November 9, 1999

Discussion of the Lunar Society

E-merging markets:
the crossroads of knowledge sharing
and economic development

Led by Ben Friedman, Harvard University Economics
and Jock Gill, Greenstar Foundation


How will knowledge-sharing technologies alter the way economies develop? Will the Web, e-commerce and email give an unexpected boost to the have-nots, or instead widen the gap between them and the wealthy, developed world? What lessons should be drawn for corporations and non-profits whose interests lie in fostering development?

Ben Friedman, professor of economics at Harvard University, and Jock Gill, founder of Greenstar Foundation, sparked a debate that ranged freely across the fields of economics, technology, business strategy and politics.

Will the knowledge revolution increase or reduce global capital flows? And will this revolution shift the weight of development from capital intensive industries to industries that are more information-based and require less capital?

From Adam Smith through much of this century, economists assumed the early stages of economic development relied on unequal income distribution; in the last 15 years, a new school has argued that balanced income distribution aids development, in part by supporting political stability. Will an economy of knowledge workers be more egalitarian?

Technology may impede, rather than promote, development. The ability of masses of investors in developed countries to move their money at the click of a mouse may create an effective veto of the development initiatives of developing countries (for example, a policy to fund education through higher taxes would produce a favorable long-term outcome for the developing country, but would discourage short-term foreign investors).

Although it is in their business interests, Western nations have failed to spread even the fundamentals of development; one third of the world has no electricity, 80 percent has no reliable communication. But a combination of the Net, satellite telecommunication and other technologies offers a new delivery model. Formerly remote locations can tap into a world market, and reduce intermediaries.

Mustn't the investment payoff change under this new Web model? Greenstar's wiring of a Palestinian village is in effect a plan to buy rights to distribute the villagers' goods at a high margin through a new channel. The bet is that once-isolated people will "see" the market via the Web, and grab it.

Surely a broader form of investment is required to develop an economy's intellectual capital base. How does a country attract this kind of investment, which lays the groundwork for a knowledge economy? What do we know about teaching the transfer of intellectual capital?

Perhaps what differentiates development strategy in a networked world is the lower financial threshold needed to play in this economy, and the creation of a global market in options on these initiatives. The syndication of risk may now reach the small, far reaches of the newly networked economies. Let's not forget that freedom to connect, a pre-requisite for the micro-development projects we discussed, is not something many governments freely grant their citizens. Several layers of government and society may feel their role as brokers is threatened.

If government is the middle tier between the developing Net entrepreneurs and the outside world, what kind of incentives must exist to encourage them to allow connectivity? One lesson is that politicians can earn immense grassroots support by being the leader who connects his constituents. We need to look further into other factors that will enable networked development: literacy and education, access to technology and customers, and the spread of technology know-how, thinly distributed at present.

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