Leon Gettler, in the Australian Age (April 30, 2004):

The big music companies are in deep trouble. According to figures this month, the latest US music sales of CDs, legal downloads and DVDs have been the best for a while but it's not enough to offset the sales slump that's battered the industry over the past few years.

Dollars from world sales of recorded music fell by 10.9 per cent in the first half of last year. During the same period in Australia, CD single sales dropped 17 per cent. Globally, the record business is 16 per cent smaller than it was in 2000.

The record companies - mainly the five (tipped to become four) that now control 85 per cent of the business - blame all this on consumers deserting them for free music downloads on the internet.

In 2001, 400 independent labels signed a licensing deal with the pioneer of illegal music downloading, Napster, after the courts had prohibited its file trading. In November that year, Apple released the iPod, the slick device that has since revolutionised the music scene. Martin Mills, the chairman of London-based Beggars Group, one of the world's biggest independent music companies, believes the licensing deal would have kick-started the digital music industry and would have seen the record companies beating Apple to the punch. Instead, the big labels held firm and de-fanged Napster.

But music downloading continued and as a result, the industry last year started lawsuits against file sharers - and the US Justice Department is backing the industry. Under the Protecting Intellectual Rights Against Theft and Expropriation (aka the"Pirate") Act now before the US Senate, the department will be able to file civil lawsuits against people who trade copyrighted content over peer-to-peer networks such as Kazaa. Another bill outlaws copyright violations, making these acts punishable by fines and prison sentences of up to 10 years, potentially turning ordinary people - 43 million file sharers in May 2003, according to one survey quoted in The New York Times - into criminals.

In his new book, Free Culture (The Penguin Press, 2004), Stanford Law School professor Lawrence Lessig paints a picture of big corporations using the law to lock up creativity in ways that were unimaginable before.

Lessig's book is not just about law, it is about the way organisations stymie innovation and creativity that compete with their core business. Organisations also discourage creativity because they have trouble embracing different ways of operating.

Lessig, one of America's most prominent activists on intellectual property issues, argues that intellectual property is an instrument that sets the groundwork for a creative society. It's only there, however, to support the value of creativity."The current debate has this turned around," he writes."We have become so concerned with protecting the instrument that we are losing sight of the value . . . the law's role is less and less to support creativity, and more and more to protect certain industries against competition."

The problem is that innovation does not exist in a vacuum. Ideas and inspiration bubble up from the sources around us. Lessig calls it"Walt Disney creativity", named after the creator of Steamboat Willie (1928), the first widely distributed cartoon synchronised with sound that introduced us to Mickey Mouse. It drew its technology from the Al Jolson film, The Jazz Singer, made a year earlier. For that matter, Steamboat Willie was a cartoon parody of the Buster Keaton classic Steamboat Bill Jr, which came out just before.

Without Buster Keaton or Al Jolson, there'd be no Mickey Mouse. Indeed, many would argue that all creativity is a matter of ripping off and mixing, about cutting and pasting to produce something new.

And while our lives have been transformed by technological change, far-reaching innovation is usually less spectacular.

According to a paper published last year by Santa Clara University economic historian Alexander Field, the most innovative decade in US history was not the '90s but the period between 1929 and 1941, the time largely taken up by the Great Depression. It was characterised by high productivity growth, investments in streets, highways, water and sewerage that led to the postwar suburbanisation boom, investment in municipal airports that helped along a nascent industry, and advances in chemicals, long-distance communication, electrical machinery, structural engineering and aviation.

Michael Hammer, the co-author of the manifesto of the '90s, Re-engineering the Corporation, says that low growth and stagnant markets, disinflation, overcapacity and an environment where virtually all product and service offerings have become commodities with little pricing power have left businesses with no choice but to focus on operational innovation....