An essay in last week's online Business Week:
Tuesday October 25, 01:25 PM
Share the Knowledge, Expand the Wealth
By David H. Holtzman
In this new millennia, Americans are continuing one of the most important business transitions we have made as a nation -- from an economy dominated by manufacturing and distribution of hard goods to one driven by the conception and sale of ideas. The term "atoms to bits" is often used as shorthand to describe this dichotomy.
The prevalence of low-priced, networked computers and associated information technology has created digital cottage industries -- and therefore opportunities in new business areas as well as the disintermediation of traditional market sectors.
by David Holtzman
This is happening at a time when our global economic leadership is being challenged as never before. But as we evolve domestically to meet this international threat, we must avoid the trap of applying Industrial Era principles to businesses enabled by the Information Age -- or face the consequence of becoming inconsequential.
HUNTING AND GATHERING.
The Industrial Era was about the hunt for raw materials and their subsequent transformation into finished goods. Miners, farmers, lumberjacks, and fishermen gathered Mother Nature's bounty and turned it over to factory technicians, who converted it into the wares of industry. Workers mined iron ore, smelted it into steel, rolled it into plate, and shaped the metal into a bumper that was bolted onto a Corvette.
At each stage, the nation's economy benefited from the additive value. The end result of each step was a new commodity that could be purchased and used in any way that the entrepreneur saw fit to add value and realize a profit.
The computer is now the factory of the Information Age -- optimized not for automation but collaboration, and requiring a different legal framework. But key industries, most notably entertainment and software, have bamboozled Congress and much of the public into believing that their wares deserve the same protection that was awarded to say, a patent for blast furnaces in the mid 20th century.
Foragers in the Information Age use computers as their implements. Unlike the Earth, there are no raw materials in the cyber world waiting to be picked at like veins of ore. The Industrial Age was about discovery. The Information Age is about invention.
TRANSFORMATIVE PROCESS.
Manufacturing optimizes for replication. Technology grows from innovation. The 20th century rewarded craft, the 21st century -- art. Businesses based on bits may externally look like those from atoms, but at the behavioral level, they're fundamentally different.
Digital product development is less about aggregation and ownership of raw materials and more about manipulation of facts and ideas, concepts and values, pictures, sounds, video, and numbers -- much of which must be borrowed from the work of others and transformed in some new and hopefully lucrative way.
But without free and easy access to a wide variety of these intellectual resources, our information-based trade goods will be less competitive in the global marketplace because of increased time to market [compliance], fear of innovation [something new like file-sharing networks might be made illegal], and because our regulated goods will cost more -- like Californian cars requiring extra-emissions control gear.
INSPIRATION'S RAW MATERIALS.
What if American industries had to carry this kind of regulatory baggage during their nascent phase? If rights were attached to every primitive material such as a piece of ore and carried through each industrial stage, the shrink-wrap license for an automobile would be thousands of pages long. What might a car like that cost? The industrial cities of America -- Baltimore, Pittsburgh, Detroit -- would never have come into being in such an environment.
Digital factories need to be supplied with large quantities of license-free supplies to grow, just as manufacturing industries needed plentiful and cheap raw material.
The growing strength of the digital economy has been well documented. The percentage of American products based on bits is rapidly increasing in comparison to those made from atoms. Artisans create Web sites and blogs that are viewable by hundreds of millions of readers. Musicians sample digital tracks and incorporate pieces in their own works. Graphic artists build modern compositions by layering on top of the handicraft of others.
CHANGE OF HEART.
Then there's software -- a superb example of collaboration. Software hasn't been built from scratch since the 1960s. Developers use libraries and "object classes" written by others. The distinguishing feature is how the building blocks are used conceptually in applications. The mission of the open software movement is exactly this: keeping critical code free.
If every software component that has ever been created had been legally protected, there would be no Microsoft (NASDAQ: MSFT - news) (MSFT) today. It's disingenuous that the same companies that benefited the most from the work of others are so keen on protecting their own. None of this is new. Professor Larry Lessig, founder of Stanford's Center for Internet and Society, calls this zeitgeist the "commons," drawing a parallel to protected public grazing land in old English law.
But emerging information businesses can be crushed by the heavy-handed pinch of copyright and patent law, especially business-method or software patents. The protections afforded copyright owners have become ludicrous and go way beyond the original purpose of protecting reasonable revenue for the author. The so-called Sonny Bono Law passed by Congress in 1998 extends the lifetime of a corporate copyright up to 95 years or 70 years past an individual's death.
A PLAGUE OF LAWYERS.
It's too early to understand the impact of legal protection of DNA patterns, but if the history of the pharmaceutical industry is any indication, it doesn't bode well for biotech entrepreneurs. Corporate-friendly intellectual-property overregulation is an impediment to the growth of the nascent U.S. digital economy.
The consequences for the U.S. from excessive protection of digital goods are not just ethical or aesthetic. They are financial -- and eventually they will lead to economic isolation. Domestic legal jabber will not halt the planetwide expansion of digital goods, especially in revenue-hungry countries like China.
The fortunes of the future will be made by cooperation and collaboration, not litigation. Share the wealth.
Posted on October 31, 2005
