Kal Raustiala
and Christopher Sprigman, Foreign Affairs
No one knows
for sure why some societies are more innovative than others. The United States
is a highly inventive society, the source of a host of technologies—the
airplane, the atomic bomb, the Internet—that have transformed the world. Modern
China, by contrast, is frequently criticized for its widespread copying of
foreign inventions and creative works. Once the home of gunpowder, printing,
and other transformational inventions, China is today better known for its
knockoffs of almost every imaginable product: cars, clothes, computers, fast
food, movies, pharmaceuticals, even entire European villages. The United States
gave the world the iPhone; China gave it the HiPhone—a cheap facsimile of a
groundbreaking American gadget.
Some see deep
cultural roots to the pervasiveness of copying in China. But a more common view
is that China fails to innovate because it lacks strong and stable protections
for intellectual property. Many lawyers and economists believe that
intellectual property rights are critical because they ensure that the economic
rewards of innovation go to the innovator. Without such protections, the
thinking goes, copycats will undercut and outrun originators. This, in turn,
will dry up investment in innovation. The basic logic is straightforward:
sustained innovation requires stringent intellectual property laws, and
countries that tolerate too much copying will suffer. And since in a globalized
economy, copying that occurs abroad can be just as harmful as copying at home,
this logic also undergirds an array of international intellectual property
treaties that nearly all major states have adopted, including the World Trade
Organization’s Agreement on Trade-Related Aspects of Intellectual Property
Rights, established in 1994, and the many even stricter bilateral accords that
states have entered into since then.
As a member of
the WTO, China is supposed to follow these rules. But its compliance is far
from perfect, to Washington’s perpetual annoyance. Briefing reporters at the
White House in February, U.S. Undersecretary of State Robert Hormats called the
extensive theft of intellectual property by Chinese firms and individuals “a
serious and highly troubling issue." Although estimates of the cost of
Chinese piracy to the U.S. economy vary widely and are sensitive to
assumptions, the U.S. International Trade Commission has estimated that in 2011
alone, the figure was nearly $50 billion.
For U.S.
policymakers and American executives, the scale and scope of copying in China
are bad enough; worse yet is the fact that it is encouraged by an official
Chinese policy of “indigenous innovation." According to a planning
document issued by the Chinese government in 2006, indigenous innovation
includes “enhancing original innovation through co-innovation and re-innovation
based on the assimilation of imported technologies." Washington
justifiably views this as an official green light for piracy. The U.S.
government considers it vital to rein in Chinese copying, and it has exhorted
China to change its ways—and sued it before the WTO.
But American
anxiety and anger over Chinese piracy are misplaced. Copying is not the plague
that American business leaders and politicians often make it out to be. In
fact, far from always being an enemy of innovation, copying is often a critical
part of creativity. Although copying has a destructive side, it also has a
productive side. Nearly all creations rest on prior work, and the ability to
freely copy and refine existing designs fuels fields as varied as fashion,
finance, and software. Copying can also foster stronger competition, grow
markets, and build brands.
For Chinese
firms and individuals, copying has irresistible benefits that go beyond simply
undercutting Western competitors. Many Chinese have gained valuable design and
manufacturing skills by copying goods originally produced elsewhere. The
results of this imitation are affordable products and services that have
allowed millions of Chinese to enjoy the trappings of a consumer society. And
the wealth created by piracy has aided the growth of an emerging Chinese middle
class, which represents a massive potential pool of new customers for Western
firms that sell the genuine article.
For these
reasons, any sensible policy toward China’s knockoff economy must begin with an
appreciation that copying and creating are linked and that copying can be a
force for good as well as ill. Given that Chinese copying has benefits as well
as costs, and considering China’s historical resistance to Western pressure,
the fact is that trying to push China to change its policies and behavior on
intellectual property law is not worth the political and diplomatic capital the
United States is spending on it.
THE REAL FAKE.
To understand how imitation and innovation coexist in today’s China, one need
only look to Xiaomi, one of China’s fastest-growing technology companies. Less
than four years old, Xiaomi has sold nearly seven million smartphones and raked
in more than ten billion yuan ($1.6 billion)—impressive numbers for a company
that sold its first smartphone in August 2011. Xiaomi’s phones look familiar
because many of the company’s designs closely imitate Apple’s iPhone. And
design is not the only cue that Xiaomi takes from Apple. At a recent product
launch, Lei Jun, the head of Xiaomi, stood alone onstage in a black shirt,
jeans, and black Converse sneakers—déjà vu for anyone who ever saw the late
Steve Jobs, the founder and former ceo of Apple, introduce new products at a
Macworld convention. Lei’s message was clear: Xiaomi’s phones are just as cool
as Apple’s. Chinese consumers have taken the bait, happily embracing Xiaomi’s
products without any illusions about their provenance: as a Shanghai university
student recently told The New York Times, “Xiaomi is the real fake."
Xiaomi’s
success, however, also hinges on the company being quite unlike Apple. For one,
Xiaomi’s phones typically cost about half that of its rival’s. Even more
important, Xiaomi has a very different attitude toward innovation. Apple is
known for its closed approach to product development. The company believes that
it knows what its customers want before they do, so Apple’s design process is
essentially dictatorial. Xiaomi’s design process, by contrast, is quite
democratic. Every Friday, Xiaomi releases a new round of software updates for
its mobile operating system, which is based on Google’s open-source Android
software. Within hours, thousands of users flock to Xiaomi’s online forums to
suggest new features, functions, and designs and to identify and resolve
software bugs. Xiaomi has relied on user input to determine how much memory to
install on its phones, how important the phone’s thickness is to users, and
whether its phones should allow users to take photos without pushing a button.
Lei might dress like Jobs, but he runs his company very differently.
Xiaomi is
hardly China’s only imitator-innovator. Weibo, the country’s most popular
social networking service, boasts hundreds of millions of users. It began in
2009 as an undisguised Twitter clone. Since then, it has added a clutch of
features that distinguish it from Twitter, including a more interactive system
for commenting. Such improvements make Weibo arguably more functional, and more
fun, than the service it copied.
Another Chinese
value-adding knockoff is Youku, which is just one of a number of Chinese copies
of YouTube. (Youku translates as “excellent" or “cool.") Unlike
YouTube, Youku allows users to upload videos of any length without copyright
verification. That means that Youku hosts hundreds of thousands of hours of
unauthorized programming. But the service has also partnered with more than
1,500 professional content providers to deliver authorized videos, and the
Chinese service is much further along than its U.S. rival in delivering
original content. Indeed, Youku has emerged as a serious competitor to
traditional broadcast TV in China—a feat that YouTube must envy.
The fact that
copying is tolerated, and arguably even encouraged, by China is not necessarily
a catastrophe for Western businesses. China’s huge population is still poor,
and few can afford Western products. Copies of Western products, as a result,
do not necessarily represent lost sales. Instead, they often serve as effective
advertisements for the originals: gateway products that, in the long run, might
spur demand for the real thing as China’s burgeoning middle class grows. For
example, several sandwich shops in China have copied the look and food of the
American fast-food chain Subway. Subway’s executives, wisely, are not
overreacting. Alexander Moody-Stuart, the managing director of the chain,
recently told The Wall Street Journal that for a Western brand like Subway,
which is trying to build awareness for a type of food that Chinese don’t
usually eat, “mimicking isn’t exactly a bad thing." In a huge but largely
untapped market such as China, exposure, and the prospect of growth tomorrow,
can trump greater market share today. And although shanzhai products are
celebrated, those Chinese who can buy the original products generally do.
China’s
knockoff economy allows products to filter down to average Chinese
people—sometimes improving along the way—and in the process helps China and
Chinese firms develop and compete in the near term. In the longer term, open
copying may build demand for Western innovations. As Microsoft’s co-founder
Bill Gates—not one known for his lenient views on intellectual property
rights—famously said of Chinese software copying, “As long as they’re going to
steal it, we want them to steal ours. They’ll get sort of addicted, and then
we’ll somehow figure out how to collect sometime in the next decade."
ORIGINAL
GANGSTERS. Perhaps the most important thing to recognize about China’s knockoff
economy is that it is itself a knockoff. When the United States was just
beginning its rise to wealth and power, it was every bit as much a pirate
nation as China is today. In the eighteenth and nineteenth centuries, the
United Kingdom was the primary target of thieving Americans, who focused their
economic espionage on the British textile industry. American entrepreneurs
sought to replicate secret British designs for looms and mills, and the U.S.
government stood ready to help them.
As in
contemporary China, imitative innovation was official policy: early U.S. law
prohibited foreign inventors from obtaining patents in the United States on
inventions they had already patented elsewhere, and significant barriers to
foreign patents remained in place well into the late 1800s. U.S. copyright law
was similar, explicitly denying any protection to foreign authors. That ban was
not lifted until 1891, and even then, foreign authors were required to
manufacture their books in the United States as a condition of U.S. copyright
protection. That requirement did not disappear entirely from U.S. law until the
1980s. The most famous beneficiary of such laws was Benjamin Franklin, who
republished the works of British authors without permission or payment. The
British lambasted the Americans for their copying ways; Charles Dickens echoed
the sentiments of other famous British writers when he bemoaned “the exquisite
justice of never deriving sixpence from an enormous American sale of all my
books."
Yet Dickens’
own story shows how piracy can sometimes benefit creators. Widespread copying
of his works led to a great deal of exposure, turning Dickens into a literary
superstar in the United States. In 1867–68, Dickens made a grand speaking tour
of the country, during which he netted more than 19,000 pounds, or nearly $1.75
million in today’s dollars. By the time Dickens died, two years later, more
than 20 percent of his estate’s assets had come from this U.S. tour.
These parallels
between the U.S. past and the Chinese present put in perspective Washington’s
current paranoia over Beijing’s piracy. Just as copying allowed the economy of the
United States to grow in the eighteenth and nineteenth centuries, today it
allows China to do the same. And just as the British overstated the economic
threat posed by American copying back then, so, too, is the Chinese threat
overblown today.
Since every
innovation builds on what came before, protection that is too broad limits
valuable sources of inspiration. To build a better mousetrap, one must be free
to build on mousetraps that came before. Just as Apple took from Xerox the idea
of combining a computer mouse with a screen featuring graphic icons (rather
than just text on a screen)—resulting in today’s desktop computer—so, too, have
millions of other innovators built on and improved the work of others.
Chinese
attitudes and practices toward copying cannot be expected to change quickly. As
China’s economy advances further, perhaps the balance of interests will shift,
and the country might adopt a less permissive approach. In the meantime, it is
critical to keep Chinese copying in perspective and recognize its upsides along
with its costs. Above all, the United States should consider its own history as
a pirate nation—and relax.
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