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Information Wants to be Free, but People Still Need to Get Paid 1:02 pm By Arnold Kling Creation vs. Distribution in the Front-Loaded Economy:
In today's economy, value is being created by undertaking research and development. This in turn leads to solutions that cost relatively little in terms of traditional factors of production. Incentives are needed in order to promote research and development. However, if marginal efficiency were the over-riding consideration, goods and services would be free or nearly so. Thus, we have the paradox that (the distribution of) information wants to be free, but people who engage in research and creation need to get paid. New economic arrangements, including broad-based clubs and research prizes, need to be developed. In the Internet era, many of the most bitter struggles over commerce and policy are being fought because of the potential to offer valuable goods and services for free. For instance:
Beyond these immediate cases loom several other issues of products and services where research and development costs are high, but the marginal cost of the final product or service is low.
The Front-Loaded EconomyWelcome to what we might call the "front-loaded" economy. That is: an economy in which most of the expenses involved in providing goods and services are front-loaded in the form of research and development - once the product or service has been designed, it can be provided at a marginal cost at or near zero. In the front-loaded economy, there is a case for consumers to expect goods and services for free. Consumers--who think that they should be able to swap songs for free, use pirated software, or obtain medicines at a competitive price without paying a markup to patent holders--are not entirely wrong. The most efficient allocation of goods and services is obtained when the price is equal to marginal cost--and if the marginal cost is zero, so be it. On the other hand, musicians, software programmers, and drug researchers--who think that they are entitled to compensation for their efforts to obtain and apply their skills--are not entirely wrong. If research and development is not rewarded, then there is no reason to expect people to create the most valuable products and services. The Role of GovernmentThe front-loaded economy raises issues of public policy that may exacerbate the polarization between liberals and conservatives. For those who tend to view government as an instrument of the public good whenever the free-market outcome may be flawed, the front-loaded economy begs for more government intervention. For those who tend to see government as providing an instrument by which status quo interests can impede change, the front-loaded economy is a reason for keeping government hands off. Liberals consider the role of government in the front-loaded economy and see opportunities.
Conservatives consider the role of government in this environment and see threats.
New Economic ArrangementsOur existing economic arrangements may not be adequate to address the issues posed by the front-loaded economy. I fear we could get stuck in an unproductive tug-of-war between producers and consumers over issues of copyright, patent, and licensing. New arrangements are needed in order to resolve the paradox that information wants to be free but people need to get paid. Possible arrangements include:
Whatever new arrangements emerge, we can predict that they will do two things. First, they will reduce marginal cost to consumers for goods and services. Second, they will provide rewards to those who engage in research and creativity. Copyright 2002 Corante. All rights reserved. Terms of use |
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