Unreal estate, real consequences

The other day, The Boston Globe carried an article about a startup called Aereo, which could be forced out of business by a Supreme Court decision. The company uses tiny antennae to collect broadcast TV signals and delivers them to mobile devices as streaming media. They say that what they do is perfectly legal, under an old federal rule, but the networks say they’re violating copyright.

It’s just the latest in a long line of long and expensive legal disputes between entrepreneurs and established businesses and this unfortunate era of patent trolling has a major effect on cities. As centers of innovation, of adding, new complex work to older, simpler work, cities need a great deal of economic diversity to facilitate the interactions which lead to innovations. In addition, the new work still needs to be supplemented and supported by the old work — no matter how sophisticated our computers get, farmers still supply us with food.

Unfortunately, human beings are human beings and when this process is working, or allowed to work, as the case may be, we call it inefficient, talk about the high failure rate of new enterprises and deplore the wasteful reduplication of businesses. Nevertheless, cities with the process are much more competitive, prosperous and equal whereas cities without it, though often praised for having the appearance of a great city, are often actually stagnant or declining. But because we are deceived, we often favor policies that produce stagnation instead of encouraging prosperity.

According to Jane Jacobs, in The Economy of Cities, these processes of import replacement and entrepreneurship are vital to the development of cities and their prosperity. She notes that cities like Detroit, Rochester, Manchester (England) and others ceased to grow and thrive when they came to be dominated by one industry or one business. Even worse, they were highly integrated businesses and suffered from bureaucratization. They ceased innovating and they worked against their employees leaving and starting new businesses. It was fine for a very brief time, but as soon as conditions changed — better foreign competition, the Nixon Shock, the oil crisis — the firms, workers and cities were doomed. It resulted in the Rust Belt.

Company towns don’t work. Cities need economic diversity to be cities as much as countries.

When governments use their coercive powers to prevent competition, they destroy  or prevent diversity. One of the ways this is accomplished is through patent law. If you examine the hiostory of the Industrial Revolution, or follow the news from China, you find that the greatest industrial development and innovation comes when patents are only weakly enforced. The reason is, I think, is that most people believe that new inventions can be attributed to one or two people at a particular time and place, but that’s not true: inovation happens incrementally, through trial and error, so when patents are rigidly enforced, it can be difficult to make and sell incremental improvements because you’ll be sued for patent infringement.

For example, a lot of newspapers spent a great deal of money on propreitary websites with proporeitary systems, but most of them, unsurprisingly, weren’t very good. Now a lot of newspapers use a template of a good system they can buy for cheap. Because of copyright and patent law, they felt they had to spend all that money even though the template was available.

Barry C Lynn pointed out last year that, beginning under the Roosevelt Administration in the 1930s, the federal government would use antitrust laws to force businesses to license their patents, which some historians believe set the stage for the electronics industry. (That and the break-up of AT&T, surely). Elon Musk, of Tesla Motors, announced yesterday that he would be opening up Tesla’s patents to other electric car makers in an attempt to encourage growth in the market.

Derek Khana, a Yale Law School fellow, has written extensively on the problems with patent and copyright law. “Incumbent industries have co-opted the legal and regulatory systems to go after their competitors, and both political parties have been complicit in this cronyism,” he writes. “Acceptance of these regulatory and legal barriers is a root cause of our abysmal ‘new normal’ of 2 percent annual GDP growth.”

As the city goes, so goes the nation.




One thought on “Unreal estate, real consequences

  1. Elon Musk is the CEO of SpaceX and Tesla. In these two companies, products manufactured have never been proposed before. For SpaceX (USA), the company is able to sell a rocket launch for satellites for 12000 dollars / kg as cost for Ariane 5 (Europa) is 23000 dollars / kg and for Proton (Russia), 18000 dollars / kg.
    As ILIAD for French Telecommunication, SpaceX is completely redefine the market of space rocket launch. He obliges restructuring Safran (Ariane) into Airbus group in June 2014.
    Elon Musk is also the CEO of Telsa, a company selling only electric cars in USA! Elon Musk is a serial creator, as he was the creator of Paypal sold to Ebay in the 2000′s years.
    If you are interested, I have posted an article about Elon Musk that you can read here:

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