More financial crisis readings

11..      Where Does The Greek Bailout Money Go?

http://www.zerohedge.com/news/where-does-greek-bailout-money-go

19% only to Greeks, rest outside Greece

22.   Foreign county and bank exposure to Greek debt

http://www.bbc.co.uk/news/business-13798000. It’ s France and Germany.

33.    Fiscal policy

http://krugman.blogs.nytimes.com/2012/02/20/straight-talk-and-shifting-windows/

Paul Krugman again wonders why austerity is so popular, and links to a good post by Chris Dillow on the UK.  http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/02/fiscal-policy-the-overton-window.html.

4. Debt and deleveraging. 

Excellent report from McKinsey Gobal Institute: 

1. Entering the recession, leverage was highest in the UK, and grew the fastest in Spain. The US was relatively conservative (see Exhibit 1)

2. but the devil is in the detail:

a. households especially in mortgages raised leverage

b. firms were mostly low leverage,with exception of real estate and leveraged buyouts

5.  The Economist on fiscal policy: should the EZone be like the US?
In the US, after independence, Hamilton absorbed debts.  The US has no centrally imposed state balanced budget requirements, but it does have
a. a credible no  bail out rule from DC to the states
b. in effect, Keynesian fiscal policy via counter-cyclical federal spending

The EZ has none of these, nor collective debt nor sufficient integration to deal with shocks.

6. The central bank governors of Argentina and Mexico on why Greece should not leave the Euro.

Creative industries versus creative activities

DCMS have a new estimate of the UK"s creative industries, full report here. Their main finding is that Creative Industries accounted for 2.89% of gross value added (GVA) in the UK in 2009.  In 2008, it was 5.6% of GVA.  Why?


This is because the method has changed (p.2 of the latest report).  First, in the old method GVA was multiplied by 1.3 due to underreporting of creative GVA.  Now it is not.  Second, adjustments to software.  Page 9 of the report says

·        Removal of the following SIC codes from Software/Electronic Publishing sector

o   62.02 Computer consultancy activities

o   62.01/2 Business and domestic software developmen

Then it adds

SIC codes 62.02 and 62.01/2 were removed as the industries these captured were more related to business software than to creative software. 

This last sentance says to me what is questionable about this method.  The list of industries included is the indsutries deemed creative

1.     Advertising

2.     Architecture

3.     Art and antiques

4.     Crafts

5.     Design

6.     Designer fashion

7.     Film and video

8.     Interactive leisure software

9.     Music

10.  The performing arts

11.  Publishing

12.  Software and computer services

13.  Television and Radio.

The problem is that this list  includes industries even though not all their activity is creative e.g. the BBC is in a creative industry, but some of its activities are not (e.g. managing the buildings). Likewise it excludes creative activity in industries who are not deemed creative industries (e.g. Rolls Royce in aerospace). Thus it is important to count creative activity regardless of the industry.  that, to me, is a better approach then creative industries. And we do just this in our work for the UK innovation index, here. 

Eurocrisis links

1. Greek police to arrest German budget hardliners.

2. Escaping from the crisis: a fiscal union of political union.   From the  FT.

3. Quantitative easing in 60 seconds.    

4. Ireland can show Greece a way out of the crisis

5. A clever escrow plan to outwit the Greeks?  From Jacob Kirkegaard who sees the central problem as this:

Until now, successive Greek governments have argued that the troika has no choice but to pay the next loan tranche, knowing that the associated contagion from a sudden unstructured Greek default would be devastating for the entire euro area. Accordingly, Athens has been able to get away with its deficient program implementation

The escrow plan essentially makes bond payments priority over other payments.

How does copyright law affect investment?

As economies become more knowledge based, the climate of IP legislation matters more and more.  Here's a recent paper by Josh Lerner on the effects of copyright law on venture capital investment that is interesting.

The paper is “The Impact of Copyright Policy Changes on Venture Capital Investment in Cloud Computing Companies” which studies how a change in US copyright law relative to the EU affected the willingness of US venture capital to invest in innovative projects relative to such investment in the EU. My reading of the paper is as follows.

In 2006, Cablevision developed a Remote Storage Digital Video Recorder (RS-DVR), which allows customers to record and replay TV on a hard drive.  However, the difference with traditional DVRs, is that it did not sit at home, but remotely, thus recording and playing back from remote servers in the “cloud”.  In 1984, in the Sony Betamax case, the Supreme Court had found that at viewer using a home VCR to “time shift” i.e. record for viewing at a later time, did not contravene copyright, being of fair use.  The plaintiffs in this case were careful to argue that the remoteness made Cablevision making the copy, not the viewer (see e.g. discussion in https://www.eff.org/deeplinks/2008/08/victory-dvrs-cloud).

In response, a consortium of U.S. television and copyright holders filed a complaint against Cablevision in May 2006 over alleged copyright infringement and won an initial judgment in 2007 in a lower court,  quoted by Lerner

[P]laintiffs successfully argued that Cablevision’s proposed system would directly infringe their copyrights in three ways.
·        First, by briefly storing data in the primary ingest buffer and other data buffers integral to the function of the RS-DVR, Cablevision would make copies of protected works and thereby directly infringe plaintiffs’ exclusive right of reproduction under the Copyright Act.
·        Second, by copying programs onto … hard disks …, Cablevision would again directly infringe the reproduction right.
·        And third, by transmitting the data … to … customers in response to a “playback” request, Cablevision would directly infringe plaintiffs’ exclusive right of public performance.

In 2009, the Supreme Court affirmed the decision of a lower court to overturn this judgment saying there was no copyright infringement. Lerner, drawing on accounts by computer commentators, argues that this clarified the legal role of cloud computing, who potentially would have been contravening copyright offering such cloud-based computing services. 

His key finding is that average quarterly venture capital investment into cloud-based companies rose by 41% in the US after the decision.  Since investment is rising everywhere, he needs a benchmark against which to judge this and takes the EU, where investment rose by less, 27%.   He therefore argues that the liberalsation of copyright significantly positively affected venture capital investment.  This additional effect, is, he argues robust to controlling for other factors such as broadband penetration etc.  The following figure gives a sense of the statistical results: 

The relative uptick seems to be there, but it does come a bit after the decision, given by the vertical line. Perhaps investment takes time to come on stream?

One might also ask whether this result necessarily means that EU copyright law need reform.  I am no expert on it, but given that the legal position is so confused, as Hargreaves notes, this can hardly help matter in Europe. 

Why didn’t Google start in the UK?

This is the exam question posed by Prime Minister David Cameron to  the Hargreaves review of UK Intellectual Property and it came up again whilst I was listening to the excellent Avi Goldberg.

(Update: Shane Greenstein writes an excellent close analysis of this question too, here)

The first thought is that it was the California cluster. Avi says no, the initial Google breakthrough was the search algorithm, which anyone could have done.  The second generation Google is  uses artificial  intelligence which needs the right copyright environment (much more on this and how Google might or might not have destroyed newspapers is from  Shane Greenstein's  wonderful post on Google here).

This gets us to Hargreaves,  http://www.ipo.gov.uk/ipreview-finalreport.pdf.  As he points out points out, we don’t have the right copyright IP enviroment in Europe.

The key bits in Hargreaves are in Chapter 5, especially 5.2.  they are these.

Copyright Exceptions5.5     Copyright exceptions are designed to allow uses of content that offer benefits deemed either more important than those delivered by the core aims of copyright and/or benefits that do not significantly detract from those aims. The copyright exceptions for educational purposes and for research are intended to promote knowledge, skills and innovation in the economy, without unduly undermining the incentive for educational and academic publishers to create the works that students, teachers and researchers need.

5.6       EU law confines copyright exceptions to a closed list of categories, such as criticism, news reporting, research, or archiving. Almost all are restricted to non-commercial uses. Individual EU countries may implement exceptions within these categories to a greater or lesser degree, but there is no flexibility to create exceptions in new areas. The UK does not currently exploit all the exceptions available. Most notably, we do not have exceptions for private copying or for parody and the exception for archiving falls well short of current needs. Previous attempts to modernise this framework in the UK have not succeeded.
5.9       The US has a more flexible approach to copyright exceptions. It includes the concept of “Fair Use”, a defence in the US copyright framework which builds on certain general principles through case law to develop permitted uses of copyright works. Fair Use serves a number of purposes in the US, fixing what might otherwise be imbalances in the copyright system.
5.10   Under the European approach to exceptions, new kinds of copying which have become possible due to advancing digital technology are automatically unlawful. They require agreement of rights holders if they fall outside the pre-established and closed list of categories for permissible exceptions. Even copying which falls within one of the permissible areas at EU level can still require new action by national legislatures to create or develop the exception to meet new needs. The risk in this situation is twofold:

•

•

Hargreaves quotes an example:

“Research scientists, including medical researchers, are today being hampered from using computerised search and analysis techniques on data and text because copyright law can forbid or restrict such usage. “

(Another example is the restriction on parody: Newport State of Mind being a wonderful example)

A second and also significant problem is confusion in the law

 “is difficult for anyone to understand why it is legal to lend a friend a book, but not a digital music file. The picture is confused by the way some online content is now sold with permissions to format shift (iTunes tracks) or to “lend” files (Amazon ebooks) at no extra cost. This puts the law into confusion and disrepute. It is not a tenable state of affairs.
“Commercially it leaves rights holders with an unsatisfactory choice between having rights they cannot or do not enforce, or seeking to preserve legal entitlement to payment for acts of private use and reuse, which ordinary consumers regard as part of normal use. This alienates customers and puts the state in a position where it is invited to “choose sides” between rights holders and citizens. Effective enforcement of the law, in these circumstances, can become impossible.”

They then set out the US approach:

5.12      By contrast the US approach enables judges to take a view as to whether emerging activities in relation to copyright works should legitimately fall within the scope of copyright protection or not. Fair Use provides a legal mechanism that can rule a new technology or application of technology (like shifting music from a CD to a personal computer) as legitimate and not needing to be regulated…
viFair Use offers a zone for trial and error, for bolder risk taking, with the courts providing a backstop to adjudicate objections from rights holders if innovators have trespassed too far upon their rights.  (my italics)

5.22      …In the US, Fair Use has successfully fulfilled this role in a small number of cases which have been extremely important for the development of consumer technologies, notably those relating to reverse engineering,ixixhome video recording, and internet search caching and thumbnail images.

Finally, he answers the question on the card:

5.17      Does this mean, as is sometimes implied, that if only the UK could adopt Fair Use, East London would quickly become a rival to Silicon Valley? The answer to this is: certainly not. We were told repeatedly in our American interviews, that the success of high technology companies in Silicon Valley owes more to attitudes to business risk and investor culture, not to mention other complex issues of economic geography, than it does to the shape of IP law. In practice, it is difficult to distinguish between the importance of different elements in successful industrial clusters of the Silicon Valley type. This does not mean that IP issues are unimportant for the success of innovative, high technology businesses. The Review’s judgment is that they are of growing importance and that they merit serious attention from the UK Government.

In the end Hargreaves doesn't go for Fair Use, since its very complicated with respect to EU law

5.24      We therefore recommend below that the Government should press at EU level for the introduction of an exception allowing uses of a work enabled by technology which do not directly trade on the underlying creative and expressive purpose of the work (this has been referred to as “non-consumptive” use5).

The Monday Euro meeting, as I understand it, resolved to introduce an European Patent, after arguing since at least 1973.  Maybe Eurocrats are getting their IP act together.

Update
The last sentance, written in Februrary 2012 was too optimistic.  There did seem to have been some agreement in Summer 2012, but Italy and Spain have not agreed and progress has been held up at the European Parliament, with Parliamentairns saying the leaders had changed the agreement (BBC News, 3 July 2012, http://www.bbc.co.uk/news/world-europe-18694030).