Hot Property: The Stealing of Ideas in an Age of Globalization

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9780375402128: Hot Property: The Stealing of Ideas in an Age of Globalization
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The problem of pirating and counterfeiting has grown from small-scale imitations of Levi’s jeans and Zippo lighters to a phenomenon that costs the United States an estimated $200 billion dollars per year. Pirated DVDs, computer software, designer clothes, and machinery flood global markets, inflicting heavy losses on U.S. businesses, while counterfeit medicines, auto and aircraft parts, and baby formula regularly cause fatalities around the world. The theft of artistic and scientific creation is draining our economy. It is the great economic crime of the twenty-first century.

Pat Choate, the author of the best-selling Agents of Influence, examines the roots of conflicts over intellectual property and how the establishment of patent and copyright protections helped propel the American economy. He interweaves the stories of Eli Whitney, Alexander Graham Bell, and Thomas Edison to illustrate how the United States transformed itself from a largely agricultural society into a manufacturing, scientific, and technological superpower, giving rise to further copyright and patent protection laws. He traces the emergence of Germany, Japan, and China as rivals to American primacy through copying, counterfeiting, and underpricing American products and media. He reveals the shockingly meager effectiveness of current efforts to defend American businesses, inventors, and artists from corporate espionage. And he sounds a powerfully convincing warning that the general indifference of our government toward the security of American intellectual property is already affecting job security and the economy in general (an estimated $24 billion is lost each year to pirated films, music recordings, books, and other merchandise in China alone).

Hot Property is an impassioned, clear-eyed, and sound assessment of one of the most serious problems facing the American economy today, certain to be one of the most widely discussed books of the year.

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About the Author:

Pat Choate is also the coauthor of The High-Flex Society; America in Ruins; Being Number One; and Save Your Job, Save Our Country with Ross Perot. In 1996, Ross Perot selected him to be his vice presidential running mate. He lives with his wife outside Washington, D.C.

Excerpt. Reprinted by permission. All rights reserved.:

Chapter 1
The Golden Covenant


Manhattan’s 30,000 citizens were awakened on the morning of April 30, 1789, by the roar of cannons. But this day the gunfire was not for war, but to celebrate George Washington’s inauguration as the first president of the United States.

Soon after 10:30 a.m., the president-elect, led by a joint congressional committee, appeared in Lower Manhattan at Federal Hall (formerly City Hall), which was serving as the new nation’s temporary capitol. Washington was dressed in a brown suit of homespun broadcloth—a gift from the Hartford Woolen Manufactory, a small mill in Connecticut. Before the Revolutionary War, this wealthy Virginia planter had had his suits made of silk and velvet by London’s finest tailors. But now he wore a simple American-made suit—his personal gesture of support for domestic manufacturing. Yet the new president’s appearance was far from drab. His suit was adorned with brass buttons embossed with the new national symbol, the bald eagle, and his cuffs had a row of studs, each marked with thirteen stars, symbolizing the founding states. Washington’s overture was widely noted in the nation’s newspapers, which reported that everything he wore that day had been made in the United States.

George Washington’s support of domestic manufacturing was not some passing political sop to a special interest group. Rather, his position had been forged by eight hard years of Revolutionary War experiences and huge debts to European suppliers and financiers.

Several times, Washington’s army almost lost the war because ammunition was in short supply. In the first year, soldiers often went into battle with no more than nine cartridges each. At the battle of Bunker Hill, the Americans quickly ran out of ammunition, finishing the fight by clubbing the English troops with the butt ends of their muskets. Thousands of Washington’s troops spent the winter of 1777–78 at Valley Forge, Pennsylvania, with no shoes for their feet, few clothes, and not enough blankets to keep out the cold. In a letter dated December 23, 1777, a desperate Washington wrote to the Continental Congress that he had “no less than two thousand eight hundred and ninety-nine men in camp unfit for duty, because they are barefoot and otherwise naked.”

From the beginning of the war, Washington’s army lacked guns, gun- powder, rope, sails, shoes, and clothes, among many other military necessities, largely because Great Britain had long prohibited most manufacturing in its American colonies. Instead, the mother country restricted colonial production to timber, furs, minerals, and agricultural goods. Thus, the U.S. economy was overwhelmingly agricultural when war came, with more than 94 percent of the population living on farms. After independence was declared, the new nation had to buy its war matériel from the Dutch, French, and other European suppliers, and do that largely on credit. Any nation that sold goods to the American colonials risked a conflict with Britain, then the world’s foremost military power. And when British leaders said they would hang any of the revolutionary leaders they captured, the threat was real, making government service a bit riskier than it is today.

In late 1776, a distressed Continental Congress sent Benjamin Franklin, the best-known American, to Paris to seek French support and goods. His list of purchases in 1777 illustrates just how little manufacturing capacity America had. He bought 80,000 shirts, 80,000 blankets, 100 tons of powder, 100 tons of saltpeter, 8 ships of the line, muskets, and 100 fieldpieces. Then Franklin arranged for smugglers to carry the goods across the Atlantic Ocean in a 4,000-mile, three-month journey to St. Eustatius, a Dutch island in the Caribbean, where smugglers received the supplies and slipped them through the British naval blockade and into the colonies, a 1,400-mile trip that consumed another five to six weeks.

For eight years, Washington and the Continental Congress struggled to obtain enough materials for their troops. By war’s end, the need for U.S. military and industrial self-sufficiency was seared into their consciousness. For Washington, wearing a plain brown suit of American-made broadcloth on Inauguration Day was a small sacrifice that sent a large message to his fellow citizens.

Before taking office, Washington informed Thomas Jefferson, the man who would soon be secretary of state, that the development of manufacturing and inland navigation would be his greatest concern as president. As the historian Doron S. Ben-Atar reveals in his 2004 book Trade Secrets, Washington was a strong proponent of importing European technicians, and in his first State of the Union message, he also encouraged the introduction of foreign technology. In his many speeches, Washington “voiced the widespread expectation that the federal government would devote its energies to industrial development.”

After assuming the presidency, Washington and the Congress moved quickly to reduce America’s dependence on other nations for its national security needs. Action was imperative, because as the Revolution’s leaders had seen, today’s allies often become tomorrow’s enemies. In that quest for self-sufficiency, Washington turned to Alexander Hamilton, a loyal, brave, and brilliant aide who had led a bayonet attack at Yorktown. Far more foresighted than most of his contemporaries, Hamilton envisioned an economic and political structure for a post-Revolution America. When Washington appointed him secretary of the Treasury, Hamilton was ready with recommendations. In January 1790, he presented Washington and Congress a white paper titled “Report on Public Credit,” which outlined the actions necessary to make the new nation appear creditworthy to foreign investors, including a controversial recommendation to pay off all the state debts incurred during the Revolution. At almost the same time as it received Hamilton’s credit report, Congress ordered him to prepare a report on manufactures that would “render the United States, independent on foreign nations, for military and other essential supplies.”

On December 5, 1791, Hamilton submitted to Congress his “Report on Manufactures,” which outlined why and how the United States could achieve economic equality with Europe and an industrial self-sufficiency. Building a strong U.S. industrial base, he wrote, “ ’tis the next great work to be accomplished.”

To become a true equal of Europe, Hamilton proposed that the United States follow Europe’s lead and erect a tariff wall behind which the American market could develop and American manufactures could prosper. This, he argued, was the only way to confront Europe’s manufacturing subsidies, its high tariffs on U.S. imports, and its repeated pattern of dumping goods at artificially low prices in the U.S. market to kill America’s infant industries. Without his proposed actions, American manufacturers could never compete fairly, either in Europe or in their own domestic market, Hamilton reasoned.

Behind this tariff wall, the government could provide the protections of a strong patent system, giving inventors and investors a government-guaranteed right to the exclusive use of their innovations for a fixed period. To accelerate national development, Hamilton also wanted to encourage the migration of skilled foreign workers to America. They would bring badly needed abilities and state-of-the-art technology to the new nation. In his report, Hamilton commented favorably on the actions of Samuel Slater, a twenty-one-year-old mechanic who in 1789 had slipped out of England with one of the British textile industry’s crown jewels: the secret of how to build and operate a machine that could spin cotton and wool into thread.

Hamilton’s message to potential immigrants was loud and clear: bring your nation’s industrial secrets to America, gain citizenship, get a patent, be honored, and become wealthy.

One irony of the American Revolution is that most of its leaders were Anglophiles. In the French and Indian Wars, Washington sought a regular commission in the British army but was rejected because of his colonial status. Franklin was the delight of London society until he defended the colonists’ rights. And in the years leading up to the Declaration of Independence, Jefferson, Madison, and Monroe, among other revolutionary leaders, thought of themselves as loyal British citizens and sought a course that would allow the colonies to remain a part of Britain.

Even after the Revolutionary War, with all the bitterness it generated, many English traditions and assumptions remained embedded in the hearts and minds of Americans. One of those fundamental notions was that patent and copyright protections encouraged innovation and national development. The appeal of those ideas is understandable, in part because they had an extended history. By the late 1700s, Britain had the longest continuous patent tradition in the world, one whose origins traced back to 1449, when Henry VI issued John of Utynam a letter patent (an open letter with the king’s seal) granting the Flemish glassmaker a twenty-year monopoly on the process that produced the windows at Eton College. In exchange, the foreign glassmaker was required to teach English artisans his process.

As former subjects of the English king, the newly minted Americans were familiar with the doctrine of the public interest, as incorporated into Britain’s Statute of Monopolies (1624). It gave a fourteen-year monopoly to “the true and first inventor” of new manufactures—a law in effect for more than 150 years before the American Revolution. Likewise, the colonists were familiar with Britain’s copyright law, the Statute of Anne, which was enacted in 1710. Under that act, the monopoly power of publishers was weakened and t...

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