Cellphones bridge the digital divide

Many observers, ranging from Marxists to Bill Gates, have worried that the rise of information technology (IT), though hugely beneficial, may leave the rural poor even further behind urban folk in incomes and access. Infosys and Wipro may prosper greatly, and English-speaking youngsters in cities may get a million well-paid jobs in call centres. But a similar revolution cannot take place in rural areas with little electricity, little telecom, and little decent education. So the fear has been expressed that IT will lead to yet another rich-poor divide, the digital divide.

However, actual experience shows that the IT revolution can benefit rural areas too. Well-known examples in India are the e-choupals of ITC, the Bhoomi land records programme of the Karnataka government, and the e-governance initiatives of many state governments. All these have greatly benefited farmers and other rural folk.

Note that all these initiatives are based on computers. I believe that the cellphone, not the computer, will be the real bridge across the digital divide. Unlike computers, cellphones do not require continuous power, which is scarce in rural areas. Cellphones cost a tiny fraction of what computers do, and new technology enables cellphones to access the internet. The cost of calls has crashed. Cellphones provide commercially valuable information that can appreciably improves incomes and outcomes in rural India.

One striking example of this comes from the research of Robert Jensen of Harvard University on Kerala fishermen. Jensen found that fishing boats in the state came ashore early every morning, and fishermen auctioned their catch to traders at dozens of shore points. The auctions started at 7.30 am and ended by 8.30 am: since the fish were highly perishable, they had to be taken quickly from the shore to retail markets.

However, neither fishermen nor traders knew how much fish would be landed at which point. One consequence was that the price of fish could vary by 50% between two shore points just 15 kilometres apart. Some morning markets ended with traders but no fish: the catch landed there was larger than required by traders present. But in other spots there were fish but no traders: the catch was larger than required by traders at the spot. The unsold fish surplus, averaging 6% of the total catch, rotted quickly and so had to be thrown away.

Jensen saw that the problem would largely disappear with the arrival of cellphones, which were being introduced in three phases along the coast. So he organized a research project to monitor the consequences. Fishermen rapidly took to cellphones, and began making calls to traders while still at sea. So, the earlier lack of information that bedeviled both traders and fishermen was bridged. Indeed, many fishermen began selling their catch on the phone while still at sea, and then steered their boats to the shore points where their respective buyers were waiting.

The net result? First, the volatility of fish prices fell dramatically: there was little difference between the price of fish at different shore points, and this provided more certainly and security to fishermen. Second, cellphones ended the wastage of 6% of the catch due to a lack of buyers in some markets: the entire catch was sold, and nothing was wasted. This meant an increase in the income of fishermen, and of traders too. Even the consumer benefited: fish prices came down because of the increase of 6% in the quantity supplied as the wastage ended. It was a win-win-win situation.

Jensen’s research is a marvelous illustration of how IT can provide extensive rural benefits at low cost. In economic jargon, the cellphone, though supplied by commercial companies, provided public gods in the form of improved information and communication, and this solved the market failure (lack of information) that earlier caused volatile prices and wastage.

This ability of cellphones to resolve information failures has a many other applications in rural India. Kiran Karnik of NASSCOM has written about the way cellphones have improved rural labour markets. Villages have designated areas whether those seeking work and those seeking labour gather in the morning, and strike deals for hiring daily labour. Lack of information leads to a glut of workers in some villages and scarcity in neighbouring villages. Cellphones enable buyers and sellers of labour to bridge the information gap: both sides know where to go to find one another. This again is a win-win situation.

Promising though this approach is, its impact has been strong only in a few rural areas (like coastal Kerala) where services are available and people are willing to buy cellphones. Overall, the rural tele-density of phones is barely 2%, against 33% for urban areas. We need policies that enable the cellphone revolution to spread much faster in rural areas. I will write about that next week

What do you think?