FileSharing Talk - Reining in software piracy would add half a million new jobs

Want to boost the world's sagging economies? Here's one strategy: if governments reduced the piracy rate for computer software by 2.5 percent each year over the next four, it would stimulate most nations to the tune of $142 billion, add almost half a million new high tech jobs, and produce about $32 billion in new tax revenues by 2013.This assessment comes from the Business Software Alliance's new study: The Economic Benefits of Reducing Software Piracy, which tracks the phenomenon in 42 countries that represent almost the entire global market for software.
Four out of every ten programs installed on computers last year were stolen, BSA claims. Some of this came from companies buying software licenses for ten installations on a site, then using it for many more. The rest flowed from the purchase of outright bootleg fare over various web sites, or off line.
BSA complains that the economic impact of all this, upon which it places a commercial value of over $51 billion last year, is rarely considered in assessments of the present global financial slowdown.
"Yet the ripple effects are far-reaching," the study argues. "They go beyond the multinational software publishing industry itself to affect distributors and service providers in local markets worldwide, starving them of spending that would create new jobs and generate much-needed tax revenues for governments."
The Business Software Alliance, it should be noted, is in the business of putting out reports like this. The group issued a similar assessment in 2008, tracks piracy rates on a global level, and offers nation-specific recommendations on how to deal with the global downloading/sharing phenomenon.
The outfit's work has also been criticized by the Government Accountability Office for the assumptions inherent in some of its studies, especially that every piece of illegal software represents a missed sale. This methodology "raised concerns among experts we interviewed," the GAO noted, "including the assumption of a one-to-one rate of substitution and questions on how the results from the surveyed countries are extrapolated to non-surveyed countries."
In a similar vein, we're wondering about the assumption that seems to prevail through BSA's latest report—legal software creates jobs; pirated software doesn't (or it creates less jobs). Is that really true? And do we really understand the big economic picture just by studying Information Technology (IT) services and software distribution?

Formulas

Working with the International Data Corporation research group, BSA's new study goes through a series of steps to calculate job losses due to piracy.
First, IDC looks at a country's economy and creates a ratio between how much money that economy spends on legal software and how much that spins off into other job-creating activities. These include "installation, maintenance, customization, training or other activities that add value to software." On top of that: "PC software sold through resellers and stores, online or otherwise, creates revenues that fund employment and investment in distribution."
Then the study takes that jobs-generating data—the "total software-related services market"—and multiplies it times the country's "known rate of software piracy." This gets that nation its respective "Software-Related Services Losses at Current Rate."
Thus, by tweaking the piracy rate up or down, BSA/IDC can estimate how much it thinks a country's software-related services monetary-loss-due-to-piracy rate will rise or fall.
From this plateau, the study plugs in its jobs formula:

Net Spending Benefit at Lowered Piracy Rate (x) Ratio of Spending Per Employee (=) Net New IT Jobs From Lowering Piracy

That, in turn, presumably generates tax revenue. Were the United States to cut its piracy rate down by ten points over four years, 25,431 jobs would accrue to the economy, the study estimates, as would $37 million in added GDP over four years. A tough intellectual property enforcement policy in Canada would produce 6,445 jobs over four years.
In some instances, BSA says its formula has already been proven correct. "In China, the model would have predicted that approximately 200,000 new jobs would be created in software sales, distribution and services," the report notes. "In fact, China added 220,000 such jobs as a direct result of lower PC software piracy (out of 780,000 jobs added to the national IT industry through autonomous market growth)."

Tradeoffs

But there's an obvious problem with which this study has to grapple—can't IT service providers make money with cheap, pirated software? And doesn't that produce jobs?
To compensate for this reality, the report contains a sort of intermediate formula that sits in the middle of the calculation process. It assumes "lower commercial losses for distributors and service providers in higher-piracy countries than in lower-piracy countries." BSA calls this the "piracy effect."
Apparently, even factoring this in, the survey thinks economies come out ahead with legal software. But what about businesses in general? We put that question to BSA's Communications Director Randolph Court.
"The study does not factor in the value of using infringed software for other kinds of businesses," Court told us. "But neither does it factor in the costs that businesses incur by using pirated software, such as the labor costs involved in working with unsupported software, the productivity and capital costs associated with higher rates of viruses and other security problems, or the legal risks involved in operating in violation of the law. The latter may outweigh the former."
It seems like this is a huge blank spot, since most of the enterprises in any modern economy rely on software, yet are neither distributors or IT service companies and departments. Do they come out ahead or behind using pirated programs? In many instances, particularly for smaller businesses, do they have a choice but to use some extralegal software, given the up-front costs of purchasing it legally? This would have to be at least partially explain why forty percent of all software installed on computers is unlicensed.
There are lots of problems with pirated software beyond these macroeconomic concerns. Piracy cheats developers of a fair return on their products—a moral issue. Bootleg programs pose a threat to the infrastructures of institutions and governments—a national security issue.
But as for the economic impact of software piracy, this study only looks at a snapshot of the global economy. Much more data is needed before we know the true costs, and benefits, of unlicensed code.

Source: ]Ars Technica

4 Comments

taniquetil - 09-16-2010, 01:57 PM
- Reply
I wish for once, these consulting firms would actually publish their methodologies so that academics who aren't on the BSA payroll could evaluate the legitimacy of their findings.

The article was a 4-page printout with no information, and the "Meet the Analyst" video on the BSA website was similarly useless (go watch it, it's about 5-6 minutes long).

Must be pretty easy to write reports when you don't need to detail methodology.