The double-edged sword of piracy

Carrying our (fake) LV bag, slung as an afterthought over our arm sporting a (fake) diamond-encrusted Rolex, on our way to load up on the latest in (fake) DVDs at the neighbourhood store, Shanghaiist wonders why any country would not resort to the levels of rampant piracy that afford us such (fake) decadence. But intellectual property rights (IPR) have their merits, we suppose ... if they didn't, why the big push by economists and government officials to step up IPR protection in developing economies?

Displaying a wanton disregard for IPR can often be a good thing. Companies gain access to patents and inputs that allow for rapid progression up the technological food chain. This is particularly evident in the pharmaceuticals industry, where knock-off drugs provide significantly cheaper versions of advanced treatments, allowing China's poor access to medicines that would remain otherwise unaffordable.

So where are these purported drawbacks to a lack of IPR enforcement? One only need look at new products emerging from Chinese industry to find the answer. Chinese companies earmark on average less than 0.5% of their annual budgets for research and development (R&D), compared with the average 2-5% spent in the West. The result? Lack of homegrown technology that will propel Chinese innovation.

One specific instance of stifling domestic innovation that we found interesting is detailed in an article on DiligenceChina.com, which tells the fate of China Star software at the hands of pirates:

Old China hands remember China Star software. In the early 90s, we started using that now-familiar breathless VC tone to describe the Next Microsoft. Selling at a retail cost of about 30% of its rival Windows Office, it was bilingual, stable and functional. What happened?

Rmb 10 is what happened. China Star would kill Microsoft when Windows sold at US$500 per copy, but didn’t stand a chance at $1.20 per copy. Imagine what China’s software industry might look like if piracy hadn’t killed off a viable, home-grown alternative to Microsoft? What if the Chinese software industry had had 15 years to develop? The ramifications are tremendous. We’re not talking about a single company growing rich and powerful – we’re talking about a whole new class of industrial superpower. What if China Star had been allowed to develop into a whole new software platform – incorporating open-source developments that would come along 10 years later and powered by China’s eventual rise to economic superpower? Consider what China would look like if its universities were churning out computer engineers and software writers who would find challenging work at Chinese companies in software centers around China?

Well, never mind. Maybe I just imagined it all. I can’t even find China Star in search engines now. Today the Chinese software industry is about networked gaming and staffing western-run R&D centers. Anyone buying a computer in China now gets pre-loaded Windows, just like everywhere else in the world (including this laptop). If you go to the cut-rate no-name assembly-shops to have a cheap computer put together for you, they’ll throw in a bootleg copy for free. No one under the age of 30 in China even knows that a Chinese alternative ever existed.

Food for thought, no? Chinese homegrown software developers are not the only victims of pirates. The Motion Picture Association estimates that the Chinese domestic film industry loses upwards of US$2.7bn per year due to piracy, largely because Chinese films cannot expect DVD sales or long runs at the box-office to recoup expenses. Less promise of returns on investments in the film industry means less money is available to fund projects that might lead to a more vibrant domestic film culture. Companies stick to the wushu blueprint or pump out romantic comedies because those tried-and-true formulas hold the promise of at least some minor profit.

So the next time you sit down to watch your pirated copy of MI:3 to see Tom Cruise running through the streets of XitangShanghai, or head to the CyberMart to load the latest releases of Adobe Premier and Microsoft Office onto your machine for RMB 20, think about the software designers and independent filmmakers you are marginalising with your actions. The next time you lament the lack of "truly independent Chinese filmmakers" take a look at the shelf next to your TV at home.

Does this mean that Shanghaiist is going to start buying legal DVDs and paying for our software? Well, we already do the latter, and as for the former it seems that Canada might be working to guide us in that direction anyway. The real purpose of this article is a simple reminder: Someone somewhere is paying the price for the pirated conveniences we enjoy.