The Resonance of the Moral Design or Looking for Small Change in a House of Cards

A recent press release from Ole Music in Canada demonstrates yet again how easy it is to completely miss the point in policy matters online in the face of long odds.  This is particularly important in Ole’s case because the Canadian Parliament is currently debating major changes in Canada’s copyright law that will affect both Canadian creators and other nationals.  As a major publisher in Canada, the company’s opinions may be given more weight—than is appropriate.

Although I have a great deal of respect for them as music people, Ole’s executives make that same old argument that a market failure exists online due to massive online piracy.  This is, of course, not true.  There can be no market failure without a market and there can be no market without enforceable property rights.  Government’s willingness to enforce the law forms the ultimate backstop surrounding the private enforcement of property rights.  This is fundamental economics.  (We have written a paper on this subject and I lectured on it at Osgoode Hall in Toronto, each of which might be of interest.)

The solution that Ole suggests is to extend Canada’s blank media levy to the iPod because paying creators a royalty for digital media devices will somehow change the negotiation dynamic.  While this proposal would seem to create a new property right, I would suggest that it does so at the expense of bedrock free market principles.

What is also true is that wherever property rights are respected online, money is made and creative workers are paid.  Example?  iTunes Music Store.  Apple could easily have taken the confrontational approach as so many online companies have done, both large and small.  Apple did not do that, believing that there was something to this digital music thing that just might work out.  Other companies have spent $100 million on legal fees litigating a single case and have several billion dollars in exposure for copyright infringement.  Apple has seen its market cap go through the roof—in no small part due to the success of the iPod and iTunes Music Store, which lead to the iPhone and the iPad—not to mention the App Store.

Ole’s arguments about compensating artists sound a lot like the flawed “global license” that has been roundly rejected in several countries and foundered again recently in the United States.  There are many reasons that the ISP licensing idea doesn’t work, including that it waives the magic wand of legality over the very system that undermines the market that already exists.  How exactly would Ole explain to Apple and others who have risked capital and built businesses playing by the rules—in exchange for what?  Rewarding those who did not?

I’m no fan of suing users, never have been and never will be.  But what I do know is that if the governments of the world do not act to enforce their laws—even their existing laws—they are essentially paupering their creative class due to the onslaught of illegal and uncompensated downloading that private actors cannot defeat.  Governments that fail to protect their artists leave it to private remedies to enforce the law.  This can never work, particularly when governments do little or nothing to foster a respect for the law.  Vice President Biden, Attorney General Holder, ICE Director Morton and IPEC Espinel all get this.

What keeps societies from devolving into chaos and anarchy is not the fear of the police, and it is not the fear of private lawsuits.  It is the moral design of the individual—it is that voice inside your head that is your mother, father, priest, rabbi or professor who gave you the moral training that stops you from committing crimes and violating other societal norms. 

Apple chose to pursue a legitimate business, just as Limewire chose to pursue an illegitimate one.  Apple chose to spend its time and resources to build a sustainable business that pays royalties to artists and songwriters, and extended that business to include authors and filmmakers.  Isohunt chose to spend its time and resources building a predatory business that defied the law.  Apple was rewarded, and Limewire and Isohunt were punished.

The reasons for each result have less to do with what Ole refers to as “…’certain U.S. copyright concepts which encourage copyright owners to sue in an attempt to stop illicit downloading’” than with the choices made by each company and its executives about how they wanted to conduct their business and how they wanted to live their lives.  It is the resonance of the moral design of individuals and the moral lessons they have learned that keeps the masses of people going back to the legitimate sources for media, not because they are afraid but because they believe stealing to be wrong. 

Governments need to make sure that their laws support markets to reward entrepreneurs—not impose a post hoc gotcha that will make current and future risk takers wonder why they bother.

Ole would trade off the chance to extend the existing sustainable market for a form of “global license”, an idea that inevitably will undermine that market.  Respectfully, this is looking for small change under the cushions in a house of cards.

See also: The Triumph of the Middleman: How Not to Monetize File Sharing