Myth of the Creator:

Government, Corporate Copyright Owners, Users & Creators -

Diagnosis, Prognosis & Public Policy Prescription of Market Failure

Harry Hillman Chartrand ©
Commissioned by Saskatchewan Municipal Government, September 1996




a) Forces 
     i - Copyright as Property, Monopoly & Rules of the Game 
    ii - Limited Organizational Capacity of Creators 
    iii - Increasing Corporate Concentration 
    iv - Declining Public Support & New Rights
b) Bargaining 

 i - An Academic Example
 ii - A Moral Example 
 iii - Blanket Licences
 iv - Outside Rights

c) Market Failure 


a) Relevant Trends 
    i - Apprenticeship & Self-Employment 
    ii - Global Knowledge- based Value Adding Industries 
    iii - World-Wide Web 
    iv - More New Rights 
b) Exploratory Forecast 


a) The Law  

b) Demand-Side Shuffle 
c) Applicable Policy Instruments
    i - Consumer Protection & Moral Suasion 
    ii - Customs, Excise & Taxation 
    iii - Fiscal Measures 
    iv - Provincial IPRs 
d) Normative Forecast



This policy research note presents one economist's brief about the relative bargaining power of creators and corporate copyright owners in the assignment, licensing and sale of copyrighted works in the literary, media, performing and visual arts.  While it is not a legal opinion, the note rests on the assumption that copyright like other forms of

intellectual property is, after all, the only absolute possession in the world...  The man who brings out of nothingness some child of his thought has rights therein which cannot belong to any other sort of property...  

Chafes, Z., Jr., "Reflections on the Law of Copyright: I & II", Columbia Law Review, Nos. 4 & 5, July & September 1945, 

in Great American Law Reviews, Berrings, R.C. (ed), Legal Classics Library, Birmingham, 1984, pp. 506-7.

It will be shown, however, that this is a legal fiction.  In fact, intellectual property carries fewer rights and lesser rights than other forms of property.  Further, these rights are more easily alienated.

The true beneficiary of creator's rights and royalties are global, continental and national communication conglomerates. There is not a free, fair and competitive market for the works of creators: In economics, this is termed a `market failure' and such a failure justifies public policy action.

A diagnosis (i.e., identification of a disease by means of the patient's symptoms) of market failure will be drawn; its prognosis forecast; and a public policy prescription proposed.



1. Diagnosis                                                                            

a) Forces

Bargaining engages all forces enabling a buyer or seller to set or maintain a price. In the case of bargaining between creators and corporate copyright owners, market failure exists due to the interplay of four forces:

i - copyright as property, monopoly and rules of the game;

ii - limited organizational capacity of creators as a class of producers;

iii - increasing corporate concentration; and,

iv - declining public support and new creator's rights and exemptions.

i - Copyright as Property, Monopoly & the Rules of the Game

The nature of copyright itself is a contributing factor to market failure.  It is, at one and the same time, a form of property, an industrial monopoly and, as the Copyright Act, the rules of the game in bargaining.

As Property

The legal mechanism by which creators sell their work is copyright.  This is achieved through the assignment licensing or outright sale of a creator's rights in a work.  To some observers copyright is a `natural right', that is the right to property lays in the natural right of a person to one's own labor and the fruits of one's labor, not in a grant of privilege from the State.  In the European Civil Code tradition, creator's rights are natural rights. In that tradition, such rights are inherent in and inalienable from the creator.

In the Anglo-Canadian-American tradition, however, copyright is not a natural right.  Furthermore, a creator's rights are more limited and more easily alienated than other forms of property under Common Law.

A related issue is whether Aboriginal Heritage Rights (AHRs) are a natural right.  To many tribal peoples of the Fourth World, a song, story or icon does not belong to an individual but to the collective, to the tribe or the aboriginal nation.

In both English and European traditions; however, rights in a work are granted to or vested in the individual creator.  In the English tradition, they can be granted to a corporation under the Common Law fiction that a corporation is an individual human being.  Furthermore, a work must be `fixed' in material form. Rights are also limited to the life of the creator plus a fixed number of years after his or her death (usually 50 years in Canada).  Once that time has expired, the work enters `the public domain' and is available to anyone at no cost.

AHRs reside in a tribe or nation.  They are not limited in time and in oral cultures they are not fixed in material form. Accordingly, most aboriginal cultural creations are in the public domain.  Thus with respect to AHRs, aboriginal peoples have no standing in court. They have no intellectual property right to their own patrimony.  Accordingly, their intellectual property can be freely appropriated by anyone of any culture or nationality at any time.

As Monopoly

Copyright began as, and remains, an industrial monopoly granted by the Crown or State.  Originally it was granted to printers, not creators.  Thus Tudor and Stuart monarchs incorporated and maintained the London Stationers' Company (1557) as a guild with exclusive rights of publication of all books.  Books had to be registered with the Company which enjoyed drastic powers of search and seizure of unauthorized books.  This monopoly was justified as a means of preventing publication of heretical and seditious works, i.e., of censorship, and as a Crown grant of industrial privilege to royal favorites.

It was only with the triumph of Parliament over the monarchy in 1689 that erosion of Crown grants of printers' rights began. Thus, in 1710, the Statute of Queen Anne was passed awarding copyright, for the first time, to the creator of a work based on the principle of original composition.  It was not, however, until 1774 that the House of Lords confirmed a creator's rights and finally did away with Common Law printers' rights.

The Statute of Queen Anne (and all subsequent copyright statutes in the English tradition) was justified not only for encouraging "learned men to compose and write useful books" but also to protect the legitimate financial interest of "proprietors" who, by sale or assignment of the author's copyright, were almost invariably publishers.  Thus the monopoly power inherent in copyright was, and usually is exercised by market intermediaries such as printers, producers and publishers, not by individual creators.

We should start by reminding ourselves that copyright is a monopoly. Like other monopolies, it is open to many objections; it burdens both competitors and the public. Unlike most other monopolies, the law permits and even encourages it because of its peculiar great advantages. Still, remembering that it is a monopoly, we must be sure that the burdens do not outweigh the benefits. So it becomes desirable for us to examine who is benefited and how much and at whose expense...

Chafes, Z., Jr., "Reflections on the Law of Copyright: I & II", Columbia Law Review, Nos. 4 & 5, July & September 1945, 

in Great American Law Reviews, Berrings, R.C. (ed), Legal Classics Library, Birmingham, 1984, pp. 506-7.

Even today, some types of copyright are not granted to the creator.  Copyright in a motion picture, photograph or sound recording is granted to the owner of the negative or whoever makes the arrangements for such a work to be made.  Copyright is not granted to the artistic director or auteur' in the European tradition.  Similarly, copyright in a work created by an employee is granted to the employer, not the creator.

Typifying the historic trade-off between creators and corporate intermediaries is the infamous Manufacturers' Clause of the U.S. Copyright Act which was repealed only in the 1980s.  Until the end of the 19th century foreign authors were ineligible for U.S. copyright.  Their works were freely pirated by U.S. publishers. U.S. authors, however, complained that their works were being ignored in favor of royalty-free U.K. works, e.g., those by Dickens.  The Manufacturers' Clause (more properly the Chace Act of 1891) granted copyright to foreign authors, but required that all English language books sold in the U.S. be printed in the U.S. The Manufacturers' Clause represents the historic U.S. compromise between conflicting interests of creators and corporate copyright owners.

Ongoing tension between these two interests is clearly defined in a major study of Canadian copyright reform:

In arriving at recommendations for revision of the Copyright Act, basic conflicting objectives have to be reconciled. On the one hand some believe that the copyright law should be a force to help shape the cultural life of a society. On the other hand, it has been said that the control given to a creator over his work should be absolute. The present law in fact limits the rights of an author, particularly in time. That copyright law makes works available only because it brings to authors a mandatory return may be true. It is certainly true that the works of creators will not be the subject of mass production and distribution if entrepreneurs cannot be assured of realizing a reasonable return.
      The problem therefore lies in finding the proper equilibrium which allows a creator to pursue his rights, and to benefit from the use of his works, but which also assures the entrepreneur reasonable returns. This Paper is devoted to a consideration of how this balance may be achieved within the public interest.

Keyes, A.A., C. Brunet, Copyright in Canada: Proposals for a Revision of the Law, Consumer and Corporate Affairs Canada, Ottawa, April 1977, p.2.

Thus, in the Anglo-Canadian-American tradition, copyright provides the legal foundation for the industrial organization of the cultural sector.  It is through ownership of copyright and related 'neighboring rights' that global media conglomerates are able to construct and maintain their communications empires.

As Rules of the Game

Copyright also sets the rules of the genie in bargaining.  First, the formal rules are set by national governments.  Each nation sets its own rules within its own distinct historic legal tradition.  In Canada, formal copyright is the constitutional responsibility of the Government of Canada. Relevant legal traditions include English, European and First Nations' traditions.

If a country is a member of an international copyright convention, national rules must be applied equally to foreign nationals if their countries are convention members.  This is called 'national treatment'.

Second, the rules set out a spectrum of discrete rights than can be assigned, licensed or sold outright - in total, or in part. Furthermore, they can be divided by territory at the global, national, regional and/or specific local level.  Rights can also be divided by `market type', e.g. wholesale vs. retail.  Furthermore, in the English tradition all rights - moral as well as pecuniary - can be alienated - in whole or in part, outright and/or forever. The rights of the artist are `a bounty'. Paid once, a creator need never see a royalty check again nor claim paternity.

Third, the rules give four players legal standing before the courts - the creator, owner, user and the public.  However, the public in the guise of the Crown is seldom party to civil action which is how most disputes are settled. In addition, rules enable and encourage creators to freely form `collectives' to set royalties for the exercise of rights granted in their creations.

Fourth, the rules create a referee (other than the courts) to interpret the rules and mediate disputes between the players.  This is usually some form of quasi-independent statutory board, tribunal or commission.

In summary, part of the cause of market failure in bargaining between creators and corporate copyright owners is the nature of copyright itself. It is a form of property initially owned by a creator. It is an industrial monopoly which serves as the foundation for global communications empires It is also establishes the rules of the game in bargaining between the parties.

ii - Limited Organizational Capacity of Creators

Using a broad definition, artistic creators include actors, architects, authors, composers, designers, directors, craftspersons, filmmakers, musicians, painters, photographers, playwrights, singers and sculptors in the amateur (avocational) and professional applied, entertainment and fine arts industries. This embraces both 'creative' and 'interpretative' artists.

Creators are, relatively speaking, many in number and competitive in the sale of their work and their services.  On average, they are economically disadvantaged relative to other professionals with similar levels of education and training.  In fact, the 12% of artists who are self-employed are second only to pensioners as the lowest paid income group recognized by Revenue Canada Taxation.

The income distribution of artistic creators is not a typical income pyramid of earners with a broad base, thick middle and peak.  Rather it is an obelisk with a huge pedestal base, long narrow shaft and a tiny peak at top composed of a very few very well paid income earners.  There is a tiny middle class.  Creators are usually found at the very top or in the very big bottom but seldom are they found in the middle.

Creators are affected by technological change in many ways.  For example, 'live' creation has, on the one hand, been progressively displaced, and on the other hand, enhanced by pre-recorded creation.  In the process, the economic importance of copyright has, and will continue, to grow.

Live actors compete today with motion pictures, TV and video; tomorrow, they will compete with walking, talking technological simulations of famous long dead actors.  Live musicians survived recordings in the last century; today, they compete with broadcasting, 'talking pictures', the home entertainment center and Muzak.  Visual artists competed with the steel engraving plate in the last century; today, they compete with computer graphics and animation; tomorrow, they will compete with digitalized collections of famous art works projected by computer onto the walls and ceilings of our homes and offices to vary mood and ambience.  Book and periodical writers swelled with the printing press; today, they compete with TV, video and the movies; tomorrow they will compete with the Internet.

No longer can an audience be called 'provincial'.  Audiences around the world now judge local 'live' productions against standards achieved in the world's artistic metropoles - Tokyo, New York, Hollywood, London, Paris and Berlin.  Such `world-class' cultural product, however, is beamed into the comfort of one's own home, office, pub, tavern or theatre through pay-per-view.  Even the Third and Fourth Worlds are being scanned and market tested for potentially marketable cultural product through what some anthropologists call `cultural vampirism'.

By contrast, most literary and visual artists work in isolation or in cottage industry habitats.  By definition, all creators, regardless of discipline, are individualistic.  Accordingly, they do not bond easily as a class of producers.  As individualists, they exercise little market power except for the very few most famous and accomplished.

Creators are articulate in their own media - writers write, painters paint, et al.  Ready access to media colleagues assures the minority of creators with strong collective political or ideological views are heard by the public - usually in protest against real or imagined social wrongs - artist as social conscience.

Unlike other industrial sectors, unions and associations in the arts tend to set minimums above which members mad bargain individually with the 'employer'.  Accordingly, it is the high fees paid to a Margaret Atwood, Alex Coleville, Joe Fafard, Colin James, Louis Lortie, Peter Mansbridge, Buffy St. Marie, Joni Mitchell and Donald Sutherland that catch the public imagination.  'Spear-bearers' in the background earning base `minimum' do not receive much press coverage, public concern or compassion.

Further, unlike other industrialized sectors, artistic unions and associations operate more like old English guilds than 20th century industrial trade unions.  Before guilds were abolished by the 1814 Statute of Artificers, they controlled entry and training in the artistic professions and enforced quality control over output.

Like guild survivors in the 'self-regulating professions' of law, medicine and accounting, the artistic professions maintain apprenticeship, master classes and mentorship as the most effective means of honing and refining the skills and discipline of new and young members of the professions.

In the arts, one can speak of 'an aristocracy of talent' whether in pop or high culture.  Thus, in the 'trade' one hears of the 'crown system' of repertory theatre and 'star system' of Hollywood.

Nonetheless, the works and services of the `average' creators are, relatively speaking, inter-changeable.  Unlike other forms of intellectual property such as patents, registered industrial designs and trade marks, copyright has no utilitarian value in and of itself.  A book can be read (or not), but it makes a poorly designed; second- rate door jam.  A buyer pays an `aesthetic' or stylistic price, not just a financial price for works of a particular creator.  Thus a Harlequin Romance (owned by Thomson's Torstar) costs about the same as a Margaret Atwood paperback.

Furthermore, many individual creators are what is called in industrial relations `free-riders'.  Sometimes they undercut the price charged by members of creator's unions and associations.  At other times, they simply benefit from union minimums without paying dues, recognizing common interests, or exercising community responsibilities.

The result of these factors is paradoxical.  On the one hand, the 'arts' even though segmented into many separate disciplines, unions and associations, are second only to the public sector as the most highly unionized in the Canadian economy.  On the other hand, creators are loosely organized with limited means to successfully launch effective collective action such as strikes and walk-outs.  A day without art may be bland, but daily life goes on and commuter trains keep running.

iii - Increasing Corporate Concentration

In most cases, creators do not sell their work directly to the public.  Rather, they sell to corporate market intermediaries known as dealers, employers, publishers or producers.  Such intermediaries are, relatively speaking, small in number and large in economic size.  It is their ability to vertically and horizontally exploit creator's rights that make possible enormous global communications conglomerate empires.

For example, a book written in India, through sale or license of its copyright, becomes a play in London's West End theatre district.  The play becomes a movie in Hollywood from which posters, a sound track, T-shirts and toys are spun-off in Taiwan.  The movie is then broadcast on Italian television and the sound track on rock radio in Ghana.  The styles and fashions of the film inspire a Munich designer who previews the collection in Paris. Furniture makers in Ontario license the design and manufacture `look-alike' furniture.  A book is then written in New York City about the making of the movie and a film sequel is shot in Saskatoon.  All associated income streams emerge from the initial creator's copyright in the book.  Increasingly these streams are filling up the coffers of global communication conglomerates in broadcasting, motion pictures, publishing and recordings.  To complicate matters, accounting practices in the arts industry are not transparent to public scrutiny.  How much anyone gets is seldom clear.  The situation is similar to the lottery industry in which six different definitions of profit can be employed.

The five largest communication conglomerates account for about one fifth of global annual sales of $U.S. 250 billion. The five largest global communications conglomerates, by parent market and sample subsidiaries, include:

  • Bertelsmann (German publisher) which owns Doubleday and Book-of-the-Month Club;

  • Hachette (French publisher) which owns Groliers Encyclopedia;

  • News Corporation of America (Australian/U.S. newspapers) which owns the Fox television network,

  • Sony (Japanese electronics) which owns Columbia Pictures; and,

  • Time-Warner (U.S. publishing, motion pictures and recording) which owns Time-Life, Warner Pictures and Warner Records.

Furthermore, in response to 'globalization' of the economy, governments around the world are rapidly 'deregulating' domestic sectors such as broadcasting and cable so that domestic firms can become globally competitive.  In other sectors, such as bookstores and publishing, traditional domestic antitrust or anti-combines laws are being repealed or not enforced for reasons of national economic policy.

The recent spate of newspaper takeovers in Canada by Conrad Black's Hollinger Group is an example of growing corporate concentration which traditionally would have been the subject of intense anti-combines investigation.  Similarly, the media recently reported a threat by the major newspaper chains to withdraw from and thereby kill the Canadian Press syndicate.  This highlights the growing market power of Canadian communications conglomerates as does public controversy over specialty channel pricing by cable companies which now must pay recently granted 're-transmission' rights.

iv - Declining Public Support

At the same time corporate concentration is increasing, government is reducing direct financial support to artists and arts organizations.  In effect, government is pulling back from a `supply-side' policy of giving money to organizations so they can increase the supply of artistic production.

Cut-backs are justified as part of restructuring, retrenchment and redefinition of the public sector in response to deficits and debt. Well into the next century, however, the demographics of health, education, pensions and welfare will continue to fuel transformation of government from what we have known in Canada for nearly 50 years.

Successive federal governments from the mid-1980s have encouraged artists and arts organizations to rely more on a free, fair and competitive. marketplace.  Together with moral encouragement, government has tried to compensate creators by granting new intellectual property rights.  Since 1986 newly introduced rights include: exhibition, moral, performance, reprographic and retransmission rights.

Beyond granting rights to creators, the federal government has taken two structural initiatives.  These include legislative encouragement of new collectives to collect and distribute royalties flowing from these new rights; and Status of the Artist legislation. Both have been publicly justified as means to enhance market earnings of creators.

Status of the Artist legislation has been passed by the federal and Quebec governments and proposed to the Government of Saskatchewan.  It enhances collective bargaining rights of arts unions and associations and partially recognizes the unique financial and tax situation of individual artists.  Similar recognition has been given to farmers and fishermen for decades. It also goes some distance in moving the artistic professions towards 'self-regulatory' status.  Further, Status of the Artist is classified as a form of intellectual property under the law.

Most new rights and Status of the Artist have their roots in the European Civil Code which is operative in Quebec.  In fact, Canada is unique among nations in that both major Western legal traditions are enforced - Anglo-American Common Law and the European Civil Code. Canada is thus not just bi-lingual and therefore bi-cultural, but also a bi-juridic country. A case in point is among recent changes to the Quebec Civil Code.  Specifically, art collections are now treated in Quebec as mortgagable real estate, i.e., as a fixed asset not, as under the Common Law in English Canada, personal movable property.

Recently granted Canadian intellectual property rights are not recognized in the Anglo-American tradition.  Accordingly, the U.S. Copyright Act grants no exhibition, moral or performance rights to creators.  There is also no equivalent of the Status of the Artist Act.

Creator's right have, however, been granted at the State level in the U.S.  Thus both California and New York recognize droit de suite or rights of following sale' in works of visual artists resident in those States.  When a painting is resold, a painter gets a percentage of each subsequent sale.

With respect to the second structural initiative of the federal government, new copyright collectives have been legislatively enabled and encouraged.  They have been justified as an efficient institutional mechanism to collect and distribute new royalties to creators.  Collectives have managed traditional copyright for nearly a century.  They work for `copyright owners' whether individual creators or corporations.

Many, if not most, copyrights, I believe, are assigned, licensed or owned outright by corporate conglomerates, not individual creators.  Accordingly, collectives are pipelines fueling growth, increasing concentration and market power of global, continental and national communications conglomerates.

b) Bargaining Power

Forces available to the average creator to set or maintain the price of a unique work of art made by a unique creator are few except for the most famous and those best placed to mount effective collective action, e.g. actors, musicians and technicians.  

In theory, copyright grants a monopoly to creators against which the public must be protected but which ensures a fair market price for creators.  In practice, however, forces available to corporate copyright owners are increasingly great.  It is they, not the average creator, who exercise real market power.  It is against corporate copyright owners that the public and creators need to be protected.  

This is increasingly true as government cuts the 'arts' and handicaps the next best buyer of creator's work.  Such buyers include national, regional and local non-profit market intermediaries such as Coach House Press, the CBC, NFB, the Canada Council, and all the alternative galleries and artist-run spaces and presses, main stream galleries and museums, dance and theatre companies and orchestras which collectively constitute the institutional legacy of public patronage of the arts in Canada.  In compensation for its financial withdrawal, government has offered up new creator's rights and fortified collective bargaining with Status of the Artist legislation.

i - An Academic Example

A traditional example of the relative power of creator and corporate copyright owner is the academic author who must 'publish or perish'.  Accordingly, such authors usually sign away all rights to their work in order to be published.

In many cases journals, especially in the natural sciences and engineering, are owned by for-profit firms such as Elsvier in Holland, Plenum in Britain and Wiley in the U.S. Such corporations, in turn, are generally owned by media conglomerates such as Rubert Murdoch's News Corporation.  Thus it is corporate copyright owners who profit from academic creator's rights while providing no royalties to creators.  For academics, however, payment is indirect through enhanced career opportunities.

An institutional anomaly emerged with the introduction of reprography or photocopying rights in 1986.  Thus, royalties for the photocopying of an article written by a Canadian researcher at a Canadian university go to global corporate copyright owners. Royalty payments flow from universities and colleges through copyright collectives to corporate copyright owners, not to researchers or the universities themselves.

ii - A Moral Example

In effect, the federal government has experimented with the moral marriage of English and European legal traditions of creator's rights for nearly a decade.  In 1986 Bill C-60 introduced 'moral rights' in the European tradition.  These are 'personality' or 'paternity' rights including the right to: claim authorship; protect the integrity of a work; to publish; and, withdraw a published work from circulation.

In the European tradition, such moral rights are inherent and inalienable to the creator.  In the English tradition, however, Canadian moral rights can be extinguished by contract.

iii - Blanket Licenses

The principle instrument used to extinguish, after a one-time payment, all subsequent creator's rights is the 'blanket license'.  In effect, a blanket license strips away an artist's most personal and precious assets extinguishing all rights to a return on subsequent exploitation of a creator's work.

The blanket license is used in all the arts.  For example, in the literary arts, both the Montreal Gazette and the Toronto Globe & Mail now require freelance authors to sign blanket licenses.  This purportedly is necessary to make works available on the worldwide web. All royalties from the author's work go to corporate copyright owners.  Thus if a short story becomes a Hollywood screenplay, the creator receives nothing. The corporate copyright owner, however, may collect big time. Members of the Periodical Writers Association of Canada are boycotting both the Gazette and Globe & Mail and threatened a class action suit against Thomson (reputedly the fifth largest printing company in the world) and Black conglomerates.

In the visual arts, government is cutting direct support to public galleries and museums.  At the same time, the federal government is requiring them to pay for administration of, and royalties for, exhibition rights.  This has been a double blow to the nonprofit gallery and museum communities. In response they have drafted a standard contract to extinguish 'exhibition rights' on the purchase of a work of art.  When faced with no sale to the National Gallery, a young creator usually will forgo a fee for future exhibition royalties.

In the media and performing arts, passage by Parliament of the World Trade Organization Accession Act in 1994 granted 'performance rights' through amendments to the Canadian Copyright Act.  In the European tradition, performers now may claim, like authors and composers, a royalty for use of recordings of their work.  In the English tradition, however, such `performance rights' can explicitly be extinguished by contract.

iv - Outside Rights

'Outside' rights refers to creator's rights existing outside of the Copyright Act.  Generally outside rights are inherent in and inalienable from the creator.  They can not be transferred by contract, e.g. to corporate copyright owners.  Furthermore, outside rights are not subject to international convention. Therefore, national treatment is not extended to non-residents.  This means a country can target and reward its own citizens.  In turn, this enhances the bargaining power of creators by increasing subsequent earnings.

In the U.S., outside rights include rights of following sale granted to artists resident in New York and California states.  Under these laws, an artist is entitled to a percentage of the subsequent sale price of his or her work. In Canada, outside rights are currently limited to Public Lending Rights for books. PLRs are based on the premise that the public benefits from libraries but authors suffer lost sales.  Therefore, market failure exists justifying a public policy response.  PLRs compensate authors from a federal fund. Payments are capped so no one author receives too much.  Payments are restricted to Canadians and payments goes directly to the creator.  Variations of PLRs now exist in some 20 countries.

c) Market Failure

A counter-intuitive policy outcome refers to attaining the opposite of an intended objective.  There are many examples in both the private and public sectors.  Often they occur because a policy creates `moral hazard'.  An example in the private sector is fire insurance which makes arson potentially profitable. U.S. public policy analysts often cite Aid to Families with Dependent Children (AFDC) as an example of a counterintuitive outcome. AFDC is intended to help single parent families.  A poor family receives AFDC money only if a spouse, usually the husband, has left home.  Without employment, a husband is rational to leave thus increasing family income. AFDC thereby fosters another family with dependent children.

If the public policy objective of granting creator's rights is to increase earnings of the average creator, it has, in my opinion, failed.  Through blanket licenses and superior bargaining power, corporate copyright owners have effectively extinguished subsequent royalties to the average creator.  Corporate copyright owners do, however, exercise these same rights to extract a higher price from users.  Increased revenues, in turn, strengthen corporate copyright owners via-a-via the creator.

Market failure exists in bargaining between creators and corporate copyright owners because of: the peculiar nature of copyright; the limited organizational capacity of creators; increasing corporate concentration; and declining public support together with the counter-intuitive results of granting new creator's rights and exemptions.


2. Prognosis

Market failure in the bargaining relationship between creators and corporate copyright owners is occurring at the same time other dramatic and relevant trends are transforming the Canadian and Saskatchewan economies.  Each trend, in and of itself, deserves in-depth analysis.

For purposes of prognosis (i.e., forecasting the course of a disease), assertion rather than argument and evidence will be used to briefly describe each trend.  These descriptions will then be applied to project an exploratory forecast of the probable future for bargaining between creators and corporate copyright owners.  This prognosis assumes trends proceed unimpeded by public policy action.

a) Relevant Trends

Relevant trends include those towards:

- apprenticeship training and self-employment;

- global knowledge-based, value adding industries; 

- the worldwide web; and, 

- even more new rights.

i - Apprenticeship & Self-Employment

Job training funded by the public sector in Canada is changing.  Governments are in the process of restructuring programs and activities to reflect the fact that hands-on experience counts; university and college `book learning' is simply not sufficient for a globally competitive Canadian industry.

In part this reflects the impact of the last report of the Economic Council of Canada before it was disbanded.  In its 1992 report, A Lot to Learn, the Council compared Canadian experience in education and skills training with other countries.  Among other findings, the ECC reported that in Germany in 1987 some seventy percent of high school students were enrolled in `vocational' programs (10% in Canada).  However, 70% of Canadian high school graduates eventually ended up in vocational employment.

Furthermore, there were three levels of post-secondary technical and scientific colleges and universities available to Germans pursuing vocational careers.  In English Canada there was one formal polytechnic, Ryerson, and many 'entry level' community colleges and technical institutes.

The average age of an apprentice in Germany was seventeen years (26 in Canada) and apprenticeships lasted between two and three years (4 to 5 in Canada).  As a percent of the labour force, apprentices represented six percent of the German labour. force (0.95% in Canada).  The cost of apprenticeship training in Germany was fifty-one thousand dollars ($170,000 in Canada).

The trend towards apprenticeship training is taking place at the same time a trend to self-employment accelerates.  Due to corporate and public sector downsizing, the pattern of employment in Canada is changing. Life-long employment with a single employer is giving way to serial careers and self-employment as the more typical employment path for most Canadians.

ii - Global Knowledge-based Value Adding Industries

Wealth creation is shifting from a resource- to a knowledge-base.  The economy is increasingly dependent on the value added by brainpower and our ability to create, sell, explain and solve problems.  In future, wealth will come more and more out of our heads; less and less will it come out of the ground.  And the goods and services of our brainpower is being marketed in an increasingly competitive global village.

Competitiveness in a global knowledge-based economy involves more than inventiveness in the natural sciences and physical technology.  It involves innovation in culturally foreign marketplaces.  Sensitivity to foreign cultural values embodied in their arts, design, language, religion and life ways adds value to Canadian goods and services.  Thus the arts can add value to all Canadian exports through advertising, product design and marketing sensitive to differing cultural values.

By way of illustration, analysis of the input-output matrix of the U.S. economy reveals that 45% of the U.S. trade deficit with the rest of the world is in art-related goods and services, that is, in industries where, to quote economist Alfred Lord Marshall, "the pattern sells the thing".  In response to this `design deficit', the number of designers graduating from U.S. colleges and universities nearly doubled every ten years between 1940 and 1990.

While Canada is the most multicultural of all OECD countries, using two official languages and depending more on exports as a share of gross domestic product than any other, our economy is the least internationalized.  We trade mainly with the U.S. and Canadian employers generally do not require significant cultural skills or competency of their employees.  We seem unable to capitalize on our inherent competitive advantages.

Second, global free trade is eliminating the last barriers of the bipolar world of the Cold War.  But the price of one world is the threat of countervailing, actions if a country favours its corporations over foreign ones.   Accordingly, federal, provincial and local governments will be less able in future to use Crown grants of industrial privilege to enhance the competitiveness of any sector of the economy, including culture as evidenced by the U.S. taking Canada to the World Trade Organization disputing Canada's restrictions on Canadian split-runs of U.S. based periodicals.

iii - World-Wide Web

The world-wide web embodies four distinct sub-trends.  First, in the late 1960s the `information revolution' began. Information is discrete isolated facts.  Today, the world-wide web represents the next stage, the `knowledge revolution'. Knowledge is organized, retrievable information.  The information superhighway is lined with rapidly growing numbers of 'knowledge bases' of many different kinds fueling every field of human endeavour.

The second sub-trend involves consummation of a `digital' marriage of computers and communications.  Based on digital technology, the third subtrend involves conversion of text, numbers and images into a common format giving birth to a true multimedia - the world-wide web.  It is forecast that banking, broadcasting, libraries, motion pictures, music, shopping, video games, et al will soon reach homes and offices through the web.

The fourth and final sub-trend is towards dissolution of copyright territoriality. Copyright can be assigned, licensed or sold on a strictly geographic basis. The worldwide web, however, does not recognize borders. At present, there is no means to territorially restrict access to copyrighted works on the web.

iv - More New Rights

Granting new creator's rights over the last decade through the Copyright Act owes much to the attempted marriage of English and European legal traditions in Canada.  In general, such rights were justified as a fair and just reward to creators.

A new wave of rights, however, is being proposed by the federal government in Bill C-32 (currently before the House of Commons).  This wave, it would appear, will relieve Canadian educational institutions, libraries and archives as well as individual citizens from what many view as the onerous royalty burden imposed by the previous wave.  In general, newly proposed rights take the form of exemptions from copyright and are intended to benefit users, not creators.

Canada, it appears, is adopting the U.S. copyright concept of `fair use' of copyrighted works.  The Canadian tradition is called `fair dealing' and has been interpreted in a much more restrictive way.  By adopting this American tradition, the government proposes to exempt copying for personal use including home taping or research.  Such acts would no longer constitute an infringement of copyright. Similarly archival, educational and library copying for staff, students or private researchers, on the premises of an institution, would be exempt.

To compensate creators and corporate copyright owners, Bill C-32 proposes a royalty on blank audio recording tape and confirmation of selected `rental rights'.  Both measures would move Canada another step towards an integrated regime of rental rights for all audio-video and computer programming.

b) Exploratory Forecast

An exploratory forecast projects current trends and their interaction into a 'probable' future.  In this case, the trend towards market failure in bargaining between creators and corporate copyright owners will be projected in concert with the four trends just described.

With respect to the trend towards apprenticeship training and self-employment, the arts have traditionally maintained apprenticeship, master classes and mentorships as primary mechanisms for honing the skills and discipline of new members of the artistic professions.  Accordingly, increased public funding and joint private/public apprenticeship training can be expected in the arts.

This assumes, of course, that efforts of the federal Cultural Human Resources Council (CHRC or 'Church') and its provincial counter-parts succeed in selling the arts as a labour-intensive industry requiring limited capital investment per job employing a highly educated, motivated and well trained workforce with globally competitive skills.  Furthermore, CHRC must prove that art adds value, through design and marketing, to goods and services produced by all industries enhancing their competitiveness as global exports.

With respect to the trend towards self-employment, however, 12% of Census artists are self-employed.  They are second only to pensioners as the lowest paid occupational group recognized by Revenue Canada.

As more arts organizations close their doors or cut production in response to shrinking public supply-side support, self-employment for creators will probably grow. All things being equal, this will further depress the average income of self-employed creators.

With respect to the trend towards global knowledge-based value adding industries, this trend will eventually reveal artistic skill to be as important as scientific and technical skill in global competitiveness.  Style counts at the cash registers.  Men's and women's clothing stores are filled with increasing numbers of 'designer labels'.  Thus while physical production (cutting, stitching and packaging) may take place in China, Pierre Cardin's royalty cheques flow to France.

Intellectual property royalties are becoming the new liquid 'gold' of the global knowledge-based economy flowing between countries and regions and contributing to the wealth of nations.  In view of market failure between creators and corporate copyright owners, it is probable that through use of blanket licences most of this new wealth will fuel corporate growth and will not materially benefit the average creator.

With respect to the trend towards the world-wide web, the web will not become a viable economic institution (like the stock market) until copyright and creator's rights can be enforced voluntarily or by the coercive powers of the State.  'Backers' consider corporations (and many governments) as `fair game'.  This reflects, in part, the view on the web that copyright is a corporate `rip off.  Increasing use of blanket licences by corporate copyright owners, will make hackers feel even more `morally justified'.  The attitude of users is important because 'voluntary compliance' is the basis of the success of the Canadian Income Tax Act compared to Italy's.  Voluntary compliance by the vast majority of users is required if the web is to become an information superhighway for commerce.

Finally, with respect to the next wave of rights proposed in Bill C-32, the public will benefit somewhat; corporate copyright owners will grow fewer and larger; and, creators will lose sales. The proposals will probably aggravate the counter-intuitive policy outcome resulting from the last wave of copyright reform.

Consider the case of Sony, one of the big five. It manufactures blank tape and it manufactures recording equipment. It also owns many copyrights in many artistic disciplines. Accordingly, a major beneficiary of the proposed royalty on blank tape will be Sony. Canadian copyright collectives will probably ensure this global conglomerate corporate copyright owner gets its fair share of resulting royalties.

The prognosis is clear: market failure in bargaining between creators and copyright owners will be exacerbated by:

  •  increased apprenticeship training depressing the income of self-employed creators; 

  • a lag in recognizing the arts as adding value to all goods and services and enhancing their competitiveness as global exports; 

  • easy availability of copyrighted works on the world-wide web where copyright and creator's rights cannot be effectively enforced; and, 

  •  introduction of U.S. style `fair use' of copyrighted works for archival, educational and personal purposes.  This will reduce some royalties to be offset by new royalties on blank tape and rental of audio-video and computer programming.  These new royalties will, however, tend to benefit global corporate copyright owners, not the average resident creator.

On one side of the bargaining equation there will be more and more creators increasingly undercutting each other (at home and abroad).  On the other side, there will be fewer, larger and richer corporate copyright owners better positioned to fix and maintain a minimum price for the works of creators.

At the same time, the Copyright Act will grow ever more complex as government strives to satisfy the conflicting and changing interests of creators, corporate copyright owners, users of copyrighted works and economic (increasingly 'knowledge-based') policy: all of these interests carried on the back of a single statutory pony.


3. Prescription

The prognosis is bleak.  Market failure in the bargaining relationship between creators and corporate copyright owners will be exacerbated by current trends, and by reliance on a single increasingly complex Copyright Act intended to satisfy the interests of creators, corporate copyright owners, users and the public. This assumes, of course, that further public policy action is not taken.

For purposes of public policy prescription (i.e., directions for the composition, use and application of a cure) one starts at the source of the problem which, in my opinion, is the law.

a) The Law

In cultural economics, law is a cultural artifact evolving and mutating through a society's history.  Too often, however, it is viewed as absolute and eternal rather than culturally relative and mutable.  This tendency reflects, in part, the inherent conservatism characteristic of the law which responds but slowly to social change.  But respond it does.

The evolution of market capitalism went hand in hand with the changing legal definition of property and, hence, of what could legally be bought and sold.  Specifically, during the last two and a half centuries the legal definition of property has evolved from `physical things' towards `intangibles' and `rights'.

'Good will' in a going concern is an example of intangible property. Accountants now include good will in a business' balance sheet and sales price.  Similarly, shares in a `limited liability corporation' are a relatively recent form of property.  Emerging in the last century, they have had a dramatic effect on the growth and development of capitalism.  In the English tradition, this has been particularly important because of the legal fiction that a corporation enjoys the same rights and privileges as an individual human being.

Increasingly, one of the most important forms of intangible property is,, intellectual property rights (IPRs) including copyright.  Like other forms of law, IPRs are the cultural product of each nation's distinct history and traditions.  In fact, until the Uruguay Round of GATT which resulted in the formation of the World Trade Organization, intellectual property rights were not the subject of international trade negotiations. Rather, IPRs were subject to international conventions.  Such conventions require 'national treatment' but not harmonization of rights granted under different national legislation.  Thus each nation defines IPRs in its own way subject only, if such rights are the object of an international convention, to treating citizens and foreigners the same.

In Canadian copyright there are now three distinct `legal traditions' at play.   Effective public policy requires an awareness and understanding of the differing legal philosophies inherent in each.  Only then can an integrated and distinctive Canadian legal philosophy and definition of copyright be formulated.

First, there is the English tradition in which copyright is a monopoly granted to corporate copyright owners.  This monopoly can, in whole or in part, be bought and sold like any other good or service.

Second, there is the French or European tradition in which creator's rights are inherent in and inalienable from the individual human creator.  Thus the ability of corporate entities to exploit intellectual properties is limited.  In this regard, the U.S. position in recent GATT negotiations was that European-style creator's rights should be extended to corporate copyright owners.  The Europeans refused to accept the legal fiction that a corporate entity has the same rights and privileges as an individual human being. Canada, it appears, waffled between these two positions.

Third, there is the U.S. tradition in which copyright is subordinated to fair use.  Thus the U.S. grants liberal exemptions from copyright infringement to educational institutions, libraries and archives as well as to private users. Exemptions include the fact that there is no U.S. `Crown copyright'. Thus all copyrighted works of the Government of the United States and its agencies are in the public domain.

However, there is another strand to U.S. IPR tradition.  With the Manufacturers' Clause, the U.S. granted rights which were available exclusively to its own citizens.  This policy of national preferential treatment through exclusive IPRs has been continued through legislation outside of the U.S. Copyright Act.  For example, the Chip Protection Act provides copyright=like protection for the design of integrated circuit chips. Protection, however; is available only to U.S. residents.  Similarly, recent proposals before Congress for a new Industrial Design Act recommended that rights be granted only to U.S. residents.

In effect, the U.S. IPR tradition recognizes creator's rights as being broader than a single Copyright Act.  Further, the U.S. can escape inhibitions against preferential treatment of its corporate citizens under international copyright conventions by enacting such rights outside of the Copyright Act.

With respect to Aboriginal Heritage Rights, the U.S. has also chosen to grant rights outside of the Copyright Act.  The U.S. Congress has thus passed  converting native art and artifacts into `inalienable communal property'.  Public Law 101-601: The Native American Graves Protection and Repatriation Act of 1990 According to Clair Farrer, this will logically be extended to include the written and spoken word embodied in stories and sacred tales.  At the international level, however, UNESCO continues to dither over what it sometimes calls `collective' copyright.

In summary, U.S. legal tradition does not rely solely on the single statutory pony of the Copyright Act to carry the burdens of rewarding creativity and enhancing national competitiveness.

Effective Canadian economic policy in the emerging global knowledge-based economy requires a new blend of these different traditions both inside and outside of the Copyright Act.

First, in the European tradition, there should be inherent and inalienable creator's rights providing pecuniary benefits through time as and when a copyrighted work is exploited.  Such rights would raise income from creative self-employment.  They would also raise the `asset' status of the creator in the eyes of banks and lending institutions.  In turn, increased income and enhanced 'bankability' would thereby increase the bargaining power of creators.

Second, in the English tradition, new pecuniary creator's rights should not handicap Canadian corporate copyright owners in global competition with communications conglomerates of other countries.  Intellectual property rights are the legal foundation of the emerging global knowledge-based economy. However, under international law each nation can design and implement its own system of IPRs subject only to international conventions rather than the stricter provisions of free trade agreements like NAFTA and WTO.  Copyright provides the greatest degree of freedom in this regard because there is no utilitarian value underlying copyrighted works.  Copyrighted works are purely 'intellectual' in nature.

Third, in the U.S. tradition, new pecuniary creator's rights should be granted outside the Copyright Act to reward only resident creators. As free trade increasingly inhibits governments from making industrial grants of privilege to corporate citizens, governments will need to re-focus preferential economic developmental strategies on individual citizens. IPRs granted outside the limitations of international convention are one public policy alternative.  They can be justified as a form of job training - 'earning while learning while doing'.


b) Demand-Side Shuffle

In the identification of related trends, one remained implicit.  In the restructuring and re-definition of the public sector there is a trend shifting government away from the supply-side to the demand-side of the economic equation.  This trends reflects a number of inter-related sub-trends including:

- the global ideological triumph of market over Marxist economics; 

- the inhibiting impact of free trade agreements on governmental grants of industrial privilege especially direct subsidies; 

- populism in public policy debate which now assumes individuals know how to spend their money better than governments; 

- the shift from income taxation (a tax on work) towards consumption taxation including value added taxes; and, 

- the debilitating effect of deficits and debt on the viability of supply-side policies, that is, government is short of money.

One of the important demand-side roles of government is as 'rule maker'. This is the case with IPRs, especially for copyright.  A market for copyrighted works exists only because government says so.  Copyrighted works have no underlying utilitarian value or physical form permitting what in economics is called 'exclusion'.  Except by secrecy, one cannot lock up an image, sound or text.  Government creates the market for such intangible property by statute without which piracy would freely reign.

A demand-side policy approach must confront the following set of facts:

- corporate copyright owners are becoming fewer, larger and are exercising growing market power; recently granted and proposed creator's rights have been effectively extinguished by blanket licences imposed by corporate copyright owners; 

- users of copyrighted works including educational institutions, archives and libraries as well as individuals will benefit from proposed exemptions while creators will lose sales; 

- market failure results from government actions by reducing effective demand in exempting from copyright selected uses and users as well as granting monopoly power to corporate copyright owners; and, 

- compensation should, in the U.S. IPR tradition, benefit only resident creators and therefore should be granted outside of the Copyright Act.


c) Applicable Policy Instruments

What are the alternative public policy instruments available to mitigate market failure in bargaining between creators and corporate copyright owners?  Four instrument clusters can be identified. Each is deserving of in-depth policy research.  Some clusters carry direct costs to the public treasury; others do not. The four clusters are:

- consumer protection & moral suasion;

 - customs, excise & taxation; 

- fiscal measures; and, 

- provincial IPRs.

i - Consumer Protection & Moral Suasion

Consumer protection would appear to be a permanent part of the public policy branches of consumer policy relevant to the question at hand.  These are truth in advertising and product certification.

Truth in Advertising

Consider the 'starving artist sale'.  These, it appears, are part of a commercial traveling circuit moving into a community, advertising on local TV and in newspapers, selling in a local hotel, then moving on to the next community only to return in future to conduct yet another starving artist sale.  The 'original art works suitable for over the sofa or fireplace' are usually made in Hong Kong or Italy.  They are produced on an assembly-line with one artists doing the trees, another the people and so on.  Thus it would appear that production of 'low end' art or 'kitche' in Chinese and Italian cultures is on the same spectrum ranging from highest artistic achievement to black-velvetine Elvis.  Accordingly, many more artists are employed in their arts industries than in English cultures where waiting on tables and, driving cab is often considered superior to practical training and experience in 'kitchen art'.  The general public is not told in advertising for starving artist sales that the artists are foreign and the art is assembly-line.  While price may be the primary motivation, the public has a right to truth in advertising.  And, perhaps, for a small price premium, they repertoire, unlike some other areas of would prefer to buy local art and thus policy action.  There are at least two give work to local creators.


There is a growing movement towards trademarking and certifying locally made artwork.  In Quebec, for example, many hotels display 'provincial' artwork in guest rooms. Such works bear a provincially registered trademark.  This is also the practice of Inuit and other aboriginal artwork cooperatives.  The trademark serves to identify local artwork and to protect its good name with consumers.

There would be no direct cost to the public treasury other than advertising existing laws and practices. Civil action would be the primary legal mode of enforcement.

Moral Suasion

In economics, 'moral suasion' refers to the practice of central banks of convincing financial and lending institutions to take action without taking such action itself, e.g., raising interest rates.  Moral suasion can be used to inhibit use of blanket licences by corporate copyright owners and encourage recognition of creator's rights.

ii - Customs, Excise &Taxation

There are a wide number of public policy issues and instruments in this cluster including: dumping; amusement & value added taxes; quotas; and, personal income tax exemptions.


Under free trade, a country cannot sell a product abroad at a lower price than it sells at home, nor can it sell at less than the cost of production.  In international trade this is known as `dumping'. A customs tariff can be levied and other countervailing measures implemented against `dumped' products.

There is one exception to this prohibition - copyrighted works. For example, it usually costs about $1 million to produce an hour long TV program which can 'break even' in the U.S. domestic market. U.S. corporate copyright owners, however, then sell the product to foreign buyers not at the cost of production but at cost per viewer.  In economic terms, it is sold at marginal cost.  Accordingly, a TV program with million dollar production standards can be bought, for example by CTV, for $35,000.  Local production simply can not compete on price or quality.  To date, it appears that no country has successfully challenged this trade practice.

Restrictions on the sale of intellectual property across national borders do, however, exist.  For example, France imposes barriers against English language computer software.  If one enters Canada with a computer tape, tariffs are charged against the value of the physical tape.  If one enters France with the same tape, tariffs are levied on the value of its contents.  The policy rationale is this: if English computer software is sold at marginal cost in France, then equivalent French-language software will be under-cut and future development of French intellectual property stunted.

Amusement & Value-Added Taxes

In eastern Europe before the fall of the Berlin Wall, Western cultural products like notion pictures were available.  However, a 'garbage tax' was imposed.  Proceeds from the tax were used to support local production.  A variation is currently used in many U.S. States to cross subsidize local cultural production through a 'transitory occupancy tax' or hotel tax.

In France, an art work deemed 'pornographic' is not necessarily censored or banned.  Instead, a higher value added tax is applied.  This is similar to 'excise' taxes on 'bad' but legal products like alcohol and tobacco.

What many of these taxes share is that, under international trade agreements, import restrictions are permitted to protect 'public morals'.  An obvious example is in Islamic states which hold radically different values about the relationship between men and women, i.e., sexual social apartheid versus integration.

However, many Western nations have used public concern about sex and violence to restrict cultural imports from more 'liberal' countries, e.g., Sweden. An alternative to outright ban is a higher amusement or value added taxes on 'immoral' works, e.g. triple 'X` videos.  Proceeds could be used to increase employment opportunities for local live artists or fund special IPRs exclusively available to local creators.

Paralleling the French practice of a higher value added tax on `immoral' goods and services, a lower rate could be applied or a rebate paid for consumption of `merit' goods and services such as works of resident creators.


Quotas are limits on the volume of imports. First introduced in 1930 by the Government of France as a means of increasing wheat prices for farmers, quotas quickly displaced tariffs as the favoured instrument of trade protection. At about the same time, France introduced quotas on the exhibition of foreign films to increase production of French motion` pictures.  Other European countries quickly followed.  After World War II, Article IV of the 1947 GATT agreement legitimized such exhibition quotas.  Canada could have exercised this provision.  Instead, the Government of Canada in 1949 came to an understanding that in return for no quotas on American motion pictures, a campaign of promoting tourism to Canada by Americans would be conducted by the Hollywood studios.

In 1989, the Commission of the European Community extended quotas to TV programming.  In many ways, this quota system is similar to that used in Canada.  EC TV quotas are designed to reserve time in each member state for programming from other member countries.  Canada, through its co-production agreements with France, has so far managed to have its programming exempted from the EC quota.

Historically, the USA used the Manufacturers' Clause (effectively a zero quota) to prohibit importation of English language books manufactured abroad. Canada applies quotas to TV programming but not to books or magazines.  An exception is the recent 'split run' quota applied to Canadian editions of U.S. magazines. In effect, the split run quota is a prohibitive tariff.  The U.S. is disputing the Canadian split run policy through the trade settlement mechanism of the World Trade Organization (WTO).  As well, at the provincial level, Quebec exercises a provincial quota system.  Major motion pictures can be released in English only if French-dubbed versions are made available within a specified time.

To deal with the enormous Canadian trade deficit in cultural goods, it has been suggested that an 'Auto Pact' type agreement be developed at the national and/or provincial level. Governments could exercise moral suasion on global corporate copyright owners to invest a specified share of local earnings on cultural product development or job training before repatriating profits from a jurisdiction.  The scheme could extend to manufacturers of home entertainment equipment, most of which are foreign-made.  This market is also dependent on copyrighted works.

Income Tax

On the other side of the tax equation, the Republic of Ireland (Eire) exempts copyright income earned by resident creators from income taxation.  The exemption applies only to individual, not to corporate creators.  The result has been an influx of creative talent who pay sales and other taxes offsetting the direct tax expenditure to the public treasury.  In addition, the presence of such talent enriches the cultural as well as the economic life of the country.

iii - Fiscal Policy

In economics, fiscal policy involves direct spending by government - both budgetary and non-budgetary, e.g., lottery revenues.  Such spending can target either the supply-side, e.g., subsidies to producers to increase supply, or the demand-side, e.g., lowering the price of goods and services to consumers or 'topping up' the price received by creators or producers.

Demand-side cultural economic policies can thus take two forms.  With respect to consumers, vouchers, in one form or another, can be given to consumers to reduce the price of selected goods and services. In economics, vouchers are consonant with 'consumer sovereignty'.

With respect to creators or producers, government spending can compensate creators and producers for lack of effective demand.  This can result from the small market size for goods and services the domestic production of which is judged important to the public interest.  Lack of effective demand can also result from direct government action, e.g., setting rates for regulated goods or services such as telephone or cable charges to ensure they are available to low income citizens.

Vouchers have been recommended by some policy analysts for application in education.  They have, in fact, been used in cultural policy.  For several years in the late 1970s and early '80s, the Ontario Lottery Corporation offered a voucher in the form of applying 50% of the face value of losing OLC lottery tickets against the purchase of, or admission to, Canadian books, motion pictures and live performances. It was very successful in stimulating sales of works by Canadian creators. At a 50% discount, however, it became too expensive for the OLC to maintain.

Demand-side measures can also be justified as a means to mitigate the effects of market failure on creators.  The economic rationale for doing so is threefold.  First, 'effective' demand and hence price to a creator is lower than market demand.  This difference results from actions taken by government in the public interest, e.g. by exempting some uses such as home copying and some users such as archives, educational institutions and public libraries and by granting monopoly powers to corporate copyright owners. The public and corporations win; creators lose sales.

Second, free trade inhibits all governments' ability to subsidize or otherwise favour its own corporate producers.  In a knowledge-based economy, however, the individual creator in both the arts and sciences is at the root of future economic growth. Raising effective demand for creative works and hence the price paid to creators can be designed to escape inhibitions of trade agreements.

Third, demand-side measures can be rationalized as a form of job training earning while learning while doing.  Raising the effective demand for creative works encourages creators to refine their skills and discipline - practice makes perfect.  In turn, this increases the chances of a 'block buster' emerging during the life of a creator.  In the visual arts, for example, it often takes fifteen to twenty years for a painter such as Alex Coleville to perfect one's art.

iv - Provincial IPRs

Perhaps not surprisingly, the first province to grant IPRs exclusively available to its own creators was Quebec.  In part, this reflects Quebec's Civil Code tradition even though copyright is a formal federal responsibility. It also reflects the acute sensitivity of Quebec to what has become a watch word for the entire country - cultural sovereignty.  And partially it reflects the fact that many Quebec singers and musicians were and are fleeing the province for France where royalties are higher and superior creator's rights are available making it a more appealing jurisdiction.

Quebec initiatives moved to Ottawa beginning when Marcel Masse became Minister of Communications (now Heritage Canada or Patrimonie Canada).  In 1986 Civil Code creator's rights were granted under the Canadian Copyright Act. Masse also initiated design of the Status of the Artists Act.

This confirmed his vision of Canada as a bilingual and bi-cultural but also - with respect to creator's rights - a bi juridic country.  A broader more encompassing vision, however, is a bilingual, multicultural and tri-juridic Canada allowing for aboriginal legal traditions such as 'sentencing circles' as well as Aboriginal Heritage Rights or what UNESCO calls collective rights.

While the Copyright Act is a national responsibility, provinces and states can and have taken action to correct market failure in bargaining between creators and corporate copyright owners.  Precedents include Quebec's Status of the Artist Act as well as rights of following sales granted resident visual artists in California and New York States.  These constitute `outside rights', i.e., rights granted outside of the Copyright Act.

Such rights should be qualified.  First, they should be natural rights inherent in and inalienable from the creator.  Therefore, they would be nontransferable, by contract or blanket licence, to corporate entities.  Such rights would reflect a fundamental distinction between individual income and corporate income for purposes of the Income Tax Act.

Second, they should endure only during the lifetime of the creator. As with patents and other IPRs (excepting trademarks), limitation in time is a common feature of both English and European traditions.  There would, however, have to be an exception: Aboriginal Heritage Rights.  AHRs should be limited in accordance with legal traditions of the separate and distinct aboriginal nations.

Third, royalties should be `capped' limiting how much any one creator can collect, so that benefits are available to all creators not just the rich and famous.

Fourth, new rights should be granted only to resident creators.

Fifth, they should be granted in recognition that market failure in bargaining between creators and corporate copyright owners results, in part, from reduction in effective demand for creator's works caused by exemptions granted by government to selected uses and users and by the grant of monopoly powers to corporate copyright owners.  Recognition would also shift perception of public support of the arts from 'welfare' to 'workfare' or even 'work fair'.

Potential outside rights to be granted by a province and available exclusively to its own resident creators include:

- Aboriginal Heritage Rights granting standing in court to aboriginal nations with respect to appropriation of their intellectual property; 

- Public Exhibition Rights to compensate public galleries and museums for administration of, and royalty payments for, exhibition rights to resident creators; 

- Public Lending Rights for works of resident creators borrowed from public libraries. Provincial rights could be coordinated with the national Public Lending Rights Commission housed in the Canada Council;

- Rights of Following Sale for works of resident creators in all disciplines. A work sold early in a career for a low price would thus generate ongoing income to the creator on subsequent re-sale of the work;

- Status of the Artist legislation strengthening collective and individual bargaining rights of creators; and, 

- Tax Exemption of copyright income earned by resident creators.

d) Normative Forecast

Economist Gilles Paquet has suggested that intellectual property rights (IPRs) can play a nation-building role in 21st century Canada similar to that played by the Canadian Pacific Railway in the 19th.  A first step in fulfilling the potential of Canadian IPRs is recognition of market failure in bargaining between creators and corporate copyright owners.  Such recognition provides a political economic (or ideologic) rationale for granting preference to resident creators.   

First, it recognizes as `natural' certain inherent and inalienable creator's rights.  This fits with the `liberal' democratic tradition that projects free, fair and competitive markets as the most effective means to the greatest economic good for the greatest number of citizens. 

Second, use of creator's rights as a national and provincial economic policy escapes trade inhibitions against preferential treatment of corporate citizens, e.g. subsidies.  International law recognizes creator's rights as arising out of the unique legal history and tradition of a nation, e.g. there is a distinctive Islamic copyright legal tradition.  National treatment, not harmonization of the law, is the test of compliance with international standards.   Furthermore, each country retains the right to exercise the `morals clause' contained in most international trade agreements.

Trade agreements do, however, permit public support of education, training and skill development of individual citizens. It can be argued that public payment of royalties for creator's rights available exclusively to resident creators constitutes a form of earning while learning by doing.  Furthermore, resident creators are the spark plug of the globally competitive knowledge-based economy.

Third, the United States provides precedent for the use of IPRs to achieve national objectives.  From before the 1891 Manufacturers' Clause of the U.S. Copyright Act requiring until the late 1980s that all English language books sold in the U.S. be printed in the U.S. to the Chip Protection Act of today which protects only U.S. chip designs, the United States has traditionally used IPRs to preferentially benefit resident creators and corporate copyright owners.

In international debate, the U.S. has always asserted every nation's sovereign right to control its communications networks and cultural policies.  Rather it insists that cultural exemptions in international agreements apply only to production of materials reflecting the specific traditions and cultures of its trading partners.  The U.S. only objects to measures intended for industrial purposes under the pretext of protecting cultural sovereignty.  Furthermore, within the U.S. itself, creator's rights have been granted, outside of the Copyright Act, by several States, to the exclusive benefit of resident creators

There thus exists a rationale and a set of policy instruments for any nation or province to actively mitigate market failure in bargaining between resident creators and global corporate copyright owners.  But why should the public sector do so?

In a global knowledge-based economy, the competitiveness of any jurisdiction will increasingly depend on how effective it is in cultivating, educating, training and retaining creators.  Their intellectual property constitutes the building blocks of this post-modern economy.  How much is one Edison, Agatha Christie, the Beatles or Armani worth to a local, regional or national economy?  Economic policy will increasingly become 'knowledge' policy and successful knowledge policy must begins with the creative design and development of appropriate IPRs.

The next century will witness a shift in local, regional and national economic policy away from industrial tax havens of the 1960s, '70s, '80s and '90s.  Such industrial strategies aimed at attracting capital intensive often, `smokestack' industries through costly tax concessions.  The exercise has degenerated into one jurisdiction trying to outbid others by the scale of their tax concessions.  The 21st century will see a shift to a labour-intensive 'creativity haven' strategy aimed at cultivating, promoting, rewarding arid retaining talent as well as attracting the best minds from afar.

A community, province or nation in which a creator's rights are respected and fairly rewarded will be the place where 'the talent' of the 21st century, in the arts and sciences, will want to live and work and to which royalty cheques will flow.  The first step toward such a creativity haven is public and political recognition of market failure in bargaining between creators and, corporate copyright owners.



Prescription #1

It is recommended that the Canadian Copyright Act should be recognized as embodying an unworkable mix of three distinct and conflicting copyright traditions - English, European & U.S.  Furthermore, it gives no recognition to Aboriginal Heritage Rights.  Effective Canadian economic policy in the emerging global knowledge-based economy requires a new blend of these traditions both inside and outside of the Copyright Act.

Prescription #2

It is recommended government give recognition to this shift from a supply-side to a demand-side cultural economic policy.  Traditionally, public cultural economic policy has focused on supply-side grants of money and industrial privileges, e.g. broadcast and cable licences.  The movement towards a demand-side policy paradigm should be extended to the arts industries.  This should, however, be done without diminishing viable (in fiscal and trade terms) existing supply-side programs.

Prescription # 3

It is recommended that consumer protection laws, specifically truth in advertising and product certification, be extended to works of resident creators in all disciplines. Further, government should use moral suasion to inhibit use of blanket licences by corporate copyright owners to extinguish subsequent creator's rights.

Prescription #4

It is recommended that customs, excise and tax policies be used to compensate for market failure in bargaining between creators and corporate copyright owners.  Further, it is recommended such measures be implemented in recognition of the fact that effective demand for the works of resident creators has been reduced by government action in exempting selected uses and users from royalties (in the public interest) and granting corporate copyright owners monopoly powers.

Prescription #5 

It is recommended that the provinces design and implement their own integrated set of intellectual property rights available exclusively to resident creators. In some cases public payment of royalties would be made directly to resident creators.

Prescription #6 

It is recommended that demand-side fiscal policies be developed to mitigate market failure in bargaining between creators and corporate copyright owners.  Measures could include public payment of IPR royalties available exclusively to resident creators and vouchers available to consumers exclusively redeemable against the purchase of works by resident creators.