"A conscious decision": How Copyright Sold Out U.S. Industry

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Good evening. This is
Radio Free Beszel.

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I am Alphonse. Tonight:
Intellectual property

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and inequality. I'm going
to start with a

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clip from the 2008 documentary,
RiP: A Remix

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Manifesto. I think it speaks
for itself. "In

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the Clinton administration
my my job was to be

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in charge of the intellectual
property policy of

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the United States, both
domestically and in terms

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of our diplomacy. You know,
in a modern economy I

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think wealth is in the products
of the mind. It's

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really in intellectual
creations. You know in

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much of the world we live
in a sea of piracy,

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and you know you can
have sympathy for

0:45
developing countries:
but we made a deal.

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You know if you go
to a shopping mall

0:51
in this country you
cannot buy anything

0:54
made in the United States
anymore. It all

0:56
comes from China or some
other place like that.

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Well, the reason for that
is we've completely

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opened up our markets. It
was a conscious decision

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to basically abandon low-wage
manufacturing

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jobs, and the idea
is that we would

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compensate for that with
higher wage high

1:14
tech information more intangible
based jobs."

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I was stunned when I saw this.
Here's Bruce Lehman

1:23
saying basically: We sold
out half the country.

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He's also saying that he's
surprised at China. And

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I'm going to digress on this
for a moment because

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you have to understand China's
position here. The

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countries that have become
rich and industrialized

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did it in periods of weak
intellectual property

1:39
protection. The united states
was infamous for

1:42
piracy back in the day. When
Taiwan, Japan, Korea

1:46
rose up, there wasn't a lot
of protection; Europe

1:50
certainly not. In fact, patent
law was originally

1:53
created to tempt craftsmen
to bring techniques to

1:57
England. They were then rewarded
with exclusivity

2:00
for 14 years - the period
of two apprenticeships.

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But in the 1980s and 90s
the United States

2:07
changed direction and decided
that intellectual

2:09
property was the future,
and this is the regime

2:13
it tried to impose on China.
China's many things,

2:16
but they're not stupid.
They understood the

2:19
deal. The deal was, We'll
let you into the

2:22
international economy
and you can make

2:24
things, but that's all
you will ever do.

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Say Apple's making an
iPhone. Apple has the

2:29
design. They own the
intellectual property.

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They go to China and they
find the cheapest

2:34
producer that will manufacture
it. The Chinese

2:37
manufacturer provides the
materials, the capital,

2:41
the machinery, the labor,
and Apple provides the

2:45
design - which they can
copy infinitely at zero

2:48
cost once they've created
it. So eventually

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Apple is making big chunks
of free profit and your

2:55
low-cost Chinese producer
is making just a sliver.

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And even after they've
made millions

3:01
of phones it'll still
belong to Apple,

3:04
and none of it will belong
to China. What

3:07
would you do if you were
offered that deal?

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You can stay out of the the
world economy and stay

3:14
poor, or you can sign on
the dotted line. Well,

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China did the natural thing
- the best thing for

3:21
their people. They signed
on the dotted line and

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then they they didn't follow
through. And Bruce

3:27
Lehman is shocked that
this is what they did.

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It blows my mind.
But then look

3:33
what happened to the
United States.

3:38
When he says that they abandoned
manufacturing

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jobs for high margin
information jobs,

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what he really means is
that they abandoned

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uneducated workers for
college-educated workers.

3:53
Just over 40 percent
of American students

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go to college - about
two-thirds of those

3:59
who graduate high school.
That means

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that sixty percent of
Americans don't.

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This is an economy
that locks out

4:07
sixty percent of
the population.

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Now it used to be not
that many people

4:13
went to college. Might
be ten percent.

4:15
But if that's the case
you don't have a big

4:17
problem, because if you've
got ten percent elites

4:19
and ninety percent of everybody
else then at least

4:21
if you're everybody else
you're the majority.

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It's still your country.
But when those elites

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are forty percent of the
population and you're

4:27
not in that 40 percent,
you're just plain left

4:30
behind. And I'm not talking
about the Rapture.

4:35
You know that college
education is the best

4:38
predictor of United States
voting patterns.

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It's not geography. It's
not age. It's not

4:46
wealth or income. It's
education. No shock.

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There are further dynamics
that the information

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economy creates. In the
economy of things,

4:58
economic activity is pulled
out across the

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map because you put industry
where there

5:05
are resources. So there's
a little city here

5:07
because there's mining. There's
another one over

5:10
there because of forestry.
Another one here

5:12
for agriculture. And there's
another city here

5:15
at a crossroads. And so
forth. And so economic

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activity and population get
drawn across the map.

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What's the resource you
need in the information

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economy? It's people. So
the place you want to go

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is a place where there
are lots of people -

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lots of educated people,
lots of experts. The

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big cities. And the more
of these people who go

5:39
there, the more valuable that
location becomes. So

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there's a concentration and
that forces up prices

5:47
to live there. So a few cities
become winners and

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they have steep price curves
for rent and housing

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from the center declining
towards the fringes,

5:57
and all the small cities
and the edges

6:00
outside the cities
not very valuable.

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It's a winner take all economy
in another way,

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which is in an economy of
things everything has

6:11
some value. Say you have
a car company and they

6:14
make mediocre cars. They're
really not very good,

6:18
but they've got lots
of them those cars

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are still valuable. You
get one of those

6:22
cars it'll take you where
you want to go.

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There are resources invested
into that car,

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so even if it's not the best
car you might still want it.

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But what about instead of
cars we're talking about

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software or movies or music.
If you're going to

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listen to a song, you're
going to listen to the

6:43
best one, right -I mean
depending on your taste

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there might be lots of
best ones, but it's

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a tiny fraction of those
that are produced.

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The same for movies.
A small number of

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movies make the lions
share the profits.

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Part of the reason they
do that is success

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breed success, just
like the cities.

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If the city has lots of
people in it, more

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people come because the
more people come

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the more valuable it becomes.
The same is true

7:08
of properties like Star
Wars. The same is true

7:10
of platforms like iOS
or Android. The same

7:13
is true of social media
sites like Facebook.

7:18
So it's a winner takes
all economy. It's a

7:20
winner takes all economy
because the dynamics

7:23
of popularity, and because
if you're given a

7:26
choice and the manufacturer
can sell something

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that they copy for free,
because every additional

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copy or every additional
customer is basically

7:33
free, then they can price
it to get the mass of

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the market. And there's no
point for second best.

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If there are ten products
competing in a

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space like this and one
of them is the best,

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that one's gonna win.
There might be

7:48
room for a number
two that's cheap:

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and after that forget it.
It's like Hollywood, a

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town full of beautiful young
women waiting tables,

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or so I hear, and a few who
turn into superstars.

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The information economy
is a superstar economy,

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a winner-take-all economy,
where a few companies,

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a few cities and a few
individuals get the lion's

8:14
share of the profits.
And from there

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it's a steep curve
all the way down

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until you hit the people
who are completely

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shut out because they didn't
have the education.

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And I should say about
that, not everybody's

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capable or suited
for university.

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Not everybody's suited
for programming many

8:31
of the top academic experts
and programmers

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say that maybe 10
percent of people

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are basically born
with the talent.

8:38
And I've met young people
who were never going to

8:40
be programmers because they
just didn't get it.

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They don't think that
way, they think a

8:44
different way. There's nothing
wrong with that

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but it's not for them. And
I've seen students at

8:48
university who really shouldn't
be there because

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they don't think that
way either. These

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might be the best people
you could have

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for a job - they might be
honest, hard working,

8:57
creative - and they're not
that kind of smart.

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We talk so much about
diversity, but

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we've got an economy
that doesn't favor

9:05
diversity because there
are huge chunks of

9:07
the population that are
ill-suited for it.

9:10
We may be able to push
some of them through

9:12
the college system in areas
that aren't that

9:14
strenuous, but the reality
is they know they're

9:17
going to be hanging on
by their fingernails.

9:22
So the United States
made a deal

9:24
with China, not thinking
it through

9:26
from China's perspective.
So they didn't

9:29
realize that China must
logically cheat.

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They sold out a big chunk
of their population

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and they end up in a situation
where they lack

9:39
manufacturing capability
- which it turns out is

9:43
actually quite bad because
when you're iterating

9:46
on innovating new products,
you may think

9:48
we've got the ideas, the
designs, the patents,

9:51
the copyrights, but it
actually really helps

9:53
to be able to make the thing
too. It turns out

9:57
that the iteration is faster,
innovation is better

10:01
when you can actually do the
full circuit. And now

10:04
the U.S. is dependent on
China for key elements

10:08
even in fundamental things
like military. They

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have a population that at
the top end is divided

10:15
among people who are competing
for a few spots in

10:19
top high status jobs - andIi'll
talk about that

10:21
in another episode. And you
have a massive people

10:24
at the bottom who know they've
been shut out of

10:26
the economy even if they
don't know exactly how.

10:30
This economy has worked
out for the winners.

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It's worked out spectacularly
for the winners.

10:37
Inequality is through the
roof and things are

10:41
falling apart. And it's
not an accident. This

10:45
plan for the information
economy is socially

10:47
destructive, economically
destructive,

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and this moment when Bruce
Lehman spills the

10:54
beans for me is the moment
of the smoking gun.

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This is Alphonse for Radio
Free Beszel. www.beszel.ca.

11:06
Good Night.