Transportation or communications

Advances in communications is one of the key features of the I-Cubed Economy. We hear of the so-called “death of distance” and how improved communications are changing the lives of millions for the better. For example, the Economist likes to continually point out the benefits of mobile phones to the poor – as it did in this example from May 2005, “Calling across the divide”:

Wedged between stalls of dried fish and mounds of plastic goods, a red shipping container is loaded with Coca-Cola bottles. The local distributor for Soweto market, located in a tatty corner of Zambia’s capital city, Lusaka, sells all its stock every few days. A full load costs 10m kwacha (about $2,000). In cash, this amount can be hard to get hold of, takes ages to count and—being ten times the average annual wage—is tempting to thieves. So Coca-Cola now tells its 300 Zambian distributors to pay for deliveries not in cash, but by sending text messages from their mobile phones. The process takes about 30 seconds, and the driver issues a receipt. Faraway computers record the movement of money and stock. Coca-Cola is not alone. Around the corner from the market, a small dry-cleaning firm lets customers pay for laundry using their phones. So do Zambian petrol stations, and dozens of bigger shops and restaurants.
This is just one example of the many innovative ways in which mobile phones are being used in the poorest parts of the world. Anecdotal evidence for mobile phones’ ability to boost economic activity is abundant: they enable fishermen or farmers to check prices at different markets before selling produce, make it easier for people to look for jobs, and prevent wasted journeys. Mobile phones reduce transaction costs, broaden trade networks and substitute for costly physical transport. They are of particular value when other means of communication (such as roads, post or fixed-line phones) are poor or non-existent.

The most recent story along these lines was on the front page in this morning’s Washington Post – “In War-Torn Congo, Going Wireless to Reach Home”:

Until not long ago, if Zadhe Iyombe wanted to talk to his mother, he had to make the eight-day boat trip up the Congo River to the jungle town where he was raised. In a country with almost no roads, mail or telephone system and a grisly guerrilla war raging, making that exhausting and dangerous trip was about the only way he could find out if his 59-year-old mother was still alive.
Then he got a cellphone.
Now he talks to his mother every day. And once a week, with a simple new feature in African cellphones, he uses a text message to transfer five minutes of airtime to her phone to make sure she can always call him.
. . .
As surely as the light bulb and the automobile before them, the cellphone and text messaging are radically changing the way people live in the developing world. In widespread use for about five years in much of Africa, technology long taken for granted by the world’s rich has made life easier, safer and more prosperous for the world’s poor.
For the first time, millions of Africans are able to communicate easily with people who are beyond shouting distance. Farmers and fishermen, for example, use text messaging to check market prices, eliminating middlemen and increasing profits — and preventing long trips to the market on days it is canceled.

But communications is only part of the answer. The story of farmers checking on market prices (used a case study over and over again) is an example. Knowing the price is important; it gives the farmer market power in his negotiations with the buyer. But it is useless information if that farmer has no way to get this crop to market. This is where improved transportation comes in.
According to a new study by the Asian Development Bank (When Do Rural Roads Benefit the Poor and How?), “better rural roads are a necessary but not sufficient condition for graduating from poverty.”

The poor and very poor assign high priority to basic access. It reduces their vulnerability, and they consider it a matter of dignity to be able to communicate with the outside world and engage in social activities outside the village. This is confirmed by evidence from PRAs [participatory rural assessments] in the project and control sites. In the absence of improved opportunities to use roads, the poor rely on the primary network of paths, tracks, culverts, and basic access routes in the immediate village vicinity. Theirs is a walking world, and improvements to this primary village network of tracks, etc. that reduce the burden of basic household and productive tasks are likely to have a significant poverty reduction impact by reducing their time and energy impoverishment. In this context, the increased availability of intermediate modes of transport with larger carrying capacity to collect water, firewood, etc. is likely to have a greater initial impact on their well-being. They need to first accumulate surpluses even periodically to be able to seize new opportunities that motorized transportation may bring.

Throughout history, advances in transportation have sparked economic growth and increased prosperity – starting with the invention of the wheel. Roman roads and safe passage (pirate-free) on the Mediterranean fueled the economy of the Empire. The development of the rounded merchant sailing ship, the cog, greatly expanded Medieval commerce. The container ship changed the manufacturing calculus, forever some claim (see “The world in a box” in The Economist). And the development of overnight air freight and rapid package delivery services have made much of the e-commerce revolution possible.
The same will continue to be true in this new information age. While the movement of bits (information) is increasingly important, the movement of atoms (people and goods) is still critical. Cyberspace has not yet displaced real space and virtual reality is not the same as reality.
Let us keep this in mind as we craft policy for the I-Cubed Economy (and in the development of transportation-poor nations such as the Congo). Otherwise, we may find ourselves neglecting an important element of our economic infrastructure.


Absorbing knowledge

Last week, I posted a comment on how innovation in low and medium tech companies relies on absorbing, rather than generating, new knowledge. Absorption is just as important for countries as for companies. The 2005 Industrial Development Report from the United Nations Industrial Development Organization (UNIDO) Capability Building for Catching-up highlights this problem with respect to the ability of low- and middle-income economies to catch-up with the more developed economies.
The report stresses the key feature of the I-Cubed Economy:

In modern societies development and economic welfare rest on the permanent creation and destruction of knowledge. Rapid acquisition of new knowledge is fundamental to successful economic performance.

The report goes on to explain:

Owing to the cumulative nature of learning, differences in the rate of accumulation of technological capabilities have an inherent tendency to translate into gaps in economic prosperity across countries. Narrowing these gaps has required sustained catch-up efforts of various kinds. Pivotal among these efforts has been the swift accumulation of technological capabilities. Contrary to views once popular among economists, domestic knowledge generation has been a requisite of catching-up. Tapping into the global pool of knowledge and building domestic knowledge systems go hand in hand.
Collective learning, both within single organisations and at more aggregated levels, is a vital feature of domestic competence building. Indeed, the effectiveness with which a firm is able to participate in and benefit from the generation of technologies is largely given by factors that lie outside the scope of the individual enterprise. The institutional environment within which a firm operates determines its incentives and opportunities and thus affects the scope of the capabilities it needs to master. The intervening factors include incentives to innovation, conditions of access to various kinds of inputs (including finance, skills and knowledge) and to relevant markets and regulatory requirements. Behind many of these factors lie the capabilities of a multiplicity of organisations, including input suppliers, educational and training institutions, research organisations, financial institutions, regulatory agencies and specialised service providers. Clearly then, both the quality of firms’ technological capabilities and the scope for acquiring new capabilities can only be properly understood by considering the context within which both are shaped. The process of competence building is hence not only cumulative at an individual level but also systemic in character.

The importance of these institutions is based on the nature of technical knowledge:

Questions arise as to why dissemination is difficult, why advances in scientific knowledge do not lead immediately to new technological applications, and why the effectiveness of both processes varies significantly across sectors. Two fundamental explanations have been put forth. The first one is that the output of scientific research is not information that can be used at trivially low costs in the production and implementation of new technology. Scientific activity relies on a complex enabling infrastructure. Second, the mastery of tacit knowledge affects the efficacy of technology dissemination processes across firms or countries. (e.g. standards and technical regulations, generic drugs and semiconductors).
The capabilities required for exploiting various forms of codified knowledge reside only partly within any given firm. A distinctive feature of an innovation system is the presence of multiple, interacting actors and institutions, whereby firms’ capabilities are enhanced by access to those of other actors in the system. The extent to which developing country firms can access and use available sources of codified knowledge depends on the diversity of the collective skills and capabilities they can rely upon in order to introduce locally innovative technologies.

This absorption ability is just as important in the so-called developed nations. [I say so-called because the use of the term “developed” is misleading as it implies an end state – rather than a relative position. Viewing a country such as the US as “developed” implies that the process of economic evolution and growth (a.k.a. development) is finished. That is a mind set that only begs for trouble.]
Even nations at the cutting edge of technology and innovation need to be able to gather and absorb knowledge and information from elsewhere. The not-invented-here syndrome is as deadly for a nation as it is for a firm.
Unfortunately, too much of America’s current policy falls victim to this way of thinking. From a security policy that makes it difficult for foreigners to enter the US (the most effective form of knowledge transfer) to a technology policy predicated on just outspending everyone else, we fail to recognize the contribution and importance of the information and knowledge from around the globe.
This is an attitude that companies decidedly don’t share with our policymakers. As the US seems to becoming more isolated, companies are rapidly becoming more global in their search for knowledge and information.
Part of our current competitiveness push is correct when it comes to increasing our absorption capacity. We need a workforce trained in at least the basics of math and science if we are to have the capability to utilize formal knowledge from what ever source (as the UNIDO report points out).
But there is so much more we need to do.
The starting point may be to recognize the fundamental nature of knowledge: it is more powerful if it is shared. As Thomas Jefferson said:

He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation.

That saying applies to nations and well as individuals. The more we learn to learn from others, the stronger we will become – as an economy and as a nation.