5 ways counterfeiting hurts society—and what we can do about it
Counterfeiting and piracy are a form of theft that has been steadily growing in recent years, reaching an estimated value of up to US$917 billion a year for the illegal trade in goods alone. The global value of digital piracy in movies, music and software reached a further US$213 billion in 2015.
Counterfeiting has a damaging effect on business, the economy and the general population. Here are five ways that counterfeiting hurts society and what we can do about it.
1. Genuine economic activity loses out
Consumers who knowingly purchase counterfeit products are unlikely to have purchased genuine equivalents and often do so because the counterfeit versions are much cheaper. This means that legitimate companies face competitors that steal their intellectual property (IP) without paying taxes or complying with the regulations and quality standards that the former do.
Such unfair and illegal competition displaces legitimate business activity, with clear negative knock-on effects for consumers, governments and economic growth. A recent ICC Business Action to Stop Counterfeiting and Piracy (BASCAP) study estimates that in 2013 between US$470 billion and US$597 billion of genuine economic activity was displaced by counterfeiting. Counterfeiting is also estimated to cost up to 2.6 million jobs with projected job losses estimated to be between 4.2 and 5.4 million by 2022.
2. Less public money for roads, schools
Business provides essential tax revenue for governments not only through direct transfers like corporation tax and income tax of employees but also through the sales tax that is levied on their products. Indeed, sales tax is estimated to represent between 70% – 90% of the financial losses that the displacement of genuine economic activity brings about.
The BASCAP report estimates that the reduction in sales tax across countries as a result of displacement effects could total up to US$89 billion per year. This means fewer funds in the public coffers for essential public goods like schools, hospitals, roads and other basic infrastructure that in turn stimulates job growth.
3. Investment and innovation move elsewhere
For similar reasons, counterfeiting can also hurt the foreign direct investment (FDI) prospects of a country, and its potential to attract and develop valuable innovation hubs. FDI is a critical channel through which both advanced and emerging economies unlock productivity gains and output growth. Just as enforcing intellectual property rights has been shown to stimulate FDI, a lack of IP enforcement can severely damage countries’ ability to attract and retain FDI, especially in IP-sensitive areas like equipment manufacturing and pharmaceuticals.
The total reduction in FDI due to counterfeiting and piracy is estimated at US$111 billion, as companies will have less incentive to invest in a country where their IP could be stolen and used to displace their legitimate products. Moreover, other benefits of FDI like knowledge and innovation spillovers would consequently be lost as well in an environment with rampant counterfeiting.
4. Greater crime
Counterfeiting and piracy are criminal activities in and of themselves but they also support wider criminality by providing funds that can be used for other illegal ends. More money inevitably strengthens criminal organisations and makes it more difficult to stem the damaging societal impact of their activities—an impact that could include lost lives, greater security costs as well as physical and emotional consequences.
A 2009 BASCAP study developed an estimate of the social costs of crime by assuming a 1% increase in the crime rate due to counterfeiting. Using this approach, the global cost of greater criminality is thought to be around US$60 billion per year.
5. Serious health risks
Because counterfeit goods are not subject to the regulatory standards and production norms that govern legitimate products, their consumption can pose serious health risks. A large proportion of alcohol poisoning deaths in Russia for instance—which numbered over 17,000 in 2012—are thought to be caused by counterfeit beverages with hazardous ingredients.
With counterfeit pharmaceuticals, the problem is even direr as many drugs will contain incorrect dosages of active ingredients or no active ingredient at all. In developing countries, the World Health Organisation estimates that counterfeits comprise between 10%-30% of the market value of drug sales. A recent study by the American Society of Tropical Medicine and Hygiene found that, in 2013, substandard or degraded anti-malaria drugs contributed to the deaths of more than 120,000 children below the age of 5 in Sub-Saharan Africa.
What can we do?
Stricter enforcement of IP laws is essential to curb the growing threat that counterfeiting and piracy poses to society. As the first steps towards effective actions necessitate a clear view of the scale of the problem, the above BASCAP figures allow governments to compare any enforcement costs with the enormous price of inaction on counterfeiting and piracy.
BASCAP engages directly with national consumer protection agencies, international organisations and the private sector to promote effective anti-counterfeiting and piracy strategies and is at the forefront of research into the economic and societal impact of IP theft.
FAKES COST MORE – I BUY REAL is a global campaign developed by BASCAP to fight fakes. The I Buy Real website provides materials without charge for organizations and associations to engage in awareness raising campaigns of their own or as part of an existing campaign.
As a business-led alliance, BASCAP relies on the expertise of a wide spread of member companies across sectors that allow it to accomplish more than any single company could on its own. Learn more about how to join BASCAP’s efforts.
— ICC WBO (@iccwbo) June 7, 2017