Intellectual property the next big thing, Greenspan predicts

BY LISA TREI

As America's economy shifts from emphasizing the production of material goods to the creation of ideas, the issue of intellectual property rights has assumed increasing importance, Federal Reserve Chairman Alan Greenspan said Feb. 27 at the inaugural economic summit hosted by the Stanford Institute for Economic Policy Research.

Federal Reserve Chairman Alan Greenspan delivered the keynote speech at SIEPR’s inaugural economic summit and told conference participants that the shifting American economy now favors the creation of ideas over the production of material goods. Such a shift will place more emphasis on intellectual property rights, he said. Photo: Steve Castillo

"Of particular relevance to our economy overall is the application of property-right protection to information technology," Greenspan said, adding, "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? The importance of such questions is perhaps most readily appreciated here in Silicon Valley."

Greenspan delivered the keynote address at the end of a daylong conference that focused on broad questions, including the economic sustainability of the U.S. budget and the economic health of the education system. Other discussion panels addressed hot-button issues such as the California budget, national security and the future of health care.

Following his prepared remarks, Greenspan answered a question about America's current jobless and economic recovery. Businesses have responded with "extraordinarily [and] unprecedentedly large increases in productivity," he explained. However, if the economy continues to expand, employers will have "no alternative to meeting increased demand without hiring new people. I would say we could get a pop in employment at almost any time." Greenspan cautioned that this jump will reflect new hires, not a reduction in layoffs. "It's the new hires which this whole issue is all about and, as yet, it is dead in the water. I presume it's not going to last very much longer, fortunately."

In his speech, Greenspan gave a historical overview of the importance of the rule of law in developing market economies. Before World War I, he said, markets in this country were essentially uninhibited by government regulations, but they were supported by property rights, which mostly meant physical property. Intellectual property-- patents, copyrights and trademarks-- were less important in an economy dominated by agriculture, he said.

During the past half-century, however, the increase in the value of raw materials has accounted for only a fraction of the overall growth of the U.S. gross domestic product, Greenspan said. The remainder of that growth has occurred in the development of ideas in products and services that consumers value.

"Only in recent decades, as the economic product of the United States has become so predominantly conceptual, have issues related to the protection of intellectual property rights come to be seen as significant sources of legal and business uncertainty," Greenspan said.

Unlike physical property, which can be defended by armed enforcement, intellectual property can be stolen by an act "as simple as broadcasting an idea without the permission of the originator."

Striking a balance between the interests of those who innovate and those who benefit from innovation-- and how these interests affect economic growth-- should be an area of active economic analysis, Greenspan said. "This work will not be easy," he said. "Still, we must begin the important work of developing a framework capable of analyzing the growth of an economy increasingly dominated by conceptual products."