The great economic story of the past few decades has been how this neoliberal globalisation stuff has brought several billion poor people into the global economy. This has benefited us, in the goods that they have been producing, and it’s most certainly benefited them as this has also led to the greatest reduction in human poverty in the entire history of our species. Many are currently gloomy about economic prospects going forward and yet we’re really only just at the beginning of the effects of a revolutionary technology, the smartphone.
It’s long been known that the simple provision of a communications network adds substantially to economic growth. One result is that, in a country without a landline telephone network, for every 10% of the population that gains access to a mobile phone (just a regular, 2G, feature phone) then GDP growth rises by 0.5%. That’s 0.5% of GDP, not just that the extant growth rate rises by 0.5%. We would expect that sort of thing to continue with smartphones and the telecoms consultancies do tend to assume that sort of thing.
Mara Squicciarini & Nico Voigtländer
NBER Working Paper, June 2014
Abstract: While human capital is a strong predictor of economic development today, its importance for the Industrial Revolution is typically assessed as minor. To resolve this puzzling contrast, we differentiate average human capital (worker skills) from upper tail knowledge both theoretically and empirically. We build a simple spatial model, where worker skills raise the local productivity in a given technology, while scientific knowledge enables local entrepreneurs to keep up with a rapidly advancing technological frontier. The model predicts that the local presence of knowledge elites is unimportant in the pre-industrial era, but drives growth thereafter; worker skills, in contrast, are not crucial for growth. To measure the historical presence of knowledge elites, we use city-level subscriptions to the famous Encyclopédie in mid-18th century France. We show that subscriber density is a strong predictor of city growth after 1750, but not before the onset of French industrialization. Alternative measures of development confirm this pattern: soldier height and industrial activity are strongly associated with subscriber density after, but not before, 1750. Literacy, on the other hand, does not predict growth. Finally, by joining data on British patents with a large French firm survey from 1837, we provide evidence for the mechanism: upper tail knowledge raised the productivity in innovative industrial technology.
A subscription to the Encyclopedie can be (well, obviously it can be because I am about to do so, but it can be and still have an element of truth to it) equated with possession of a smartphone and thus access to most of the accumulated knowledge of humanity. Another way of putting this is that this paper is looking at the effect of the diffusion of knowledge upon growth: and access to things like Wikipedia is most certainly equivalent to the diffusion of knowledge.
This works in two ways in sparking economic development. The first is that billions of people in this world are quite remarkably uninformed. No, I don’t mean Democrats (or Republicans of course, choose your tribe to taste) but there’s hundreds upon hundreds of million who do not know that it’s possible, just as an example, to make long drop and hygenic latrines. Access to the internet is going to lead to an awful lot of “Blimey, I didn’t know that was possible!” all around the world. And of course once one knows that something is possible that same internet will have the information on precisely how to do it. And while it may seem strange to us in the rich countries it is so that there’s an awful lot of economic development to come that depends upon what we might regard as very simple knowledge indeed.
Which leads us to the part that Apple's Apple's iPhone and Google's Google's Android are going to play in all of this (I’ll leave aside Windows Phone and other players as being minor in comparison). That iPhone was only first released in 2008 and it’s quite clearly the fastest adopted technology of all time. Apple invented, or at least developed the first widely used and desired smartphone. Google’s Android has a slightly different role here, that’s what’s making them cheap. ARM Holdings ARM Holdings has predicted the arrival of perfectly usable, if basic, Android phones for $20 starting just next next year. And off the back of that Ericsson Ericsson is predicting 5.9 billion live connections within 5 years. That would be the majority of our species hooked up only 11 years after the release of the basic technology.
And if the standard economics about knowledge diffusion is correct, and if this paper is correct about how access accelerates development, then a logical prediction is that we’re about to see the Mother of all economic booms. Back 30 years when I first started to study politics and economics the big question was how should we alter the world economy so as to aid the poor? And we might now be on the verge of an answer that really works: give them access to the accumulated human knowledge and then get out of the way as they do it for themselves.
I agree it sounds strange, possibly even a bit of techno-triumphalism, but it’s entirely possible that the Apple and Google led smartphone revolution will be the greatest tool for the reduction of poverty yet.