Myth of the Creator (page 3)

b) Demand-Side Shuffle

In the identification of related trends, one remained implicit.  In the restructuring and re-definition of the public sector there is a trend shifting government away from the supply-side to the demand-side of the economic equation.  This trends reflects a number of inter-related sub-trends including:

• the global ideological triumph of market over Marxist economics; 

• the inhibiting impact of free trade agreements on governmental grants of industrial privilege especially direct subsidies; 

• populism in public policy debate which now assumes individuals know how to spend their money better than governments; 

• the shift from income taxation (a tax on work) towards consumption taxation including value added taxes; and, 

• the debilitating effect of deficits and debt on the viability of supply-side policies, that is, government is short of money.

One of the important demand-side roles of government is as 'rule maker'. This is the case with IPRs, especially for copyright.  A market for copyrighted works exists only because government says so.  Copyrighted works have no underlying utilitarian value or physical form permitting what in economics is called 'exclusion'.  Except by secrecy, one cannot lock up an image, sound or text.  Government creates the market for such intangible property by statute without which piracy would freely reign.

A demand-side policy approach must confront the following set of facts:

• corporate copyright owners are becoming fewer, larger and are exercising growing market power; recently granted and proposed creator's rights have been effectively extinguished by blanket licences imposed by corporate copyright owners; 

• users of copyrighted works including educational institutions, archives and libraries as well as individuals will benefit from proposed exemptions while creators will lose sales; 

• market failure results from government actions by reducing effective demand in exempting from copyright selected uses and users as well as granting monopoly power to corporate copyright owners; and, 

• compensation should, in the U.S. IPR tradition, benefit only resident creators and therefore should be granted outside of the Copyright Act.

b) Applicable Policy Instruments

What are the alternative public policy instruments available to mitigate market failure in bargaining between creators and corporate copyright owners?  Four instrument clusters can be identified. Each is deserving of in-depth policy research.  Some clusters carry direct costs to the public treasury; others do not. The four clusters are:

• consumer protection & moral suasion;

•   customs, excise & taxation; 

• fiscal measures; and, 

• provincial IPRs.

i - Consumer Protection & Moral Suasion

Consumer protection would appear to be a permanent part of the public policy branches of consumer policy relevant to the question at hand.  These are truth in advertising and product certification.

Truth in Advertising

Consider the 'starving artist sale'.  These, it appears, are part of a commercial traveling circuit moving into a community, advertising on local TV and in newspapers, selling in a local hotel, then moving on to the next community only to return in future to conduct yet another starving artist sale.  The 'original art works suitable for over the sofa or fireplace' are usually made in Hong Kong or Italy.  They are produced on an assembly-line with one artists doing the trees, another the people and so on.  Thus it would appear that production of 'low end' art or 'kitche' in Chinese and Italian cultures is on the same spectrum ranging from highest artistic achievement to black-velvetine Elvis.  Accordingly, many more artists are employed in their arts industries than in English cultures where waiting on tables and, driving cab is often considered superior to practical training and experience in 'kitchen art'.  The general public is not told in advertising for starving artist sales that the artists are foreign and the art is assembly-line.  While price may be the primary motivation, the public has a right to truth in advertising.  And, perhaps, for a small price premium, they repertoire, unlike some other areas of would prefer to buy local art and thus policy action.  There are at least two give work to local creators.

Certification

There is a growing movement towards trademarking and certifying locally made artwork.  In Quebec, for example, many hotels display 'provincial' artwork in guest rooms. Such works bear a provincially registered trademark.  This is also the practice of Inuit and other aboriginal artwork cooperatives.  The trademark serves to identify local artwork and to protect its good name with consumers.

There would be no direct cost to the public treasury other than advertising existing laws and practices. Civil action would be the primary legal mode of enforcement.

Moral Suasion

In economics, 'moral suasion' refers to the practice of central banks of convincing financial and lending institutions to take action without taking such action itself, e.g., raising interest rates.  Moral suasion can be used to inhibit use of blanket licences by corporate copyright owners and encourage recognition of creator's rights.

ii - Customs, Excise &Taxation

There are a wide number of public policy issues and instruments in this cluster including: dumping; amusement & value added taxes; quotas; and, personal income tax exemptions.

Dumping

Under free trade, a country cannot sell a product abroad at a lower price than it sells at home, nor can it sell at less than the cost of production.  In international trade this is known as `dumping'. A customs tariff can be levied and other countervailing measures implemented against `dumped' products.

There is one exception to this prohibition - copyrighted works. For example, it usually costs about $1 million to produce an hour long TV program which can 'break even' in the U.S. domestic market. U.S. corporate copyright owners, however, then sell the product to foreign buyers not at the cost of production but at cost per viewer.  In economic terms, it is sold at marginal cost.  Accordingly, a TV program with million dollar production standards can be bought, for example by CTV, for $35,000.  Local production simply can not compete on price or quality.  To date, it appears that no country has successfully challenged this trade practice.

Restrictions on the sale of intellectual property across national borders do, however, exist.  For example, France imposes barriers against English language computer software.  If one enters Canada with a computer tape, tariffs are charged against the value of the physical tape.  If one enters France with the same tape, tariffs are levied on the value of its contents.  The policy rationale is this: if English computer software is sold at marginal cost in France, then equivalent French-language software will be under-cut and future development of French intellectual property stunted.

Amusement & Value-Added Taxes

In eastern Europe before the fall of the Berlin Wall, Western cultural products like notion pictures were available.  However, a 'garbage tax' was imposed.  Proceeds from the tax were used to support local production.  A variation is currently used in many U.S. States to cross subsidize local cultural production through a 'transitory occupancy tax' or hotel tax.

In France, an art work deemed 'pornographic' is not necessarily censored or banned.  Instead, a higher value added tax is applied.  This is similar to 'excise' taxes on 'bad' but legal products like alcohol and tobacco.

What many of these taxes share is that, under international trade agreements, import restrictions are permitted to protect 'public morals'.  An obvious example is in Islamic states which hold radically different values about the relationship between men and women, i.e., sexual social apartheid versus integration.

However, many Western nations have used public concern about sex and violence to restrict cultural imports from more 'liberal' countries, e.g., Sweden. An alternative to outright ban is a higher amusement or value added taxes on 'immoral' works, e.g. triple 'X` videos.  Proceeds could be used to increase employment opportunities for local live artists or fund special IPRs exclusively available to local creators.

Paralleling the French practice of a higher value added tax on `immoral' goods and services, a lower rate could be applied or a rebate paid for consumption of `merit' goods and services such as works of resident creators.

Quotas

Quotas are limits on the volume of imports. First introduced in 1930 by the Government of France as a means of increasing wheat prices for farmers, quotas quickly displaced tariffs as the favoured instrument of trade protection. At about the same time, France introduced quotas on the exhibition of foreign films to increase production of French motion` pictures.  Other European countries quickly followed.  After World War II, Article IV of the 1947 GATT agreement legitimized such exhibition quotas.  Canada could have exercised this provision.  Instead, the Government of Canada in 1949 came to an understanding that in return for no quotas on American motion pictures, a campaign of promoting tourism to Canada by Americans would be conducted by the Hollywood studios.

In 1989, the Commission of the European Community extended quotas to TV programming.  In many ways, this quota system is similar to that used in Canada.  EC TV quotas are designed to reserve time in each member state for programming from other member countries.  Canada, through its co-production agreements with France, has so far managed to have its programming exempted from the EC quota.

Historically, the USA used the Manufacturers' Clause (effectively a zero quota) to prohibit importation of English language books manufactured abroad. Canada applies quotas to TV programming but not to books or magazines.  An exception is the recent 'split run' quota applied to Canadian editions of U.S. magazines. In effect, the split run quota is a prohibitive tariff.  The U.S. is disputing the Canadian split run policy through the trade settlement mechanism of the World Trade Organization (WTO).  As well, at the provincial level, Quebec exercises a provincial quota system.  Major motion pictures can be released in English only if French-dubbed versions are made available within a specified time.

To deal with the enormous Canadian trade deficit in cultural goods, it has been suggested that an 'Auto Pact' type agreement be developed at the national and/or provincial level. Governments could exercise moral suasion on global corporate copyright owners to invest a specified share of local earnings on cultural product development or job training before repatriating profits from a jurisdiction.  The scheme could extend to manufacturers of home entertainment equipment, most of which are foreign-made.  This market is also dependent on copyrighted works.

Income Tax

On the other side of the tax equation, the Republic of Ireland (Eire) exempts copyright income earned by resident creators from income taxation.  The exemption applies only to individual, not to corporate creators.  The result has been an influx of creative talent who pay sales and other taxes offsetting the direct tax expenditure to the public treasury.  In addition, the presence of such talent enriches the cultural as well as the economic life of the country.

iii - Fiscal Policy

In economics, fiscal policy involves direct spending by government - both budgetary and non-budgetary, e.g., lottery revenues.  Such spending can target either the supply-side, e.g., subsidies to producers to increase supply, or the demand-side, e.g., lowering the price of goods and services to consumers or 'topping up' the price received by creators or producers.

Demand-side cultural economic policies can thus take two forms.  With respect to consumers, vouchers, in one form or another, can be given to consumers to reduce the price of selected goods and services. In economics, vouchers are consonant with 'consumer sovereignty'.

With respect to creators or producers, government spending can compensate creators and producers for lack of effective demand.  This can result from the small market size for goods and services the domestic production of which is judged important to the public interest.  Lack of effective demand can also result from direct government action, e.g., setting rates for regulated goods or services such as telephone or cable charges to ensure they are available to low income citizens.

Vouchers have been recommended by some policy analysts for application in education.  They have, in fact, been used in cultural policy.  For several years in the late 1970s and early '80s, the Ontario Lottery Corporation offered a voucher in the form of applying 50% of the face value of losing OLC lottery tickets against the purchase of, or admission to, Canadian books, motion pictures and live performances. It was very successful in stimulating sales of works by Canadian creators. At a 50% discount, however, it became too expensive for the OLC to maintain.

Demand-side measures can also be justified as a means to mitigate the effects of market failure on creators.  The economic rationale for doing so is threefold.  First, 'effective' demand and hence price to a creator is lower than market demand.  This difference results from actions taken by government in the public interest, e.g. by exempting some uses such as home copying and some users such as archives, educational institutions and public libraries and by granting monopoly powers to corporate copyright owners. The public and corporations win; creators lose sales.

Second, free trade inhibits all governments' ability to subsidize or otherwise favour its own corporate producers.  In a knowledge-based economy, however, the individual creator in both the arts and sciences is at the root of future economic growth. Raising effective demand for creative works and hence the price paid to creators can be designed to escape inhibitions of trade agreements.

Third, demand-side measures can be rationalized as a form of job training earning while learning while doing.  Raising the effective demand for creative works encourages creators to refine their skills and discipline - practice makes perfect.  In turn, this increases the chances of a 'block buster' emerging during the life of a creator.  In the visual arts, for example, it often takes fifteen to twenty years for a painter such as Alex Coleville to perfect one's art.

iv - Provincial IPRs

Perhaps not surprisingly, the first province to grant IPRs exclusively available to its own creators was Quebec.  In part, this reflects Quebec's Civil Code tradition even though copyright is a formal federal responsibility. It also reflects the acute sensitivity of Quebec to what has become a watch word for the entire country - cultural sovereignty.  And partially it reflects the fact that many Quebec singers and musicians were and are fleeing the province for France where royalties are higher and superior creator's rights are available making it a more appealing jurisdiction.

Quebec initiatives moved to Ottawa beginning when Marcel Masse became Minister of Communications (now Heritage Canada or Patrimonie Canada).  In 1986 Civil Code creator's rights were granted under the Canadian Copyright Act. Masse also initiated design of the Status of the Artists Act.

This confirmed his vision of Canada as a bilingual and bi-cultural but also - with respect to creator's rights - a bi juridic country.  A broader more encompassing vision, however, is a bilingual, multicultural and tri-juridic Canada allowing for aboriginal legal traditions such as 'sentencing circles' as well as Aboriginal Heritage Rights or what UNESCO calls collective rights.

While the Copyright Act is a national responsibility, provinces and states can and have taken action to correct market failure in bargaining between creators and corporate copyright owners.  Precedents include Quebec's Status of the Artist Act as well as rights of following sales granted resident visual artists in California and New York States.  These constitute `outside rights', i.e., rights granted outside of the Copyright Act.

Such rights should be qualified.  First, they should be natural rights inherent in and inalienable from the creator.  Therefore, they would be nontransferable, by contract or blanket licence, to corporate entities.  Such rights would reflect a fundamental distinction between individual income and corporate income for purposes of the Income Tax Act.

Second, they should endure only during the lifetime of the creator. As with patents and other IPRs (excepting trademarks), limitation in time is a common feature of both English and European traditions.  There would, however, have to be an exception: Aboriginal Heritage Rights.  AHRs should be limited in accordance with legal traditions of the separate and distinct aboriginal nations.

Third, royalties should be `capped' limiting how much any one creator can collect, so that benefits are available to all creators not just the rich and famous.

Fourth, new rights should be granted only to resident creators.

Fifth, they should be granted in recognition that market failure in bargaining between creators and corporate copyright owners results, in part, from reduction in effective demand for creator's works caused by exemptions granted by government to selected uses and users and by the grant of monopoly powers to corporate copyright owners.  Recognition would also shift perception of public support of the arts from 'welfare' to 'workfare' or even 'work fair'.

Potential outside rights to be granted by a province and available exclusively to its own resident creators include:

• Aboriginal Heritage Rights granting standing in court to aboriginal nations with respect to appropriation of their intellectual property; 

• Public Exhibition Rights to compensate public galleries and museums for administration of, and royalty payments for, exhibition rights to resident creators; 

• Public Lending Rights for works of resident creators borrowed from public libraries. Provincial rights could be coordinated with the national Public Lending Rights Commission housed in the Canada Council;

•  Rights of Following Sale for works of resident creators in all disciplines. A work sold early in a career for a low price would thus generate ongoing income to the creator on subsequent re-sale of the work;

• Status of the Artist legislation strengthening collective and individual bargaining rights of creators; and, 

• Tax Exemption of copyright income earned by resident creators.

d) Normative Forecast

Economist Gilles Paquet has suggested that intellectual property rights (IPRs) can play a nation-building role in 21St century Canada similar to that played by the Canadian Pacific Railway in the 19th.  A first step in fulfilling the potential of Canadian IPRs is recognition of market failure in bargaining between creators and corporate copyright owners.  Such recognition provides a political economic (or ideologic) rationale for granting preference to resident creators.   

First, it recognizes as `natural' certain inherent and inalienable creator's rights.  This fits with the `liberal' democratic tradition that projects free, fair and competitive markets as the most effective means to the greatest economic good for the greatest number of citizens. 

Second, use of creator's rights as a national and provincial economic policy escapes trade inhibitions against preferential treatment of corporate citizens, e.g. subsidies.  International law recognizes creator's rights as arising out of the unique legal history and tradition of a nation, e.g. there is a distinctive Islamic copyright legal tradition.  National treatment, not harmonization of the law, is the test of compliance with international standards.   Furthermore, each country retains the right to exercise the `morals clause' contained in most international trade agreements.

Trade agreements do, however, permit public support of education, training and skill development of individual citizens. It can be argued that public payment of royalties for creator's rights available exclusively to resident creators constitutes a form of earning while learning by doing.  Furthermore, resident creators are the spark plug of the globally competitive knowledge-based economy.

Third, the United States provides precedent for the use of IPRs to achieve national objectives.  From before the 1891 Manufacturers' Clause of the U.S. Copyright Act requiring until the late 1980s that all English language books sold in the U.S. be printed in the U.S. to the Chip Protection Act of today which protects only U.S. chip designs, the United States has traditionally used IPRs to preferentially benefit resident creators and corporate copyright owners.

In international debate, the U.S. has always asserted every nation's sovereign right to control its communications networks and cultural policies.  Rather it insists that cultural exemptions in international agreements apply only to production of materials reflecting the specific traditions and cultures of its trading partners.  The U.S. only objects to measures intended for industrial purposes under the pretext of protecting cultural sovereignty.  Furthermore, within the U.S. itself, creator's rights have been granted, outside of the Copyright Act, by several States, to the exclusive benefit of resident creators

There thus exists a rationale and a set of policy instruments for any nation or province to actively mitigate market failure in bargaining between resident creators and global corporate copyright owners.  But why should the public sector do so?

In a global knowledge-based economy, the competitiveness of any jurisdiction will increasingly depend on how effective it is in cultivating, educating, training and retaining creators.  Their intellectual property constitutes the building blocks of this post-modern economy.  How much is one Edison, Agatha Christie, the Beatles or Armani worth to a local, regional or national economy?  Economic policy will increasingly become 'knowledge' policy and successful knowledge policy must begins with the creative design and development of appropriate IPRs.

The next century will witness a shift in local, regional and national economic policy away from industrial tax havens of the 1960s, '70s, '80s and '90s.  Such industrial strategies aimed at attracting capital intensive often, `smokestack' industries through costly tax concessions.  The exercise has degenerated into one jurisdiction trying to outbid others by the scale of their tax concessions.  The 21st century will see a shift to a labour-intensive 'creativity haven' strategy aimed at cultivating, promoting, rewarding arid retaining talent as well as attracting the best minds from afar.

A community, province or nation in which a creator's rights are respected and fairly rewarded will be the place where 'the talent' of the 21st century, in the arts and sciences, will want to live and work and to which royalty cheques will flow.  The first step toward such a creativity haven is public and political recognition of market failure in bargaining between creators and, corporate copyright owners.

RECOMMENDATIONS

Prescription #1

It is recommended that the Canadian Copyright Act should be recognized as embodying an unworkable mix of three distinct and conflicting copyright traditions - English, European & U.S.  Furthermore, it gives no recognition to Aboriginal Heritage Rights.  Effective Canadian economic policy in the emerging global knowledge-based economy requires a new blend of these traditions both inside and outside of the Copyright Act.

Prescription #2

It is recommended government give recognition to this shift from a supply-side to a demand-side cultural economic policy.  Traditionally, public cultural economic policy has focused on supply-side grants of money and industrial privileges, e.g. broadcast and cable licences.  The movement towards a demand-side policy paradigm should be extended to the arts industries.  This should, however, be done without diminishing viable (in fiscal and trade terms) existing supply-side programs.

Prescription # 3

It is recommended that consumer protection laws, specifically truth in advertising and product certification, be extended to works of resident creators in all disciplines. Further, government should use moral suasion to inhibit use of blanket licences by corporate copyright owners to extinguish subsequent creator's rights.

Prescription #4

It is recommended that customs, excise and tax policies be used to compensate for market failure in bargaining between creators and corporate copyright owners.  Further, it is recommended such measures be implemented in recognition of the fact that effective demand for the works of resident creators has been reduced by government action in exempting selected uses and users from royalties (in the public interest) and granting corporate copyright owners monopoly powers.

Prescription #5 

It is recommended that the provinces design and implement their own integrated set of intellectual property rights available exclusively to resident creators. In some cases public payment of royalties would be made directly to resident creators.

Prescription #6 

It is recommended that demand-side fiscal policies be developed to mitigate market failure in bargaining between creators and corporate copyright owners.  Measures could include public payment of IPR royalties available exclusively to resident creators and vouchers available to consumers exclusively redeemable against the purchase of works by resident creators.