It was in 1905 that the first bank, the “Bank of Abyssinia”, was established based on the agreement signed between the Ethiopian Government and the National Bank of Egypt, which was owned by the British. Its capital was 1 million shillings. According to the agreement, the bank was allowed to engage in commercial banking (selling shares, accepting deposits and effecting payments in cheques) and to issue currency notes. The agreement prevented the establishment of any other bank in Ethiopia, thus giving monopoly right to the Bank of Abyssinia. The Bank, which started operation a year after its establishment agreement was signed, opened branches in Harar, Dire Dawa, Gore and Dembi- Dolo as well as an agency office in Gambela and a transit office in Djibouti. Apart from serving foreigners residing in Ethiopia, and holding government accounts, it could not attract deposits from Ethiopian nationals who were not familiar with banking services.

The Ethiopian Government, under Emperor Haile Sellassie, closed the Bank of Abysinia, paid compensation to its shareholders and established the Bank of Ethiopia which was fully owned by Ethiopians, with a capital of pound Sterling 750,000. The Bank started operation in 1932. The majority shareholders of the Bank of Ethiopia were the Emperor and the political elites of the time. The Bank was authorized to combine the functions of central banking (issuing currency notes and coins) and commercial banking. The Bank of Ethiopia opened branches in Dire Dawa, Gore, Dessie, Debre Tabor and Harrar.

With the Italian occupation (1936-1941), the operation of the Bank of Ethiopia came to a halt, but a number of Italian financial institutions were working in the country. These were Banco Di Roma, Banco Di Napoli and Banca Nazionale del Lavora. It should also be mentioned that Barclays Bank had opened a branch and operated in Ethiopia during 1942-43.

In 1946 Banque Del Indochine was opened and functioned until 1963. In 1945 the Agricultural Bank was established but was replaced by the Development Bank of Ethiopia in 1951, which changed in to the Agricultural and Industrial Development Bank in 1970. In 1963, the Imperial Savings and Home Ownership Public Association (ISHOPA) and the Investment Bank of Ethiopia were founded. The later was renamed Ethiopian Development Corporation S.C. in 1965. In the same year, the Savings and Mortgage Company of Ethiopia S.C. was also founded.

With the departure of the Italians and the restoration of Emperor Haile Selassie’s government, the State Bank of Ethiopia was established in 1943 with a capital of 1 million Maria Theresa Dollars by a charter published as General Notice No. 18/1993 (E.C). The Bank which, like its predecessor, combined the functions of central banking with those of commercial banking opened 21 branches, including one in Khartoum (the Sudan) and a transit office in Djibouti.

In 1963, the State Bank of Ethiopia split into the National Bank of Ethiopia and the Commercial Bank of Ethiopia S.C. with the purpose of segregating the functions of central banking from those of commercial banking. The new banks started operation in 1964.

The first privately owned company in banking business was the Addis Ababa Bank S.C., established in 1964. 51% of the shares of the bank were owned by Ethiopian shareholders, 9% by foreigners living in Ethiopia and 40% by the National and Grindlays Bank of London. The Bank carried our typical commercial banking business. Banco Di Roma and Banco Di Napoli also continued to operate.

Thus, until the end of 1974, there were state owned, foreign owned and Ethiopian owned banks in Ethiopia. The banks were established for different purposes: central banking, commercial banking, development banking and investment banking. Such diversification of functions, lack of widespread banking habit among the wider population, the uneven and thinly spread branch network, and the asymmetrical capacity of banks, made the issue of completion among banks almost irrelevant.

Following the 1974 Revolution, on January 1, 1975 all private banks and 13 insurance companies were nationalized and along with state owned banks, placed under the coordination, supervision and control of the National Bank of Ethiopia. The three private banks, Banco Di Roman, Banco Di Napoli and the Addis Ababa Bank S.C. were merged to form “Addis Bank.” Eventually in 1980 this bank was itself merged with the Commercial Bank of Ethiopia S.C. to form the “Commercial Bank of Ethiopia,” thereby creating a monopoly of commercial banking services in Ethiopia.

In 1976, the Ethiopian Investment and Savings S.C. was merged with the Ethiopian government Saving and Mortgage Company to form the Housing and Savings Bank .The Agricultural and Industrial Development Bank continued under the same name until 1994 when it was renamed as the Development Bank of Ethiopia.

Thus, from 1975 to 1994 there were four state owned banks and one state owned insurance company, i.e., the National Bank of Ethiopia (The Central Bank), the Commercial Bank of Ethiopia, the Housing and Savings Bank, the Development Bank of Ethiopia and the Ethiopian Insurance Corporation.

After the overthrow of the Dergue regime by the EPRDF, the Transitional Government of Ethiopia was established and the New Economic Policy for the period of transition was issued. This new economic policy replaced centrally planned economic system with a market-oriented system and ushered in the private sector. Several private companies were formed during the early 1990s, one of which is Oda S.C. which conceived the idea of establishing a private bank and private insurance company in anticipation of a law which will open up the financial sector to private investors.

Definition

The term bank refers to an institution that deals in money and its substitutes and provides other financial services. Banks accept deposits, make loans, and derive a profit from the difference in the interest rates paid and charged respectively. Some banks also have the power to create money.

The principal types of banking in the modern industrial world are commercial banking and central banking. A commercial banker is a dealer in money and in substitutes for money, such as checks or bills of exchange. The banker also provides a variety of other financial services. The basis of the banking business is borrowing from individuals, firms, and occasionally governments—i.e., receiving “deposits” from them. With these resources and with the bank's own capital, the banker makes loans or extends credit and invests in securities. The banker makes profit by borrowing at one rate of interest and lending at a higher rate and by charging commissions for services rendered.

A bank must always have cash balances on hand in order to pay its depositors upon demand or when the amounts credited to them become due. It must also keep a proportion of its assets in forms that can readily be converted into cash. Only in this way can confidence in the banking system be maintained. Provided it honors its promises (e.g., to provide cash in exchange for deposit balances), a bank can create credit for use by its customers by issuing additional notes or by making new loans, which in their turn become new deposits. The amount of credit it extends may considerably exceed the sums available to it in cash. However, a bank is able to do this only as long as the public believes the bank can and will honor its obligations, which are then accepted at face value and circulate as money. So long as they remain outstanding, these promises or obligations constitute claims against that bank and can be transferred by means of checks or other negotiable instruments from one party to another. These are the essentials of deposit banking as practiced throughout the world today, with the partial exception of socialist-type institutions.

Another type of banking is carried on by central banks, bankers to governments and “lenders of last resort” to commercial banks and other financial institutions. They are often responsible for formulating and implementing monetary and credit policies, usually in cooperation with the government. In some cases—e.g., the U.S. Federal Reserve System—they have been established specifically to lead or regulate the banking system; in other cases—e.g., the Bank of England—they have come to perform these functions through a process of evolution.

Some institutions often called banks, such as finance companies, savings banks, investment banks, trust companies, and home-loan banks, do not perform the banking functions described above and are best classified as financial intermediaries. Their economic function is that of channeling savings from private individuals into the hands of those who will use them, in the form of loans for building purposes or for the purchase of capital assets. These financial intermediaries cannot, however, create money (i.e., credit) as the commercial banks do; they can lend no more than savers place with them.

The development of banking functions and institutions, the basic principles of modern banking practice, and the structure of a number of important national banking systems are discussed in the following sections.

1.1       The Development of Banking Systems: General Overview

Banking is of ancient origin, though little is known about it prior to the 13^th century. Many of the early “banks” dealt primarily in coin and bullion, much of their business being money changing and the supplying of foreign and domestic coin of the correct weight and fineness. Another important early group of banking institutions was the merchant bankers, who dealt both in goods and in bills of exchange, providing for the remittance of money and payment of accounts at a distance but without shipping actual coin. Their business arose from the fact that many of these merchants traded internationally and held assets at different points along trade routes. For a certain consideration, a merchant stood prepared to accept instructions to pay money to a named party through one of his agents elsewhere; the amount of the bill of exchange would be debited by his agent to the account of the merchant banker, who would also hope to make an additional profit from exchanging one currency against another. Because there was a possibility of loss, any profit or gain was not subject to the medieval ban on usury. There were, moreover, techniques for concealing a loan by making foreign exchange available at a distance but deferring payment for it so that the interest charged could be camouflaged as a fluctuation in the exchange rate.

Another form of early banking activity was the acceptance of deposits. These might derive from the deposit of money or valuables for safekeeping or for purposes of transfer to another party; or, more straightforwardly, they might represent the deposit of money in a current account. A balance in a current account could also represent the proceeds of a loan that had been granted by the banker, perhaps based on an oral agreement between the parties (recorded in the banker’s journal) whereby the customer would be allowed to overdraw his account.

English bankers in particular had, by the 17^th century, begun to develop a deposit banking business, and the techniques they evolved were to prove influential elsewhere. The London goldsmiths kept money and valuables in safe custody for their customers. In addition, they dealt in bullion and foreign exchange, acquiring and sorting coin for profit. As a means of attracting coin for sorting, they were prepared to pay a rate of interest, and it was largely in this way that they began to supplant as deposit bankers their great rivals, the “money scriveners.” The latter were notaries who had come to specialize in bringing together borrowers and lenders; they also accepted deposits.

It was found that when money was deposited by a number of people with a goldsmith or a scrivener a fund of deposits came to be maintained at a fairly steady level. Over a period of time, deposits and withdrawals tended to balance. In any event, customers preferred to leave their surplus money with the goldsmith, keeping only enough for their everyday needs. The result was a fund of idle cash that could be lent out at interest to other parties.

About the same time, a practice grew up whereby a customer could arrange for the transfer of part of his credit balance to another party by addressing an order to the banker. This was the origin of the modern check. It was only a short step from making a loan in specie or coin to allowing customers to borrow by check: the amount borrowed would be debited to a loan account and credited to a current account against which checks could be drawn; or the customer would be allowed to overdraw his account up to a specified limit. In the first case, interest was charged on the full amount of the debit, and in the second the customer paid interest only on the amount actually borrowed. A check was a claim against the bank, which had a corresponding claim against its customer.

Another way in which a bank could create claims against itself was by issuing bank notes. The amount actually issued depended on the banker’s judgment of the possible demand for specie, and this depended in large part on public confidence in the bank itself. In London, goldsmith bankers were probably developing the use of the bank note about the same time as that of the check. (The first bank notes issued in Europe were by the Bank of Stockholm in 1661.) Some commercial banks are still permitted to issue their own notes, but in most countries, this has become a prerogative of the central bank.

In Britain the check soon proved to be such a convenient means of payment that the public began to use checks for the larger part of their monetary transactions, reserving coin (and, later, notes) for small payments. As a result, banks began to grant their borrowers the right to draw checks much in excess of the amounts of cash actually held, in this way “creating money”—i.e., claims that were generally accepted as means of payment. Such money came to be known as “bank money” or “credit.” Excluding bank notes, this money consisted of no more than figures in bank ledgers; it was acceptable because of the public’s confidence in the ability of the bank to honor its liabilities when called upon to do so.

When a check is drawn and passed into the hands of another party in payment for goods or services, it is usually paid into another bank account. Assuming that the overdraft techniques are employed, if the check has been drawn by a borrower, the mere act of drawing and passing the check will create a loan as soon as the check is paid by the borrower’s banker. Since every loan so made tends to return to the banking system as a deposit, deposits will tend to increase for the system as a whole to about the same extent as loans. On the other hand, if the money lent has been debited to a loan account and the amount of the loan has been credited to the customer’s current account, a deposit will have been created immediately.

One of the most important factors in the development of banking in England was the early legal recognition of the negotiability of credit instruments or bills of exchange. The check was expressly defined as a bill of exchange. In continental Europe, on the other hand, limitations on the negotiability of an order of payment prevented the extension of deposit banking based on the check. Continental countries developed their own system, known as giro payments, whereby transfers were effected on the basis of written instructions to debit the account of the payer and to credit that of the payee.

Governments generate large quantities of information. They produce statistics on population, figures on economic production and health, texts of laws and regulations, and vast numbers of reports. The generation of this information is paid for through taxation and, therefore, it might seem that it should be available to any member of the public. But in some coun­tries, some of this information is turned over to corporations that then sell it to whoever can pay. Publicly funded information is "privatized" and thus is not freely available (Nelkin 1984).

When government-produced information is retained by the govern­ments, things may not be much better. As in the case ofDocuments on Australian Defence and Foreign Policy illustrates, copyright is one tech­nique used to keep information away from the public.

The idea behind patents is that the fundamentals of an invention are made public while the inventor for a limited time has the exclusive right to make, use or sell the invention. But there are quite a few cases in which patents have been used to suppress innovation (Dunford 1987). Companies may take out a patent, or buy someone else's patent, in order to inhibit others from applying the ideas. For example, from its beginning in 1875, the US company AT&T collected patents in order to ensure its monopoly on telephones. It slowed down the introduction of radio for some 20 years. In a similar fashion, General Electric used control of patents to retard the introduction of fluorescent lights, which were a threat to its market of incandescent lights. Trade secrets are another way to suppress technolog­ical development. Trade secrets are protected by law but, unlike patents, do not have to be published openly.

One of the newest areas to be classified as intellectual property is biological information. US courts have ruled that genetic sequences can be patented, even when the sequences are found "in nature," so long as some artificial means are involved in isolating them. This has led companies to race to take out patents on numerous genetic codes. In some cases, patents have been granted covering all transgenic forms of an entire species, such as soybeans or cotton (Mestel 1994). One consequence is a severe inhibi­tion on research by non-patent holders. Another consequence is that transnational corporations are patenting genetic materials found in Third World plants and animals, so that some Third World peoples actually have to pay to use seeds and other genetic materials that have been freely available to them for centuries (Shiva and Holla-Briar 1993).

More generally, intellectual property is one more way for rich coun­tries to extract wealth from poor countries. Given the enormous exploita­tion of poor people built into the world trade system, it would only seem fair for ideas produced in rich countries to be provided at no cost to poor countries. Yet in the GATT negotiations, representatives of rich countries, especially the US, have insisted on strengthening intellectual property rights. Surely there is no better indication that intellectual property is primarily of value to those who are already powerful and wealthy (Drahos 1995; Patel 1989).

The potential financial returns from intellectual property are said to provide an incentive for individuals to create. In practice, though, most creators do not actually gain much benefit from intellectual property. Independent inventors are frequently ignored or exploited (Lancaster 1992). When employees of corporations and governments have an idea worth protecting, it is usually copyrighted or patented by the organization, not the employee. Since intellectual property can be sold, it is usually the rich and powerful that benefit. The rich and powerful, it should be noted, seldom contribute much intellectual labour to the creation of new ideas.

These problems—privatization of government information, suppression of patents, ownership of genetic information and information not owned by the true creator—are symptoms of a deeper problem with the whole idea of intellectual property. Unlike goods, there are no physical obstacles to providing an abundance of ideas. (Indeed, the bigger problem may be an oversupply of ideas.) Intellectual property is an attempt to create an arti­ficial scarcity in order to give rewards to a few at the expense of the many. Intellectual property aggravates inequality. It fosters competitive­ness over information and ideas, whereas cooperation makes much more sense.

Critique of standard Justifications

Edwin C. Hettinger (1989) has provided an insightful critique of the main arguments used to justify intellectual property, so it is worthwhile summarizing his analysis. (See also Ricketson 1992). Hettinger begins by noting the obvious argument against intellectual property, namely that sharing intellectual objects still allows the original possessor to use them. Therefore, the burden of proof should lie on those who argue for intellec­tual property.

The first argument for intellectual property is that people are entitled to the results of their labour. Hettinger's response is that not all the value of intellectual products is due to labour. Nor is the value of intellectual products due to the work of a single labourer, or any small group. Intellec­tual products are social products.

Suppose you have written an essay or made an invention. Your intellectual work does not exist in a social vacuum. It would not have been possible without lots of earlier work—both intellectual and nonintellectual— by many other people. This includes your teachers and parents. It includes the earlier authors and inventors who have provided the foundation for your contribution. It also includes the many people who have discussed and used ideas and techniques, at both theoretical and practical levels, and provided a cultural foundation for your contribution. It includes the people who have built printing presses, laid telephone cables, built roads and buildings and in many other ways have contributed to the "construction" of society. Many other people could be mentioned. The point is that any piece of intellectual work is always built on and incon­ceivable without the prior work of numerous people.

Hettinger points out that the earlier contributors to the development of ideas are not present. Today's contributor therefore cannot validly claim full credit.

Is the market value of a piece of an intellectual product a reasonable indicator of a person's contribution? Certainly not. As noted by Hettinger and as will be discussed in the next section, markets only work once property rights have been established, so it is circular to argue that the market can be used to measure intellectual contributions. Hettinger summarizes this point in this fashion: "The notion that a laborer is naturally entitled as a matter of right to receive the market value of her product is a myth. To what extent individual laborers should be allowed to receive the market value of their products is a question of social policy."

A related argument is that people have a right to possess and person­ally use what they develop. Hettinger's response is that this doesn't show that they deserve market values, nor that they should have a right to prevent others from using the invention.

A second major argument for intellectual property is that people deserve property rights because of their labour. This brings up the general issue of what people deserve a topic that has been analysed by philoso­phers. Their usual conclusions go against what many people think is "common sense." Hettinger says that a fitting reward for labour should be proportionate to the person's effort, the risk taken and moral considera­tions. This sounds all right—but it is not proportionate to the value of the results of the labour, whether assessed through markets or by other criteria. This is because the value of intellectual work is affected by things not controlled by the worker, including luck and natural talent. Hettinger says "A person who is born with extraordinary natural talents, or who is extremely lucky, deserves nothing on the basis of these charac­teristics".

A musical genius like Mozart may make enormous contributions to society. But being born with enormous musical talents does not provide a justification for owning rights to musical compositions or performances.

Likewise, the labour of developing a toy like Teenage Mutant Ninja Turtles that becomes incredibly popular does not provide a justification for owning rights to all possible uses of turtle symbols.

What about a situation where one person works hard at a task and a second person with equal talent works less hard? Doesn't the first worker deserve more reward? Perhaps so, but it is not obvious that property rights provide a suitable mechanism for allocating rewards, especially since the market disproportionately rewards the person who successfully claims property rights for a discovery.

A third argument for intellectual property is that private property is a means for promoting privacy and a means for personal autonomy. Hettinger responds that privacy is protected by not revealing information, not by owning it. Trade secrets cannot be defended on the grounds of privacy, because corporations are not individuals. As for personal autonomy, copyrights and patents aren't required for this.

A fourth argument is that rights in intellectual property are needed to promote the creation of more ideas. Hettinger thinks that this is the only argument for intellectual property that has a possibility of standing up to critique. He is still somewhat sceptical, though. He notes that the whole argument is built on a contradiction, namely that in order to promote the development of ideas, it is necessary to reduce the freedom with which people can use them.

This argument for intellectual property cannot be resolved without further investigation. Hettinger says that there needs to be an investiga­tion of how long patents and copyrights should be granted, to determine an optimum period for promoting intellectual work. It should be noted that although the scale and pace of intellectual work has increased over the past few centuries, the length of protection of intellectual property has not been reduced, as might be expected, but greatly increased. The United States got along fine without copyright for much of the 1800s. Where once copyrights were only for a period of a few years, they now may be for the life of the author plus 50 years. In many countries, chemicals and pharmaceuticals were not patentable until recently (Patel 1989). This suggests that even if intellectual property can be justified on the basis of fostering new ideas, this is not the driving force behind the present system of copyrights and patents.

The marketplace of ideas

The idea of intellectual property has a number of connections with the concept of the marketplace of ideas, a metaphor that is widely used in discussions of free speech. To delve a bit more deeply into the claim that intellectual property promotes development of new ideas, it is therefore helpful to scrutinize the concept of the marketplace of ideas.

The image conveyed by the marketplace of ideas is that ideas compete for acceptance in a market. As long as the competition is fair—which means that all ideas and contributors are permitted access to the market­place—then good ideas will win out over bad ones. Why? Because people will recognise the truth and value of good ideas. On the other hand, if the market is constrained, for example by some groups being excluded, then certain ideas cannot be tested and examined and successful ideas may not be the best ideas.

Logically, there is no reason why a marketplace of ideas has to be a marketplace of owned ideas: intellectual property cannot be strictly justi­fied by the marketplace of ideas. But because the marketplace metaphor is an economic one, there is a strong tendency to link intellectual property with the marketplace of ideas. As will be discussed later, there is indeed a link between these two concepts, but not in the way their defenders usu­ally imagine.

There are plenty of practical examples of the failure of the marketplace of ideas. Groups that are stigmatized or that lack power seldom have their viewpoints presented. This includes ethnic minorities, prisoners, the unemployed, manual workers and radical critics of the status quo, among many others (McGaffey 1972). Even when such groups organise them­selves to promote their ideas, their views are often ignored while the media focus on their protests, as in the case of peace movement rallies and marches (Gwyn 1966).

Demonstrably, good ideas do not always win out in the marketplace of ideas. To take one example, it can hardly be argued that the point of view of workers is inherently less worthy than that of employers. Yet there is an enormous imbalance in the presentation of their respective viewpoints in the media. One result is that quite a few ideas that happen to serve the interests of employers at the expense of workers—such as that the reason people don't have jobs is because they aren't trying hard enough to find them—are widely accepted although they are rejected by virtually all informed analysts.

There is a simple and fundamental reason for the failure of the marketplace of ideas: inequality, especially economic inequality (Baker 1989; Hanson 1981). Perhaps in a group of people sitting in a room discussing an issue, there is some prospect of a measured assessment of different ideas. But if these same people are isolated in front of their television sets, and one of them owns the television station, it is obvious that there is little basis for testing of ideas. The reality is that powerful and rich groups can promote their ideas with little chance of rebuttal from those with different perspectives. Large corporations pay for advertise­ments and other forms of marketing. Governments shape media agendas as well as directly regulating the media. The mass media themselves are powerful enterprises—whether owned by government or industry—that promote their own interests as well as those of their advertisers (Bagdikian 1993).

In circumstances where participants are approximate equals, such as intellectual discourse among peers in an academic discipline, then the metaphor of competition of ideas has some value. But ownership of media or ideas is hardly a prerequisite for such discourses. It is the equality of power that is essential. When, to take one of many possible examples, employees in corporations lack the freedom to speak openly without penalty (Ewing 1977), they cannot be equal participants in discourse.

Some ideas are good—in the sense of being valuable to society—but are unwelcome. Some are unwelcome to powerful groups, such as that governments and corporations commit massive crimes (Ross 1995) or that there is a massive trade in technologies of torture and repression that needs to be stopped (Wright 1991). Others are challenging to much of the population, such as that imprisonment does not reduce the crime rate or that financial rewards for good work on the job or grades for good school-work are counterproductive (Kohn 1993). (Needless to say, individuals might disagree with the examples used here. The case does not rest on the examples themselves, but on the existence of some important cases where unwelcome but socially valuable ideas are marginalised.) The marketplace of ideas simply does not work to treat such unwelcome ideas with the seriousness they deserve. The mass media try to gain audiences by pleas­ing them, not by confronting them with challenging ideas (Entman 1989).

The marketplace of ideas is often used to justify free speech. The argument is that free speech is necessary in order for the marketplace of ideas to operate: if some types of speech are curtailed, certain ideas will not be available on the marketplace and thus the best ideas will not succeed. This sounds plausible. But it is possible to reject the marketplace of ideas while still defending free speech on the grounds that it is' essential to human liberty (Baker 1989). Conversely, defending free speech does not mean supporting the mass media (Lichtenberg 1987).

If the marketplace of ideas doesn't work, what is the solution? The usual view is that governments should intervene to ensure that all groups have fair access to the media (McGaffey 1972). But this approach, based on promoting equality of opportunity, ignores the fundamental problem of economic inequality. Even if minority groups have some limited chance to present their views in the mass media, this can hardly compensate for the massive power of governments and corporations to promote their views. In addition, it retains the role of the mass media as the central mechanism for disseminating ideas. So-called reform proposals either retain the status quo or introduce government censorship (Ingber 1984).

Underlying the market model is the idea of self-regulation: the "free market" is supposed to operate without outside intervention and, indeed, to operate best when outside intervention is minimized. In practice, even markets in goods do not operate autonomously: the state is intimately involved in even the freest of markets (Moran and Wright 1991). In the case of the marketplace of ideas, the state is involved both in shaping the market and in making it possible, for example by promoting and regulating the mass media. The world's most powerful state, the US, has been the driving force behind the establishment of a highly protectionist system of intellectual property, using power politics at GATT, the General Agree­ment on Tariffs and Trade (Drahos 1995).

Courts may use the rhetoric of the marketplace of ideas but actually interpret the law to support the status quo (Ingber 1984). For example, speech is treated as free until it might actually have some consequences. Then it is curtailed when it allegedly presents a "clear and present danger," such as when peace activists expose information supposedly threatening to "national security" (Gleditsch 1987). But speech without action is pointless. True liberty requires freedom to promote one's views in practice (Baker 1989). Powerful groups have the ability to do this. Courts only intervene when others try to do the same.

As in the case of trade generally, a property-based "free market" serves the interests of powerful producers. In the case of ideas, this includes not only governments and corporations but also intellectuals and professionals linked with universities, entertainment, journalism and the arts. Against such an array of intellectual opinion, it is very difficult for other groups, such as manual workers, to compete (Ginsberg 1986). The marketplace of ideas is a biased and artificial market that mostly serves to fine-tune relations between elites and provide them with legitimacy (Ingber 1984).

The implication of this analysis is that intellectual property cannot be justified on the basis of the marketplace of ideas. The utilitarian argument for intellectual property is that ownership is necessary to stimulate production of new ideas, because of the financial incentive. This financial incentive is supposed to come from the market, whose justification is the marketplace of ideas. If, as critics argue, the marketplace of ideas is flawed by the presence of economic inequality and, more fundamentally, is an artificial creation that serves powerful producers of ideas and legiti­mates the role of elites, then the case for intellectual property is un­founded. Intellectual property can only Serve to aggravate the inequality on which it is built.

The alternative

The alternative to intellectual property is straightforward: intellectual products should not be owned. That means not owned by individuals, corpo­rations, governments, or the community as common property. It means that ideas are available to be used by anyone who wants to.

One example of how this might operate is language, including the words, sounds and meaning systems with which we communicate every day. Spoken language is free for everyone to use. To allow any group to own language raises the spectre of George Orwell's1984. (Actually, corpora­tions do control bits of language through trademarks.)

Another example is scientific knowledge. Scientists do research and then publish their results. A large fraction of scientific knowledge is public knowledge (Ziman 1968). There are some areas of science that are not public, such as classified military research. It is generally argued that the most dynamic parts of science are those with the least secrecy. Open ideas can be examined, challenged, modified and improved. To turn scien­tific knowledge into a commodity on the market, as is happening with genetic engineering (Mackenzie et al. 19&0; Weiner 1986), arguably in­hibits science.

Few scientists complain that they do not own the knowledge they produce. Indeed, they are much more likely to complain when corporations or governments try to control dissemination of the ideas. Most scientists receive a salary from a government, corporation or university. Their livelihoods do not depend on royalties from published work.

University scientists have the greatest freedom. The main reasons they do research are for the intrinsic satisfaction of investigation and discov­ery—a key motivation for many of the world's great scientists—and for recognition by their peers. To turn scientific knowledge into intellectual property would dampen the enthusiasm of many scientists for their work.

Neither language nor scientific knowledge are ideal; indeed, they are often used for harmful purposes. It is difficult to imagine, though, how turning them into property could make them better.

The case of science shows that vigorous intellectual activity is quite possible without intellectual property, and In fact that it may be vigorous precisely because information is not owned. But there are lots of areas that, unlike science, have long operated with intellectual property as a fact of life. What would happen without ownership of information? Many objections spring to mind. Here I'll deal with a few of them.

Plagiarism is a great fear in the minds of many intellectual workers. It Is often thought that intellectual property provides a protection against plagiarism. After all, without copyright, why couldn't someone put their name on your essay and publish it? Actually, copyright provides very little protection against plagiarism and is not a good way to deal with it (Steams 1992).

Plagiarism means using the ideas of others without adequate acknow­ledgement. There are several types of plagiarism. One is plagiarism of ideas: someone takes your original idea and, using different expression, presents it as their own. Copyright provides no protection at all against this form of plagiarism. Another type of plagiarism is word-for-word plagiarism, where someone takes the words you've written—a book, an essay, a few paragraphs or even just a sentence—and, with or without minor modifications, presents them as their own. This sort of plagiarism is covered by copyright—assuming that you hold the copyright. In many cases, copyright is held by the publisher, not the author. In practice, plagiarism goes on all the time, in various ways and degrees (Broad and Wade 1982; Mallon 1989; Posner 1988), and copyright law is hardly ever used against it. The most effective challenge to plagiarism is not legal action but publicity. At least among authors, plagiarism is widely con­demned. To be exposed as a plagiarist is more than sufficient motivation for most writers to take care to avoid it.

There is an even more fundamental reason why copyright provides no protection against plagiarism: the most common sort of plagiarism is built into social hierarchies. Government and corporate reports are released under the names of top bureaucrats who did not write them; politicians and university presidents give speeches written by underlings. These are examples of a pervasive misrepresentation of authorship in which power­ful figures gain credit for the work of subordinates (Martin 1994). Copy­right, if it has any effect at all, reinforces rather than challenges this sort of institutionalized plagiarism.

What about all the writers, inventors and others who depend for their livelihood on royalties? First, it should be mentioned that only a very few individuals make enough money from royalties to live on. Most of the rewards from intellectual property go to a few big companies. But the question is still a serious one for those intellectual workers who depend on royalties and other payments related to intellectual property.

The alternative in this case is some reorganization of the economic system. Intellectual workers could receive a salary, just like most scien­tists do.

Getting rid of intellectual property would reduce the incomes of a few highly successful creative individuals, such as author Agatha Christie, composer Andrew Lloyd Webber and filmmaker Steven Spielberg. Publish­ers could reprint Christie's novels without permission, theatre companies could put on Webber's operas whenever they wished and Spielberg's films could be copied and screened anywhere. Jurassic Park T-shirts, toys and trinkets could be produced at will. This would reduce the income of and, to some extent, the opportunities for artistic expression by these individu­als. But there would be economic resources released: there would be more money available for other creators. Christie, Webber and Spielberg might be just as popular without intellectual property to channel money to them and their family enterprises.

But what about the incentive to create? Without the possibility of wealth and fame, what would stimulate creative individuals to produce works of genius? Actually, most creators and innovators are motivated by their own intrinsic interest, not by rewards. There is a large body of evidence showing, contrary to popular opinion, that rewards actually reduce the quality of work (Kohn 1993). If the goal is better and more creative work, paying creators on a piecework basis, such as through royalties, is counterproductive.

In a society without intellectual property, creativity is likely to thrive. Most of the problems-that are imagined to occur if there is no intellectual property—such as the exploitation of a small publisher that renounces copyright—are due to economic arrangements that maintain inequality. The soundest foundation for a society without intellectual property is greater economic and political equality. This means not just equality of opportun­ity, but equality of outcomes. This does not mean uniformity and does not mean leveling imposed from the top: it means freedom and diversity and a situation where people can get what they need. There is not space to deal fully with this issue here, but suffice it to say that there are strong social and psychological arguments in favour of equality (Baker 1987; Deutsch 1985; Ryan 1981).

Property institutions fundamentally shape a society. These legal relationships between individuals, different sorts of objects, and the state are not easy to justify. This is especially true of intellectual property. It is diffi­cult enough to determine the appropriate kinds of ownership of corporeal objects (consider water or mineral rights); it is even more difficult to determine what types of ownership we should allow for non corporeal, intellectual objects, such as writings, inventions, and secret business in­formation. The complexity of copyright, patent, and trade secret law re­flects this problem.

According to one writer "patents are the heart and core of property rights, and once they are destroyed, the destruction of all other property rights 'will follow automatically, as a brief postscript."Though extreme, this remark rightly stresses the importance of patents to private compet­itive enterprise. Intellectual property is an increasingly significant and widespread form of ownership of intellectual property. Many have noted the arrival of the "post-industrial society" in which the manufacture and manipulation of phys­ical goods is giving way to the production and use of information. The result is an ever-increasing strain on our laws and customs protecting intellectual property. Now, more than ever, there is a need to carefully scrutinize these institutions.

As a result of both vastly improved information-handling technologies and the larger role information is playing in our society, owners of intel­lectual property are more frequently faced with what they call ”piracy" or information theft (that is, unauthorized access to their intellectual property). Most readers of this article have undoubtedly done something considered piracy by owners of intellectual property. Making a cassette tape of a friend's record, videotaping television broadcasts for a movie library, copying computer programs or using them on more than one ma­chine, photocopying more than one chapter of a book, or two or more articles by the same author—all are examples of alleged infringing activ­ities. Copyright, patent, and trade secret violation suits abound in indus­try, and in academia, the use of another person's ideas often goes unacknowledged. These phenomena indicate widespread public disa­greement over the nature and legitimacy of our intellectual property in­stitutions. This article examines the justifiability of those institutions.

Copyrights, Patents, and Trade Secrets

It is commonly said that one cannot patent or copyright ideas. One copy­rights "original works of authorship," including writings, music, draw­ings, dances, computer programs, and movies; one may not copyright ideas, concepts, principles, facts, or knowledge. Expressions of ideas are copyrightable; ideas themselves are not. While useful, this notion of separating the content of an idea from its style of presentation is not un-problematic. Difficulty in distinguishing the two is most apparent in the more artistic forms of authorship (such as fiction or poetry), where style and content interpenetrate. In these mediums, more so than in others, howsomething is said is very much part of what is said (and vice versa).

A related distinction holds for patents. Laws of nature, mathematical formulas, and methods of doing business, for example, cannot be patented. What one patents are inventions—that is, processes, machines, manufactures, or compositions of matter. These must be novel (not pre­viously patented); they must constitute non obvious improvements over past inventions; and they must be useful (inventions that do not work cannot be patented). Specifying what sorts of “technological recipes for production" constitute patentable subject matter involves distinguish­ing specific applications and utilizations from the underlying unpatentable general principles. One cannot patent the scientific principle that water boils at 212 degrees, but one can patent a machine (for example, a steam engine) which uses this principle in a specific way and for a specific purpose.

Trade secrets include a variety of confidential and valuable business information, such as sales, marketing, pricing, and advertising data, lists of customers and suppliers, and such things as plant layout and manu­facturing techniques. Trade secrets must not be generally known in the industry, their nondisclosure must give some advantage over competi­tors, and attempts to prevent leakage of the information must be made (such as pledges of secrecy in employment contracts or other company security policies). The formula for Coca-Cola and bids on government contracts are examples of trade secrets.

Trade secret subject matter includes that of copyrights and patents: anything which can be copyrighted or patented can be held as a trade secret, though the converse is not true. Typically a business must choose between patenting an invention and holding it as a trade secret. Some advantages of trade secrets are (i) they do not require disclosure (in fact they require secrecy), whereas a condition for granting patents (and copyrights) is public disclosure of the invention (or writing); (2) they are protected for as long as they are kept secret, while most patents lapse after seventeen years; and (3) they involve less cost than acquiring and defending a patent. Advantages of patents include protection against re­verse engineering (competitors figuring out the invention by examining the product which embodies it) and against independent invention. Patents give their owners the exclusive right to make, use, and sell the in­vention no matter how anyone else comes up with it, while trade secrets prevent only improper acquisition (breaches of security).

Copyrights give their owners the right to reproduce, to prepare deriv­ative works from, to distribute copies of, and to publicly perform or dis­play the "original work of authorship." Their duration is the author's life plus fifty years. These rights are not universally applicable, however. The most notable exception is the "fair use" clause of the copyright statute, which gives researchers, educators, and libraries special privileges to use copyrighted material.

Intellectual Objects as Nonexclusive

Let us call the subject matter of copyrights, patents, and trade secrets 'intellectual objects'. These objects are nonexclusive: they can be at many places at once and are not consumed by their use. The marginal cost of providing an intellectual object to an additional user is zero, and though there are communications costs, modern technologies can easily make an intellectual object unlimitedly available at a very low cost.

The possession or use of an intellectual object by one person does not preclude others from possessing or using it as well. If someone borrows your lawn mower, you cannot use it, nor can anyone else. But if someone borrows your recipe for guacamole, that in no way precludes you, or any­one else, from using it. This feature is shared by all sorts of intellectual objects, including novels, computer programs, songs, machine designs, dances, recipes for Coca-Cola, lists of customers and suppliers, manage­ment techniques, and formulas for genetically engineered bacteria which digest crude oil. Of course, sharing intellectual objects does pre­vent the original possessor from selling the intellectual object to others, and so this sort of use is prevented. But sharing in no way hinders per­sonal use.

This characteristic of intellectual objects grounds a strong prima facie case against the wisdom of private and exclusive intellectual property rights. Why should one person have the exclusive right to possess and use something which all people could possess and use concurrently? The burden of justification is very much on those who would restrict the maximal use of intellectual objects. A person's right to exclude others from possessing and using a physical object can be justified when such exclusion is necessary for this person's own possession and unhindered use. No such justification is available for exclusive possession and use of intellectual property.

One reason for the widespread piracy of intellectual property is that many people think it is unjustified to exclude others from intellectual objects.' Also, the unauthorized taking of an intellectual object does not feel like theft. Stealing a physical object involves depriving someone of the object taken, whereas taking an intellectual object deprives the owner of neither possession nor personal use of that object—though the owner is deprived of potential profit. This nonexclusive feature of intel­lectual objects should be kept firmly in mind when assessing the justi­fiability of intellectual property.

Owning Ideas and Restrictions on the Free Flow of Information

The fundamental value our society places on freedom of thought and expression creates another difficulty for the justification of intellectual property. Private property enhances one person's freedom at the expense of everyone else's. Private intellectual property restricts methods of ac­quiring ideas (as do trade secrets), it restricts the use of ideas (as do patents), and it restricts the expression of ideas (as do copyrights)—re­strictions undesirable for a number of reasons. John Stuart Mill argued that free thought and speech are important for the acquisition of true beliefs and for individual growth and development. Restrictions on the free flow and use of ideas not only stifle individual growth, but impede the advancement of technological innovation and human knowledge generally. Insofar as copyrights, patents, and trade secrets have these negative effects, they are hard to justify.

Since a condition for granting patents and copyrights is public disclo­sure of the writing or invention, these forms of intellectual ownership do not involve the exclusive right to possess the knowledge or ideas they protect. Our society gives its inventors and writers a legal right to ex­clude others from certain uses of their intellectual works in return for public disclosure of these works. Disclosure is necessary if people are to learn from and build on the ideas of others. When they bring about dis­closure of ideas which would have otherwise remained secret, patents and copyrights enhance rather than restrict the free flow of ideas (though they still restrict the idea's widespread use and dissemination). Trade secrets do not have this virtue. Regrettably, the common law tra­dition which offers protection for trade secrets encourages secrecy. This makes trade secrets undesirable in a way in which copyrights or patents are not.

Labor, Natural Intellectual Property Rights, and Market Value

Perhaps the most powerful intuition supporting property rights is that people are entitled to the fruits of their labor. What a person produces with her own intelligence, effort, and perseverance ought to belong to her and to no one else. "Why is it mine? Well, it's mine because I made it, that's why. It wouldn't have existed but for me."

John Lock’s version of this labor justification for property derives property rights in the product of labor from prior property rights in one's body.¹⁶ A person owns her body and hence she owns what" it does, namely, its labor. A person’s labor and its product are inseparable, and so ownership of one can be secured only by owning the other. Hence, if a person is to own her body and thus its labor, she must also own what she ' joins her labor with—namely, the product of her labor.

This formulation is not without problems. For example, Robert Nozick wonders why a person should gain what she mixes her labor with instead of losing her labor. (He imagines pouring a can of tomato juice into the ocean and asks whether he thereby ought to gain the ocean or lose his tomato juice.) More importantly, assuming that labor's fruits are valu­able, and that laboring gives the laborer a property right in this value, this would entitle the laborer only to the value she added, and not to the total value of the resulting product. Though exceedingly difficult to mea­sure, these two components of value (that attributable to the object la­bored on and that attributable to the labor) need to be distinguished.

Locke thinks that until labored on, objects have little human value, at one point suggesting that labor creates 99 percent of their value. This is not plausible when labor is mixed with land and other natural re­sources. One does not create 99 percent of the value of an apple by pick­ing it off a tree, though some human effort is necessary for an object to have value for us.

What portion of the value of writings, inventions, and business infor­mation is attributable to the intellectual laborer? Clearly authorship, dis­covery, or development is necessary if intellectual products are to have value for us: we could not use or appreciate them without this labor. But it does not follow from this that all of their value is attributable to that labor. Consider, for example, the wheel, the entire human value of which is not appropriately attributable to its original inventor's.

The value added by the laborer and any value the object has on its own are by no means the only components of the value of an intellectual ob­ject. Invention, writing, and thought in general do not operate in a vac­uum; intellectual activity is not creation ex nihilo.Given this vital depen­dence of a person's thoughts on the ideas of those who came before her, intellectual products are fundamentally social products. Thus even if one assumes that the value of these products is entirely the result of human labor, this value is not entirely attributable to any particular laborer (or small group of laborers).

Separating out the individual contribution of the inventor, writer, or manager from this historical/social component is no easy task. Simply identifying the value a laborer's labor adds to the world with the market value of the resulting product ignores the vast contributions of others. A person who relies on human intellectual history and makes a small mod­ification to produce something of great value should no more receive what the market will bear than should the last person needed to lift a car receive full credit for lifting it. If laboring gives the laborer the right to receive the market value of the resulting product, this market value should be shared by all those whose ideas contributed to the origin of the product. The fact that most of these contributors are no longer present to receive their fair share is not a reason to give the entire market value to the last contributor.

Thus an appeal to the market value of a laborer's product cannot help us here. Markets work only after property rights have been established and enforced, and our question is what sorts of property rights an inven­tor, writer, or manager should have, given that the result of her labor is a joint product of human intellectual history.

Even if one could separate out the laborer's own contribution and de­termine its market value, it is still not clear that the laborer's right to the fruits of her labor naturally entitles her to receive this. Market value is a socially created phenomenon, depending on the activity (or non activity) of other producers, the monetary demand of purchasers, and the kinds of property rights, contracts, and markets the state has established and enforced. The market value of the same fruits of labor will differ greatly with variations in these social factors.

Consider the market value of a new drug formula. This depends on the length and the extent of the patent monopoly the state grantsand enforces, on the level of affluence of those who need the drug, and on the availability and price of substitutes. The laborer did not produce these. The intuitive appeal behind the labor argument—"I made it, hence it's mine"—loses its force when it is used to try to justify owning something others are responsible for (namely, the market value). The claim that a laborer, in virtue of her labor, has a "natural right" to this socially created phenomenon is problematic at best.

Thus, there are two different reasons why the market value of the product of labor is not what a laborer's labor naturally entitles her to. First, market value is not something that is produced by those who pro­duce a product, and the labor argument entitles laborers only to the prod­ucts of their labor. Second, even if we ignore this point and equate the fruits of labor with the market value of those fruits, intellectual products result from the labor of many people besides the latest contributor, and they have claims on the market value as well.

So even if the labor theory shows that the laborer has a natural right to the fruits of labor, this does not establish a natural right to receive the full market value of the resulting produce. The notion that a laborer is naturally entitled as a matter of right to receive the market value of her product is a myth. To what extent individual laborers should be allowed to receive the market value of their products is a question of social policy; it is not solved by simply insisting on a moral right to the fruits of one's labor.

Having a moral right to the fruits of one's labor might also mean hav­ing a right to possess and personally use what one develops. This version of the labor theory has some force. On this interpretation, creating some­thing through labor gives the laborer a prima facie right to possess and personally use it for her own benefit. The value of protecting individual freedom guarantees this right as long as the creative labor, and the pos­session and use of its product, does not harm others.

But the freedom to exchange a product in a market and receive its full market value is again something quite different. To show that people have a right to this, one must argue about how best to balance the con­flicts in freedoms which arise when people interact. One must determine what sorts of property rights and markets are morally legitimate. One must also decide when society should enforce the results of market in­teraction and when it should alter those results (for example, with tax policy). There is a gap—requiring extensive argumentative filler—be­tween the claim that one has a natural right to possess and personally use the fruits of one's labor and the claim that one ought to receive for one's product whatever the market will bear.

Such a gap exists as well between the natural right to possess and personally use one's intellectual creations and the rights protected by copyrights, patents, and trade secrets. The natural right of an author to personally use her writings is distinct from the right, protected by copy­right, to make her work public, sell it in a market, and then prevent others from making copies. An inventor's natural right to use the inven­tion for her own benefit is not the same as the right, protected by patent, to sell this invention in a market and exclude others (including indepen­dent inventors) from using it. An entrepreneur's natural right to use val­uable business information or techniques that she develops is not the same as the right, protected by trade secret, to prevent her employees from using these techniques in another job.

In short, a laborer has a prima facie natural right to possess and per­sonally use the fruits of her labor. But a right to profit by selling a product in the market is something quite different. This liberty is largely a so­cially created phenomenon. The "right" to receive what the market will bear is a socially created privilege, and not a natural right at all. The natural right to possess and personally use what one has produced is relevant to the justifiability of such a privilege, but by itself it is hardly sufficient to justify that privilege.

Deserving Property Rights Because Of Labor

The above argument that people are naturally entitled to the fruits of their labor is distinct from the argument that a person has a claim to labor's fruits based on desert. If a person has a natural right to some­thing—say her athletic ability—and someone takes it from her, the re­turn of it is something she is owed and can rightfully demand. Whether or not she deserves this athletic ability is a separate issue. Similarly, in­sofar as people have natural property rights in the fruits of their labor, these rights are something they are owed, and not something they nec­essarily deserve.

The desert argument suggests that the laborer deserves to benefit from her labor, at least if it is an attempt to do something worthwhile. This proposal is convincing, but does not show that what the laborer de­serves is property rights in the object labored on. The mistake is to con­flate the created object which makes a person deserving of a reward with what that reward should be. Property rights in the created object are not the only possible reward. Alternatives include fees, awards, acknowledg­ment, gratitude, praise, security, power, status, and public financial sup­port.

Many considerations affect whether property rights in the created ob­ject are what the laborer deserves. This may depend, for example, on what is created by labor. If property rights in the very things created were always an appropriate reward for labor, then as Lawrence Becker notes, parents would deserve property rights in their children. Many intellectual objects (scientific laws, religious, and ethical insights, and so on) are also the sort of thing that should not be owned by anyone.

Furthermore, as Becker also correctly points out, we need to consider the purpose for which the laborer labored. Property rights in the object produced are not a fitting reward if the laborer does not want them. Many intellectual laborers produce beautiful things and discover truths as ends in themselves. The appropriate reward in such cases is recog­nition, gratitude, and perhaps public financial support, not full-fledged property rights, for these laborers do not want to exclude others from their creations.

Property rights in the thing produced are also not a fitting reward if the value of these rights is disproportional to the effort expended by the laborer. 'Effort' includes (1) how hard someone tries to achieve a result, (2) the amount of risk voluntarily incurred in seeking this result, and (3) the degree to which moral considerations played a role in choosing the result intended. The harder one tries, the more one is willing to sacrifice, and the worthier the goal, the greater are one's deserts.

Becker's claim that the amount deserved is proportional to the value one's labor produces is mistaken. The value of labor's results is often significantly affected by factors outside a person's control, and no one deserves to be rewarded for being lucky. Voluntary past action is the only valid basis for determining desert. Here only a person's effort (in the sense defined) is relevant. Her knowledge, skills, and achievements in­sofar as they are based on natural talent and luck, rather than effort ex­pended, are not. A person who is born with extraordinary natural talents, or who is extremely lucky, deserves nothing on the basis of these char­acteristics. If such a person puts forward no greater effort than another, she deserves no greater reward. Thus, two laborers who expend equal amounts of effort deserve the same reward, even when the value of the resulting products is vastly different. Giving more to workers whose products have greater social value might be justified if it is needed as an incentive. But this has nothing to do with giving the laborer what she deserves.

John Rawls considers even the ability to expend effort to be deter­mined by factors outside a person's control and hence a morally imper­missible criterion for distribution. How hard one tries, how willing one is to sacrifice and incur risk, and how much one cares about morality are to some extent affected by natural endowments and social circum­stances. But if the ability to expend effort is taken to be entirely deter­mined by factors outside a person's control, the result is a determinism which makes meaningful moral evaluation impossible. If people are re­sponsible for anything, they are responsible for how hard they try, what sacrifices they make, and how moral they are. Because the effort a per­son expends is much more under her control than her innate intelli­gence, skills, and talents, effort is a far superior basis for determining desert. To the extent that a person's expenditure of effort is under her control, effort is the proper criterion for desert.

Giving an inventor exclusive rights to make and sell her invention (for seventeen years) may provide either a greater or a lesser reward than she deserves. Some inventions of extraordinary market value result from flashes of genius, while others with little market value (and yet great social value) require significant efforts.

The proportionality requirement may also be frequently violated by granting copyright. Consider a five-hundred-dollar computer program. Granted, its initial development costs (read "efforts") were high. But once it has been developed, the cost of each additional program is the cost of the disk it is on—approximately a dollar. After the program has been on the market several years and the price remains at three or four hundred dollars, one begins to suspect that the company is receiving far more than it deserves. Perhaps this is another reason so much illegal copying of software goes on: the proportionality requirement is not being met, and people sense the unfairness of the price. Frequently, trade se­crets (which are held indefinitely) also provide their owners with bene­fits disproportional to the effort expended in developing them.

The Lockean Provisos

We have examined two versions of the labor argument for intellectual property, one based on desert, the other based on a natural entitlement to the fruits of one's labor. Locke himself put limits on the conditions under which labor can justify a property right in the thing produced.

One is that after the appropriation there must be "enough and as good left in common for others." This proviso is often reformulated as a "no loss to others" precondition for property acquisition. As long as one does not worsen another's position by appropriating an object, no objec­tion can be raised to owning that with which one mixes one's labor.

Under current law, patents clearly run afoul of this proviso by giving the original inventor an exclusive right to make, use, and sell the inven­tion. Subsequent inventors who independently come up with an already patented invention cannot even personally use their invention, much less patent or sell it. They clearly suffer a great and unfair loss because of the original patent grant. Independent inventors should not be prohib­ited from using or selling their inventions. Proving independent discov­ery of a publicly available patented invention would be difficult, however. Nozick's suggestion that the length of patents be restricted to the time it would take for independent invention may be the most reasonable ad­ministrative solution. In the modem world of highly competitive re­search and development, this time is often much shorter than the sev­enteen years for which most patents are currently granted.

Copyrights and trade secrets are not subject to the same objection (though they may constitute a loss to others in different ways). If some­one independently comes up with a copyrighted expression or a compet­itor's business technique, she is not prohibited from using it. Copyrights and trade secrets prevent only mimicking of other people's expressions and ideas.

Locke's second condition on the legitimate acquisition of property rights prohibits spoilage. Not only must one leave enough and as good for others, but one must not take more than one can use. So in addition to leaving enough apples in the orchard for others, one must not take home a truckload and let them spoil. Though Locke does not specifically mention prohibiting waste, it is the concern to avoid waste which under­lies his proviso prohibiting spoilage. Taking more than one can use is wrong because it is wasteful. Thus Locke's concern here is with appro­priations of property which are wasteful.

Since writings, inventions, and business techniques are nonexclusive, this requirement prohibiting waste can never be completely met by in­tellectual property. When owners of intellectual property charge fees for the use of their expressions or inventions, or conceal their business tech­niques from others, certain beneficial uses of these intellectual products are prevented. This is clearly wasteful, since everyone could use and benefit from intellectual objects concurrently. How wasteful private ownership of intellectual property is depends on how beneficial those products would be to those who are excluded from their use as a result.

Sovereignty, Security, and Privacy

Private property can be justified as a means to sovereignty. Dominion over certain objects is important for individual autonomy. Ronald Dworkin's liberal is right in saying that "some sovereignty over a range of per­sonal possessions is essential to dignity." Not having to share one's per­sonal possessions or borrow them from others is essential to the kind of autonomy our society values. Using or consuming certain objects is also necessary for survival. Allowing ownership of these things places control of the means of survival in the hands of individuals, and this promotes independence and security (at least for those who own enough of them). Private ownership of life's necessities lessens dependence between indi­viduals, and takes power from the group and gives it to the individual. Private property also promotes privacy. It constitutes a sphere of privacy within which the individual is sovereign and less accountable for her actions. Owning one's own home is an example of all of these: it provides privacy, security, and a limited range of autonomy.

But copyrights and patents are neither necessary nor important for achieving these goals. The right to exclude others from using one's in­vention or copying one's work of authorship is not essential to one's sov­ereignty. Preventing a person from personally using her own invention or writing, on the other hand, would seriously threaten her sovereignty. An author's or inventor's sense of worth and dignity requires public ac­knowledgment by those who use the writing or discovery, but here again, giving the author or inventor the exclusive right to copy or use her intellectual product is not necessary to protect this.

Though patents and copyrights are not directly necessary for survival (as are food and shelter), one could argue that they are indirectly neces­sary for an individual's security and survival when selling her inventions or writings is a person's sole means of income. In our society, however, most patents and copyrights are owned by institutions (businesses, uni­versities, or governments). Except in unusual cases where individuals have extraordinary bargaining power, prospective employees are re­quired to give the rights to their inventions and works of authorship to their employers as a condition of employment. Independent authors or inventors who earn their living by selling their writings or inventions to others are increasingly rare. Thus arguing that intellectual property promotes individual security makes sense only in a minority of cases. Additionally, there are other ways to ensure the independent intellectual laborer's security and survival besides copyrights and patents (such as public funding of intellectual workers and public domain property status for the results).

Controlling who uses one's invention or writing is not important to one's privacy. As long as there is no requirement to divulge privately cre­ated intellectual products (and as long as laws exist to protect people from others taking information they choose not to divulge—as with trade secret laws), the creator's privacy will not be infringed. Trying to justify copyrights and patents on grounds of privacy is highly implausible given that these property rights give the author or inventor control over certain uses of writings and inventions only after they have been publicly dis­closed.

Trade secrets are not defensible on grounds of privacy either. A cor­poration is not an individual and hence does not have the personal fea­tures privacy is intended to protect. Concern for sovereignty counts against trade secrets, for they often directly limit individual autonomy by preventing employees from changing jobs. Through employment con­tracts, by means of gentlemen's agreements among firms to respect trade secrets by refusing to hire competitors' employees, or simply be­cause of the threat of lawsuits, trade secrets often prevent employees from using their skills and knowledge with other companies in the in­dustry.

Some trade secrets, however, are important to a company's security and survival. If competitors could legally obtain the secret formula for Coke, for example, the Coca-Cola Company would be severely threat­ened. Similar points hold for copyrights and patents. Without some copy­right protection, companies in the publishing, record, and movie indus­tries would be severely threatened by competitors who copy and sell their works at lower prices (which need not reflect development costs). With­out patent protection, companies with high research and development costs could be underpriced and driven out of business by competitors who simply mimicked the already developed products. This unfair com­petition could significantly weaken incentives to invest in innovative techniques and to develop new products.

The next section considers this argument that intellectual property is a necessary incentive for innovation and a requirement for healthy and fair competition. Notice, however, that the concern here is with the se­curity and survival of private companies, not of individuals. Thus one need to determine whether, and to what extent, the security and sur­vival of privately held companies is a goal worth promoting. That issue turns on the difficult question of what type of economy is most desirable. Given a commitment to capitalism, however, this argument does have some force.

The Utilitarian Justification

The strongest and most widely appealed to justification for intellectual property is a utilitarian argument based on providing incentives. The constitutional justification for patents and copyrights—"to promote the progress of science and the useful arts"—is itself utilitarian. Given the shortcomings of the other arguments for intellectual property, the justi­fiability of copyrights, patents, and trade secrets depends, in the final analysis, on this utilitarian defense.

According to this argument, promoting the creation of valuable intel­lectual works requires that intellectual laborers be granted property rights in those works. Without the copyright, patent, and trade secret property protections, adequate incentives for the creation of a socially optimal output of intellectual products would not exist. If competitors could simply copy books, movies, and records, and take one another's inventions and business techniques, there would be no incentive to spend the vast amounts of time, energy, and money necessary to develop these products and techniques. It would be in each firm's self-interest to let others develop products, and then mimic the result. No one would engage in original development, and consequently no new writings, in­ventions, or business techniques would be developed. To avoid this dis­astrous result, the argument claims, we must continue to grant intellec­tual property rights.

Notice that this argument focuses on the users of intellectual prod­ucts, rather than on the producers. Granting property rights to producers is here seen as necessary to ensure that enough intellectual products (and the countless other goods based on these products) are available to users. The grant of property rights to the producers is a mere means to this end.

This approach is paradoxical. It establishes a right to restrict the cur­rent availability and use of intellectual products for the purpose of in­creasing the production and thus future availability and use of new in­tellectual products. As economist Joan Robinson says of patents: "A patent is a device to prevent the diffusion of new methods before the original investor has recovered profit adequate to induce the requisite investment. The justification of the patent system is that by slowing down the diffusion of technical progress it ensures that there will be more progress to diffuse. . . . Since it is rooted in a contradiction, there can be no such thing as an ideally beneficial patent system, and it is bound to produce negative results in particular instances, impeding progress unnecessarily even if its general effect is favorable on bal­ance. Although this strategy may work, it is to a certain extent self-defeating. If the justification for intellectual property is utilitarian in this sense, then the search for alternative incentives for the production of intellectual products takes on a good deal of importance. It would be bet­ter to employ equally powerful ways to stimulate the production and thus use of intellectual products which did not also restrict their use and avail­ability.

Government support of intellectual work and public ownership of the result may be one such alternative. Governments already fund a great deal of basic research and development, and the results of this research often become public property. Unlike private property rights in the re­sults of intellectual labor, government funding of this labor and public ownership of the result stimulate new inventions and writings without restricting their dissemination and use. Increased government funding of intellectual labor should thus be seriously considered.

This proposal need not involve government control over which re­search projects are to be pursued. Government funding of intellectual labor can be divorced from government control over what is funded. Uni­versity research is an example. Most of this is supported by public funds, but government control over its content is minor and indirect. Agencies at different governmental levels could distribute funding for intellectual labor with only the most general guidance over content, leaving busi­nesses, universities, and private individuals to decide which projects to pursue.

If the goal of private intellectual property institutions is to maximize the dissemination and use of information, to the extent that they do not achieve this result, these institutions should be modified. The question is not whether copyrights, patents, and trade secrets provide incentives for the production of original works of authorship, inventions, and inno­vative business techniques. Of course they do. Rather, we should ask the following questions: Do copyrights, patents, and trade secrets increase the availability and use of intellectual products more than they restrict this availability and use? If they do, we must then ask whether they in­crease the availability and use of intellectual products more than any al­ternative mechanism would. For example, could better overall results be achieved by shortening the length of copyright and patent grants, or by putting a time limit on trade secrets (and on the restrictions on future employment employers are allowed to demand of employees)? Would eliminating most types of trade secrets entirely and letting patents carry a heavier load produce unproved results? Additionally, we must deter­mine whether and to what extent public funding and ownership of intel­lectual products might be a more efficient means to these results.

We should not expect an across-the-board answer to these questions. For example, the production of movies is more dependent on copyright than is academic writing. Also, patent protection for individual inventors and small beginning firms makes more sense than patent protection for large corporations (which own the majority of patents). It has been ar­gued that patents are not important incentives for the research and in­novative activity of large corporations in competitive markets. The short-term advantage a company gets from developing a new product and being the first to put it on the market may be incentive enough.

That patents are conducive to a strong competitive economy is also open to question. Our patent system, originally designed to reward the individual inventor and thereby stimulate invention, may today be used as a device to monopolize industries. It has been suggested that in some cases "the patent position of the big firms makes it almost impossible for new firms to enter the industry" and that patents are frequently bought up in order to suppress competition.

Trade secrets as well can stifle competition, rather than encourage it. If a company can rely on a secret advantage over a competitor, it has no need to develop new technologies to stay ahead. Greater disclosure of certain trade secrets—such as costs and profits of particular product lines—would actually increase competition, rather than decrease it. Since with this knowledge firms would then concentrate on one anoth­er's most profitable products. Furthermore, as one critic notes, trade secret laws often prevent a former employee "from doing work in just that field for which his training and experience have best prepared him. Indeed, the mobility of engineers and scientists is often severely limited by the reluctance of new firms to hire them for fear of exposing them­selves to a lawsuit." Since the movement of skilled workers between companies is a vital mechanism in the growth and spread of technology, in this important respect trade secrets actually slow the dissemination and use of innovative techniques.

These remarks suggest that the justifiability of our intellectual prop­erty institutions is not settled by the facile assertion that our system of patents, copyrights, and trade secrets provides necessary incentives for innovation and ensures maximally healthy competitive enterprise. This argument is not as easy to construct as one might at first think; substan­tial empirical evidence is needed. The above considerations suggest that the evidence might not support this position.

Conclusion

Justifying intellectual property is a formidable task. The inadequacies of the traditional justifications for property become more severe when ap­plied to intellectual property. Both the nonexclusive nature of intellectual objects and the presumption against allowing restrictions on the free flow of ideas create special burdens in justifying such property.

We have seen significant shortcomings in the justifications for intel­lectual property. Natural rights to the fruits of one's labor are not by themselves sufficient to justify copyrights, patents, and trade secrets, though they are relevant to the social decision to create and sustain in­tellectual property institutions. Although intellectual laborers often de­serve rewards for their labor, copyrights, patents, and trade secrets may give the laborer much more or much less than is deserved. Where prop­erty rights are not what is desired, they may be wholly inappropriate. The Lockean labor arguments for intellectual property also run afoul of one of Locke's provisos—the prohibition against spoilage or waste. Consid­erations of sovereignty, security, and privacy are inconclusive justifica­tions for intellectual property as well.

This analysis suggests that the issue turns on considerations of social utility. We must determine whether our current copyright, patent, and trade secret statutes provide the best possible mechanisms for ensuring the availability and widespread dissemination of intellectual works and their resulting products. Public financial support for intellectual laborers and public ownership of intellectual products is an alternative which de­mands serious consideration. More modest alternatives needing consid­eration include modifications in the length of intellectual property grants or in the strength and scope of the restrictive rights granted. What the most efficient mechanism for achieving these goals is remains an unre­solved empirical question.

This discussion also suggests that copyrights are easier to justify than patents or trade secrets. Patents restrict the actual usage of an idea (in making a physical object), while copyrights restrict only copying an expression of an idea. One can freely use the ideas in a copyrighted book in one's own writing, provided one acknowledges their origin. One can­not freely use the ideas a patented invention represents when developing one's own product. Furthermore, since inventions and business tech­niques are instruments of production in a way in which expressions of ideas are not, socialist objections to private ownershipof the means of production apply to patents and trade secrets far more readily than they do to copyrights. Trade secrets are suspect also because they do not in­volve the socially beneficial public disclosure which is part of the patent and copyright process. They are additionally problematic to the extent that they involve unacceptable restrictions on employee mobility and technology transfer.

Focusing on the problems of justifying intellectual property is impor­tant not because these institutions lack any sort of justification, but be­cause they are not so obviously or easily justified as many people think. We must begin to think more openly and imaginatively about the alter­native choices available to us for stimulating and rewarding intellectual labor.

Against Intellectual Property (Brain Marthin)

There is a strong case for opposing intellectual property. There are a number of negative consequences of the ownership of information, such as retarding of innovation and exploitation of poor countries. Most of the usual arguments for intellectual property do not hold up under scrutiny. In particular, the metaphor of the marketplace of ideas provides no justifica­tion for ownership of ideas. The alternative to intellectual property is that intellectual products not be owned, as in the case of everyday language. Strategies against intellectual property include civil disobedience, promo­tion of non-owned information, and fostering of a more cooperative society.

In 1980, a book entitled Documents on Australian Defence and Foreign Policy 1968-1975 was published by George Munster and Richard Walsh. It reproduced many secret government memos, briefings and other docu­ments concerning Australian involvement in the Vietnam war, events leading up to the Indonesian invasion of East Timor, and other issues. Exposure of this material deeply embarrassed the Australian government. In an unprecedented move, the government issued an interim injunction, citing both the Crimes Act and the Copyright Act. The books, just put on sale, were impounded. Print runs of two major newspapers with extracts from the book were also seized. The Australian High Court ruled that the Crimes Act did not apply, but that the material was protected by copyright held by the government. Later, Munster and Walsh produced a book using summaries and short quotes in order to present the information (Munster 1982).

This example is one of many that show how copyright is used to protect the interests of the powerful in the face of challengers, at the expense of free speech. Yet copyright is standardly justified on the grounds that it promotes creation and dissemination of ideas.

Copyright is one of four main types of intellectual property or, in other words, ownership of information. The others are patents, trademark and trade secrets. Copyright covers the expression of ideas such as in writ­ing, music and pictures. Patents cover inventions, such as designs for objects or industrial processes. Trademarks are symbols associated with a good, service or company. Trade secrets cover confidential business information.

The type of property that is familiar to most people is physical objects. People own clothes, cars, houses and land. When people own ideas, this is called intellectual property. But there has always been a big problem with owning ideas—exclusive use or control of ideas doesn't make nearly as much sense as it does applied to physical objects.

Many physical objects can only be used by one person at a time. If one person wears a pair of shoes, no one else can wear them at the same time. (The person who wears them often also owns them, but not always.) This is not true of intellectual property. Ideas can be copied over and over, but the person who had the original copy still has full use of it. Suppose you write a poem. Even if a million other people have copies and read the poem, you can still read the poem yourself. In other words, more than one person can use an idea—a poem, a mathematical formula, a tune—without reducing other people's use of the idea. Shoes and poems are fundamentally differ­ent in this respect.

Technological developments have made it cheaper and easier to make copies of information. Printing was a great advance: it eliminated the need for hand copying of documents. Photocopying and computers have made it even easier to make copies of written documents. Photography and sound recordings have done the same for visual and sound material. The ability to protect intellectual property is being undermined by technology. Yet there is a strong push to expand the scope of ownership of information.

This article outlines the case against intellectual property. It begins by mentioning some of the problems arising from ownership of information. Then I turn to weaknesses in the standard justifications for intellectual property. Next is an overview of problems with the so-called "marketplace of ideas," which has important links with intellectual property. Finally, I outline some alternatives to intellectual property and some possible strategies for moving towards these alternatives.