Marketing, Organization, and Financing

Unlike other companies that have a focused manner of development, the open source is less clear-cut. There are mature open source products that perform product marketing, but most of them have no global planning authority. This is justified by the fact that open source is not a business, but an entire business, which moulds to the market itself. The product marketing for the global open source community operates in the way a capitalist nation operates its economy, rather than the way a company plans its products.

Networks of programmers can be formed via the Internet. They can create large and complex software products, and the team increases progressively according to the phase of the development. Software is extremely modular by nature, and thus many people can work on different segments of the software, almost autonomously, if they agree how to share tasks. A good example would be the Debian GNU/Linux Distribution. This system includes more than 16,000 software packages maintained by over 1,000 volunteer developers worldwide.

Open source is funded directly or indirectly as a cost-centre item by the companies that need it. This software is developed in order to use it for other activities, which are the ones that bring profit to the business, so the cost of development is less important than the future use of the software. Such contributors are willing to invest in this kind of project because it allows them to spend less on their cost centers by distributing the cost and risk among many collaborators.

The Open Source Paradigm I

In this model, multiple entities come together to develop a software product. Generally the initial development is done by a single entity as in the in-house and contract development paradigm, and the software is released to the public as soon as it is useful to others, generally before it would be considered a finished product and thus much earlier than a retail product would be released. Once the software is useful, other entities make use of it. Only when the software becomes useful to others does the open source paradigm work fully, because only then will other parties have an incentive to use the software. Once they are using the software, these other parties will have an incentive to extend the software to implement additional features that are of interest to them. This extension is performed by the customer's own employees or contractors under the customer's control.

The incremental cost of adding a feature is much smaller than the cost of the entire development. Parties that create modifications have an incentive to write them in such a way that they will be accepted by the other developers on the project and will be merged into the main body of source code that is shared by all developers. Thus, open source tends to foster a community of developers who make contributions to a useful product. The cost and risk of developing the product is distributed among these developers, and any combination of them can carry on the project if others leave. Distribution of cost and risk begins as soon as the project is mature enough to build a community outside of its initial developer.

Open source is developed directly by its end-users. For example, Apache web server features are added by the companies that need those features to operate their own web sites, or sometimes by contractors working for those companies.

The economics of creativity

The economics of creativity differs from Adam Smith’s conventional economics. The latter revolves around the firm, which is considered more efficient than the individual in identifying and using resources. In the economics of creativity, creative people are not dependent on organizations to the same extent. They do not need large resources of capital and equipment. They often have low transaction costs. The law of diminishing returns, first formulated by David Ricardo, hardly applies. It states that each additional input factor of production becomes harder or more expensive to acquire and that therefore at some point the cost of producing one more unit exceeds the revenue obtained from selling it. The point at which marginal cost meets marginal revenue is called the equilibrium point. This holds true if resources are limited and under price competition. But in an economy based on intangible and often immeasurable resources the costs of production are less important.

In the creative economy, individuals and firms use resources which are not rare, over which they assert intellectual property rights, which may be short-run, and which do not compete primarily on price. The world of diminishing returns and scarcity of physical objects is being replaced by a world of increasing returns based on the infinity of possible ideas and people’s genius for using those ideas to generate new products and transactions. Control of product and price (performed by the company) become less relevant if production resources are freely available, if products are intangible, if price competition is negligible, and if the market is driven by demand not by supply. In the knowledge economy, firms either charge prices well in excess of marginal costs, or they give their products away for free (the case of free software and its mechanism will be approached in the next part of the paper).

Copyright, patent, trademark and design

Copyright law covers an individual’s creative expression. It accrues automatically to any qualifying work and does not need to be registered. It normally lasts for the author’s lifetime plus seventy years. Patent law originated in the need to protect inventions of new industrial products and processes. It gives the inventor a monopoly in the making of the new product, typically for twenty years. Whereas copyright accrues automatically, a patent has to pass stringent tests before being approved. It must be novel, non-obvious and useful. None of these tests applies to copyright. Once registered, a patent gives stronger protection than does copyright. A trademark does not require any artistic or creative expression or any expert skill. It is a mark or symbol that represents an organization or trade. Trademarks are registered, they have to be actively traded and to pass tests of type and uniqueness. A design is a shape or symbol that, like a trademark, has the character of being distinctive and unusual. Legally, it is a hybrid. It often qualifies for copyright; it may also qualify for a special design right (as in Britain); and it is usually registered like a trademark.

These systems can overlap. An artist’s working sketch for a trade-mark qualifies as an artistic work and merits copyright protection quite separately from the trademark itself being registered as a trademark or a design. Computer programs which automatically qualify for copyright may in some countries also be awarded a patent.

The copyright industries consist of all industries that create copyright or related works as their primary product – advertising, computer software, design, photography, film, music (publishing, recording and performing), performing arts, publishing, radio and TV, and video games. The International Intellectual Property Alliance (IIPA) distinguishes between the “core” copyright industries and the total copyrights industries, which also include the manufacturing of products which depend upon copyright goods (computers, TV receivers).

The patent industries consist of all industries that produce or deal with patents. The dominant ones are the pharmaceuticals, electronics, information technology, industrial design, materials, chemicals, engineering, space and vehicles. The dominant activity is scientific research and development which is carried out by commercial companies, technical laboratories and universities. The US, Japan, Germany, France and UK are only some of the most prolific countries in this field. Patents registered by the US and UK Patent Office by country of applicant in 1999 can be found in the appendix section

The trademark and design industries are more widespread, and their size and diversity make them less distinctive. It is possible to identify the creativity involved in the creation of a trademark, but it is less easy to calculate its economic value or to identify the economic gains attributable to the trademark in the total product mix.

Together, these four industries constitute the creative industries and the creative economy. The creative economy consists of the transactions in these creative products. Each transaction may have two complementary values: the value of the intangible, intellectual property and the value of the physical career or platform. This creative economy covers a wide range of branches, and money made out of them reach significant figures. To have an idea, the market size of the creative economy in 1999 is depicted in the appendix section.

The Recognition, Protection and Classification of Creative Products - Part 2

The case for intellectual property in economic theory notes certain substantial differences from the case for tangible property. Consumption of tangible property is rivalrous. For example, once one person eats an apple, no one else can eat it; if one person uses a plot of land on which to build a home, that plot is unavailable for use by others. Without the right to exclude others from tangible resources, a tragedy of the commons can result. The subjects of intellectual property do not share this feature of rivalness. For example, an indefinite number of copies can be made of a book without interfering with the use of the book by owners of other copies. When combined with a lack of exclusive intellectual property rights, this nonrivalrousness and nonexcludability combine to make them public goods and susceptible to the free rider problem. A rationale for intellectual property therefore rests on incentive effects to overcome the free rider problem. This case asserts that without a subsidy that is afforded by exclusive rights, there is no direct financial incentive to create new inventions or works of authorship.

As Wikipedia and free software demonstrate, works of authorship can be written without direct financial incentives. Moreover, many important works were created before copyright was invented. One might argue that much more invention occurred after patents came into existence; however, one could also argue that patents were brought into law as the power and influence of industrial interests grew. The status of intellectual property is disputed by various commentators in India, China and other developing nations. The United States and the United Kingdom are the only two nations who consistently receive net balance of payment benefits from intellectual property, and are amongst the chief supporters of intellectual property systems.

Foreword

The reason for which I chose to tackle the topic of creative economy and the economics of ideas stems from the fact that it represents one of the most dynamic and interesting fields in the economy of our days. Creativity and economics go hand in hand in a world in which competitive advantage is achieved to the extent to which creativity is fostered and its products are promoted. Otherwise, no entity could withstand the market.

The structure of my paper is twofold: the first part is an introduction in which I tried to theoretically outline the main aspects of creative economy; the second part comes to round and explain in further detail the theoretical part. This second part first focuses on one of the fastest moving domains, software production, with a specific highlight on the impact on free software. Further on, I presented, on the one hand, the possible innovation opportunities and, on the other hand, creative economy costs. Opportunities and costs are thus seen as the key factors of describing the creative environment in an economy.

Methods such as analyses, comparisons, study cases, syntheses, and reviews have been used. Insofar as mathematical models are concerned, I have briefly presented the free software economic and mathematical model. Most of the examples are inspired from the current realities especially on the digital, data and communication markets, but fields such as real estate, education, R&D, intellectual property regulations in force and EU innovation issues have not been neglected either.

Each of these approaches in describing creative economy has been accompanied by up-to-date and relevant information about the most dynamic and innovative domains of the economy worldwide. Also, several examples are meant to better illustrate the current situation in Romania and the progress recorded in its attempt to catch up with the more developed countries in Europe.

The paper is not meant to be an exhaustive work and it only presents a point of view built on personal preferences concerning the examples chosen.