The revolution in communication and information technologies, and the new economy that it is helping to unleash, is a double-edged sword for developing countries. New low-cost technologies offer developing countries unprecedented opportunities for rapid development, yet these technologies also raise the threshold of competitiveness.
The world has been hit by a wave of innovations, the likes of which occur, according to some observers, only once every three generations. Centered around telecommunications and informatics, these innovations are producing a real information technology revolution which is, in turn, setting off side revolutions wherever applications of these technologies have been developed and implemented. Industries transformed by these innovative technologies and their applications include biotechnology, robotics, miniature motors, software production, and high-performance materials. Even the relatively more mundane field of transport has been revolutionized by the new containers, hub airports, and overnight shipping systems made possible by the information technology revolution.
The ongoing development and improvement of technologies indicates that the information technology revolution is still young. The following points support this idea that there is much yet to come:
The following five examples illustrate the impact of information technology on business:
Accelerated, leaner, more standardized business practices. Just-in-time (JIT) production processes are spreading everywhere. Companies such as Toyota base all their operations on this principle, saving billions of dollars. Countries like Singapore essentially run their whole economy on a JIT basis. The Benetton company uses a combination of last-minute dyeing techniques combined with ultra-rapid communications to bring down its restocking time to less than 2 weeks— speeds unheard of even 5 years ago. Johnson Electric Holdings, in Hong Kong, can produce a new micromotor prototype ready for production just 6 weeks after getting the specs, and uses teleconferencing to keep the client informed throughout the process.
Increasingly complex transnational business alliances. A Singapore firm uses Taiwanese capital to produce telephone sets in China for the U.S. market, using Israeli technology. Such "value chains," involving four to five countries or more, have become common, along with all manner of cross-border strategic alliances between firms. The number of such alliances has, in fact, tripled since 1990.
Hypercompetitive purchasing worldwide. U.S. department stores now purchase cotton shorts by asking for bids from 10 countries at a time. Ford recently introduced the concept of a global car and reorganized its worldwide operations so that parts could be purchased wherever they are cheapest. Everywhere, distributors are gaining over manufacturers, who must meet the most competitive of conditions or be left out.
Borderless capital flows. Last year, private capital flows into developing countries totaled $155 billion, more than twice the amount of official development assistance. New players—global companies seeking to make direct investments worldwide and institutional investors, like mutual funds and pension funds—continue to enter the field. The result of this practice, as the recent Mexican peso crisis showed, is an intense scrutiny of national economies, as the standards of the International Monetary Fund and the World Bank are increasingly complemented by the demands of disciplinarian, and often fickle, private investors.
Soaring international trade in services. One of the most spectacular aspects of this revolution in business practices is that services previously assumed to be utterly untradable are becoming tradable. Thousands of telephone operators in Jamaica, the Dominican Republic, and St. Lucia work for U.S. companies. Every night, the largest U.S. insurance companies fly their paperwork to Ireland, where it is logged into computer systems by workers operating in small villages around the countryside. SwissAir has its revenue accounting completed in Bombay, with a crew of 100 replacing the 200 people previously employed for this purpose, at far greater expense, near Zurich. And in Washington, many physicians now dictate memos into a telephone line, with trained nurses doing the typing in real time in India, at about half the cost of U.S. typing services.
This new phenomenon of international long-distance provision also applies to more sophisticated services. India has captured a half billion dollar slice of the world software programming market, with the Motorola programming team in Bangalore recently being named one of the best in the world.
As technology revolutionizes business before our eyes, the same is soon to occur in society as a whole, changing the way we work, learn, organize, and even shop. Following are five examples of the changes to come:
The advent of teleworking on a large scale. Some studies estimate that 15-20 percent of the workforce may be teleworking, or telecommuting, by 2020. In the U.S., some 30 million people already work from home, either full or part time, communicating with their employer or clients from a distance. No one can be certain what impact this sea-change in personal work methods will have on the core of cities, on the travel industry, or on lifestyles, but we know that the impact will be dramatic. Together with teleworking, some predict that we will increasingly see what is called "portfolio working," where self-employed individuals work at a distance for two, three, or more corporations either on contract or for a fee.
Education as a universally tradable commodity. One of the most exciting products of the information technology revolution will be the ability to offer lifelong education to anyone, at low cost, on almost any subject through CD-ROMs, interactive multimedia systems, and teleconferencing. Three universities already existed on the Internet at the end of last year, and that number is certain to grow.
Teleshopping. Some 10 years from now, many of today’s traditional marketing channels will have been complemented, or even replaced, by electronic, interactive catalogue shopping. Even interactive bidding will be possible. This will increase the trend toward hyper-competitive purchasing and transform jobs in wholesaling, retailing, and procurement.
The advent of paperless electronic money systems. This will have a major impact on the work of banks and other financial institutions, as well as in many types of enterprises, as paperless payment becomes standard.
A revolution in human organizations. Organizations will abandon their prevailing command-and-control structures to become more fluid and decentralized. This will develop because organizations are really information systems. When information is embodied in papers, memos, and forms, corporations (and governments) tend to be organized around people. Digitalization brings disembodied information that is easily shared, making it possible to organize around purposes rather than people. People can become "empowered assets," rather than poor information-transmitters. This is one of the reasons why so many large corporations (IBM, GE, ABB) are reinventing themselves, and why so many governments are beginning to do the same. This change in the inner philosophy and makeup of organizations, government included, will be one of the great social changes in the decades to come.
As a result of the information technology revolution, every country confronts a new world economy that has four features: high speed, knowledge intensive, transnational, and highly disciplinarian (due to the extraordinary competition it breeds among countries and firms). The race for competitiveness will be worldwide, and the finish line will be in constant retreat. The old distinction between rich and poor countries will be overwhelmed by new distinctions: fast and slow, learning and static, plugged-in and unplugged, reliable and unreliable. This competition will unleash tremendous pressures for change, allowing no developing country (even the poorest) to remain exempt.
There is no better way to illustrate the tremendous pressures for change than through examples of transformations already underway and by the potential application of these low-cost, high-leverage technologies on the human resource and poverty agenda, the environmental agenda, and several related competitiveness-related areas. Of course, there are many interlinkages between these three divisions: the new technologies for education and training, for example, fit under both the human resource agenda and the competitiveness agenda.
Research shows that economic development is strongly correlated with educational attainment and outreach—some have called education the most powerful economic technology known to man. The implementation of new information technologies in developing countries will provoke significant leaps in learning and knowledge over the decades to come. There is tremendous potential here for education at all levels and in all fields.
Basic education. The most promising applications, in the medium term, are in teacher training and teacher updating through networked knowledge links. In the longer term, with a simple cellular link and second-hand PC, the concept of the village school can be reinvented, along with the concept of the teacher. Icon-based education and other technology will accelerate functional literacy among even the poorest groups. In South Africa, IBM has experimented with providing disadvantaged children with basic literary skills through the Writing to Read program. In Mexico, the government just launched Telesecundaria, a distance teaching network for 12,000 rural schools that provides basic education beyond the primary school level. Each school will have access to six TV learning channels carried over a digital compression network, enabling a single teacher in each school to tutor students from three grades.
Higher education. Poorly staffed universities in East Africa can be upgraded almost overnight through electronic links with premier European universities, and several initiatives are afoot at the World Bank to create such "virtual universities." Distance learning for secondary and higher education provides an incredible opportunity for all developing countries by changing the cost and quality parameters for education, even in remote areas. Britain’s Open University already trains one-fifth of the country’s graduates at one-ninth of the cost. These systems also work well for continuing adult education.
Professional training. Highly-task specific technical training can be dispensed anywhere at low cost via CD-ROM. Small enterprises in a specific field, such as textiles, can be helped by small productivity centers linked through the Internet to larger centers in developed countries. Examples of such live conferencing were convincingly demonstrated in the February G7 conference.
The most important area here is not so much curative health care as preventive health care. better nutrition, micro-nutrients, immunization, access to clean water, clean disposal of waste, and so forth. In all these areas, information has a double role since both information dissemination and information gathering are critical aspects. In many developing countries, poor communications and limited access to information technology have deprived health prevention programs of their effectiveness and limited their reach. Indications of this situation are found in the difficulty of controlling communicable diseases, properly training enough health workers, and keeping them up to date.
The new information technologies will make major contributions over the decades to come in two key areas: surveillance and control of epidemics and contagious diseases; and, dissemination of information on best health practices to doctors, nurses, health agents, community leaders, and formal and informal groupings of women. The Global Health Network, an Internet-based global medical information system, helps many health practitioners and researchers all over the world interact and learn together in an organized way, while a major U.S. software firm is developing quicker, cheaper, more reliable information recording systems for field health agents in India. Even in curative health care the possibilities are spectacular, as with long-distance diagnosis on complex heart ailments between specialists in the Mayo Clinic and patients in India using remote imaging. The local "handler" only needs to be a medical technician.
There are many other examples of exciting health applications of new technologies for developing countries, all with tremendous leverage and potential for the alleviation of human suffering— particularly for poor, remote populations with little access to an urban health infrastructure. Many of these approaches already are comparatively low in cost and they will become even more affordable as communications costs go down even further.
A major problem in addressing the pressing environmental remediation and management needs in developing countries is the lack of information on what is actually happening. New information technologies, such as teledetection and computerized databases, can be of enormous help in this area. A land-resource database of the Arun River Basin of Eastern Nepal, for example, produced the first basin-wide mosaic of land use and capability, with detailed maps of deforestation hotspots. Another use for environmental technologies might be enabling a future solution to increasing food needs: the whole field of environmentally balanced agriculture relies on an information-intensive form of agricultural resource management that improves both the production and distribution of food.
What matters these days is not how many phones there are per hundred people, but how many people live within walking distance of a public phone. All over India, small side-street shops offer access to long-distance telephone service. Equipped with just a few chairs, a fan, an electronic billing machine, and sometimes a fax, these small enterprises operate day and night, creating about a quarter million jobs. In Moremanga, a small rural city in Madagascar, Volunteers in Technical Assistance (VITA) is building an information center, which currently consists of a radio communications unit but will soon have Internet connectivity through satellite. Local businesses are paying part of the costs for this venture (with self-sufficiency expected in a year) which will help turn a little city into a commercial center for the area.
Other successful examples include Micro-credit schemes aimed at the poorest of the poor, such as the Grameen Bank in Bangladesh, now use cellular phones to increase their efficiency and accompany their outreach efforts. Some of the more ambitious schemes, such as the Teledesic project (840 low earth-orbiting satellites for $9 billion) will enable every corner on earth to have access to communication through a handset costing a few dollars. The implications of schemes like this are very impressive for those of us in the development business, particularly as some sponsors foresee lower costs for their poverty-reducing applications. A simple cellular telephone station will eventually bring much more to a remote village than the occasional visits of aid workers and government officials.
Among the biggest impediments to competitiveness in developing countries are the lack of information about overseas markets, suppliers, and buyers, and the lack of avenues for providing information on local firm capabilities. The new low-cost communication technologies will rapidly and effectively shrink that two-way information gap.
Given adequate communication, developing countries manufacturers can rapidly overcome some of their international information handicaps through electronic bulletin boards and data services for companies like Europartenariat, the UNCTAD trade point system, Commercenet, and several found on the World Wide Web. This is one of the reasons why Internet connectivity programs for Africa are a priority item at the World Bank. One pleasant side benefits is the very low cost of Internet communications. Where a prolonged international call would cost $50 or more for a developing country exporter, the Internet costs are less than one-tenth that amount. The Web is also highly democratic: an exporter in Zambia or Nepal has the same opportunity as any large Western corporation when it comes to opening a home page.
There also are plainer examples of communication technologies that apply to small businesses. In Cote d’Ivoire, farmers use cellular phones to get direct price references from the international cocoa markets. In some West African open air markets, women find out about supplies and prices through the help of one-person phone and fax enterprises. In Peru, one-third of the phone calls via a rural satellite hookup were business-related, and each saved $7 over the slower postal route.
In addition, there are examples, mentioned earlier, of providing services over long distances. The potential exports of clerical and more sophisticated services through teleporting could well amount to some $120-180 billion for developing countries alone, a considerable figure compared with their total exports.
Ineffective government is one of the primary causes behind many major development failures of the past 20 years. This is particularly true in Africa, where bad governments make it very hard to start up the lively private sectors so essential to creating jobs and growth. The governmental defects raise the cost of doing business by 20-30 percent above conditions elsewhere.
The new technologies can help government systems become more effective in their day-to-day operations. A $1 million trade system in Mauritania brought down customs processing time to 30 minutes, and more than paid for itself through increased customs revenues. In Brazil, automated systems validate every fiscal expense that same day. The World Bank is now supporting computerized tax administration and audit control in Morocco. Satellite and information technology can be used for computer mapping and land titling programs, which are crucial for giving small farmers and entrepreneurs access to collateralized credit.
Electronic government systems for customs, taxes, and registries of all kinds will also be a booming business. IBM alone is currently working on no fewer than eight national tax systems. Some governments are preparing highly efficient payment systems, such as the Chinese government’s plan to equip 400 million people with smart cards, thereby jumping several generations of less effective payments and banking systems.
The increased access by citizens of developing countries to information through low-cost, widespread communications systems will inevitably lead to greater government accountability, transparency, and even democracy. A famous example of this came when Lech Walesa pointed to the TV after being asked what caused all the changes in Poland. For the many developing countries suffering from weak or destructive governments, this represents another key to progress, despite the initial resistance likely from wary government elites trying to protect their local information monopolies.
The tasks for developing country governments and other stakeholders fall into four categories: raising awareness to understand the significance of information technologies to national interests, creating conditions for the supply of information infrastructure, creating conditions for the demand of information, and ensuring that the needs of the poorest and most vulnerable groups are addressed.
Awareness-Raising Tasks. The awareness-raising task in many developing countries is still momentous, particularly for the poorest countries. The first task is to convince officials, businesses, and wide reaches of the population that:
The second task, however, is even more difficult: these same stakeholders have to be made aware of how to rethink their development strategies and organizational setups. Above all, that means knowing which questions to ask.
These two awareness-raising tasks will not be easy for many developing countries. A majority of people, in both the developing countries and the development aid community, still think very much in terms of the industrial age, and few seem to understand the significance of the new Information Age. Added to this are the inevitable fears of cultural erosion, domination of the English language, and so forth, which have tremendous political power. There are likely to be recurrences of the primitive reasoning of the 1970s, "this has nothing to do with true poverty reduction," or of the reasoning of the 1980s, "the private sector will do it all."
Difficult as these two awareness-raising tasks are, they are the most crucial aspects of this stage of the development process. This is where the World Bank Group, other multilateral agencies, the European Union, the bilaterals, and the private sector can be the most helpful.
Supply-Side Tasks. The correlation between economic development and information infrastructure development will be so compelling that developing countries will have to invest in this area in a massive and unprecedented way. These investments will need to target both modern telecommunications systems and strategic information systems.
With regard to modern telecommunications systems, investment will need to double from today’s $30 billion a year to about $55-60 billion. Those sums would be spread across many situations, with the transition countries going from a teledensity of 20 percent to 40 percent while the poorest countries move up from 1-2 percent, or less, toward 4-5 percent, or even more for ambitious players (such as China, which plans to add 80 million lines over the next decade at a cost of $100 billion).
Investment in strategic information systems would need to target the areas of payment and settlement, customs and tax, trade facilitation, and so on. Such systems are costly: $50-100 million over 5 years is typical for a public finance management system in a medium-sized developing country.
These numbers are so large, and public budgets are so strapped, that the bulk of the effort will have to come from private investors, particularly in the first category. In the strategic information systems category, the public sector may have a somewhat larger role. To attract private investment, developing countries will have to make serious efforts on two fronts: First, they will have to create an information-friendly environment which requires coherent telecommunications reform and information policies, and laws protecting investment, intellectual property, privacy, and data security. This requires open and competitive, yet well-regulated, information and communication markets. It also necessitates effective independent regulatory and standard setups.
Second, developing countries will have to create an investment-friendly environment. This means a business environment that is attractive and reliable beyond the needs of the information sector alone. In creating these information-friendly and investment-friendly environments, the World Bank Group can play an advisory and best practices role and a financial role as catalyst or investor, lender, or guarantor.
Demand-Side Tasks. Countries can not work only on the supply-side of information infrastructure. They also have to invest heavily on the demand-side in areas such as education, technical literacy, and computer literacy. Even more generally, they have to look at their overall ability to become "learning nations." Populations must be systematically mobilized to reach out, "get connected," and develop an interest (even an obsession) in lifelong learning.
This is why the World Bank is considering "knowledge assessments": analysis of a country’s ability to find, absorb, digest, and operationalize knowledge, and to become a learning nation. In those assessments, the Bank would help governments look very broadly at their capacity to learn—not just at education, but also at all the ways through which information is gathered, through the consular attache systems, through the university or scientific networks, or even through such inimical features as the abusive overpricing of international calls.
The Focus on Poverty. In the end, we need to ensure that the poorest countries, and the poorest within those countries, are not left out. The knowledge gap between the have’s and the have-not’s of the Information Age must shrink rather than increase.
This has to do with universal access, rural telecommunications systems, and the provision of access to vulnerable groups that have few resources to invest. It also means giving priority to applications of the information technology revolution that address the needs of the poorest: educating people, improving their health, reducing their isolation, and coping with urgent environmental issues. We must find a way to give a poverty focus to the information technology revolution. If utilized properly, it has a tremendous potential to alleviate the long-term causes of poverty.
The examples given here help demonstrate why an increasing number of people in the aid business believe that the new technologies, particularly the low-cost telecommunications and information technologies, may well represent the developing countries’ best chance to leap forward in development, growth, and poverty reduction. These technologies are not luxuries for developing countries. On the contrary, they are strategic factors of development and poverty reduction that urgently need to be more prominently and systematically integrated into development strategies.
* Reprinted by permission of the authors and publishers from SAIS Review (1996).
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