Since we’ve been talking Indian banking lately, a friend forwarded me this old-ish blogpost at MIT’s Technology Review magazine outlining one way that tech is helping roll out rural banking in India –
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An ATM for the next Billion? |
Karehanumaiah uses a desktop terminal to deposit 150 rupees (about $3.50) into his new account at Corporation Bank, with help from Muniyamma Ramanjanappa, a village resident who conducts these transactions in her concrete house as a bank representative. First, a smart card and a thumbprint scan prove his identity. Next, Ramanjanappa updates the bank balance information on his smart card by connecting the terminal to the bank database with a cell phone. Finally, Karehanumaiah hands Ramanjanappa the cash and gets a receipt for his deposit (which brings his balance up to 160 rupees)….now that Karehanumaiah has a bank account, he can borrow money from the bank at rates of between 8.5 and 13 percent annually–far less than in the informal system–and gain a toehold into the formal economy.
Ninety percent of India’s rural residents lack bank accounts, and a variety of technologies are being applied to the problem. Other efforts include using cell phones to make payments and execute bank transactions in a nation that is enrolling a staggering eight million new cell-phone accounts monthly, many of them in rural areas.
For me, the article really highlights what real, “bottoms up” econ & tech development is supposed to look like…
When many folks think about the ways developed countries do/should help the 3rd world, they usually focus on things like how much different national governments “give” in direct foreign aid. The problem however, is that those sorts of stats completely overlook the more decentralized, global market-based growth described in this article.
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My PIN is my Thumbprint |
The first model is easier to measure because it’s a “stated Intention” (to quote Thomas Sowell) of politically driven reallocation of tax dollars. Somewhere, some politician signed a bill to give $X to country Y and made some political hay of it.
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p>The latter type of “aid” however, is the Consequence of massive & ongoing 1st world consumer indulgement in things like cell phones, consumer electronics, flat screen TV’s, credit card infra, and the like. All of this simultaneous consumption eventually led to the cost reductions and the ruggedness necessary for the tech to be economically sustainable in the 3rd world. Put simply, Western consumers exercising credit to buy iPhones and laptops produced in Chinese factories are far more responsible for enabling this particular Desi innovation than any Washington aid or charity package.
More importantly, this type of innovation ensures that the Desis involved aren’t merely waiting on wealthy nations’ hand out whims (or worse, demanding handouts) but are instead, actively building on technologies found in the open market to develop their own local solutions. This particular innovation also likely has high spillover potential into other 3rd world markets.
So maybe, just maybe, if you really want to help India, rather than giving politicians license to tax&spend your $$ and spit out press releases, you should try to hold on to more of it and treat yourself to a day of retail therapy at the mall instead. 
UPDATE – FWIW, if you’re interested, theories for why we politically gravitate towards the “direct albeit less helpful vs. indirect but more helpful” strategy are also hit in this older SM post on the Moral Instinct.
I will appreciate it if you can be more specific about how the Western Levered spending helps desi consumers in India? To take your example of Iphones, I believe the 8gb model that sells in India is upwards of INR 25K so at current exchange rates it is priced far higher than what they are available in the States. Many US banks in India is expanding their Private Wealth Management business, which for me may be the next big potential market. Also with the new commercial bank model makes places like India good markets for cheap deposits.
1 · umber desi said
The link, which I probably should have spelled out, is
Consumers buying more & more stuff –> Producers making more & more stuff ever cheaply –> producers trading globally –> eventually the stuff gets cheap enough for the 3rd world to take advantage of it.
StarTacs, RAZRs, iPhones and the like drove the mass market for all the different consumer electronics components that the “iMFAST” ultimately recombined into an innovative, remote ATM like device. So, rural Indians aren’t using iPhones per se, but rather, they are benefiting from the same global component supply chain.
I’m just wondering if spending money on electronic goods (which break faster and faster these days as they also get cheaper and cheaper) is the most direct way of helping third world citizens. What about helping their micro-lending institutions acquire capital? What about funding more libraries/schools in boats and on mule-back? I agree that giving aid money directly to governments can often be pouring cash into a bottomless well, no matter the country, but what about giving directly to community groups?
Technology will tend to progress, but dollar for dollar, I reckon I’d rather do some research and find something useful to do with my money, rather than buy Another CD player with the hope of driving the price down so someone in the third world can afford one 10 years from now.
Vinod,
Thanks for your response, I get that connection between the fall in prices and the consumption in the West. I guess for me the issue in the light of current problems is people spending beyond their means. Yes it may drive the price down, but we have seen what overlevered positions can do.
Giving till it hurts 😉 .
Usually, I look at shirts to see where they are made. Although it is not a very big criteria, I am far more likely to buy a shirt if it was made in India than if was made in say, Pakistan. Unfortunately this approach has a lot of moral hazards, which I do not feel comfortable exploring.
That said, I do not see the relation of the banking tech article with the point you made. The article can be explained more easily by noting that because the markets have not been fully exploited there allows is a lot of flexibility in building systems and processes (no legacy systems to worry about, and no older markets are being cannibalized). Due to this 3rd world countries are often at the bleeding edge of banking technology.
Phone based banking, the use of smartcards, biometric checks (thumbprints, etc) are being adopted more quickly in South Africa, and Ghana than in the US. It seems natural that India is exception.
Vinod and others interested in this, I would recommend reading the Raghuram Rajan report on financial sector reform in India. It does talk a fair bit about access to finance for the poor with some good practical solutions.
2 · vinod said
I’m no economist but isn’t there a limit on the raw materials that go into making consumer goods, along with unintended “externalities” like pollution? Do all these equations take place in an ideal vacuum, because I don’t think the real world can be summarized in a mathematical formula.
8 · Harbeer said
I feel Vinod’s logic there is overly simplistic though still along economic principles. It’s based on the assumption of sufficient supply of resources/raw materials, where pricing is stable and predictable. However, as raw material/labor/other factors of the cost of a product start running low, market mechanisms do not follow a linear scale of pricing and thus your price of raw materials starts rising exponentially. Something to that effect we have already seen in the recent food price boom when global stocks dipped below a ‘panic point’ and thus you saw ballooning of prices.
As for pollution, again many times people consider the environment as a non economic resource and thus it does not play into the cost of production. However, if people start regarding the environment as an economic factor and pollution as a depletion of the resource, you will start seeing effects of pollution entering the cost of a product. Ideas such as carbon taxation are along those lines.
My point in #9 was that its not the mathematics or the economics that usually breaks down, but the failure to model all the influential factors that result in results that may not always be truly reflective.
Please defend this statement with some rigorous empirical evidence or someone else who has provided it.
Moving on, these are not actually the two only options in the world – there is a strong argument to be made that policy autonomy for developing countries is the most important thing that people in developed countries can (attempt) to give them. So, to the extent that your proposal supports noninvolvement of Western governments and populations in industrial policy in the developing world (or for that matter any more powerful country over a less powerful one), it’s great, and imo possibly much better than unilateral demands for trade and labor standards (though it’s an open argument for me that i would really like to have with progressives in teh west who advocate them or people in the developing world who do, if i could find one that was willing to engage in it).
However your argument lapses into an endorsement of complacency and greed- it assumes that the status quo operates with no intervention, akin to President Bush’s advocacy of shopping to address the trauma of 9-11. Development is a serious issue with serious consequences, including tremendous amounts of social violence. I don’t see how your solution to this problem – western consumption demand generating more and more products that the market will magically reduce the price for will solve some of the major problems like funding infant industries, disciplining firms, moving up the technology ladder, allowing reverse engineering without threats about intellectual property, backwards forwards linkages, diversificaton, and other problems that are difficult for developing countries to solve with reliance on the global market without any effort to adapt a pragmatic solution connected to their internal social structure and politics.
And this is before considering the externalities and other implications that Harbeer raised.
8 · Harbeer
Clearly there are major challenges to sustainable development, but I think it’s not a yes/no answer. It’s more like the eventual decline of resources and which ones has to be figured out in terms of how much time it will take, which ones will decline, and what practices are available to make up for it. Resource depletion is actually (potentially) one of the best arguments for increased productivity (i.e. you get more for every resource, including labor, you put in) – which in turn is an argument for industrializiation (and for doing it quickly). The same way that one might argue that if Britsh India had to have a massive amount of violence around independence (an assumption you would almost definitely want to investigate before adopting it), it would have been better for that violence to be channeled into land redistibution (for capitalist or state capitalist or, if you can conceive of it, socialist, industrialization) rather than religious violencen and territorial partition.
So it’s not really about equations – models are there to help you think things through and math is there just to help weight things, but it’s not attempting to give you “the truth” as much as help you get a better understanding of the real world.
(note: i don’t do models 🙂
4 · umber desi said
Moreover, debt is also a means of controlled. So another chain rule might be increased credit access in good times –> predatory lending –> increased debt by farmers –> farmer suicide. The advantage in a formal market mechanism is that you MIGHT have a better chance of securing some norms (i.e. the market) rather than your local bania screwing at even higher rates that are simply not noted.
Dr. Amonymous,
No. 10 captures what I wanted to say much better than I did. Hopefully there is some empirical evidence then unsubstantiated theories.
Ardy –
In many respects, the whole central bone of contention that the “bottoms-up” folks make is that the equations are in fact in a vacuum and that the real factors that create real development are outside the equation rather than part of it. There’s no equation, in a manner of speaking, that could have “predicted” the iMFAST device described here or the underlying confluence of chips, LCD panels, cellular networks, banking infra, etc. that lie behind the device.
Classic “Bottoms up” development analysis owes its roots to folks like William Easterly and Hayek. And it has its theoretical roots in the Calculation Problem.
errr.. it’s the exact opposite. Supply/demand dictates prices which emphatically fluctuate (rather than remaining stable). But, if / when you add in a good dose of human IQ which makes some things get cheaper over time (tech, communications, etc.), and the really important emergent phenomena is the unexpected ground up stuff. Not the “overly simplistic” top down predictions.
The issue is that I’m pointing out is that the model is an approximation for historical reality at best. The real underlying model for economics that folks like the above push is more like Evolution w/ punctuated equilibrium, unexpected results, etc. than Intelligent Design.
DizzyDesi –
It’s true that now that we have an iMFAST-device that can be made for $100 (or whatever) that India is likely to adopt it faster than in the US.
My point is a little different – the key is that the iMFAST’s components (and the entire network it depends on) are $100 now vs. $1,000 5 yrs ago vs. $10,000 10 yrs ago vs. $100K 20 yrs ago, etc.
That cost / commodity / ruggedness curve is something that was driven by global market consumption and it eventually hit the point where, at $100/device, it has the oppty to blossom in the 3rd world in a totally different form.
15 · vinod said
That’s my point, exactly. You (and the school of thought you cite) think up equations to compute and put a price tag on “objective reality” but fail to factor in your subjective point of departure. Objectivity is impossible. You simply cannot plug anything and everything into an equation and compute its proper monetary value at any given (past/present/future) moment. Not yet, at least. “Objective reality” is much bigger than our ability to comprehend it. Even with our collective, cumulative body of knowledge, nature will always be bigger than us. Always.
(I’m an avowed atheist, so don’t think I’m anti-science or something because I’m not. I’m talking more general-like. I’m talking about a different way of looking at the world and myself.)
We are small.
Respect the mystery.
It is bigger than you. It is cold, irrational, and whimsically breaks its own laws when it wants.
17 · Harbeer said
I agree with your basic premise that “objective reality” is impossible to capture. Where I disagree is that we don’t need to explore the ways in which it’s difficult to capture, which stories are more or less close to describing effectively that objective reality than others and what parts of them are important, and to reject the “truth” equivalence of all stories. Otherwise, you leave the terrain open to people who will submit any explanation for any phenomenon without any regard for whether or not it’s accurate – people like Sarah Palin who says that it doesn’t matter what caused global warming or people who advocate that intelligent design and evolution are equivalently accurate. In other words, if you ignore the power dynamics and epistemological issues of knowledge production by swinging entirely to the “respect the mystery” side, you give up your claim to be able to call out lies, misstatements, and abuses of power that can have severely damaging effects not just for understanding, but for politics – for attempts to impact the world. And that, as we know, is the point of Marxism 🙂
14 · umber desi said
That’s fine, but it bears directly on the issue that Harbeer raised and that I commented upon as well. Why are particular models adopted? Why are some ways of thinking pursued and not others, some factors emphasized and not others? Why does Friedman become popular at a particular time and a particular place, whereas Marx is popular somewhere else? Why do certain people gravitate towards or against certain types of modelling? The process of producing economic ‘knowledge’ models itself after the natural sciences and its less precise or honest adherents make similar claims to objectivity (sometimes stronger ones), but in practice, without looking at the politics and economics of the study of economics (including models), you can’t understand why particular models prosper and decline or why the idea of “the model” exists in the first place. Nehruvian ‘socialism’ and Manmohan Singh’s ‘liberalism’ are both products of a particular time and place and class background and all that.
I know, very abstruse – but for now, I would simply say that Immanuel Wallerstein’s Unthinking Social Science is an interesting take on these issues and worth taking a look at.
18 · Dr Amonymous said
The minorities did it.
18 · Dr Amonymous said
I’m not making a case to stop exploring ways to makes sense of and explain the world. I’m all for that. What I find laughable are the hubris-laden claims of objectivity and attempts to force nature (with its infinite variables) into a concise, finite mathematical mold.
Human reason has its limits. The Enlightenment has been over for centuries.
Let’s employ science and reason to mitigate our impact and find ways to live in balanced harmony with the natural order. Enough of this “BIGGER BETTER FASTER MORE!” line of thinking–it’s built on the false assumptions that economic growth at all costs is conceivable, possible, sustainable, and good for everybody.
21 · Harbeer said
Okay, I misunderstood where you fell in your reaction to the orthodoxies laid out by Vinod et al. I think, though, that once you accept the idea that the dominating impulse is flawed (among other nasty things), you’re still left with a pretty severe problem – how do you address (or how do you think others should be empowered to on their own to address) mass poverty in the contemporary world? If we don’t attempt a positive answer to one of these two questions, the people who are most screwed will end up reliant on the ideas of the people who are most intererested (directly or indirectly) in screwing them over – the ideas you’re rejecting.
22 · Dr Amonymous said
I hate to say this because I despise religion but I would address this problem with (cringe) religious-kind of metaphysical reconfiguring of our notions of our individual selves. I think that we can agree on the objective reality that we are all tiny bits of a singularity, that we are all in this together, that there’s enough to go around if we’d just look out for one another and stop being greeedy.
I’m pretty frickin’ smart (says my mother) and I’ve tried and tried but so much economic theory just doesn’t make sense to me. It’s built on questionable suppositions that are presented and accepted as unshakable givens. It’s built on a faith akin to religious dogma. Like why do we value gold and diamonds? Because they’re scarce? Because they don’t decompose? I think all the best stuff in life will form a rotting putrid heap one day…before it’s transformed into a fragrant lily and then eaten by a mouse whose turds will fertilize a wheat stalk and on and on and on. Eff a diamond and its perfection.
Maybe it’s because I have nothing to lose and no great responsibilities (no children, parents are still fine), but who really cares if this economic system melts down? Why does this signal the end of the world? People need food, water, clothing, shelter, medicine. Let’s tear up the parking lots and plant corn.
Getting back to your question, though, I don’t believe in one solution to any given problem. There might even be a time and place where cold calculated capitalism is the best solution, there might be other problems that are best solved by centralized authoritarianism, and still others that are best addressed through non-heirarchical consensus…
I think the notion that there’s “one solution that fits all problems” might be the biggest problem, yet. That’s kind of what I was getting at in questioning Vinod’s formula. That formula might be right at some times in some situations, but to apply it across the board (and impose it on unwilling people) is wrong and short-sighted.
As the Zapatistas say, “One no, many yeses.”
I agree. For me the question is how to make up your mind about industrialization (as opposed to growth, which is not the same thing at all) and what it means, with its attendant violence, potentially more wealth per head, effects on power distribution, interaction with social structure, etc. I’ve come to the conclusion that, for now, I think people ought to be encouraged to develop democratic processes that allow them to come to a decision themselves aboutu what their goals are – though this likely flies in the face of the most effective strategies for industrialization. But I think I’m not in a position to make a choice for someone else about this issue.
On an aside – I felt very similarly to you – largely because American economics – at least what’s available in pop culture – is horseshit. Most Americans who read could probably articulate the ideas of neoclassical economics pretty effectively because its state ideology. try this guy – who also argues that there are specific solutions that people need to adopt, though he doesn’t drop the assumption that industrialization is a necessary thing (an argument that’s very tenable in my mind, even though I’m not willing to make it). But he does it with attention to specificities and the conditions of poorer countries (focusing on South Asia) rather than assuming that there are magic market fairies who will wave their wands and create magical productivitity growth and increases in standards of living with no consequences, forever.
Thanks for the reply, good doctor. I look forward to checking out Mushtaq Husain Khan’s ideas. I’ve tried and failed so many times to educate myself on economic theories but I usually get stuck at the very basic assumptions (presented as fact) that form the foundation they’re built upon. What can I say–I’m a skeptic, I have to question everything. Shrug.
25 · Harbeer said
Likewise. That’s we like you…and Mushtaq 🙂 But don’t let him off easy with the blanket support for industrialization without the same level of consideration for how the costs are born out 🙂
I routinely gritch about how I couldn’t do economics until I left the U.S. – it’s still hard to deal with a lot of the assumptions of neoclassical theory, but when it’s not presented as fact but just as assumptions for the purpose of understanding the implications of a hypothetical situation, it’s easier – especially when there are other alternatives to consider as well. You should also take a look at Barbara Harriss White’s Working India – she does economic anthropology.