China's growing respect for IP

To some, the growth of a intelectual property-producing China is both a boon and a threat. This post explains why fears of China are overdone.
Written by John Carroll, Contributor

A little over a year ago I wrote a blog post about China and intellectual property where I noted that a tremendous barrier to local development of IP was rampant lack of respect for it in the country. Piracy, in other words, didn't just deprive foreign companies of revenue, but also deprived domestic Chinese companies of a local market within which to grow into globe-trotting giants.

That's still an issue, though things may change soon as the government puts emphasis on industries that depend on education and information technology by launching the "National Medium and Long-Term Programme for Scientific and Technological Development (2006-20)." This is part of a broader push on China's part to escape its dependance on natural resources and cheap labor. This is of critical importance to the Chinese economy, according to Denis Simon of the State University of New York's Levin institute, as quoted in the August 5th issue of The Economist:

"If China doesn't do this right," he says, "it risks becoming a good 20th-century industrial economy just when it needs to figure out how to be a 21st-century knowledge-based economy."

Continuing with the theme of improving IP protections, Simon notes other issues to which China must attend:

These include an "internal brain drain" that sees much of the country's best talent going to work for foreiign firms in China, and the country's notoriously lax regime for protection of intellectual-property rights. Mr. Simon predicts that such protection will improve as more local businesses with an interest in the matter join the chorus of complaints from foreigners.

In other words, all it takes for China to protect intellectual property is for the country to have a vested interest in those protections.  This is good news for western countries that produce most of the world's intellectual goods, as they are more likely to reduce the levels of piracy and hence generate more revenue from China's 1.3 billion citizens.

On the other hand, other groups in western countries will see a dark side to all this. The new program is part of a broader attempt to keep more of the 60% of the profits that currently go to western companies for China's high-tech exports. In other words, China wants to create more intellectual property, and that means they will pose more competition to western countries. That means Chinese workers will pose more of a jobs threat...

...or does it? One of the problems that so many people who fear foreign competition have is that they think of the "labor pool" as a fixed-sized pie. If China takes more of the pie, then there is less of the pie for people in rich countries.

The reality of growing economies like China and India, however, is they cause the pie to grow tremendously in size. Therefore, even if America, Europe, Japan and other "western" nations (a term that really should be rich nations, as the term is fast becoming antiquated) get less of a percentage of the market for intellectual property, the pie has grown so much larger that they are still supplying more than they ever supplied before.

China and India will be the source of a growing percentage of the world's intellectual property, and how could it be otherwise, with 2.3 billion people between the two of them? As these two countries grow economically, more of their citizens will enter higher education, universities will receive even more resources, and by simple law of averages, more opportunity afforded by growing wealth will lead to more results.

That, however, is a good thing. Quick: who is more likely to produce the next great idea, a room full of 1000 scientists, or a room full of 10,000? If we want future technology to develop faster, then we need more of the world's minds working to make that future happen. If Kurzweil is correct and the pace of innovation is accelerating in true Moore's law fashion, I should think getting China and India to pull their own innovation weight is an important component in that.

There's plenty that needs discovering, and thus plenty of room for existing industrialized nations to grow even as China and India rise to become leaders in the creation of intellectual goods.

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