Hamish McRae: Why intellectual property is a vital trade for the English-speaking world

One of the things that the YouTube purchase by Google has highlighted is the ambivalence the world has over protection of intellectual property. YouTube'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 (£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. The US dominates new media of course but Britain matters too. It now publishes more book titles than any other country in the world, including the US. So it would seem to be very much in the self-interest of the English-speaking world to figure out how to make money out of this trade. It is a legal issue but it is also one of power.

Take the Chinese copies of Volkswagen cars that you see in Shanghai. VW in practice can do little about them and if it wishes to continue to produce in China itself, it has to swallow its pride and accept the reality that there will be near-copies of its cars selling a three-quarters of the price.

So what can be done? Well, there are certain things you can always charge for. One is the personal experience. This is particularly important for celebrities. So whereas half a century ago pop stars made most of their money from records, now they make it from live performances. That is why the Stones and Madonna keep slogging round the world.

I suspect authors will find themselves pushed in the same direction. We won't quite get to stage where books are given away free, leaving all the money to be made from the authors making personal appearances, but that is the way it seems to be heading.

Other "old" media will have to adapt too. Anyone who sits within an "old" media product - though at 20 years old The Independent is still young in media terms - is well aware of the challenge.

But media groups have options: we can figure out other ways to generate revenues. It is harder to see how, for example, the pharmaceutical companies could replace patents and royalties as a way of funding their drug research. Yet that protection seems ever harder to maintain: just about any drug can be reverse-engineered.

In terms of information, though, I think we will have to accept two propositions. One is that a lot of stuff that previously had to be paid for will become free. The other is that exclusive information will become relatively more expensive. The mass/elite distinction will become starker.

You can see this in finance. A generation ago the quite small saver and the relatively rich one both had access to decent individual financial advice at an OK price. Now small savers are herded into managed funds while rich families have private offices - their own professional fund managers to run the family finances.

So the money will be at the two ends of the scale. The mass-market generators of intellectual capital will do a mass-market job. The highly specialised generators will provide, at a price, a wonderful service for people able to pay for it. The new information technologies are inherently democratic in that anyone with a computer can pull up vast arrays of information for free. That is great. But people and companies with serious financial resource will be able to find the information that is exclusive and accordingly enables them to increase those resources even faster.

The better the access to mass information, the more valuable non-mass information becomes. The task for anyone in the information business will be to figure out what people really value and to craft the products and service to fit that need. Ultimate the need for mediators - people and companies than can generate and filter the information - will be as great as ever. Indeed the more stuff about, the more the need to sort it - or at least that is what those of us in the sorting business must surely hope.