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Leapfrogging to technological advancements

  • Published at 12:21 am May 7th, 2017
  • Last updated at 12:22 am May 7th, 2017
Leapfrogging to technological advancements
One of the interesting little oddities of economic development is that a less developed country, or a developing country like Bangladesh soon hopes to be classified, in some aspects, to be more advanced than a so called developed one. The point being that by developing a little later, it is possible to leapfrog earlier technologies. In the economic jargon, we are able to avoid path dependency and technological lock in.  Don’t worry, I will explain. Anir Chowdhury is a policy adviser to Sheikh Hasina and he is leading something called the a2i program. This is exactly one of such leaps over earlier technological solutions to a problem. Here the aim is to use the mobile phone network as the banking system. Obviating the need to build out physical banks to all of the country’s villages and townships, everything -- and the aim is everything (pay taxes, collect welfare payments and subsidies, settle bills, etc) -- should be on the mobile phone system. The aim is to have something similar to M-Pesa from East Africa allied with the Aadhaar program in India. Although of course we don’t want to say, too loudly at least, that we might be following those over the border. M-Pesa was one of the great surprises of the mobile telephone revolution. As the technology was rolled out, we thought that people would want to talk to each other on their phones. What actually happened was that SMS, text messages boomed. The basic ability to do this over the network was only there because the engineers needed a method of being able to text each other as the system was developed. But that’s the part of the technology that really caught on. And then it turned out that what people really wanted was not as much to be able to communicate but to have a banking system. This is rather why we cannot plan an economy again, simply because we don’t know what it is that people will really use a new technology for. Once a banking system was up and working over that SMS system, again, there was a surprise. What people really, really wanted was not so much to be able to collect or make payments. The real demand was to be able to save in a secure fashion. Yes, even the poorest wanted to be able to put a few day’s money aside without fearing someone finding the stash of cash under the sleeping mat. So we’ve found out something new about what people want through the entirely unplanned development in East Africa. Now that we know, of course it’s possible to urge it as part of government policy which is what Chowdhury is doing. It’s an interesting commentary on what it’s like out there in the country that he’s learned not to use words like “transparency” and “corruption,” instead pushing “innovation” and “dashboards” in order to gain the support of low and middle level officials. But then we all rather knew about that, didn’t we? The equivalence with the Aadhaar system in India is that biometrics are being used as identifiers along with the usual identification cards and so on. A method of proving that the person really is who they say they are. The economic development point of these systems is obvious. Places with a decent banking system are richer than those places without one. This observation is why the developed world scrambled to save the banks in 2008, simply because even the cost of rescuing them would be lower than the cost and suffering of not having a system at all. So we know that the Bangladeshi countryside being properly “banked” will make all richer. But it is by blossoming late that the country can do this with only the latest technology. As an example from my own direct experience, when I use an ATM machine in Portugal I can pay any of my household bills through it. This is not something I can do in my native UK. Well, obviously, I wouldn’t expect to be able to pay Portuguese bills that way, but you get the gist. The first ATMs in Britain, in the world actually, were in use back in 1967 and used the general technology available at that time. You could only get cash from it and not do much else. But that means that the essential core of the underlying technology also stems from that time -- without bill paying feature. Portugal was really a rather poor country up into the 1980s, which is when they started to install ATMs. And thus they built the system with a more advanced core, with bill paying option. About every house or home in Britain has access to a landline for telephone services. And the country is becoming rapidly covered with fibre-optic for broadband internet as well. Bangladesh, simply, will never have 100% population coverage for either. A few years back landline coverage was perhaps 1.4 million people, almost none outside Dhaka and the major cities, and 125 million mobile phone connections. The landline network never will be built just because we’ve now a cheaper and better technology to do the job. And as four and 5G roll out, then no one is ever going to wire Bangladesh for physical broadband connections either. In this sense, the Bangladeshi phone system is actually more technologically advanced -- and very much cheaper to boot -- than most in Europe. And the same is going to be true of the banking and welfare payment systems as that a2i system rolls out. As is also true in many ways of that M-Pesa system in East Africa that transfers money across borders cheaper than the regular European banking system does. We would all have preferred equal and early development everywhere. But it is true that by developing later, a country can leapfrog older technologies and end up further ahead in the progress curve -- as Bangladesh is doing in the banking system.   Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.
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