Greenspan says protection of intellectual property rights increasingly important to U.S. economy

By: MARTIN CRUTSINGER - Associated Press | Saturday, February 28, 2004 10:40 PM PST ∞

WASHINGTON -- Just as property rights protected an American economy largely based on farming at the start of 20th century, the protection of intellectual property is increasingly important at the start of this century, Federal Reserve Chairman Alan Greenspan said Friday.

Greenspan said that intellectual property -- patents, copyrights and trademarks -- have become increasingly important in recent decades as America's economic output has shifted.

America's gross domestic product is now influenced more and more not by the production of physical materials but by the creation of ideas.

"Only in recent decades, as the economic product of the United States has become so predominantly conceptual, have issues related to the protection of intellectual property rights come to be see as significant sources of legal and business uncertainty," Greenspan said.

His comments were in remarks to a conference at the Stanford Institute for Economic Policy Research in Stanford, Calif. Copies of the speech were released in Washington.

During the question period, Greenspan was not asked about comments he made in Washington this week that the country would not be able to afford all the benefits promised to future Social Security retirees, given the looming retirement of the baby boom generation and the government's serious budget deficits.

But he was asked about another controversial issue, whether moving service jobs overseas, a process known as outsourcing, was good for the economy.

"There are certain audiences in which questions like that don't require answers," Greenspan said to laughter from the group composed of economists who are generally big supporters of free trade.

Greenspan also said that it was possible that the country was on the verge of getting increased growth in jobs, something that has been lagging in the current recovery, as businesses exhaust their ability to produce more through gains in productivity.

"We could get a pop in employment at any time," he said, something that would be good news for the Bush administration, which is being attacked by Democratic presidential opponents for presiding over a "jobless" recovery.

Greenspan said that much of the uncertainty over intellectual property rights stems from the fact that it is much harder to protect intellectual property than material assets.

"Because they have a material existence, physical assets are more capable of being defended by police, the militia or private mercenaries," he said. "By contrast, intellectual property can be stolen by an act as simple as broadcasting an idea without the permission of the originator."

Greenspan said another problem was that new ideas, which he called the "building blocks of intellectual property," almost always build on old ideas in ways that are difficult or impossible to trace.

To try and maximize economic growth, Greenspan said it was important to strike the right balance in the protection of intellectual property rights.

"Are the protections sufficiently broad to encourage innovation but not so broad as to shut down follow-on innovation?" he asked. "Are such protections so vague that they produce uncertainties that raise risk premiums and the cost of capital?"

Greenspan said that no area of the country was grappling with such issues more than the computer firms of Silicon Valley in California. And he said that dealing with differences in the ways that intellectual property rights were protected had become a central issue in many of the trade disputes the United States has with other countries.

He said it was also important for economists to study how the development of ideas affects economic growth but cautioned that research in this area would not be easy.

Even a seemingly straightforward issue such as examining how the length of a patent, Greenspan said, might effect economic growth posed "formidable challenges."

But he urged economists to press forward with such research.

"We must begin the important work of developing a framework capable of analyzing the growth of an economy increasingly dominated by conceptual product," he said.

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