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Tax and Innovation Policy

Friday, March 25th, 2011

In yesterdays post I considered some of the implications of a recent Supreme Court of Appeal judgment on foriegn exchange regulations. That analysis segued into a brief consideration of some other legal provisions that affect foriegn investment into innovation in South Africa, including tax. Short as that was it consideration made it clear to me that the various rules of tax and financial regulation have been made and revised for a number of reasons, none having anything to do with innovation. The collective impact of the rules doesn’t seem to have been considered, nor does there seem to have been any empirical research into their impact on innovation.

Neither that post, nor this is a detailed study of the arcana of South African tax legislation, regulation and practice. Instead its to invite comments on what would constitute tax and financial provisions which would encourage innovation.

To start the conversation I’ve listed a few of the proposals I’ve heard in the last few years. The South African government, especially the Ministry of Science and Technology have espoused a great deal of interest in South Africa entering the ‘Knowledge Economy’. One aspect of South African government policy is to try to increase the number of maths, science and engineering graduates and especially postgraduates. Another is to encourage entrepreneurs in information technology, biotech and nanotech.

Some simple changes to tax policy that would encourage such innovations could include the following.

Exempt textbooks from VAT.

Provide tax relief for the cost of postgraduate study.*

Provide an efficient mechanism for South African entrepreneurs to attract foriegn capital, and enter foriegn markets with intangible rights such as patents.

*My understanding is that while currently professional continuing professional education, at least for lawyers, engineers and some health professionals is permitted as a revenue deduction post graduate education is regarded as capital expenditure. Capital expenditure might of course be permitted as a deduction from capitals gains tax. This might make sense for expenditure on something which on its sale may result a capital gain such as house but its hardly applicable to a research scientist.

What are your ideas?

curiouser and curiouser: more on the metaphysics of copyright

Friday, December 3rd, 2010

In the last post I examined how copyright law claims to give one person the power to exclude others from a particular “expression”. But what exactly is an expression?

According to Plato and his successors, the transient time and space bound things which we encounter in our everyday lives are imperfect reflections of the Ideas or Forms, which are neither time nor space bound but constitute ultimate reality. The Ideas of Beauty, the Good, and Justice are what enable humans to discern good, beauty and justice. If these were not eternal and unchanging human knowledge would be impossible. The Idea of a horse is what enables designating the disparate mortal animals we encounter as horses. The animals we encounter and their representations have something in common; they are imperfect reflections of the Idea of horseness. Thus artistic depictions of horses need and indeed should not try to mimic the imperfect but should point to the Idea. In the words of Granny Aching ’tain’t what a horse look like tis what a horse be.’

Not everyone agrees with that Platonists. There are other accounts of relationship between ideas and material things. According to one of these accounts ideas are the consequences of the imposition of a priori categories which are intrinsic to human nature. One such account gives no further explanation for the origin of these categories, suggesting that the these categories are both arbitrary and immutable. A related but differing account draws on Darwinian evolution to suggest that ideas, that is the way that humans make sense of the physical phenomena we encounter, are the result of both filtering sensory mechanisms; eyes, ears etc and the way in which brains process the information received from those mechanisms. There are different versions of this account that give differing weight to how important the “hardwiring” of the brains structure is, and how much the way in which the brain’s processing may be the result of conditioning.

Yet another account, claim that ideas are not extrinsic to human beings but regards them as the result of human agreement. Some versions of this account suggest that ideas are the consequences of arbitrary human conventions, and suggest that a sufficiently motivated individual might be able to change such conventions. This account however tends to undercut itself. How are we to make sense of ‘ideas’, ‘individuals’ and ; this own account must either surrender itself as unintelligible or subjective (in which case it is unable to advance a greater claim than rival accounts). One account suggests that ideas are meaningful within interpretive communities which agree on meaning. Other interpretive communities may have different and conflicting explanations of the same things.

The proceeding paragraphs present a very brief summary of three thousand years of philosophic debate. Far more nuanced accounts are required to do justice to the complexity and explanatory power of these various accounts, and critical commentators are invited to provide precisely such accounts in comments on this post.

What emerges from these accounts though is that however divergent they are they posit only two major categories, things encountered and ideas. Whether ideas have a exasperated existence from human beings, or not, whether they are the result of human nature or human agreement, one thing the accounts agree on is that it is incoherent to talk of ideas as the “property” of any individual. If Ideas precede imperfect individuals then those individuals cannot be said to “own” perfect ideas. If on the other hand ideas are the consequences of human nature,in particular human biology, then no single individual can be regarded as their originator nor controller, and the same must be true if ideas are constituted by agreement interpretive communities.

So if ideas cannot be spoken of as subject to ownership what could copyright conceivably control? It cannot be the objects which humans encounter, this painting, that sculpture, this laptop. Legal systems do award legal power over things,and had established rules for awarding, transferring and terminating such power for many thousands of years before copyright. Instead what copyright required was the fabrication of a new category, one that fits somewhere between Form and matter, which is itself neither, the object, nor the pure abstraction. This metaphysical class is often referred to as “expression”. It is however almost entirely under-theorised, a lack which has become calamitous with the advent of digital technology.

What exactly is it that copyright pertains to? It is not, we are told, the physical artefact, the book, nor is it the ideas contained in the book, instead it is apparently something else, the particular sequence of words and letters (and possibly lines and colours); neither concrete nor entirely abstract but somehow both non material and specific. The vagueness of this class of being is one reason for the tendentious nature of much of the rhetoric of certain claimant who believe that their interests lie in ever expanding legal power under the banner of copyright.

This class of beings, if one concedes that it exists at all, is a contingent one, the product of human effort, but not limited in space and time like other products of human effort, and is therefore neither excludable nor rivalrous. A book, so understood, is not like a car, because many thousands or indeed millions of people cannot use a car at the same time, nor can anyone easily surrender whatever one gains from reading a book.

One solution is to deny that a desperate metaphysical class is required at all, but instead to characterise copyright as a set of rules about what other people can do with their property. If however copyright is primarily a limitation of what one can do with one’s own property in favour another person, then its characterisation as property is weak, it must necessarily be the weakest kind of property which consists solely of intrusions into the property of others. If copyright is appropriately characterised in this way then its existence and extension can never be justified merely by references to property, since it always requires a taking of someone’s else’s property. If on the other hand its conceived as primarily control over what others can do then its unusual in granting such extensive power over others to an individual (or fictitious individuals), rather than a government agency. Contracts also grant extensive powers over the conduct of others to individuals but this is considered justifiable because of the content which contracts (hypothetically) embody. A property ‘right’ which consists entirely over power over the conduct of others is, except for slavery, unprecedented.

Those who wish to justify copyright as something more or other than an intrusion into the rights of owners of things must then advance an account of the objects of copyright, and in doing so explain how such an account can make sense in one or more of the accounts of ideas and things so far advanced. To date they have failed to do so.