China fakes reform

On the eve of the Beijing Olympics — which is nothing if not a branding, merchandising and licensing bonanza to which athletes are invited — a nervous Chinese government official writes in the Wall Street Journal that that the era of Chinese counterfeiting is about to end, actually, and here’s why:

How will we do this? In the following four ways:

  • First, we will make timely revisions to IPR legislation, including the laws on patent, trademark and copyright, as well as regulations on their implementation. We will also bring forward legislation in the areas of hereditary resources, traditional lore, folk arts and geographical marks so as to improve the overall framework for IPR law enforcement and management.
  • Second, we will speed up the revision of laws and regulations on punishment of IPR infringements, and strengthen the systems of judicial protection and administrative law enforcement. We will mainly rely on judicial protection for protecting intellectual property rights. We will mete out more severe penalties, reduce the cost of IPR protection, and deter violation by raising its cost.
  • Third, we will properly define the scope of intellectual property rights to prevent their abuse, ensure a level playing field, and protect the lawful rights and interests of the public. We will ensure a better mesh of our IPR policy with those of culture, education, scientific research and public health to uphold people’s rights to properly use the information and fruits of innovation in ways permitted by law in their activities in culture, education, scientific research and health, and make sure that innovation achievements are shared more equitably.
  • And finally, we will launch extensive educational programs among the public to further encourage innovation, promote such moral standards as honesty and credibility, and condemn plagiarism, piracy and counterfeiting. We will raise people’s IPR awareness and foster an innovation-friendly IPR culture in which knowledge and integrity are respected, and laws and regulations are complied with.

Still with us? A lot of chin music, really. An hour later and we again feel hungry. Why?

One would think that a totalitarian regime would have no trouble implementing policies such as these. They are just rules, after all. The problem is that China has opened to free enterprise, but it has not opened to the rule of law.

Free enterprise plus political repression — reliance on coercion throughout legal, administrative and social institutions — will not, in the long run, work in a large economy.  And in the short run, at least, the result is endemic corruption. This is because finance and wealth are no longer tightly regulated, yet government control of coercive and enforcement power is still absolute. Bribery is entirely rational in such a system. Symbolic “examples” wherein random, or locally disfavored, offenders of the “new law and order” are meted harsh public punishments are substituted for systemic change.

For these reasons, widespread counterfeiting in China will not end until a meaningful social consensus develops that playing by the rules, in the long run, benefits everyone — not because those profiting wildly from doing it will reform themselves, but because the social institutions that are supposed to stop them will operate properly at every step. That won’t happen until China has true political and cultural freedom and a billion stakeholders in the system instead of a slim elite.

Meanwhile, the victims of counterfeiting, which includes both IP owners and a meaningful percentage of unwitting counterfeit purchasers (i.e., of industrial, pharmaceutical and other non-prestige counterfeits), can ask a similar question regarding the demand side: Besides more “stepped up enforcement” and an endless expansion of “IP rights,” what social, legal and political adjustments need to be made on our end of the counterfeiting transaction, as well?

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Author:Ron Coleman

I write this blog.

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