Earlier this month, I attended a fascinating conference organized by the Legatum Center for Development and Entrepreneurship at MIT. Three things about South Asia stood out for me.
One, cheap connectivity. Thanks to the mobile phone, increased connectivity in South Asian countries is unleashing economic potential like never before. Countries there have some of the lowest costs anywhere in the world. Bangladesh, for instance, is third lowest in the world in total cost of ownership of a mobile line for voice and messaging. And for data, its TCO is the lowest: about $8 a month. Compare that to Brazil’s $250 a month to get a sense of who might access and benefit from technology.
To me, this cost is not just a reflection of the devices, celltowers, and labor expenses. It’s a reflection of liberal government and corporate policies, which keep taxes reasonable, provide mutual political and economic profits, and allow healthy competition. Latin America’s cost structure is certainly not high enough to justify the world’s highest data charges.
Two, better information availability. We had a great discussion in my graduate class on globalization yesterday about digital divide vs. Friedman-esque flat world optimism. Nearly 700 million people in India, a country that Friedman has gushed about, lack ICT connectivity. This information divide, which sustains much political power and corruption in South Asia, may be reducing in some areas. A great example was provided by Comat, a company that’s working currently in five Indian states. It has set up a network of two thousand ICT-enabled rural business centers that simply provide information, such as citizen records, government rules, etc. Farmers don’t have to bribe local officials to get a copy of their deed. These add up. Comat’s program evaluation, done by Harvard, estimated its corruption-reduction impact to date in the range of $400 million. And all the company provides really is information which the public has the right to access but could not earlier without paying cronies along the chain.
Three, high cost of business. All these changes are brought about by innovative business ideas inclusive of the bottom billion and by supportive government policies that allow these businesses to operate. Comat, for example, needed to get authorization from very high levels to access information that previously was the fiercely protected turf of local officials.
But across South Asia, the cost of doing business remains very high in all major areas, whether you want to start a business, get permits, employ workers, register property, get credit, protect investors, pay tax, trade across borders, pay investors, or close your business. Out of 183 countries ranked by the World Bank, India ranked 133 (and 182 in enforcing contracts). Bhutan and Nepal were slightly better, in the 120s. Bangladesh was 119, Sri Lanka 105, and Pakistan 85 (note that the doing business index does not look at political and physical risk to the business). Unless you are highly connected, the only way that entrepreneurs can reduce these barriers is by paying bribes. Imagine the potential if governmental red tape on doing business is lowered!
Interesting to read about Comat. I recently co-authored a paper, sponsored by Merck and the Ethics Resource Center, on the role companies can play in fighting corruption, beyond just getting their own house in order.
We found that very few companies, at least the MNCs, are actively fighting corruption using their corporate resources. One exception is Google, which is doing similar work in Africa to reduce corruption by increasing transparency through their technology. Perhaps smaller, local companies can play a larger role in this than the MNCs.
If you’re interested, the full paper is at:
http://www.fsg-impact.org/ideas/item/Anti_Corruption_as_Strategic_CSR.html
Jala is right about the factors that have contributed to the cheap cost of telecommunications in Bangladesh, but at what cost. Does access to information empower someone to make his/her economic or political choices and if yes what kind of choices? Services are being electronically transferred around so fast, actually faster than before say the early and late 1990’s. The reasons appear to be deep rooted into one or more interconnecting factors of globalization. One maybe that MNCs have been able to exploit the elimination of the political and cultural barriers. This has given MNCs the opportunity to target low paying jobs that are normally concentrated with workers that have both the highest and lowest qualifications. The second is obvious MNCs have relocated portions of their production processes abroad for purposes of having unchecked growth of their profit margins.
So is Jala suggesting that in the case of Bangladesh, globalization has made the government of Bangladesh responsible for its actions both politically and economically? That MNCs in Bangladesh through globalization have sent a strong message to the government to curb corruption as a result the government has become thrifty, efficient and accountable not out of self-sacrifice, but choice. But how has Bangladesh fared in developing long term assets such as construction of roads, schools, hospitals, buying medicines, provision of healthcare, education and poverty eradication initiatives.
Denis, I’m not suggesting at all that MNCs operating in Bangladesh have sent a message to reduce corruption, and that as a result government regulatory barriers have come down. Corruption is still rampant, and even the poster child of mobile phone companies, Grameen Phone, hastily settled allegations of doing a massive illegal VOIP business by paying a fine. What I’m suggesting is that without governmental deregulation mobile phones would have been too pricey to have any impact in rural Bangladesh. The country’s first mobile phone operator, CityCell, enjoyed a monopoly and peddled services at very high prices, which only a few in the urban elite could afford (you can even see its target market in its choice of name, CityCell). But widespread use of mobiles in rural Bangladesh have tremendously increased the speed of communication while lowering prices, the foremost impact of which has been on domestic trade.
But you’re right, phones by themselves can only go so far – much of education, healthcare, and human development has to come from direct approaches using bigger physical infrastructure, and of course, a great deal of state involvement.
Hi Jalal,
I think that Friedman’s assertions would be far less disputatious if he had written not that the world is flat but that it is flattening. This nuance reflects the fact that the world’s 6.5 billion people are in the process of dismantling barriers that have historically prevented individual human growth and development, a process made possible in part by the proliferation of technology. This process has not yet been fully realized though. But this new wave of globalization is unprecedented in this respect in that the technology that is enveloping the entire world, albeit accretive, is transcending countries, races and classes and has been and continues to be the impetus for unfettered communication and cooperation on a global scale. The consequences, economic and otherwise, are profound.
This flattening process has the potential to eviscerate many of the constructed differences that have inveterately polarized humanity, not to mention the potential to reduce corruption, increase efficiency, and decrease long-term economic costs; in other words, improving humanity. It is closing this much talked about gap between rich and poor. In an information based global economy, the traditionally poor and disenfranchised have the capacity to unleash their intrinsic human potential through the conduit of technology. In this world of transparency, people across the globe are exposed, or at least has the ability to be exposed, to the same information. This is in fact a flattening process, emphasis on the process. It was only in 1989, as Friedman points out, that liberal free-market capitalist principles became virtually universal and it was only in 1991 that India adopted many of these principles, most of which have facilitated its unprecedented economic development. Growth and technology work symbiotically; growth is in many ways dependent on technology but the diffusion of this same technology is very much reliant on economic growth. But India is a country of over a billion people. Comprehensive accessibility to these “flattening” instruments (e.g. cell phones, internet) is a work in progress, one that is going to take a considerable amount of time. The technological divide persists, as you point out, a divide that perpetuates and exacerbates various social and economic disparities, but it is one that is inexorably shrinking. The world is not yet flat but it is certainly flattening both within societies and across societies.
Hi Joshua, yes, Friedman would have been more correct in using “flattening” instead of leaping farther ahead to a flat world. Maybe it was a marketing ploy. But I think even in the technological realm, the world is flattening in some respects and remains constrained in others. For example, Microsoft’s dominance of operating systems can be, from one angle, a flattener, since so many people around the world use the same software (e.g., IE, Windows) to talk to their machines. From another angle, it is also hierarchical, manifest in Microsoft’s monopolistic relationship with users, for which it has run afoul of antitrust laws. I do share your optimism that the divide has been and will be shrinking, and that’s a great thing.
Jalal, the point about corruption is critical. In another class, we’ve been talking about the challenge corruption poses for development. In this discussion we’ve talked about corruption at multiple levels, including the amount of aid monies that disappear, as well as the type of petty corruption that you describe. It really is amazing to think how much richer the “bottom billion” might be if aid monies didn’t get syphoned off to foreign contractors, off-shore banks, etc and if the poor were not extorted for the little that they have. I also appreciate Abeed’s comment about the responsibility that corporations have to fighting corruption. If the examples in Confessions of an Economic Hit Man are true, corporate corruption is huge problem to promoting equality and development. Thanks.
I am finding it hard to believe the cell phone cost difference between Bangladesh and Brazil. I would give up my own cell phone if it cost half the Brazilian price. Is this the contrast between a Brazilian monopoly on cell phone service and Bangladeshi open competition that drives down prices? And by lowering the cost of the technology is the Bangladeshi playing for the short term? I am sure MNCs will flock to South Asia to take advantage of the hi-tech cheapness but what happens when another country, say in sub-Saharan Africa prices their hi-tech industry cheaper? I do not want to seem like a pessimist because I applaud the South Asian efforts to foster global competitiveness in their poorer populations but I worry about the ability to sustain this competitiveness in the long-term.
The data came from a presentation at the conference by one of Nokia’s top executives, Esko Aho, who was a former Prime Minister of Finland. It’s based on Nokia’s own research worldwide. I looked it up and found it repeated in Unite, a website run by Nokia and Siemens (see it here: http://unite.nokiasiemensnetworks.com/adwords/article/view/id/180. I misquoted slightly: Brazil’s average TCO for mobile data connection is $225/month. Staggering!
Adeeb, Thanks for the comment. I’ve downloaded the FSG paper, which looks interesting. I’ll read through it. I don’t know how far corporations would go to help curb corruption beyond their houses. I mean US corporations have been under the Foreign Corrupt Practices Act of 1977, and there are still cases. The BAE-Saudi corruption allegation in Britain is another recent example. Maybe these are touched upon in the paper, so I’ll stop and read that first…
Hi Jalal,
I hate to be the voice of cynicism (again), but even as South Asia becomes more and more technologically savvy, won’t the inherent structure of capitalism cause there to always be a “lower class” within each nation. And won’t this group continuously not have access to technology, since those who have the wealth to attain resources will not want to give them up? Although it is certainly great that South Asian nations are able to “compete” with industrialized nations in the sector of technology, which will lead to an increase of GDP, I think that it will ultimately create a larger divide between those who are tech-savvy and those who are not.
Perhaps a way to decrease the gap between those who have access to technology and those who don’t is to provide courses in basic technology skills as early as primary school? Currently, there are several efforts to increase literacy in South Asia as early as primary school; if access to literacy and computer knowledge are taught concurrently, perhaps the technology gap will not be as great as I expect?
So Jalal I’m curious to know if you are also suggesting that Bangladesh has strong, but not weak financial and capital regulations that have allowed the deregulation of the economy.
Hi Sharon – true, some degree of inequality will have to be there, but think about South Korea. Its income is at OECD levels, but inequality (as measured by Gini coefficient) is less than that of India, and access is really widespread. Of course it invested heavily in education, but an outcome like S. Korea’s would be great for any developing country.
Denis, I’m not fully getting the question… I’m suggesting that deregulating the telecoms sector was one of the wisest economic decisions taken by the government.
It seems to me that in the era of globalization, development is synonymous to access to information superhighway, where the other important factor of human development is willfully neglected once the magic of statistic shows that there is an increase in the GDP. For instance, despite Bangladesh “success” in information technology field, it is still a poor country with human development index lower than that of Brazil, Mexico or Chile. I also notice that the much talk about “success” in the field by these “technological hubs” (India, Bangladesh, Pakistan etc.) is concentrated in one dedicated area, thus the technological divide still persist, because all of the country does not really benefit from the boom. I am not an economist; I cannot find the proper term to define that “remote controlled progress”. Countries that are making progress are in a league that meets certain criteria set by the “Globalizers”. Countries that open up their market to the MNCs, removed regulation and lowered tariffs are making progress, their GDP would increase as a result of these huge investments; but people’s life would still be miserable.
In my recent trip to Haiti, I glanced at an economic report on Haiti. I was surprised to see economic growth on paper, but once you set foot on the street the reality is totally different. Lately, cell phone companies have been investing in that sector and making huge profits, I bet that Haiti has more cells per person in the whole Caribbean despite being the poorest.
As we experienced a housing bubble burst in the US, shouldn’t we expect a technological bubble burst in Southeast Asia in the near future?
Jalal I agree with you the increasing cheap connectivity in South East Asia and many developing countries may be a good sign or economic potential. I visited East Africa
last December and the Middle East. I went to areas 20 years you would not even think of any connections and now camel men in the mountains of Somalia and the desert in the Middle East have cell phones and also found internet café in the border between Kenya and Somalia. But I have to say the cost of cell phones is very much higher in Africa especially east Africa compared to many parts of the world, and this is a clear sign of the technology divide and how some companies have monopoly in Africa. If you need to make long distance calls you pay much higher than you would any country in the developing countries.I think the recently completed fiber optic sea cable will complement
communication carriers of South and East Africa through the sale of wholesale international capacity to global networks eastward through India and westward through the Mediterranean. The system will give African retail carriers with equal and open access to inexpensive bandwidth, removing the international infrastructure bottleneck and supporting East and South African economic growth. This fiber optic sea cable project may help Africa’s connectivity to the world and bridge the gap in technological divide.