The Digital Economy and The Caribbean – Opportinities and Challenges

Mc. Carthy Marie
Mc. Carthy Marie

The emblematic symbol of the Knowledge economy is the electronic computer and its various offshoots like the mobile telephone and the internet. Knowledge was always important as an input in production but it has always been embedded in the products and production processes of the economy.  However there is a significant difference with respect to the use and production of knowledge in the modern economy and which warrants the expression “knowledge economy”. The modern digital economy in our view has changed knowledge from just an input in production processes into both an input as well as an output that is tradable as a good in its own right freed from any tangible material. This kind of knowledge derives economic value from, and is protected by, copyright law. The quintessential copyright protected knowledge good is the book and until the advent of digitization the cost of a copy of a book was closely related to the cost of production of the physical medium in which the knowledge in the book was fixed.

The purpose of this paper is to examine in broad terms the impact of digitisation in the production and distribution of knowledge in the Caribbean and to sketch out the challenges and opportunities that the new modes of production and dissemination of knowledge and cultural products are having on Caribbean economies.

The Impact of Digitization on Copyright Products

The supply of copyright products in the pre-digital era was produced for the most part as any other manufactured product and required raw materials such as paper, ink and other industrial inputs. Similarly the cost characteristics of supplying copyright products such as books, phonograms, DVD’s etc followed the classic structure of relatively high total and marginal cost at low levels of production followed by declining marginal cost as the quantity produced increased and then a rise (or stabilization) of the marginal cost. Producers of traditional copyright products, like all firms, maximized profits by supplying products up to the point where marginal cost was equal to marginal revenue, no matter the market structure in which the firm operated. Marginal cost would however never fall to zero.

With the advent of digitization and the untethering of copyright products from physical media the cost structure of producing copyright products was dramatically changed. The cost of producing the first copy of a copyright product such as a book remains quite high for the legitimate author or other owner and is not much affected by digitization. However in the digital world the marginal cost of producing the second and subsequent units falls precipitously close to zero and remains at this low level indefinitely no matter how many copies are produced. This steep decline in marginal cost ought to be great news for the producer and the consumer. If copyright products in digital form were made available in a properly functioning market the gains in efficiency would be shared by both the consumer and the producer.  This however rarely happens because digitization of the product has distorted the market and turns every consumer into a potential producer and a competitor to the legitimate producer bringing about a peculiar form of market failure.  In this distorted market it seems that all the gains of digitization are captured by consumers and the middlemen who supply access to digital networks and facilitate the free and illegal distribution of copyright material.  From the consumers’ point of view, the cost of production of the copyright product is for all practical purposes zero since they are only concerned with the marginal cost and not the total cost because they do not participate in the production expenses of the first very expensive copy.

With the advent of the internet not only is the cost of production of copyright products in digital form perceived to be zero, but this digital network using peer-to peer, bit-torrent ,cyber locker and cloud computing technologies practically eliminate all costs of distribution thus creating a truly weightless economy[1]. Although private property rights need not be the sole method of incentivising creators to produce, society has chosen to reward producers of copyright with property rights which allow them to exclude consumers who are unable or unwilling to pay a price for access to these products. The author or other copyright owner must have a reasonable prospect of selling sufficient copies at a price that is sufficiently above zero or of receiving adequate compensation in some other form, such as license fees, to allow the recovery of the initial high cost of producing the first copy.  This price will of necessity be some considerable distance from zero as would happen if digitization and distribution of copyright products over the internet were to be left entirely to the uncontrolled market. Traditional piracy of copyright products required the pirate to undertake investment and expenses very similar to the legitimate producer. He had to have a capacity to produce and distribute physical product on an “industrial” scale not dissimilar to the legitimate producer. The traditional pirate like the legitimate producer cannot profitably operate at zero or near zero prices.

In this respect it is instructive that the present concern of producers of copyright material is not with traditional piracy as such but rather with the unauthorized distribution of copyright products in digital form among consumers over the internet aided and abetted by those who control the digital networks and those who supply the software to facilitate free distribution. Copyright always derived its value from the protection afforded its owners by law, but in the digital era the dematerialization of copyright products makes the operation of law of even greater import in creating value and thus rewarding and encouraging production.

To repair the damage to copyright producers occasioned by digitisation and unauthorized distribution over the internet regulation is clearly necessary. The Internet Service Providers (ISP’s) would seem to be the legitimate point at which control can be exercised whether by way of a levy or otherwise. If a levy is chosen the ISP would be solely and directly responsible for paying the levy. The technology for identifying works in digital form already exists so that the compensation of copyright owners can be proportional to the degree of use of their works on the internet by individual users. An alternative method which again places the ISP at the heart of the solution is to consider the ISP as a producer whose product generates private benefits which are captured internally by the firm, but also produces negative externalities, the costs of which he has so far managed to avoid.  The private producer will alter his behaviour if the negative externalities of his behaviour can be made into internal costs for the firm. The harm of course is the loss of revenue to legitimate rights holders followed by reduced output. The technical infrastructure to implement such a scheme is already in place in the form of digital watermarking, DNA finger printing and other methods of identifying and tracing digital files on the internet.

We should note that all the rights encapsulated in the bundle of rights in copyright have not been impacted equally by digitization. Making up 72% of total royalties collected, public performance royalties are increasingly important to creators in the music industry as reproduction or mechanical royalties collected from record companies continue their steep decline (-8.7% in 2009). The first industry to be the negatively impacted by digitization and internet distribution has been the recorded music industry, followed by movies and photography. The printed word is now being impacted as more books are being made available in digital form. Digital distribution of books, newspapers, magazines etc holds great potential benefits for all concerned, these benefits not being limited to lower costs of (re)production. However based on the experience with digitization of other core copyright activities it will not be surprising if authors and publishers of text and other graphic works suffer the same prejudice as authors and producers of recorded music and audio-visual material.  Copyright law and practice is based on the principle of balance; balance between the need to stimulate production by creating sufficient incentives to produce copyright output by giving producers property rights over their creations and the balance that allows easy access to these works by users. In order to restore the balance between the interests of users and creators and to give creators the incentive to produce copyright works new approaches to managing the distribution of copyright products are needed, including new legal means of redress as well as technological measures such as various forms of legally sanctioned digital rights management systems.

Challenges

It is clear that digitization and the internet have radically changed the manner in which copyright works are produced and distributed all over the world. Most studies on the copyright based industries have tended to show press and literature as the largest subsector within the core copyright group which includes the creation, production and distribution of printed material of all sorts[2]. On the one hand the internet gives firms in the Caribbean a potentially worldwide audience for their output, but the internet also gives foreign firms direct access to local consumers. The evidence indicates that in the value chain created by producing and distributing copyright goods over the internet a new form of centralization and control is developing based in the North Atlantic. Already Apple I-Tunes dominates the legal distribution of recorded music. The inexorable trajectory of the digitization and distribution of copyright products will lead to the elimination of many jobs associated with the traditional production and distribution of these products in the region as in the rest of the world because the production and distribution processes for digital goods such as recorded music, photographs, eBooks and films are not comparable with those for their analogue cousins.

Opportunities

The digital revolution though challenging for Caribbean economies nonetheless holds many opportunities for those firms and entrepreneurs that are willing to let go of outdated business models. Given that large-scale investments are not required for the production of many digital goods barriers to entry into the digital economy are relatively low while the rewards can be quite substantial. The major input necessary for profitable participation in the digital economy is a suitably educated population coupled with an enabling environment for the protection and reward of creativity through the application of copyright law and other legal mechanisms relevant to the digital era. The general recommendation we make is that the human resource must be adequately and quickly prepared to participate in the digital economy as producers and not simply as consumers of digital goods. Policies in the digital economy should be geared at increasing the incentives for new firms to spring up to provide digital goods and services to sell within the economic space of the Caribbean and further afield thereby changing the challenges of the digital era into opportunities.


[1] The Weightless Economy in Economic Development by Danny Quah LSE Economics Department January 1999

[2] See for example James: Contribution of  Copyright and Related Rights Based  Industries in Jamaica: WIPO August 2007

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4 Comments

  1. My2Sense
    May 8, 2013

    This article is well written and on point. Mr. Marie looks at both sides of the issue in a balanced way.

    Technology (and hence, consumers) advanced much faster than the industries of based in copyright products. Now is time to “catch up” and the music industry is moving very slowly.

  2. guardig copyright
    May 8, 2013

    According to wikipedia,plagiarism is the “wrongful appropriation” and “purloining and publication” of another author’s “language, thoughts, ideas, or expressions,” and the representation of them as one’s own original work.[1][2] The idea remains problematic with unclear definitions and unclear rules.[3][4][5][6] The modern concept of plagiarism as immoral and originality as an ideal emerged in Europe only in the 18th century, particularly with the Romantic movement.

    Plagiarism is considered academic dishonesty and a breach of journalistic ethics. It is subject to sanctions like expulsion.

    Plagiarism is not a crime per se but in academia and industry it is a serious ethical offense,[7][8] and cases of plagiarism can constitute copyright infringement. (http://en.wikipedia.org/wiki/Plagiarism)
    Example in this article the author states that

    “The modern digital economy in our view has changed knowledge from just an input in production processes…..” But never mention the names of this Our.HMMMM we wonder why????? Nice try Mc. Carthy Marie still never learn after all them years eh

    • Mc carthy MARIE
      May 8, 2013

      Thanks for the comment although I must confess I am at a loss regarding your definition of plagiarism with respect to the article. In so far as my use of the word “our” is concerned you must be aware of something called the editorial “we” which of course is transferred to “our” when used as the possessive pronoun. Here is what Wikipedia has to say about the editorial “WE”:

      The editorial “we”
      The editorial we is a similar phenomenon, in which editorial columnists in newspapers and similar commentators in other media refer to themselves as we when giving their opinions. Here, the writer has once more cast himself or herself in the role of spokesman: either for the media institution who employs him, or more generally on behalf of the party or body of citizens who agree with the commentary.

  3. 2longcheeeeupzzzz
    May 8, 2013

    It is rather unfortunate that brevity and conciseness are terms which are none existence in the vocabulary of some persons.

    Write if you wish but do so by sticking to the essentials and also learn to be clear.

    I must applaud you on the subject matter chosen.

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