By Rishab Aiyer Ghosh and Karsten Gerloff, UNU-MERIT

The Development Agenda put forward by many World Intellectual Property Organization member states seeks in part to fulfil WIPO’s mission to “promote the use and protection of works of the human spirit.”

A major study published by the European Commission¹ on 11 January, 2007 highlights how “works of the human spirit” – in the field of ICT – are frequently created through open collaboration. Importantly, this model transcends the notion of “technology transfer” – which assumes that innovation mainly occurs in rich countries and is passed on to less developed ones – to encourage collaboration and innovation by any participant anywhere.

Although the main focus of the European study is free software (also called Open Source Software or – in the report – FLOSS for Free/Libre/Open Source Software), it demonstrates the need to set up policies that recognise the value of commons-based models for knowledge.

One of the most startling facts contained in the FLOSSIMPACT report is the real economic value of free software. Commercial firms would need to spend 12 billion euro or more than 160,000 person years to produce the equivalent of what is currently available as free software. Readers were also surprised to learn that firms have invested an estimated 1.2 billion euro in developing free software that is often available free of charge, in addition to being free to use, study, modify and share.

But while these numbers are spectacular, we must look deeper to understand the true impact of free software on the economy.

In the software market, by far the most money is made in services and the development of tailor-made software. In the EU and in the US, under one fifth of software investment is in (proprietary) packaged software; the rest is in custom software and in-house software.

In terms of jobs, firms selling proprietary packaged software account for well below 10 percent of employment of software developers in the US. Custom software developers and service providers account for about a third. But the majority of programmers work for “user” organizations such as banks, the retail and manufacturing sectors and government.

The common argument against the use of free software in development – “what’s the economics if you can’t sell software you make” – is demonstrated to be false even for the US, with the largest information technology (and proprietary software) industry. As the software jobs and investment figures show, a small minority make money selling software. Most organizations – and a vast majority of programmers – make money selling their time spent writing or supporting software, but not selling the software itself. This is in fact the economic model of free software: sell potentially everything other than the software itself. The report shows that it is the proprietary software industry that is an anomaly in today’s software market, with which the economics of free software is more in tune.

Learning by Doing

This suggests that the danger of free software cannibalising employment in the proprietary sector is rather small. Rather than disappearing, most developer jobs will become increasingly free software-related. This potential to add value to software is particularly true for the vast majority of countries that do not have a major proprietary packaged software development industry.

Free software provides further benefits for developing countries. One obvious factor is cost. With no license fees to be paid, and no upgrade choices imposed by vendors, the report demonstrates that costs can often be much lower with free software, especially in the long term.

A second important feature of free software is adaptation, especially to local needs. In many parts of the world, free software communities have allowed computers to reach people who were previously ignored by proprietary vendors. For instance, KhmerOS, a free software initiative, first provided Khmer speakers – the majority of the population in Cambodia – the ability to use computers in their own language across several application areas.

Developing countries need to avoid being locked out of acquiring skills and competencies. Skills are crucial to technological take-up and innovation. The report cites recent studies demonstrating that the process of learning and adapting software helps users to make technology truly their own. They become creators of knowledge, rather than merely passive consumers of proprietary technologies.

Free software works as a free-of-charge high quality training environment. For a budding programmer, participating in free software projects works like an informal apprenticeship. She not only hones her technical skills but also learns about teamwork and management. According to surveys cited in the report, such skills are often more effectively learnt through community participation than from formal courses.

The report further shows that employers recognise this value of free software communities, and believe that proven participation in such communities can compensate for a lack of a formal degree in computer sciences. The earning capacity of participating developers grows, even without an explicit investment in formal training.

Such informal apprenticeships are, in effect, a form of technology transfer between those who pay for formal training and those who do not, or cannot. Knowledge flows from big companies to small ones and from rich countries to poorer ones. As the necessary skills spread, business activity increases.

Local Innovation

Taken together these experiences help bolster another key finding of the report: that free software can generate greater economic growth by allowing local economies to retain a higher share of value added locally.

The report cites data from several countries that indicates a growing demand for jobs involving free software applications. Thirty percent of job postings studied referred to free software applications, compared to 70 percent that referred to proprietary software.

Since free software allows local businesses to adapt software to local needs, and does not require the payment of royalties to the original author, it allows local businesses to provide “deep support” which is of higher value than the “shallow support” provided for proprietary software. When problems arise with proprietary software they can only be fixed by the proprietor, limiting the role of local small businesses. With free software on the other hand, a local business is limited only by its skill levels, not by access to the code or the right to change it. Not only can much more value be generated locally, it can also lead to wider recognition for local innovators since improvements can be fed back to the global market.

In addition to the clear advantages of retaining a higher share of value-added locally, there is an additional compelling reason for encouraging FLOSS use in developing countries. Any support for the proprietary software requires the payment of licence fees and other royalties for the use of the proprietary software that are rarely retained locally. Free software allows local economies to regain independence from vendors while binding them closely with global developer communities of training and support.

Policy support required

At first sight, one might assume that given these advantages, free software would surely prevail in the market. But this is often not the case. If a country wants to make the most of the benefits of free software, it will need to develop proactive policies, as recommended by the report.

Two key recommendations concern the government role in promoting lock-in and monopolies, through government procurement and education. The report demonstrates that government procurement of software is often anti-competitive, by preferring specific vendors rather than providing for full competition based on functional specifications and open standards. This has led to a situation where governments are “locked in” to specific technologies, finding it hard to change even if they want to.

The report suggests ways to achieve vendor independence through truly competitive procurement practices that put an emphasis on open standards. This entails revising government regulations that may require citizens and the businesses that interact with them to buy software from a specific provider.

In education, the report warns of the “lifetime vendor lock-in” created by teaching students how to use specific applications, rather than teaching them skills, for instance, Microsoft Word rather than word processing. Even if the proprietary software may be available at a low cost for educational use, once students graduate they are locked in to the specific vendor’s product for which they and society at large will continue to pay. The report highlights policy innovations in the relatively underdeveloped Spanish region of Extremadura to show how governments can support widespread IT education through the use of free software.

Delegates involved in the WIPO’s Development Agenda negotiations have an opportunity to propose strategies to level the playing field in this area, and make the most of a successful new model of collaborative innovation and technology dissemination. If they recognise commons-based approaches to managing knowledge, this would truly “promote the use and protection of works of the human spirit.” We should not waste this opportunity.

Links:

• The full report is available at http://flossimpact.eu/.
• A UNU-MERIT policy brief on the topic of free software and economic development by Rishab Ghosh and Philipp Schmidt can be downloaded at
  http://www.merit.unu.edu/publications/pb/unu_pb_2006_01.pdf

Rishab Aiyer Ghosh is the lead author of the FLOSSIMPACT report, a collaborative effort involving over 20 contributors across five research institutes. A senior researcher at UNU-MERIT, Rishab has over the past 12 years published extensively on Free/Libre/Open Source Software (FLOSS), exploring its economic as well as technical aspects. He is also a founding editor of one of the first open access journals on the Internet, First Monday.

Karsten Gerloff is a researcher at UNU-MERIT. Coming from a background in the cultural sciences, his research interests include the social effects of technology, in particular free software. He also works on topics concerning access to knowledge, such as copyright and patent policies. Before joining Rishab Aiyer Ghosh’s research group, he worked with the Free Software Foundation Europe.

About UNU-MERIT

UNU-MERIT is a joint research and training centre of United Nations University (UNU) and Maastricht University, The Netherlands. UNU-MERIT provides insights into the social, political and economic factors that drive technological change and innovation. The centre’s research and training programmes address a broad range of policy questions relating to the national and international governance of science, technology and innovation, with a particular focus on the creation, diffusion and access to knowledge.

UNU-MERIT website: http://www.merit.unu.edu

Footnote

¹ Disclaimer: The report was prepared by a team of independent researchers and was the outcome of a study commissioned by the European Commission. It represents the views of its authors and not those of the European Commission. The report’s publication does not reflect any change in European Commission policy, which remains technology neutral and favours open competition, interoperability, standards and vendor independence.