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The New Mercantilism


When the old-fashioned colonial powers like Great Britain ruled the waves, and mercantilism was the world’s organizing principle, the developed nations got cheap raw materials from the undeveloped nations and in turn sold them expensive finished goods.

We may think that mercantilism and colonialism have been left behind, but as the French say, the more things change, the more they remain the same.

This we are taught by two economists, Michele Boldrin and David K. Levine, in their work-in-progress, “Against Intellectual Monopoly.” For while old-style mercantilism has indeed largely passed away, at least in the international arena, it has been reborn in the guise of protecting so-called intellectual property (IP).

As Boldrin and Levine argue, new-fashioned mercantilism also entails a lopsided trade imposed by the industrial nations on the developing world. In this case, the industrial nations get low-priced finished goods and the societies of the developing world get “our” ideas, for a price — a high price. In other words, if they want access to “our” markets, they must adopt a tough minimum patent and copyright regime; that is, they have to pay a hefty tribute to American and other western companies.

This is a lovely arrangement for those companies and an injustice for those who are forced to pay, but it is what the World Trade Organization (WTO) and other international agreements demand. As the WTO’s website explains, “The extent of protection and enforcement of these [intellectual property] rights varied widely around the world; and as intellectual property became more important in trade, these differences became a source of tension in international economic relations. New internationally-agreed trade rules for intellectual property rights were seen as a way to introduce more order and predictability, and for disputes to be settled more systematically.”

While these rules have some exceptions, the WTO’s TRIPS agreement (trading rules for intellectual property) “establishes minimum levels of protection that each government has to give to the intellectual property of fellow WTO members.” Translation: Poor countries, play by the rich countries’ patent and copyright rules … or else face sanctions and closed markets.

Are those rules consistent with justice? The answer is no. Claims to intellectual property come down to claims to the ownership of ideas. But how does one own an idea once it leaves the confines of one’s mind? At that point, other people have copies in their minds. To interfere with their use of their copies is to violate their freedom. If you’ve invented and patented the wheelbarrow and I see you using it as I pass your property, no theory of natural justice can insist that I have no right to use my own materials to make a copy of the wheelbarrow. Not only that: no theory of natural justice can insist that I have no right to sell to willing buyers the wheelbarrows I make. But patent law would stop me. Similarly, copyright law prevents me, even in the absence of contract, from nonfraudulently using as I see fit the books and recording media that I purchase.

But how will we have innovation without protection? History provides many examples of entire industries that launched without IP protection — see the early software industry, for example. In fact, patents consistently have stifled innovation by letting inventors stop others from building on existing ideas. Boldrin and Levine illustrate this dramatically with the case of James Watt’s steam engine.

Defenders of IP law vastly underestimate the value of being first in the market with an idea and vastly overestimate the ease of copying and producing successful inventions, including pharmaceuticals. The incentive to invent and invest would be strong without patents and copyrights, as it was in the past.

The new mercantilism is no better that the old. Once and for all, let’s loosen our grip on the developing world and set an example for individual freedom and real free trade.

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    Sheldon Richman is former vice president and editor at The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.