Protectionism - Every Country Does It

Economists often talk about ideals - free markets, perfect competition, free movement of labor. They use these ideals as a model to explain phenomena in the real world. One of the important findings discovered in innovation studies is that innovation has a high correlation with open competition and free markets. In short, the ideal environment for innovation is in many ways the ideal environment posited by economists.

But ideal economies are the topic of academic research papers. In the real world, companies, industries and entire countries often work hard to prevent open competition. There are many different facets to this issue. In some cases, there might be a legitimate case for tampering with the free market - for instance, a government penalizing externalities such as pollution. But in other cases, it can be difficult to defend the market intervention.

These issues of protectionism are starting to come to a head in U.S./Korea relations as the on-going legal battle between Samsung and Apple continues over the technology behind their mobile phones. Sunny Yang wrote an editorial in the Joongang Daily blasting the United States and its judicial system for protecting Apple against foreign competition:

It was hardly surprising: A jury in San Jose, California, delivering a one-sided verdict for Apple over Samsung Electronics in a legal battle over smartphone technology. It is the “American style” of doing things when their interests are threatened. It is the yardstick Americans have stuck to in every economic and business battle. Anything that Americans are not tops at is evil and dangerous.

To build a country and defend one is not the same work. It is not entirely wrong to claim Americans discovered, invented and created almost every modern cutting-edge technology. They were great builders, but not such good defenders. If they had not been self-indulgent with their pioneering works and endeavored to stay on top of the market with innovations, the latecomers would not have dared to jump into the fray and attempted to outperform them.

The editorial is a tad sensationalistic, but gets at the heart of the issue - all nations, including Korea, the United States, France, Russia, etc. actively protect their industries. This is not surprising, but I think it is important to make an important observation: this protectionism can be seen as less a tendency to subsidize particular companies than merely to understand different innovation narratives.

In the United States, creativity, innovation, and the “first-mover” label is highly prized and protected. Our patent system has traditionally been based around the “first-to-invent” approach, which means that the first inventor to devise a particular technology is the only person who can patent it. America is the sole country in the world using this system. That is not to say that such an approach to patents is without flaws, indeed, the U.S. will move to a “first-to-file” system next year, joining the rest of the world. Yet, the system has traditionally been designed to determine who developed an invention first and award them the spoils with a patent.

South Korea has taken a different approach to development over the past three decades. Often referred to as the “fast-follow” strategy, Korea’s technology companies learned manufacturing and R&D techniques from foreign firms, eventually supplanting them in many industries. It is not surprising then that a Seoul district court ruled that Samsung and Apple violated each other’s patents, and sentenced both companies to the smallest of fines. Korea’s judicial system understands the fast-follow narrative, and the law is built around this concept.

Rather than debate nationalism and protectionism, the United States and South Korea both need to confront their innovation narratives. For the U.S., where do the rights of the first inventor stop? Can Apple or any other patent holder completely hinder competition, even when such competition is good for consumers? For Korea, there needs to be serious introspection about the value of encouraging and protecting original inventions. Protecting derivative works may have been an excellent economic catch-up strategy, but today, Korea needs more value to be directed at cutting-edge technology as it seeks to be a center for innovation.

I take the whole patent lawsuit as an opportunity to reflect on what the values should be in our pursuit of technology. These questions guide our economies and the laws that bind us together. Learning and reacting from the consequences of our answers to these questions is vital to maintain innovation performance, and ultimately benefitting the consumer and the world at large.