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Michael Heller and the Gridlock Economy
Ethan Zuckerman, 18 Nov 08

GE-cover.gif Professor Michael Heller of Columbia University got a nice endorsement for his book the other day. Former President Bill Clinton recommended his book, The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives, as a key to understanding the current fiscal crisis. Speaking at the Berkman Center, Heller begins by asserting “When too many people own pieces of one thing, nobody can use it.” Too much ownership in a society causes gridlock - the gridlock economy - and cooperation breaks down, wealth disappears, and everyone loses.

The gridlock economy explains the current fiscal crisis, Heller tells us, if we focus on the ownership of mortgages. Historically, lenders and borrowers knew each other. Banks didn’t like foreclosing - they lose money on foreclosures - so they were willing to re-negotiate bad loans. But loans aren’t owned by a single bank now, but by thousands of people, as they’ve been securitized and subdivided. As a result, it’s almost impossible to renegotiate these agreements, and foreclosures have become widespread.

He offers other examples, from biotech, telecoms and urban planning. A major pharma company wanted to bring an Alzheimer’s drug to market, but knew they’d experience patent challenges from small companies that own patents on individual neurotransmitter pathway. This company found itself negotiating with a table filled with patent-holders, each of which was convinced it held the key patent in making a functional drug. The company ended up shelving the drug rather than completing the negotiations for fear that such a complex deal was impossible.

There’s been a massive increase in patents on DNA - more than 40,000 patents awarded in recent years. This is the result of massive investment and patenting in this area. This investment hasn’t led to new classes of drugs - instead, we’ve seen a stagnation in pharma innovation.

The most underused natural resource in America, Heller claims, is electromagnetic spectrum. We’re stuck with a licensing policy put into place under Calvin Coolidge, which doesn’t recognize any of the technological innovation that’s happened between then and now. The system is geographically fragmented and non-transferable, and leads to a system where the US is falling behind other advanced nations in broadband penetration. Spectrum gridlock prevents the emergence of high-speed wireless services, he argues.

Why do we get stuck in airports? Because we’re massively underserved by airports. With 20 new runways, we’d end routine air delays in the US. But there’s been only one new airport built since 1978 - Denver. Real estate gridlock has made it possible for any community near an airport to stop expansion by refusing to sell land. We’re finally seeing this unlock with Dulles, Chicago and Seattle airports all building new runways, but Heller believes it’s a major problem.

Real-estate gridlock can help explain the slow growth of wind power as well. It’s possible to generate massive power in the center of the US, by building huge farms in places like the Dakotas. But the demand for green power is on the coasts, and it would require infrastructure buildout to create transmission lines.

In a different field, gridlock has changed the arts. Early rappers rhymed over a complex wealth of samples (think Paul’s Boutique) - now rappers license a single sample and build songs around it to avoid copyright conflict.

Heller believes that a common thread in all of these cases is the disappearance of a tight linkage between ownership and use. In the past, there was little distance between the patent and the product, the land ownership and the property development. But innovation these days is about assembling resources. You need multiple pieces of protected property to achieve innovation in semiconductors, drug discovery, software or telecoms. It’s true in the arts as well, with the rise of the mashup, and illustrated by the difficulty of releasing documentary films. (See the difficulties regarding the documentary Eyes on the Prize, due to copyright issues.)

To describe this situation, Heller has coined the phrase, “The Tragedy of the Anticommons.” This is in contrast to the tragedy of the commons: when anyone can use a resource, it’s likely to get overused. With too few owners, overuse is a common outcome, because rational individuals will prioritize their needs over collective goods. This was a critical insight for environmentalists in the 1960s, helping unite a large number of environmental problems into a common phenomenon. Private property was often prescribed as a solution to tragedy of the commons solutions, assuming that a property owner would consider long-term implications of development for her property rather than permitting overuse.

Heller argues that, in many cases, we’ve skated right past private property and into anti-commons, characterized by underuse. If we’ve got too many owners, there can be too little use of a resource. We don’t see the anti-commons tragedy as clearly, as it’s characterized by the absence of innovation. “Where do you go to protest that a drug didn’t come to market or to complain that your cellphone is so poor?” With this new concept, Heller hopes to rope together a set of disparate problems with a similar set of ownership structures.

There are solutions to the problem, Heller promises, though his talk stops short of exploring those in detail. He hints that the discussions need to center on reforming patent laws invented for an age before DNA patents, or telecom patents and spectrum allocations appropriate to an earlier technological age.

Around the Berkman table there’s some skepticism about the idea of anticommons. Pushed on research in the field, Heller admits (and is clear in his book) that research on pharma companies reveals that they don’t feel they’re blocked by patent gridlock. Heller argues that it’s hard to ask practitioners about innovations they’re not making - asking early airplane builders about passenger aircraft would have revealed skepticism about the whole proposition, not the problem of land use and public airports.

Yochai Benkler, who’s written at length about the economics of commons production, pushes Heller for details, embracing the idea of the anticommons, but looking for specific ways out: do we need more commons? lower transaction costs? spot markets that make it easier to transact around property? Heller (correctly?) summarizes his question, “Very nice, but so what?” He offers a possible way out: in cases of scarcity, private property makes sense, while in situations with no scarcity, a commons model makes more sense. If it’s possible to use telecoms whitespace in a non-rivalrous fashion, spectrum should be a commons; if not, perhaps we need a more intelligent form of private property.

Heller worries that people aren’t taking suggestions for solving these problems seriously enough. He’s offered a solution for “eminent-domain abuse”, where the state can seize private property with compensation but not the owner’s consent. He argues that eminent domain is never fair to the property owner and always underprices - if the price was truly the price the owner wanted for the land, she’d be willing to sell. Heller authored a paper for the Harvard Law Review focused on “land-assembly districts”, a way in which communities could cooperate to assemble and sell their land and avoid expropriation. He’s concerned that the article, now out half a year, hasn’t received a single comment, which makes him wonder about the value of articles versus books.

Benkler ultimately sees the problem about a mis-definition of the boundaries of property, suggesting that the gridlock scenario is a specific manifestation of poor definitions of property and a poor transactional system. Clearly, that’s the beginning of a much longer conversation, and one I’m unqualified to act as scribe for.

This piece originally appeared on Ethan Zuckerman's blog, My Heart's in Accra

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Comments

I don't see how more airport runways would be a good thing for the planet or the climate. Is that the best case to be made for this concept?


Posted by: Jim on 19 Nov 08

Perhaps we can all agree that we live in a round and bounded {not flat and limitless} planetary home, one which is rapidly filling up with people and peoples’ products, including millions upon millions of gas guzzlers, other polluting machines and thousands upon thousands of smokestack factories. This is to simply say, absolute global human population numbers are projected to reach 9+ billion people and the leviathan-like global economy is expected to grow in a near-exponential way by many trillions of dollars in the next 42 years…..provided we keep choosing to keep doing what we are doing now.

Please consider the following proposal as an alternative to what appears to be a soon to become unsustainable business-as-usual course of action. This idea for change results from the realization that we have to protect both the Earth’s ecology and the human community’s manmade economy.

First, the Earth and its environs are to be spared further wanton dissipation and reckless degradation; and second, the global economy needs to be rescued from becoming patently unsustainable in the relatively small, evidently finite and noticeably frangible world we are blessed to inhabit.

What could be accomplished if the human family determined to provide “stewardship incentives” to people who choose to protect the Earth and its environs, the same kind of incentives that are now routinely handed out in huge annual payouts to people who are supposed to be growing the global economy….. something the economic powerbrokers are clearly not doing now?

Please note that billions of dollars are being proposed in financial bailouts for companies building unsustainable products and factories and that year-end bonuses are being directed to “wonder boys” in investment houses and banks who have been uneconomically growing humanity’s global economy by collusively creating dodgy financial instruments (e.g., credit default swaps) and fraudulent business models (e.g., Ponzi schemes). These self-proclaimed Masters of the Universe have ignored requirements of practical reality and turned a great economic system into a paltry gambling casino, making themselves the primary beneficiaries of pseudo-business activities along the way. In the light of such avaricious risk-taking and conspicuous hoarding behavior, they can no longer be called by any name other than “thieves of the highest order”.

Perhaps reasonable and sensible people can agree that the greed of arrogant, self-serving tycoons and bankstas no longer is to be condoned, much less extolled as somehow good, and that the preservation of Earth and its environs needs to given some immediate attention in terms of funding substantial stewardship incentives equal in size to the financial rewards now directed to the economic powerbrokers.

By redirecting wealth, my generation of elders can begin to put the global economy on a sustainable, more reality-based foundation as well as to more reasonably and sensibly fulfill our responsibilities as good enough stewards of the Earth.

Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
http://sustainabilityscience.org/content.html?contentid=1176


Posted by: Steven Earl Salmony on 20 Nov 08

Dear Michael Heller,

The road ahead will not be an easy one, I suppose; precisely because the mistakes my not-so-great generation of elders are making now simply cannot be repeated by the children. Thankfully, new leaders are emerging. Some have called this phenomenon the appearance of "transformational" leadership. That is also what I am observing.

The unrestricted consolidation of filthy lucre and political/military power, the unbridled expansion of economic globalization, the unrestrained per-capita overconsumption of limited resources and the unchecked human overpopulation on the relatively small, evidently finite and noticeably frangible planetary home God blesses us to inhabit, could soon become unsustainable. Perhaps the humane, reasonable, sensible and wise regulation of these activities will make make it possible for the family of humanity to build a patently sustainable, distinctly human world order, one that adequately enough models key biological systems and physical structures of Earth.

New leaders with new ideas are coming forward. A new day is dawning. My hope is for members of my generation to become helpfully engaged by openly acknowledging and effectively addressing the challenges presented to humankind rather than by perversely mounting a "rear-guard action" in denial of looming, human-driven threats to human wellbeing and environmental health.

Sincerely,

Steve

Steven Earl Salmony
AWAREness Campaign on the Human Population,
established 2001


Posted by: Steven Earl Salmony on 26 Nov 08

Could many members of our culture be “fixated” on the fantasy of limitless economic growth? Are we suffering from a sort of illness, something like amnesia, that is resulting in our forgetfulness with regard to the necessity of the finite Earth and its frangible environs to the preservation of life as we know it, a functional global political economy and the human species? Alternatively, have we been mesmerized by a modern rendition of the ancient Tower of Babel? Or have all of the above somehow been occurring?

Perhaps we are forever forgetting about Earth and its environment because too many people, especially the economic powerbrokers, their bought-and-paid-for politicians and their minions in the mainstream media, are worshipping a “totem”. At least to me, there appear to be many too many people for whom the economy, in and of itself, is the primary object of their idolatry. This behavior is observable, obvious and flagrant. In many instances, these worshippers make what they evidently believe are rational arguments that suggest manmade financial and economic systems are somehow essential to, and an integral part of, God’s Creation; that indicate the growth of the global economy will occur from now on, even after the Creation is ravaged and its frangible climate destabilized by unbridled overproduction, unchecked overconsumption and unregulated overpopulation activities of the human species. Aside from the “Economic Colossus” nothing else matters much to them.

Today, it appears that the financial system of the economic powerbrokers is collapsing like a “house of cards” and the real economy of the family of humanity is threatened. Experts in political economy are saying internally inconsistent and contradictory things. Communications about financials and the economy are generally confused and in disarray. Confidence and trust in the operating systems of finance and the global economy have been undermined by the invention of dodgy financial instruments and unsustainable business models as well as by the promulgation of con games and Ponzi schemes. Transparency, accountability and honesty in business activities have been largely vanquished. A great economic system is being undone by con artists, gamblers and cheats. In such circumstances, does the manmade colossus we call the global political economy remind you in some ways of a modern Tower of Babel?


Posted by: Steven Earl Salmony on 4 Dec 08

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