macroeconomics leverage trough open source
TRANSCRIPT
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Macroeconomics Leverage Trough Open Source
Manuela Aparicio Adetti - IUL/ISCTE - IUL Av. Das Forças Armadas
Lisboa, Portugal
Carlos J. Costa Adetti – IUL /ISCTE - IUL Av. Das Forças Armadas
Lisboa, Portugal
ABSTRACT In this paper, we describe the macro-economical factors that are
influenced by the public and government sector adoption of open
source. This paper presents these factors grouped in two
dimensions: financial and economical. It is presented a literature
review related to these dimensions. It is also presented here some
results carried out by multiple studies.
Categories and Subject Descriptors K.4.1 [Computers and Society]: Public Policy Issues – Use(abuse
of poweer.
J.4 [Computer Applications]: SOCIAL AND BEHAVIORAL
SCIENCES - Economics
K.6.1. [Management of Computing and Information Systems]:
General - Economics
General Terms Economics, Legal Aspects
Keywords Open source, macroeconomics impacts, economics, economic
growth, public finance
1. INTRODUCTION In our present life we face with the words debts, deficits,
imbalance, unemployment and in this study we analyze some
factors that might be taken into account when a government has to
decide on which software systems it should invested. Government
becomes a platform for social innovation as it provides resources,
sets rules and allows citizens, non-profits and the private sector to
share in the heavy lifting of a country economic situation [19];
[20]. Any economic agent is free to choose between proprietary
and open source software. We identify the main dimensions and
its impact on economy and finance. Regarding that a government
has social needs to accomplish in the minimum expense it is
undeniable that it should be considered the amount of expenses in
software licensing with the citizens’ money, especially if those
expenses are not leveraging the economy through other effects.
Microeconomic studies have been made on the open source
impact of the markets and their agents.
Some decisive factors were mentioned in a study [10], as open
source could provide solutions to various needs of public
agencies. The findings state that software became “affordable for
individuals, businesses, and governments; increased security and
reliability; reduced costs and less dependency on imported
software technology and skills; access to government data without
the barrier of proprietary software and data formats; ability to
customize software to local languages and cultures; educational
resources for local developers, lowering barriers of entry to the
global software market. Other authors [7] claim to an absent
government favoritism for (or against) open-source software,
because users and the market will choose software that best suits
their needs, taking price into account, usefulness sand ease of use
among other characteristics. FOSS are also studied as an
economic reality that provided information justice [4].
Other reasons for the adoption of free open source software
(FOSS) were identified [17]:
Cost Savings for adopters
Profits per sale in the market
Pricing flexibility for vendors
Increase of total market size
The adoption of FOSS implies no licensing to pay and agents
expect costs saving of products, due to free access of the software
and only have to face the cost of configuration and
implementation. Some companies that decide to use open source
systems also might share the development expenses, by
contributing with developers or by sponsoring some projects.
Another microeconomic reason for companies that are in the
software market, is that they might have bigger profit per sale as
they only have to incur in less expenses and at the same time
supplying products to the market with clear economic advantages,
due to the competitive prices. Price flexibility for vendors is also a
reason in favor to FOSS adoption, as demand is price-sensitive.
When prices decrease potential customers became more willing to
buy, this is elasticity on demand effect. Vendors can also benefit
from the customers non-expense in proprietary software, because
their budget increase. Therefore when the purchase power
increases the total market size becomes larger.
In this paper we analyze the qualitative macroeconomic impact of
the open source usage in any economy.
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2. FINANCIAL DIMENSION: Budget
Deficit Governments' revenue comes from multiple sources, making notes
and coins, but mainly public income derives from taxes. Taxes are
the price that individuals have to face for living in society. Tax
payers pay taxes for government to have money to essential and
useful things; as hospitals, schools, highways; money can be
applied on other less useful things, but that is not our study
objective. If large amounts of money are used to pay for products
and services from abroad it has impacts on trade, budget deficit,
and economic development. These three dimensions are studied
here for the specific case of the money paid by foreign software
licenses.
A budget deficit occurs when public spending exceeds
government’s revenue [21]. An economy with a budget deficit is
an economy in which government spend more money than the
received by society. That may be caused by may factors, an
economy can be in an expansive mode, and therefore may incur in
more structural expenses or it can be a consequence of current
expenses. Regarding that software licensing expenses are part of
current expenses, a government must be aware that those
expenses never decrease, by the contrary they usually tend to
increase by other macroeconomic variables like inflation, for
example. The table below lists the impact factors of the open
source (FOSS) software (SW) regarding the budget policy.
Table 1. Impact of Software Licensing Fees Versus Open
Source
Budget Impact Impact on Income Impact on
Expenses
Open Source
usage
=
less expenses
from license fees
Government do
not have to pay
licenses
=
Lesser Expense
Open Source
usage
=
Less revenue
from license fees
taxes
Government do not
receive VAT money
from the SW
transaction
=
Less revenue
Open Source
usage
=
More human
resources
expenses
Government receive
more money from
IRS & more VAT
money resulting
from the purchasing
power
Government pays
money in from of
wages to SW
configuration (not
a current expense)
Open Source
usage
=
More services
expenses
Government receive
income from VAT
of services
transaction and
Taxes on Profit of
the companies
Government pays
money to the
companies that
configure SW (not
a current expense)
Open source software is by nature a software that have no licenses
fees to pay, for that reason the usage of FOSS do not bring the
burden of an increasing current expense, as proprietary SW does.
Analyzing VAT impact, we can infer that government may
receive less revenues from taxes (VAT) resulting from licensing
paid fees, but if tax payers have more money government will
receive that VAT through the purchasing power of the tax payers.
Open source has to be customized and implemented, as closed
source software has to. As a consequence, services provided by
those these companies also generate taxes, such as VAT and other
associated with income. In that scenario, budget income would
increase through the payment of labor taxes (IRS) by the
government human resources, or even though the revenue
provided by profit of the companies and also by the VAT of each
transaction.
3. ECONOMICAL DIMENSION:
CYCLICAL SCOPE
3.1 Balance of Payments Impact
The balance of payments (BoP) summarizes all the transactions
between a country and the exterior. The balance of payments has
sub-accounts, in this study the accounts that matter most are the
are the goods and services account and the capital account
[12];[11]. When a country A byes a software or pays a license to
another country B a transaction is registered in the goods and
services account, so if a country A imports more software than
exports it turns out as an imbalance to that country A. Capital
account also imbalances because of the royalties associated to the
trade marks paid to other countries B, it causes another imbalance
to the same country A (Fig.1).
Figure 1. Impact on BoP of Proprietary Software Decision
In a scenario that a country A uses an open source software that
country decrease the imbalances caused by the proprietary
software, because those licenses are free (Fig.2). In this case there
is less money that goes out in payment of SW licenses and
royalties.
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Figure 2. Impact FOSS decision in BoP
For those reasons the balance of payments' negative impacts
decrease when a government chooses to use FOSS, because that
decision improves the imbalances of the payments balance by
decreasing software imports, it also might increase exported
services and decreases royalties and import licensing.
3.2 Gross Domestic Product (GDP) National income is the total market value of production in a
country’s during an economical year. It can be measured
equivalently in three ways: the first way by the the value of
expenditures (expenses optics), by the total output of a nation to
the total factor income received by economical agents (income
optics) or by the sum of value added at each level of production
(production optics).
Using the expenditures approach, economical growth depends on
the four groups of variables, which are government expenses,
aggregate consumption, investment and on the balance of the
goods and services account. The formula of Gross Domestic
Product (GDP) in the expenditure approach is the following:
GDP – Gross Domestic Product
C – Private Consumption
G – Government Spending
I – Investment (short and long run)
X – Exports
M – Imports
Private consumption ( C ) leverages suppliers to produce more in
order to satisfy the demand needs. Suppliers investment (I) is
done when they buy materials (short run) to produce final
products or when they invest on property or machines (long run)
so they gain production power to satisfy the market. Public
expenditure (G) leads economical agents into economical activity
through the multiplier effect of the government spending in the
economy. In practice, the government spending represents an
important share of aggregate income in all economies.
As for the imports and exports was mentioned before that an ideal
economy has more exports (X) than imports (M).
All these variables have a positive impact on the GDP, except
goods and services imports. Imports prevent the economy to
grow, because the capital leaves the country in order to pay the
goods and services bought from the exterior. If all the other
variables grow in a positive way the economical situation of a
country turns wealthier form year to year.
4. ECONOMICAL DIMENSION:
STRUCTURAL SCOPE
4.1 Economic Growth Economical development depends on the economic growth of a
country. Economic growth occurs whenever economical agents
use resources and rearrange them in ways that make them more
valuable [18]. Economic growth and structural change are
correlated and their combination lead to a more developed
situation, because development economics incorporate social and
qualitative factors related to the well being of a population.
Using open source software creates internal production promoting
at the same time skill improvement by the combination of rising
productivity and faster employment growth. Employment growth
is indicative of structural employment. The long-run growth in
economy is driven by the growth rate of technology and
population.
The workers released by innovation may find new ways to exploit
specialization and comparative advantage. Improvements in
technology can be the motive for capital accumulation, both
accumulation of physical and human capital they could explain
cross-country differences in educational attainments and
population growth rates. [16]
To study [18]; [13] economical growth there must be a distinction
between ideas and objects. Ideas derive from knowledge and
objects are regarded as the outcome products. Producing output
requires knowledge and labor. Economical growth depend on
objects and ideas. New ideas depend on the existence of ideas in
the previous periods of time and on the number of workers
producing ideas. As objects depend on the workers' productivity.
Therefore the output per person depends on the total stock of
knowledge that each individual has and on working capacity.
Comino and colleagues say [1] “The support to FOSS is also seen
as a policy tool to improve competition in the software market or
to stimulate the domestic software industry”
5. RESULTS FROM STUDIES
5.1 Expenditures in Central
Administration The following figure expresses the expenses made in information
technologies in Portugal from 2007 until 2010 in the central
administration.
GDP=C+G+I+(X−M )
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Figure 3. Expenses made in information technologies in
Portugal [5]
The expenses have increased between 2007 and 2010, in 27%.
This amount would be even greater if considering the amounts
expended by each ministerial unit. This reality leads to an Action
Plan in Portugal [22]. In 2012 the Portuguese Council of
Ministers approved a resolution that is based on five principles
subdivided into 25 measures “Envisioning a quality public service
which presents lower costs for citizens and companies and
simultaneously decreases public expenditures, particularly
concerning ICT”. This resolution “drew a global rationalization
and cost reduction study in Public Administration (PA) with
management and use of information and communication
technologies (ICT)” with the intent to implement the European
guidelines on interoperability (European Interoperability
Framework (EIF) for European public services). According to this
resolution (measure 21 of the minister’s resolution) there is a
measure that is entitled as: Adoption of open software on the
State’s information systems. This measure is feasible on these
items. [22]:
Productivity software (word processor, spreadsheet,
slideshow editor);
E-mail clients;
E-mail servers;
Portals;
Document management;
Monitoring software
5.2 Expenditures in Local Administration According to a study developed in local administration, open
source adoption is not negligible.
Figure 4. Local Administration Open-Source Adoption [2];[8]
As shown figure 4, the main open-source software adoption are:
databases, web servers, firewall, web-mail and file sharing.
But from those web servers only 32% had open source and 63%
had proprietary systems and 5% did not give an answer.
Figure 5. Local Administration Web mail Adoption [2];[8]
The figure 5 represents the local administration web mail services,
the majority adopted proprietary web mails.
5.3 Economical Impact Another study was carried out by the ESOP- the Portuguese Open
Source Business Association to assess a developing market
that is willing to sell and buy laptops, which can be produced by
Portuguese assembling companies and sold with an Open Source
software bundle, also including operating
system and essential applications
of a “ready to consume” laptop [6].
Table 2Main Product Features [6]
The table 2 demonstrates the components to be assembled in
different types of laptos. “Foreign and local components were
identified, as well as their contribution to
the GVA (Gross Value Added) of the intervening agents, which
allowed for an estimation of impacts on GDP
and imports.”[6]
26
23
27
42
31
4
28
17
7
16
3
3
1
Transporte de Email (Servidor SMTP)
Acesso E-mail (Servidor POP, IMAP, etc.)
Webmail
Servidor de Base de Dados
Servidor de Páginas de Internet (Webserver)
Directório de Utilizadores (Directory Services)
Firewall
Partilha de Ficheiros (File Sharing)
Servidor de Impressão (Print Server)
Sistema de Informação Geográfica
VOIP
Proxy Server
ERP
Microsoft ESMTP
19%
Outro Proprietário
12%
Postfix
16%Exim
9%
Sendmail
3%
QMail
5%
Outro Open Source
2%
N/A
34%
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Table 3Impact of the Product in the Market [6]
Form this study the impacts to the economical situation were [6]:
Increased discretionary income for Portuguese
consumers;
Decreased imports, with an improvement on our trade
balance deficit and a reduction on external dependence;
GDP growth;
Creation of skilled jobs in the local IT industry.
6. CONCLUSIONS We identify three scopes that help to analyze the open source
adoption by the public sector: economical scope, financial scope
and economical growth scope. In the economical scope we
identified the main variables that have a direct impact on GDP, as
for the effect on the balance of payments (BoP). The financial
scope analyzes the opens source adoption impact on the public
expenses and the budget deficit. On the economical growth scope
it is analyzed the some structural variables such as Public services
and public agencies as well as private sector can achieve better
results at a lower cost. Open source models of government are not
just possible, they are often a sustainable way to get things done.
Today it is a must, that governments distribute power broadly and
leverage innovation and knowledge creation at the same time
they contribute to sustainable economies.
7. ACKNOWLEDGMENTS This study was partially supported by FCT.
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