I was asked recently to ask a quotable question. My facetious response was that I only ask quotable questions. But I did consider the request seriously for a bit, and among the numerous questions that I wish people would ask themselves, I selected one that I think is particularly worthy in the context of development and economic growth. The question is this—and you may quote me freely—is there any instance of a technological development that was specifically created for the poor? The same question in the policy arena would translate into: is there any instance of a policy which was ostensibly pro-poor which actually helped the poor?
Let’s explore the technology related question first. These days I talk to whoever is willing to listen about how I aim to transform the Indian education system. Part of that involves (among other things) the use of an information technology (IT) platform and the use of technology both intensively and extensively. One of the common objections to my proposal is that it will not be appropriate for very poor schools in rural India. The implication is that since everyone and his brother will not be able to afford the solution right off the bat, I should re-think my proposal. I find that puzzling.
If the criterion for rejecting an idea was that it should be affordable to all and sundry, nothing of any value in the technology sphere would ever get created. Allow me an example. Behold the almost ubiquitous cell phone. The woman selling vegetables out of a push-cart from whom I bought potatoes the other day has one, just like the auto-rickshaw driver who ferried me to the station. The cell phone was developed not for them but for high-flying executives in the affluent industrialized societies. Ten years ago, only the rich and famous in the developed world could afford the handsets and the expensive airtime. Today, cell phone technology is mature and costs have come down sufficiently that even people of very modest means in developing economies can use it profitably.
I briefly surveyed all major areas of technological advancement, from transportation to medicine to entertainment to whathaveyou. In every single sphere, the conclusion was unavoidable, that though the advancement was made with an eye to benefit the rich, eventually the poor benefited as well. I could not come up with an instance of any technology that was developed successfully specifically for the poor. It appears to be an empirical law. How do I explain that?
A little pondering and I had what I consider the economic reasoning for that empirical fact. Briefly the story goes this way. Technology advancements have high fixed costs, the recovery of which require high initial prices. The rich are early adopters and pay for the privilege, thus underwriting the development costs. As the marginal costs are typically low, economies of scale kick in and average costs approach the low marginal costs. Note that there is a time element to the whole story. First, it takes a bit of time for the high fixed cost of development to be recovered. Second, as time goes by, there is “learning by doing.” Firms figure out how to do things more efficiently. Average costs come down further. Finally, marketplace competition forces prices to reflect low average costs.
I should highlight the fact that competition in the marketplace is an important aspect of the story. If competition were lacking for whatever reason (legally imposed monopoly, for instance), then even through average costs come down, the prices will not be driven down to the average costs. Therefore, lack of competition in the marketplace often restricts the poor from reaping the benefits of technological advances. Ironically, it is often the governments of poor economies which restrict competition. We will not go into the question of why they do that right now. We should note, however, that government policies are culpable when it comes to the economy being poor.
Which brings me to the other question: is there any instance of a “pro-poor” policy that actually ended up helping the intended beneficiaries? I cannot think of any pro-poor policy that was unequivocally beneficial to the poor. In fact, I am persuaded that the so-called pro-poor policies should be more accurately called “pro-poverty” policies, as they tend to promote poverty more effectively than policies that are “pro-rich.” Empirical evidence? The government of India has been consistent over decades in its pursuit of pro-poor policies, and the numbers of the poor have shown a monotonic upward trend. Of course, it could be argued that in the absence of these pro-poor policies, the numbers would have been much larger. But that argument can be countered by showing that countries which don’t adopt similar pro-poor policies actually do better overall. (This is a blog post, not an academic paper. Working out the details is left as an exercise for the interested reader.)
So what’s the conclusion? I think that if you really want to help the poor, prepare to develop some technology that will benefit the rich (so that they will pay for the development). That prescription is as paradoxical as the admonition that if you want peace, you should prepare for war. The Zen of Development.
It is all karma, neh?