If our objective is to maximize economic growth, are we striking the right balance in our protection of intellectual property rights? Are the protections sufficiently broad to encourage innovation but not so broad as to shut down follow-on innovation? Are such protections so vague that they produce uncertainties that raise risk premiums and the cost of capital? How appropriate is our current system–developed for a world in which physical assets predominated–for an economy in which value increasingly is embodied in ideas rather than tangible capital?
If the form of protection afforded to intellectual property rights affects economic growth, it must do so by increasing the underlying pace of productivity growth. The bulk of this increase should show up as multifactor productivity, that is, the segment of labor productivity that reflects the impact of conceptualization–ideas generally–on economic growth and standards of living. Finding a way to isolate the effect of, say, the length of patents on overall economic growth poses a formidable challenge.
Greenspanis comments lend credence to the widely held idea that current fears about the erosion of IP law are overreactions that hurt the economy. He asks for a greater examination of the effects of intellectual property law on the overall rate of economic growth, and calls into question the wisdom of a one-size-fits-all solution for both the physical and conceptual forms of property.
You can read Greenspanis speech, and others from the Financial Markets Conference in Atlanta, at the Federal Reserve Boardis Web site.