The US economy, beset by a host of problems, faces a new one with the potential for grave consequences, according to author Michael Heller.
In his new book, The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives Heller argues that too much ownership, or overuse, of various resources leads to economic paralysis.
It's a paradoxical idea, because underuse or monopoly use of a resource also can cause economic problems, while a third alternative, governmental control, wreaks its own economic havoc.
But for readers who can work through Heller's hypothesis (and 43 pages of footnotes), the book offers a new way to look at economic issues.
The term gridlock was first used to describe the domino effect caused by one blocked New York City intersection creating backups that clog other intersections, leading to standstill traffic on Manhattan's street grid.
Under Heller's theory, the city's traffic control system, which keeps cars moving when only a few autos use it, turns into a disaster when too many do.
Heller, a professor of real estate law at Columbia Law School, takes this simple observation and applies it to economic problems that appear to be intractable.
For example, he cites pharmaceutical companies' difficulty in getting new products to market – not because of a lack of innovation, he argues, but because of the thicket caused by competing patents and patent owners.
Or he says that US air travel – before the oil spike – is stumbling for the lack of 25 runways that can't be built anywhere because too many individuals own the land needed for the projects and have bottled up the process.
Applying his theory to the sub-prime mortgage crisis, he notes that one reason a solution is so difficult is that mortgages, which used to be owned by the bank or loan company that made them, have been divided up and sold to so many different investors that no one has strong incentives to approve the restructuring of individual loans.
But, Heller says, solutions are possible, once people realise that "gridlock is a human creation that does not follow from any immutable laws of nature".
"It is an artifact of ownership gone awry," he says.
Using the example of the drug companies unable to create new medicines because of patent issues, he suggests a deal that would let society "protect drug makers' ability to earn a profit" if they stop "blocking reforms that high tech innovators (including drug developers) need so they can fairly and efficiently assemble multiple patents into valuable new products."
The key to fixing gridlock, Heller says, is spotting and understanding it.
"Fixing our gridlock economy is a worthy and noble goal," he writes. "By doing so, we can jump-start innovation, save millions of lives, and unleash trillions of dollars in lost productivity."
A brief insight
Michael Heller is one of America's leading authorities on property. He is a Professor of Real Estate Law at Columbia Law School and lives in New York and Los Angeles. Through research he has discovered a market dynamic that no one knew existed. Usually, private ownership creates wealth, but he believes too much ownership has the opposite effect.
The book looks at why, among other things, 25 new runways – that would alleviate air travel in America – have not been built. Why 50 patent owners are blocking a major drug maker from creating a cancer cure. And why 90 per cent of broadcast spectrum sits idle while the US phone service lags far behind Japan and Korea's.
-- Gridlock; Michael Heller is available to order from Magrudy's. Call: 04 344 4192