What do grazing goats and growing mango trees have in common?
Grameenphone brings f-commerce to mango growers in Bangladesh.
To which a possible reaction is good, it’s good, now what’s on TV?
We can also use this as an example of why mobile telecommunications – which includes mobile internet and access to Facebook on it – makes the world so much richer.
There’s actually an argument out there that claims that this boom, which has driven the growth of poor countries over the past two decades, has really been all about this one technology.
This claim is indeed made even if it does not quite stand up to close scrutiny.
But the underlying point has great strength. It allows markets to complement each other.
Competing markets are just another piece of economist jargon, but it matters a lot.
The idea is that there are a lot of transactions that could happen, a lot of things that could be done, if only the various people involved actually knew each other.
The example often used in the literature is that of goat grazing in Kenya — no, there is no particular reason for this activity and location, it is just the example that has become commonplace.
Imagine a guy with a few empty fields. Also imagine a guy a few miles away with hungry goats.
If they can’t communicate, if there’s no information system between them, then they can’t put the goats in the field just because they don’t know each other.
Now add that ability to communicate.
Say, given our example above, mutual access to Facebook and vital local “goat feed” pages.
Both assets can now be put to better use, the goats are getting food, presumably milk and meat from the new surplus is paid to the owner of the field, and everyone is richer.
Yes, obviously increasing goat production is not what modern economies are made of.
Nor is it the creation of great wealth of any kind.
But an observation often made about poor economies is that there are not hundreds, not thousands, but hundreds of thousands of such small and marginal gains that could be made if only markets could complement each other.
If the holders of an asset could know those of others, so that a mutually beneficial market transaction could be carried out.
The effect of allowing these transactions to occur is, on the whole, and – when we add them all together – substantial.
Long before the mobile Internet existed, an estimate indicated that only cell phones increased GDP by half a percent.
More than that actually – for every 10% of the population that had mobile GDP increased by half a percent each year.
Maybe not that if everyone had one then the economy would grow 5% every year but also, well, why not?
Because, in many countries, the fixed network was between pitiful and almost non-existent.
So cellphones have enabled exactly those transactions that wealthy countries – with their fixed networks that reach everywhere – have been doing for half a century and more.
It is also possible to run this same observation in the other direction.
We believe that new technology is synonymous with economic growth; and to some extent, of course. The factories that make the phones, build the towers that run the transmissions, they are growth.
But the real benefit of any new technology comes from what people use it to do.
Maybe it will be entirely new things.
But the real boost comes when people are able to use new technology to do old things more efficiently.
We may be talking about f-commerce here, so Facebook, which relies on the internet part of mobiles, but the tech stack allows mango cultivation to become more efficient. We may have more mangoes, or fresher mangoes, or better distributed – but a more efficient mango industry is still lacking.
To a lesser extent, of course, mangoes do not constitute a significant part of the national economy.
But add up all the little ways and that’s how we all get richer.
Mango market efficiency is one of the things we didn’t focus on before because we just didn’t have information on who wanted to; but we do now.
This is also why the best reaction to the uses of new technology is simply to step back and observe.
We might indeed need state planning to enable things – we certainly do with mobiles, if only to know who can use which parts of the electromagnetic spectrum to provide them.
But the planning of who is going to do what with shiny new technology, no, best left to the markets.
Because no government planning system will be detailed enough to manage goat grazing now, will it?
And if that were the case, we certainly wouldn’t want to live under such a detailed government.
Tim Worstall is a senior research fellow at the Adam Smith Institute in London