SHG Research

The last two years have witnessed a veritable Internet "tulip craze" in First World countries, with soaring stock prices for companies like AOL and EBay, the rapid takeoff of new electronic services like online catalogues, auctions, and brokerages, and the prospect that "e-commerce" may soon exceed $300 billion a year. Right now, more wealth is being created by the information and network computing revolutions than by any other undertaking in human history. In this context it is easy for "we happy few’ First Worlds to overlook the fact that from a global perspective the Internet is still very much an elite phenomenon – it is almost irrelevant to the daily lives of all but the top tier of the global income distribution.

True, there are now more than 150 million Internet users around the globe, and as of December 1998, at least 212 countries had Internet connections. But most of the Internet’s heaviest users, technology suppliers, service providers, and investors remain concentrated in just a handful of First World countries. Indeed, the US alone -- with 5 percent of the world’s population and a fifth of its income -- accounts for nearly half of all Internet users, over sixty percent of Web servers, and an even higher share of sophisticated new e-commerce services. (See Table 1.) The top ten percent of the world’s 5.9 billion people, in only 23 countries, account for nearly three quarters of all Internet users and servers, and an even higher share of Internet technology suppliers and commerce services.

Meanwhile, more than half the world’s population has never even made a phone call, much less an Internet connection – even as the net worth of the world’s top ten Internet billionaires has grown to exceed this lower half’s entire net worth.

The real challenge now is to make all this glittering new technology serve the development needs of a much broader audience – while also insuring that it does not actually widen the growing gap between rich and poor. As we’ll see, this is no easy task – and it is certainly not obvious that it can be left up to the profit-oriented automatic ties of the "invisible hand." But at least there already are at least a few grassroots, not-for-profit organizations that are already taking this challenge seriously, and showing us what might be done.

Of course it is not really surprising that the diffusion of Internet technology should depend on country income levels to some extent. Initially, that was also the case with most other communication technologies, like telegraphy, telephony, radio, and television. But many governments quickly recognized the importance of those technologies to general economic development, and intervened in various ways to extend their benefits to ordinary people.

The Internet has followed a different pattern. It had its roots, not in some Ayn Randian entrepreneur’s risk-taking, or in visionary strategic moves by private corporations, but in not-for-profit projects that were undertaken for the most part by the public and academic sectors. These non-profit roots greatly influenced the kind of services that the Internet originally promoted -- like low-cost e-mail, publishing, newsgroups, and the distribution of shareware and offbeat entertainment that were mainly of interest to professors, students, government bureaucrats, and computer nerds.

The proliferation of such public services helped to create great expectations about the Internet’s social value – for example, Vice President Gore predicted in 1994 that it would help build "….strong democracies, better solutions to global and local environmental challenges, improved health care, and a greater sense of shared stewardship of our small planet; " or President Clinton claimed in 1996 that providing online connections to the country’s high schools and colleges would "change the very nature of the education process."

More recently, however, this vision has become rather more bourgeois. Compare, for example, Gore’s December 1998 boast that the Internet will soon make "any desktop a doorway to a global mall with a sign that says "Open 24 hour a day, 7 days a week, 365 days a year," or Clinton’s concurrent new focus on "designing an architecture for a global marketplace." This subtle shift toward an emphasis on private commerce and away from values like public education and communication partly reflects the fact that the Internet itself has by now been largely privatized – not only in the sense that most of its infrastructure is provided by private companies, but also that many of its fastest-growing services are now transaction-oriented, for-profit services that have been designed for relatively-affluent audiences -- investors, traders, consumers, and corporate managers.

In short, the business of the Web is now clearly ….. private business. In principle, this development might still be good news for many Third World countries, assuming that they can climb on this global growth engine.

On the "sell side," developing countries might be able to piggy back on e: commerce technologies that were developed for First World markets, in order to break down traditional barriers like the high costs of design, distribution, marketing, and sales support, and use them to reach First world customers and investors.

Some developing countries may also be able to use the Internet to grab a larger share of the global computer software, hardware and services industry, taking advantage to the opportunity that Internet technology itself affords to decentralize operations and share know-how and management across borders. Indeed, countries like India, Israel, and Malaysia are already following this strategy.

On the "buy side," developing countries now have better information about First World goods and services. This should help them design better products, and reduce transactions costs.

Overall, then, the rise of the Internet may serve to help Third World countries expand their share of world trade, which most observers agree is crucial to their development. However, this kind of "unmixed blessing" result is far from guaranteed. For Internet privatization and the rise of global e: commerce and finance also poses several serious problems to developing countries – problems that are unlikely to be solved by private profit-seeking alone.

Infrastructure Barriers. To begin with, many developing countries are finding that their existing telephone and computer networks are not adequate to support the mass deployment of quality Internet services, and that it is costly to upgrade their computers, higher speed wide-area "backbone" networks, and local access. Especially in a period when "submerging markets" from Thailand and Indonesia to Korea, Russia and Brazil are experiencing profound economic crises, this kind of investment is often viewed as a luxury. This could cause them to slip farther behind. This is a cruel dilemma – just as the Internet revolution is arriving to permit increased global trade and openness, many of the key potential beneficiaries have been too smitten by other global economic forces to take advantage of it.

Government Barriers -- Revenue/ Regulation/Taxation. A second challenge is posed by the fact that the widespread deployment of Internet services is viewed as a threat by government agencies in many developing countries. This is partly because the Internet provides a conduit for free speech and political opposition. But it is also because online commerce may directly undermine government revenues and regulations in many other ways.

For example, in many countries, local telephone companies remain state-owned, and they have tended to price long-distance and data communications services very high, as a kind of "luxury tax" on these services. The widespread use of the Internet for, say, international faxes or telephony will undermine these revenue sources.

Furthermore, many Third World governments also derive a large fraction of their revenues from value-added, customs, and sales taxes. They are unlikely to agree with the US Government’s current proposal with respect to the international taxation of electronic commerce, which supports a zero sales tax on all Internet commerce. Nor are Third World banks and brokerages likely to welcome a world where premier global institutions like Citibank and Merrill Lynch are permitted to offer "virtual banks" online to all their domestic customers, free of all local regulations, taxes, reporting requirements, and country risk.

Technology Industry Barriers. The Internet, computer, and information services industries as a whole remain highly concentrated in a handful of First World countries, notwithstanding the "decentralization" opportunities mentioned above. Furthermore, the evidence to date is that these industries are subject to strong "network economies" and increasing returns. This is fancy economist jargon for the painful reality that winners tend to grow while losers fall even farther behind. That, in turn, is partly a function of the fact that the requisite skills are concentrated in "seedbeds" like Silicon Valley and Route 128, as well as to the fact that leading-edge customers also tend to be located in First World countries. To this extent, left to the free market’s own devices, the rise of the global Internet industry may only serve to widen the gap between rich and poor countries, and between rich and poor people within countries.

Local Skills and Organization. Even more important than these infrastructure, regulatory, and technology obstacles, realizing the Internet’s potential for global electronic commerce requires an enormous amount of on-the-ground education and training. The actual technical requirements for, say, rounding up digital pictures from a Guatemalan fabric cooperative and publishing them in an online catalogue are actually pretty trivial, compared with the "social costs" of training the cooperative to use computers and digital cameras, understand how they should approach First World customers, and meet the quality and delivery standards of such customers.

These barriers are formidable, especially the last one. But, as usual, something can be done if we concentrate on the "half full" aspect of the situation. One grassroots organization that I have recently been involved with, www. PEOPLink.org, provides an excellent example of just how much can be accomplished with a little bit of funding and a great deal of commitment and focus. PEOPLink is a non-profit organization that was created in 1995 by Dr. Dan Salcedo, a long-time community organizer in Central America and the US, with less than $500,000 of assistance from the MacArthur Foundation and the InfoDev group at the World Bank. Its goal is to help bring the powers of Internet commerce to the task of leveling the global trade playing field for poor artisans around the world. Toward that end, it has focused on creating a global network of artisans that uses Internet commerce to improve their terms of trade.

PEOPLink’s mission has special relevance for development because such artisans are usually drawn from the very poorest sectors of society. Most of them are women who live in remote rural settings, usually earning just a dollar or two a day. They use local materials to create products that are often a source of great pride and ethnic identity. Traditionally they were only able to market these products internationally as the first link at the end of a long chain of intermediaries who wound up paying them 10 cents on the retail dollar. Not surprisingly, many of them ended up migrating from their villages to capital cities to become car washers, waitresses, or worse. Along the way, of course, the fact that their work products changed hands so many times in the course of getting to market also made it impossible for them to take any credit for their work, brand it, or provide their customers with information about who created it and why.

PEOPLink has been working to change all this with the help of Internet technology and a great deal of organizing in the countries themselves. It has focused on developing "Trading Partners" in each country where it operates. Each of these organizations, in turn, represents thousands of local artisans. Currently there are Trading Partners in 14 countries, with 16 more expected to join this year. Each one gets a standard "toolkit" of digital and computer equipment, software and training procedures, permitting them to participate directly in Internet commerce, right from their home countries, without any intermediaries at all.

The toolkit fits in a backpack and costs about $2500. The training required to set up the connections has been designed for people with only a basic high school education and "no fear" when it comes to computers. Most of the training is also available on-line at www.peoplink.org/training, and is supported by e-mail-based counselors. Each Trading Partners develops the whole gamut of skills that are essential for Web marketing, beginning with simple computer emails and the use of digital cameras. In just a few months, they are able to prepare their own simple Web pages and upload them directly to their portion of the PEOPLink Web site, where their information is assembled into catalogues geared to both wholesale and retail distribution.

The following are just a few examples of the impressive results achieved so far:

Tara Crafts of India - http://www.peoplink.org/tara

Community Crafts Association of the Philippines - http://www.peoplink.org/ccap

Ecota Forum in Bangladesh - http://www.peoplink.org/ecota

Congreso General Kuna - http://www.peoplink.org/idiky

Overall, this "grassroots organization" approach to e-commerce appears to be working very well – at least count, more than 300 products are being offered by Trading Partners at the PEOPLink site, and sales are taking off. The sales model benefits Trading Partners by paying them their normal prices plus half of the gross profit from disintermediation. Customers also enriched not only by the amazing variety of new goods they can find, but also by the fact that they now have access to a great deal of cultural information about the "social origins" of their material objects. The artisans themselves not only like their higher sales prices, but also the fact that they now have control over their own images -- after years of being bombarded by Western cultural heroes like Madonna and Michael Jackson, they are thrilled at being able to project their own cultural images on the global stage.

Admittedly, PEOPLink is just one tiny case example of grassroots development that takes advantage of the Internet. But it does show how, with lots of hard work and commitment, it is possible to revive some of the Web’s original "human development" purpose, and make it much more than just a platform for the enrichment, consumption, and entertainment of the already-provident. As we continue to develop exciting new electronic commerce applications for the "Information Highway, " we have an obligation to make sure that the "rest of us" who have never even made a phone call are not left by the roadside.

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