Why Intellectual Property Is a Vital Trade for the English-Speaking World ; BUSINESS

By Hamish Mcrae Business & Financial Journalist of the Year | The Independent (London, England), October 12, 2006 | Go to article overview
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Why Intellectual Property Is a Vital Trade for the English-Speaking World ; BUSINESS

Hamish Mcrae Business & Financial Journalist of the Year, The Independent (London, England)

One of the things that the YouTube purchase by Google has highlighted is the ambivalence the world has over protection of intellectual property. You-Tube's content is free to it and the end user, while Google's main product, its search engine, is free too.

But while some of the stuff on YouTube is amateur home video, others include clips of adverts, pop videos, bits of film and so on, where someone has been paid to create the content. In the case of Google a much higher proportion of the references there contains intellectual property that was expensively generated and which you can also get mostly for free.

There is a narrow issue here: to what extent should the copyright laws apply to new media and new delivery mechanisms in an increasingly global world economy? That is really just a current version of an old problem. Pirating of other people's ideas has been a problem for centuries. I have just been reading Edward Gibbon's autobiography in which he complains of a pirated edition of one of his early works in Dublin. In the middle of the 18th century, as now, Ireland was under separate jurisdiction from England. As far as Google's impact is concerned, there are two views. One is that it undermines a couple of centuries' copyright tradition, the other that it enables the creators of intellectual capital to promote their ideas to a global audience. YouTube, now it has been taken over and broadens its content, seems likely to run into similar issues.

But the narrow legal issue seems to me much less interesting than the broader one: how in practical terms should creators of intellectual property maximise the return on their investment? You could almost say: how do you make money in a world where all your ideas are liable to be stolen?

Some answers in a moment; first some facts.

International trade in intellectual property is rising at an astounding rate. It is tremendously difficult to measure because much intellectual property is embedded in products. If you buy a BMW, you are buying a product but you are also buying the generation or more of knowledge that has gone into designing the car and the clever production method that BMW has developed. But you see one estimate of the growth in the first graph: it is approaching a $100bn ([pound]54bn) business.

It is a business that matters a lot for Britain. The second graph shows the balance of trade in intellectual property as defined by the International Monetary Fund for selected countries. This may seem a slightly nerdy thing to do but I find it fascinating to see which countries gain from trade in "cleverness" (mostly patents and royalties) and which lose. So I went to the IMF's balance of payments statistics (we don't yet have the 2005 ones, so these are the ones for 2004) and have added up the receipts and payments to produce the balances shown.

Unsurprisingly the US dominates such trade but the UK is a clear second. Sweden does well, largely because of its strong exports of popular music - yes, royalties of course include those of the entertainment industry - while Ireland does badly, not because of any intellectual shortfall of its people but because of its tax system. Thanks to very low corporate tax rates, now at 12.5 per cent, Ireland has become the main European centre for US computer manufacturers. As a result it imports a lot of software to put on to the computers it then exports: the net imports of intellectual property are a function of the net exports of manufactured products.

The key point here seems to me to be that trade in intellectual property is particularly important for the English-speaking world.

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