Atanu Dey On India's Development

Zen and the Art of Development

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?

  • http://desilibertarian.blogspot.com triya

    The standard economic argument for regulated monopolies is that they would be priced at the average cost and not the point where marginal cost equals marginal revenue (which would be a higher price). With governments regulating them, the price does not reflect the full costs. Isn’t the argument the other way around, i.e, regulation forces a monopoly to price so low that they do not have the required incentive to produce efficiently or invest in better products and new technology.
    The reason prices fall as average costs go down is because of threat of entry for a monopolist. If the market is contestible, and prices are high despite low average costs, then a competitor can take advantage of the lower average costs, price slightly lower than the incumbent and take the whole market as his share.
    I think the key to any good technology development is for it to be priced economically(based on sound economics), and for that, like you rightly mention Atanu, there needs to be competition in the market.

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  • http://nandz.blogspot.com Saurabh Nanda

    The technology argument sort of breaks down as soon as you bring in patents into the picture. Here’s how…

    The argument is based on the fact that the technology will be released in a free market place where there will be competition, and over a reasonable period of time it will bring down the price of the product. But as soon as you bring patents into the picture, the first company gets a monopoly for 20 goddamn years! Bye, bye to the rest of the argument!

  • http://nandz.blogspot.com Saurabh Nanda

    Sorry… you do highlight the case of absence of comepetition. I jumped to post a comment. So patents are a very common way of avoiding competition. There.

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  • Ashish Asgekar

    Hi Atanu,
    the more i read, the more i get convinved about your idea. the other day, i opened a vast array of web-links related to education sources. indeed, there is much on the web to be ported and used in class-rooms as it is.
    — ashish

  • Ashish Asgekar

    usually, in India, we do not levy full price of education from students. i paid just about 1500 per year for MSc, which was miserable, and did not make realise the value of it at that time (so i bunked classes and made a fool of myself). not to mention, that University lacks funds to buy any equipments and hire good profs. too much govertnment regulation on hiring-firing policy and pricing of degrees.

    on the other hand, look at Bharati Vidyapeeth, a private university. (so called) Dr Kadam made tons of money and touts best facilities on campus within 10 years.

    till we allow market prices to justify themselves and government to fool around in policy making, this trend would continue. how about some PIL regarding this?

    – ashish

  • http://gudem.blogspot.com Chandra

    Another example: One reason why drugs are available for diseases in rich countries follow this line of thinking. Far more money is, and has been, spend on AIDS, which at least started out as disease in rich countries, rather than malaria which still struggles for vaccine – now, at least Gates foundation wants to something about it.

    If AIDS was a purely poor man’s/countries disease, I doubt there would be generic Indian drug makers supplying at cost to Africa and Asian nations.

  • haha

    Dude
    i like your way of linking IITs realcost being really hidden under those taxes that all of the producers and consumers of every thing from tea to sugar have paid….

    Chandra
    I dont see Aids as a big problem worldwide.
    Lets face it its only the stupid people in most countries who have got it, the burning itch of gonnorhea, the dangers of swapping bloody needles have been known for generations even in villages….
    if you were to measure the net economic outcome that such folks could ever generate it would have been negligible.
    Gates did the right thing by not focusing on drugs that will give a marginal 5 year extension that too if the person does not die of malnutrition or TB or dengue fever.
    They focused on education and prevention.
    It is more economical solution.
    The chinese did get one thing right(which was their solution to aids, ps it was related to arsenic)

  • http://barbadkatte.blogspot.com RJ

    One Pro poor policy that brought benefits was the mid day meal scheme for school children in Tamil Nadu. But yeah, given that we have been removing poverty for sixty years, just one scheme does not in way lessen the vaildity of your question

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  • kurian

    Governement collects taxes in the name of helping the society(read helping the poor and backward).If they start making laws that really help the poor people then one day there wont be any to BPL to help.In whose name will the government collect taxes then?

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