Dualing polls on globalization

Today’s FT has a poll showing that globalization is viewed a having a negative affect in all the rich countries — two to one negative to positive in the US (with about 45% not sure). But over on Dani Rodrik’s weblog: Globalization: we love it, we love it not…, he contrasts this with another recent poll that shows 60% of Americans think globalization is mainly good.
Sounds to me that the general public — just like the experts — are still grappling with what this thing called globalization really is.

Still a digital divide

Binary America: Split in Two by A Digital Divide – washingtonpost.com

Less than a mile and a half from the Citadel, the site of the Democratic presidential debate tonight, sits Cooper River Courts, a public housing project. Forget the Web. Never mind YouTube, the debate’s co-sponsor. Here, owning a computer and getting on the Internet (through DSL or cable or Wi-Fi) is a luxury.

Enough said

Trade adjustment assistance for service workers

Congress is finally looking to correct a major flaw in our trade adjustment assistance program, according to a story in today’s Washington Post – Aid May Grow for Laid-Off Workers:

Under a Senate bill to be introduced today, computer programmers, call-center staffers and other service-sector workers who make up the vast majority of the nation’s workforce would for the first time be eligible for a generous package of income, health and retraining benefits currently reserved for manufacturing workers who lose their jobs to international trade.

This is long overdue. The problem stems from the original belief that services, unlike goods, could not be traded over international boundaries. That belief by economist was never actually true but it didn’t matter because so few services were actually traded. The situation has changed dramatically with more and more services now subject to international competition. (By the way, in the mid-1980, I worked on a report at the Congressional Office of Technology Assessment on International Competition in Services: Banking, Building, Software, Know-How….)
But my friend Howard Rosen, who heads up the Trade Adjustment Assistance Coalition, is quoted in the story as saying “This is not going to be a slam-dunk.” If giving computer programmers who have been laid-off because of globalization the same benefits as auto workers laid-off because of trade is not a slam-dunk, then our entire trade policy is in serious trouble. If we can’t provide even this band-aid, what can we do?
As I have said a number of times in this blog, we need a new trade policy (see here, here, here, here and here). How can we come up with a new workable trade policy if we can’t take a simply step of acknowledging that services are, in fact, traded and therefore we need to treat service workers the same as manufacturing workers?
Keep an eye on this one – as it is likely to be a flashpoint in the trade policy debate.

Centre for Jurisdictional Advantage

The concept of “jurisdictional advantage” is one that Athena Alliance (and this blog) has followed for some time. Earlier this year, the Rotman School of Management at the University of Toronto announced the creation of a new research center on the topic:

“The Centre for Jurisdictional Advantage and Prosperity will enhance the province’s prosperity by taking an integrative approach to the study and creation of jurisdictional advantage. Currently, the study of how jurisdictions, including provinces, become magnets for companies to start-up, locate and grow, and for talent to study, live and work, has been fragmented across many diverse fields. This disconnected knowledge has been less helpful to policy-makers and businesses than is required,” says Rotman Dean Roger Martin. “The Centre will remedy this by attracting and bringing together the best group of scholars in the world to study jurisdictional advantage in order to create new and valuable insights that will benefit Ontario and the world at large.”

And last week, they announced that Richard Florida will be heading up this new Centre (Creative Class Thinker Joins Rotman School of Management).
Over the years, Athena Alliance has been fortunate to be associated with key members of the Rotman School. Dr. MaryAnn Feldman gave the original jurisdictional advantage paper at an Athena-Wilson Center symposium. and Dr. Florida presented his book, The Flight of the Creative Class, at another symposium. Dean Roger Martin spoke to an Athena sponsored Congressional briefing on innovation.
We wish Dr. Florida and the new Centre all the best in their work.

Copyright craziness

Here is an amusing copyright story to being your weekend — Inmates Accused in Name Copyright Scheme – washingtonpost.com:

The four were indicted Tuesday on allegations that they copyrighted their names, then demanded millions of dollars from prison officials for using the names without authorization.
The indictment alleges that inmates Russell Dean Landers, Clayton Heath Albers, Carl Ervin Batts and Barry Dean Bischof sent demand notices for payment to the warden of the El Reno federal prison and filed liens against his property. They then hired someone to seize his vehicles, freeze his bank accounts and change the locks on his house.
Then, believing the warden’s property had been seized, the inmates said they wouldn’t return his property unless they were released from prison, according to the indictment.
But the person hired by the inmates turned out to be an undercover FBI agent, said U.S. Attorney John C. Richter.

Very creative. Maybe they can assert copyright ownership of the story when it gets made into a made-for-TV movie.

And now the Senate Committee on patent reform

Following the House Judiciary Committee, the Senate Judiciary Committee has passed the patent reform legislation. The bills now go to their respective full chambers. On the House side, the bill is likely to remain pretty close to what the Committee reports. On the Senate side, however, the process is different. Senate rules are such that anyone can offer any amendment. So there are plenty of chances to change the bill. As the AP story (Senate Panel Approves Patent Reform Bill) notes:

The changes made by the two committees, so far, haven’t satisfied many of the bill’s opponents, which include pharmaceutical, biotech and manufacturing companies, as well as technology companies that rely on licensing patents, such as Qualcomm Inc.

Those opponents of the bill have already said they hope to make changes.
So there is movement, but still a long way to go.

Taxes and economic prosperity

Next week, Treasury Secretary Paulson is hosting a conference on business taxes and competitiveness. In today’s Wall Street Journal, he laid out the opening position in an op-ed piece Our Broken Corporate Tax Code. There is a thread to the Secretary’s argument I very much agree with — the complexity of the tax code:

Targeted provisions to encourage specific activity substantially narrow the tax base and thus, overall tax rates must be higher. And these provisions add complexity; some have estimated that businesses spend $40 billion annually on tax compliance costs — $40 billion that could create jobs, provide greater employee benefits and generate economic growth. Even the opportunity for favorable tax treatment gives rise to corporate expenditures on lobbying, rather than on growth creation.

He also points out a specific concern of mine:

The current tax depreciation system does not treat investments uniformly; depreciation allowances vary without clear economic rationale. This can bias decision making and result in a direct misallocation of capital if firms make marginal investment choices based on taxation rather than innovation.

I have long argued that contrary to what some laissez faire analysts say, the US has an industrial policy: the tax code. And it is one of the worse types of industrial policies: non-transparent and not subject to any periodic review. Our treatment of intangibles is a case in point. I have not done a systematic study of depreciation rates — but the mere fact that investment in intangibles such as product development and worker skills (training) are treated as an immediate expenses rather than depreciable investments has got to result in misallocation of capital.
However, there is an overriding theme to the Secretary’s message: cut the corporate tax rate:

A study by Treasury economists estimated that a country with a tax rate one percentage point lower than another country’s attracts 3% more capital. It’s not surprising then, that average OECD corporate tax rates have trended steadily downward.

Now, I’m not a tax expert. But I am not convinced that problem is simply our tax rate, although I am willing to accept that the rate is worth looking at. There is a lively debate over the Scandinavian model with a combination of high personal income tax rates and low corporate rates. Nor is it just our corporate taxes. All of our regressive employment taxes, especially as they end up being applied to the self-employed, need careful examination.
Secretary Paulson is absolutely right: we need a new tax system for the I-Cubed Economy. However, the focus shouldn’t be on tax rates but on the overall structure of the tax system — including the recommendations of the President’s Advisory Panel on Federal Tax Reform (commonly known as the Mack-Breaux Tax Reform Commission) (see my earlier posting).

Are good employee relations good for business?

Interesting story in the New York Times the other day about Costco — How Costco Became the Anti-Wal-Mart. One theme of the piece was especially telling:

But not everyone is happy with Costco’s business strategy. Some Wall Street analysts assert that Mr. Sinegal is overly generous not only to Costco’s customers but to its workers as well.
Costco’s average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam’s Club. And Costco’s health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco “it’s better to be an employee or a customer than a shareholder.”
. . .
“They could probably get more money for a lot of items they sell,” said Ed Weller, a retailing analyst at ThinkEquity.
. . .
Emme Kozloff, an analyst at Sanford C. Bernstein & Company, faulted Mr. Sinegal as being too generous to employees, noting that when analysts complained that Costco’s workers were paying just 4 percent toward their health costs, he raised that percentage only to 8 percent, when the retail average is 25 percent.
“He has been too benevolent,” she said. “He’s right that a happy employee is a productive long-term employee, but he could force employees to pick up a little more of the burden.”

Sounds like the typical short-termism of Wall Street. On the other hand, it is not clear that the actual investors are paying any attention to what the bean-counter analysts are saying:

IF shareholders mind Mr. Sinegal’s philosophy, it is not obvious: Costco’s stock price has risen more than 10 percent in the last 12 months, while Wal-Mart’s has slipped 5 percent. Costco shares sell for almost 23 times expected earnings; at Wal-Mart the multiple is about 19. Mr. Dreher said Costco’s share price was so high because so many people love the company. “It’s a cult stock,” he said.

A “cult stock” or a good example of long-run value creation? (Of course, some analysts may think that long run value creation is some form of weird cult — a secret society headed by Warren Buffet.)
When will Wall Street analysts learn that good employee and customer relations are the foundation of a good payoff for stockholders? Maybe because good employee and customer relations are intangible assets that they can’t crank into their models. I would have thought that the Circuit City example would have pointed this out. Guess not.

Patents don’t work?

Speaking of patent reform (see previous posting), I’ve run accord a new study that questions the efficacy of ever stricter intellectual property protection as a means of fostering innovation and creativity (recently reported in the New York Times: A Patent Is Worth Having, Right? Well, Maybe Not). In a forthcoming book, Innovation at Risk, James Bessen and Michael J. Meurer argue that the patent system fails to provide clear property right protection. The problems include:

1. Fuzzy or unpredictable boundaries. Surveying land is inexpensive, and the survey boundaries carry legal weight. While surveyors can plainly map the words in a deed to a physical boundary, it is much harder to map the words in a patent to technologies, as the E-Data patent illustrates. Not only are the words that lawyers use sometimes vague, but the rules for interpreting the words are also sometimes unpredictable. Although innovators can obtain expensive legal opinions about the boundaries of patents, these opinions are unreliable. There is no reliable way of determining patent boundaries short of litigation.
2. Public access to boundary information. The documents used to determine boundaries for both land and patents are eventually available to the public. However, it is possible for patent owners to hide the claim language that defines patent boundaries from public view for many years, a practice that is becoming increasingly frequent.
3. Possession and the scope of rights. Generally, tangible property rights are linked closely to possession, hence the classic phrase: possession is nine points of the law. Patent law also requires possession of an invention, but often this requirement is not rigorously enforced. Courts sometimes grant patent owners rights to technology that is new, different, and distant from anything they actually made or possessed. Not surprisingly, this practice makes patent boundaries especially unclear in fast-paced fields such as biotech and computer software. It certainly seems that E-Data was granted ownership of technology that was far removed from what Charles Freeny, Jr., actually invented.
4. The patent flood. Clearance costs are affected by the number of prospective rights that must be checked for possible infringement. Investments in land or structures rarely involve many parcels of land, and property law discourages fragmentation of land rights. In contrast, investments in new technology often need to be checked against many patents—even thousands in the case of e-commerce. Although the patent system has features that discourage patent proliferation, notably the requirement that an invention not be obvious, empirical evidence suggests these are not working well.

Thus, they caution against the straight line argument that economic growth relies on property rights and therefore stronger IPR is needed:

In summary, patents do not work “just like property.” While they do play some role in promoting innovation and economic growth, that role is limited and highly contingent compared to the role property rights normally play in promoting economic growth. The laws and institutions that implement property rights may be harder to get right for patents than for tangible property rights.

Their version of getting it right for patents requires improving patent notice:

We thus think it likely that effective reform will require structural changes, including, possibly, multiple appellate courts, specialized district courts and greater deference to factfinders. What other changes might improve patent notice? In Chapter 11 we consider many reforms, most of which have also been advanced by other people. These include:
• Make patent claims transparent. We recommend changes in the way patent claims are defined, published, recorded in the application process, and used for subsequent determinations so that innovators have clear, accessible, and predictable information on patent boundaries. This includes strong limits on patent “continuations,” a procedure used to keep patent claims hidden from the public for extended periods. We also consider a new role for the Patent Office where, for a fee, innovators can obtain opinion letters on whether their technology infringes a patent.
• Make claims clear and unambiguous by enforcing strong limits against vague or overly abstract claims. This includes a robust “indefiniteness” standard that invalidates patent claims that can be plausibly interpreted in multiple, fundamentally different ways. Also, we recommend reforms to limit overly abstract patents in software and other technologies. At the very least, patent law should prevent software patents from claiming technologies far beyond what was actually disclosed as the invention. If this proves inadequate, then we suggest subject matter tests to limit the range of software inventions that can be patented, tests similar to those used during the 1970s and 1980s.
• Make patent search feasible by reducing the flood of patents. This includes a strong requirement that patents should not be granted on obvious inventions, coupled with substantially higher renewal fees. Ideally, patent renewal fees should be set by a quasiindependent agency and should be based on empirical economic research. These reforms will help stem the patent flood by screening-out unwarranted patents and discouraging renewal of low value patents. Reducing the number of such patents should help notice by reducing the cost of clearance search.
• Besides improving notice, we also favor reforms to mitigate the harm caused by poor notice. These include an exemption from penalties when the infringing technology was independently invented and changes in patent remedies that might discourage opportunistic lawsuits.

But their conclusions are mixed with a good dose of skepticism:

In presenting this list of policy ideas, we admit that we really do not know what it will take to substantially improve patent notice. These policy reforms move us in the direction of an effective patent system, but we do not know whether they are sufficient to get us there.

All in all, an important and refreshing take on patent reform.

Patent reform passes House Judicary

According to AP, the House Judiciary passed the patent reform legislation today, with some changes — House Committee OKs Patent Bill: Financial News – Yahoo! Finance:

One of the biggest changes, proposed by Berman, alters the post-grant review process by eliminating a provision that allowed open-ended challenges to a patent’s validity. The bill now largely limits such challenges to the first 12 months.
The committee also amended a controversial provision regarding how courts can calculate damages in patent suits. The original bill required courts to more closely tie damages to the actual value of the patented technology, rather than the value of larger goods that include the patented item as a component.
The committee amended the bill to allow judges to choose between those and other methods, depending on the facts of the case.
Another amendment by Rep. Rick Boucher, D-Va., would bar the increasing practice of patenting tax-planning strategies. Already, sixty such strategies have been patented, Boucher said, with 85 more pending.