Saturday, 8 March 2008

“The Good, the Bad and the Ugly II”

“The Good, the Bad and the Ugly II” (title of a movie with Clint Eastwood)

A personal comment by Roya Ghafele, Ph.D.

Here is the world as we know it: globalization is driven by restlessly profit maximizing companies, which will seek to leverage any opportunity possible to maximize corporate interests. On the other side, there are a range of bilateral and multilateral agencies, striving to preserve the public interest and do everything they can to help those underprivileged in current Globalization dynamics. In the big theater play of international affairs the roles and functions appear clearly defined. Within this context Intellectual Property (IP) kicks in as yet another tool to protect corporate interests at the detriment of the poor, a handy weapon and useful barrier to protect the wealth of those who have from those who don’t.

If Hollywood were to pick up the issue, it would probably come up with the “The Good, the Bad and the Ugly, part II.” It would be a gangster movie, portraying greedy men in grey suits (no place for women in that movie) in their pursuit for ever more self fulfilling desires and in doing so destroying whoever and whatever comes their way, primarily through their newly created super arm “IP”.

Unfortunately, I tend to get bored by movies with fairly predictable outcomes and clear-cut role distributions. My preference is more subtle cinema where it is a good deal harder to distinguish the “good” from the “bad.” Just for the fun of it, and clearly without policy implications or even critique of current actors, I would like to sketch out a new plot for the stage of current world affairs.

IP is currently primarily rooted within the realms of the legal profession. Called “IPR” – “Intellectual Property Rights” rather than “IP”, it helps its owner to “preserve its right”, sanction “violators” and bring them to court, so they can serve their sentence, if found guilty. Since the law allows to “police” IP, competition can be kept at bay, a lawyer’s major contribution to business strategy or respectively policy making is fulfilled; the issue of the relationship of IP to competition policy is of course a different chapter. A major effect created by the eager search for the defense of private property is ignored in the argument. Namely, that the attribution of property rights over knowledge allows to leverage intellectual capital as a tool for economic growth. Known to economists as new economic growth theory or knowledge based growth, knowledge assets provide the opportunity to engage in entrepreneurial activity based on innovation and creativity. As such, IP can be bought, sold, traded in exchange for other goods and services or used as a trump in mergers and acquisitions and other growth oriented strategies.

Important to note in the context of the international development discourse:
Knowledge is not a resource reserved to the developed world. The cornerstone of the IP system, creative, open minded thinking is inherent to ALL of the world’s societies, unless censored by authoritarianism.

The trick is to look at IP as an emerging asset class and find novel ways to engage developing countries in the global economy. The story line for my fictive movie therefore goes as follows:
Companies take up their corporate social responsibility and use their entrepreneurial skills not only for ever growing margins, but also to promote the public good. They are motivated to do so, not only to promote their reputation, but also because they are made up of people as well, just as the NGOs and multi and bilateral organizations are. People engaging with people; all over the world, no matter their institutional context. (Nay-sayers already exclaiming their doubts, keep in mind its fiction!) The financial sector for example could provide the much needed cash to get developing countries’ innovation systems going. An initial IP scope allows to identify IP that can subsequently be traded on Wall Street and leveraged in financial transactions, such as a securitization. Rated by a recognized rating agency and pooled together with IP assets from developed countries, the introduction of a financial mechanism for IP would provide immediate cash for innovators and creators all over the world. Unrealistic?

Yes, at first sight. But then again, firms such as SEARS, Dominos Pizza or Dunkin Donuts leveraged in the last 24 months quite successfully their IP to access on average 1.8 billion dollars and beyond. Also, the IP from developing countries need not be given a good rating, but be rated at all to engage financial mechanisms, even badly rated IP can provide cash to its owners. A last point on the valuation: The tools are out there, ranging from the traditional discounted cash flow, income and market approach to the more sophisticated tools like the Black Scholes model. Have they been used in the past? Yes. Do they work? Probably. Can they be improved? Very likely, but for the time being that’s as good as it gets and markets learn by experience.

This is the narrative I am suggesting. Anyone interested in joining the play, very welcome to do so!

Roya Ghafele currently is an international research scholar at the Haas School of Business at the University of California, Berkeley. The views expressed in this article are not necessarily those of UC Berkeley. She can be reached at Ghafele@haas.berkeley.edu

1 comment:

Andrew Nyamvumba said...

The plot is very interesting. I loved it!
I am working on a topic (masters by research) of Productivity of knowledge-based systems in Rwanda. This small African country has chosen as its development strategy a knowledge based economy. The country was completely destroyed after a 1994 genocide and has limited natural resources, so the strategy of focusing on its human resources is understandable. I am reminded of a sentence in a play by a prominent Kenyan playwriter Francis Imbuga in a play he titled Betrayal in the City in which the center of the plot is [I quote] "when the madness of the entire nation disturbs a solitary mind, it's not enough to say the man is mad."
Can this add some twist to ya plot?