Copyright is Still Essential to a Free Market in Creative Works

In the modern digital era, strong copyright protection is still an essential component of a flourishing free market in creative works.  Viewed properly as a property right in creative works, copyright is fundamental to economic freedom in our creative economy.  Criticisms of copyright have flooded the public policy debate in recent years.  Proponents of weakening or eliminating copyright protection argue that copyright is outdated in the digital age, and that given the ease with which creative works can be distributed and shared online, creators today no longer need robust copyright protection to incentivize the development of creative works.  Arguments against strong copyright protection hinge on the belief that copyright should be treated differently from other property rights, eschewing the traditional “right to exclude” in favor of the public’s right to access or use the creative works of others.  But the arguments for weakening copyright overlook copyright’s fundamental role in fostering a vibrant creative economy – a role that is every bit as important today as it was before the digital revolution.

Proponents of scaling back copyright protection claim that a robust, property-based copyright system is undesirable because (1) it is not needed to incentivize the production of creative works, and (2) it harms the public by unduly restricting people’s right to access and use creative works.  Putting aside several inherent flaws in this reasoning (including the implicit assumption that having to pay for creative works will unduly restrict access, as well as the general disregard of individuals’ property interest in the fruit of their labor), this argument fails from an economic standpoint because it ignores the fundamental function of copyright in developing and maintaining the market mechanisms that facilitate not just the creation, but also the commercialization and distribution of creative works.  The approach also fails because it assumes the continued production of valuable creative works at economically optimal levels without a basis for such an assumption.  Furthermore, focusing primarily on the incentive to create, while ignoring copyright’s larger economic role in supporting a free market economy for creative works, overlooks a critical function of copyright protection.

It is particularly surprising when libertarians and conservatives, traditional champions of the free market, echo this flawed analysis and ignore copyright’s broad role in promoting an efficient market for creative works.  In general, conservatives and libertarians recognize that strong private property rights form the foundation of a free market economy.  Property rights are pre-market – they are essential building blocks of economic freedom, and without strong property protection it is difficult to imagine an efficient capitalist market for any set of goods or services.  Yet, when it comes to intellectual property (and copyright in particular) some libertarians and conservatives are willing to join forces with the far left in assuming that a vibrant economy for creative works can occur in the absence of strong property protection.

One common approach focuses on the idea that property-based copyright protection is unnecessary given the efficiencies and new potential business models of the digital age (sometimes bolstered by the argument that it is simply not possible to enforce intellectual property in the internet age).  Underlying this thinking is the implicit assumption that, because of their failure to adjust their business models away from reliance on copyright, creators themselves are responsible for today’s rampant digital theft.  The Mercatus Center’s recent piracydata.org project is a good example of this mindset.  The project does nothing more than lead us to the unsurprising conclusion that people are more likely to steal content that is not easily available by legal means.  As Jerry Brito (the project’s chief architect) explained to the Washington Post, Hollywood could change its business model to combat their piracy problem, and if they choose not to do so they have “no business complaining” about technology companies that facilitate digital theft.  This kind of reasoning echoes back to arguments from a decade ago that technology could serve as a “partial replacement” for copyright protection.  One need only look at the current state of our creative industries to see how well technology has “replaced” copyright in protecting the free market economy for creative works.

Despite repeated calls to weaken or eliminate the property-based copyright system, there are no clear alternative legal models that would maintain a functional economy for the creative industries.  Lessons from real-world examples of weakly-enforced copyright regimes, where piracy is rampant and royalty payments and licensing fees are rare, further underscore this point.  As Mark Schultz’s and Alec van Gelder’s research on creative development in Africa has revealed, lack of strong, effectively-enforced copyright laws can have a devastating effect on a country’s ability to develop economically functional creative industries.  As a result, creative industries remain heavily “underappreciated and underexploited,” with tragically low gross domestic product yields.  In some countries, musicians have even resorted to “noisy street protests and personal confrontations with pirates” to address the destruction of their livelihood by piracy and their countries’ failure to effectively support the creative industries. This stands in stark contrast to thriving creative upstart economies supported by strong copyright protection.

Another popular belief among opponents of property-based copyright protection is that alternative business models can effectively replace copyright and support an efficient free market for creative works.  For example, some argue that the music industry will evolve to a point where copyright is no longer relevant because recordings will be freely shared and live performance fees will fuel the creation of new music.  As Mark Schultz illustrates in his thoughtful study of the role of live performance in the music industry, this belief is sadly mistaken.  The live performance business model is not lucrative enough to support significant production of freely-distributed recorded music.  Rather, weaker (or non-existent) copyright protection would likely result in a loss “of the variety and vitality of the music market,” and artists who can’t generate enough touring revenue or alternative income would likely simply leave the industry.  The argument that changing business models can supplant copyright is even more absurd in the context of the film industry, where creative works are significantly more expensive to produce and often involve the joint effort of hundreds of people.

Inefficiencies are also common in models that tend to overregulate or distort the free market for creative works.  Compulsory licensing regimes introduce the inefficiencies of statutory rate-setting, where pre-set compensation can easily distort the free market pricing of creative works.  Such systems also notoriously lend themselves to rent-seeking efforts to influence rates.  Culturally protectionist state patronage models, such as certain European countries’ models for financing film production, likewise disrupt free market efficiencies in the creative economy.  By diminishing the link between creators and audiences (i.e. supply and demand), these models create a vicious cycle of falling revenues, diminished private funding, and low-quality creative works.

Lastly, even granting the assumption that in the absence of strong copyright protection creators would continue to produce an optimal level of valuable creative works, the lack of copyright protection would still disrupt the efficient commercialization of those works.  Adam Mossoff’s analysis of copyright in the context of scholarly publishing provides a good example in this regard.  Some scholars and scientists conduct research and produce work without incentives from potential copyright royalties.  Instead, they may be motivated by academic recognition, career placement, awards, or pure scholarly curiosity.  Copyright critics would argue that this is a perfect example of an area where copyright protection is unnecessary to the extent that it does not incentivize the production of these scholarly works.  What this analysis fails to consider, however, is copyright’s essential role in supporting the free market distribution of reliable scholarly works.

Compounding the problem is the mistaken belief that in the modern “digital age” publication and distribution of high-quality creative works is free.  In fact, as Adam Mossoff’s research finds, the infrastructure supporting digital distribution of scholarly articles is very expensive.  Publishers of digital scholarly works have invested hundreds of millions of dollars ex ante to establish mechanisms to efficiently deliver published research to scholarly consumers (including mobile platforms, websites, and other technology), and strong copyright protection in the underlying works is essential to protecting publishers’ investment in these innovative new distribution mechanisms.  Thus, even in rare cases where copyright may not provide an incentive for the initial creation of certain works, copyright is still essential to support the efficient free market for distributing those works.

In conclusion, even in today’s digital age, strong property-based copyright protection remains an essential component of our creative economy.  It is the bedrock supporting the free market for creative works, and it is vital to maintaining the market mechanisms that promote the creation, commercialization, and distribution of creative works.  Repeated calls to weaken copyright (and accompanying suggestions of alternative legal or business models) routinely ignore copyright’s fundamental economic importance.  Conservatives and libertarians that hold free markets in the highest esteem should be particularly sensitive to this.  Efficient free markets cannot occur without strong underlying property rights, and weakening copyright would thus undoubtedly hurt our creative economy.