Radio Free Beszel

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

Alphonse Season 1 Episode 3

"My job was to be in charge of the intellectual property policy of the United States . . . if you go to a shopping mall in this country you cannot buy anything made in the United States anymore. It all comes from China or some other place like that. Well, the reason for that is we've completely opened up our markets. It was a conscious decision to basically abandon low-wage manufacturing jobs, and the idea is that we would compensate for that with higher wage high tech information more intangible based jobs." - Bruce Lehman.

 Making copyrights and patents, not things, produced a few winners and many losers. Inequality skyrocketed. Politics polarized. Small towns hollowed out, while in major cities house prices went through the roof. It was not China's fault. China was made an offer they couldn't refuse: making and breaking the deal was the only rational choice for the Chinese people. In America's new winner-take-all economy, a few Americans won - but America lost. It was a deliberate choice by the winners.

See the documentary, RiP: A Remix Manifesto. Next week: Hitler's Students
See the documentary, RiP: A Remix Manifesto.

0:01
Good evening. This is
Radio Free Beszel.

0:04
I am Alphonse. Tonight:
Intellectual property

0:08
and inequality. I'm going
to start with a

0:12
clip from the 2008 documentary,
RiP: A Remix

0:16
Manifesto. I think it speaks
for itself. "In

0:20
the Clinton administration
my my job was to be

0:24
in charge of the intellectual
property policy of

0:26
the United States, both
domestically and in terms

0:28
of our diplomacy. You know,
in a modern economy I

0:31
think wealth is in the products
of the mind. It's

0:35
really in intellectual
creations. You know in

0:38
much of the world we live
in a sea of piracy,

0:42
and you know you can
have sympathy for

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

0:49
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.

0:59
Well, the reason for that
is we've completely

1:02
opened up our markets. It
was a conscious decision

1:04
to basically abandon low-wage
manufacturing

1:08
jobs, and the idea
is that we would

1:11
compensate for that with
higher wage high

1:14
tech information more intangible
based jobs."

1:19
I was stunned when I saw this.
Here's Bruce Lehman

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

1:26
He's also saying that he's
surprised at China. And

1:28
I'm going to digress on this
for a moment because

1:30
you have to understand China's
position here. The

1:33
countries that have become
rich and industrialized

1:36
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.

2:04
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.

2:27
Say Apple's making an
iPhone. Apple has the

2:29
design. They own the
intellectual property.

2:32
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

2:51
Apple is making big chunks
of free profit and your

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

2:59
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?

3:11
You can stay out of the the
world economy and stay

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

3:18
China did the natural thing
- the best thing for

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

3:24
then they they didn't follow
through. And Bruce

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

3:31
It blows my mind.
But then look

3:33
what happened to the
United States.

3:38
When he says that they abandoned
manufacturing

3:41
jobs for high margin
information jobs,

3:44
what he really means is
that they abandoned

3:48
uneducated workers for
college-educated workers.

3:53
Just over 40 percent
of American students

3:56
go to college - about
two-thirds of those

3:59
who graduate high school.
That means

4:01
that sixty percent of
Americans don't.

4:05
This is an economy
that locks out

4:07
sixty percent of
the population.

4:11
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.

4:23
It's still your country.
But when those elites

4:25
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.

4:42
It's not geography. It's
not age. It's not

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

4:52
There are further dynamics
that the information

4:55
economy creates. In the
economy of things,

4:58
economic activity is pulled
out across the

5:02
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

5:18
activity and population get
drawn across the map.

5:24
What's the resource you
need in the information

5:27
economy? It's people. So
the place you want to go

5:30
is a place where there
are lots of people -

5:33
lots of educated people,
lots of experts. The

5:35
big cities. And the more
of these people who go

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

5:42
there's a concentration and
that forces up prices

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

5:51
they have steep price curves
for rent and housing

5:53
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.

6:05
It's a winner take all economy
in another way,

6:08
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

6:20
are still valuable. You
get one of those

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

6:25
There are resources invested
into that car,

6:28
so even if it's not the best
car you might still want it.

6:33
But what about instead of
cars we're talking about

6:37
software or movies or music.
If you're going to

6:40
listen to a song, you're
going to listen to the

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

6:46
there might be lots of
best ones, but it's

6:48
a tiny fraction of those
that are produced.

6:51
The same for movies.
A small number of

6:53
movies make the lions
share the profits.

6:56
Part of the reason they
do that is success

6:59
breed success, just
like the cities.

7:01
If the city has lots of
people in it, more

7:03
people come because the
more people come

7:05
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

7:28
that they copy for free,
because every additional

7:31
copy or every additional
customer is basically

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

7:36
the market. And there's no
point for second best.

7:41
If there are ten products
competing in a

7:43
space like this and one
of them is the best,

7:46
that one's gonna win.
There might be

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

7:51
and after that forget it.
It's like Hollywood, a

7:54
town full of beautiful young
women waiting tables,

7:58
or so I hear, and a few who
turn into superstars.

8:02
The information economy
is a superstar economy,

8:07
a winner-take-all economy,
where a few companies,

8:10
a few cities and a few
individuals get the lion's

8:14
share of the profits.
And from there

8:16
it's a steep curve
all the way down

8:18
until you hit the people
who are completely

8:20
shut out because they didn't
have the education.

8:25
And I should say about
that, not everybody's

8:27
capable or suited
for university.

8:29
Not everybody's suited
for programming many

8:31
of the top academic experts
and programmers

8:33
say that maybe 10
percent of people

8:35
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.

8:42
They don't think that
way, they think a

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

8:45
but it's not for them. And
I've seen students at

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

8:52
they don't think that
way either. These

8:53
might be the best people
you could have

8:55
for a job - they might be
honest, hard working,

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

9:01
We talk so much about
diversity, but

9:03
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.

9:34
They sold out a big chunk
of their population

9:36
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

10:12
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.

10:33
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,

10:50
and this moment when Bruce
Lehman spills the

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

10:59
This is Alphonse for Radio
Free Beszel. www.beszel.ca.

11:06
Good Night.