“The issue of protecting immaterial value is capital for Europe’s future”

3 Questions to Dr. Nima Sanandaji, President of the European Center for Entrepreneurship and Policy Reform

Per Strömbäck: Is it true that Intellectual Property is only in the interest of the entertainment industry?

Nima Sanandaji: The issue of protecting immaterial value is very important. Should we be able to download everything for free? The issue of protecting immaterial value is much broader than this question. I’ve just released a report on Immaterial Value Creation in Europe based on a very in-depth analysis of Eurostat data related to different EU business sectors. In this report, I showed that almost every business in the EU depends on immaterial values, which can be designs, patterns, copyright. I have made three conclusions. The first is that big parts of the people who work in the EU private sector work in businesses that are strongly dependent on immaterial value. The half of the added value in the EU business sector come from these businesses. The second is that there are differences between EU economies, but in all of them, IPR are very important. Lastly, there are businesses where IPR are not that important, but are at some point connected to other of the EU businesses that are strongly dependent on immaterial value. Services, computer games, music, but also manufacturing are indeed strongly dependent on immaterial value, and are drivers for European development.

PS: What is the background of your study, and on which elements did you draw the conclusion that IPR is so important for all the EU business sector?

NS: The background is globalization. In 2003, the EU economy was producing nearly 1/3 of global economy output. Ten years later, it is around ¼. The reason is the massive development in countries like China, India or Latin America. One thing that has changed in the global business landscape : in the early 2000’s jobs and growth developed in emerging countries, but the knowledge and technology came from the USA, Europe or Japan. That has already changed. Today, many of the businesses conducting research and innovation, which have ideas, develop designs, even some that have environmental competitiveness, are actually coming from China or India. In 2005, 34% of the Forbes Fortune 500 companies were coming from Europe, and 38% from North America. In 2015, both represented 28%. Asia, instead, has grown from 25% to 40%. Soon, the majority will come from Asia, Africa and Latin America. So, a lot of change is happening, and this is actually good, with growing value coming from the rest of the world.

Now, instead of the knowledge following the money, the money is following the knowledge.

But the European economy has to adapt to this, as competition rises. Europe is massively innovative, with a lot of skills and knowledge. How can you use this knowledge to stay ahead of the curve? It is a big challenge for audiovisual creator, music creator, small, medium and big businesses. So why has been Europe’s companies at the edge throughout decades and centuries? They have been dragging physical capital and knowledge capital. But it used to be so that physical capital and investments came first, and then knowledge, research, PhDs etc. will follow. Today, regions, countries, the EU attract knowledge, in terms of people, skill workers, immaterial values. Then, the physical capital follow the knowledge. So instead of the knowledge following the money, the money is following the knowledge. Physical and knowledge capital are working hand in hand. Dragging immaterial value has become very important to stay confident.

So, I looked at the importance of IPR through the EU business sector, excluding finance and agriculture, for every country. How many jobs depend on immaterial value ? 40 % are IPR intensive!

And these 40% translate into 51% of value added, half of the value creation in Europe. Why? Because we live in the knowledge society, and typically with businesses which have a lot of ideas.

The data between different sectors show also interesting characteristics. 82% of the value created in manufacturing is very dependent on IPR rights, like designs or patterns. So they are not only producing physical goods, they are producing ideas. In professional services, the majority of the workers work in businesses that are very much dependent on protecting IP. So IP is not only important for artists, it is important for all of Europe, because companies that are doing manufacturing have similar challenges in terms of design and technology.

PS: What should Europe do in order to take advantage of its “ideas”?

NS: There are sectors that are not highly dependent on IPR. But those are connected to sectors who are dependent on knowledge investments. Transportation and storage for example are not very much dependent on IPR, but and they are strongly connected to wholesale and retail, which are dependent on trademarks, design, patterns.

We need in Europe to stay ahead is innovation, supporting research and development, as well as protecting immaterial property

There are also some sectors where all of the value created is digital and needs to be protected, as publishing, film, music, software firms. But focusing only on them is a common mistake, because it is only one part of our economy. Protecting ideas is important for the entire EU business sector. And the way for Europe to stay ahead of the curve of this increased global competition is not to make more goods, we can’t just work more hours. We have to be competitive by having the best circumstances for investing in organized and human knowledge.

The share of value added in IPR intensive fields is particularly high in Central and East European countries, like Hungary, Czech Republic, Slovenia or Poland. Indeed, the manufacturing sectors of these  countries are large, and they rely on patents, trademarks and design rights. But throughout Europe, IPR is also very important, and the differences between all countries in the share of value added is not that large.

The strategy for Europe, therefore, should be to focus on protecting knowledge and investment, because that is what European businesses need in order to compete. Lastly, what we need in Europe to stay ahead is innovation, supporting research and development, as well as protecting immaterial property.

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