Talking About Modern Arts

Intellectual Property Rights (IPR), such as patents, trademarks, and copyrights, are an important institution of modern societies. They aim to allow the commercialization of creative work, and thereby provide economic incentives for inventions and innovations. But the optimal scope of IPR is subject of ongoing debates among scholars.

The basic story is short. If new drugs are copied easily by competitors after market launch and the resulting competition drives down profits, no pharma company will engage in hugely expensive new drug development. If an artist is not able to make a living from selling her work, she needs to stop being an artist and start working in a factory. We all know the case of the music industry and the pirating of music records on the internet. Two decades ago, CD sales were the main source of income, at least for the top acts in the business. Today, sales are so low that even income from streaming services tops record sales.

The good ol' days of effective IPR in the music industry (Modern Talking, 1985)
The good ol’ days of effective IPR in the music industry (Modern Talking, 1985)

Copyrights still exist, but they are difficult to enforce in the music industry. Does that mean that society will lose a good deal of creative work, especially by young and unknown artists? I’m not so sure. The act of invention in the fine arts is usually not too expensive. There are no huge capital demands like in pharma. Most of the time the total costs comprise the labor costs of relatively few people. Even without the possibility to sell art objects, the remaining sources of compensation, such as the high societal status of being an artist or the sale of services (e.g., giving concerts, signing books), might still be enough to let the discounted life-time earnings* of a career as an artist exceed the opportunity costs of working in a factory.

Since we usually do not associate the fine arts with a high level of commercialization (c.f. picture), effective copyrights might actually create too large of an incentive to produce commercializable products than what is socially desirable. New distribution channels, in turn, might even increase total surplus. Once an invention is there, everybody can access it immediately and cheaply via the internet.

Of course, the diminishing efficacy of IPR enforcement creates a net transfer from producers to consumers. But since the production costs of art is relatively low compared to costs in other sectors (chemicals, pharma, consumer electronics, etc.), producers might still obtain a sufficient share so that creativity will not run dry. That’s actually part of a more general result. The optimal scope of IPR depends on the underlying characteristics of the industry. That’s why it’s such a hard task to design policy rules. There simply is not “one size fits all”.

* Especially for young, unknown music artists it is hard to pay for living expenses solely by giving concerts. But earnings from record sales were always comparably low. So a large part of the economic incentive to pursue an artistic career must stem from the future prospectives to become successful.

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