Michael Heller and the gridlock economy

Professor Michael Heller of Columbia University got a nice endorsement for his book the other day. Former President Bill Clinton recommended his book, The Gridlock Economy, as a key to understanding the current fiscal crisis. Speaking at the Berkman Center, Heller begins by asserting “When too many people own pieces of one thing, nobody can use it.” Too much ownership in a society causes gridlock – the gridlock economy – and cooperation breaks down, wealth disappears, and everyone loses.

The gridlock economy explains the current fiscal crisis, Heller tells us, if we focus on the ownership of mortgages. Historically, lenders and borrowers knew each other. Banks didn’t like forclosing – they lose money on forclosures – so they were willing to re-negotiate bad loans. But loans aren’t owned by a single bank now, but by thousands of people, as they’ve been securitized and subdivided. As a result, it’s almost impossible to renegotiate these agreements, and foreclosures have become widespread.

He offers other examples, from biotech, telecoms and urban planning. A major pharma company wanted to bring an Altzheimber’s drug to market, but knew they’d experience patent challenges from small companies that own patents on individual neurotransmitter pathway. This company found itself negotiating with a table filled with patent-holders, each of which was convinced it held the key patent in making a functional drug. The company ended up shelving the drug rather than completing the negotiations for fear that such a complex deal was impossible.

There’s been a massive increase in patents on DNA – more than 40,000 patents awarded in recent years. This is the result of massive investment and patenting in this area. This investment hasn’t led to new classes of drugs – instead, we’ve seen a stagnation in pharma innovation.

The most underused natural resource in America, Heller claims, is electromagnetic spectrum. We’re stuck with a licensing policy put into place under Calvin Coolidge, which doesn’t recognize any of the technological innovation that’s happened between then and now. The system is geographically fragmented and non-transferrable, and leads to a system where the US is falling behind other advanced nations in broadband penetration. Spectrum gridlock prevents the emergence of high-speed wireless services, he argues.

Why do we get stuck in airports? Because we’re massively underserved by airports. With twenty new runways, we’d end routine air delays in the US. But there’s been only one new airport built since 1978 – Denver. Real estate gridlock has made it possible for any community near an airport to stop expansion by refusing to sell land. We’re finally seeing this unlock with Dulles, Chicago and Seattle airports all building new runways, but Heller believes it’s a major problem.

Real-estate gridlock can help explain the slow growth of wind power as well. It’s possible to generate massive power in the center of the US, by building huge farms in places like the Dakotas. But the demand for green power is on the coasts, and it would require infrastructure buildout to create transmission lines.

In a different field, gridlock has changed the arts. Early rappers rhymed over a complex wealth of samples (think Paul’s Boutique) – now rappers license a single sample and build songs around it to avoid copyright conflict.

Heller believes that a common thread in all of these cases is the disappearance of a tight linkage between ownershpi and use. In the past, there was little distance between the patent and the product, the land ownership and the property development. But innovation these days is about assembing resources. You need multiple pieces of protected property to achieve innovation in semiconductors, drug discovery, software or telecoms. It’s true in the arts as well, with the rise of the maship, and illustrated by the difficulty of releasing documentary films. (See the difficulties regarding the docmentary Eyes on the Prize, due to copyright issues.)

To describe this situation, Heller has coined the phrase, “The Tragedy of the Anticommons”. This is in contrast to the tragedy of the commons: when anyone can use a resource, it’s likely to get overused. With too few owners, overuse is a common outcome, because rational individuals will prioritize their needs over collective goods. This was a critical insight for environmentalists in the 1960s, helping unite a large number of environmental problems into a common phenomenon. Private property was often prescribed as a solution to tragedy of the commons solutions, assuming that a property owner would consider long-term implications of development for her property rather than permitting overuse.

Heller argues that, in many cases, we’ve skated right past private property and into anti-commons, characterized by underuse. If we’ve got too many owners, there can be too little use of a resource. We don’t see the anti-commons tragedy as clearly, as it’s characterized by the absence of innovation. “Where do you go to protest that a drug didn’t come to market or to complain that your cellphone is so poor?” With this new concept, Heller hopes to rope together a set of disparate problems with a similar set of ownership structures.

There are solutions to the problem, Heller promises, though his talk stops short of exploring those in detail. He hints that the discussions need to center on reforming patent laws invented for an age before DNA patents, or telecom patents and spectrum allocations appropriate to an earlier technological age.

Around the Berkman table there’s some skepticism about the idea of anticommons. Pushed on research in the field, Heller admits (and is clear in his book) that research on pharma companies reveals that they don’t feel they’re blocked by patent gridlock. Heller argues that it’s hard to ask practicioners about innovations they’re not making – asking early airplane builders about passenger aircraft would have revealed skepticism about the whole proposition, not the problem of land use and public airports.

Yochai Benkler, who’s written at length about the economics of commons production, pushes Heller for details, embracing the idea of the anticommons, but looking for specific ways out: do we need more commons? lower transaction costs? spot markets that make it easier to transact around property? Heller (correctly?) summarizes his question, “Very nice, but so what?” He offers a possible way out: in cases of scarcity, private property makes sense, while in situations with no scarcity, a commons model makes more sense. If it’s possible to use telecoms whitespace in a non-rivalrous fashion, spectrum should be a commons; if not, perhaps we need a more intelligent form of private property.

Heller worries that people aren’t taking suggestions for solving these problems seriously enough. He’s offered a solution for “eminent-domain abuse”, where the state can seize private property with compensation but not the owner’s consent. He argues that eminent domain is never fair to the property owner and always underprices – if the price was truly the price the owner wanted for the land, she’d be willing to sell. Heller authored a paper for the Harvard Law Review focused on “land-assembly districts”, a way in which communities could cooperate to assemble and sell their land and avoid expropriation. He’s concerned that the article, now out half a year, hasn’t received a single comment, which makes him wonder about the value of articles versus books.

Benkler ultimately sees the problem about a mis-definition of the boundaries of property, suggesting that the gridlock scenario is a specific manifestation of poor definitions of property and a poor transactional system. Clearly, that’s the beginning of a much longer conversation, and one I’m unqualified to act as scribe for.

Other accounts of the event from friends David Weinberger and Lokman Tsui.

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5 Responses to Michael Heller and the gridlock economy

  1. Pingback: shouting loudly » Blog Archive » the tragedy of the anti-commons and the gridlock economy

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  5. Tariq Malik says:

    For Long, various attempts were made to make some sense of the issues surrounding misplaced instittuional focus and Innovation. ‘Gridlock economy’ has facilitated making that sense for those who can make one.

    I am hopeful to write some empirical papers on the foundation of ‘Gridlock’ concept.

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