Legal Issues

Here’s How Republicans Can Show They’re Serious About Free Markets


Here’s How Republicans Can Show They’re Serious About Free Markets

Photograph by Gabriel Bouys

On Friday the Republican Study Committee, a policy shop for congressional Republicans, published a memo on how to fix copyright law. By Saturday afternoon the group’s executive director had pulled the memo, which had evidently failed to approach the subject with “all facts and viewpoints in hand.” This is Washington’s way of saying that an interest group hit the roof, and indeed, Ars Technica reports that lobbyists from the “content industry”—Hollywood and recording companies—pressured the group to renounce the memo.

Copyright being in fact broken, you can still read copies of the memo online. It lays out what copyright reform advocates have been saying for years. Copyright protections now extend 70 years past the life of the author; for a corporation, 95 years after publication. This, along with punitive laws on copyright violation, hinders creativity and innovation. These facts aren’t new. What’s new is the tone. Derek Khanna, the memo’s author, writes like an unashamed free marketeer, and in doing so manages to latch on to a larger point: Laws that help businesses often harm markets. From the memo:

Today’s legal regime of copyright law is seen by many as a form of corporate welfare that hurts innovation and hurts the consumer. It is a system that picks winners and losers, and the losers are new industries that could generate new wealth and added value. We frankly may have no idea how it actually hurts innovation, because we don’t know what isn’t able to be produced as a result of our current system. (Emphasis in the original.)

Radical stuff. There’s no one in Washington to lobby for industries that don’t exist yet, and ever so briefly, Khanna and the Republican Study Committee stepped into that breach. Then they stepped back, to gather more facts and viewpoints. Here’s one: Pro-business and pro-market are not the same thing. The most pleasant place for a business is not elbows-out in the middle of a free market, but sitting alone, atop a fat monopoly. Ask your local cable provider. The larger a business gets, the more it has to protect from the companies and industries that might follow it with something better or cheaper. And the best way to protect what you have is to have it written into law.

Real markets, with real competition, are most helpful to newcomers. Small businesses and new industries create new value. Once created, they, too, move to Washington to protect it. Witness the growth of Google (GOOG) and Facebook’s (FB) lobbying operations in the Capitol. Khanna describes extended copyright protection as rent-seeking—in his words, “non-productive behavior that sucks economic productivity and potential from the overall economy.” What’s true of Hollywood and the recording industry could be said of any established industry.

Luigi Zingales, a professor at the University of Chicago Booth School of Business and a regular contributor to Bloomberg View, points out that larger companies can lobby for special exemptions in the tax code. This creates complexity in the tax code, which punishes smaller businesses that can’t pay for tax lawyers and don’t have anyone’s buttonhole on Capitol Hill. Zingales prefers simple regulations and simple taxes, which are harder for lobbyists to game and easier for democracies to understand. He sees this as a bipartisan problem. The left is inclined toward more regulation, and the right is pro-business, rather than pro-markets.

The direction Khanna was headed—a defense of open, competitive markets at the expense of existing businesses—is still wide open space, claimed by no party. This summer, conservatives such as Timothy Carney at the Examiner and Yuval Levin at National Review urged Mitt Romney to back markets, not businesses. But he chose not to, even though he, in his day, disrupted existing markets of his own. Some enterprising Republican can still do it. Derek Khanna in 2016! He’s young. Maybe VP.

Greeley-brendan-190
Greeley is a staff writer for Bloomberg Businessweek in New York.

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