In a recent article in Time, former United States president Bill Clinton lists five global phenomena as cause for optimism, beginning with the assertion that “phones mean freedom.” Clinton explains that mobile phones “foster equality” and have “revolutionized the average person’s access to financial opportunity,” citing a 2010 UN study that found that mobile phones are “one of the most effective advancements in history to lift people out of poverty.” To expand on Clinton’s important observations, it is notable that the device that “fosters equality” and “lift[s] people out of poverty” is by and large provided by entrepreneurs and businesses seeking to make a profit.
In other words, a largely commercial phenomenon has brought about remarkable “social progress” in low-income countries. Mobile phones were developed in the United States, eventually deployed to low-income countries through commercial processes and, because of certain qualities, embraced in these countries, where they have had tremendous impact. I estimate that mobile phones have been responsible for a quarter trillion US dollars in the economies of the world’s so-called poverty belt—South Asia and Sub-Saharan Africa—alone, to say nothing of the impact in the rest of the world. Mobiles also possess enormous potential as a platform for other businesses in areas such as banking and healthcare and can help otherwise voiceless citizens to organize politically, but that is beyond the scope of this piece. Here, I focus instead on mobiles as one example of a productivity tool—and on their global spread as a model for promoting other such tools.
A New Approach to Development
Given the magnitude of their economic impact, the example of mobiles should spur us to revisit the nature of economic development and related US foreign policy, which generally focus on the governments of low-income countries in any approach to development. In this context, the attention to mobiles by a US president, a leading executor of foreign policies for a period of eight years, is particularly noteworthy.
Though US foreign policy has over the last seven decades regarded governments as the key actors in solving the pressing issues of low-income countries—poverty, bad governance, cultural impediments to democratic progress and demagoguery among many others, this approach may actually exacerbate these problems. Instead, we must look at what actually improves the economic lives of ordinary people. Economically strong citizens, in turn, make their governments more accountable and friendly to worthy causes, including a peaceful and prosperous world.
If the effort to economically strengthen the citizenry becomes our endeavor, then mobiles certainly are a striking example. Mobiles have shown that the key to progress—both for low-income countries and in the context of American global interests—is advancement of commerce as the antidote to many of the ills beleaguering low-income countries.
The commercial nature of mobiles and their potential for broad-ranging social impact are fundamentally intertwined. First, mobiles help ordinary people in low-income countries make economic gains, enabling them to pay for the services; this is particularly apparent in the spread of mobiles in areas where people would not have otherwise been able to afford such devices. Simultaneously, businesses profit from the sale of phones and associated services. Low-income economies advance, while high-income economies enjoy increased exports of equipment to low-income ones.
Mobile Phones Spurring Growth
A Quarter-Trillion Dollar Impact on South Asia and Sub-Saharan Africa
The following is a rough economic calculation of the impact of mobile phones on South Asia and Sub-Saharan Africa, the so-called "poverty belt" of the world and home to 2.3 billion people:
According to a study of 120 countries by Christine Zhen-Wei Qiang at the World Bank, a 10 percent increase in mobile phone penetration results in a 0.8 percent increase in economic growth. Though Qiang’s study did not define the time frame for the 0.8 percent increase, it can be assumed that the impact lasts for more than a year.
From 1996 to 2011, mobile phone penetration in South Asia and Sub-Saharan Africa combined rose from 0% to 63%.
From the above, I roughly—and conservatively—estimate that during this 15- year period the poverty belt experienced on average an additional one percent economic growth rate due to mobile phones.
Within this same period, the combined GDP of South Asia and Sub-Saharan Africa grew, in constant 2000 U.S. dollars, from $811 billion to $1,870 billion— an average annual growth rate of 5.72 percent.
Without the impact of mobile phones, I therefore estimate that this economy would have grown at an annual rate one percentage point less (that is, 4.72 percent), and the economy of the poverty belt by 2011 would be only $1,620 billion.
We can thus attribute to mobile phones $250 billion (constant 2000 U.S. dollars) of the collective GDP of South Asia and Sub-Saharan Africa.
All data from the World Bank, visual courtesy author.
Mobiles have demonstrated that billions of people who fall far short of Western standards in terms of their consumption of basic goods—food, water, medicine, shelter, and education—will purchase a commercial product to make economic gains, in effect voting with their hard-earned money on what actually advances their lives. It all works because someone spends pennies to make a call that advances her economic situation in dollars by saving time, money, labor, transportation, and opportunity costs.
From Luxury Item to Mass Product
Mobile phones, powered by microchips that also power computers, can be seen as a model for other devices or technologies; they are simply productivity tools, which allow ordinary people, businesses and economies to advance in tandem. Mobiles have been somewhat unusual, however, in the radical pace at which their prices declined, and the consequences of this particular set of circumstances point to important lessons for economic development.
Mobiles’ rapid decline in price is explained by a phenomenon known as Moore’s Law, named after Gordon Moore, the founder of Intel. Moore observed in the mid-1960s that the processing power on a microchip can be doubled every 18 months for ongoing scientific and engineering advancements, implying a thousand-fold increase in processing power over 15 years and a million-fold increase in 30 years. Indeed, Moore’s Law stands to this day. The astronomical rise in processing power and precipitous drop in price for mobile phones in the 1990s created an unusual situation whereby a luxury product became a mass product over the short course of a decade.
In the early 1990s, when only a few percent of the US population used mobile phones, governments in low-income countries were not interested in getting involved in the sector nor could justify soliciting “aid” for such involvement. The subsequent rapid transformation in accessibility of mobile phones thus led to the accidental ceding of the mobile industry to entrepreneurs and businesses.
Private versus Public Operation
Of greater import than how mobiles ended up in the private sector is the effect of these circumstances: comparing the results of private versus public operation of the mobile phone industry indicates that the former produces markedly better results. While governments by definition have the responsibility to provide certain public goods, they do not face pressure to innovate and expand markets. The private sector, on the other hand, motivated by profits, attracts competition. Under such competitive pressures, the sector is driven to offer better services, lower prices, a greater scale, and relevant innovations.
In spite of the advantages of the private sector, innovators and entrepreneurs in low-income countries face a magnitude of challenges under typical circumstances. In most low-income countries, either because of government ownership of economic assets or through extensive red tape, entrepreneurs and businesses are often unable to innovate and grow. Disproportionate state power manifests in undue controls and interventions. Anne Krueger, former World Bank Chief Economist explained in her 1974 paper on rent seeking that “government interventions [are] frequently all-embracing” in low-income countries. Aid from other countries only magnifies the issue; in a 2004 study, Karen Remmer found that aid money has expanded the receiving governments and encouraged centralized planning and rulemaking, leading to extensive bureaucratic red tape.
Ethiopia, a country of 85 million people, provides an example of extensive governmental control and the state-based provision of services like mobile technology. Embroiled in wars during the emergence of mobiles elsewhere in the world, which kept the state excessively powerful relative to citizens, Ethiopia did not adopt mobiles until they were introduced as a state-controlled sector in 1999. By that time, the success of mobiles in other parts of the world was beginning to be visible, which probably contributed to the Ethiopian government’s decision to own the sector.
Afghanistan also adopted mobiles at a late stage, in 2002, but under American influence and in contrast with Ethiopia, issued licenses to private companies. Today, Ethiopia and Afghanistan have comparable incomes; their GDPs per capita are US$1,100 and US$1,000, respectively. Ethiopia has a slightly higher GDP per capita, is less ravaged by war, has an easier terrain, offers a much bigger market allowing greater economies of scale, and has the potential to accommodate several competitors. Yet, Ethiopia’s mobile penetration is 17 percent, while Afghanistan has achieved a penetration rate more than three times larger at 54 percent. The ability to flourish in the private sector evidently had substantial impact.
Despite technological and investment-related differences, a clear pattern emerges in the state-based provision of mobile services and electricity. In most low-income countries, the governments own electricity generation and distribution. To this day, 87 percent of the rural populations and 56 percent of the urban populations in these countries do not have access to electricity, a very powerful tool in enhancing productivity. State control, in large part, explains these low levels of access. While the mobile sector may have escaped from state ownership due to unusual circumstances, the fact of the matter is that billions of lives have been improved due to private ownership. If mobiles have advanced lives of these billions, one might assert that the state-based provision of electricity has held people back.
A Recalibrated Focus
Like all countries, low-income countries need good governance. Therefore, instead of continuing to pursue prevailing development policies, we should pause to reexamine the thinking that has provided the foundation of the United States. The Founding Fathers of the United States, I argue, saw commerce as both an end and the means of good government. Recognizing that their country was of relatively low income compared to European countries and seeking to advance, the Founding Fathers reflected on the accumulated wisdom about political economies, thought comprehensively about what makes a stable and prosperous republic, and ultimately offered pertinent insights on the importance of commerce.
Alexander Hamilton made it abundantly clear in the Federalist Papers that the main purpose of the Constitution was to secure the commercial success of the United States and to arrange the resources necessary for that commercial success. James Madison, the principle author of the Constitution, considered “the rights of property [as] the first object of government.”
Corresponding with the thinking of the Founding Fathers, I argue that just as Clinton focused his presidential campaign with the famous pithy phrase “It’s the economy, stupid,” US international development policy needs a recalibrated focus on “It’s economics, stupid.” By this, I refer specifically to economics of relevance to ordinary people in low-income countries. The greatest contribution of mobile phones, beyond the conveniences they bring, is in helping low-income countries move towards greater commerce. If the example of mobiles can now succeed in moving US foreign policies towards healthier global commercial progress, they will become an even more influential force in society.
Mobiles for People of All Walks of Life
Affordable. Mobiles are affordable even for ordinary people in low-income countries. Digital technologies—both hardware and software—take billions of dollars to develop but only a few dollars to copy, and prices accordingly have been cascading downward. At the same time, engineering and scientific advancements over decades have made it possible to squeeze increasingly astronomical amounts of processing power into simple devices at a low cost.
Easy to use. Unlike computers, which can be used only by the literate and adequately trained, voice-communication is utilized by virtually everyone in the world. The enormous processing power of mobiles, coupled with their ease of use, makes mobiles profoundly useful to the unskilled and untrained.
Universally appealing. People need to communicate for every imaginable purpose every day, and they are eager to ease that process. In short, mobiles have mass appeal.
Visual courtesy author.
Expansion’s Unintended Results
When government gains power independent of its citizens, as is the case through aid, the state becomes overbearing and intervening. This is not a criticism of specific governments, but rather an observation of the nature of entities that are unchecked by countervailing or interlocking interests from the rest of their societies.
While Krueger and Remmer’s observations have shed light on contemporary government interventions in low-income countries, this is a classical observation. Hamilton emphasized that “in the usual progress of things, the necessities of a nation, in every state of its existence, will be found at least equal to its resources.” In other words, if governments have resources, they will find ways to use them: necessities are found to match resources, not the other way around.
Melancton Smith, an anti-federalist delegate at the Constitutional Convention who disagreed with Hamilton on many fronts, was nonetheless in accordance on this issue, arguing that “all governments find a use for as much money as they can raise.” The drive toward expansion occurs even within governments; for example, James Madison repeatedly used language of war (like “attack” “encroach,” “invasion”) in the Federalist Papers to describe the potential tendency of one governmental department to intrude into territories of other departments.
The desire to expand one’s sphere of activities is inherent in human nature and governmental expansion in low-income countries has been the natural consequence of resources available to the state, including through “aid” money from abroad. Instead of acting as referee in commercial activities, the government becomes a player in the game of commerce. While commercial players are properly checked by competition and by governmental supervision, the government itself is neither checked by competition nor by self-supervision. Moreover, a government engaged in commerce is distracted from governing.
Bad Governance and Cultural Impediments
Many would say that low-income countries are plagued by poor governance, as well as apparent cultural impediments to their economic and social progress. Arguments follow that if a productive, commercial society is to take form, governments must first take steps to produce good governance and alter the mindsets of the citizenry. I contend that the process must instead take place in the opposite direction: the progress in Western societies was an effect of commerce, not a precondition for it. Western intellectuals—Adam Smith, Georg Simmel and Max Weber, among others—have recognized that commerce has positively transformed governments, cultures and behavior, by making people more rational and mutually accountable.
While many development professionals have deduced from the failures of commerce in low-income countries that other avenues need to be found to meet these challenges, these alternatives—state control and interventions—have actually impeded commerce. The solution thus is not implementing an alternative to commerce, but rather the removal of obstacles that stifle its growth.
In Europe, for example, commerce developed despite opposition from the state and the church. Authorities and other powerful people in pre-modern Europe, like today’s governments in low-income countries, imposed various obstructions that caused people to remain poor. These obstructions were gradually removed as people increased their incomes largely through entrepreneurial initiatives, enticing authorities to align themselves with citizens and thus creating mutually beneficial economic arrangements.
For example, members of the British Parliament during the 13th through 17th centuries, knowing that the monarch required their approval to levy taxes, succeeded in extracting various liberties in exchange for higher taxes—money that was generated from commercial progress—and the King’s power consequently declined. Similarly, as productivity-enhancing mechanisms and innovations like mobiles allow ordinary people in low-income countries to gain economic clout today, the interests of citizens, businesses and government come into alignment.
This is why another US president, Woodrow Wilson, who was a professor of political economy, summarized his read of history as follows: “The history of liberty is the history of limitations of government power, not the increase of it.” This not only explains why aid to government did not work but also shows how liberty and opportunities can arise through citizen’s increase of income and their ability to constrain and align with government power.
Fueling the Economy through Mobiles
Mobiles Are Tools for Economic Development
There are fundamental economic reasons why ordinary people make meaningful gains through mobiles:
Mobiles save time, money, and labor. Two people can connect to do business in seconds, eliminating the need for expensive travel and transport. The saved time, money, and labor then can be applied for other purposes and contribute to a more complex and diversified economy.
Mobiles disperse information beyond local contexts. Frederick Hayek pointed out in the 1930s that dispersed bits of information, available locally but useful beyond the local setting, are essential ingredients for an economy to gain greater efficiency. For instance, a farmer who notices an oversupply of mangos in his village profits meaningfully if he can discover that a distant town has a shortage of mangos. The ability of mobiles to distribute the local information of many different locations makes the economy more efficient, while individuals profit.
Mobiles push the envelope. With mobiles, people can accomplish things they could not otherwise imagine. Skills, imagination, time, and human contacts now reach further—cheaply and instantaneously. For example, a doctor working in an urban setting had to abandon his ancestral farm to practice medicine. With mobiles, he can practice medicine in town while supervising the manager of his farm.
The benefits of mobiles compound. As mobiles proliferate, all mobiles become more useful because each user can reach a greater number of people.
Visual courtesy author.
One of the forms of bad governance plaguing low-income countries today is demagoguery. Countries with regular elections but disproportionate state power often face populist leaders who promise various ways of improving the lives of citizens, banking on ethnic loyalty, emotional ties to past heroes, symbolism, personal attacks on other leaders—with little attention to systemic problems. The economically weak citizenry are often unable to hold these governments accountable and can only choose one demagogue over another. Citizens accept this as their fate; they have little time or ability under the circumstances of living in poverty to reflect on how those circumstances can be changed.
Commerce is an antidote to demagoguery. It anchors individual citizens into different groups of economic interests that cannot then be amalgamated by demagogues. In order to prevent potential demagoguery in the United States, James Madison and other framers of the US Constitution put various checks on the House of Representatives, such as presidential veto and judicial review. In addition to the constitutional checks, Madison saw that commercial progress gives rise to various different interests groups—“[a] landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser interests”—that can prevent demagogues from coalescing people into a common mass.
In other words, the Founding Fathers saw commerce not only as an end but also as a means toward good governance. In many low-income countries, which lack the checks and balances found in the US government, commerce thus becomes even more crucial to preventing demagoguery.
Mobiles, of course, have not simply flourished independent of governments; they have started with explicit licenses from governments. However, the spread of mobiles, as would be the case for any other commercial product to a greater or lesser extent, has successfully created the interlocking economic relationships among citizens, businesses and governments that have widely proven to be a key to accountability. First, as I have written earlier, citizens pay for a service that generates greater economic value to them, giving them a net gain. Companies that provide the service depend on citizens for their revenues.
Through such relationships, citizens and companies advance in tandem, especially when there is competition. That is, companies advance in revenues and profits, enabling them to expand their investment and consumer base. At the same time, these companies pay a substantial amount of taxes to governments: customs duties on imported equipment, value added tax on services provided, corporate taxes, and personal taxes paid by people employed by the industry. These taxes in turn give rise to interlocking relationships between companies and governments.
Governments and their employees thus become dependent on the mobile industry not only for its services, but also for its revenues. The interlocking relationships between citizens and companies and between industry and government contribute to interrelated accountability and greater governmental dependence on citizens’ productivity, a key factor in good governance. Aid impedes rather than builds these beneficial networks of relationships; revenues that are not tied to citizens’ productivity generally lead to divergence of interests between governments and their people. Citizens then cannot hold governments accountable, and commerce is stifled.
Unsurprisingly, a process so complex as commerce can give rise to certain problems, such as governments protecting monopolies. However, commerce has many self-correcting features. The problems engendered by commerce generally can be addressed by competition among businesses and governmental supervision. Competition among businesses is rooted in profits; governmental accountability is rooted in citizens’ empowerment, which arises through the jobs, training, products and services that arise through commercial progress.
Clinton’s observation that mobile phones mean freedom reminds us of what John Kennedy, in his inauguration speech in 1961, told his “fellow citizens of the world”: that they should “ask not what America will do for [them], but what together we can do for the freedom of man.” While Kennedy may have been idealistic, mobiles have actually achieved this goal, decades after being born in American laboratories.
Through scientific and engineering breakthroughs, largely in the United States, as well as many refinements due to global economic forces, mobiles have gone from laboratories to the hands of poor people in developing countries. Because people in low-income countries hold these devices in their hands through their own earnings, they have genuinely given meaning to Kennedy’s word “together” in his vision for the creation of freedom. We should also note that Kennedy directed his words to the “citizens of the world,” because it is the citizens who must advance economically, and it is they who must produce governments and hold them accountable.
The story of mobile phones in low-income countries, a phenomenon that is as fundamentally commercial as it is socially impactful, offers an important model for continued economic and social progress in low-income countries. Therefore, instead of providing aid to governments, why not redirect monetary resources toward the invention of new productivity tools? The possibilities for new instruments of economic empowerment to be held in people’s hands are endless. Mobiles are only one exceptional example.
IQBAL Z. QUADIR is a professor of practice at MIT, and founder and director of its Legatum Center. In the early 1990s, he realized that mobiles could transform low-income countries and founded Grameenphone, Bangladesh’s largest mobile phone company.