The country's economy is contaminated by piracy


By Abram Szajman, Valor Econômico - 27/05/2005

The pirate, as he has been immortalized in cinema and literature, is a magnetic character, full of glamor and who usually stands out for his courage. But it is not what happens when this character transitions from fiction to reality. Today, the underground economy, which moves billions of reais in unpaid taxes, has become a deadly threat to formal companies, which keep their tax obligations up to date and invest huge sums in production, generating millions of jobs.

When buying a pirated or counterfeit product, a copy, in short, citizens often entertain the illusion that they are paying less for something very similar or equal to the original. It's not like this. In addition to the poor quality, the fake product grinds formal jobs, strikes Brazilian competitiveness and, what is also serious, violently reduces the State's investment capacity, due to tax evasion.

The piracy of computer programs alone has already caused Brazil losses in the order of US $ 659 million, reaching a rate of 64% in 2004, according to research released by the BSA (Business Software Alliance), a worldwide association of software companies. The phenomenon, by the way, is planetary: 35% of the computer programs used in the world, last year, were pirates. The global legal market generated US $ 2004 billion in 59, against US $ 31 billion in piracy.

Counterfeiting can even endanger consumers' lives, as is the case with medicines, auto parts, food, cosmetics and a large number of products that add to the list of adulterations on a daily basis. It also causes irreparable damage to high-value goods, as is the case with adulterated fuel, or even perplexes the citizen, as is the case with pirate radio stations.

It is no exaggeration to say that the entire production chain, practically without exceptions, has been contaminated by piracy. Worse, as the “business” gained international dimension and scope, attracting the attention of organized crime gangs, it became common for copies to reach the market simultaneously with the original products.

It was not always so. In the not-too-distant past, piracy was limited almost basically to two lodes. One of them included the prosaic and folk Scottish scotch “made in Paraguay”, the electronics and a lot of knick-knacks, which created sectorial problems, but were far from becoming a dramatic issue. The second vein was the counterfeiting of luxury goods, which is also worrying, but without the endemic dimensions of today.

Legal country cannot live with illegal, as this dichotomy is harmful to development

Now everything is falsified on an industrial scale. It is a world of parallel production lines, which only meets the world of legal production when it comes to transforming the tax evasion differential into a unique and attractive competitive advantage. As taxes in Brazil rival the highest in the world, it is clear that the one who evades massively, as in the case of informal companies, now has a competitive advantage.

What is surprising is that little or almost nothing is done to tackle piracy, although initiatives such as the one created by the National Council to Combat Piracy are commendable. It should not be forgotten, however, that this council was not even created because we Brazilians find it convenient to do so. But because the country received an ultimatum from the United States, which threatened us with the exclusion from the General System of Trade Preferences, if the country did not intensify the fight against piracy. In the first quarter of this year, 285 thousand CDs were seized in the Brazilian market, volume 32% higher than in the same period last year, but still absolutely insufficient.

The problem is not just the government's. There is also a cultural and behavioral dimension, because a large part of society is deceived by the appearance of appearances that the counterfeiting of brands is a source of jobs in a country of unemployed people and, in a way, mitigates social antagonisms and conflicts. It is a mistake to see things in this light. Although there are more than ten million informal companies in Brazil, which employ almost 14 million people (25% of the total urban workforce), surveys show that informal jobs provide very low wages, in addition to not offer any guarantee to the worker. On the contrary, they limit their horizons to the extreme and do not bring any benefit to their professional development.

This stance, which has deep roots in the government itself, largely inhibits more intense enforcement actions. It also inhibits campaigns that can enlighten public opinion about the harmful effects of piracy. In parallel, it fosters the feeling that impasses begin and end with the street vendor, who is the last and most fragile link in the system and, in practice, ends up being twice a victim. First, those who finance the piracy that exploits it and profit from it, keeping it in a regime of semi-slavery. Second, from the authorities that repress it, from time to time, whenever pressure from the formal sector grows.

What to do? It is evident that piracy and its deleterious consequences are not the main cause of the country being more than two decades away from the growth rate of competitors such as China and India, to be just two examples. But it is undeniable that piracy is a stone to be removed from the path of resumed development. In part, because it feeds on the distortions of a tax system that is at the limit of irrationality and has long been inefficient. Partly because the current situation divides Brazil into two countries: the legal and the illegal. One can no longer live with the other. Therefore, the illegal country must end in order for the legal country to become a powerful economy, capable of generating jobs, income and well-being for all.

Abram Szajman is a businessman, president of the Federation and Trade Center of the State of São Paulo, of the Boards of SESC-SP and SENAC-SP and of the Board of Directors of Grupo VR.