The great economist Joseph Schumpeter coined the term “creative destruction” to describe the process by which innovation (which might be technological or organizational—the latter illustrated by the invention of the supermarket) promotes economic growth and welfare but at the cost of wiping out existing economic practices or institutions. He thought the process of creative destruction a more important factor in promoting economic welfare than reducing the costs of existing production or improving existing products.
We are seeing creative destruction at work in the information sector because of the digital revolution, which among its other effects has had destructive effects on bookstores and libraries, particularly college and university libraries, now largely unused by students. Amazon is basically a warehousing, order-fulfilling, and delivery agency for books and other consumer products, but the secret of its extraordinary success is that it saves the consumer the bother of going to a bookstore, where he might be quite likely not to find what he’s looking for. The bookstore retains only one advantage: browsing is easier in a bookstore than online, although that advantage will diminish as artificial intelligence, which enables Amazon to recommend books to a shopper that the particular shopper might be interested in buying, improves, as it is bound to do.
Although Amazon has been devastating for the bookstore industry as a whole, as illustrated by the bankruptcy of Borders, it actually benefits bookstores that specialize in selling out of print books, by marketing the books sold by those bookstores to its customers. But such bookstores account for only a small volume of total book sales.
The Amazon business model, though revolutionary, is visibly in the line of descent from mail-order businesses such as Sears Roebuck. It is a system for the efficient distribution of existiing products. The e-book is a new product in one sense, though in another sense it is merely a new channel for distributing the content of books. It is not yet apparent what advantages e-books have over print books except for travelers, other than easier ordering and faster delivery even of printed books from Amazon.
Another new product that is also a new channel of distribution is a digitized version of a book that can be read online. This is what has emptied the college and university libraries of their students. Even though copyrighted books are not available in their entirety online, enough such books, along with books that are out of copyright and virtually all academic articles and much other research material as well, are accessible to students online to make a trip to the library unnecessary, except for socializing.
We should consider the effect of these revolutionary developments on publishers and especially authors, since the latter are the ultimate creators of the consumption value of books. An improvement in distribution reduces the quality-adjusted cost of the product being distributed, and so should benefit the producer, in this case a combination of the author and the publisher. Amazon, however, appears to have monopsonistic power in the book market, enabling it to capture much of the cost saving from improved distribution. The output of books has not increased during the digital revolution, though this may be due largely to the rise of competing media, fostered by the digital revolution—the enormous variety of information and entertainment, unrelated to books, now available online.
The principal threat that the digital revolution poses to publishers and authors is that or widespread piracy, in violation of copyright law. With the cost of copying and of distributing copied materials having plummeted as a result of the digital revolution, the cost of preventing unauthorized copying and distribution of copied materials has soared. Not that piracy is entirely a bad thing from an author’s or publisher’s perspective, as it is a kind of advertising—like giving away free samples of a new candy or perfume to excite consumer interest. But if extensive, piracy can substantially diminish an author’s earnings.
The importance of copyright, and hence the negative consequences of piracy for the creation of new works, are, however, often exaggerated. Most of the world’s great literature was written before the first copyright statute, the Statute of Ann, enacted in 1710. Patronage is an age-old method of remunerating authors, alternative to royalties, and continues to be important: creative writers are hired by colleges, paid by foundations, lecture for money, and sometimes license their work for performance in another medium, such as film or television. Academic publication is largely a patronage system; academics are paid to publish (“public or perish”). And much creative writing is done not for money but out of a compulsion to write and to be read.
Copyright law needs to be adapted to the online revolution in distribution. All the books ever published in the world could be digitized—Google has gone far in that direction—and downloaded at no cost. Instead of copyright fees negotiated between author and publisher and therefore dependent on restricting access to the work (and so Google cannot allow access to entire copyrighted works in its vast digital library except to the limited extent permitted by the doctrine of “fair use” or by negotiation with the owners of the copyrights on those works for a copyright license), there could be a modest uniform fee imposed whenever someone, whether a consumer or an e-book publisher, downloaded a book from the Internet. A modest fee would discourage piracy, since piracy requires some technical sophistication and thus is not costless. Printed books would still be bought because most people do not want to read books just online or in an e-book.
The standard analysis of the optimal scope of copyright protection holds that it requires a balancing between access (to copyright works) and the incentive to create the works in the first place. But the analysis is incomplete. Access, in a broad sense that allows for copying and not just reading, promotes creativity, because most creative works build on previous works, often improving them by modifications that may be insufficient to avoid liability for copyright infringement. (Think of how Milton’s Paradise Lost builds on the Adam and Eve story in Genesis.) Obtaining permission to incorporate copyrighted material in a new work can be time consuming, and in the end frustrated by bilateral monopoly problems. And, because copyright terms are now so long (normally 75 years from the death of the author, which may be a century or more after the work was created), it is sometimes impossible to obtain permission to reprint a copyrighted work, simply because the current owner of the copyright cannot be identified.
So, were Google permitted to provide complete online access to all the world’s books, in their entirety, the gain in access might more than offset the loss in authors’ royalties.