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Technology is Good Economic News, Not an Enemy

July 27, 2015

A group I’m part of made a strong claim recently. A number of executives, entrepreneurs, and investors from the high tech industries, along with some economists (who tend to believe that technological progress is the only free lunch around) got together to draft an “open letter on the digital economy”.

One of our main goals with it was to advocate a set of policies to deal with the fact that, as we wrote, “the benefits of [the current] technological surge have been very uneven.” I’ve written about these policies before; they include education and immigration reform, infrastructure investment, and greater support for basic research.

But we also wanted to make the case that technology is not the enemy, and should not be demonized or thwarted. Hence our strong claim: “The digital revolution is the best economic news on the planet.”

To back this up I could cite a lot of relatively dry research about the quality and productivity benefits of technology investment by companies, or about the sustained and huge quality improvements and cost declines of digital products themselves. I could also refer to historical research about the big and positive changes brought on by previous technology surges such as steam power and electrification.

But I want to be more vivid than that. So to make my case I’m going to point to two pieces of research that looked closely and carefully at what happens when digital technologies arrive at the base of the pyramid — the billions of people living in the world’s emerging economies.

The first is a study I consider a classic: Robert Jensen’s “The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector,” published in 2007. [Mr] Jensen was able to document what happened when the fishermen in the state of Kerala got mobile phones for the first time in the late 1990s. As he puts it, their adoption “was associated with a dramatic reduction in price dispersion, the complete elimination of waste, and near-perfect adherence to the Law of One Price. Both consumer and producer welfare increased.”

This is circumspect economist-speak for “important things got much better, right away.”

The material conditions of people’s lives improved, and also became more predictable. And [Mr] Jensen’s work makes clear that this improvement was due to the phones, and not to any other factors like policy changes or increased aid.
The second is what we’re learning about mobile phone-based cash transfer programmes like GiveDirectly. Ample research shows that giving very poor people money, even with no conditions or strings attached, helps them greatly. They tend not to mis-spend it, and it leads to long-lasting positive changes in their lives. Mobile phones allow these transfers to go directly to intended recipients without middlemen; this keeps overhead low and reduces bribes and theft.
 
We’re making great strides toward reducing dire poverty around the world. The spread of ever-more powerful technology throughout the base of the pyramid will accelerate this — I believe more quickly than any other possible intervention.
 
So I’m confident in our letter’s claim that tech progress is the best economic news on the planet. It brings with it challenges that we need to acknowledge and confront, but so do all good things.
 
This post originally appeared in my Financial Times blog here. More on the letter –and its signers–can be found here.