Industrialization Without National Patents: The Netherlands, 1869-1912; Switzerland, 1850-1907 9781400871001

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INDUSTRIALIZATION WITHOUT NATIONAL PATENTS

Indus trialization without National Patents

THE NETHERLANDS, 1869-1912 SWITZERLAND, 1850-1907

By

ERIC SCHIFF

PRINCETON UNIVERSITY PRESS 1971

Copyright © 1971 by Princeton University Press All Rights Reserved

LC Card: 71-120761 ISBN 0-691-04197-0 This book has been composed in Linotype Times Roman Printed in the United States of America by Princeton University Press, Princeton, New Jersey

Contents

PREFACE

1. INTRODUCTION Patents and the Pace of Industrial Development What Type of Approach Is Promising? How the Historical Record Has Sometimes Been Summarized The Approach To Be Tried in This Study

ix 3 5 7 9 14

PART I. THE NETHERLANDS, 1869-1912 2. HISTORICAL BACKGROUND The Old Patent Law Pecularities of the Situation between 1869 and 1912

21

3. INDUSTRIAL DEVELOPMENT IN THE NETHERLANDS, 1870-1914 Controversial Evaluation A Few Statistical Indicators What of the Patent Situation? Geography, Commercialism, Traditionalism The Patent Situation Again

25 25 29 34 35 39

4. INVENTIVE ACTIVITY BEFORE AND AFTER 1912

19 19

Outlining the Approach Some Preliminary Observations Applications or Grants? The Evidence A Tentative Conclusion

42 42 43 45 46 51

5. Two DUTCH INDUSTRIES DURING THE PATENTLESS PERIOD Margarine Historical Background

52 52 53 V

CONTENTS The Infant Industry and the Patent Situation Rapid Expansion, Some Secrecy, But Steady Technological Progress Incandescent Lamps Two Patent Situations Compared The Other Side Concluding Remarks on the Two Industries 6. DISCUSSIONS PRECEDING THE REINTRODUCTION OF A PATENT SYSTEM The Debate General Characteristics Groups Participating Is Imitation As Such Unethical? Imitation and National Pride "Group Invention"-An Issue Two Generations Old The Argument That Finally Proved Decisive

53 56 58 59 63 67 69 69 69 71 73 75 76 77

PART II. SWITZERLAND, 1850-1907 7. HISTORICAL BACKGROUND Constitutional Difficulties The Controversy of the 1880s "Moral" and Political Pressures The Patent Issue and Industrial Progress From 1888 to 1907 8. INDUSTRIALIZATION IN SWITZERLAND DURING THE P ATENTLESS ERA Natural Conditions A Glance at Some Industries What of the Patent Situation? Development of Industry Retarded by Absence of Patent Law? Development of Industry Helped by Absence of Patent Law? 9. INVENTIONS AND THE PATENT PROBLEM Inventive Activity in Switzerland During the PatentIess Period Great Swiss Inventions: Producers' Goods

vi

85 85 87 88 91 93 96 96 98 101 102 104 107 107 108

CONTENTS

10.

Great Swiss Inventions: Consumers' Goods The Impact of the Legislative Change of 1907 Limitations of Data Swiss Patent Activity Before and After 1907 The Evidence with Respect to Inventions

110 112 113 114 117

CONCLUDING OBSERVATIONS

121

Industrial Progress in the Absence of a National Patent System Patents and Inventive Activity Unilateral No-Patents Policy and "Rules of the Game"

122 123 124

ApPENDlX

127

INDEX

131

vii

Preface

In the controversies on the effects of a national patent system on a nation's industrial development, two questions have always been in the foreground: (I) Does the prospect of a temporary monopoly on inventions appreciably broaden the flow of industrially and commercially useful inventions, or are other motives so much more important that the presence or absence of that prospect does not make any appreciable difference? (2) Assuming that a patent system does significantly broaden the stream of inventions, does it follow that the system accelerates the pace of actual progress in industrialization and industrial technology? The answer is not self-evident, for it is at least conceivable that in the absence of patent monopolies the use of such inventions as are forthcoming would spread more rapidly. If so, we have two counteracting tendencies, and no a priori reasoning can tell us which of them has more weight in the net effect on the progress of industrialization. The present study attempts to shed some light on both questions from an empirical and historical angle. During several decades of an era in which industrialism was advancing swiftly on both sides of the North Atlantic, two European countries, the Netherlands and Switzerland, had no patent laws-the only industrial nations without such laws at that time. This seemed to offer a chance to contribute some empirical material, relevant for the two questions, by comparing industrial developments in the two countries during their patentless periods with simultaneous developments in patent-

ix

PREFACE granting countries and with developments in the same two countries after they, too, had adopted patent laws. In the framework of a historical survey it seemed convenient to focus the analysis first on the overall rate of industrial progress. Here the analysis is mainly descriptive, with some statistical material added incidentally. A separate chapter in the section on the Netherlands discusses in brief outline the initial phases of two important industries whose birth and early growth in a country without patents elucidates some special aspects of our topic. The material presented with a view to the question of patent protection as a stimulus to inventive activity is partly descriptive and partly statistical, using data on annual patent applications and patent grants in several countries during various periods. In both countries surveyed, the eventual introduction of patent systems was preceded by prolonged and often heated controversies, some of which seemed sufficiently interesting to be briefly recorded in the essay. Concerning the importance of the presence (or absence) of a national patent law for the progress of industrialization in general, the answer suggested by the historical survey presented is about the same for both countries examined. The same cannot be said with respect to the other question, the impact of a national patent system on the volume of inventive activity in the homeland. Here the evidence marshalled in the study suggests one answer for the Netherlands and a different one for Switzerland. Admittedly, the result of the study in this particular respect is thus somewhat less conclusive than might be desired. But this must not prevent the analyst from presenting the evidence as he sees it. And it is believed that, even with a dual answer, the analysis of the historical record has its relevance for our thinking about the problem. Besides, if the evidence and the suggested interpretation is accepted, the dual answer might become a chal-

x

PREFACE lenge for further research. Some students of economic history specifically interested in the role patents have played in the past as incentives to invention, may wish to search for explanations of the observed difference. The study was part of a large project, directed by Professor Fritz Machlup over a period of ten years, financed by funds granted to Princeton University by the National Science Foundation, the Ford Foundation, the Rockefeller Foundation, and the Relm Foundation. I am grateful to these grantors. My most heartfelt thanks go to Professor Machlup. The encouragement he gave me in all phases of the work, his unfailing willingness to discuss all questions that came up, the ideas and suggestions he offered in numerous conversations and letters, all this has been of greater help than I can adequately describe in these few lines. My best thanks are also due to Dr. Peter W. Klein (Gouda, Netherlands), who read an earlier draft of the section on the Netherlands, and has made valuable suggestions. Finally, I wish to thank Mrs. Mary B. Fernholz, Professor Machlup's secretary at Princeton University, who typed the manuscript and was exceedingly helpful in solving quite a number of technical problems. Eric Schiff Washington, D.C., April 3, 1970

xi

INDUSTRIALIZATION WITHOUT NATIONAL PATENTS

1. Introduction

In decades gone by, advocates of the patent system have relied on a variety of arguments. More recently, one argument has come to overshadow all others: the proposition that patents, by stimulating invention and innovation, promote industrial growth and thus contribute decisively to general well-being. "Property rights" of the inventor on his invention are still being talked about, but usually in the framework of the idea that in the public interest it is good policy to grant the inventor a privilege that can be thought of as a property right. The old doctrine that an invention gives its originator a natural property right fully analogous to ownership rights on physical property is virtually dead in learned circles. 1 The "contract theory," according to which the patent grant represents a compensation that the community owes the inventor in return for disclosing the invention, is not often invoked nowadays. This is partly so because, in many in1 It has also been forcefully rejected in a recent United Nations document, The Role of Patents in the Transfer of Technology to Developing Countries, Report of the Secretary-General, United Nations, New York, 1964, p. 9: "Patent legislation has never been based solely on the concept of the patent as the confirmation of an inherent, rather than the creation of a statutory, property right. Such a concept would have left no room for such restrictions on the patent grant as its fixed duration, its exclusion for inventions in certain fields, . . . and the forfeiture or compulsory licensing of patents for failure to work them." The Report then goes on to characterize the patent grant as "an exclusive privilege granted by the Government in the public interest to encourage invention and to promote the economic development of the country."

3

INTRODUCTION

stances, it is highly doubtful whether the new device could have been kept secret in any case. Prompt disclosure of inventions is still being mentioned as one of the merits of the patent system, but the emphasis is now usually on the advantage accruing to the community (by the rapid dissemination of the knowledge that the new device exists), rather than on any give-and-take aspect. Likewise, one still encounters the reasoning that the temporary patent monopoly is justified as a reward for the effort and outlay spent by the inventor or his financial sponsor on the research and development that led to the invention. But here, too, the viewpoint under which the reward is felt to be necessary is not so much the desirability of being fair to particular individuals, but rather the desirability of providing an incentive to special activities that will eventually result in a more rapid rate of industrial progress, and thus in a more rapid rise of general economic well-being. 2 Thus, the causal connection between the existence of a patent system and the pace of industrialization is at the heart of most of the recent discussions on the merits and shortcomings of the system. In many quarters, this causal connection is believed to be a matter beyond doubt and dispute. In the present study, it will be regarded as a question that still deserves further examination, and an attempt will be made 2 The United Nations Report previously quoted cites, on p. 10, a passage from an earlier text where the "public interest" viewpoint is stressed very pointedly: "Patent systems are not created in the interest of the inventor but in the interest of national economy. The rules and regulations of the patent systems are not governed by civil or common law, but by political economy." For a discussion of the arguments used by advocates of the patent system throughout history, see Fritz Machlup, An Economic Review of the Patent System, Study No. 15 of the Subcommittee on Patents, Trademarks, and Copyrights, of the Committee on the Judiciary, U.S. Senate 85th Congress, 2nd Session, Washington, 1958, pp. 19ff.

4

INTRODUCTION

to contribute to the topic by an approach that does not seem to have been sufficiently explored so far. Patents and the Pace of Industrial Development

Essentially, the approach to be used is historical and empirical. Before outlining that approach, it may be useful to say a few words about how far we can get in this area by theoretical reasoning. The basic theorem at issue is the belief that the prospect of obtaining a temporary monopoly on the use of an industrially or commercially usable new device accelerates the pace of progress in industry by stimulating both invention, the production of new technology, and innovation, the introduction of the new technology into industrial or commercial practice. Let us assume, for the sake of argument, that the prospect of patenting new products or processes will normally result in a broader stream of inventions than would be forthcoming in the absence of this prospect. 3 This is only part of the answer to our question, for the number of new products or processes currently emerging is only one of the factors that determine the pace of industrial development. The pace is also affected by what we may call the overall or average lag between invention and innovation, that is, between the birth of the new devices and their use in industry or trade. When a new product or process has just been invented, there is usually still a good deal of uncertainty as to whether its use will pay, especially if the innovation calls for extensive and expensive rearrangements in an existing plant, or for building an entirely new one. The hesitation of busi3 How much difference the patent incentive makes in this respect, has long been a matter of debate between writers who differed about the psychological motives that influence the "propensity to invent." Without entering into this debate, let us note here in anticipation of later findings that inventive activity can be quite vigorous in countries without a patent system.

5

INTRODUCTION

nessmen to introduce the new device may be overcome soon, or late, or never; many inventions "die" without ever finding their way into industrial or commercial use. The temporary monopoly that a patent or exclusive license grants the user of an invention raises the gross revenue he can derive from its use, and this may convince a businessman or a corporation management to go ahead with the innovation. Assuming that this is the case, should we infer that the patent system accelerates the spread of technological progress in industry and that it shortens the overall or average lag between invention and innovation? That still depends on another assumption, namely, on our assumption as to what would happen in the absence of the patent system. If we assume that without the prospect of a patent monopoly on the innovation, nobody would be willing to accept the risks of the new venture, the answer to our question is yes; the patent monopoly, by inducing someone to go ahead, shortens the lag between invention and innovation from infinity to something finite. But if we assume that even without the chance of obtaining a patent, some people would be willing to embark upon the new venture, then, except for the case of an invention that could be kept secret for a long time, the answer is no. Then the lag is obviously longer under a system where the use of the invention is temporarily reserved to one or a few innovators than under a system where everybody is free to use it as soon as it becomes known. With such freedom, the lag, at least under competitive conditions, may in fact be quite short. Once an innovation has proved its commercial value in the enterprise that introduced it, the knowledge that there is profit in it spreads swiftly, and if the innovation is not covered by a patent, many competitors will soon follow suit. The matter is further complicated by still other factors.

6

INTRODUCTION

One is the question of secrecy, just touched upon. In the case of a patented invention that, in the absence of the patent, could be kept secret for some length of time, the disclosure, generally required by modern patent laws as a condition for granting the patent, may have some importance. It at least helps to disseminate the knowledge that the new technology exists, and the disclosed specifications, while not themselves open to general use during the term of the patent, may convey to some persons ideas for devising variants that serve a similar purpose and can be used without infringing any existing patent. In this way the patent system, via the disclosure requirement, may contribute to a shortening of the lag between invention and innovation. On the other hand, we must remember the cases of nonuse, or long postponed use, of patented inventions, the use of which, in the absence of the patents, would have spread quickly. What Type ot Approach Is Promising?

While this discussion has covered only a tiny segment of the economic theory of patents, it should suffice to show that the question of the overall impact of the patent system on the rate of progress in industry cannot be settled by purely theoretical reasoning. Here as always, theory is valuable, nay indispensable, as the intellectual tool that brings the essence and meaning of the problem fully into the open. It tells us what factors are involved and how they operate. In the present instance it tells us that some of the factors involved work in opposite directions, and that the direction in which some of them operate, depends on which of two opposite assumptions, both of them intrinsically plausible, we choose to make with respect to certain extraneous conditions, such as the presence or absence of the willingness to risk untried ventures without the prospect of a temporary monopoly.

7

INTRODUCTION

When this is the situation, theoretical considerations cannot help us proceed much further. What the final effect of the complex and partly conflicting influences is likely to be, cannot be ascertained by a priori reasoning or dogmatic assertion. Only empirical evidence can give us any further clues. It would be most desirable to find such empirical evidence in present-day conditions and developments. Here, however, the analyst is handicapped by a difficulty that can hardly be overcome in a fully satisfactory way: the present ubiquity of the patent system. Since all industrialized nations now have patent systems, there is no empirical information as to how things would go in the absence of a system, and without such information all reasoning as to how much or how little the system accomplishes is to some extent hypothetical and conjectural. Thus, when we want to get an idea of the degree to which the patent system stimulates organized research and development, about all we can do is to ask corporation managers or directors whether, and if so, by how much, they think they would reduce expenditures on laboratories and other research facilities if there were no prospect of patenting inventions. Responses to such questions have been far from unanimous, 4o but even if they had been, their value would suffer from the inherent and inevitable inconclusiveness of a hypothetical answer to a hypothetical question. We will therefore turn to economic history as a possible source of empirical evidence. 4 Compare, for example, the responses obtained by Seymour Melman, The Impact of the Patent System on Research, Study No. 11 of the Subcommittee on Patents, Trademarks, and Copyrights of the Committee on the Judiciary, U.S. Senate, 1955, especially pp. 50ff., and those obtained in a questionnaire investigation conducted by the Patent Law Association of Los Angeles and reported by Richard F. Carr, "Our Patent System Works-A Reply to the Melman Report," Journal of the Patent Office Society. Vol. 42 (May 1960), 295-326.

8

INTRODUCTION

How the Historical Record Has Sometimes Been Summarized Before asking what is the best way to tap this source, let us listen to a number of statements which, explicitly or by clear implication, purport to summarize the verdict of history on our main problem. They all read the same verdict into the historical record; this very unanimity, and the sweeping language used in most of the statements, should help to justify research attempts on the part of those who think that there are sound reasons for "reopening the case." The analysis presented in the subsequent chapters is such an attempt. In this sense, the statements quoted below provide an appropriate background for the survey that will follow. First, a voice from England: "The Patent Law was our invention, and it gave us the first place among nations in industry for over 200 years."5 Next, a testimony from a Canadian: "If patent property is limited or destroyed, the world will be a poorer place, for industrial and intellectual property monopolies are the lifeblood of rational endeavor."6 "It was . . . not by accident that the patent system had its origin in England, nor that the industrial revolution was the inevitable sequence."7 "The dross of abuse and impropriety in the monopoly system had to be refined in the furnace of experience before the gold of the present patent system emerged to take its place as the greatest contributory factor to modern industrial progress."B 5 H. Stafford Hatfield, Inventions and their Use in Science To-Day, London, 1939, p. 175. 6 Harold G. Fox, Monopolies and Patents, Toronto, 1947, p. 5. 7 Fox, op. cit., p. 85. 8 Fox, op. cit., p. 189.

9

INTRODUCTION

"It is only when they are so scrutinized [on a historical basis] that the true facts emerge, and that monopolies by patents . . . are seen to be one of the greatest assets to the development of civilization yet devised by the mind of man."9 " ... whatever its failures and shortcomings, it [the patent system] has been one of the greatest of all those elements which have contributed toward the expansion of industry and the development of science and the useful arts."10

Here are various statements from works published in the United States: "The strongest evidence of the value of the American patent system is our industrial economy, which has been built largely upon a groundwork of patented inventions."l1 "It is a matter for national thanksgiving that we had available a vast storehouse of knowledge, as represented by that 2,275,079 patents granted prior to Pearl Harbor. ... The aforementioned 2,275,079 patents have been one of the prime factors in shaping American industrial life."12 "The fact remains that since the enactment of our organic patent law in 1836 we have grown from an agricultural country to the mightiest industrial nation on earth. The enormous strides made in a material sense are largely due to our patent system."13 " ... the overall result [of the protection of inventions under the American patent system] has been a major factor in Fox, op. cit., p. 200. 10 Fox, op. cit., p. 212. Robert L. Lund, in Foreword to George E. Folk, Patents and Industrial Progress, New York and London, 1942, p. 12. 12 Conder C. Henry, "Patents and the National Progress," in William B. Bennett, The American Patent System, Baton Rouge, Louisiana, 1943, p. 528. 13 Conder C. Henry in W. B. Bennett, op. cit., p. 536. 9

11

10

INTRODUCTION

the emergence of a small struggling nation to the most prosperous country on earth."14 "It was the U.S. patent system as a whole which helped in the war by developing the habit of ingenuity and by building up the huge industrial machine which enabled our country to survive. . . . It is significant that the three countries which had the best-developed patent systems in the worldAmerica, Great Britain, and Germany-turned out to be the most formidable in waging war."15 "The defence of the democratic world depends largely on American industry, which owes its present strength in large part to traditional American patent policy."16 "The Patent System is the foundation of American enterprise. "It has . . . contributed to the achievement of the highest standard of living that any nation has ever enjoyed."17 "We believe our patent system has played a vital role in the industrial development of our country and that this has been true for many ot~er countries as well."18 14 "Progress Through Patents," reprinted from Prize Scene, New York, p. 1. 15 EXcerpts from "Patents and National Defense" by Roger Sherman Hoar, in Army Ordinance, Sept.-Oct., 1946. 16 Karl B. Lutz, "A Proper Public Policy on Patents: Are We Adopting the Soviet View?" American Bar Association Journal, Vol. 37 (Dec. 1951), p. 943. 17 The American Patent System, Report of the National Patent Planning Commission, Washington, D.C., 1943, pp. 7, 25. We are quoting this statement merely as another example of what many people think the patent system has accomplished in this country. Our quoting it should not be construed as an implicit and oblique endorsement of the old myth of the "highest standard of living that any nation has ever enjoyed." 18 Introductory Remarks by Mr. Antony M. Solomon, Assistant Secretary for Economic Affairs, Department of State, on the "International Day" at the Meeting to Celebrate the 175th Anniversary of

11

INTRODUCTION

A spokesman of the Philippines: "As a tool of government policy, it [the patent system] is vital to the orderly enhancement of the overall growth process of the country."19 A German author, widely recognized in his days as an authority on public law: " ... the countries whose industries take foremost place, also rank highest in patent policy."20 "It is self-evident, then, that the patent is a tremendously effective instrument for promoting ... industrial progress."21 "While it would be going too far to contend that the dominant position which English industry has been holding well into recent times, was due exclusively to the early development of patent policy in that country, ... patent protection has been one of the main factors. "The spectacular success of American industry is doubtless due in large part to the manner in which patent policy has developed there, nor is it an accident that the tremendous rise of German industry occurred in the period following the first Patent Law enacted by the Reich." (Italics in original.)22

" ... that independent production of ideas is a matter of our national honor as well as our well-being, and that this production can flourish only if the ideas are granted protection."23 the U.S. Patent System, at Washington, D.C., 1965. (Proceedings, Vol. II, p. 925.) 19 Speech by Mr. Tiburcio Evalde, Under-Secretary of Industry and Director of the Patent Office of the Philippines, at the Anniversary Meeting cited in footnote 18. (Proceedings, Vol. II, p. 930.) 20 Joseph Kohler, Handbuch des deutschen Patentrechts in rechtsvergleichender Darstellung, Mannheim, 1900, p. 3. (The translation of this and the following statements is mine.) 21 Kohler, op. cit., p. 7. 22 Kohler, op. cit., p. 9. 23 Kohler, op. cit., p. 26.

12

INTRODUCTION

Finally, a few replies to a questionnaire in which the Secretary-General of the United Nations in 1961 had asked various governments to state (among other things) their evaluation of the significance of national patent systems for the industrialization of countries that were then underdeveloped or, at any rate, recipients of foreign inventions rather than suppliers of domestic inventions to the world: "The supply of inventions and technical know-how to under-developed countries is hindered in most of these countries by the still inadequate patent system." (Answer from the Federal Republic of Germany.)24 "It is considered that the utilization of foreign inventions by Israel enterprises would, for all practical purposes, be rendered impossible in the absence of a national patent system. "It seems that the existence of such a patent system since 1924 has made it possible both to build up industries utilizing contemporary technical knowledge protected by patents and secret know-how, and to protect the fruits of research carried on by local industry and its research industries." (Answer from Israel.) 25 Some of the statements quoted refer to the patent system in general terms, praising it as one of the great achievements of human ingenuity. But they clearly imply, and the rest of the quoted opinions explicitly emphasize, something more specific, namely, that for a nation wishing to develop its industry it is vital to have a national patent system, regardless of whether the citizens or residents of the country can obtain patent protection in other countries. What made the authors of these and many similar statements so sure about this? One historical fact has certainly done much to shape the 24 Quoted on p. 57 of the United Nations Report cited above. 25Ibid., p. 57.

13

INTRODUCTION

views of the authors of these statements, including those who were primarily concerned with contemporary experience in the "new" countries. We are referring to the fact, undeniable in itself, that some of the greatest and industrially most advanced nations-United States, Great Britain, France, Germany-had patent systems during all or nearly all of their long periods of industrialization. It is the basic premise of this present study that this fact, impressive though it is, does not suffice to prove the point at issue. Coexistence, even prolonged coexistence, of two phenomena does not prove that one of them was instrumental in creating the other, let alone that it was a necessary prerequisite for the other's coming into existence. So, inasmuch as the authors quoted meant to summarize, or were decisively influenced by their reading of, the lessons of history, their opinions must be regarded as conclusions from inconclusive evidence. The Approach To Be Tried in This Study

An approach aiming at what might be called a differential historical analysis, may help to get away from inconclusiveness and dogmatism. If economic history can present us with a country that temporarily, in a certain phase of its industrial development, was without a patent system, we may hope to learn something about our central question by comparing the country's industrialization in that phase with (1) the simultaneous industrial development in patent-granting countries, and (2) the industrial development in the surveyed country after its adoption of a patent system. There are two European countries, the Netherlands and Switzerland, whose economic histories lend themselves to such an analysis. The Netherlands repealed in 1869 the patent law that had been on their statute books since 1817, and then remained without any patent system until 1912,

14

INTRODUCTION

when a new and much more modern patent law was enacted. Switzerland had no national patent system unil 1888. The patent law enacted in that year was rudimentary in the extreme; it was not until 1907 that a more or less comprehensive patent system was introduced. On the following pages the industrialization of the two countries during their patentless periods, as well as the controversies that preceded the adoption of patent systems, will be surveyed, and the findings will be used as a reference basis for a "differential" analysis in the sense indicated above. Scarcity of data and difficulties of interpretation will no doubt limit the scope of what can safely be inferred from the results. But since the approach outlined does hold out some promise, and since to our knowledge it has not been tried so far, the project seems to be worth undertaking.

15

PART I THE NETHERLANDS, 1869-1912

2. Historical Background

THE OLD PATENT LAW

In the 1860s there was widespread agreement in the Netherlands that the existing patent law, which had been in force practically unchanged since 1817, should be either repealed or thoroughly amended. 1 The law was a curious mixture of "too liberal" and "too restrictive." On the "too liberal" side was the absence of any examination and of any obligation on the part of the applicant to describe his invention by specification, drawings, etc. The patented invention usually was not published before expiration of the patent (the term was 15 years), and sometimes it remained undisclosed even longer. This practice destroyed what is generally held to be one of the main virtues of a patent system. 2 It sometimes 1 The authoritative work on the old Dutch patent system is G. Doorman, Het Nederlandsch Octrooiwezen en de Techniek der 19 e Euw, 's-Gravenhage: 1947. The book does not go beyond the termination of the system in 1869, but Doorman has published excerpts from the book, supplemented by surveys of later developments including the reintroduction of a patent system 1910-1912, in three English articles in the Journal of the Patent Office Society, Vol. 30 (1948). Doorman was acting chairman of the Netherlands Patent Board for a number of years. 2 On the various aspects of the topics "disclosure" and "secrecy" see Fritz Machlup, An Economic Review of the Patent System, Study No. 15 of the Subcommittee on Patents, Trademarks, and Copyrights of the Committee of the Judiciary, U.S. Senate, 1958, p. 21 and passim. On pp. 76-77 Machlup points out that the early disclosure achieved by the patent system could conceivably be obtained by other arrangements. He acknowledges, however, that early disclosure is a useful by-product of modern patent systems.

19

PART 1. THE NETHERLANDS

caused the user of an invention to be uncertain as to whether he might not be infringing an existing patent, and it was perhaps responsible for some cases of an unusually long lag in time between an invention and its first industrial use. S Novelty was not required unconditionally; patents could be granted for first importation of inventions originating in foreign countries. Such a provision had not been uncommon in old patent laws, but in the Netherlands in the nineteenth century it seems to have blunted the stimulative effect of the patent system on a Dutchman's "propensity to invent."4 For about three decades the number of patents granted annually for first importation showed a steadily rising trend, whereas the trend of patents granted for original invention first declined and then moved horizontally at a low level. 5 On the "too restrictive" side there was the provision that a patent was to be nullified if after its issue the patentee had obtained a patent for the same invention in a foreign country. For the Dutch inventor who wished to see his invention protected both at home and abroad, this provision was an inducement to postpone his application for the Dutch patent until he had tried (and knew the outcome of his attempt) to get patents in all those foreign countries where he desired protection. The attractiveness of Dutch patents was further reduced by a ruling of the Dutch Supreme Court (in 1846) to the effect that a patent granted on a novel product protected the patentee only against a competitor's selling the product on the market, not against his using it in his own S Van Houten's method of preparing cocoa powder, probablY the greatest Dutch invention of the nineteenth century, was patented in 1828, but it was only about 40 years later that the cocoa and chocolate industry, so largely dependent on Van Houten's invention, began to develop on a large scale. 4 Doorman, "Patent Law in the Netherlands, Part I," Journal of the Patent Office Society, Vol. 30 (March 1948), p. 236. 5 Doorman, Het Nederlandsch Octrooiwezen, etc., op. cit., p. 60.

20

HISTORICAL BACKGROUND

business. The ruling seems to reflect a growing general antipatent feeling of the time. Toward the end of the 1860s this feeling was at its height in many parts of Europe. 6 It was also widely held that efforts to reform the patent system were doomed to failure. 7 According to Doorman, it was mainly due to this general feeling that in the debate as to whether the Dutch patent system should be reformed or abolished, the abolitionists eventually won. 8 PECULIARITIES OF THE SITUATION BETWEEN

1869

AND

1912

While foreigners as well as Dutch nationals were denied patent protection in the Netherlands after the policy change of 1869, Dutch nationals remained free to apply for patents in all foreign countries that extended patent protection to foreigners. No retaliatory measures were taken. By tolerating 6 In a study published in 1869, Karl Victor Boehmert, a highly respected German economist and statistician, coupled a truly passionate indictment of the patent system with an equally passionate defense of imitation: "The patents are ripe to fall; more and more are they recognized as a rotten fruit on the tree of human civilization. . . . It is blindness to deprecate initiation in industry or, in fact, to call it plagiarism and foul play. Just think what residential construction would be without imitation. . . . Strict enforcement of the protection of inventions would obliterate numerous occupations in Germany. Daily we see in the newspapers advertisements of sewing machines built by big German firms which do not for a moment hesitate to reproduce the American designs." (Quoted by Kohler, op. cit., p. 26, my translation.) 7 One year before the repeal of the Dutch patent law, Bismarck, then Chancellor of the North German Federation, expressed the opinion that it was better to abolish the patent system, "rather than to engage once more in hopeless attempts to reform the system." (My translation.) See Doorman, Het Nederlandsch Octrooiwezen, etc., op. cit., p. 47. 8 See Machlup and Penrose, "The Patent Controversy in the Nineteenth Century," Journal of Economic History (May 1950), pp. 3-5

21

PART I. THE NETHERLANDS

this lack of reciprocity the foreign countries continued a well established tradition. Ever since national economies had to some extent become interdependent, foreigners were often encouraged by patent grants to bring new art into a country; the resulting stimulation of technical and economic progress in one's own country was considered an advantage worth having even when the nationals could obtain patent rights in the foreigner's homeland only under much more restrictive conditions or not at all. In 1884 the International Union for the Protection of Industrial Property was ratified by a large number of States. 9 The Paris Convention of 1883, on which the Union was based, covered several types of "industrial property" besides patents. At that time neither the Netherlands nor Switzerland had a patent law (they were then the only industrial countries without such a law), but since both of them had laws protecting trademarks, they were both eligible for membership in the Union. The principle of reciprocity had been expressly rejected in the conferences and drafts preceding the final approval of the Convention, and the opposite principle of unconditional "national treatment of foreigners" had been firmly established. Proposals for introducing some measure of reciprocity were repeatedly submitted at later conferences by the United States, whose patent law imposed fewer restrictions on patentees than did the laws of most other member countries. (It provided neither for compulsory working of the patented invention, nor for compulsory licencing.) Had these limited proposals been accepted, it might have been difficult to tolerate any longer 9 A brief survey of the history and the main principles of the International Union for the Protection of Industrial Property can be found in the United Nations Report cited in Chapter 1 (The Role of Patents in the Transfer of Technology to Developing Countries, Report of the Secretary-General, United Nations, New York, 1964, pp. 13-15).

22

HISTORICAL BACKGROUND

the complete lack of reciprocity in the patent situation vis-avis the Netherlands. However, all proposals for reciprocity were rejected on the ground that, given the wide and, for the time being, inevitable country-to-country differences in the national laws on industrial property, a regime of reciprocity, under which the treatment of foreigners would depend on their nationality, would make the Union degenerate into a series of bilateral arrangements. 10 Nevertheless, ever since the Union had come into being, the patent situation as between the two member groupsSwitzerland and the Netherlands on one side, the rest of the industrialized world on the other-was lopsided enough to be felt as something of an anomaly. It was expected that the "moral pressure" of belonging to a Union that comprised so many patent-granting members would soon induce the two countries to join (in the case of the Netherlands: to rejoin) the far-flung patent group. Switzerland did so only a few years later (in 1888), and the fact of belonging to the Union seems to have played a decisive roleY In the Netherlands, too, as we shall see later, uneasiness about certain ethical implications of the existing situation was the most powerful motive in the decision to reintroduce a patent system. Resistance within the country was strong, however, and it was not until 1910 that the new patent law could be enacted. In the meantime the lopsided situation persisted. The lopsidedness has an important bearing on our main problem. It means that in the Netherlands the stimulus provided by the prospect of patent protection-assuming here for the sake of argument that this prospect does stimulate invention or the willingness to exploit new inventions commercially-was by no means completely absent during 10 See Edith T. Penrose, The Economics of the International Patent System, Baltimore, Maryland, 1951, p. 66. 11 Ibid., p. 65. See also below, p. 89.

23

PAR T 1. THE NETHERLANDS

that 43-year interim period. Dutch owners of new inventions could and did take out patents in such large industrialized countries as Britain, France, Germany, the United States, and others. What was lacking was the additional possibility of securing patents in the homeland.

24

3. Industrial Development in the Netherlands, 1870-1914

The point we are attempting to resolve is the impact, if any, of the absence of a Dutch patent system on the industrial development of the Netherlands between 1869 and 1912. To prepare the ground for approaching this topic, which so far has been more or less bypassed by students of European economic history and students of the history of the patent system, l it is necessary to give a few general characteristics of Dutch economic development during those decades. Controversial Evaluation

In I. J. Brugmans' Paardekracht en Mensenmacht,2 the most recent and, by general consensus, most authoritative major work on the Dutch economy in the nineteenth century, the period 1870-1914 is referred to as the period in which the country was industrialized. 3 The two decades immediately preceding are characterized as the period of transition in which mechanical power factories began to replace handicraft, most notably in the cotton textile industry in 1 As was confirmed by Professor Hennipman of the University of Amsterdam in personal correspondence, hardly any research on the subject has been done so far. On the scarcity of quantifiable material on Dutch industry and entrepreneurship in the nineteenth century, see below, p. 27. 2 Den Haag, 1961. The title translates Horsepower and Human Power. The book deals with the economic and social history of the Netherlands from 1795 to 1940. 3 Ibid., p. 312.

25

PART I. THE NETHERLANDS

Twente and North Brabant. 4 In Brugmans' presentation the year 1870 appears almost as a watershed, the beginning of a new era when industrialism definitely penetrated the country on a broad front and the industrialist took his place side by side with the merchant. The chapter covering 18701914 is entitled "Modern Capitalism," and the heading of the introductory section in the chapter means "A New Spirit." A few sentences purporting to characterize the new spirit are worth quoting in translation: 5 "Whenever one compares the Netherlands after 1870 with the Netherlands in the first half of the century-the period 1850-1870 is a period of transition-it is as if one were looking at two different worlds. Gone are the backwardness and quietness that reigned before; everywhere is life, enterprise, and progress, too .... The seed that had been sown during the industrial revolution 1850-1870 went up rapidly, and imparted a new look to society as a whole." The period 1870-1914 (note that it coincides almost exactly with the period during which no patents were granted) was "a period of new life which in the economic field manifested itself in great activity and in a higher level of well-being than before." Some experts are not fully agreed with this evaluation of the decades under review. According to them, it was only between the two world wars that the seeds sown in the transition period really ripened. 6 Brugmans mentions this dissenting view, but thinks that it reflects a failure to evaluate properly the main traits of the development in the decades starting with 1870: the steady growth in number and size of machine-driven plants, the degree to which the spirit of 4 Up to the middle of the century cotton textiles and sugar refining were about the only industries the country had. 5 Brugmans, op. cit., pp. 286, 288. 6 See A. De Graaff, De Industrie, Vol. VIII of the series: "De Nederlandsche Volkshushouding Tussen Twee Wereldoorlogen," p. 3.

26

INDUSTRIAL DEVELOPMENT, 1870-1914

capitalism in these decades was influencing the general outlook and was transforming Dutch society. "Around 1910 modern capitalism was not in its beginning but in full bloom."7 Perhaps this divergence of evaluations is partly due to the scarcity of quantitative material for the period referred to. According to Brugmans, this scarcity is largely an indirect result of the fact that during the period the government left industrial enterprise almost entirely to itself. As there was almost no tendency to legislate on industrial affairs, 8 the government had little incentive to secure quantitative information on industrial matters as a basis for such legislation. So there is, for our period, an almost complete lack of government reports on industry, which elsewhere are often such an important source of quantitative information. 9 Many facts and trends can be gathered only fragmentarily from pamphlets published occasionally by firms (e.g. to celebrate an anniversary), and these are for the most part descriptive rather than statistical. Obviously, this type of information leaves more room for disagreement in the evaluation of overall industrial performance than does information supported by figures or at least quantitative estimates.10 Historians who disagree partly or wholly with Brugmans' evaluation of the period 1870-1914 have pointed to a fact Brugmans, op. cit., p. 353. Labor relations were the only major exception. 9 It is in line with this observation that the pre-World War I volumes of the Jaarciifers (the equivalent of the Statistical Abstract of the United States) give industry data only for a few consumergoods industries whose products were subject to excise tax (sugar, some beverages). For the others we have to be content with the more or less decennial Census statistics. Only foreign trade data are given on an annual basis. 10 Brugmans states flatly (op. cit., p. 311): "The history of Dutch industry between 1870 and 1914 is to a considerable extent shrouded in darkness." The reference here is, obviously, to the dearth of the type of precise and detailed information that only quantitative data can give. 7

8

27

PAR T I. THE NETHERLANDS

that in itself is not in dispute: industrialization in the Netherlands during that period advanced at a more gradual pace than did the industrialization of, say, Britain or Belgium somewhat earlier.1.1 Furthermore, in a few industrial lines the technology used in the Netherlands is known to have remained backward during this period. Another observation concerns invention in that last great era of individual inventor giants. To be sure, the Dutch did make some important inventions during that era. Thus it was around 1905 that W.A.J.M. van Waterschoot van der Gracht invented the diamond drill as an exploratory tool for mining. The product rapidly found its way into various regions of the world, including the United States. It is equally true, however, that no Dutch invention of the period under review has made its originator a household name the world over, as have the achievements of Bell, Edison, Diesel, Marconi, etc. 12 11 P. W. Klein, in an important article, "Traditionele Ondernemers en Economische Groei in Nederland 1850-1914," De Economist (March-Apri11966), pp. 191-212, lists a number of factors that combined to retard the progress of industry (on these, see below). He notes (p. 196) that around 1900 the Dutch economy had reached the stage of self-propelling growth. But he thinks that in the immediately preceding decades, while industry did grow, trade was still the main pacemaker of economic development. 12 Although in technology, including technologically fundamental inventions, the Netherlands in the period under review was undoubtedly bested by some other nations, Dutch science around 1900 enjoyed world renown, a reminder that technology and science do not always march as closely in step as is sometimes believed. The University laboratory for physics in Leiden was especially famous. For quite some time it was fashionable for young scientists from the United States, England, and Germany, to spend some time at Leiden. Einstein did. Between 1901 and 1903 several Dutch scientists won the Nobel Prize. The most famous of them was H. A. Lorentz, whose work became one of the cornerstones on which Einstein built his theory of relativity.

28

INDUSTRIAL DEVELOPMENT, 1870-1914

A Few Statistical Indicators Data on the industrial distribution of the labor force provide rough measures of the degree of industrialization in a country at a given time, and of its change over time. For the periods we have to survey, such data are available only from census statistics, usually at decennial intervals, or from interpolations between the census dates. The typical pattern of the historical development revealed by these statistics is well known. As industrialization progresses, the percentage of the labor force engaged in agriculture declines. The percentage employed in nonagricultural industry rises up to a point, then declines somewhat because of the growing relative weight of employment in the service occupations. Table 3.1 presents estimates of the labor force engaged in nonagricultural industry as a percentage of totallabor force, for 13 countries at various time points, all of which fall inTABLE 3.1 THE LABOR FORCE IN NONAGRICULTURAL INDUSTRY AS PERCENTAGE OF THE TOTAL LABOR FORCE Country Australia Austria Belgium Denmark France Germany Great Britain New Zealand Norway Sweden United States Netherlands Switzerland

Around 1880 Year Percent 1880 1880

28.3 38.7

1880 1881 1881

29.5 50.3 37.9

1880 1880

14.6 25.0

1880

41.8

Around 1890 Year Percent 1891 1890 1890

36.3 29.6 40.5

1890 1891 1891 1890 1890 1890 1889 1890

34.6 49.4 35.6 26.7 18.3 28.3 34.3 45.1

Around 1900 Year Percent 1901 1900 1900 1901 1901 1900 1901 1901 1900 1900 1900 1899 1900

34.3 30.0 43.9 27.6 42.0 37.3 49.2 33.2 31.6 23.8 30.6 35.9 47.5

Around 1910 Year Percent 1911 1910 1910 1911 1911 1910 1911 1911 1910 1910 1910 1909 1910

34.3 34.9 50.1 27.6 39.2 37.4 46.7 31.3 29.5 30.4 32.1 37.1 48.6

29

PART I. THE NETHERLANDS

to the period when the Netherlands was without a patent system. The total time span that could be covered is not the same for all countries tabulated, and for none of them are the data available as far back as would be desirable. Nonagricultural industry as used here includes mining, manufacturing, and construction, but excludes transportation and communication, because for some countries and some years the statistics are available only in this combination. In some countries, and especially at the earlier census dates, the census statistics of manufacturing industry still included a good deal of handicraft. To what extent this overstates the degree of industrialization for the earlier periods, is difficult to say. For a broad overall picture, which is all we can present anyway, the distortion is probably not too serious. "Labor force" includes employers and the self-employed. In most cases the data in Table 3.1 are based on Colin ClarkY Note that Clark's table underlies most of Kuznets' recent tabulation of the distribution of the labor force in various countries at various times. 14 We had to use Clark's table directly, for Kuznets, being primarily interested in very long-range developments, tabulated Clark's figures only for initial and terminal dates spaced too widely for our purposes. Clark does not give any figure for Switzerland in 1890. As it was desirable for us to have at least a rough estimate for that year, we estimated the percentage on the basis of a plausible interpolation between Clark's 1880 and 1900 data, taking account of the fact that these data, in conjunction with Clark's figures for 1910, indicate a retardation in the relative growth of these percentages from decade to decade. 13 Colin Clark, The Conditions of Economic Progress, 3rd ed., 1960, Table III, pp. 510-520. 14 Simon Kuznets, Modern Economic Growth, 1966, pp. 106-107.

30

INDUSTRIAL DEVELOPMENT, 1870-1914

In the case of the Netherlands, the country with which we are primarily concerned at this point, Clark's earliest figure is for 1899. It is desirable for us to have an estimate at least one decade farther back. The periodical EconomischStatistische Berichten, published by the Nederlandsch Economic Institut in Rotterdam, once presented (in an article "De Industrie en Nederland," Jan. 22, 1941, p. 64) a table showing, for 1889, 1899, 1909, 1920, and 1930, the labor force engaged in nonagricultural industry as a percentage of all gainfully employed workers. The figures (for 1899 and subsequent dates) differ slightly from Colin Clark's estimates, but can be used to extrapolate Clark's 1899 figure one decade farther back. This is how we have derived the percentage shown on our Table for 1889. In Germany, industrial censuses in the first few decades after 1871 were taken at irregular intervals (1875, 1882, and 1907). Colin Clark gives figures for 1882 and 1907 only. Using the census data and information from other sources, Hoffmann15 has worked out annual estimates of the distribution of the German labor force way back into the nineteenth century. The percentages shown in our Table 3.1 for 1890, 1900, and 1910, have been calculated on the basis of Hoffmann's estimates for these three years. On the whole, the impression conveyed by Table 3.1 agrees with the descriptive information discussed above. In 1889, after 20 years without a Dutch patent system, the labor force in nonagricultural industry as a percentage of total labor force was higher in the Netherlands than in Austria, Norway, Sweden, and the United States, though lower than in Australia, Belgium, Germany, Great Britain, New Zealand, and Switzerland. During the subsequent still pat15 Walther G. Hoffmann, Das Wachstum der deutschen Wirtschaft seit der Mitte des neunzehnten lahrhunderts, 1965, Table 20, pp. 204-205.

31

PAR T 1. THE NETHERLANDS

entless 20 years the percentage rose, although at a moderate and apparently declining rate of increase, leaving the Netherlands somewhere intermediate among the countries tabulated. In 1909, after 40 years without a patent law and shortly before the end of the patentless era, industrialization of the Netherlands, by the (admittedly rough) indicator shown in the Table 3.1, ranked above Australia, Austria, Denmark, New Zealand, Norway, Sweden, United States, but below Belgium, France, Germany, Great Britain, and Switzerland. All in all, the picture of a moderate but steady advance of industrialization in the Netherlands during the patentless period is confirmed by the data shown. Concerning technological innovation, a concept much narrower than industrialization, but likewise important for our purpose, we mentioned earlier that its progress in some Dutch industries during the period surveyed seems to have been rather sluggish. For statistical information in this field we must be content with some indirect indicators. Using material from various sources, several authors have in recent years ventured to construct productivity indices (output per capita, even output per man-hour) for a number of countries way back into the nineteenth century. Since successful industrial application of new technology is a major source, although by no means the only one, of increased productivity, the growth of the latter may be assumed to reflect, at least in part, the pace of technological innovation. Table 3.2 purports to measure the growth of productivity in a few countries within two different periods. The figures are based on indices of output per man-hour constructed by Angus Maddison for a number of Western countries. 16 For 16 Angus Maddison, Economic Growth in the West, 1964. See also Simon Kuznets, Modern Economic Growth, 1966. Kuznets' table "Rates of Growth in Total Product, Population, Product per Capita, and Product per Man-Hour, Developed Countries, Two Long Periods,

32

INDUSTRIAL DEVELOPMENT, 1870-1914 TABLE

3.2

ANNUAL AVERAGE RATES OF GROWTH OF OUTPUT PER MAN-HoUR

Country Denmark France Germany Great Britain Italy Netherlands Norway Sweden Canada United States

1900-1913a Percent Rank

2.7 1.2 1.6 0.2 2.4 1.1 2.1 3.2 2.7 2.2

2 8 7 10 4 9 6 1 3 5

1913-1938b Percent Rank 1.3 2.3 1.3 2.1 2.6 1.5 2.7 1.7 0.8 3.0

8 4 9 5 3 7 2 6 10 1

a 1900-1913: We have computed the annual average growth rates on the basis of the index numbers Maddison gives for the two years (lac. cit., Appendix H, p. 232.). b 1913-1938: For this period Maddison himself (lac. cit., p. 37) gives the annual average growth rates based on the indices in his Appendix H.

the most part, Maddison's earliest estimates are for 1870 or 1871, but in the case of the Netherlands, unfortunately, 1900 is the earliest year. Table 3.2 presents annual average rates of growth of output per man-hour between 1900 and 1913, and between 1913 and 1938, in the ten countries for which Maddison gives indices measuring man-hour output in the three years cited. For each of the two periods, the annual growth percentages tabulated represent compound rates between the actual values in the initial and the terminal year; they do not refer to fitted trends. It is not believed that this way of computing causes any nonnegligible bias in the results. 1870-1913 (I) and 1913-60 (II)," pp. 352-353, is based almost entirely on Maddison's estimates.

33

PAR T 1. THE NETHERLANDS

The first section of Table 3.2 covers a part (unfortunately only the last 30 percent) of the period when the Netherlands was without a patent system. 17 It will be seen that during this period the annual average growth of productivity as measured by Maddison's estimates was, in fact, slower in the Netherlands than in any other country tabulated except Great Britain. To this extent, the impression gained from descriptive information is confirmed by these estimates. In the second period, the average annual growth of productivity in the Netherlands was somewhat faster than in the first. But, as the table shows, the same thing is true of five of the other countries covered; in the case of the Netherlands the rise in speed was moderate, and the country in this respect still ranked low among the ten nations (seventh, as compared with ninth in the first period). All in all, the "differential analysis" as applied to this material does not reveal a degree of differentiation that would strongly suggest a causal connection between the absence of a patent system and the slow growth of productivity in the Netherlands during the first period. This brings us to our central question, which must now be discussed in a broader perspective. What of the Patent Situation?

One generalization seems immediately warranted by the economic history of the Netherlands in the period reviewed: the absence of patent protection in the country has not prevented the gradual development of nonagricultural industry on a broad front. As for the fact that the development was in some respects more "pedestrian" than the in17 The inclusion of the year 1913 in this period-here unavoidable, as Maddison does not give any estimate for 1912-is hardly damaging since it undoubtedly took some time for the Patent Act of 1912 to show its effects.

34

INDUSTRIAL DEVELOPMENT, 1870-1914

dustrialization of several other nations, it is conceivable that the lack of a patent law had something to do with it, but at the same time it is certain that other factors, historical, sociological, and political, contributed. Can we hope to disentangle and measure the specific impact, if any, of the lack of a national patent system? As a preparatory step it seems useful first to cast a glance at those other factors in order to get an idea of their weight with respect to our problem. Then we shall try to marshal some evidence on the specific impact of the patent situation. Geography, Commercialism, Traditionalism

Concerning the pace of industrial growth, one may perhaps venture the generalization that, other things being equal, this pace is usually less stormy when the buildup of industry is geared to the proximity of trade routes for the industrial products than when it is geared to the proximity of sources of industrial raw materials. And one may regard the Netherlands as a case in point. The country has no ore deposits. It has only one rather limited region of coal deposits. This goes a long way toward explaining why there were no Dutch regions where the smelting furnaces or the factory smokestacks multiplied as rapidly, and changed the look of the environment as completely, as they did in some regions abroad. While there was some regional concentration of industry (cotton textiles in Twente, wool in Tillburg, leather in Northern Brabant), no "industry cities" like those in the Pittsburgh region or in the Ruhr valley grew up. Delays and difficulties in modernizing the transportation system contributed to keeping the pace of industrialization in check. Railroad construction proved costly (sagging ground here and there; many bridges required). Completion of the network of canals took longer than had been anticipated, in the view of some, unduly long.

35

PAR T I. THE NETHERLANDS

While denying the country a broad raw materials basis, geography had endowed it with a location splendidly suited for trade, especially foreign trade,18 and here we are touching upon historical facts that largely explain why, in the last few decades of the past century, the Netherlands was less prominent in technological invention than in some other fields. Several generations back the Dutch had begun to make full use of the commercial opportunities geography offered them. For centuries, the merchant was to the world the standard type of Dutchman, as far as pursuit and outlook were concerned. Deep into the nineteenth century this outlook has left its imprint on the mentality of Dutchmen, including Dutchmen in other walks of life, and in particular, on Dutch industrial entrepreneurs. In the old days it was an extensive staple trade, centered largely at Amsterdam, that dominated the Dutch economy and in the seventeenth century made the Netherlands the trade center of Europe. The sea wars of the eighteenth and the beginning of the nineteenth centuries and the impoverishment of Europe during and after the Napoleonic wars destroyed this trade wholesale. But the flair for commercial opportunities had taken deep root in the Dutch psychology, and in the nineteenth century trade activity revived, this time in the form of a transit trade converging more and more on Rotterdam. And the new industries were to a considerable extent grouped around the new trade opportunities. So, rather naturally, the outlook and orientation of those working in and for the manufacturing industry was commercial rather than technological. 18 The geographical facts that helped the Netherlands gain a position in world trade need not detain us; they are known to anybody who has a nodding acquaintance with the geography of Europe. In the interior the complete absence of mountains was a major help, especially in the old days.

36

INDUSTRIAL DEVELOPMENT, 1870-1914

This orientation has still another sociological root that can best be unearthed by comparing the group psychologies of Dutch and English industrialists at the time when mechanical power first invaded their respective economies. 19 ,20 English industrialists as a class grew up largely as antagonists of a ruling landed aristocracy and its conservative outlook. The industrialists wrote technical progress on their banner as the main justification for their existence as a group and their aspirations for a place in English society. The Dutch industrialists, too, regarded "progress" as the raison d' €lre for their group, but in a somewhat different sense. In the Netherlands they did not have to assert themselves against a landed aristocracy whose outlook was alien to them. Most Dutch entrepreneurs around and after 1850 were themselves descendants of an aristocracy-a commercial aristocracy that they hoped to outdo, but to which they were still looking up in many respects. So the "progress" they visualized was, in large measure, progress within traditional and familiar channels, step-by-step modifications rather than the revolutionary and sometimes disruptive reorganizations that the application of great technological innovations often calls for. 21 The lingering traditionalism seems to account also for 19 As already mentioned, this happened earlier in England than in the Netherlands. 20 The contrast to which attention is being drawn in this passage has been brought out forcefully by Klein, op. cit., p. 203ff. Klein emphasizes, however (p. 204), that the study of the social history of Dutch entrepreneurship is only beginning. 21 P. J. Van Dijek, "Het Toegepaast Natuurwetenschappelijk Onderzoek als NoodzakeIijk Factor voor de Ontwikkeling van Onze Industrie," Economisch-Statistische Berichten (June 24, 1942), pp. 284ft, after listing quite a number of laudable national character traits that make the Dutch well qualified for scientifically founded industrial research, registers one weakness: a certain lack of imagination. Owing to this weakness, he says, Dutchmen sometimes are not quick enough to grasp new possibilities, and are inclined to adopt a "wait and see" attitude. It is not for us to say whether this observa·

37

PART I. THE NETHERLANDS

some institutional obstacles that damped the speed of the industrial expansion. The functioning of the capital market was hampered from two sides: owners of capital displayed a certain distrust of industry;22 industrial entrepreneurs seemed hesitant to turn to the open capital market. Finally, we come to actual technological backwardness in some industrial lines during the period in question. In a few cases special circumstances seem to supply a sufficient explanation: thus, the prolonged technical backwardness of the cotton weaving industry seems to have been caused mainly by the fact that the industry, for too long a time, had concentrated almost exclusively on supplying the Dutch colonies in the Malayan Archipelago with the simple fabrics--calico, etc.-that were in demand there. 23 For the rest, the slow development of high-level technical schoolsitself probably a result of the sociological and psychological factors mentioned above-may have been responsible for some lack of technical know-how and theoretical schooling. It was not until 1861 that a system of technical schools was introduced, and it took quite some time to get widespread acceptance. And it was not until the present century that the "Polytechnische School" at Delft, established in 1863, was raised to the college level. 24 tion is correct, but if it is, it furnishes one reason for slighting the patent question when explaining the Dutch nation's relative lack of brilliance in invention during the period here under review. 22 According to S. van Hoogstraten, Techniek, Uitvinding en Octrooi, Amsterdam, 1922, p. 61, factories were often considered to be "insecure investments." Of course, any industrial venture has its uncertainties; what the author seems to mean is that Dutchmen in the nineteenth century were often unwilling to accept industrial investment risks that elsewhere would have been considered acceptable. 23 See E. Baasch, Hollaendische Wirtschaftsgeschichte, lena, 1927, pp.456-459. 24 I am indebted to Dr. Klein for communicating these data to me in correspondence.

38

INDUSTRIAL DEVELOPMENT, 1870-1914

The Patent Situation Again The factors just reviewed certainly go a long way toward explaining why the history of Dutch industrialization from 1870 to 1914 makes less exciting reading than the industrialization histories of some other nations. Has the absence of a Dutch patent law contributed as another retarding factor? With respect to the overall picture, and leaving for the next chapter a special point on which we do have some concrete evidence, it is hardly possible to find any direct and quantitative indicators on which a conclusive answer could be based. During the long period without patents there was lively discussion in the Netherlands about whether it was advisable to re-establish a patent system. But, as we shall see in some detail later, the controversy was largely a clash of opinions, neither side being able to substantiate its view by any quantitative evidence. In 1882, thirteen years after the repeal of the old patent law, the Netherlandsche Maatschappij ter Bevordering van Nijverheid (Dutch Association for the Promotion of Industry) conducted an inquiry, asking its departments whether, in the light of experience, the absence of a patent law had proved beneficial or harmful to Dutch industry. All replies stressed that it was extremely difficult to answer the question; in fact, not a single straightforward answer could be obtained. None of the industrial executives who were consulted was able to say with any definiteness in what respect the absence of a patent law had affected industry favorably or unfavorably.25 So far as the general development is concerned, about all that seems possible for us to do is to ask: Do the historical, psychological, and institutional factors reviewed above provide so satisfactory an explanation of the pace of the devel25 See the article by J. J. Verwijnen, "Wat is Waarheid?", Tijdschritt der Maafschappij fer Bevordering van Nijverheid (March 1901), p. 103.

39

PAR T I. THE NETHERLANDS

opment that the patent situation is unlikely to have made any appreciable difference? We venture to say this much: Those factors appear to have so much weight that it seems unnecessary to invoke the absence of patent protection for an explanation. In fact it seems unlikely that the overall rate of progress in industry would have been markedly different if a patent system (a good system, not the bad one of 1817) had been in operation. The answer is admittedly-and, we fear, inevitablytentative and impressionistic, but some support for it can be found in the way the matter was treated, or rather dismissed, by leading experts who later reviewed the developments with an independent hindsight.2s Brugmans27 spends one sentence on the repeal of 1869, saying that it placed the projects of inventors at the disposal of the public without hindrance. On the reintroduction of a patent system during 1910 to 1912 all he has to say28 is that it put an end to the abnormal situation that Dutch inventors could obtain patent protection abroad, but not in the Netherlands. Klein, in the important essay previously referred to, and Baasch, in his "Hollaendische Wirtschaftsgeschichte," do not even touch upon the patent question. Had the three experts believed that the absence of a patent law had any major effect on the overall rate of industrial development, they undoubtedly would have discussed the matter at some length. This is not to say that under a patent system everything would have been as it actually was. Even if we are right in surmising that the overall volume and rate of progress in industry would have been unchanged, it is conceivable that 26 As distinct from experts whose evaluation (say, because of their current or former connection with a patent office) must be considered to be to some extent ex parte. 27 Paardekracht en Mensenmacht, op. cit., p. 222. 28 Ibid., p. 312.

40

INDUSTRIAL DEVELOPMENT, 1870-1914

the proportion in which the progress was based on domestic and foreign inventions respectively, would have been different. On this point some statistical evidence can be obtained, and in the next chapter we turn to a brief examination of this evidence.

41

4. Inventive Activity Before and After 1912

The question raised at the end of Chapter 3 can be best approached by asking whether there is any evidence that the reintroduction of a patent system in 1912 has, by stimulating invention in the Netherlands, produced a shift from progress based on inventions originating in foreign countries to progress based on inventions originating at home. Statements in Dutch publications after the reintroduction have implied or suggested in general terms that there was such a shift. 1 Can this be corroborated by direct or indirect statistical evidence? Outlining the Approach

Let us recall once more that even before 1912 Dutch inventors could and did secure patent protection in many foreign countries, of which Great Britain, France, Germany, and the United States, were probably the most important ones. From 1912 on they could add patent protection in their homeland. Let us now look for some countries that, in the decades immediately preceding and immediately following the change of 1912, were roughly comparable to the Netherlands in size, in industrial development, and in the relative importance of patent protection at home and patent protection in the four big countries mentioned. Norway and 1 See 25 Years of Patent Protection in Holland and Colonies, commemorative pamphlet published by Vereenigde Octrooibureaux, 1937, p. 7.

42

INVENTIVE ACTIVITY

Denmark probably come closest to meeting these requirements. Norwegian and Danish inventors could and did obtain patents both at home and in the four foreign countries before as well as after 1912. Now we have figures of patents granted by each of the four large countries to residents (citizens) 2 of each of the three small countries for all years starting with 1905. (For patents granted by the United States and Great Britain we have figures even for a number of earlier years.) We also have annual data, starting in the late nineteenth century, of applications for patents in Great Britain, originating in each of the three small countries. Finally we have, back to and including 1900, census figures, and official estimates for all intercensal years, of the population in each of the three small countries. So we can calculate annual patent grants and patent applications per capita (or per 100,000, or per million) for each of them. The question is: Can we, by examining these data, find any indication that the opening up of the possibility of securing patent protection at home gave to Dutch inventors after 1912 an extra stimulus that Norwegian and Danish inventors, who had that possibility even earlier, did not receive? Some Preliminary Observations

A few words of caution are in order before we proceed. We shall, in effect, be using the intensity of patent activity as a measure of the intensity of inventive activity. This has been done often enough, but the pitfalls involved are well known. There are nonpatentable yet important inventions. Besides, the inventions that are patented in a given year are of widely varying degrees of importance for overall technological progress in the economy. Some of them may even be found later to be not really novel, and the patents covering them 2 For our purpose the distinction between "residents" and "citizens" may be disregarded.

43

PAR T 1. THE NETHERLANDS

may be thrown out by the courts. Now, when working with series of annual aggregates of patents granted or patents applied for, we cannot assume that the proportions of importance within the annual totals remain about constant from year to year, or from country to country in a given year. Such an assumption would perhaps be permissible if the annual totals were very large. But when they are in the twodigit or three-digit range, as they usually are in the cases to be examined here, chances are that the proportions fluctuate widely. We have no method of accounting for these fluctuations by weighting the individual patents within the annual totals. The necessity of working with unweighted annual aggregates in which the weights must be assumed to fluctuate widely, would indeed be very damaging if our purpose were to assess, and to compare over time or between countries, the ability of patent systems to promote technical progress in industry.3 But this is not what we are after. Here, we are concerned merely with the ability of a patent system to stimulate the propensity or eagerness to invent, regardless of how important the inventions will prove to be for overall technological progress, or how well the patents covering them will stand up in court. More specifically, we are asking whether there are statistical facts suggesting that the introduction of a patent system in the Netherlands in 1912 stimu3 Thus it would be dangerous to infer from the relative decline in the annual number of patents issued in the United States during the last few decades that the patent system has become less important for overall technical progress in American industry. There are indications that the average quality of patents granted has improved during those decades. Cf. Barkev S. Sanders, "The Upgrading of Patented Inventions and their Use Here and Abroad," The Patent, Trademark, and Copyright Journal of Research and Education, Vol. 7, No.2 (1963), pp. 185-228. For a different view, see Thomas F. Dernberg, "The Quality of Invention: An Economic Interpretation," Nebraska Journal of Economics and Business, Vol. 3 (Autumn 1964), pp. 16-28.

44

INVENTIVE ACTIVITY

lated the propensity of Dutchmen to invent. For this inquiry the impossibility of weighting the individual patents in the annual totals is not too damaging. Applications or Grants?

As statistical indicators of the degree of patent activity displayed by inventors, the thing w~ are trying to gauge, figures of applications for patents are generally preferable to figures of patents granted. Moreover, to the extent that a time series of patent data can at all reflect the level of inventive activity and its change over time, a series of application figures will reflect it with less time lag than a series of grant figures. On the other hand, the former is more influenced than the latter by the business cycle, the effects of which do not interest us here. But this is a minor matter; in any case, we propose to utilize applications as well as grants. For the period under review it seems reasonable to assume that, in general, a Dutch, Norwegian, or Danish inventor, who wished to get an invention patented in Great Britain, wished to see it protected in France and Germany as well, and accordingly filed applications in all three countries. By and large, the figures of patents granted in a given year by the three countries are sufficiently close to each other to support this assumption. Existing discrepancies may be due to differences in the time interval between application and grant (in one case the patent office of country A needs one year and the patent office of country B, two years, to handle an application for an identical invention; in another case the reverse may be true), or to the fact that a patent for a given invention was granted in one country but denied in another. To iron out these and possibly other chance irregularities, we have summed, for each year examined, the patents granted to the Dutch in Great Britain, Germany, France, and the

45

PART 1. THE NETHERLANDS

United States,4 and we have done the same thing for patents granted in the four countries to Norwegians and Danes, respectively. There are possible objections to this procedure, and cases can be imagined where it would yield misleading results. a If there were such cases, however, they were probably distributed in random fashion both over time and between the three small countries examined, and thus do not appreciably vitiate the summation procedure with regard to the analysis of a systematic developmental difference between one of them and the other two. In the case of the application data, no such summation was possible, for, as already mentioned, only the British source gives, for the period here surveyed, the breakdown by countries of origin. The Evidence

With these comments in mind, the construction of the two charts presented here does not need much further explanation. (For sources and methods of calculation, see the Appendix.) Figure 1 shows, for 1905 to 1912 and 1920 4 On the whole, the U.S. figures run below those of Britain, France, and Germany. Maybe the American examination was more rigorous. Also, for most of the period here considered, the American market was not yet as important to Europeans as it became later, and so there may have been European inventions for which patent protection was sought in Europe but not in the United States. a To cook up an extreme hypothetical example: In some year 100 inventions were made in country A, and patents for them were applied for and were granted in the same year in countries B and C, making a total of 200 foreign grants to citizens of A. In the following year country A produces 120 inventions, of which 60 are patented in Band C and the remaining 60 in B alone, either because inventors in A were not interested in protecting them in C and filed no applications there, or for some other reason. The sum of patents granted in Band C is now 180, suggesting a decline of inventive activity in A from the preceding year, whereas activity actually increased.

46

FIGURE 1 PATENTS GRANTED BY UNITED STATES, GREAT BRITAIN, GERMANY, AND FRANCE TO CITIZENS (RESIDENTS) OF (1) THE NETHERLANDS,

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to 1932, patents granted annually by the Big Four for inventions originating in the Netherlands, Norway, and Denmark, respectively (per million inhabitants). Figure 2 portrays, for 1900 to 1912 and 1920 to 1932, annual applications, originating in the Netherlands, Norway, and Denmark, respectively, for patents in Great Britain (per million inhabitants). The Dutch patent law having gone into effect on June 1, 1912, it seemed reasonable, in view of the time it undoubtedly took the system to become operative, to include the year 1912 in the period in which the Netherlands were without a patent system in operation. The years 1914 to 1919 have been left out as being too greatly influenced by the abnormal conditions created by World War I. Taking up Figure 1 first, it will be seen that in each year from 1905 to 1912 patent grants to the Dutch were below grants to Norwegians and far below grants to Danes. The trend of the series is near-horizontal for the Netherlands and Denmark, and slightly rising for Norway. In the period 1920 to 1932 the picture is greatly changed. To begin with, the three lines cluster much more closely together; the average level for the period is about the same for all three. The trend of the figures for Norway and Denmark is about level, perhaps with a slight tendency downward. By contrast, the line for the Netherlands, which in the first few years is still below the two others (although with a much smaller underage than in the early period) shoots up vigorously during the 1920s, crosses the two other lines, and remains on top during the last four years. Figure 2 tells a similar story: for 1900 to 1912 a wide spread of levels, with the Netherlands at the bottom except in one year (1903), showing a moderate trend upward; for 1920 to 1932 a marked narrowing of the spread, with the Netherlands taking a vigorous upward trend until 1929, ex-

48

FIGURE

2

ApPLICATIONS FOR PATENTS IN GREAT BRITAIN BY CITIZENS (RESIDENTS) OF (1) THE NETHERLANDS,

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