Wednesday, February 19, 2014

The Chinese are stealing from Americans

By Jeffrey Tyburski (Property Rights) -  Intellectual property theft by China is estimated to cost U.S. companies 300 billion dollars annually.­1

Offenders in many countries threaten American Intellectual property, but China-based offenders are the greatest.2

Experts believe that over 90% of the consumer goods sold in the city of Yiwu, regarded as the counterfeit capital of China, are counterfeit. Each of the 300 private showrooms in Yu Bao Lu, a facility in Yiwu, represents a factory that specializes in fake goods. Even the capital city of Beijing is host to an outdoor counterfeit market called “Treasure Street.” Places like Yiwu and Treasure Street provide counterfeit items ranging from car inspection stickers and college diplomas to designer clothing, computer software and even pharmaceutical products. Literary counterfeiters even produce Harry Potter books in Chinese that do not exist in English.3

This is truly unfortunate. The current value of United States rights holders‘ IP is estimated to be in the hundreds of billions to trillions of dollars.4 Intangible ideas have tangible value. Chinese counterfeiters are stealing value from American innovators.

When I write ‘innovation’, I mean a mental process which creates value by finding better ways to do things. Economic growth right now does not come from ever increasing economies of scale. It comes from new knowledge and original ideas. Things like Information tech and financial engineering are intangible, yet they are vital sources of growth for the last few decades. The value of the internet does not stem from an investment of manual labor, like clearing a field or building a factory. It comes from an original and useful idea.

What is egregious is that IP theft hampers economic growth; we are losing future prosperity to counterfeiters. IP rights are what make innovation financially feasible and desirable. Not only does IP theft take from the current earnings of U.S. citizens, it also disincentivizes them to invest time and capital into innovation and invention. IP theft steals the rewards of creative endeavor. Take away the reward, and the behavior goes away.

Recent examples of IP include the I-Phone, Google’s search engine, and FaceBook. IP rights helped motivate many of the appliances we take for granted: microwaves, refrigerators, coffeemakers, etc. IP rights also make it financially feasible for artists, musicians, and writers to devote themselves to producing our entertainment.

One of the things that incentivize people to make things is an exclusive right on their idea for some time after its creation. If the idea is useful, then this monopoly right is profitable. Thus, monopoly rights in the form of patents, copyrights, trademarks, and trade secrets, incentivize creativity and grow the economy. Violate this monopoly right, and you violate the motive to invent.

One may point out that there is plenty of IP violation among Americans regarding music and video entertainment, yet these industries still produce the things we want. Though these industries exist, they are cut short of their potential. Here are some facts about the music industry: Recorded music revenue is down 64 percent since 1999. Per capita spending on music is 47 percent lower than it was in 1973. The number of professional musicians has fallen 25 percent since 2000.5 There is less incentive to produce music, so there is less music for us to enjoy and less jobs in the music industry. 

One may object that monopoly rights are bad for consumers. After all, the data above indicates less profit for the producers; perhaps some of this surplus is going to consumers. In the short-term, patents and other forms of IP are not ideal for consumers. But patents, copyrights, etc. are only temporary monopolies, so eventually IP enters a competitive market and remains there for posterity. If these monopoly rights didn’t exist, then no one would create these useful ideas nearly as much. It is better to have a new idea with a temporary monopoly, than not have a new idea. In the long-term, IP rights are beneficial. We can’t have our cake and eat it too.

Back to why we should be upset about Chinese IP violations. It is unjust: it steals hard earned value from creative Americans. It is detrimental to the public wellbeing: after patents expire, they become public information available to anyone. IP creates value for everybody. If the 
Chinese steal from creative minds, we lose this value.

The U.S. government should re-evaluate its trade relationship with China. One of the foremost jobs of government is protecting the property of citizens. By tolerating Chinese IP theft, our government is failing in one of its key functions.


1. IPR Center, Threat Report and Survey, National Intellectual Property Rights Coordination Center, November 2011
2. IPR Center, Threat Report and Survey, National Intellectual Property Rights Coordination Center, November 2011
Credit to wongfleming for this paragraph.
4. IPR Center, Threat Report and Survey, National Intellectual Property Rights Coordination Center, November 2011


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