>>Michael Heller’s The Gridlock Economy

Michael Heller’s The Gridlock Economy

Prof. Doug Lichtman, UCLA School of Law
November 2, 2010

Over the last few weeks, I have been thinking a lot about Michael Heller’s engaging popular-press book, The Gridlock Economy.1  The book popularizes a concept that Heller has championed in his scholarship for years: the worry that, when it comes to property rights, too many rights-endowed cooks really can spoil the broth.  The intuition is that worthwhile projects can be derailed simply because the projects require permission from too many separate parties.

Heller’s classic example derives from his experience in the Soviet Union.  There, in the early 1990s, Heller reports that storefronts sat empty while commerce thrived on adjacent sidewalks.  The problem, Heller discovered, was that while “it was easy to set up a kiosk,” it was a “nightmare to open a store.”2  Opening a store required separate governmental permissions to sell, to lease, to manage, and so on.  And the Soviet authorities would too often allocate those rights for the same storefront to different private owners.  The result was a coordination problem that proved insurmountable.  Commerce therefore moved to the street.

Heller’s book tells over a dozen such tales, each time identifying a set of overlapping property rights that, taken together, stand in the way of an efficient transaction.  Thus, reports Heller, progress in science and medicine is inefficiently retarded because the use of a single technology often requires patent permissions from dozens or even hundreds of separate sources.  Miss but one of those approvals, and the project can be shut down by injunction or taxed with disproportionate cash damages.3

Similarly, Heller tells us, the modern cell phone network falls far short of its potential because the airwaves are today divided into parcels that are not only owned by separate firms but also typically assigned to specific, separate tasks.  Reverse that patchwork approach, says Heller, and cell phone communication would significantly improve.  But no one can, because the relevant rights are already assigned, and the permissions process necessary to recombine them is bogged down by a mess of government policies, strategic behavior, and administrative costs.4

Heller dubs these and comparable situations “gridlock”; and in his popular-press account he urges government leaders, entrepreneurs, and everyday citizens not only to watch for the dynamic but also to tackle the resulting tragedies using “politics, law, finance, and plain neighborliness to reassemble resources.”5  The “first, crucial, and most important step to solving gridlock,” Heller writes, “is to see it.”6  His project in The Gridlock Economy is to arm his readers with the information necessary to do just that.

I have been thinking about the book recently because the Arizona Law Review asked me to contribute an essay to a volume that will celebrate Heller’s work.  I am excited to do so, because Heller’s ideas in my view are right and important.  In patent law, for instance, I firmly believe that “blocking patents” constitute a dangerous drag on innovation, drowning worthwhile projects in a sea of cumbersome and mandatory permissions.  In copyright law, I similarly worry that the growing permissions culture threatens to make it almost impossible to generate certain types of “remix” art that would, if it could, combine short snippets from dozens or even hundreds of prior copyrighted works to make new and worthwhile amalgamations.  In telecommunications regulation, I again share Heller’s concern about fragmented spectrum and the implications it might have for the deployment of new and better wireless technologies and services.

As I put pen to paper, however, I nevertheless find myself frustrated with Heller’s book, because it invites those policymakers, entrepreneurs, and everyday citizens to point accusatory fingers without giving them the detail they need to distinguish situations that simply involve large numbers of property rights from situations where those large numbers of rights threaten to trigger gridlock.  Heller’s point, after all, is not simply that numerosity is bad.  He has a richer theory about how permissions intertwine, creating situations where (a) a single missed permission might render worthless a dozen permissions properly acquired; or (b) the last permission received might be wrongly accorded extra weight simply by virtue of its being last.

Heller’s primary examples nail this distinction, each time telling a story where one permission impacts the value of another, and thus a large number of permissions can readily form an intertwined and shaky grid.  Nevertheless, as I sit here today, I worry that the book leaves this detail uncomfortably implicit and thus in the end risks misleading readers into thinking that numerosity itself is the rapscallion.  My evidence?  The topic assigned to me for the law review volume is to write about how the Google Book Search project fits into Heller’s framework.  But the right answer, it turns out, is that it doesn’t.  The Google example is an example of pure numerosity, without any inkling of the complicated interconnections that make true gridlock go.

Now, sure, I admit it: The project would be a flop if it were to end up with permission from only three publishers or for something like 20,000 books.  And the project hits its apex if it ends up with rights for every book ever published anywhere in the world at any time in history.  But there is a wide spectrum between those two extremes, and anywhere in that vast expanse no copyright holder wields veto power over the project and no copyright holder enjoys power in any way disproportionate to the value of his or her own copyrighted contribution.  So, yes, Google Book Search is an example of a project that will require a large number of permissions as it grows to scale.  And, yes, some of those permissions might be so costly to obtain that copyright law ought to in those instances forgive Google for its decision not to ask. But Google Book Search is not an example of Heller’s gridlock.  Without substantial interaction across permissions, a story about a large number of permissions is just a story about transaction costs; and if that were Heller’s point, he would be about 50 years late to the party.7

None of this is news to Heller.  Quite the opposite, it is easy to turn through The Gridlock Economy and find passage after passage where Heller moves past numerosity and focuses exclusively on the interactions between various permissions.  In fact, Heller’s first substantive chapter devotes several pages to this very distinction.  There, he writes specifically about the difference between complements and substitutes, and he even cites the ground-breaking work of Antoine Augustin Cournot, the economist who in a very real sense pioneered the study of gridlock – albeit without realizing its pervasive importance in the way Heller now importantly makes plain.8  Ronald Coase, by contrast – the originator of the “transaction cost” concept and thus by far the most important figure with respect to problems of numerosity – is mentioned just once, book-wide.9

And so I am writing a paper about why the Google Book Search example does in fact matter to Heller’s book.  But its connection is not that it is a helpful example of the gridlock phenomenon.  Rather, its connection is that it helps to sharpen a point that is important to Heller’s work but for whatever reason got lost even in the context of a publication in his honor: Gridlock is not merely a problem associated with large numbers of permissions, it is instead more richly a problem associated with permissions whose values are meaningfully linked, one to another.  (Readers interested in learning more about this topic specifically, or more about Heller’s important book in general, should keep an eye out for the next volume of the Arizona Law Review. There are several great essays in the mix, including one by my co-blogger here, Rob Merges.)

5.  Id. at 198.

6.  Id. at 187.

7.  See Ronald H. Coase, “The Problem of Social Cost,” 3 J.L. & Econ. 1 (1960).

8.  I discuss Cournot and his ideas in Douglas Lichtman, “Property Rights in Emerging Platform Technologies,” 29 J. Legal Stud. 615, 615-23 (2000).

9.  See Heller, supra note 1, at 87.

By |2018-07-03T17:39:23+00:00October 28th, 2010|Intellectual Property Issues|Comments Off on Michael Heller’s The Gridlock Economy