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Home Publications Blogs Beat the Press The Thumb on the Scale in the Winner Take All Economy

The Thumb on the Scale in the Winner Take All Economy

Sunday, 23 February 2014 09:34

Robert Frank has an interesting discussion in the NYT of the "winner take all" dynamics created by the Internet economy, but he leaves out an important part of the picture. The notion of winner take all is that advances in modern technology allow the best in various areas to become hugely wealthy, while leaving almost everyone else out in the cold. There are reasons for disputing this view in general (see The End of Loser Liberalism: Making Markets Progressive --free download available), but the entertainment industry, the focus of Frank's piece provides excellent turf for framing the issues.

Frank points to evidence that an increasing share of sales of music is going to a relatively small number of big hit performers. He sees this as evidence of the winner take all theory. However there is an important aspect to this story that Frank neglects to mention.

The big winners get to be big winners because the government is prepared to devote substantial resources to copyright enforcement. This is crucial because if everyone could freely produce and distribute the music or movies of the biggest stars, taking full advantage of innovations in technology, they would not be getting rich off of their recorded music and movies.

The internet has made copyright hugely more difficult. The government has responded by passing new laws and increasing penalties. But this was a policy choice, it was not an outcome dictated by technology. The entertainment industry and the big "winners" used their money to influence elected officials and get them to impose laws that would restrain the use of new technology. If the technology was allowed to be used unfettered by government regulation, then we would see more music and movies available to consumers at no cost.

In other words, it is government regulation that makes a winner take all economy in this case, not technology. There are alternative mechanisms for financing creative work (here's mine), but the interest groups that promote strong copyright protection don't want the public to consider them.

It is worth noting that the government does not put the same effort into enforcing all laws. Years ago I did political work that often involved putting posters up in public places. People who disagreed with these posters tore them down quickly. Their actions were a clear violation of the law, but the police were not prepared to devote any resources to enforcing the law in this instance. There was no risk of major fines or imprisonment to individuals who broke this law regardless of how many times they did it.

It would be interesting to see the argument that there is a greater public interest in preventing the circulation of unauthorized copies of Miley Cyrus's latest hit than in protecting freedom of speech. Of course it's obvious where the money is in this debate.

Anyhow, insofar as we have a winner take all economy in the entertainment industry it is because we have laws that protect the winners, not technology. Best of luck to Robert's kids in their new band. 



Comments (4)Add Comment
The Thrust of Computer Technology
written by John Yard, February 23, 2014 10:43
Actually the entire thrust of computer technology is to empower copying of digital technology. Copying a movie , a book, a pdf and emailing that copy costs almost nothing. This will change how authorship of content is paid, and undermine traditional publishing.
Tragedy of the Commons Trumped by Tragedy of Private Market Power
written by Last Mover, February 23, 2014 11:30

Dean Baker gets it exactly right. Technology is not the culprit. It represents both, the common infrastucture over which winners and losers (should) compete, as well as (other technology) incorporated into the way they differentiate themselves from each other by quality, price or both.

In the traditional model, tragedy of the commons means the exploited overuse of public property because it is underpriced, effectively free because no one owns it. Copyrights and patents are claimed to correct this problem for the private party counterpart, for which copies can be produced at low or even zero marginal cost (free).

Yet in this case, entities like the RIAA and MPAA tried to overpower the internet with SOPA censorship to impose the market power of intellectual property rights over the right of others to compete effectively over the "technology commons" of the internet.

In effect, RIAA and MPAA were claiming the internet was a tragedy of the commons, exploited and overused by freeloaders who were "stealing" intellectual property from their owners, for which they were more than happy to install themselves as privatized invasive bully regulators and put an end to it.

In fact, their ultimate objective was to protect the overrecovery of profit that constitutes monopoly economic rent - not to stop stealing on behalf of their clients. In effect, they are the economic crooks doing the stealing, unnecessary middlemen in a high tech world freeriding on government regulations for which genuine competition would put them out of business altogether.

Further, compared to consumers framed as "thieves of intellectual property", the effect on market entry and competition from potential winners as producers, is largely undereported because few understand it.

Specifically, most simply fail to grasp the principle of opportunity cost, that the few concentrated "winners" at the top earn far more than necessary to cover their opportunity cost necessary to attract or keep them there. What should be a race to the top based on productivity has been transformed by copyright and patent abuse into a race to the top based on hitting the lottery jackpot.

The public is brainwashed to condone this by sock puppets who repeat ad nauseum the refrain - without copyrights and patents America would be in a stone age absent of creation, invention and innovation.

Well no, in fact it's the other way around. The blatant, shameless abuse of copyrights and patents has contributed heavily to America's current economic stone age of inequality, dominated by winners who don't earn their "gains" - they just collect them from others who never have a chance to produce them.

When Dean Baker says there is an alternative, he simply means there are ways to pay people enough to cover their oppportunity cost - but no more - with the exact outcome as the competitive market model ... which is of course communism according to the sock puppets because it turns private market power into a "tragedy of the technology infrastructure commons" that actually levels the playing field for all would-be winners and losers as well.
written by JDM, February 23, 2014 12:05
Also, as I understand it, when a business pays because they play music in their business (a restaurant, say), the money is then doled out according to percentages of sales on the charts rather than what music is actually being played. So if the business plays obscure blues artists, the money won't go to those artists, but Beyoncé and Justin Timberlake, etc.

This obviously isn't a situation that's simply some natural order, but one which was set up to benefit rich artists because it's easier than actually dividing the money fairly.
written by Mark Jamison, February 23, 2014 5:09
An additional aspect to this is our shift to a market society from a market economy. Michael Sandel of Harvard writes persuasively about how we've managed to monetize virtually every action in society. So, in addition to abusive use of intellectual property laws high end artists, sports leagues and other entertainers work with corporate marketers to create synergistic marketing campaigns that soak consumers with advertising costs. Favorable tax treatment allows corporate marketers and entertainers to write off incestuous arrangements that do nothing other than drive up costs.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.