Dr Ha-Joon Chang recently gave a talk at the LSE about his book 23 Things They Don’t Tell You About Capitalism. One of his ideas is that the Internet has done less to change the world than the washing machine. It’s a waggish claim, in his lecture he gave it a fond mention.

The claim works like this: the washing machine is short hand for domestic appliances, whose widespread use in the US, Europe and now the world have allowed women leave the home and enter the workplace: surely a huge achievement.

By comparison Wikipedia doesn’t seem so exciting. But what he hasn’t taken into account is that the Internet has a world-changing effect on intellectual property – and for the better.

A societies approach to Intellectual property has to balance two things:

  1. Incentivising companies to invent things by allowing them to earn money from their inventions. Who is going to spend time inventing if someone will immediately copy your idea?
  2. Not allowing companies that have invented something to hold society to random. If someone invents something essential and has a water-tight protection for it they can charge any amount they like for it.

So the optimal situation would be one where every company thought that they were going to make a fortune from their next idea, but as soon as they have the idea they are forced to share it with the world without charging (too much) money for it.

That sounds impossible. You could perhaps fool a company into innovating once, but then after you had forced them to publish the secret of their innovation they wouldn’t bother investing in further R&D.

But what if the innovation was stolen without their knowledge, manufactured in some far off land and then appeared on the market without the original inventor ever quite being sure how the idea got out, or if it had just been developed independently?

If that happened companies would continue to innovate, but without ever earning the huge monopoly profits that come from patent law and industrial secrets – like the disproportionate Tetra Pak fortune, earned by getting a patent on a particular shape of box.

That’s surely just what China’s industrial espionage program represents – a flow of knowledge from West to East, which is allowing China to lift itself out of poverty and making goods cheaper in the West. By all accounts China is hacking into all kinds of companies to steal their secrets.

As Martin Wolf has argued in his book Why Globalisation Works, information is the ultimate non-rivalry good, and it’s flow is a major cause of China’s rise.

And that flow is facilitated by companies in the West keeping their manufacturing secrets on computers connected to the Internet, where people in Shenzen can access them.

And that is why the Internet is more important than the washing machine. Not because of LOLcats, but because it lets information leak into developing countries.

 

 

 

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