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November 18, 2008

[berkman] Michael Heller

Michael Heller, from Columbia University, is giving a Berkman lunch-time talk on his book, Gridlock Economy. He says the nutshell version is that when too many people own pieces of one thing, no one can use it. Too much ownership creates gridlock, he says. [Note: I’m live-blogging, getting things wrong, missing stuff, introducing typos, etc.]

Example of gridlock: Too many owners of fragments of mortgages leads to a meltdown because there are too many people for renegotiation of the loans.

Another example: Too many patents to deal with to make advances in bio-tech. There are about 40,000 DNA patents now. Patents have gone up, but fewer “pills in bottles” to cure people. The patents are upstream from the work done to actually save people’s lives.

Another example: “What is the most underused natural resource in America?” A: Spectrum. 90% in this country is dead air. We haven’t updated our allocation system since the 1920s. Geographic licenses with restricted uses and no transfers. That makes it extremely difficult to assemble national wireless networks. We are now almost out of the top twenty for broadband.

Another example: Why do we waste so much time in airports? Why not build more runways and airports? Air travel was deregulated in 1978, and since then only one new airport has been built. If we have 25 new runways, it would end gridlock. But every community is able to block the assemblage of land you need.

We could move from 1% to 20% of energy from wind power, but we can’t set up the transmission from one place to another because of gridlock issues.

Rap no longer raps over samples. Gridlock caused by the recording industry “trying to monetize every shard.”

All of these problems are the same problem. There used to be a fairly tight link between the patent and the product, the land and the subdivision, etc. “That’s the old style economy.” The new style is a funnel. The new style economy is about assembling resources. “The breakthroughs come from assembling multiple pieces of protected property.” The same is true in arts, history, documentaries. “The cutting edge is mashups, is remixes.” “Even with land, the most socially valuable projects require the separate assembly of pieces of property.” But ownership has not caught up with this.

One of the great opportunities is figuring out new tools for assembling resoures, and for updating the structure of ownership to conform to the new structure of innovation.

Tragedy of the commons is that when there’s no clear ownership, shared property may get overused. This was a powerful concept when it was introduced in the 1960s. I was a turning point for the environmental movement because they could see that a bunch of resources issues were really structurally the same. It was also the spur in the push towards privatization: Private property was seen as the solution to the tragedy of the commons: If you own the lake, you have an incentive not to take the last fish out of it. But, privatization can overshoot. But, you can get the tragedy of the anti-commons: Too many owners and not enough use. These tragedies are often invisible: you don’t see the waste of what you’re not using.

Michael’s aim is to make the tragedy of the anti-commons visible by roping together many instances to show they’re structurally the same.

We need to reform spectrum allocation, he says. Patent hasn’t been structurally reformed since 1952.

Q: Pharma and biotech disagree on patent policy. Pharma is more like to change its view. Why?
A: Pharma wants to protect its current pipeline, so it tends to favor strong patents. They are willing to sacrifice more speculative research. Biotech companies like to show VCs that they have patents. They worry about weakening patents.
A: [Jim, who’s written a book on this] Molecules are clearly identifiable. But it’s much harder with software and prcoesses.

Q: [jim] The biotech’s having problems, not mainly because of patents. The joke is that a biotech’s main products are patents. That aside, where’s the evident than the anti-commons is a real problem?
A: So far the best evidence is from Walsh, Cohen. They interviewed scientists who said the anti-commons is not a problem. They’re not blocked by patent law. So, this goes against my thesis. But, those studies wouldn’t get at my concerns. Scientists uniformly say that they simply pirate dozens of patents. That works until they get sued. And the Walsh study doesn’t consider commercial R&D. In pharma, they’d rather extend their current drugs. I don’t think I’ve proven that gridlock is the crucial issue, but it seems to be an issue. By not changing the patent law you’re implicitly making policy as well.

Q: Does what you describe impact innovation driven by money or across the board?
A: Across the board. The open source model gets past this. But even assembling multiple open source licenses can lead to gridlock.

Q: We had an open source CEO summit at Harvard last Friday. There was consensus that this more open approach to sw development would help them economically. Between the commons and the anti-commons, is there a commons that isn’t tragic?
A: Sure. My aim is to encourage people to come up with ways of overcoming the problems, once the problems are visible.

[yochai benkler] This is fabulous. Can you say more about what you think the solution is?For anti-commons to be the problem, you have to assume the problem isn’t with property itself. Is the solution a better idea of property? A better understanding of rights? Transaction costs? Is this about the rapid change of uses so you’re always be behind? How do we move ahead? E.g., what do we do about spectrum? How do you tell what to do? Can you think about this independent of the particular resource?
A: So, Yochai in a polite way is saying, “So what? What do we do about it?” E.g., we all agree that the current telecom model is terrible. Everyone loses. Should the solution be full privitization or a commons? If we have a technological way to get past the scarcity of spectrum, then creating private property is the wrong solution. The freedom-enhancing way is to have a commons, if we can get past scarcity. I am agnostic about this because I don’t know if we have solved the problem of scarcity. But I hope my book moves the debate forward by providing another way of showing what’s wrong.
Q: [yochai] I think the solutions lie in the particulars of the domain. The range for me is models of appropriate based on relations (software services) relative to appropriate based on units that are relatively stable. For me, the anticommons problem is a subset of the spectrum problem, in which rapid innovation renders obsolete. The real problem is that spectrum isn’t a resource. Information doesn’t fall on the floor and get lost.

Q: The public is acquainted with gridlock but frame it through government ownership or intervention, with gridlock arising from regulation. How does your framework frame intervention?

Q: In pharma, ownership incentivizes development. Can you break gridlock into communication and action? You can tell people that the 12 owners of a patent that they’re blocking development. Action would be getting them to do something about it. How do you decide whose valuation is more important?

Q: To what degree is the gridlocked society a description of a set of problems or whether it’s a metaphor. If the latter, where does it get too broad? My mortgage doesn’t really resemble my ideas. What’s the larger mechanism here?

A: On politics: There are lots of areas we deliberately design in gridlock, e.g., criminal justice system or preventing parks from being developed. There’s also regulatory gridlock that stops anything from being built.
On limiting scarcity: When is the right measure the subjective one that lets someone refuse to give up property, and when should you just have to pay the market price? It’s an old question and I don’t have a general answer.
Is it a metaphor? I think there’s more commonality in these diverse areas of the economy. So it’s partially an organizing metaphor, but it’s also meant to describe a new way the economy works. [Tags: ]

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