KNOWLEDGE
ECONOMY:
DOES THE MARKET VALUE KNOWLEDGE?
By
Gabriel Leandro, MBA
Economist
Nowadays, information and knowledge have become into
the essential base for economies to grow and to develop.
Information and knowledge represent strategic factors
for enterprises because they constitute more productive
factors and the more valuable assets. There is currently
such a great boom of information that some people refer
to this era like the information era.
Long discussions are not necessary to conclude that
knowledge is highly valuable, but the problem is how
much does that knowledge cost? How should it be distributed
among the individuals of society? This problem become
evident when arguments regarding medicine patents, free
software, books, movies and music piracy, emerge and
bring about worldwide controversies.
Regarding this issues there are different positions
and points of view. For example, Richard Stallman the
president of Free Software Foundation strongly defends
free software and is against software patents. To Stallman,
patents are detrimental because they benefit only the
big enterprises and affect negatively the poorer countries.
To others like Manuel Patarroyo, a distinguished Colombian
scientist who developed a vaccine against malaria, knowledge
must be universal and open to all. According to this
scientist, knowledge is not patentable and he disapproves
that multinationals earn millions of dollars while those
who could not afford it die.
On the other hand, there are some who defend the intellectual
property rights, mainly trough patents and copyrights.
In this way, the owners of information (and many other
producers) will be able to patent their “innovations”;
this grants them exclusive right over their production
thus the patent holder is protected and his innovation
cannot be exploited without compensating the original
creator. Some argue and state that if there isn’t
such mechanism there would not be any encouragement
to create and develop new products.
These patents grant to the original producer exclusive
exploitation rights, constituting a monopoly. This point
of view agrees with the hypothesis of Schumpeter which
states that to promote the creation of monopolies is
worth the trouble if in this way innovation is encouraged.
Why
does the market not solve this problem?
The answer is related to the fact that knowledge brings
about a number of “external benefits” which
not always are taken into account by people when making
decisions thus the market does not reflect them appropriately.
Economic activities generate costs and benefits. These
benefits can be private or external. For example, if
a person who studies in a university obtains a benefit
for himself like a better, which is a private benefit.
External benefits are also generated, benefits to other
individuals, for example; the opportunity to be a better
citizen, to find new solutions to diverse human problems
and to improve communication and the performance of
people in society.
To illustrate this problem regarding the valuation of
knowledge and information, there is a simple example
of a common situation: Imagine that you are studying
in a university and you have a test next week. The content
of the test is very complex and extensive however due
to the hours your sacrifices and also the hours dedicated
to study you could summarize all the subject matter
in one page, which represent a useful tool to get a
good grade in the test. When you arrive to university
all your classmates want to photocopy that sheet of
paper that you wrote. If you have 25 classmates probably
all of them would photocopy your summary and you would
have contributed with them, they will get good grade
because of you. But all these represent economic losses
for you, in other words if you would be a student then
you would not written that summary. Why? The photocopies
that your classmates have are worth the information
contained, but how much did they pay for that sheet
of paper? How much did they pay for the information?
The truth is that they did not pay for the information
itself they just pay for the photocopy. You did not
get any profit from your summary. That’s why you
would not considerer it as a business to be engaged
in except you would get some profits that compensate
all the costs implied.
There is a way for you to get profits from your paper,
profits that compensate your effort. I’m taking
about patenting your paper and selling it according
to the demand of it. The patent will assure your right
to restrict the use of it, only you will be able to
photocopy and sell your paper. This opportunity would
allow you cover the costs and get profits, which will
encourage you to continue producing such papers but
at the same time the number of people favored by your
paper will be reduced this imply that the general welfare
is also reduced. May be not all of you classmates will
get a good grade!
What
to do?
To the majority of the producers of industries like
pharmaceutics, biotechnology, music, software among
others, the possibility that these mechanisms that protect
the intellectual property are available in their countries
is fundamental to promote their growth as well as their
short and long term development. On the other hand,
it is also true that in the low-income countries such
mechanisms could bring about negative consequences to
the development and welfare because a great part of
the population would be able to afford such goods and
services.
As it was explained previously, the market does not
provide any appropriate solution it is necessary then,
government intervention. Thus, this intervention should
aim the defense of property rights but at the same time
it is also essential to implement mechanisms that favor
the equal access to the benefits of scientific and technological
development.
Some possibilities to achieve such goals are: through
the participation of the private and public sector altogether,
in research projects in which costs and benefits can
be shared. Also, through subsidies to universities and
research centers or through fiscal incentives to those
enterprises that develop social impact projects like
the donation of medicines to public hospitals, software
to public schools, etc. The government can also regulate
the prices set by producers, who many times constitute
monopolies. To all theses methods, some other can be
recommended depending on the situation and the goods
involved.
Only in this way, even when it is not enough, we can
achieve efficiency and equity becuase many people are
not able to afford information and knowledge, precisely
those who need these two more to enhance their life
quality.
