I want to thank Max (and his fellow student organizers) for all their efforts. Whether students across the country agree to sign the Oath or not, it's a great conversation starter and a great learning opportunity. Questions about the appropriate role of private enterprise in our society are really important and really hard. As an educator, I love anything that pushes students to think --- the Oath is a smashing success on that dimension.
(As an aside, are you guys trolling the web for "MBA Oath"? Or is my blog is now required reading at HBS? If the latter, it's about freaking time. They owe me after not offering me a job in 1995.)
Max correctly points out that time is one of the key parameters controlled by policy-makers when it comes to intellectual-property protection. Patents don't last forever --- in the US, patent protection lasts for 20 years.
Why the limit?
Making patent protection last longer would provide stronger incentives for innovation, and that would be good. But making patent protection shorter would limit the ability of patent-holders to exploit market power, and that would also be good. So the patent law is a compromise that reflects these tradeoffs.
Governments write laws that trade off various forms of social value all the time. Max points out some of the ethical dilemmas of Big Pharma (coming mostly again from the patent law), but we can see it in our state and local governments as well.
One example comes from my hometown of Portland, Oregon, which has had an interesting urban planning experiment going for years now. Portland is ringed by an "urban growth boundary." If you own property inside the boundary, you can develop it subject to normal zoning laws. If you're outside the boundary, there are very strict limitations on what you can do with your property. If, say, you own a farm that's just outside the urban growth boundary and you decide that farming isn't very profitable, it's very, very hard to work with a real estate developer to turn your farm into a subdivision or an office park.
This means Portland doesn't have a ring of "exurbs" --- far, far out suburbs --- because the land that would have turned into an exurb can't be developed. It has high population density within the boundary, and little in the way of LA-style sprawl. This might be a good thing.
But it has costs. The limits on development and resulting high density mean that housing prices are probably higher than they otherwise would be. And if you're a homeowner who always dreamed of a really big backyard for kids and dogs to play? You can forget about that. Space is at a premium, so lot sizes tend to be small (or very high priced if they are large.)
Let's tie this back to the Oath: Suppose you're a real estate developer in Portland, and you find some undeveloped property that's within the urban growth boundary. You plan to develop it, but worry that you'll contribute to congestion, smog, and all the problems that development brings. Well, in this case it seems reasonable to me to conclude that local government has weighed the competing interests, and made the choice for you. If a property is inside the boundary, then the social benefit of developing is bigger than the cost. If it's outside, then benefit is smaller than cost.
And this is what I was trying to get at with my initial post offering a competing Oath. The role of the political, legal and regulatory system is to weigh these competing interests, and set the rules of the game. If the political, legal and regulatory processes have set rules based on careful consideration of the facts, then it seems like following the rules is a good guide to making socially productive choices.
But notice how I wrote that last sentence, focusing in particular on the first clause: "If the political, legal and regulatory processes have set rules based on careful consideration of the facts..."
That can be a seriously big "if".
And that's where I think the Oath can come in handy.
With patents, the law has been tested, considered, reconsidered, and reconsidered again. This concern over incentives for innovation as been around so long that the Founding Fathers specifically granted Congress the power to write patent law when they wrote the US Constitution way back in 1787.
With Portland's urban planning, the urban growth boundary has been around for dozens of years. It's been tested and considered, and it's more-or-less what the people of the state have decided.
But the world of private enterprise moves much faster than the world of government. And this means firms can sometimes engage in activities that haven't been considered, tested, and analyzed --- or even understood --- by the political, legal and regulatory systems.
Credit default swaps are an example. This is a new kind of financial transaction that just wasn't around when banking law was written. Bank failures lead to major spillovers to the real economy, so our regulatory process has written rules to force banks not to take excessive risk. The law insures deposits, to reduce the likelihood of a bank run, and forces banks to hold reserves and generally act in a conservative manner. But the law --- some of which dates to the 1930s --- didn't have a lot to say about credit default swaps. In this case, the law wasn't very well established, in part because regulators didn't really understand the social costs and benefits of these transactions.
So my conclusion is this: "Follow the rules" is a good guide for socially productive actions when the political, regulatory and legal process has had sufficient time to understand social costs and benefits and to write good law.
But things are murkier when we're out ahead of the legal process. In situations like this, it might be useful for managers to ask themselves the following: "What I'm doing is legal, but is there a chance it would be illegal or heavily regulated if the government and regulators understood it better?"
That's a heck of a tough question to answer. But it's a good one for business leaders to think about, and I think it's what the MBA Oath folks are trying to encourage.
Posts
No comments:
Post a Comment