Not only has Argentina banned beef exports, the government has apparently also imposed price controls on oil, thus eliminating it as a (small) but significant export market and putting domestic production on decline. The same is true of natural gas production because price controls caused domestic consumption to increase while supply plummeted. With a bit of detachment that could befit a French government economics minister, the NYT noted: "Orthodox free-market economists regard price controls with distaste." Indeed, they do, though I doubt unorthodox free market economists think much of price controls either. And even orthodox unfree-market economists could likely agree that it is axiomatic that if you control price below its equilibrium level, then demand will increase and supply will dwindle.

Our host Martin Krause of ESEADE explained to us what a self-fulfilling pickle these price controls have gotten the government into. They impose price controls to control inflation, and then demand shoots up while supply dwindles. In response, the government cannot free prices because that would cause inflation to run rampant, which was the original purpose of the price controls. The public, meanwhile, gets used to basic commodities like beef, oil and natural gas at the cotnrolled price. An initial intervention begets more and more intervention in the name of populist good until it all eventually collapses, depressingly amidst recriminations of profiteering and price gouging.

Which brings me to IP. Government degradation of IP rights -- be it through weak copyright and patents or tolerance of widespread piracy -- affects the equilibrium of intangibly-based goods in a country just as much as price controls. If the social norm becomes that you pirate your software and pick up your DVD's from street vendors hawking outside the subway, then it follows that like price controlled oil or beef (which is much harder to move out country than IP, by the way), demand will go up and supply will dwindle.

How to avoid the vicious cycle of price controls? In the IP world, I can only think that countries must have native contituencies for IP rights to counter the attractive short-term, but disastrous long-term, policy of non-enforcement and piracy. For Brazil, for instance, the presence of important aircraft manufacturer Embraer, and its host of patented designs and processes, means that Brazilian hostility to patent rights must be tempered, or the country hurts itself. This is not to say that expropriation by indifference or hostility to IP is impossible even with a native creative industries, but at least copyrighted DVD's and patented software are not just creations of "el coloso del norte" that can be demagogued by economically illiterate politicians.

posted by Ray Gifford @ 8:01 AM | Digital Americas

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