Chinese Counterfeit Products – Foreign Affairs

…might actually be a good thing for the world, according to this article Fake It Till You Make It by Foreign Affairs. If you don’t have a subscription to the magazine, here is my take on the subject.

Ignoring intellectual property rights may help level the playing field between a developed country and a developing one. It’s unfair to presume that China could ever catch up with the West in terms of technological innovation without first acquiring some of the West’s existing technologies (see the HiPhone vs the iPhone). It can’t reinvent the iPhone from square one, but it can make a knockoff and start a few steps ahead so that its innovation in cell phones is at least comparable to that of the US. The article points out that the US government in its infancy had a similar policy on intellectual piracy. Similarly, this Foreign Policy survey on Africa’s rise points to “increased access to technology” as the third biggest factor in Africa’s recent economic growth, right below “better governance” and “high global commodity prices”; surely a lack of or disregard for intellectual property rights would increase access to technology between nations, albeit illegally? For newly industrial nations, this is a great thing.

While I would be foolish to dismiss intellectual rights entirely, the original Affairs article points out that many Chinese firms on top of producing counterfeit products, also innovate a great deal to improve stolen technologies. See YouKu and Weibo, both of which have made significant improvements on the original US products they originally knocked off, YouTube and Twitter. The cost of violating intellectual property rights may be to discourage firms from innovating and investing in research, but this doesn’t seem to be happening immediately in the US, despite the government’s heated rhetoric on the subject.

Such technological leaps on China’s part would force firms on both sides of the Pacific to innovate and improve their products even further, which is usually a good thing for the consumer. Due to various factors like cheap labour, China has been able to pull off much cheaper counterfeits. This may also be a good thing, as intellectual piracy helps less wealthy Chinese access cheap, locally-made technology ripped off from the West; as they become wealthier with better living standards, they will be able to afford (presumably superior) foreign imports that invented and patented the relevant technology in the first place.

Concerns of perpetual piracy that eventually stymies innovation, instead of encouraging more equal competition, are legitimate. So are ones that point to the success of Korea’s Samsung phones and assert that China (and the consumer) would be better off making its own, original phones rather than knocking off Apple’s.

Therefore, most arguments for China’s knockoff economy are made on the presumption that, at a later stage, China wouldn’t be able to encourage the same level of domestic innovation without guaranteeing intellectual property rights, as a young US eventually did do to much success; at the moment, Chinese firms aren’t relying on intellectual property guarantees to innovate, possibly because of the huge demand for new products by the world’s largest middle class and the advantages government-sanctioned counterfeit provides them.

But if China fails to clamp down eventually, in the long run we’ll see lackluster innovation from the West and less competition, as competitors would simply rip each other off to gain an edge over consumers. Indeed, the tide may have already turned and China should act fast. Intellectual rights, after all, provide an incentive to innovate by giving the economic fruits of innovation to the inventor. For now though, this seems like an opportunity cost the Chinese government is willing to incur.

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