The University of Chicago Law School Faculty Blog

IP: Social and Cultural Theory - Does Economics Describe or Perform IP? (Mario Biagioli)

Madhavi Sunder's framing questions are pitching this discussion quite high -- appropriately so, given what's at stake.  As my grasp of the debate is not, unfortunately, as "panoptical" as hers or Prof Merges', I can only try to contribute by bringing in a more limited, different perspective.

Coming to IP not through a formal training in law but rather through debates over scientific authorship and the history of patenting by scientists, I am not directly invested in either supporting or critiquing economic conceptualizations of IP.  From my disciplinary point of view, that so much discourse about IP is framed by the logic and assumption of neoclassical economics does not look like a "natural" fact, but rather the result of some kind of history. Still, that does not imply that economics would necessarily provide bad or unacceptably narrow conceptualizations of IP.  While I find no reason to attribute them the status of a "master narrative," different economic perspectives on IP can function as tools that, depending on who uses them and how, can produce results ranging from illuminating, sharp, and thought-provoking to flat and predictable as only ideological scholarship can be.  

I'd say that the way one views the relationship between economics and IP depends on how "scientific" one takes economics to be.  For instance, in my neck of the disciplinary woods, scholars like MacKenzie, Callon, Latour, and Lepinay have argued, in different ways, that economics does not simply describe the dynamics of the economy (the way a science would describe its object).  It rather develops models that, once adopted by powerful actors like the finance industry, start functioning more like prescriptions than descriptions of the markets' behavior. "Economics perform the economy," says MacKenzie.  While these perspectives acknowledge the powerful effects of economics (as they argue that economics is part of the construction of the economy), they also take away from it its status of 'science' and replace it with that of "builder" or "performer".  

I wonder whether we could apply some of these perspectives to the relationship between economics and IP.  One could argue, for instance, that while the discourse of economics has indeed shaped much of the doctrinal and policy directions in which IP has been articulated, it has not done so because it was able to model and describe the motivations and behavior of authors and inventors in a "scientific" manner, but rather because that kind of modeling has been used and turned into practice by powerful political and corporate IP stakeholders (and also, perhaps, by individual authors who, with so much economic imagery swirling around in media and public discourse, have come to conceive of their own creative work as a process of "maximization of intellectual property"). MacKenzie has shown that the Black-Scholes-Merton formula for pricing options ended up structuring (rather than just describing) the behavior of securities markets.  Maybe the economics talk about IP has performed the same kind of "self fulfilling prophecy".  That does not men that that kind of talk is either right or wrong.  It is simply constitutive.  Which also means that it could be constituted differently -- even very differently.

IP: Social and Cultural Theory (Rob Merges)

Madhavi Sunder’s initial essay travels a wide landscape. The nature of the blog medium, of course, means she has time enough only for a few stops on the journey, but they are suggestive of the richness and intricacy of the overall landscape – the contemporary terrain of intellectual property (IP) law and policy. I am going to shadow Madhavi for a few of these stops, reviewing some of her suggestive ideas. But more importantly, I want also to give another view – my personal view – of the landscape she describes. My goal here is not to redraw the map Madhavi is making, but to give the reader a different orientation within it. What I want to provide is not counterarguments so much as an alternate key or legend; not a different frame, but a reorganization drawn from a few points on my personal compass. (A fuller version of these comments -- my own map, so to speak -- will have to await the publication of my own book, "Justifying  Intellectual Property," from Harvard University Press next year.)

Professor Sunder’s main point is that economic analysis of IP is too narrow; it fails to capture some important things about what is happening in the IP landscape, and why it matters. And what is happening, she says, is that the conditions under which culture is created are changing – and changing fast.

She is right that economic analysis is inadequate to the very difficult task of determining exactly “how much” IP is enough, and in some cases exactly how IP rights ought to be crafted and limited. I have come to see that the optimal number of IP rights is not something that economic analysis is really equipped to determine, at least not with the current set of tools we have available. (That's why I have been delving into Locke, Kant, and Co. in researching my own forthcoming book.)

But to say that we need to expand the standard tools we use to think and talk about the foundations of IP policy is not the same at all as saying what shape that policy ought to take. It is not even necessarily the same as saying that we ought to reduce or diminish the role of economic analysis. Economic tools, in my view, are terrific at carrying out policy directives. They are just often indeterminate at the operational level when it comes to answering foundational questions. When we ask too much of them, they will of course fail. So we as a society may decide that rewarding writers, filmmakers, and the like, is a good thing to do. At this point economics can be very helpful, not only in helping assess the direct costs of these rewards on others, but also in figuring out how to spend as little as possible administering the rights, collecting the money, and distributing payment.

Future of the WTO- Institutional Reform, Development and Reciprocity (Gregory Shaffer)

Thank you Anu for your stimulating post, and thank you Richard and Daniel for continuing to keep us honest. Anu's last post moves us to think of the importance of revised institutional design. We as commentators have been pretty pessimistic. But the world is of action. Things change. Opportunities open. Here are a few points to supplement Anu's post.

First, other fora-- and notably the OECD and UNCTAD (reflecting a developed country/developing country divide)-- have long engaged in complementary work to WTO negotiations and oversight. The larger developing countries now need to be integrated as part of a club of larger economies, as suggested by Anu. Institutional change may come slow (or in spurts) because of path dependencies and entrenched interests, but it is needed. Whatever change comes, such institution can, and must, complement what happens in the WTO.

Second, this being said, the BRICS will likely retain close ties with other developing countries because such coordination should enhance their leverage vis-a-vis the US and Europe. We are thus likely to continue to see them work in parallel through a group such as the G-20.

Third, we have not focused at all on development in this exchange even though the Round is called the Doha Development Round. This likely reflects the exchange's focus on power and its diffusion. Many in the US and Europe disparage the concept of a Development Round because it distracts attention away from the fact that a successful WTO negotiation depends on reciprocal bargaining. Yet there is no reason why development cannot remain an animating concept while reciprocity remains central to bargaining. It means that developing countries will need to engage in the give and take of bargaining, while the WTO and other complementary institutions need to ensure (and the US and Europe needs to accept and help come up with mechanisms in order) that they retain policy space and support for development strategies.

Future of the WTO: Regionalism, Multilateralism, and Global Governance (Richard Steinberg)

Anu’s February 26 post offers some interesting claims and prescriptions in three areas: (1) trade regionalism; (2) multilateralism in other spheres; and (3) improving the G-8-- global governance.

Trade Regionalism.

On trade regionalism, Anu predicts “some competition, but no confrontation” between blocs.  That seems like a sound prediction, at least in the short run, but (like all social scientific predictions) there must be less confidence about it in the long run.  For example, if China builds a web of preferential trade relationships in Asia, and trade and security tensions with China were to rise further, then I would not be surprised to see confrontation with a Sino-centric bloc.

What about using regional blocs as a basis for deeper multilateral deals?   For example, the idea of a Transatlantic Free Trade Area (TAFTA), proposed a decade ago, was promoted partly on the basis that it could be a vehicle for converting US- and EU-centered regionalism into multilateral integration.  Similarly, the strategy of “competitive liberalization” was promoted partly on grounds that after scores of countries had concluded bilateral free trade area (FTA) deals, knocking out protectionist forces in their own countries, multilateral liberalization would be easy.  I am pessimistic about these possibilities.  On the first, cross-regional deals have proved exceptionally difficult; agriculture and many standards-sensitive sectors have generally opposed ideas like TAFTA.  As for the second, multilateralizing any US- or EU-centered FTA means giving China complete access to our respective markets; not going to happen.

Future of the WTO-PD Games and Deadlock, Financial Crisis, Regional Blocks (Gregory Shaffer)

Anu rightly points out differences between Richard and me, but before we go there, we should explore further parallels in our assessment of the role of power in WTO negotiations and how changes in market power could affect multilateral negotiations. Let's briefly look at game theory. WTO trade negotiations are often characterized simply as Prisoners' dilemma (PD) games in legal academia, but this is a mischaracterization. If that is all they were, then it would be a simple cost-benefit analysis for the players as Joel Trachtman suggests in his side comment to Richard. But WTO negotiations are more than about solving a PD. They are also about the terms of the deal. And once we get to the terms of a deal we are talking about distributive issues (economically and politically). And once we are talking about distributive issues, bargaining power matters. These distributive implications become more salient as we move to non-tariff issues, whether IP, other standards, or GATS. As we see power somewhat diffused (with projections of further diffusion), bargaining for preferred terms becomes more intensive and agreement becomes more difficult, potentially (but not necessarily) leading to deadlock.

Anu rightly raises the issue of the role of the judicial/dispute settlement body in the WTO. It will continue to be a player in the management of liberalization commitments. Even here, however, the member states are far from powerless. To give an example, they can attempt to go outside the WTO to create new international rules in an attempt to affect interpretations of WTO rules by dispute settlement panels. The EU arguably did this, in part, with the Biodiversity Protocol, as well as with the UNESCO Convention on Cultural Diversity. WTO  dispute settlement bodies may not formally take these agreements into account, but they are not blind to international context either. The aim of these agreements of a more "soft law " nature is to "soften" the  judicial  interpretations of WTO "hard law" agreements, as Mark Pollack and I have explored.

Future of the WTO-- Power Diffusion and Regionalism/Bilateralism (Richard Steinberg)

Daniel’s next-to-last paragraph captures well my claim about hegemonic stability theory and the demise of negotiated liberalization at the WTO. My point is not about rigid adherence to one of the variants of HST from the 1980s—it is rather that the US-EU hegemonic duopoly that ran the WTO from roughly 1973-95 is unable to do so anymore. Anu’s post this morning and Daniel’s middle paragraphs rebut the rigid versions of HST from the early 1980s. GATT/WTO evolution has been more subtle: from a hegemonic structure (in the 1957-73 period) to hegemonic duopoly (from 1973-1995) to tripolarity now. [I disagree that the GATT/WTO was ever a US-EU-Japan tripolarity; Japan was never a demandeur, never a real player, even in the old Quad days.] The contemporary deadlock may be due to a divergence of transatlantic interests, as suggested by Daniel, but it is also because the developing world is growing in power (now through coalition behavior; later due largely to catch-up rates of growth). The result is that liberalization is now taking place more through regional and bilateral venues than the WTO. And this is my point about consistency with the structuralist framework of HST.>

But the more complete view would remember Putnam: trade negotiations are a two-level game with the state negotiator in the middle. In so far as it is possible for a US or EU negotiator to craft a domestic coalition favoring liberalization, where is that negotiator more likely to generate a deal with benefits for export-oriented producers—at the WTO or within a regional or bilateral context? The answer is clear. Due to power diffusion and interest divergence in the WTO, and the relative power of the US and EU in their respective bilateral negotiations with third countries, regional and bilateral venues offer better outcomes for US and EU negotiators. This would explain why, since 1995, no significant deals have been struck at the WTO, while the US has struck deals on about 15 FTAs and the EU has enlarged, added about ten FTAs, and is converting the 70+ Lome >country preferences into FTAs.

Future of the WTO: Noise versus Trend (Richard Steinberg)

Of course the claim that the WTO is dead as a location for negotiation was a bit rhetorical, intended to drive home the point (not rhetorical) that the GATT/WTO system is of decreasing importance as an engine for trade liberalization.  Anu, Greg, and Daniel would seem to agree.  Yet I think I am more pessimistic about the WTO than Anu and Greg (not yet sure about Daniel).

Yes, conclusion of the Doha Round is possible—but what a disappointing and modest result it would be. And yes, dispute settlement may help restrain protectionism in the next few years (which is not trivial, when one thinks back to the Great Depression) and advance a process analogous to the ECJ’s “negative harmonization” period in the 1970s and early 1980s—but court-led liberalization is slow and piecemeal. Plurilaterals or a variable geometry in the future? Maybe, but there are disadvantages (as well as advantages) of doing that at the WTO. At best, multilateral liberalization is on a very slow track.

It is not clear that multilateralism is dying at the same rate across all issue areas. The structure of multilateral games varies across issue areas (and linkage across issue areas is usually not part of the story).

Nonetheless, I am pessimistic enough to raise the idea that hegemonic stability theory (which has long thought to have been dead) may have been fundamentally correct. Not in its brittle stalks form (there are lags, of course, as institutions and words matter), but in its basic structural claim that as power diffuses, global regimes will weaken. Power is diffusing, not just in trade, but also in finance and military affairs. [The idea that we live in an imperial or hegemonic world (which was taken for granted by many just eight years ago) is not so easy to defend. In historical terms, Iraq was a small war, yet we are spent. “The most powerful nation in the world” is beside the point. Putin owns the Caucuses and is (diplomatically) pushing the Yalta line in the Balkans. The PRC is building naval capacity at a rapid rate. Nukes are diffusing. . . As for money, do I need to make the argument?]

If hegemonic stability theory is essentially right, then the golden age of international law is ending. Global law-making is harder; more international law-making will be regional or plurilateral. This seems roughly consistent with the story in trade: gridlock at the WTO and the explosion of regional and bilateral free trade agreements.

And if the theory is essentially right, then the examples that Anu gives for tempered optimism about the future of the WTO, and Greg’s proposal for reforming the main decision-making rule and arguments about export-oriented interests still favoring liberalization, look more like noise than the main story-line for the WTO.

[In the next installment, I may have to back away from hanging my hat on hegemonic stability theory alone, but I am kind of curious how much weight the idea can be bear. . .]

Future of the WTO- Liberal Ideas and Domestic Politics (Gregory Shaffer)

I don't think the WTO as a forum for negotiation is dead, unless one believes in resurrection. To me, our generally pessimistic comments raise a series of important issues, but do not mean the end of multilateralism. States still have incentives to engage in multilateral negotiations. The world may have "deglobalized" these last months with economic collapse and a concomitant collapse in trade flows, but countries will remain too economically interdependent to not engage in multilateral negotiations, including trade agreements, down the road. Yes, negotiations with a small numbers of players and with a dominant economic hegemon go more quickly. But they are not conditions for multilateral agreements.

The key challenge now is not simply explained by realist concepts, such as shifts in the distribution of power and their impact on relative gains for countries in competition with each other. The perception of absolute gains still matters. And domestic politics still matter for the formation of national positions (a liberal internationalist position). If export-oriented interests mobilize in countries, including the BRICs, they will push for reciprocal market openings. Brazil, for example, pushed hard for a conclusion of the Doha Round because its agricultural export interests had much to gain. The key challenge now is that domestic interests are not mobilized in key WTO members. They never were in the US and the EU for this round, which limited what US and EU negotiators could do. And as I wrote in my first post, this is not a propitious time to see new domestic mobilization for trade liberalization.

That brings us to the role of ideas, including perspectives of WTO legitimacy as a forum for liberalization, which has not been addressed in posts so far. It is no coincidence that the GATT was signed after WWII following the Great Depression, and that the Uruguay Round was concluded and the WTO created following the Berlin Wall's collapse and the discrediting of socialism. Yet we are now seeing shifts in domestic opinion that will be less favorable to trade liberalization.  Trade negotiations for further liberalization thus do not bode well in the near term. In other words, the economic crisis is not just about political priorities shifting away from trade; it is also about shifting perceptions regarding the benefit of open markets. This loss of faith in liberal markets will affect the constellation of domestic pressures on government negotiators.

Market power matters in affecting WTO negotiation outcomes, as we have all shown in our work. But so does the mobilization of domestic interests and ideas about trade liberalism. Thus, in my view, while the WTO as a negotiating forum is indeed deadlocked, it is not dead in the sense that it is forever gone. We just need to be realistic about what it can accomplish in these times. Acting as a useful shield against protectionism is not insignificant.

Future of the WTO (Richard Steinberg)

As a location for trade negotiation, the WTO is dead.

The factors identified by Anu and Daniel-- raw economic diffusion and divergence of interests-- are important. Of the two, divergence of interests among powerful states (or bocs of states) is more important. Perhaps surprisingly, US and EU GDP (respectively) as a proportion of WTO GDP have not changed substantially in the last two decades; each has accounted for roughly 30-34% of WTO GDP, even with the "rise" of the BRICs. China has emerged, but it accounts for only about 6-8% of WTO GDP as of 2006,depending upon how you measure, and it has not been a demandeur at the WTO. Using the Goldman-Sachs data, projecting forward (and making some assumptions about Chinese and Indian growth that are more conservative than G-S), Chinese and Indian shares of WTO GDP will rise substantially so that by 2025 China may have 12-15% of WTO GDP and India, Brazil, and Russia may each have 5-8%. At that point, we can begin to talk about multipolarity. Until then, something else is going on.

Future of the WTO-Relevance (Gregory Shaffer)

Thank you for your opening post Anu and for your follow-up Daniel. Let me add a few things. First, in assessing the Future of the WTO, the immediate question is the WTO's relevance in light of the financial crisis. You both note shifts in power constituting a new world order (the rise of the rest); yet for now, the WTO's relevance is limited more by a shifting attention to other matters-- namely getting ourselves out of the greatest global finance crisis that we have seen since the second world war, combined (for good measure) with the challenges of Afghanistan, Iraq and Al-Qaeda. The WTO is just not the player it was when it spurred the great global protests just a few years ago.

That of course does not mean that the WTO is irrelevant. The invocation by trading partners of its rules got the Obama administration immediately to amend its prize economic stimulus legislation. That shows it still has meaning. Thinking counterfactually, the WTO rules provided tools to domestic political actors to change the most important legislation before this country, tools that otherwise would not exist. We can thus better manage protectionist pressures than we could without the WTO.