WIPO: Informal Economy Innovates In The Absence Of Intellectual Monopolies

from the well,-look-at-that dept

One of the problems with the debates around copyright and patents is that they too often assume that intellectual monopolies are necessary in order to promote innovation or even basic economic activity. But that overlooks all kinds of domains where that's not true. In the field of technology, free software and the other open movements based on sharing are familiar examples of this kind of thing. Less well known so are the so-called "informal economies" found in many parts of the world.

To its credit, WIPO has commissioned a report on this whole area, entitled "Conceptual study on innovation, intellectual property and the Informal economy" (pdf). Here's how it defines the informal economy (IE): The most appropriate conceptualization of the IE is as a continuum from formal to informal, where different activities and actors occupy different points along this continuum. The transition from informal to formal status is gradual; single firms, households, and workers may carry out some activities informally and others formally at the same time. Despite that vagueness, the informal economy is important for many countries: Estimates suggest that over the past two decades, informal employment or employment in the IE made up more than half of non-agricultural employment in most middle- and low-income countries. Sub-Saharan Africa is the region with the largest estimates for the contribution of the informal sector to gross domestic product (GDP): the IE makes for nearly two-thirds of GDP including agriculture and half of non-agricultural gross value-added (GVA). It is followed by India, with around 50% of total GDP. Then come countries from the Middle East, North Africa and Latin America. For Techdirt readers, the most interesting part of the report will probably the chapter that concerns the use of what it calls "Mechanisms to appropriate returns from innovation in the informal economy", including "formal appropriation" through intellectual monopolies -- or, rather, their absence: On the one hand, it can be argued that the absence of formal appropriation and the work in clusters make up the strengths of the IE's innovation system. In this view, the innovation system in the IE largely rests on "collective learning experiences" based on low entry barriers and free flows of knowledge. The dynamics among similar enterprises in collective geospatial clusters determine rates of innovation, economic successes and the value of the cluster. Individual firms or economic units are not the key determinants of innovation and efficiency.



Appropriation efforts must also be considered in light of the social systems -- specifically family structures, community networks and commercial clusters -- within which the IE operates. Knowledge flows are characterized by trust, reputation, reliability, social and cultural signaling, and the willingness to pool resources and collaborate. This facilitates access to information, and critically reduces transaction costs.



Clearly, in this context, the notion of formal appropriation of ideas can be considered alien and inadequate in this IE context. As one study suggests, actors believe that formal IP based on exclusions and proprietary knowledge is not compatible with the knowledge diffusion and learning processes of the IE which are based on communities, clusters and the exchange of information. Naturally, as a report commissioned by WIPO, the opposing viewpoint is also considered: On the other hand, and in contradiction to the above view, it has been argued that the presence of perpetual copying and absence of appropriation mechanisms is seen as a barrier to scaling up innovative activity in the IE. Entrepreneurs are unable to develop their businesses beyond a certain stage as they lack exclusive rights to or control over their innovations. Therefore, they have fewer incentives to invest in machines or human capital (e.g., training new apprentices), and are unable to reach certain economies of scale.



Firms may also forgo the possibility to specialize in different styles and techniques, as copying is the norm. The absence of branding or certificates/labels, leading to anonymity of the sector's products in the eyes of consumers, is said to prevent producers of good quality products from being rewarded.



Due to this systematic effect, only small incremental improvements in processes and some incremental improvements or adaptation of products are likely to be achieved. Economic growth and productivity gains in the informal sector are hence below par. The IE might also have a negative influence on the formal sector. The reasoning behind this is that informal firms that fail to comply with various economic regulations or to meet their tax obligations are able to expand and take market share away from formal firms, even when they are less efficient overall. At worst, economists are concerned that informal firms may also undermine the incentives of formal sector firms to innovate, adopt new technologies, develop their IPRs or develop brands. There seem to be a lot of assumptions in there -- for example, that those operating in the informal economy don't pay their taxes fully. That's conflating the black economy, where taxes are certainly dodged, with the informal economy, which is about how work is organized, not its compliance with the law. Similarly, the assertion that companies will give up innovating just because others don't try to patent everything they produce is contradicted by the experience of open source, which eschews patents, but has driven an accelerated pace of innovation in the world of proprietary software.

Despite these biases, the report is a valuable contribution to an area that has been largely overlooked until now. The more that WIPO and its world become cognizant of the very different nature of the informal economy, the better it will be for them -- and for future debates about patents and copyright.

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Filed Under: development, economics, informal economy, innovation, wipo