Sunday, January 04, 2004

The Economics of Farm Subsidies and IP Laws

Like many others, I read Wired. I have to applaud two recent additions: the short columns by SF author Bruce Sterling and Professor Lawrence Lessig.

In Lessig's most recent piece he discussed the nature of United States farm subsidies and the harm that they cause for food producers in the developing world. Lessig went on to suggest that these nations adopt loose copyright law and become the sort of IP robber nation that the United States became with the passing of the US Copyright Act in 1790.

It's a great idea, but are the economics there?

As indicated on his blog, Lessig incorrectly identified the level of subsidy as $300-billion annually. A more accurate figure is provided by the Environmental Working Group. The top 20 subsidy programs in 2002 totalled an impressive US$11.7-billion. Does the potential IP theft of the developing world compare to such a number?

For a possible comparison, we can explore the IP policies of several countries involved in a recent shrimp fishery issue. It seems that US fisherman are asking Washington to place tariffs on products from Thailand, China, Vietnam, India, Ecuador, and Brazil. Could these countries protest with lax IP law? Maybe they could introduce robber nation licensing rules for software?

Here are some numbers from the Economist Intelligence Unit's 2002 Country-by-Country reports:

-level of software piracy: 77%
-Retail losses from software piracy: US$41.1bn (!!! Seems high. Total foreign direct investment for 2000 was US$3.36bn. Assume million rather than billion)
-level of software piracy: 92%
-Retail losses from software piracy: US$1.66bn
-level of software piracy: 94%
-Retail losses from software piracy: US$32.24m
-level of software piracy: 70%
-Retail losses from software piracy: US$365.31m
-level of software piracy: 62%
-Retail losses from software piracy: US$8.48m
-level of software piracy: 55%
-Retail losses from software piracy: US$396bn (!!! Seems high. Total foreign direct investment for 2000 was US$32.7bn. Assume million rather than billion)

For comparison, here are Canada's numbers:

-level of software piracy: 39%
-Retail losses from software piracy: US$306.5m

Based on these numbers, it seems that these developing countries are already IP robber nations. Furthermore, if these countries somehow managed to improve their levels of software piracy to Canada's and then used their new clout to bargain with the US, the total retail loss is still only about US$1.3-billion. And US$1.3-billion is a lot smaller than the total farm subsidy of US$11.7-billion!


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