Piracy: The Real Economic End Game?

Threats of violence are increasingly related to conflicts over control of the broader underground economy.

Courtesy: digitalproductionme.com

(LAS CRUCES, N.M.) - All across Mexico, roving vendors, street stands, storefronts and even trendy bars peddle pirated DVDs, masquerade tequila, copy-cat fashion brands and other untaxed goods. With hefty price hikes in store for cigarettes next month, tobacco is emerging as the latest pirated, hot commodity.

Overall, the value of the so-called underground economy, which is anything but subterranean, reaches nearly $75 billion annually, according to a prominent Mexican business leader.

Jorge Davila Flores, president of the Confederation of Chambers of Commerce, Services and Tourism, said the annual cash flow in the pirate sector tops the amount of money made from oil by three times, outstrips migrant remittances by almost four times and buries tourist dollars by seven times.

The value of the burgeoning black market also vastly exceeds the sum of foreign direct investment in Mexico, which is expected to hover between $19 and $22 billion in 2010. In fact, the $75 billion generated by the pirate economy every year is not much less than the total $81 billion in direct foreign investment that Mexico attracted between 2006 and 2009, according to American Chamber of Commerce/Mexico statistics cited by a border trade publication.

If Davila Flores’ numbers are more or less in the ballpark, the cash pile from pirated goods dwarfs the estimated $19-$39 billion per year earned from the sale of illicit drugs.

“Piracy is an industry, contraband is an industry.” Davila Flores said. “Everything that surrounds this economic activity is a grave problem.”

In a Mexico City press conference, the business leader said the number of employers in the informal economy-at least 1.3 million-vastly surpasses the 833,000 employers enrolled in the Mexican Social Security Institute, which some Calderon administration officials have said confronts a looming solvency crisis. Of course, employers in the informal sector do not pay social security or other payroll taxes.

According to the Regus Business Tracker firm, 40 percent of Mexico’s economically active population is “employed” in the informal sector, with the percentage expected to rise to 50 percent by 2020 if current trends continue. The World Bank reports that half the enterprises in Mexico City alone sub-contract with the informal sector.

Smuggling is a centuries-old story in Mexico, and has long been a fixture of the US-Mexico border economy, but the volume of illegally-imported and pirated goods has reached unprecedented levels in recent years due to Mexico’s trade liberalization policies, customs corruption, new opportunities for money laundering, and the lure of cheap products in a low-wage economy. Openings to countries like China and Vietnam have laid new pipelines for pirate goods. In short, almost picture perfect conditions exist for a thriving, irregular economy.

While the US government and media focus on Mexico’s battles over the illegal drug trade, violence and threats of violence are increasingly related to conflicts over control of the broader underground economy and the multiple products and services of a mammoth but slippery economic sector.

Frontera NorteSur (FNS): on-line, U.S.-Mexico border news
Center for Latin American and Border Studies New Mexico
State University Las Cruces, New Mexico

Additional sources:

• Tribuna de San Luis/El Sol de Mexico, December 11, 2010. Article by Alejandro Duran and Arturo Lino.
• La Jornada/Notimex, December 10, 2010 Juarez/El Paso Now, October 2010.