comprise an important part of gross domestic product and are a source of employment and income opportunities. Copyright regimes also affect education and scientific research through their impacts on the diffusion of knowledge embodied in copyright media, such as print and Internet publications, software and databases, among others. The copyright system can thus have an important influence on human capital accumulation. This paper surveys some of the theoretical and empirical work to date, assesses the implications of the findings for developing economies and identifies some areas where further research is needed.

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Intellectual property rights are among the most important factors affecting technological progress and economic development. Thus far, most intellectual property rights research has focused on the role of patent protection rather than on other kinds of intellectual property rights, such as copyright protection. This is not surprising, since industrial inventors often look to patent rights for the protection of their innovations. However, the creation of copyright industries can also influence technological and economic change. This paper discusses the potential economic impacts of copyright laws and surveys existing theoretical and empirical work. The objective is to draw implications for economic development and to identify some issues in need of more research. The survey and discussion of issues will focus on the impacts of copyrights on innovation and creativity, since these are key determinants of economic development, but will not treat issues related to the operation and administration of copyright systems. (1)

Copyrights can have both positive and negative influences on creative activity. As a result, debates about copyright policies should focus not so much on the desirability of strict or lax copyright protection, but on the appropriate design of copyright systems. For example, the standards of copyright protection in developing economies should be appropriate for their level of economic development in order to account for the different weighting of the costs and benefits of copyright protection. Furthermore, the copyright system influences not only commercial activities, but also non-commercial ones. Researchers investigating only the commercial impacts of copyright laws--for example, on production, sales and employment--will likely undervalue the overall social impacts. Copyright policies, for example, can have effects on basic education and fundamental research, both of which are important inputs into commercial activity. (2) Moreover, while copyright systems can influence economic development, they are also a function of economic development; that is, the value of copyright protection is greater in more advanced markets. Consequently, in less developed markets, the incentives for policymakers and stakeholders to invest in the copyright regime are generally weaker. The problem in this situation is that copyright protection and enforcement may be too weak to stimulate creativity in copyrightable works. Copyright industries would then remain too underdeveloped to have an impact on economic and technological development. These points suggest directions for further research, namely to assess the significance of copyright laws for non-commercial activities such as basic research and human capital accumulation, and to analyze the interdependence between the copyright regime and the level of economic development.

WHAT ARE THE COPYRIGHT INDUSTRIES?

In 2003, the World Intellectual Property Organization (WIPO) issued standardized guidelines that provide a formal definition of copyright industries. Using these guidelines, numerous country studies have measured the value of production of these industries, among other aspects. (3) The copyright industries consist of four main categories, which include the core copyright industries and three related industries. First, the core copyright industries are those industries that essentially owe their existence to copyrights and neighboring rights. (4) These industries create, manufacture and distribute copyrighted (or copyrightable) works. Some examples include software and databases, press and literature, music and theatrical productions, visual and graphic arts, motion pictures and video, radio and television, photography, advertising services and copyright collecting societies (i.e., organizations that manage copyrights on behalf of rights holders). Second, interdependent copyright industries are those that facilitate the manufacture, performance, communication and/or distribution of the copyrighted works. These include computers, photographic and cinematographic equipment, photocopiers, musical instruments and blank recording material. Third, partial copyright industries are only partially associated with copyrighted goods. Examples of partial copyright industries includes toys and games; apparel, jewelry and other crafts; furniture and household goods; architecture and interior design; and museums. Lastly, non-dedicated support industries are those in which only a portion of activities involve broadcasting, communication, sales and distribution--but not wholly, so they are not counted in the core copyright group. This group includes wholesale and retail trade, Internet companies and general transportation.

Table 1 provides an idea of the importance of these industries in the national economy. Two indicators are of interest: the share of their value-added, i.e., net sales of intermediate purchases in GDP, and their share of national employment. These indicators are shown for the core copyright industries and for the copyright industries as a whole, and for both developed and developing countries. The estimates were based on comprehensive data collection following the WIPO 2003 guidelines. Cross-country figures are not completely comparable since the data were collected at different time periods, during which countries experienced different phases of the business cycle and other economic events. Nonetheless, it appears that a worthy share of the workforce is employed in these industries, and the value-added of copyright industries is not to be overlooked. For example, in the United States, almost 9 percent of employment is in the copyright industries, with about 4 percent in the core copyright industries. The value-added of copyright industries equals about 11 percent of U.S. GDP, with that of the core copyright industries reaching almost 7 percent.

Interestingly, copyright industries have an important presence in developing countries. For example, about 11 percent of employment in Mexico and the Philippines are in the copyright industries. In South Korea, the value-added of total copyright industries is nearly 9 percent of GDP. However, at present, the core copyright industries in developing countries are fairly nascent and their value-added and employment levels are small in both relative and absolute terms. The other copyright-related industries--i.e., the interdependent, partial and support industries--are relatively stronger and account for a more significant share of output and employment. That is, the ratio of the value-added of the core copyright industries to that of the other copyright industries is smaller in developing countries than it is in the developed countries. This suggests that the core copyright industries in developing nations are actually lagging.

Despite the copious information they provide, these country studies have at least three limitations as far as aiding the understanding of how copyright laws and regulations stimulate creativity, technological change and economic development. First, these national measurement studies are entitled "Economic Contribution of Copyright-Based Industries in [Country X]." The term contribution is somewhat problematic because it connotes a sense of causality. These studies are not what economists would call growth accounting exercises, which seek to estimate the contribution of specific factors to national economic performance, such as the contribution of copyrighted works and enterprises to productivity. Instead, these studies measure the share of copyright and related industries in GDP, but do not show how the latter is a function of copyright activities. (6)

Second, these studies do not show how the strength or design of copyright laws affects national, regional or industrial economic performance. (7) The impact of the copyright system is a subject of much debate. (8) The system can generate both social benefits and costs and can, theoretically, stimulate creativity or hinder it, depending on the circumstances...