The Use and Abuse of Patents

Rajesh Jain via Prayatna draws attention to this piece in the NYT about patent laws and 'developing' economies. The 'received wisdom' is that strengthening patent laws would be good for growth, Petra Moser, in her doctoral thesis begs to differ. It's certainly a question that is worth asking.

Petra Moser, now an assistant professor at the Massachusetts Institute of Technology's Sloan School of Management, has come up with some surprising conclusions [in her Ph. D thesis] that are attracting the attention of fellow scholars.
One of Professor Moser's conclusions is that developing countries like India, which is scheduled to come into full compliance with an international patent treaty in 2005, may be better off without strong patent laws.

The conventional wisdom among economists has been that a robust patent system helped transform the United States into an economic powerhouse. And this may be true. But, Professor Moser concludes, what was good for America and Britain in the 19th century is not necessarily good for emerging, largely rural economies in countries like Denmark, the Netherlands and Switzerland.

"In economics, we are taught that patent laws are what create incentives for innovation," she said. "But many of the best innovators in what was the high technology of the day came from some of the smallest countries in Europe, and these nations did not have patent laws."

The purpose of patents is twofold: to protect the inventor and to speed technological progress. Thus, patent laws require that an inventor, in a quid pro quo exchange for the limited monopoly that a patent provides, disclose his methods to others. "Countries without patent laws have much larger shares of their innovations where patenting would have been a bad idea," Professor Moser said.

So what is the lesson for Brazil, China, India and other countries that are being pressed by industrialized nations to create strong patent systems?

"We try to force patent laws on developing countries and say, This is best for you," she said. "Then we are surprised when they say they don't want patent laws. But they have a point. Such laws could actually hinder innovation in those countries."
Source: New York Times
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The Future of Japanese Savings

Well here's Eddie right on call with this week's Straits Times column, giving details on those Japan unemployment numbers, and some interesting and preoccupying background on Japanese saving:

More and more Japanese are dipping into their savings to make ends meet, according to a survey by the Bank of Japan. A record 51 per cent of Japan's households said their savings had dropped during 2003, while the number of families with no savings at all has risen to a 40-year high of 22 per cent, the survey revealed. The results are the latest indication that a decade of economic stagnation and policy mismanagement has not come without cost and will serve to remind new cabinet ministers appointed on Monday of the urgency of their task.The disclosure also raises questions about policymakers' claims that Japan's Y1,400bn ($12.5bn, 10.9bn, £7.6bn) in personal savings will cushion the effects of a downturn.The poll covered 6,000 households, 60 per cent of which said declining incomes were the main reason they were having to use their savings, an increase of 8.4 per cent compared with last year.Figures released yesterday by the National Tax Agency showed average annual remuneration declined 1.4 per cent in 2002 compared with the previous year, the fifth consecutive year of decline. The agency said the number of wage earners decreased by 490,000 to 52.56m in 2002, the first decline in two years. Unemployment in Japan was 5.3 per cent in July this year, down from a record high of 5.6 per cent earlier this year. However, the period of unemployment is increasing, with one in three now jobless for more than a year, according to the latest figures from the Labour Ministry. Unemployment for those under 24 is about 10 per cent.The BoJ survey also unveiled deep disquiet about retirement, with 80 per cent saying they were "worried", rising to nearly 90 per cent of those under the age of 60. They cited a lack of savings and insufficient pensions benefits as the main reasons. Figures released this week by the National Pension Fund Association revealed it achieved a negative yield of 14.5 per cent on assets under management in fiscal 2002, the worst result since its launch in fiscal 1991 and its third consecutive year of negative returns. According to a recent report from Greenwich Associates, assets at employee pension funds in Japan cover only 62 per cent of future payments compared with 103 per cent in the US.Reversing declining incomes, tackling unemployment and ending the erosion of savings will depend on economic recovery - and there are signs of revival.The latest figures showed growth at an annualised rate of 3.9 per cent, although the gross domestic product deflator is running at minus 2.5 per cent and has been in negative territory since 1995.
Source: Eddie Lee, Straits Times

Tax Cuts and Fiscal Stimulus in Asia

Eddie's thoughts, following on from his Japan article, on the debate in Asia about saving, tax cuts, fiscal stimulus and ageing.

Looks like the forex market is bent on testing that 110 Yen level. But Asians appear to be holding on to their US treasuries still. So the 'big one' is stillout there. Situation seems finely balanced at the moment. There’s quite a bit of positive news from the tech front in Asia. Order flows are picking up nicely,etc. But now you have appreciating currencies. And over in euroland, USD/euro could soon be back at 120. I tend to agree with you. I just don't see why a weaker dollar should necessarily force EU and Asia to miraculously have stronger domestic demand. I think the opportunity for the ROW to have stronger demand was the last couple of years when the dollar was strong. Asia should have gone all out to kick-start, and that included weakening their currencies further. Andr eally its Japan, HK and Spore .. the dragon economies. They couldn't and their time has passed.

I’m just quite stunned. 1 in 5 Japanesehave nothing in their kitty. No savings nor insurance;simply no assets to fall back on. Its an awfully large proportion for a first world country. makes the glitter of Ginza all the more hollow. Save till you can save no more, and now there’s nothing left.There’s very little reason to invest. And I don’t see how there can be any pent-up demand to be released by ‘economic reforms’. Is it now a case where any incipient recovery is snuffed out by the vain attempt to 'try to save something' whenever households see signs of economic revival? While it’s a natural instinct for individuals, calls by the authorities to the public to‘save for retirement’ seem pointless at this stage.It’s too late for the economy to save now ... ‘Retirement savings’ will have to come from employment. but for the ageing workforce, what employment? Rifkin talks about the third sector and that may be it. A new job offering a chance at a second or third career. Government budget gets shifted from pension/unemployment benefits to pay the social wage. It just seems that govts are making the mistake in thinking that only fiscal stimulus worthwhile is tax cuts.These are permanent cuts, but they are not thinking about expenditures that will have to increase over time(by keeping ageing population employed in the third sector) Immigration could be more tolerable with lower resident unemployment. Young immigrants fit into 2 desired slots the ageing population can't fill ...physical labour and high-skilled work in new industries. Btw, my colleagues recently interviewed 40 householdsin middle-class Spore. 1 in 3 say they can’t save. It’s a small sample, but I find the results very disconcerting. As you know, the govt have reacted to the recession by calling for wage cuts and reduction in employer contribution to the pension scheme. The reduction is on a staggered basis, so we will continue to see further cuts over the next few years. Their gut instinct to a recession is to cut wages. My gutinstinct tells me we should have tried to preservewages, and then figure some other way of getting round this. As you would say, ‘no easy answers here’. A reader to the local paper recently wrote in to saythe deed is done, its water under the bridge and we should move on. It may be water under the bridge, but the situation is harder to retrieve now. There are some calls for fiscal measures to prop up the economy.But pump-priming, when you have simultaneously undermined confidence with wage and pension cuts, just seems so fruitless.

The Japanese 'Recovery' in Question

blogging has been intermittent, not to say non-existent these last few days as I have been away on fieldwork. The world, however, has not stood still in my absence, and I have the feeling that some of the US data yesterday could turn out to be quitre significant. Certainly it seems that some of the underlying questions about where the principal OECD economies are headed might now start to be clarified. In this context, the latest info from Japan could be read as the beginings of a return to reality. The unemployment numbers need to be read carefully, since the number of people of working age in Japan is now falling, and the drop is to be expected. Morre interesting are the output figures. My feeling is that Japan had revved-up on the hope (and expectation) of a major global recovery, if the wobbly state of the US economy that was revealed yesterday continues to follow this line this will by no means be guaranteed, so expectations in Japan may need to be revsied downwards. Any such revision would simply open up for all to see those 'old problems' which have certainly not been resolved. One last detail: note the comment about the value of the yen not being so high as it seems because of the price effect of years of deflation. Japanese prices, denominated in yen, are a little more competitive each year. However, whatever the fine detail of the situation, a yen at 110 to the dollar is hardly going to help Japan fight the deflation problem.

Unemployment fell to a two-year low of 5.1 per cent in August but industrial output shrank 0.5 per cent in the same month, sending mixed signals about the strength of Japan's recovery. The number of unemployed fell by 280,000 to 3.33m, down 0.2 percentage points from the previous month on a seasonally adjusted basis. This was the first time the monthly jobless number declined by more than 200,000 since 1990. There was also good news in a survey of sentiment among small and medium businesses which showed a surge in confidence close to peaks of the mid-1990s. This improvement in sentiment among Japan's more vulnerable companies comes ahead of today's Tankan business confidence survey, which is seen as one of the economy's most important leading indicators. Revised figures showed growth in the second-quarter at an annualised 3.9 per cent, adjusting for deflation. However, even after revising its growth estimate upwards recently, the government is predicting nominal growth for this year of just 0.1 per cent.

Signs of business confidence and evidence that the economy is at last creating jobs after six quarters of growth were countered by the fall in output. The 0.5 per cent drop came in spite of an increase in shipments, suggesting that manufacturers are still cautious about future growth prospects. Masaaki Kanno, economist at JP Morgan in Tokyo, said: "Manufacturers still do not have the confidence to accumulate inventory." He said the same trend was visible in the US, suggesting that manufacturers might be moving towards a leaner inventory model. Mikihiro Matsuoka, economist at Deutsche Bank, said: "This is not a strong recovery but the upward slope is real." Fears that yen appreciation might choke off recovery were overdone, said Mr Kanno. Because of continued deflation, even if the yen strengthened to Y105 to the dollar, this was equivalent to Y115 in 1999, a competitive rate. He said there was no correlation between corporate profitability and such relatively minor movements in the currency.
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