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[opensource] To raise productivity (and wealth), raise connectivity.

Henrik Bennetsen bennetsen at gmail.com
Fri May 23 12:08:14 PDT 2008


Sadly I couldn't could go to the latest Long Now
<http://www.longnow.org/>talk: Iqbal Quadir's Making money WITH the
poor. But via their announcement
list I was sent Kevin Kelly's interesting summary:

When Iqbal Quadir applied to US colleges from his home town in
> Bangladesh he was surprised to discover that not all American
> universities were found in Washington, DC. That's how it was in
> Bangladesh, where everything of importance was centralized in the
> capital city, Dacca. He later realized that Bangladesh was not
> unique; in most developing countries, the infrastructure  is
> concentrated in one or two cities, leaving the rural areas almost
> blank. As he acquired degrees and experience in finance, he realized
> that this centralization is not only a mark of poorer countries, it
> is probably a cause of their poverty.
>
> Quadir presented this broad outline of development in order to give
> context for his belief that technology can alleviate poverty. He
> reminded us that 500 years ago, when the western countries were still
> "developing" their own societies, their political systems were no
> better, and often worse, than the instable corrupt regimes of many
> developing countries today. England had a series of kings who were
> impeached, arrested, ousted, or beheaded for their crimes. It was
> only after citizens were empowered by economic markets did the
> balance of power shift from the central king to decentralized
> citizens. All steps that devolve power away from a central authority
> -- including laws, trade, and education -- will raise democracy.
>
> In Quadir's view, it's not that centralization per se creates
> poverty. Poverty is the natural beginning state of all societies,
> east or west. Rather, decentralization is the engine which removes
> poverty and brings wealth. To the degree that infrastructure,
> education, and trade can be decentralized, wealth will rise in
> proportion. To the degree that infrastructure, education and trade
> are centralized, poverty will remain.
>
> Whereas many of us in the west, particularly the digital west, agree
> with this intuitively, we act contrary to this observation when we
> give large-scale aid to poor countries. As Quadir's colleague Wiliam
> Easterly argues in his book The Elusive Quest for Growth, the
> billions and billions of dollars spent on aid for developing
> countries has not only  *not* helped, it has set them back decades.
> Aid, as we know it, kills development. This harm occurs because
> almost all previous aid has funneled through a central government or
> semi-governmental organizations and that official route tightens
> centrality. Even if the governments were saintly, and they are
> definitely not, the scale of money flowing through these centralizing
> nodes prohibits the distribution of resources, infrastructure, trade,
> and education. The more aid that arrives, the less development can
> actually happen.
>
> Technology is the escape from this quandary. Quadir came to see that
> "technologies that connect" could liberate productivity. He matched
> his experience in Bangladesh as a 13-year-old boy having to walk 10
> kilometers to get medicine, only to find out the medicine man he
> sought was not home, and then walking back empty handed, having
> wasted a day -- all because there was no connection between his home
> and the pharmacist. Many years later in New York he wasted a day at
> work when there was no electricity to run phones or computers.
> Productity required connectivity. If connectivity could be
> decentralized then it would lead to increased wealth.
>
> Quadir settled on the cell phone as a way to decentralized
> connectivity. In the early 1990s cell phones were big, dumb, and very
> expensive. Calls were $3 per minute. Only the rich could afford them.
> But he wanted the poorest people in the world to get them. How would
> this be possible?
>
> First, he believed in Moore's Law: that the phones would decrease in
> price and increase in power every year. That seemed inevitable to
> him. He said he could see "micro-chips marching toward the poor." He
> was right about that. Second, he piggybacked his hopes on a
> remarkable invention of another Bangladeshi, Mohammad Yunus, who
> developed micro-financing (and later won a Nobel prize for this
> invention). In Yunus' scheme a woman who owned virtually nothing
> could get a loan of $200 to purchase a cow. She would then sell the
> surplus milk of the cow to pay back the loan, earn both milk and an
> income for her family, and maybe buy another cow. Ordinarily, no bank
> would have lent her this trifling amount because she had no
> collateral, no education, and the costs of overseeing such a small
> loan with small gains, would have been prohibitive. Grameen Bank,
> Yunus' creation, discovered that these illiterate peasants were
> actually more likely to repay these small loans, and were very happy
> to pay good interest rates, and so that in aggregate, these
> micro-loans were more profitable than loaning to large industrial
> players.
>
> Quadir proceeded to ask, what if the women could rent a cell phone
> instead of a cow? Grameen Bank could make a micro-loan to the poor
> for the purchase a cell phone, which they then could sell/rent
> minutes to the rest of the village. The enterprising phone-renter
> would benefit and more importantly, the entire village would benefit
> from the connectivity. It did not really matter if the minutes were
> expensive, because when you have no connection, you are willing to
> pay dearly for it. Quadir started off his Grameen Phone with 5 cell
> towers, and eventually GrameenPhone erected 5,000 towers.
>
> In 1993 when Quadir began, Bangladesh had one of the lowest
> penetrations of telephones on the planet -- only one phone for every
> 500 people. GrameenPhone project unleashed 25 million phones. Today
> there are 100 times as many phones, or one per 5 people. Just as
> Quadir had envisioned, this decentralized connectivity has increased
> productivity. Without connectivity people waste a lot less time on
> economic errands. With cell connectivity farmers maximize their
> profits by getting real-time prices at distant markets; shepherds can
> call a vet, or order medicine. One study concluded that the total
> lifetime cost of an additional phone (including the cell tower and
> switching gear) was about $2,000, but that each phone enabled $50,000
> of increased productivity. And surprisingly, the poorer the country
> to begin with, the greater the increase in wealth from connectivity.
>
> A lot of myths cloud the good intentions of developmental aid, Quadir
> says. Myths such as: poor countries have no resources, or that the
> poor don't have discretionary spending, or aren't concerned with
> brands,or aren't good credit risks, and so on. All these assumptions
> have been proven untrue over and over again, and especially so with
> GrameenPhone. The chief myth it dispelled was that government needs
> to subsidize technological development, when in fact there is good
> money to be made enabling the productivity of the poor. As Quadir
> says, "You don't make money on the poor, but with the poor." At
> dinner I asked Iqbal what he would have done differently with
> GrameenPhone. He replied, "Kept more shares."
>
> Quadir is now searching for other technologies to decentralize, and
> thereby become a tool to erase poverty. He is director of the Legatum
> Center for Development and Entrepreneurship at MIT, which has been
> funded with $50 million. He is investigating whether energy can also
> be dethroned from its current mode of extremely centralized
> generation. Only 10% of the electricity produced at its source
> remains at the end of the wires as they reach homes and factories.
> Perhaps there are ways to decentralize its generation, which would
> trigger connections at the local level, and in his scheme, elevate
> wealth and democracy. If it worked, decentralized energy might also
> work in rich countries, increasing wealth and democracy in our part
> of the world as well.
>
> Throughout his talk, Quadir reiterated: "To raise productivity (and
> wealth), raise connectivity. It's that simple."
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