Allen L Hammond. Foreign Affairs. Volume 80, Issue 2. March/April 2001.
The Growing Gap
Advances in information and communications technology did more than almost anything else to drive the last decade’s economic boom and the integration of markets around the planet. New data networks, automated inventory control, and just-in-time manufacturing systems have made U.S. companies the most efficient in the world. The Internet has increased the speed of development-electronic commerce, although still in an early phase, has already transformed industry after industry by enabling greater efficiency. E-mail and instant messaging are becoming ubiquitous in industrial countries, and mobile phones are expected to reach one billion people worldwide by 2002. The money spent on the digital infrastructure that supports these burgeoning new services-from Internet servers to fiber-optic networks-has itself become a major engine of economic growth.
The speed of these developments, the corporate economic power they embody, and the wealth they have created are truly astonishing. But alongside these positive trends are other, more sobering signs. These warning signs take various forms and are especially visible in developing regions and among the four billion people-more than half of humanity-who live on less than $1,500 a year. The population continues to grow rapidly in the poorest areas of the world, and a surge in urban migration, bringing with it unprecedented demands for housing, water, sewerage, and jobs, now threatens to overwhelm cities. Biological resources-such as forests, fisheries, and the fertile soil on which billions of people still directly depend for food and income-are being depleted. Meanwhile, poverty persists in many regions. And despite abundant world food supplies, malnutrition is rising in Africa and southern Asia because growing numbers of people can no longer produce enough food for themselves and are too poor to buy what they need.
These problems are beginning to wreak havoc in other areas as well. Potential conflicts over scarce resources, large-scale migration, and urban crime and instability are starting to threaten national security. New forms of terrorism, AIDs and other devastating diseases, and the changing climate are all having similarly destabilizing effects. Ever-larger disparities between haves and have-nots undermine the kind of social consensus essential for stability and political progress.
An important example of this inequity is the global gap opening between those who share in the digital revolution-and the increased productivity and wealth it creates-and those who live on the other side of the digital divide, including the more than half of the world’s population who have never even made a phone call. The Internet may be changing everything for those who use it, but it is doing nothing for the 19 out of 20 people who still lack access.
If these dangerous trends continue-if development does not accelerate and if the benefits of economic progress and new technology do not reach those at the bottom of society-then rather than increased prosperity for all, a grimmer vision of the future may prevail. Such a scenario suggests an unstable future, ridden with conflict and environmental problems, in which islands of prosperity are surrounded by oceans of poverty and frustration. In such a world, even prosperous regions would fear for their security, for when all else fails, the poor will learn to export their misery and anger.
But trends are not destiny. The imaginative use of emerging technologies and the creation of partnerships or cooperative approaches that combine the skills of major corporations with the growing strength of civil society can accelerate development in even the poorest regions and can reverse many of the most worrisome trends. Although no less an authority than Microsoft Chairman Bill Gates has recently expressed grave doubts about the power of technology to close the global development gap, such pessimism is misplaced. The potential for bold new measures to jump-start development already exists. All that is missing is the courage to take the necessary steps.
Achieving this better future will require a new development model, one that goes beyond the conventional focus on free-market capitalism, entrepreneurship, and global trade expansion-although such factors will play important roles. Nor will traditional, top-down development directed by governments and financed by foreign aid be adequate, since this approach has a very mixed track record and declining support. What is needed instead is a bottom-up model that makes credit, communications, information, energy sources, and other self-help tools directly available to communities and individuals in poor regions, empowering them to take charge of their own development.
The idea behind this new development model is that basic services should generally be provided by businesses-sometimes directly, sometimes in partnership with governments or networks of nongovernmental organizations (NGOs). The right strategies can enable the poor to become customers and pay for the services they receive, services that will improve their quality of life and increase their productivity. Such programs could reach tens of thousands or even hundreds of thousands of communities or rural villages-far surpassing the very limited scope of conventional development efforts, and functioning on a scale large enough to make a profound difference in the destiny of a region and the welfare of its people. Very few, if any, governments of developing countries can deliver services in a million places at once, yet many global corporations do just that every day. Why not encourage such companies to provide both consumer goods and basic services tailored to the needs and budgets of poor communities?
Such ideas are already plausible, thanks to the rapid global expansion of digital networks, the spread of the Internet, and the proliferation of cyber-cafes, village phones, and other forms of shared access to communications technology. High-capacity fiber-optic links now span the oceans, crisscross China and Latin America, and extend to many African countries. Next-generation mobile networks are beginning to emerge that will carry data as well as voice messages, providing wireless access to the Internet. Still in development are fleets of low-orbit satellites that will offer phone service and data links from virtually everywhere on earth by connecting modified mobile phones or cyber-kiosks in even remote rural villages.1 In little more than a decade, the vast majority of the Earth’s people will live in communities that are connected, in one way or another, to the global digital network.
Communications technology could accelerate development in far more than just the economic sphere. Indeed, wiring the planet will transform it beyond recognition. It will increase access to educational materials, basic health information, and other critical resources in local languages. A single database in Spanish, Chinese, or Hindi, accessed by phone or cyber-kiosk, could serve much of a continent. Connecting the world could unlock the productivity of poor communities: farmers, for example, could access weather forecasts or planting advice or market prices, which would empower them to produce larger crops for more money. Access to digital networks could improve quality of life more generally, by allowing people to summon help, share experiences with others, form political coalitions across a region or the globe, and add their voices to world affairs. Greater connectivity will also help fulfill the nearly insatiable human thirst for information and expose geographically isolated communities to wider horizons and new opportunities, which could create a more modern social and political outlook within a single generation.
Fortunately, the drive to create universal digital access already has powerful political support. Last summer’s economic summit of eight of the most advanced nations saw the creation of a Digital Opportunity Task Force in which governments, the private sector, and international organizations are now working together to close the digital divide.
But not everyone agrees that new technology can catalyze human development. Gates, among others, has argued that people who live in absolute poverty need adequate food, clean drinking water, and basic health care far more than they need personal computers. Indeed, few would disagree with such a claim. But access to communications networks or the Internet-whether through shared village phones, community cyber-cafes, or other emerging technologies-can help people at all economic levels to meet their basic needs. Even an illiterate farmer could use a phone and an automated voice-recognition system to check crop prices. Or a woman visiting a rural health clinic could use a similar system to obtain information about AIDS that she might be too embarrassed to ask a health worker for.
The Truth Is Out There
A number of innovative experiments already under way suggest that achieving global digital access and jump-starting development may not be as difficult as many think. Rural Bangladesh, for example, where incomes average less than $200 per year, might not seem like promising territory for a mobile phone company. But GrameenPhone has shown otherwise. In partnership with the renowned microfinance trailblazer Grameen Bank, it has pioneered a new model for rural telephones based on shared access-one phone per village-operated by a local entrepreneur. The bank loans a villager, usually a woman, the money to buy a mobile phone; she sells access to the phone to her neighboring villagers, who pay for calls in cash. As documented in an independent study by the Canadian International Development Agency, such village phones have been a commercial success, each phone generating revenues that average more than $100 per month-three times what the company earns from its urban mobile phones. The pent-up demand for telephone service and the ability and willingness of poor people to pay for it have turned out to be enormous. Not only are the phones profitable; they have also been a social success, providing economic benefits and improving the lives of villagers in ways that put most antipoverty programs to shame. Incomes of the phone entrepreneurs have risen sharply. And phone calls can now substitute for a trip to the city that would cost villagers ten times as much as a call. The village phones also have helped people working abroad send money to their families back home, enabled farmers to get fairer prices for their crops, and allowed people to discuss funerals or other important occasions with relatives.
If a rural telephone program can work in Bangladesh, one of the world’s poorest countries, why not everywhere? And why stop with simple phone service, when a digital network can also provide e-mail or Internet access or a host of other services? Other experiments are already exploring such possibilities. They include LINCOS, a joint venture of the Massachusetts Institute of Technology Media Lab and a Costa Rican foundation, which transforms abandoned shipping containers into digital community centers with Internet access and places them in remote villages throughout Central America. The centers provide education, health, and financial services, as well as access to entertainment and telecommunications. Many of the services are supplied by commercial partners. Meanwhile, Tahaat, an ambitious business start-up organized by a widely praised Indian group called Development Alternatives, aims to create jobs and provide a broad suite of services for poor communities in rural India through village kiosks and Internet-based information systems linked to a digital network.
E-commerce can also be tapped for social purposes. In Argentina, a novel public-private partnership will soon supply affordable Internet access and educational services from the Education Ministry, bringing the country’s schools and some ten million students on-line. The costs of the system and of student access are being financed by a new private company that will raise money from advertising and e-commerce rights. The combined effort will train the workers (Internet-savvy college graduates) that Argentina needs to enter the virtual economy and jump-start the country’s e-commerce marketplace, all without massive public investment. Such a program could be cloned rapidly in many emerging markets.
Other experiments abound. Viatru is an Internet commerce site that pairs artisans in developing countries with commercial retailers in the United States. The venture helps artisans match colors, styles, and products to retailers’ needs, while helping retailers find reliable suppliers and facilitating the transactions between them. By aiding artisans in finding markets, Viatru is helping create sustainable livelihoods and boosting incomes. Similarly, an e-commerce Web site called Greenstar sells digitized music and paintings by indigenous artists in developing regions. By providing information about local musicians or artists, the site helps record and preserve local cultures, many of which are endangered. Revenues from the venture support a solar-powered digital community center in a village within the region.
Microfinance, Micropower, and Micromedicine
Another successful strategy for increasing prosperity worldwide builds on the intensifying competition for customers among banks and other large financial entities and relies on the power of new digital systems to track millions of customer accounts while steadily lowering transaction costs. It is a bitter irony that advertisements for credit cards and home equity loans clog mailboxes in countries such as the United States, while as many as 500 million people in poor countries have no access to credit at all. Yet extensive microloan programs are starting to change that, typically with unsecured loans of $100 to $500. Successful microfinance systems usually create groups of borrowers who are jointly responsible for repayment. They make weekly payments on loans and usually have default rates of less than three percent-a better record than that of most consumer loan portfolios in the United States. Microloans have proven to be a core development tool, enabling borrowers to expand small businesses, invest in fertilizer to increase crop yields, or otherwise improve their circumstances.
Despite charging interest rates as high as five percent a month, virtually all microfinance organizations remain nonprofit entities that depend on donor capital to support or expand their operations. The primary reason for this is high transaction costs: without the promise of profit, commercial banks are unwilling to finance such loans. But digital tools are beginning to lower costs. PRIDE Africa, a microfinance organization operating in East Africa, manages its loans digitally and is beginning to combine and package them for resale to commercial banks. Action, a U.S.-based organization, has experimentally equipped some of its loan officers in the field with Palm Pilots that digitally record loan-payment information. And yet no nonprofit entity has the technology to manage even rudimentary financial services on a scale big enough for the half-billion people who cannot get a loan.
Citigroup does, however. It is already experimenting with kiosk— based banking services for small depositors (with a $25 minimum) in India. Suppose that Citigroup or other global financial companies were willing to digitally link corporate capital and processing power with microfinance organizations on the ground. With lower transaction costs, microcredit could become a commercially attractive business, vastly expanding the financial resources available to poor communities and accelerating bottom-up development. At the same time, banks could develop new relationships with tens of millions of potential customers for more sophisticated financial services.
Access to both connectivity and credit would expand people’s options and accelerate development. And still other possibilities exist to provide basic services via the private sector or novel partnerships. For instance, poor communities need electric power but are often located far from power grids. Microloans could enable such communities to buy small, self-contained solar-power packs just large enough to run a small water pump, recharge a mobile phone, power a radio, or keep vaccines cool in a community health clinic. Solar power has languished in the developed world, but a huge new market for micropower could exist in rural parts of developing countries; indeed, both Shell and BP Amoco are now exploring just that idea. And with mobile phones or Internet links to report diseases and order vaccines and other medicines, new partnerships between NGOS and pharmaceutical companies could discover large new markets for low-priced basic medicines packaged in disposable self-injectors. Micropower, micro— medicine, and microfinance may sound like very modest businesses, but multiplied by three billion or four billion potential customers, they become huge enterprises.
Access to new technology and credit will not be enough to ensure a more secure future, however; poor communities also need simple justice. Such justice must include protection from the dangerous or unlawful actions of private interests or corrupt governments— especially in developing countries, where regulations are often weak or unenforced. One way to achieve this protection would be for NGOS and community groups to form global networks, linked through the Internet, and then work together with leading companies or trade associations to establish environmental and social standards. These groups could then monitor corporate performance against those standards, even in developing regions, exposing companies that employ child labor, cut down old-growth forests, or defy other social and environmental expectations. These networks could also root out and reveal corrupt officials or help protect poor farmers from land grabs. Such efforts, and the greatly enhanced transparency they would bring, would be less expensive, more flexible, and more effective than government regulation, especially in developing countries.
Such ideas are already rapidly becoming a reality in the forest sector, with the creation of Global Forest Watch (GFW) by the World Resources Institute. GFW is a worldwide network of local forest groups linked via the Internet and equipped with advanced software tools. It combines satellite imagery with detailed on-the-ground data collection, compares actual forest practices with lease agreements and established standards, and posts the resulting data and maps on the Internet, naming the companies and countries involved. GFW has also demonstrated a novel model for partnership between the private sector and civil society, a model that is changing the market for forest products. Ikea, Home Depot, and other major retailers of forest products have committed to using wood that comes only from properly managed forests, and these companies are working with GFW to implement those commitments, using the network’s growing country-by-country and company-by-company databases. Similar global networks to monitor fisheries, other extractive industries, and the environmental performance of governments are all under consideration.
Imagine the public pressure civil society will be able to bring to bear on companies, industries, or even governments a few years hence. A network of several hundred local groups, each equipped with miniature video cameras small enough to hide in a purse, could exercise tremendous influence. The cameras could be linked to the Global Positioning System (GPS), so that each frame of video would be stamped with the time and the location-creating evidence that would be hard to dismiss. Footage from each camera could be transmitted instantly over the Internet. The result would be a kind of radical transparency: the equivalent of CNN everywhere, all the time. No contentious action would go unnoticed and unpublicized. Although such extreme efforts might be uncommon, greatly increased transparency will affect virtually all organizations, public and private. Global NGO networks may prove a better check on the power of global corporations than are national governments.
The Internet has already begun to make censorship virtually impossible, as governments around the world are discovering. When Yugoslav President Slobodan Milosevic tried to shut down the Belgrade radio station B-92 in 1999, its journalists simply broadcast their reports over the Internet, giving Serbs and the world at large access to firsthand accounts of the protests that eventually toppled the Milosevic regime.
These examples suggest but do not exhaust the possibilities for empowering the have-nots of the world. The examples have several things in common: they use novel partnerships and build on the digital networks being put in place by the private sector to deliver development services or protect environmental resources on a very large scale. And they suggest new ways of “privatizing” the delivery of basic services-whether they relate to connectivity, credit, or justice— to support a bottom-up, self-help development model.
Who Will Pay for Progress?
It is commonly argued that a lack of money is the primary barrier to helping the poor, keeping the peace, or protecting the environment. But if governments really want to tackle such projects, the means are readily available. For example, governments could agree by treaty to tax the global economy for what are essentially global purposes, with the proceeds going into a global fund to pay for services such as development and peacekeeping. International flows of trade, capital, and information have been growing much faster than national economies: nearly 9 percent a year for international trade, nearly 20 percent a year for international capital flows, and an even higher rate for international flows of digital information (data traffic on the Internet is growing at about 100 percent annually). The value of these international transactions is huge: currency transactions alone add up to more than $1.5 trillion a day. One reason for such staggering growth may be the absence of taxation: in effect, the global economy currently gets a free ride, since it is not taxed at a global level. Yet a tariff on currency transactions at a rate of a quarter of one percent-so low as to be invisible to anyone except currency speculators-would raise $750 billion per year. Even in the new economy, that would be real money.
Such a tax may not be a practical strategy. But discussing it makes clear that the real problem in achieving the goals set out above is not a lack of money. Rather, it is a lack of the political will to use government to tackle the underlying problems. Even if adopted, however, a governmental strategy would embody the kind of top-down approach to development that has not worked very well in recent decades. A far better way to make progress may be, in effect, to “hire” the private sector to provide basic services and to empower civil society to work with and monitor the private sector. In some cases, market incentives may be required. But enlightened capitalism coupled with creative philanthropy will probably suffice.
There is certainly no shortage of capital to support promising new business ventures. In fact, venture capital may need to go global— there is too much money chasing too few good ideas in the United States right now, and competition for higher rates of return will increasingly lead venture capital groups and major corporations to seek unexploited opportunities in other parts of the world. Venture financing stimulates innovation at a very rapid pace, far faster than any other social mechanism yet devised. And rapid innovation-the invention of new ways to provide basic services, of new ways for people to earn a living or improve the quality of their lives-is what is needed to accelerate development, especially in poor societies. The novel strategies described above should have both ample capital and powerful commercial incentives behind them, for they involve more than half of humanity—a huge untapped market.
There is also no shortage of philanthropic capital to support the expansion of civil society and experimentation with novel partnerships and boundary-crossing strategies. Indeed, we seem to be entering a golden age of private social investment, as new wealth is rapidly recycled into bold philanthropies. Building on emerging digital networks to forge new kinds of partnerships and combine public policy with private action is therefore more than just plausible. It offers our best hope yet for creating a world that is not just richer, but genuinely better.