The Hindu Business Line : Software piracy a `middle-class' crime?

IS software piracy a middle-class crime? This is the question that Justina A.V. Fischer of the Swiss Institute for International Economics and Applied Econonomic Research, and Antonio Rodríguez Andrés of the Department of Economics, University of Southern Denmark, ask in a recent discussion paper posted on www.ssrn.com.

"Economically, the piracy of intellectual property is equivalent to the theft of a tangible good. Piracy can take several forms depending on the type of intellectual or information good and the technological access to it," write the authors, before highlighting the extent of software piracy using statistics. "According to the International Planning and Research Corporation (IPRC), worldwide, in 2002, pirated software constituted 39 per cent of all PC business software applications, which translates into a $13.1-billion loss in revenue dollars."

Software piracy is hot news. For instance, `Global Garde the First Global Solution to Digital Piracy,' announces PR Newswire; "13 minutes ago," as I write this `World's first BT piracy case conviction,' says Middle East Times, Egypt; `Software piracy justifiable due to prices,' says Eastern Echo, Michigan; `Anti-software piracy drive gets public support,' notes Sun Star, Philippines; and "If the UK achieved a 10 per cent reduction in software piracy, an additional £10 billion could be raised towards UK GDP while 40,000 jobs could be created in the IT sector," is a quote on http://software.silicon.com.

Most studies on the causes of piracy focus primarily on factors such as "economic development, legal framework, institutions, culture, and intellectual property rights protection," point out the authors. They then decide to approach the issue of software piracy from the angle of `income inequality' using "a sample of 71 countries in a cross-country context".

Assumptions and hypotheses

The paper cites `previous studies', such as of B.W. Husted's on `the impact of national culture on software piracy' in 2000, to mention the assumption that income inequality has an inverse relationship with piracy rates. Higher income equality means a larger middle class, and so `the greater the share of illegal copying', states the common assumption, without explaining "why the middle class is expected to be more prone to piracy than other income classes". Therefore, the authors plunge into the question of why inequality may influence piracy rates, drawing also on "other strands of economic literature such as that on criminal behaviour and personal trust".

The simple economics of crime is a cost-benefit equation, where "rational individuals choose whether or not to engage in illegal activities by comparing the expected returns from these activities to the potential returns from working legally". Taking societal mean income as a proxy for the expected benefit from illegal activities, the authors state, "the cost of committing a crime increases with the potential legal income of the criminal as opportunity cost".

Thus, where income inequality is high and therefore the gap between societal mean income and individual income is large, those on the lower rungs of the income distribution are more prone to commit crime, reason the authors. "An increase in inequality could lead to what is called an `envy effect' of the less affluent, which reduces some individuals' moral thresholds and exercises a positive impact on crime (Fajnzylber et al., 2002)," is a reference to an earlier paper titled, `What causes violent crime?'

There is another way of looking at piracy: as a redistribution measure "from the rich to the poor through violation of the intellectual property rights law by the latter". Fischer and Andrés propose, "It is plausible that in countries whose citizens embrace the principles of redistribution, the population is more prone to find the pirating of legal software for redistributive purposes morally acceptable."

There is honour among thieves, they say. Thus, illegal copying may bank on interpersonal trust, suggest the authors. "First, those who either copy from or share software with others must trust that the software contains no viruses. Second, individuals giving illegal copies to others must trust these persons not to report them to the police." According to previous research cited in the paper (Zak and Knack 2001) equality in personal income generates personal trust; "thus, in more equal societies, we might expect higher levels of trust that lead to more software piracy."

The lowest income earners aren't part of the current study because "poor people may not have been able to afford a computer". They are neither on the demand nor the supply side of the crime in question, notes the paper. In contrast, the middle class is suspected to be on both the sides, viz. demand and supply, you'd learn, quite disappointingly. "The highest income class is expected to have a piracy dampening impact because potential opportunity costs, particularly reputational costs, exceed the gain from having saved a few hundred dollars by acquiring an illegal copy."

The hypothesis is that a higher Gini coefficient can have a crime dampening influence. (For starters, the Gini coefficient is a number between 0 and 1, where 0 corresponds with perfect equality where everyone has the same income and 1 corresponds with perfect inequality where one person has all the income, and everyone else has zero income, as Wikipedia explains).

Findings and conclusions

The authors' findings reveal that software piracy is "an exclusively middle class crime in Latin America, the Caribbean, East Asian and the Pacific regions, a crime of both middle and lower class in the Central Asian and Eastern European regions, but an upper class crime in Western Europe and North America."

An increasing share of the highest quintile appears to be crime lowering, whereas the ones of the remaining quintiles seem to increase piracy rates, say the authors, referring to level of inequality. The lowest income class may be "piracy enhancing only in the economically more developed region of Eastern Europe and Central Asia," notes the paper.

Policy implications

Fischer and Andrés are of the view that initiatives to fight piracy may interfere with `the cultural and institutional values of a nation', and so it may be necessary to adapt the policies accordingly. Income inequality may take long to correct, concede the authors. However, short-term successes in fighting piracy can be thought of "through the strengthening of legal institutions, which, in turn might also enhance economic growth and prosperity," they conclude.

For the depressed `middle', William Makepeace Thackeray's quote - that it is to the middle-class we must look for the safety of the country - may cheer! "The middle class, that prisoner of the barbarian 20th century," Sinclair Lewis would say, quite sympathetically, and the quote possibly holds well in the current century also.

Orson Scott Card reminds that it is the middle class that feels the luxury of being able to have causes. Does that include a cause for piracy too, going by the paper's finding? "We of the sinking middle class may sink without further struggles into the working class where we belong, and probably when we get there it will not be so dreadful as we feared, for, after all, we have nothing to lose," says George Orwell, not too reassuringly.

ITworks@TheHindu.co.in

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