The Fed chief capped his busy week by pondering "the right balance" in intellectual property protection for maximum U.S. growth
The markets braced for a busy -- and eventful -- series of speeches and testimony from Federal Reserve Chairman Alan Greenspan last week, and they weren't disappointed.
n his Feb. 24 testimony before a Senate panel, Greenspan offered unusually pointed criticism of government-sponsored enterprises like Fannie Mae and Freddie Mac -- and made a forceful call for a regulatory overhaul of the mortgage-finance giants. Testifying before a House committee on Feb. 25, the central banker took aim at another big target, issuing a blunt warning about the need to reform Social Security and Medicare -- in an election year, no less.
Here, BusinessWeek Online features highlights from each of the chairman's appearances during the week -- and gets behind the "Greenspeak" with the help of experts from Standard & Poor's and economic research outfit Informa Global Markets.
Friday, Feb. 27
Greenspan spoke at the Stanford Institute for Economic Policy Research Economic Summit.
What he said: "In recent decades, for example, the fraction of the total output of our economy that is essentially conceptual rather than physical has been rising. This trend has, of necessity, shifted the emphasis in asset valuation from physical property to intellectual property and to the legal rights inherent in intellectual property. Though the shift may appear glacial, its impact on legal and economic risk is beginning to be felt....
"It is, thus, no surprise that as a result of the increasing conceptualization of our GDP over the decades, the protection of intellectual property has become an important element in the ongoing deliberations of both economists and jurists....
"Of particular current relevance to our economy overall is the application of property right protection to information technology.... Dramatic gains in information technology have markedly improved the ability of businesses to identify and address incipient economic imbalances before they inflict significant damage. These gains reflect new advances in both the physical and the conceptual realms. It is imperative to find the appropriate intellectual property regime for each....
"If our objective is to maximize economic growth, are we striking the right balance in our protection of intellectual property rights? Are the protections sufficiently broad to encourage innovation, but not so broad as to shut down follow-on innovation?....
"If the form of protection afforded to intellectual property rights affects economic growth, it must do so by increasing the underlying pace of output per labor hour, our measure of productivity growth. Ideas are at the center of productivity growth....
"Understanding the interplay of ideas and economic growth should be an area of active economic analysis, which for so many generations has focused mainly on physical things. This work will not be easy.... We must begin the important work of developing a framework capable of analyzing the growth of an economy increasingly dominated by conceptual products."
What it means: When Greenspan isn't discussing economic policy from the perspective of a central banker, one of his favorite topics is intellectual property rights. He was early to note the increasing "conceptualization" of U.S. GDP -- the degree to which economic output is driven by intellectual, rather than physical, capital.
The Fed chairman also continues to stress the need to find the "appropriate intellectual property regime" to protect both physical and conceptual capital. This is especially important in the technology sector, as escalating patent disputes in key segments stand to get settled in courtrooms rather than by policymakers.
What he didn't say: Greenspan's discussion of the framework of intellectual property protection appeared to be kept within the confines of the U.S. and its trading partners. However, in this speech, he didn't tackle the challenges of combating persistent intellectual property problems, such as piracy (i.e., software, recorded media) and patent infringement, that originate overseas.
