Category: Information and Communications Technology

ICT and Development (Part 2)

Rambling on about transaction costs from the last post.

Transaction costs are all over the place. When I travel to talk with someone, the cost of the travel in terms of time and money is the transaction cost of the talk. I could use the phone to have a talk. That reduces the transaction cost of having the talk. Telephones are a lower cost substitute for transportation in this case. This is one way that information and communications technologies reduce transaction costs. It is cheaper to move electrons than to move molecules.
Continue reading “ICT and Development (Part 2)”

Transaction Costs — (Part 1)

It is worth pondering this question: What exactly is the role of ICT in any economy?

This week, I would like to address myself to that question in detail. The answer can be succinctly stated as: It reduces transaction costs. It will take a pretty long time to explore that answer. But first a few personal experiences to set the stage would be appropriate.
Continue reading “Transaction Costs — (Part 1)”

Everybody Loves a Good Digital Divide

The subtitle of a recent Infoworld article India Plans to $2.7 billion IT investment is Government embarks on four-year effort to bridge digital divide and it fills me with dread.
Continue reading “Everybody Loves a Good Digital Divide”

Use it instead of merely exporting IT.

ICT and Development

ICT presents an opportunity for developing countries to make more efficient use of the available resources. However, ICT is neither necessary nor sufficient for economic development. The advanced industrialized countries were underdeveloped (by today’s standards) once upon a time and their transition from subsistence to a modern exchange economy did not involve modern ICT.

In contrast to the experience of the advanced industrialized countries, the developing countries find ICT available to them at a much earlier stage of their development. These economies don’t have highly optimized economies and the use of ICT has the potential to help them transit from a subsistence to an exchange economy relatively rapidly. For this to happen, ICT must be targeted for domestic use, and not just seen as an avenue for foreign exchange earnings.

ICT is arguably strategically important for economic growth of all less developed countries (LDCs). However, government policies tend to emphasize only the export-led growth potential of ICT. India’s success in the IT-export sector is often used as an example to be emulated by countries similarly placed along the development spectrum. It is important to recognize that while IT export-led growth is an attractive goal, it is not as relevant for sustainable economic growth for rural India. However, a policy that stresses the use of ICT within the country could lead to the development of a domestic IT industry that can serve as an engine of growth by its direct contribution to job creation and GDP growth in rural India, in addition to its contributions to the urban economy. (Needless to say, other appropriate technology can also have a multiplier effect on resources available.)

Production versus Use

The production of IT related products and services targeted for export markets is generally done in high-technology enclaves. The benefits of the production and the use of IT is therefore limited to the small number of producers in the LDC while the majority of the benefits accrue to the users of the IT products and services in the importing developed countries. The products address the needs of the importing countries and they gain significantly from the use of IT produced at low cost in the LDCs.

Increasing the Income Divide

While the IT-export sector may be earning foreign exchange through IT production, there is no benefit from the use of IT products and services to the country as a whole. The vast majority of the people are completely unaffected and do not obtain any gains from the use of IT; only the producers of the IT products increase their human capital. Consequently, the income inequality within the country itself grows which has adverse macroeconomic consequences.

ICT for Sustainable Economic Growth

For economic development to be sustainable, it has to be broad-based. IT-export led growth alone cannot result in broad-based growth because the knowledge-goods produced by the country are targeted not to a domestic market but to an export market.

Economic growth models emphasize the importance of capital – both human and physical – state of the technology and the dependence of growth on the size of the market. We view IT in this context as an enabler of delivery of services. Domestic demand for IT products and services will spur the domestic production of IT and knowledge-goods. There are important forward and backward linkages in the domestic consumption of IT products and services that go beyond the benefits attained by IT exports alone. For instance, the use of IT in the education and health sectors will provide a large user base which will not only have access to new technology but also participate in the information economy.

Evidence of the effect of ICT on Economic Growth

Is there any hard evidence that ICT has an effect on growth? Most of us believe that the ICT does have a positive effect on growth. In a recent book, Matti Pohjola reports that The Working Group of the United Nations Commission on Science and Technology for Development recommends that each country establish a national ICT strategy aiming at maximizing the benefits of ICTs and minimizing their risks. He concludes that

“… in recent years IT has had a strong influence on economic growth in industrial countries and at least in those newly industrialized countries (that is, Korea and Singapore) studied in this volume. Admittedly, however, developing countries seem to have neither invested in IT nor benefited from such investments to the same extent as industrial countries. There is concern that information is becoming a factor, like income and wealth, by which countries are classified as rich and poor. To prevent this from happening, developing countries need to formulate national IT strategies to promote the use of these new technologies.”

It can be argued that more than the production of IT goods and services, the use of IT goods and services is more critical for economic growth. The question whether ICT contributes to growth or not is akin to the question whether transportation contributes to growth. Both are instrumental and provided that they are used appropriately, growth enhancing. Investment in ICT for developing countries is not anymore an option than investing in a transportation network is an option. It is absolutely necessary, although it is far from sufficient to ensure growth.

The two most important functions for ICT are these. First, improving the functioning of markets. What to produce, how to produce, what to sell, how to sell, where to sell — all these are critical questions that directly affect growth. Clearly ICT is indispensable for this function. The second function is in the area of production and delivery of educational content. When the majority of the population is illiterate, the resources needed for educating them (and not just making them literate) is formidable. ICT provides the only hope of leveraging limited resources to address this problem.

The proximate causes of poverty can be seen as two gaps: the ideas gap and the objects gap. The objects gap is the lack of physical resources – too little land, too little capital stock, etc – that contributes to persistent poverty. The ideas gap is the lack of know-how about how to make the best use of the resources one has. It is the ideas gap that ICT can most effectively bridge.

The Case for India

India has had a reasonable amount of success in the export of ICT products and services. But until IT is used, it is hard to predict what exactly the impact will be. However, it is a reasonable expectation that IT cannot but have a beneficial effect by its use.

Domestic ICT use must be given the attention it deserves because only through broad-based ICT use can the benefits of modern technology be made available to all and bridge the income divide. Domestic use will have important linkages to the supply of human capital required for the export of ICT products and services.

For a large country such as India, domestic demand for ICT products and services can provide the necessary base for sustaining the industry and to shield it from external shocks. Therefore, India must create the institutions that encourage the use of ICT domestically.

Misconception #3: The Digital Divide

Here is an example of muddled thinking from an article titled India Bridges the Digital Divide. The article is about computer kiosks. At one point it says:

Over the past decade, the Internet has been touted as a powerful engine that could raise living standards in poor and remote communities of the Third World by opening up new avenues for education, commerce and participatory democracy.

So far so good. Then it goes into the usual whining about the digital divide.

But the reality is a growing digital divide that is preventing the poor from sharing in the benefits of the Information Age. The gap between digital haves and have-nots is especially wide in India, where a national survey last year revealed that fewer than 1 percent of adults had used the Internet in the preceding three months.

OK, let’s get one thing clear. It is not the digital divide that is preventing the poor from benefiting from ICT. It is the fact that they are poor that is preventing them from benefiting from ICT. Not just benefiting from the use of ICT, the poor also are not benefiting from the advances in medical technology, in cosmetic surgery, in plasma TV technology, ad nauseum. It is not the digital divide, stupid, it is an income divide, it is a wealth divide, it is an opportunity divide.

If the poor had money, they would not be poor, and like all non-poor, would be able to buy all sorts of stuff — including, but not limited to — digital gizmos. They would buy education, clothes, food, houses, cell phones, cd players, DVD players, plasma TVs, and computers. There would not be a digital divide. It bears repeating: the digital divide is not the cause of poverty nor is it the cause of the persistence of poverty. The digital divide is a result — an effect, a consequence — of poverty.

Now coming to India: India does not have a digital divide. Let me put that in bold.

India does not have a digital divide.

If a vanishingly small number of people have something, there is no divide. For instance, it is pointless to talk about a BMW divide: we are all in the same boat when it comes to having BMWs and therefore there is no divide. So also, to a first approximation, Indians don’t have access to the Internet, except for a few million people. And the few million who do have it, have to pay inordinate amounts of money to get a slow uncertain connection.

I hope that we can put that myth to rest one of these days.

The Information Divide

We have been discussing the so-called digital divide in the recent past and generally reaching some tentative conclusions that the focus on it is misplaced and that resources are largely misdirected in that regard. What is important is for us to remember that ICTs merely give us a tool. And like all tools, if our focus is on the tool rather than the end for which the tool may be appropriate, we could end up doing silly things. To use an old saying, it is like the finger pointing at the moon. If we focus on the finger, we will miss all the beauty and the glory of the moon.

You may ask, what is the goal? And how is the focus on ICT distracting us from recognizing the goal? Or, what is the real divide that we should be concerned about if not the digital divide? What is the reason for the apparent confusion of means and ends?

No one can argue that the digital divide does not exist, just as one cannot argue that the Rolls-Royce divide does not exist, or that numerous other divides don’t exist. (More on my view of the digital divide.) One is only arguing that bridging the digital divide is not the end, but it is a possible (and one of many possible) means to an end. I will argue here that the end is to bridge information divide and that the tool could be provided by digital ICT. In some applications, digital ICT could well be the answer, while in others, other technologies may be more appropriate. In some cases, ICT for development goals may be an entirely inappropriate tool. We need to think very carefully to avoid the pitfalls some of which I have identified in a previous post Misapprehansions, misconceptions, …

What is the information divide and why is it relevant? The information divide is important because it empowers people. It empowers people not just in the marketplace but also in the political arena. Vested interests are threatened by an informed citizenry. So you would not hear too much noise about bridging the information divide. Bridging the information divide is likely to run into political opposition. There is a hoary history to the deliberate maintenance of an information divide. That is another story that we can address in a separate entry in this blog.

The Digital Divide : Causes and Symptoms

Bridging the Digital Divide appears to be the stock in trade heading these days of too many reports and conferences and meetings. Every blessed project name seems to have a e- prefixed to it. From e-governance to e-learning to e-this, e-that, e-the-other. It is all very e-boring. One wonders as to the e-cause and therefore I think we should do a bit of e-seeking for some e-explanation.

The next time I see another e-scheme, I will be ready to e-scream.

Seriously, here are what I believe to be the reason for this fixation with the so-called digital divide, in no particular order. First, it is a simple case of ‘to a person with a hammer, every problem looks like a nail.’

Practically everyone involved with anything to do with development (except the direct beneficiaries of development) has some facility with ICT. So therefore they start to believe that every problem has a solution that is ICT related.

The next explanation is what I call the bank robber phenomenon. When some famous bank robber was asked why he robbed banks, he simply replied because that’s where the money was. ICT projects are the most lavishly funded. And therefore, it attracts the most attention from people who would like to get a piece of the action.

Another part of the explanation is what I call the drunk looking for his key scenario. A man evidently drunk was seen searching for something under a lamp post. When asked he said that he lost his keys under the trees over there. But why was he searching for them under the lamp post? “Because,” he said, “it is easier to look for it under the light.”

Definitely, part of the explanation has to involve simply not recognizing that the digital divide is merely symptomatic of some other underlying cause. But it is too bothersome to seek to understand that cause. And even if the cause is as plain as daylight, it may be too difficult to deal with the cause. So one gets busy addressing the symptom.

Addressing only one symptom (the digital divide) while neglecting to understand the causes leads to spectacles that are reminiscent of the south seas cargo cults.

During the war, the natives of some South Pacific islands had noticed a curious phenomena. They had witnessed some people prepare a long piece of land and mark it with flares and fires. Then someone with cups on his ears would talk into a device and soon planes would land in the clearing and disgorge cargo. When the war was over, the natives decided that they needed cargo. So they made headphones out of coconut shells and radio receivers out of bamboo and lit the fires around the clearings. They haven’t had much sucess in getting cargo yet, but they believe that the cargo would appear just as soon as they can duplicate the equipment better.

I do not believe that merely going through the motions, however sincerely, of bringing ICT to rural populations would magically transform the rural economy. Focusing on the digital divide could indeed be counter productive in that resources that could have been better employed would be wasted in inappropriate ventures.

I should hasten to add that there is indeed a digital divide. But we must also recognize that there are other divides as well, such as a nutritional divide, a gender divide, an income divide, an education divide, and so on. All these divides are interrelated and there are strong dependencies. It is a second best world out there and it is easy to fall into the trap of seeking first-best solutions in a second-best world.

I will discuss why I believe that ICT tools are most suited to address the complex set of problems which cause all the divides, including the digital divide. My contention is this: we need to focus on the understanding the underlying reasons for the underdevelopment of rural areas. Having done that, we then need to figure out the best use of our limited resources to bring to bear the most appropriate tools for addressing the causes. If we do that, then we would have bridged all the divides, including the much talked about digital divide. It may turn out that ICT tools are the most appropriate in many areas. But a priori assuming that ICT tools are always appropriate is silly and sometimes tragically too expensive.

For now, I cannot find a more succinct depiction of the misplaced emphasis on the digital divide than this cartoon by the incomparable R K Laxman.
“I am hungry … if we had a computer, we could have ordered food through a website.” }

Chennai “Policy Makers’ Workshop”

The digital divide seems to be all the rage these days. Take for instance the recent two days I spent in Chennai. The M S Swaminathan Research Foundation (MSSRF) had organized a Policy Makers’ Workshop at their campus in Chennai on October 8th and 9th. The workshop was supported by two “Canadian crown corporations”, the International Development Research Centre (IDRC), and the Canadian International Development Agency (CIDA). (Those two have a budget of about Canadian $100 million.)

The workshop was a great opportunity to meet many people from the goverment ranks, the private sector, and various NGOs. It was an honor to meet Prof. M.S.Swaminathan, of course. Two days is sufficient time to get to know at least a couple of people well. I was fortunate that I met many people who I would like to follow up with.

The information package for the workshop asked (among other questions):

Can ICTs be useful for rural and remote areas of developing countries, especially the poverty-stricken regions?

The two days gave me an opportunity to reflect on the issues that the participants raised. I think it would be useful for me to create a framework within which I can discuss the various specifics of debated by the participants of the workshop. I will do so in a seemingly roundabout way because what I would like to do is not what a journalist or a reporter would do. I am seeking to explain something that is not trivial, neither in its conception or its impact. So it may be many days before I can say that I have made the point that I have set out to make.

Field Trip to Understand the Know-what and Know-why

We are all familiar with technology and most of the time we mean high technology – digital technology in corporated in computers and telecommunications devices – whenever we say technology. But the term technology is not limited to high technology alone. Indeed, technology is any knowledge about how to do things. It is know-how that is often embedded in artifacts such as computers and cameras and cars, but it is not limited to them. Technology is also know-how embedded in processes. For instance, the knowledge of how to make fertilizer from biomass is also technology. It is know-how that combines inputs in a certain way to produce output.

It is good to have know-how, or technology. But one can get enarmoured of what one understands and seek to apply that understanding indiscriminately. As the saying goes, to a person with a hammer, every problem appears to be a nail. Besides the know-how, for successful application of technology or knowhow, there are two other important bits. First is the know-what and the second the know-why. Without the other two bits, know-how is sometimes worse than useless.

To take a specific example, consider the information and communications technology (ICT) and its application to developing economies. For the most effective use of ICT for development, one has to understand what the nature of the developing economy is, what are the failures that plague the system, etc. We have to know what the system is all about. Then we have to understand why the system is the way it is. That is, we have to also have know-what and know-why. Only then can the ICT know-how be applied to the problem of economic development.

There are numerous ventures seeking to apply ICT to rural economies around India. A study of these projects is important for us understand their know-what, know-why, and know-how. We can learn from them and emulate their successes and avoid their mistakes. To do that, we are embarking on a field trip to visit projects around Andhra Pradesh around September 22nd. In the next few days, we will finalize our plans.