The Gridlock Economy, by Michael Heller (Basic Books, New York, 2008)
Peter V.—who now keeps most of his insightful commentary behind the Facebook wall, so I can't provide a link—alerted me to The Gridlock Economy, which I touched on in the first Casting the Net. Since then I obtained the book through Interlibrary Loan, and thanks to my Lenten disciplines, finished reading it last night. Now I can get the library monkey off my back and return this long-overdue book. (To be fair to them, the library has not been nagging me about it. But I was brought up to view an overdue library book as an unpaid debt, and my own conscience does quite enough nagging. In maturity—I think once I passed the half-century mark—I came to realize that keeping a book a little longer and paying a fine was an acceptable strategy and more reasonable than returning it unfinished. But I still imagine that I'm keeping hoards of folks in durance vile by limiting their access to the book.)
The Gridlock Economy, like many modern books, could have used a better editor. The author suffers from Presbyterian Preacher Syndrome—the habit of saying something three times when once would have done better; we gave up reading it aloud because that made the repetition more painfully obvious. Nonetheless, it's worth making the effort. If you don't read the book, at least check out the website. For those without the time to do even that, consider this.
In the discussion that followed my post on Chinese piracy, I wondered how patent and copyright law could stifle the creativity and innovation they were designed to encourage. Gridlock Economy provides an answer: ownership has splintered out of control. So many people (more likely, organizations) own rights to small parts of a creative endeavor that securing permission to use them all is unreasonably expensive, if not outright impossible. From the arts to medicine to telecommunication and hundreds if not thousands of other fields, when division of ownership meets our litigious society, it slams the brakes on progress. Here is an example that hit home to me, because we recently watched a PBS rebroadcast of Eyes on the Prize.
For millions of Americans, Dr. [Martin Luther] King came alive through the Emmy Award-winning public television documentary Eyes on the Prize....To make this fourteen-hour documentary, filmmaker Henry Hampton talked with hundreds of people who knew Dr. King—fellow activists, family members, journalists, and friends—and drew from many sources in a variety of media: video footage from 82 archives, almost 275 still photographs from 93 archives, and some 120 songs.
To put these materials into the film, Hampton had to secure licenses from their copyright owners. Otherwise he faced possible lawsuits. Many of these licenses expired in 1987 after the film was first broadcast. Over time, rights to these video clips, images, and songs changed hands. Often, the original permission did not include rights to a television rebroadcast or use in new media such as DVDs. Because the Eyes on the Prize filmmakers lacked broad permission to use the underlying sources, the film could not be shown again. It sat unwatched for years.
[The film] could not easily be made today. Licensing all the pieces of intellectual property would be too daunting. Along with the film's other creators, [Dr. Clayborne Carson] has spent many frustrating years trying to bring Eyes on the Prize out of the vault. The Ford Foundation donated six hundred thousand dollars to help buy licenses; other donors gave hundreds of thousands more. Even with these contributions, and a lot of volunteer efforts, the negotiations took nearly twenty years.
What caused the gridlock? Suppose the filmmakers used a film clip of an interview. People who were honored to appear in the original documentary can now demand payment for inclusion in the DVD. Owners of copyrighted songs sung in the background as Dr. King marched can demand compensation. So can the interviewer or narrator. And Dr. King's estate can request compensation for use of his likeness in the film.
To re-release the film, the producers had to jump through a thousand hoops, a process called "clearing rights" in the trade. Clearing rights is not cheap or fast....Bringing the film to DVD meant identifying and locating each of the partial owners or their heirs, then negotiating payment to, or a release from, every single one of them.
Clearing rights is especially complex for music. When the Eyes on the Prize team could not get the rights to a song, the music had to be removed and replaced without "damaging the integrity of the sequence," according to Rena Koserasky, music supervisor for the project. "We're not talking about digital formats, we're talking about actual reels of material. It's difficult and very time-consuming."
In 2006, the team effort finally succeeded in clearing the rights to (or replacing) each element of the film. Eyes on the Prize was re-released.
Michael Heller calls his theory of gridlock "the tragedy of the anti-commons." "Commons" is property available to all, such as the village land where our New England ancestors grazed their livestock, or the rivers, back when anyone with a net could gather food for his family. The trouble with property held in common is that incentive to protect and improve it is reduced. Rivers become over-fished because one person's decision to limit his catch is undone by his neighbor, who sees this as an opportunity to get more fish for himself. Short-term thinking is rewarded, and everyone loses in the long term. Wars are fought over such things: one reason Iraq was interested in taking over Kuwait was that both countries were pulling oil from the same field.
The concept of private property is a very effective means of encouraging responsible use of a resource, and even innovation. Alas, I no longer remember the source, but we read, or watched, something just recently about the agricultural progress that was made when common land was enclosed, thus giving farmers both incentive and ability to improve their breeds and conserve their land. (Land enclosure movements have negative consequences as well, but that's another issue.) However, when property—or more precisely, control of property—is fragmented into too many pieces the problem can turn from overuse to underuse.
I don't agree that underuse is always a problem. If a big company wants to build a shopping center and is stymied by a few holdouts who don't want to sell their family homes, that's just fine with me, even if the shopping center increases the market value of the property a thousand fold. Occasionally Michael Heller puts me in mind of my father's uncle, who couldn't see a tall, straight tree without thinking of its logging value. Nonetheless, Heller has convinced me that fragmented ownership, the anti-commons, frequently leads to situations that do nobody any good.
In 1887, John Brown bought eight acres of land in Rankin County, Mississippi. He was part of the great wave of freed slaves who invested their life savings in farmland. John lived a long life, and when he died in 1835, he did not leave a will. So ownership of his land split among his wife and children. In time they all also died without wills, so the land passed to their children and grandchildren. One of these children, Willie Brown, began consolidating ownership in the land by buying the interests of five of John's nine children: Frances, Minnie, Adda, Joe, and Lizzie. By the time Willie passed away, he had accumulated a 41/72 share in the family farm, which he left to his wife, Ruth.
In 1978, Ruth asked a court to divide the farm so that she would own her share of the land outright. The other sixty-six Brown heirs would then own the balance, in shares ranging from 1/178 of the farm down to 1/19,440. The court refused to partition the parcel by drawing a line on the land; it was too complicated. Instead, the judge ordered the land sold and the money divided among the heirs. As often happens in such forced sales, a single outside company was the only bidder. In this case it was a local white-owned lumber company that wanted to cut the timber.
Even though the family collectively valued the farm far above its auction price, no Brown heir placed a bid. Why? Partly because U.S. law often requires cash paid in full at such auction sales, a rule that makes bidding impossible for most ordinary owners. No single Brown heir could top the lumber company's lowball bid. There was no simple mechanism through which the heirs could quickly organize a joint family bid—a missing legal tool that commonly affects scattered heir owners. Ruth got a little cash from the sale—not nearly enough to replace the farm and nothing like enough to compensate her family for losing the locus of its cohesion and tradition.
Had Ruth known the outcome, she would never have gone to court. But many times there is no choice. Opportunists prey on owners of splintered property by convincing one small shareholder to sell his interest, and then forcing the sale—which even the smallest shareholder can do—thus acquiring the entire property at a fire-sale price. Opportunists are in every field, and to my mind a great deal of the problem is the separation of patents and copyrights not only into pieces and parts, but away from those whose ingenuity brought them forth in the first place. Patent and copyright "trolls," whose only business is to search out and buy up pieces of intellectual property for the purpose of squeezing money out of someone who wants to put them to use, strike me as little better than blackmailers.
Anti-commons tragedies are rampant on the leading edge of discovery, where legal rights are not only splintered but also still in flux. Research laboratories abandon promising lines of inquiry because the cost of finding and assembling all the necessary rights is so high—and even higher if you miss one, no matter how minor, and find yourself hauled into court. Academic researchers become scofflaws, ignoring patents in hopes that the owners will not bother to sue them, at least not until the efforts produce something profitable. Commercial labs cannot afford to take that chance. Underuse is hard to quantify; who can say what has not been created, what medical discoveries have not been made?
Another question The Gridlock Economy answered for me was why the government was interested in forcing the conversion of broadcast television from analog to digital, and why some folks want to stop broadcast TV altogether. It turns out that the low-frequency spectrum it uses is very prime real estate indeed, and currently very inefficiently used. This is one reason why our cell phone and wireless broadband services are far behind places like Japan and Europe. One cell tower at 700MHz can provide the same coverage as ten towers at 2400 MHz.
This book was published in early 2008, and offers this example of a Tragedy of the Anti-Commons from a year ago:
Not long ago, mortgage bankers sized up borrowers before making loans; lenders were a phone call away if home owners had trouble repaying. Not anymore. Investment banks engineered new mortgage instruments that gave larger loans on riskier terms to people with weaker credit. Banks pooled these new mortgages together, then split the pools into bonds with varying risk levels. The details were complex, but the results were magical: financial engineering seemed to transform dodgy mortgages into safe bonds. So long as interest rates stayed low and house values high, everyone made money.
But not for long. Fragmenting mortgage ownership broke the link between borrower and lender. When rates rose and prices dropped, the gridlock features of the new financial instruments came to the fore. There were so many partial owners of pooled mortgages that no one cared to act like an old-fashioned mortgage banker with careful underwriting and loan servicing. Until recently, foreclosure had been the banker's last resort because it's costly for everyone, including the lender. But in the new world of too many owners, widespread foreclosures became inevitable. Scattered owners of pooled mortgages could not easily reach agreement to restructure troubled loans. Today, there's no one for a borrower to talk to at the other end of the phone.
There's a regulatory gridlock story here as well. Mortgage regulation is still based on the old one-mortgage, one-banker model....New financial instruments fall between multiple federal and state regulators. No single agency can protect the integrity of the financial system as a whole, but each is powerful enough to block the others from stepping on its bureaucratic turf. Regulatory gridlock meant that no one checked as hundreds of billions in dangerous mortgage bonds were created and sold.
To his great credit, Michael Heller offers up no stock villains, and proposes no one solution to the problem. He sees the answer in (1) awareness of the problem, and (2) willingness to explore a variety of solutions public and private, legislated and informal. The Gridlock Economy is an eye- and mind-opening new perspective.
