Can you own something without a government enforcing that ownership right? Sometimes, yes:

Some time ago I read about Boston’s system for allocating parking spaces in snowy weather: you clear it, you claim it. (See also more recent articles, too.) I happened to see this system in action yesterday for the first time. People not living in areas with proper winter climes might not have heard of this before, and I think it’s a nifty little system worth highlighting. It calibrates investments and incentives, thus “pricing” a scarcity to produce a more efficient allocation. It saves money, because there’s no need to pay city workers to clear spaces. And it does so with little administrative overhead: individuals overwhelmingly maintain the system. It’s a thing of beauty all around.

For more on the economics of this property system, see the article Snow Jobs at the Library of Economics and Liberty.

Regrettably the Washington Post chose to wait until after Christmas to publish this, so this post is not quite on time. Nevertheless, in the vein of the post of Christmas past I present you with Amazon.com‘s patented method (as yet unimplemented) for ameliorating the deadweight loss of Christmas, to theirs and the receiver’s benefit, and in some sense to the giver’s benefit as well:

Amazon patents procedure to let recipients avoid undesirable gifts

Apparently returned purchases are a major cost for retailers, especially otherwise largely-automated ones like Amazon.com. So avoiding shipping bad gifts, only to then have to process them again when returned, and possibly resell them at a loss, is a good way for Amazon.com to cut costs. (And though the article doesn’t mention it, presumably this system would act as an incentive for shoppers to shop exclusively at Amazon.com rather than elsewhere — even better from Amazon.com’s point of view.) Strangely (or perhaps not so strangely in today’s newspaper world, alas) the article doesn’t link to the patent itself, but it’s not particularly hard to find. I doubt many patents these days include “mildred” in their text.

I express no position on the wisdom of permitting Amazon.com to patent this. But the idea itself is a good one.

(I considered posting this as a comment on the original post, but it’s grown enough that it warrant its own post. As a further aside, I find it interesting that the prevalence of post-to-reply varies across different planets. My impression is it’s much more common on Planet GNOME than on Planet Mozilla, for example.

And as one last aside, I’m amazed how much easier I find it to write on a topic I care about, presenting analysis I actually believe important, than to write on a topic I find uninteresting, or to espouse a position to which I hold little to no attachment — as most paper-writing in school tends to be, especially for one who is generally apathetic concerning literary analysis.)

Introduction

Shortly before Thanksgiving roc ruminated about the effects of choosing a foreign college over a local college, in particular making these observations:

I’ve always found it ironic that at the same time Americans complain about foreigners stealing US jobs, people in the originating countries complain about the “brain drain” of talent moving to the US. Can both groups be right? Would everyone be better off if talent stayed at home?

I think the right conclusion is that sound bites are rarely “right”. There’s some truth and some incompleteness in both (even if the answer to the second question is unequivocally “no”).

The simplistic view

The obvious “cost” of “brain drain”, stated as such, is to the country losing the talent, and the obvious “gain” is to the country gaining it. Looking only at it in this narrow sense it’s just a zero-sum game. Of course more visas must be better for the gainer and worse for the loser!

The most obvious “cost” of incoming talent is that you must work harder for your position, and the corresponding gain is to those who get better positions than they had. Again it’s zero-sum: better for my labor force competitors, worse for me.

But since immigrants and not nations benefit in the latter case, “brain drain” can only be bad for the nation as a whole when it loses its best and brightest. So nations are better off if everyone stays at home in a state of autarky, right?

The unconsidered benefits

The narrow views ignore the benefits of migration. (One easy way to win a game of war: deal yourself the entire deck.) Examine both at once, and you see the incompleteness of either view.

The expats are better off

First, consider the value the expats, the people actually migrating, derive in doing so. They benefit from concentrations of people in their fields, or close to them, or perhaps even just of similar mental acuity, which would not necessarily be available if they couldn’t broaden their search radius to include the destination country. A country of four million like New Zealand may not be able to sustain world-class universities specializing in and job markets covering all of computer science, nuclear physics, oncology, aeronautics, and quantum mechanics. (Add more industries if you think New Zealand could field these.) If you can only study locally, you probably can’t study with the best in the field. If you can only work locally, you may not find your ideal job.

Incidentally, this point flatly answers the question, “Would everyone be better off if talent stayed at home?” Certainly some may see moving as a complete loss, but most will not.

Skill concentrations are more efficient

Second, consider the externalities from skill concentrations afforded by talent migration. If you get a lot of smart people working on a problem in the same location, you’ll likely get more progress than if they were geographically dispersed. The portion of the SpiderMonkey team that works in Mountain View, for example, is helped by being able to sit down and discuss issues, from small to large, in person. (Although to be sure, this is rarely necessary, as IRC, Bugzilla, and so on are adequate for all but the most intricate communication.) Functionally instantaneous communication lessens the gains of physical proximity, but it’s no substitute. This translates into more effective universities and more efficient companies. Heightened efficiency translates into reduced costs to provide products and services to the market (education is but one product/service). Reduced costs, in competitive markets (universities certainly do compete, as do most businesses), translate to reduced prices or increased quality. This is the oft-neglected good that reducing barriers to immigration provides; it is also one notably absent from the sound bites.

Restrictions burden even desirable immigration

Third, supposing that some restrictions are nevertheless desirable, consider that restrictions and impositions on visa quotas make it harder for the desired level of talent to migrate. Businesses and universities must fill out more forms and employ more people to process foreign talent. Immigrants who would be acceptable must still undergo more interviews, pay higher entry fees, and suffer more onerous restrictions on their freedom to modify their future plans. It’s hard to see how this yak shaving is good for anyone but the excess government workers employed to administer it (and demagogues who gain power promoting it).

A certain level of screening necessary to reject utter lowlifes may be unavoidable. Yet I see no rational relationship between this aim and, say, the rough US requirement that “you must remain continuously enrolled in a university or permanently employed while you remain on your visa”. And even a rational and properly limited policy might be the camel’s nose prior to truly excessive restrictions (no doubt spurred on by demagoguery and special interest groups).

Circling back

So if you add it all up, is brain drain good or bad when considered in total?

I think the benefits are much greater than popular rhetoric makes them out to be. Moreover, we should acknowledge that not every emigrant, say, who goes off to CMU to study computer science is forever lost to a country like New Zealand. Making exit easier for skilled workers does not necessarily doom a state to permanent loss.

Still, some people certainly will be worse off at the individual level. It’s also sometimes the case that groups of people, even entire industries, may be worse off with greater trade: the people the simplistic views focus on to the exclusion of all others.

To sum it up: the marginal gains from mobility of talent are widespread but small, while the losses are isolated and larger. But don’t expect special interest groups or demagogues, of whatever stripes, to acknowledge this.

A closing question, and answer

Having said my piece on the opening questions, I will close with one of my own, with an answer I hope may illuminate a deeper issue.

Take as a given that restricting “brain drain”, or restricting labor competition, is sometimes selfishly good policy. Why apply restrictions nationally and not at other levels? Why not at the level of the Swiss canton, the Indonesian province, or the American state (or in the special case of the European Union, the European country)?

It seems to me that the reason we see far fewer restrictions at non-national levels is that the overarching governmental units prohibit or severely curtail them, and special interests can’t overcome obstacles to changing that. But nationally, disparate special interests reach the critical mass to successfully push for restrictions. (At the international level the multitude of self-centered sovereignties make effective advocacy much more difficult.)

The national level isn’t really the appropriate level for restrictions on talent mobility. It’s merely the one at which special interests can be effective enough to get them enacted.

I suppose I should appreciate inexplicably being entered in your subscriber database since the May 2010 issue.

I suppose I should appreciate being sent glossy pages full of pictures of beautiful new cars. I do enjoy slick cars, after all (although to be honest, I’d take a classic car any day over something new). (Still, I much prefer to see the physical versions over mere pictures.)

But that doesn’t change the fact that I am perhaps the least likely person to ever succumb to the temptations posed most directly by the cars in your pages, or the accessories of all sorts advertised amongst them. I am a complete losing proposition for you: I don’t pay for your magazine, and I won’t pay your advertisers for it, either.

Maybe you think, because I’m in the 18-24 male demographic, the products in your pages will entice me. I think you will find few people so anomalous as me in that population. I don’t own a car (I bike), I rarely need a car (and on those occasions, borrowing or renting is significantly cheaper), and I don’t plan to own a car in the foreseeable future. And, for as long as I live in the Bay Area, that’s very unlikely to change.

I do appreciate your willingness to send me something for nothing. My office appreciates this, too. (Or at least it appreciates it no less than I do.)

But a friendly suggestion: if you really want to give someone a free subscription to your magazine, give it to someone who might actually read it.

(And in the unlikely event that someone decided to give me a subscription [presumably despite knowing just how little I care about cars] and I somehow missed the new-gift-subscription notice, I’m really sorry, but this magazine just isn’t for me: it’s complete deadweight loss. How about in the future we go do something fun together, mutually agreed upon, instead?)

(I speak on behalf of Adam Smith and free market economic ideas alone in this post.)

In a recent blog post, Gen Kanai, in discussing the EU browser ballot, at one point opines that South Korea’s monopoly browser market is a consequence of a free market. (I derive this from the first sentence of his second paragraph, in which I interpret, “To those critics of the browser ballot [supporting a free market through the invisible hand], I would present to you the example of South Korea”, as saying South Korea’s situation is a negative consequence of the invisible hand. It seems to me that either this interpretation is correct, or presenting the example would be a non sequitur.) Specifically, by his words he deems South Korea’s situation a consequence of “Adam Smith’s invisible hand” (link in original). This doesn’t seem to me to be the case, and I would like to correct a few mistaken assumptions implicit behind his assertion.

Did Adam Smith’s invisible hand approve of monopolies?

Through specific invocation of Adam Smith it is implied that, in his support of a free market, his acceptance of laissez-faire economics also means he would have condoned monopolies. This is not the case. Adam Smith was certainly no fan of monopolies, and his magnum opus, The Wealth of Nations, repeatedly noted the bad outcomes engendered by monopoly.

Europe, however, has hitherto derived much less advantage from its commerce with the East Indies than from that with America. The Portuguese monopolized the East India trade to themselves for about a century, and it was only indirectly and through them that the other nations of Europe could either send out or receive any goods from that country.

Smith goes on in subsequent sentences to explain that the exclusion of other countries, and the widespread use of nationally-chartered companies such as the East India Company to only permit exclusive access to the East Indies, made trade with America of greater overall importance than trade with East India — this notwithstanding the greater sophistication of potential trading partners in the East Indies, capable of supplying more value than “savages and barbarians” of the New World. This is hardly acceptance of monopoly. One might also consider this later statement impugning monopolies:

Country gentlemen and farmers are, to their great honour, of all people, the least subject to the wretched spirit of monopoly.

True, Smith permitted the possibility of monopoly in the case of two narrow exceptions: with respect to industries where a national defense interest might come into play (see Book IV, Chapter 2), and with respect to an industry resulting from “a dangerous and expensive experiment” such as autonomous colonization and fortification (see Book V, Chapter 1). These exceptions, however, certainly do not swallow the rule. It is simply inaccurate to say that Adam Smith’s support of a free market implies support of monopolies. (In any case, while Adam Smith’s The Wealth of Nations may have been a seminal work of free-market theory, it is not its highest point, its ne plus ultra, but merely its starting point.)

(With respect to the particular situation of South Korea and encryption, it’s plausible a national security interest was an initial factor in the development and use of a proprietary algorithm. Such an interest seems highly ephemeral given the development of widely used standards a short time later, however, so Smith’s acceptance of this particular monopoly on that basis would have been fleeting at best.)

Is the browser market in South Korea the consequence of a free market?

I freely admit that I am mostly uninformed on this topic; my knowledge comes primarily from Gen Kanai’s first post on the cost of monoculture in South Korea’s browser market. If I have misconstrued the narrative given in that post, I welcome correction.

Quoting from that post:

The history goes back to 1998, when the 128 bit SSL protocol was still not finalized (it was finalized by the IETF as RFC 2246 in Jan. ‘99.) South Korean legislation did not allow 40 bit encryption for online transactions (and Bill Clinton did not allow for the export of 128 bit encryption until December 1999) and the demand for 128 bit encryption was so great that the South Korean government funded (via the Korean Information Security Agency) a block cipher called SEED. SEED is, of course, used nowhere else except South Korea, because every other nation waited for the 128 bit SSL protocol to be finalized (and exported from the US) and have standardized on that.

In the early years of SEED, users downloaded the SEED plugin to their IE or Netscape browsers, either an Active X control or a NSplugin, which was then tied to a certificate issued by a Korean government certificate authority. Can you see where this is going?) When Netscape lost the browser war, the NSplugin fell out of use and for years, S. Korean users have only had an Active X control with the SEED cipher to do their online banking or commerce or government.

SEED, then, was the direct result of government funding of encryption and protocol research. The two (later one) SEED plugins used to implement client-side support for the protocol and encryption were part of a package provided exclusively by the government, as Gen Kanai says in a comment on that post:

Each Korean citizen is issued a nation ID number. This is embedded into the certificate issued by the Korean CA. Thus non-Koreans in Korea (such as US military in Korea) cannot make secure transactions like online banking or online commerce. The ‘package’ (including SEED, the national ID, and the Active-X cert.) that the CA’s distribute is Active-X based, and thus only works in Windows and IE.

Assuming the above is true, I’m not sure how the free market was responsible for the establishment of Microsoft’s monopoly on being able to provide browsers supporting South Korean encryption. The South Korean government brought about the single-protocol monopoly there through its funding of SEED and its ubiquitous use in governmental settings. It alone provided the packages implementing SEED in browsers. The result may be a Microsoft monopoly (if one partially due to a global decline in Netscape market share), but it seems one sanctioned by the Korean government. As Gen Kanai later notes,

Korea will only get beyond this problem by 1) applying Korean laws on open standards to the certificate authorities, 2) reassigning new certificates which work with open web standards to all Koreans, 3) reprogramming all Korean websites to support 128 bit SSL which will allow for a heterogeneous marketplace of operating systems and web browsers.

The third component of the solution requires actions by private entities, but the first and second components require governmental action. Indeed, they are direct steps to overcome previous governmental missteps, and the third component arguably doesn’t make sense except in anticipation of the first two occurring imminently. In what way did the invisible hand, or free markets, bring about South Korea’s encryption monoculture and monopoly? True, Netscape’s declining market share turned a duopoly into a monopoly — but the Korean government chose not to offer plugins for other browsers after that point (and indeed had not offered any for Internet Explorer on Windows Vista, either). Did the problem truly lie with the free market, or did it lie with the Korean government? Whose action brought about the monopoly? Whose inaction sustains it? Whose action is necessary to move toward proper competition?

It also seems worth noting that, later in Gen Kanai’s recent post, he mentions that until recently South Korea required Korean-specific hardware in smartphones. Further, South Korean government guidelines and regulations still require SEED encryption and signing for financial transactions, perpetuating SEED’s monopoly in phone browsers. These governmental restrictions on the cell phone market simply further show how governmental interference in South Korea has impacted Koreans for the worse.

A return to Adam Smith

That the Korean monopoly is the result of government action is particularly important when considering what views Adam Smith might have had of it. While Smith disdained monopolies, he particularly disdained government-created monopolies such as the East India monopolies noted previously. He writes:

The legislature…ought…to be particularly careful neither to establish any new monopolies…nor to extend further those which are already established.

It seems clear that Adam Smith would have been doubly suspicious of government-created monopolies of the sort present in South Korea, precisely because they are government-created.

A brief note on choice and browsers

None of this is to say that choice, or browser choice in particular, is bad — it’s good, precisely for reasons demonstrated by South Korea! However, South Korea’s experience doesn’t really seem to demonstrate a free market-induced shortcoming which might add support for a non-free-market action like a browser ballot. Neither the legitimacy nor the illegitimacy of a browser ballot is increased by reference to the history of encryption protocols and browsers in South Korea, even if South Korea emphatically demonstrates the ills of monopolies.