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«      Boffo, Marco (2013) Interrogating the knowledge‐based economy: from  ...»

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similarly, Stiglitz, 2008). While this is a typical “public good problem” (described in general by Pigou, 1932, and originally adapted to the case of research, invention and innovation by Arrow, 1962a and Nelson, 1959), Foray (2006) highlights how the non-rival and cumulative character of knowledge exacerbates the problem by deepening the rift between private and (potential) social returns. Thus, any new element of knowledge produced ‘should, from the welfare point of view, be available free of charge (apart from the cost of transmitting information)’ (Arrow, 1962a, pp.616-617). But, while this would allow ‘optimal utilization’ (Arrow, 1962a, p.616), or ‘maximum efficiency’ in the use of knowledge (Foray, 2006, p.116;

Stiglitz, 2008), it would also undermine (what mainstream economic scholarship posits as) the necessary conditions for the production of new knowledge (Arrow, 1962a). The latter is a highly costly process and, therefore, it is only ‘a positive price on use’ which ‘will guarantee the allocation of resources for creation’ (Foray, 2006, p.116). Furthermore, the contradiction between private and social value of knowledge is aggravated by the non-rival and cumulative character of knowledge so that, the more cumulative the use of knowledge, the greater the social losses generated by the social mechanisms devised to keep in check its free flow (Foray, 2006).

1.3.2) … and its imperfect solution In this context, patents are conventionally presented as an ‘obvious’ (albeit imperfect) ‘solution to the public good problem’ (Foray, 2006, p.136) since, by increasing expected private returns to investment in the production of new knowledge, they bridge the gap highlighted above between private and social returns and raise the incentives for undertaking innovative activity.20 The patent system is part and parcel of the regime of Intellectual Property Rights (henceforth IPRs), whose functions are to provide precise definition of the rights and objects deserving exclusive protection, and to ensure enforcement of these rights by guaranteeing effective exclusion of ‘all unauthorized agents from use of the relevant resources’ (Foray, 2006, p.134). Traditionally, to be patentable an innovation must satisfy the following criteria:

absolute novelty (i.e. the invention in question must not be part of the currently existing state of knowledge and technique), non-obviousness (for a person of ordinary expertise given the current state of knowledge in the field), and utility (meaning that the innovation must be apt to be integrated into any part of a specific industrial process, as part or output of the productive process). In addition to these, a further requirement is that a description of the innovation must be provided, such that anybody with average expertise in the field could However, Arrow’s (1962a) and Nelson’s (1959) characterisation of knowledge (together with scientific research and innovation) as a public good was originally intended to advocate for the subsidisation and central planning of research and development in the United States in the context of the Cold War (see below). Thus, Arrow dismissed patents, which he saw as an impediment to the free flow of information and running against the incentives to innovate: ‘In the interests of the possibility of enforcement, actual patent laws sharply restrict the range of appropriable information and thereby reduce the incentives to engage in inventive and research activities’ (Arrow, 1959, p.13) (see also: Arrow, 1955, 1959, 1962a; Van Horn, Klaes, 2011a).

replicate the patented innovation.21 In exchange for complying with these requirements, holders of patents are entitled to temporary exclusive rights over the commercial exploitation of patented inventions (lasting twenty years in the legislation of most countries) (Foray, 2006;

Coriat, et al., 2003; Stiglitz, 2008). The condition of non-obviousness is meant to distinguish products of human creativity from the realm of nature, while that of utility was originally aimed at excluding generic scientific knowledge from patentability. However, these criteria are seen as ‘sufficiently flexible and even ambiguous to allow … excesses in contexts of innovation races and striving for competitiveness through intellectual investment’ (Foray, 2006, p.133).22 Thus, patents are perceived as providing a host of private benefits. These include the provision of appropriate incentives for the disclosure of information, the creation of transferable rights in support of technology transfer and acquisition, and the signalling of the ‘future value of the technological effort’ of companies (Foray, 2006, p.136). However, it is their perceived social benefits which allow touting them as a key institution in the KBE. Indeed, since the granting of patents is accompanied by public disclosure of methods, processes and techniques, patents are seen as conducive to the dissemination of knowledge and information and, therefore, ‘heightened research effort and hastened transfer of results to those best situated to turn them into better technologies, and sharpened evaluation of the quality of their ideas’ (Mirowski, 2011, p.190). In turn, patents are also praised for their putative coordination function, which should reduce the risk of duplication of research and innovative efforts through the facilitation of trade in information and, ultimately, allow a better allocation of resources.23 Furthermore, patents (as opposed to other potential mechanisms to reward However, this does not necessarily stop firms from disclosing as little as possible (Stiglitz, 2008), not least through purposeful provision of unclear or obscure descriptions.





For a more accurate historically-grounded account of the renegotiation and reinterpretation of the conditions for patentability throughout time, together with the drivers of these changes, see Mirowski, 2011 and Coriat, Weinstein, 2012 (see also footnote 23 below for more). In particular, it must be noted here how the renegotiation – in both legislative and jurisprudential terms – of the condition of nonobviousness has been one of the key factors allowing for the traditional distinctions between products of human creativity and the realm of nature, together with the previous exclusion of generic scientific knowledge from the domain of patentability, to be transcended (Orsi, 2002; Orsi, Moatti, 2001;

Mirowski, 2011). These processes are part and parcel of the recent quantitative and qualitative extension of the domain of IPRs (discussed in footnote 1) and, ultimately, of the contemporary commercialisation of scientific activity in the U.S. and beyond (Mirowski, 2011; Coriat, Weinstein, 2012).

Thus, they cannot be simply and casually dismissed, as does Foray (2006, p.133), as excesses following from the mere flexibility and ambiguity of IPRs regimes.

Foray (2006, pp.142-144) also recognises two issues which are widely acknowledged as negative aspects of patents: in the case of interdependent and cumulative innovation, patents with a broad scope give high rewards to the first inventor, blocking possible subsequent research in the field by providing the incentive for “races to patent”, reducing the diversity of innovators and the probability of cumulative developments; further, if a single innovation is covered by too many patents, this will result in a ‘proliferation of blockages’ (Foray, 2006, p.144) which will ultimately lead to underutilisation of resources as in a typical anti-commons problem, as originally conceptualised by Heller (1998) and Eisenberg (Heller, Eisenberg, 1998). Both situations deter innovation and stifle dynamic efficiency.

innovation) are seen as beneficial for society because they function as an ex post valuation mechanism and, therefore, avoid the necessity of complex ex ante evaluations by charging the costs of the patent system on consumers (i.e. those who benefit directly from the innovative activity) as opposed to taxpayers (Foray, 2006).24 However, by granting exclusive rights of exploitation, albeit limited in time, patents entail the creation of monopolies. While the latter’s intensity and onus for society can be mitigated (at least conceptually) by tinkering with patent duration, breadth and scope (Nordhaus, 1969; Scherer, 1972; Gilbert, Shapiro, 1990; Merges, Nelson, 1990; Klemperer, 1990), judged from the standpoint of welfare economics, patents will nonetheless generate a deadweight monopoly loss (Foray, 2006). Further, as solution to the ‘main dilemma’ of the KBE (Foray, 2006, p.113), patents are also presented as an imperfect mechanism bridging the trade-off between static and dynamic efficiency (see, for example,

Stiglitz, Walsh, 2006, pp.457-458 for the canonical textbook treatment of patents in this light):

if, on the one hand, patents confer monopoly power to firms (thus creating distortions in the economy) and restrict from using and exploiting knowledge those who could have done so in their absence, on the other hand, they are seen as a key component in providing appropriate incentives for innovation, which (from the standpoint of mainstream economics) would be underprovided in their absence.

It is worthwhile to note here that this conception of dynamic efficiency as the appropriate balance of ‘short-run concerns (static efficiency) with long-run concerns (focusing on However, although he admits the quantitative and qualitative evolution in patenting trends (Foray, 2006, pp.149-154), for Foray (2006), the problems above are simply exemplary of ‘abuse[s] of how patents are used’ (p.145), leading to high transaction costs (pp.154-156) in the economy. A different view, which highlights the structural and historically-given character of these phenomena, their interaction with the changing interpretations of the conditions for patentability, and their role in the contemporary material organisation of the economy can be found in: Mirowski, Van Horn, 2005;

Mirowski, Sent, 2008; Mirowski, 2008, 2011; Coriat, 2002a, 2002b; Coriat, Orsi, 2002; Coriat, et al., 2003; Coriat, Weinstein, 2012; Orsi, 2002; Orsi, Moatti, 2001; Orsi, Coriat, 2005, 2006. The structural nature of these phenomena can be gauged from the coming into existence of so-called “non-practising entities” (or “patent trolls”, Mirowski, 2011, p.148), i.e. ‘players whose activity consists of the mass purchase of patents, not to use them, but, based on carefully organized monitoring, to take out lawsuits against alleged infringers with the sole aim of obtaining financial compensation. Faced with these new players … other organizations have developed a business model based on the preventive purchase and pooling of licences. The access to and benefits from this preventive action are supplied (in return for the payment of an annuity) to companies and organizations wishing to protect themselves against attack from’ non-practising entities. ‘The result is a booming market in the race to litigate and/or to avoid litigation, a market driven by specialized firms, none of which have any intention of using the licences they trade for practical inventions’ (i.e. “working” the patent) or actual production of goods and services (Coriat, Weinstein, 2012, p.286).

But see Stiglitz, 2008 for discussion of the distortionary and ethical shortcomings of this way of

financing innovation (which amounts to a “benefit tax”) in the case of the pharmaceutical industry:

‘within the context of any utilitarian or Rawlsian social welfare function, (or any of the other generally accepted views of social justice), a benefit tax for medicine cannot be justified. There are other public services in which a benefit tax might be justified, but not in the areas of lifesaving medicines’ (Stiglitz, 2008, p.1714).

encouraging R&D)’ (Stiglitz, Walsh, 2006, Glossary, A-3) implies the reduction of the processes and practices characterising innovation, learning, technological dynamism and the like, together with their embedding into wider socio-economic structures, to the sole dimension of intertemporal allocation of resources. Such simplistic conception of dynamic efficiency is a prelude to the superficial incorporation of Schumpeter’s ideas (not least that of creative destruction) within endogenous growth theory (see below). Further, it must be emphasised how the depiction of innovative activities and processes provided above is far from being complete or realistic in the context of a capitalist economy. For, leaving aside the issue of what motivates individual researchers and inventors beyond (mechanically understood notions of) incentives (pecuniary or not), and which can variously draw from, and across, the political, the ethical and the aesthetical, various systemic issues, forces and processes are neglected and overlooked in the public good problem presented above.

Firstly, historical evidence shows that actual socio-economic development has happened often in the absence, if not direct violation, of (more or less well-specified) IPRs, through ‘shameless copying and stealing of technologies, knowledge, and experts as a way of evading the attempted lock on trade and development by the advanced nations’ (Mirowski, 2011, p.185;

similarly: Chang, 2001, 2003a; Beaud, 2010). Secondly, following the work of Schumpeter (1911, for example), it is well known that innovations come in gales of creative destruction, and techno-economic revolutions and paradigms sustained by the complex dynamic interactions of various agents of change (suppliers, producers, consumers, the state, financial capital, etc.) and backward and forward linkages (Freeman, Louçã, 2001; Perez, 2003, 2010).



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