What triggered this Kat’s interest was a commentary by Justin Fox on Bloomberg radio. Fox noted that while the US trade deficit for goods does not show any sign of going away in any foreseeable future, there is a trade surplus for services. This means that while the US imports more goods than it exports, it exports more services than it imports. According to Fox, the main source for the trade surplus in services is intellectual property. The world continues to be willing to pay for the right to use and enjoy intellectual property emanating from the US, much more than the US uses and enjoys intellectual property coming from abroad.
One way to better understand this is to consider the discussion about tradeable and non-tradeable goods. We more and more hear, led by the Nobel Laureate Michael Spence, about the distinction between them. Goods and services are tradeable if they can be sold both in the US and abroad and are subject to import competition. Goods and (primarily) services are not tradeable if they pretty much have to be done locally; notable examples are government services and health care. Job growth (but stagnant incomes) has come largely from the non-tradeable sector, while income-correlated growth (but not job creation) has come from the tradeable sector. In the words of the Washington Post columnist, Steven Pearlstein, in taking them together--
“… the very unequal employment growth and nearly-equal output growth — and what you get is an economic tale of two cities, one that is growing in terms of jobs but not income, another that is growing income but not jobs. In short, a recipe for increasing inequality and social and political polarization.”Recall that, as reported by Fox, the trade surplus in the export of services is due in no small measure to the propensity of persons abroad to consume US-sourced intellectual property, be it the functionality and design of a product, a blockbuster movie, or a franchised brand. However, the next unit of value extracted from the use of such IP does not generate a commensurate increase in jobs (although those employees who benefit from this state of affairs area likely to enjoy continued wage gains). In the current political climate and against the backdrop of voluble criticism over social and economic inequality, there are those who might argue that IP is on the wrong side of this divide. Under this view, it is not enough that IP is challenged as disproportionately favoring private over public interests and being inimical to innovation. To this might now be added the claim that IP protection contributes too little to the creation of domestic employment of the high-paying variety and it merely favors a narrow class of entrepreneurs who are capable of exploiting IP protection for their personal gain, at the expense of broader social and economic interests.