TCS Daily

Progress and Displacement

By Arnold Kling - September 27, 2002 12:00 AM

Nostalgia can take remarkable forms. Naomi Klein, author of the anti-globalization manifesto No Logo, decries the loss of blue-collar factory jobs in her neighborhood. Who would have thought that someone would mourn the demise of Dickensian drudgery?

Every step forward in economic development involves displacement of an old way of life. New industries are fed by the resources that are released as old industries become more productive. For society as a whole, this represents progress.

However, for individuals who wish to continue using outmoded methods, economic growth is an outrage. Wal-Mart's efficiency is seen as unfairly boxing out local merchants. Amtrak's advocates see competing forms of transportation unjustly railroading it out of business. Loan sharks resent the intrusion of "subprime" lenders fishing around for low-income consumers. Etc.

Music Industry Blues

These days, the music distribution industry is singing the displacement blues. As Joni Mitchell might put it, the star-maker machinery is trying to drag its feet to slow the circles down.

Recently, the Washington Post featured an op-ed column by Stan Bernstein, whose record store has gone out of business.

"I opened a record store ... I was just 20 and still a student, and I couldn't think of a better way to earn a living than by bringing music to my friends and neighbors.

"More than three decades later, I still can't. But... that store is now history...

"As the sign I left in the window explained: 'Morninglory Music is closed for good in Isla Vista, due to lack of business. (There was no way to compete with free downloadable music and CD burners).'"

Bernstein concludes with this warning:

"The same forces that killed my small store now threaten a major segment of our economy - creative industries such as music, movies and publishing. What future do they have in a world in which books, films and music are simply passed around rather than purchased?

"Copyright laws have helped the creators and producers of information and entertainment contribute greatly to this country and its economy. If we want to continue receiving those benefits, it's time for the government to enforce the law."

Bernstein and others who see the legal system as the salvation of the older way of life in the music industry need to face up to the following facts.

First, the amount and variety of music being created and recorded today is expanding. There is no sign that musicians and composers are finding Internet file-sharing a deterrent to creative activity. On the contrary, there seems to be a blossoming of independent talent.

At least one veteran artist, Janis Ian, has pointed out the advantages that Internet-based distribution gives to the vast majority of musicians who are not superstars.

"In the hysteria of the moment, everyone is forgetting the main way an artist becomes successful - exposure. Without exposure, no one comes to shows, no one buys CDs, no one enables you to earn a living doing what you love. Again, from personal experience: in 37 years as a recording artist, I've created 25+ albums for major labels, and I've never once received a royalty check that didn't show I owed them money. So I make the bulk of my living from live touring, playing for 80-1500 people a night, doing my own show. I spend hours each week doing press, writing articles, making sure my website tour information is up to date. Why? Because all of that gives me exposure to an audience that might not come otherwise. So when someone writes and tells me they came to my show because they'd downloaded a song and gotten curious, I am thrilled!

"Who gets hurt by free downloads? Save a handful of super-successes like Celine Dion, none of us. We only get helped."

Second, copyright enforcement cannot protect record stores. Even if people had to pay for the music that they download, many would still find this more convenient than going to a store. Record stores are inherently more costly, because they require land, space, labor, and inventories. Regardless of how the copyright issue plays out, the future of music distribution is online, not record stores.

Lastly, if CD burners were banned, the recorded-CD industry would not be saved. Moore's Law says that computer storage capacity is increasing and costs are decreasing. This means that people can afford to own more music than they could in a world where the only storage option is a CD. Furthermore, Moore's Law is leading to the expansion of broadband Internet access, which means that distribution of music over the Net is more efficient. To survive, the music industry must repackage its services to take advantage of the new technology.

What is happening in music is a tremendous increase in the productivity of music storage and distribution, which will benefit consumers and music creators. By the same token, record stores and CD manufacturers will be displaced by this new technology. However, rather than express their resentment as nostalgia for outmoded business practices, the industry incumbents couch the issue in terms of copyright and intellectual property.

Nostalgia for Inadequate Health Care

Another peculiar case of resentment over displacement comes from political and business leaders who argue that the United States devotes too much of its resources to health care. As David Cutler and Jonathan Gruber remind us, concern over the rising health care spending was a major factor shaping President Clinton's ill-fated "reform" proposal, one of the goals of which was to freeze or roll back the share of GDP going to health care.

Nobel laureate Robert Fogel offers an economic historian's perspective on displacement and health care spending.

"The greatest opportunity of the 21st century is to add as many years to life expectancy as we did during the 20th. Life expectancy in the rich countries at the beginning of the 20th century was about 45 years. At the end of the century, it was maybe 77. By the end of the 21st century, it could be close to 100 years.

"...In 1910, 95 percent of all Americans who lived to 65 had severe chronic conditions--on average, six or seven chronic conditions. Today, less than half of all 65 year olds are chronically ill."

Fogel goes on to say,

"In the United States in 1800, it took five people working on the farm to support one person working off the farm. Today, 2 percent of the labor force not only feeds - and overfeeds - the United States, but another 300 million people around the world...

"That sort of transformation is going to solve our health care problem. We can afford to spend not only the current 14 percent of GDP on health care, but considerably more: I forecast the figure will rise to 21 percent. That's because the production of food, clothing, shelter and consumer durables is becoming incredibly cheap."

Economic progress marches on, and with it comes displacement. Higher productivity in music distribution is releasing resources that can be better utilized elsewhere. Today's record store employees may be tomorrow's providers of better health.



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