In the digital world, it seems, there are two certainties: that every year the Business Software Alliance will put out a report that claims huge amounts of software are being "stolen"; and that the methodology employed by that report is deeply flawed.
So, here we go again:
The commercial value of software piracy grew 14 percent globally last year to a record total of $58.8 billion, according to the 2010 BSA Global Software Piracy Study.
Just six years ago, the commercial value of the PC software that was being pirated in emerging economies accounted for less than a third of the world total. Last year, it accounted for more than half — $31.9 billion.
Notice that immediately we have the phrase "commercial value"; just in case you had any doubts what this might mean, it is explained in the methodology section:
The commercial value of pirated software is the value of unlicensed software installed in a given year, as if it had been sold in the market.
"As if it had been sold in the market": this is, of course, a meaningless figure. The very reason that people pirate software in developing countries – the main focus of the BSA report – is that they cannot afford Western-level prices. So there is no way that pirated software could ever be converted to sales at those prices – it is economically impossible. Using it as a measure is pure fantasy.
A more sophisticated study would attempt to establish at what price people would actually choose to buy from dealers rather than other sources: then that could be used to calculate a realistic estimate of how much revenue is lost in developing countries. To do that, a good place to start would be the recently-published Media Piracy in Emerging Economies, whose results can be summarised thus:
Based on three years of work by some thirty-five researchers, Media Piracy in Emerging Economies tells two overarching stories: one tracing the explosive growth of piracy as digital technologies became cheap and ubiquitous around the world, and another following the growth of industry lobbies that have reshaped laws and law enforcement around copyright protection. The report argues that these efforts have largely failed, and that the problem of piracy is better conceived as a failure of affordable access to media in legal markets.
Exactly the same forces are at work in the world of software: this is a market failure, not a failure of enforcement.
But even if the BSA report had attempted this more realistic analysis, it would still draw the wrong conclusions from its results. Summarised in a section called rather risibly "Anti-piracy equity" - as if Western holders of intellectual monopolies really cared about "equity" when it came to exploiting developing countries:
Reductions in software piracy produce widespread economic benefits. For example, the BSA-IDC Piracy Impact Study found in 2010 that reducing the global piracy rate for PC software by 10 percentage points — 2.5 points per year for four years — would create $142 billion in new economic activity globally by 2013 while adding nearly 500,000 new high-tech jobs and generating $32 billion in new tax revenues for governments. On average, more than 80 percent of these benefits would accrue to local economies.
I debunked this erroneous argument last year:
One thing that is always omitted in these analyses is the fact that the money not paid for software licences does not disappear, but is almost certainly spent elsewhere in the economy (I doubt whether people are banking all these "savings" that they are not even aware of.) As a result, it too creates jobs, local revenues and taxes.
Put another way, if people had to pay for their unlicensed copies of software, they would need to find the money by reducing their expenditure in other sectors. So in looking at the possible benefit of moving people to licensed copies of software, it is also necessary to take into account the losses that would accrue by eliminating these other economic inputs.
Thus the BSA's hypocritical plea for "equity" - how equitable is it trying to extract a month's wages from someone for a copy of Windows whose marginal cost is close to zero, say? - simply doesn't stand up to scrutiny. Eradicating piracy won't generate "new economic activity globally", nor will it generate new tax revenues for governments. Again, as I pointed out last year:
One important factor is that proprietary software is mainly produced by US companies. So moving to licensed software will tend to move profits and jobs out of local, non-US economies.
Another factor that would tend to exacerbate these problems is that software has generally had a higher profit margin than most other kinds of goods: this means any switching from buying non-software goods locally to buying licensed copies of software would reduce the amount represented by costs (because the price is fixed and profits are now higher). So even if these were mostly incurred locally, switching from unlicensed to licensed copies would still represent a net loss for the local economy.
Similarly, it is probably the case that those working in the IT industry earn more than those in other sectors of the economy, and so switching a given amount of money from industries with lower pay to IT, with its higher wages, would again reduce the overall number of jobs, not increase them, as the report claims.
So, as expected, this year's BSA report rehashes all its old errors, simply introducing even more unrealistic figures in an attempt to frighten governments into even more disproportionate and unjustified attempts to enforce intellectual monopolies.
But to be fair, the 2010 report does sport one novelty:
this year's study also adds a new dimension: Deeper and richer surveys of PC users in 32 countries, conducted by Ipsos Public Affairs, one of the world's leading public-opinion research firms.
Here's the context to the first questions:
"The laws that give someone who invents a new product or technology the right to decide how it is sold are called intellectual property rights. Which comes closer to your view..."
Two options were then presented:
"Intellectual property rights benefit people like me by creating jobs and improving the economy."
"Intellectual property rights hurt people like me by making products I need too expensive."
Notice how this is framed in terms of "rights" - the word is used twice. This is a biased term, of course – it suggests that it is "right" to have that right. But really the question should have been:
"The laws that give someone who invents a new product or technology a monopoly on how it is sold are called intellectual monopoly rights. Which comes closer to your view..."
Similarly, the questions already bias the response by hammering home the idea that these are "rights". Reframing the questions as
"Intellectual monopolies benefit people like me by creating jobs and improving the economy."
"Intellectual monopnolies hurt people like me by making products I need too expensive."
might well have produced results less favourable to the report's position. Nonetheless, it's interesting that only 61% thought intellectual monopolies benefitted ordinary people, while 37% thought they harmed them – hardly a resounding vote of confidence.
Another question gave these alternatives:
"Intellectual property rights allow companies to generate profits which in turn benefit local economies."
"Intellectual property rights concentrate wealth in the hands of multinational companies that do not deliver significant local economic benefits."
Here, there was even more scepticism about the benefits – only 59% agreed with the first, while 40% chose the second option. Imagine what the results would have been had they been phrased thus:
"Intellectual monopolies allow companies to generate profits which in turn benefit local economies."
"Intellectual monopolies concentrate wealth in the hands of multinational companies that do not deliver significant local economic benefits."
Here's a third set of alternatives:
"It is important for people who invent new products or technologies to be paid for them, because it creates an incentive for people to produce more innovations. That is good for society because it drives technological progress and economic growth."
"No company or individual should be allowed to control a product or technology that could benefit the rest of society. Laws like that limit the free flow of ideas, stifle innovation, and give too much power to too few people."
Of course, the first question is loaded: who doesn't think that it's important for people who create new products or technologies should be paid for them? No wonder 79% chose this option. But that's not the issue: the issue is whether Western companies can charge unrealistic prices for their products in developing countries – prices that are literally unaffordable by the majority of the population there – and expect them to be enforced by local governments against the interests of their citizens.
Despite the bias of these questions, it is, however, interesting that BSA is trying to bolster its case with this supposed support for monopoly-friendly policies from ordinary citizens. It suggests that it knows that the days of its old approach – claiming implausibly large damage to economies based on flawed methodologies – are numbered, and that it must find an alternative soon. Otherwise we may have to forgo the pleasure of reading those entertaining annual reports...