The Benefits of Openness
Law 2.0, SCL London
2007-09-19

Rufus Pollock

## 1. Introduction One of the first printed texts of which we have record is a copy of the Buddhist Diamond sutra produced in China around 868AD. In it can be found the dedication: "for universal free distribution". Clearly, the idea of open knowledge, that is knowledge you are free to use, reuse and redistribute, has been present since humanity first began to formally transmit and share ideas. It is also likely that the urge to keep ideas secret, particularly those that had 'commercial' value, is equally old. With the development of trade and technology, particularly during the Renaissance in Europe, these parallel approaches of openness and secrecy continued to evolve but the tension between them also increased. With the introduction of formal monopoly rights such as patents and copyrights during the sixteenth and seventeenth century there was now a halfway house of sorts whereby the monopoly (and the associated profits) of secrecy was combined with openness in the form of the disclosure of the work. These alternatives of openness, secrecy and state-sanctioned monopoly have stayed with us down to the present day; while most of our ideas, particularly cultural ones, are 'public domain', free for anyone to use and reuse, a significant portion of the intellectual works and products created by the economies of the world are protected either by some form of intellectual property rights or by secrecy -- or by both, as is the case with most proprietary computer software for example. However there have also been considerable changes. On the one hand there has been a large increase, particularly over the last thirty to forty years, in the scope and duration of intellectual property rights. On the other hand, and at the same time, especially in recent years, we have seen the rise of self-consciously open models of innovation, particularly in software where the 'copyleft' approach to knowledge licensing first arose in the 1980s. However the most significant of all changes underlies these others, for it is the change in the role of knowledge in society and the economy. Terms such as the 'information age' or the 'knowledge economy' are now commonplace and hard statistics point to the fact that in most western economies the information-based service sector is now more important than manufacturing. These changes in turn result from, or at least depend upon, a revolution in communication and computer technologies that has greatly reduced the cost of production, distribution and manipulation of knowledge. Whole industries which neither existed nor were imagined fifty, and possibly even twenty, years ago have grown up which exploit these new-found possibilities. These are vast changes and they have profound implications for the production and dissemination of knowledge, as well as for their regulation and support by government. However, clearly addressing all of these implications is impossible and so in this talk I'm going to focus on giving a brief overview of the main ways that open approaches to knowledge production and distribution can deliver benefit to society. ## 2. Access and Use Free, unencumbered access to a piece of knowledge whether it be a film or a database, is the most obvious way that openness delivers benefits. Because it is cheaper and easier to get hold of open knowledge it may be much more widely used than it would otherwise. Each such extra user, who gains access because open knowledge is cheaper or easier to get hold of than 'closed' knowledge, derives a benefit that increase the well-being of society. Let me give a few examples of how profound these effects may be. The first two are taken from a recent book by William St Clair entitled the Reading Nation in the Romantic Period. In 1817 the publisher Sherwood put on sale printed copies of the manuscript of Wat Tyler a verse drama written by Southey in the early 1790s when he was briefly a republican radical. Southey applied for an injunction and damages for breach of copyright. However, while it was undoubted he was the owner of the work, as the Lord Chancellor Eldon declared it was uncertain whether he retained a copyright. For under English law at the time, if the book were 'injurious' its intellectual property could not be protected by the courts and its copyright would be, in effect, void. Unable to enforce his copyright and left only with the option of suing for seditious libel Southey retired from the scene leaving the field open for 'pirates'. As St Clair points out this provides us with a wonderful natural experiment:
DateEditionPrice (shillings)Production
1817 Normal price of a book of this length 10.15 500 or 1000
1817 Sherwood's editions 2 na
1817 Hone's Editions with explanatory notes 1 na
1817 Fairburn's Editions 1 na
1817 Bailey's edition 1 na
1817 Carlile's editiona na 20000 sold
1817 Sherwin's edition 0.25 na
Another Sherwin Edition 0.16 na
Total immediate saleb Believed to be ~60000
c.1817 Fordyce of Newcastle's Edition na na
1830s Watson's edition 0.18 na
1830s Cousin's editions 0.16 post free na
1840s Cleave's editions 0.16 na
1850s Sales in Manchesterc na 450 a week
Southey's `Wat Tyler', all pirated. (Source: St Clair, Table 16.1 p. 318)

Notes: a Isis, 7 July 1832; b Southey, Life iv 237; c Advertisements for Watson's list 1830s and perhaps later, Ac.; d Quoted by Altick 352.

As a result Wat Tyler, which Southey later refused to have printed in his collected works, sold 2 to 3 times as many as all his other works **combined**. A similar tale surrounds Shelley's Queen Mab and Byron's Don Juan. Turning to a rather different and more recent example we have the case of pharmaceuticals -- one of the most hotly contested areas in the access to knowledge debate. In a paper which appeared in the American Economic Review just this year, Chaudhuri, Goldberg and Jia attempted to estimate the impact of introducing product patents into one segment of the Indian pharmaceutical markets. Their results are summarized in the following table.
Estimated Impact of the Introduction of Product Patents for Fluoroquinolone Antibiotics in India as a result of TRIPS requirement of Pharmaceutical Product Patents
Loss Scenario Consumer Losses Domestic Producer Losses Foreign Producer Gains
Medium (no upward price adjustments as a result of product withdrawals) -495-509.4
There are two main points to note. First, the benefits of open access are very large. Specifically around $500 million dollars per year. Second it shows clearly that this is not a zero-sum game. When prices are raised (due to patents for examples) the losses to consumers are larger than the gains of producers. In this case the asymmetry is particularly pronounced with external producer gains (these will be the firms who actually own the patents) around a 45th of the consumer losses -- $10 million versus $450 million. ## 3. Production While the benefits of openness for users are obvious, by contrast, the benefits for production are much less so. After all, by removing the possibility of monopoly provided by secrecy or intellectual property, openness may eliminate one of the primary means by which producers finance their activities. Nevertheless there are a variety of ways in which openness *can* be beneficial (as well as several reasons why it may not be as harmful for revenues as one might think). Due to time limitations I'm going to be able to give a few examples but those who want to know more detail can look at the essay on the Value of the Public Domain as well as my more academic work available on my personal website. The main point to make is that in industries which are cumulative, that is new ideas and inventions build upon old, proprietary rights mean having to ask 'permission' (and pay for it) -- while openness does not. With openness it is easier for subsequent innovators and creators to produce new work while with proprietary rights one have increased transactions costs as well as a whole bunch of bargaining issues -- most prominently the risk of 'hold-up'. Particularly in cases where the initial creator today may be the reuser tomorrow the benefits of openness in freer and more rapid reuse and cumulative innovation may outweigh the losses from lower immediate revenues. To put some flesh on the bones of these theoretical considerations here are two examples. ### 3.1.1: AT&T I start with a classic example of the problems of 'closed' systems in the form of AT&T and its attitude to 'foreign devices'. As some of you no doubt know, AT&T for a long period had a rule restricting users from attaching anything other from AT&T equipment to their phone system: > No equipment, apparatus, circuit, or device not furnished by the telephone company shall be attached to or connected with the facilities furnished by the telephone company, physically, by induction or otherwise Not surprisingly this greatly retarded both competition and innovation in the provision of telephones and associated equipment. Gradually starting with Hush-a-Phone in 1948 and culminating with Carterfone in 1968 a series of companies challenged AT&T and won the right for independent firms to produce devices to the phone system. This is change in regulatory atmosphere was crucial in relation to the second example I would like to highlight: ## 3.1.2: The Internet, the Web and Google The Internet, and the World-Wide-Web that is built on top of it are two of the most obvious and important examples of the benefits of being open. All of the basic protocols and standards that went into these technologies were open, free for anyone to implement, use, modify and examine. As a result innovation of the Internet and the Web has been phenomenally rapid creating immense wealth and value for society. The centrality of openness here, and the importance of the *absence* of the need to seek permission is illustrated by the example of Google. Google, the provider of the planet's most popular online search engine, is perhaps the best known Internet company in the world. With a market valuation in the tens of billions of dollars it is also one of the most successful. It is therefore the largest and most commercially successful open content company in the world even though it does not, at least at present, own any content at all. For Google derives the vast bulk of its present revenue from advertising. The 'attention' that sells the advertising is itself generated from Google's role as a web search engine, the gatekeeper and organizer of the immense store of information that is the Web. Without the Web, Google, and the business model that supports it simply would not exist. Thus Google has only been possible because the information on the web is almost all semi-open and anyone may freely access (and copy for their own purposes) the information posted on websites. Imagine if right from the start the web had been 'closed', and each website had required payment as well as an agreement not to copy its contents[^37]. Search engines, at least in their present form, would not exist and we would have seen neither the benefits of the services they provide nor the revenues they generate. ### 3.2 The Dictator and the Anarchist These examples also conveniently brings me to the second point I would like to make about he benefits of openness, which I have put under the slightly provocative heading of 'The Dictator and the Anarchist'. One of the things that often strikes me about general discussion of open knowledge development whether it be about free software or open content is an assumption that because the end result is open the project itself must also be liberally run, with participation open to all, with an ultra-liberal decision-making process that verges on the communitarian. This could hardly be farther from the truth. While it is certainly easy to participate -- after all who doesn't want free labour -- the basic social structure of many open knowledge projects more closely resembles a dictatorship, albeit a benevolent one, than any democracy. There is usually one person with ultimate control, and the group of committers -- that is those individuals with the ability to actual make changes to the core code or database -- limited to a select few. Now there are various advantages to dictatorship compared to a democracy. First, its potential for more efficient and rapid decision-making -- after all there are many fewer checks and balances. Second, in a democracy the quality of decision-making must tend to the average but in a dictatorship quality is constrained only by the dictator -- and so can be much better than the average. Needless to say there are also disadvantages, disadvantages that arise from the very same factors. For though true a dictator could be much much better than democracy it can also be much much worse. And I think it would be fair to say that there is nowadays a fair consensus that democracy is probably the better option at least when we are talking about human societies. But here we are talking about the organization of knowledge development And it is here that the anarchy aspect kicks in. By anarchy we normally mean a situation where there is no ruler, no sovereign, who can compel us to act in a particular way. Here I would like to expand this to the situation where there is perfect outside option. That is should the sovereign act in a way you don't like it is perfectly possible for you at zero (or very low cost) to up sticks and head over the nearest border and set up your own state. Consider then the behaviour of a sovereign in this 'state of anarchy'. While within his or her borders he or she may be a dictator the fact that any 'subject' who becomes unhappy can easily and simply leave greatly limits their ability to abuse such power -- note that it does not limit their ability to do good for then 'subjects' will be happy to stay. In this case, we need have little to fear from dictatorship and by combining it with 'anarchy' we obtain the best of both worlds. Of course in the political world such a combination is, in practice, impossible. The outside option is usually inferior to the current situation, and if not the dictator may well be able to take steps to limit my ability to avail myself of it. But fortunately we are not talking of politics but of technology and the development of knowledge in the form of software, music, films, databases etc. And the wonderful, and special thing, about such goods in a digital world is that they are practically costless to reproduce. Hence, if you are working on a knowledge development project, as long as the knowledge is open -- and so without any special legal restrictions on such reproduction such as copyright, patents etc -- it really is possible to *just leave*. It truly is the case that should you become unhappy with the current 'dictator' that you can just take the code or the content or the database and start your own project. This has profound implications. In particular it means that the most significant benefit of open knowledge for production may not be a direct one but instead arises from the organizational structures and the types of development process that open knowledge makes possible. Open knowledge allow us to obtain the best of both worlds, to simultaneously combine the anarchist and the dictator in such a way as to leave us with all their advantages and none of their faults. ## 4. Community and Sharing Leaving production, and the organization of production behind, in the final part of this talk I want to consider a rather different way in which open approaches to knowledge can yield benefits. Below is a table taken from the General Social Survey conducted regularly in the US over the last thirty years. +-------------+--------------+---------------+ | Income | Top Quarter | Bottom Quarter| +-------------+--------------+-------+-------+ | Year | 1975 | 1998 | 1975 | 1998 | +-------------+-------+------+-------+-------+ | Very happy | 39 | 37 | 19 | 16 | +-------------+-------+------+-------+-------+ |Pretty happy | 53 | 57 | 51 | 53 | +-------------+-------+------+-------+-------+ |Not too happy| 8 | 6 | 30 | 31 | +-------------+-------+------+-------+-------+ | Total | 100 | 100 | 100 | 100 | +-------------+-------+------+-------+-------+ Happiness in the US: By Income (Source: GSS) The aim of this table is to remind us, if we needed reminding, that material wealth isn't everything -- or even in developed societies most things! In particular, there are a whole variety of non-market (and even non-exchange) activities from which, we as humans, derive great enjoyment and value. Things like interactions with friends, being creative, participating in a community. The role that being 'open' can play in this regard is best illustrated by an anecdote that was told to me by Joichi Ito, a well-known Japanese venture capitalist. Ito is a big promoter of the 'open' Creative Commons license and he had a friend who was a serious professional photographer. Being a professional who depended on selling and licensing his photographs for a living this guy naturally looked rather askance at CC licenses. But as Ito pointed out to him there was no need to license all of his photos, in fact all he was suggested was to try out the experience of being 'liberal' with some of his work and *sharing* it with the community. Ito's friend was still fairly reluctant but eventually he was persuaded to post a few of his photos up online (on Flickr I believe) under a CC attribution license. As a result people started using and reusing his photos in a whole bunch of ways -- and sharing this work back. Furthermore, in large part because the work was open these people tended to be very appreciative and to show their appreciation by writing to him or leaving comments online. According to Ito this was a very different experience to the one he had when selling his work normally and the guy found it so rewarding that he has now put a few thousand photos up online under open licenses. I found this a really interesting story and I think it makes an important point. The experience of sharing and creative community that comes from making work open can be an extremely valuable one, and one whose benefits are both distinct and complementary when compared to those discussed previously in relation to access and production. I would emphasize in particular this complementarity: it is not that the sharing economy is antagonistic to, or even a substitute for, the market economy but that they are complements, each providing things that the other cannot. To close out this section I'll leave you with a thought. Both the table I showed you at the start and a variety of other evidence suggests that above a certain level of income, say around 15-25k the gains in utility from extra income are fairly limited -- essentially the utilty function (for material goods) is approximately flat. If this is so then this strongly suggests that as societies get materially better and better off the importance of the sharing economy vis a vis the market economy is going to grow larger and larger. ## 5. Conclusion In the brief time available to me I have only been able to describe informally and in a brief way the benefits that open approaches knowledge can bring our society. I have intentionally omitted discussion of proprietary rights, and the complexities of how open and closed approaches interrelate, substitute and complement each other. Nevertheless I hope I have given you sufficient basis to appreciate both why open knowledge is important and why it is interesting. Thank you.