Monday Message Board

Another Monday, another message board. Post on any topic, civilised discussion and no coarse language please.

Regular reader Observa suggests the topic ‘Is the patenting of living organisms the new face of slavery?’

I’d be interested in comments the more general question of whether the patent system has overreached itself and whether patents now do more harm than good (leading questions, I know).

What I'm reading

The Glass Bead Game by Herman Hesse. Hesse had a huge vogue in the late 60s – along with Charles Dickens and Aldous Huxley, he’s one of a handful of writers to have been the inspiration for the naming of a well known rock group – but he seems to have slipped into obscurity nowadays. Rereading The Glass Bead Game, there’s an obvious similarity with Ursula Le Guin’s Earthsea books, which in turn are reflected in Harry Potter. I’m tempted to say that this is a line of descent in more ways than one, but actually Le Guin stands up pretty well to comparison with Hesse and I’m not going to bag JK Rowling for writing readable massmarket kids books rather than great literature.

Patently right

There’s an interesting piece in today’s Fin (subscription required) about Uni of NSW Vice-Chancellor Rory Hume, who says universities should give away (nearly all) the research they produce rather trying to make money out of intellectual property. I think he’s right for a number of reasons.

First, despite some impressions to the contrary, the returns to universities from commercialising research have been very poor, even in the US where this has been going on for a long time. The Australian Research Council did a study on this and found that the returns from commercialisation were about 2 per cent of the cost of research. In fact, if unis fully costed their commercialisation outfits, including land and administrative overheads, I suspect that the true figure would be negative.

Second there’s the standard public good argument. The social benefits are greater if the results are free to use.

Third, there’s something I saw on Four Corners a couple of weeks ago. They interviewed a very unattractive character who’s secured a dubious patent on non-coding DNA and is using it to extract license payments from virtually anyone engaged in genetic research. In a breach of previous tradition, he’s going after university researchers. When challenged on this, he made the point that uni research labs were commercial outfits these days and deserved to be treated as such.

Kaiser

At a time when the Howard government’s increasingly brazen dishonesty (in all senses of the term) might just be starting to sink in with the electorate, and with the Hanson business raising all sorts of memories, what does Labor go and do but appoint Mike Kaiser assistant national secretary. For those who don’t recall, Kaiser was the leading operative of the AWU machine in Queensland and was forced to resign his Parliamentary seat after admitting involvement in branch-stacking.

Stacking is not the gravest of offences, and I wouldn’t necessarily say that Kaiser should never return to public life, but appointing him as a national official in a party that is supposedly trying to stamp out things like branch stacking is just plain stupid.

Walmart and productivity

Brad de Long links to this piece by Robert Gordon arguing that an important segment of the recent gain in US productivity growth has come in retail trade. Gordon says

America’s retail productivity performance has all been achieved in stores newly built since 1990, not in existing stores.

The new stores are the “big boxes” such as Wal-Mart, Home Depot and Best Buy, large new buildings set up on greenfield sites at interstate highway junctions, in suburbs and, increasingly, in inner cities. As these new stores reap the rewards of their size, openness and accessibility and drive smaller stores out of business, they bolster the average productivity of the US retail sector as a whole.

While countries differ, Europe has many ways of stifling modern retailing, from green belts and land-use restrictions to laws that prevent companies from lowering their prices. These make life difficult for new, more efficient retailers in order to protect small, traditional merchants. This is one of many cultural chasms across the Atlantic. Many Europeans could not care less about retail productivity and instead are adamant that Europe must avoid the US’s unregulated land use and starvation of public transport, which have produced its overly dispersed, energy-wasting metropolitan areas.

This is interesting in a couple of ways.

First, it helps to resolve a puzzle I’ve been pointing out for some time. If US productivity growth is so strong, why is employment in tradables like manufacturing shrinking so fast? On this account, the productivity growth is mainly in nontradables.

But the second point is more important. Retail productivity is very hard to measure. For example, measured retail productivity declined in Australia when shopping hours were extended – the extra convenience wasn’t taken into account in the statistics. By Gordon’s account, the apparent efficiency of big, edge-of-town stores is offset by a lot of negative externalities, and higher travel costs borne by consumers, and other road users. As I observed here and here the US has experienced a big increase in distances travelled, even compared to Australia and this has been accompanied by an increase in road deaths, giving the US one of the highest rates of road death in the OECD, about 50 per cent higher than Australia’s. And all of this reflects the fact that road use in the US is substantially underpriced, as was noted in a recent Chicago Fed letter.

Of course, there’s no easy way of telling whether the costs I’ve mentioned outweigh the benefits that are measured in the retail productivity statistics. Since so many of the costs are externalities, the success of WalMart in driving out the competition doesn’t prove anything. But it’s disappointing to see a fine economist like Robert Gordon fall back on cliches like ‘cultural chasm’ in relation to outcomes that are largely the product of economic policy. And, whatever the net balance, it’s clear that the measured growth in retail productivity is an overestimate.

Bad news from Kabul

This report from Salon is the most depressing of a string of depressing stories I’ve seen coming out of Afghanistan.

As the article makes clear, there are all sorts of reasons for the current problems, going back at least to the Russian invasion. But a big one is that the US has not spent the kind of money required to make a success of nationbuilding, and has not provided the kind of security that would encourage other donors to spend either. How much is needed would be hard to tell, but an obvious benchmark would be to return living standards to what they were before the current cycle of wars started. This would cost tens of billions of dollars, whereas the total amount being spent is around $1 billion.

All of this applies even more with respect to Iraq, which was wealthy before the war with the US started in 1991 (even more so before Saddam’s war with Iran). I estimated a few months back that a policy with a reasonable chance of establishing a stable democratic government would require expenditure of between $25 billion and $50 billion, and that the cost of undoing the damage of the last 15 years would be between $100 billion and $200 billion (all of this excludes the costs of military occupation). So far, the aid committed by the US Administration is $2 billion.

The pro-war Weekly Standard agrees, and has even suggested a petrol tax to defray some of the costs (thanks to Jack Strocchi for passing this along). Of course, there is no prospect of this happening. But at least the Standard, unlike most of those who supported the war, is pushing the Administration to take the kind of actions that would be needed to justify it.

It’s possible that the current policy of nation-building on the cheap might work. The atrocious attack on the UN building and, more generally, the shift towards civilian targets on the part of at those fighting the occupation forces may shift public sentiment against them. And perhaps the attacks on civilians are a sign of weakness. But the example of Afghanistan does not provide any grounds for optimism.