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Cambridge Journal of Economics 2009 33(4):665-683; doi:10.1093/cje/bep033
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© The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

This article appears in the following Cambridge Journal of Economics issue: Special Issue: The Global Financial Crisis [View the issue table of contents]

The crash of the knowledge economy

Ugo Pagano and Maria Alessandra Rossi*

* University of Siena and CEU and University of Siena, respectively

Address for correspondence: Ugo Pagano, Department of Economics, University of Siena, Piazza San Francesco, 7, 53100 Siena, Italy; email: pagano{at}unisi.it

This paper advances the hypothesis that some of the roots of the present crisis are to be found in the present institutions of the knowledge economy. While protectionism is seen as a possible dangerous outcome of the crisis, the extent of protectionism inherent to the strengthening and globalisation of intellectual property rights (IPRs) associated, in particular, with the signing of the Trade-related Aspects of Intellectual Property Rights agreement is not generally perceived as one of its possible causes. Indeed, IPRs have acted as ‘super-tariffs’. They have particularly raised the cost of investments for countries that had neither abundant cheap labour nor high amounts of intellectual property resources. Moreover, IPRs may have later exerted negative effects even on IP-rich firms, as the proliferation of conflicting rights has led firms to increasingly inhibit each other's investments. The resulting investment strike has manifested itself as a saving glut and has mainly affected the USA in a situation aggravated by inadequate regulations. If intellectual monopolies are one of the causes of the crash, the remedies should not only focus on monetary policy, financial regulations or even on standard Keynesian policies. Aggregate demand stimulus should be coupled with policies that decrease the level of intellectual monopolisation of the economy.

Key Words: Intellectual property rights • Economic development • Keynesian multiplier

JEL classifications: O34, O12

Manuscript received April 1, 2009; final version received May 17, 2009.


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