Cyclopedia Of Economics 1st edition

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II. The Future

Leapfrogging is not a linear function of the ubiquity of hardware and software. Though not a homogeneous lot, some lessons common to all countries in transition are already evident.

Technology is a social phenomenon with social implications. It fosters entrepreneurship and social mobility. By allowing the countries in transition to skip massive investments in outdated technologies - the cellular phone, the Internet, cable TV, and the satellite came to be perceived as shortcuts to prosperity, the generators of the dual ethoses of "rags to riches", and "creative destruction" (dizzying, constant, and disruptive innovation). They are the future, a youthful promise, and a landscape of opportunities.

Software developers in CEE countries tried to establish local versions of "Silicon Valley", or the flourishing software industry in India. Russian entrepreneurs developed anti virus software, Yugoslavs offered web design services, electronic media flourished in the Czech Republic and so on. But, as hard reality set in, most of these talents left for Western Europe, the USA, Canada, and Australia - where technology firms snatched them eagerly. Central and Eastern Europe is a major net exporter of engineers, programmers, systems analysts, Web designers, and concepts analysts.

Internet penetration in these countries  - even in the most wired - is still very low by European standards, let alone American ones. The trauma of communism left them with decrepit and rarefied infrastructure, a prohibitive, extortionist, and skewed cost structure, computer illiteracy, inefficient competition, insufficient investment capital, and entrenched luddism (e.g., computer phobia). Foreign operators often exacerbate the situation. ArmenTel, the Greek owned monopoly in Armenia, keeps Internet access costs prohibitively high, ignoring court actions by the government and loud complaints by disgruntled customers.

The Center for Democracy and Technology (in its report "Bridging the Digital Divide: Internet Access in Central and Eastern Europe") says that, as contrasted with India (or Malaysia), the countries of the CEE did not invest in computerizing their schools, public libraries, and higher education institutions, or in subsidizing private computer-training colleges.

More crucially and less reversibly, decades of central (mis-)planning rendered the societies of Central and Eastern Europe inert and dependent, apart from their traditional conservatism. Many - especially older mid- and high-level managers and engineers - feel threatened by technology. Technology makes people redundant.

To a few open minded (i.e., foreign owned) firms, computer networking stands for decentralized channels of distribution and marketing as well as potential global penetration. But even there, only a minuscule number of businesses took advantage of e-commerce (though the countries of Central Europe and the Baltic may be the global pioneers of m-commerce due to their wireless networks).

E-commerce is leapfrogging's litmus test because it represents the culmination and confluence of hardware, software, and process engineering. To have e-commerce, a country needs rich computer infrastructure, a functioning telecommunications network, and cheap access to the Internet. Its citizens need to be reasonably computer literate, possess both a consumerist mentality (e.g., inability to postpone gratification), and a modicum of trust between the players in the economy - and hold credit cards.

Alas, the countries in transition lack all of the above to varying degrees. The Economist Intelligence Unit ranked Russia 42nd (out of 60 countries) in its year 2000 "e-readiness survey". Other CEE countries fared little better.

Penetration and coverage rates (the number of computers and phone lines per household), network reliability, and the absolute number of Internet users - are all dismally low. Access fees are prohibitively high. Budding Internet enterprises in the countries in transition are happy exceptions that prove the depressing rule. They usually respond to erratic local demand. Few have expanded internationally. Even fewer engage in research and development.

Technology was supposed to be the great equalizer (with the rich, developed countries). It did not deliver on this promise. Unable to catch up with Western affluence and prosperity, the denizens of CEE are frustrated. They feel inferior, neglected, looked down upon, dictated to, and, in general, put down. New, ever-cheaper, technologies, thought the locals, would surely restore the rightful balance between impoverished East and filthy rich West. But the Internet - and even technologies such as cellular telephony - belong to those who can effectively deploy them (i.e., consumers in developed, infrastructure-rich, countries).

The news get worse.

The Internet is gradually permeated by commercial interests and going wireless. This convergence of content and business interests - means less access to the underprivileged.  The digital divide is growing by the day.  New technologies have done little to bridge this gap - on the contrary: they enhanced the productivity and economic growth (this is known as "The New Economy") of rich countries (mainly the United States) and left the have-nots in the dust.

The countries in transition also lack the proper legislative and law enforcement infrastructure (backed by the right cultural background). Property rights, contracts, intellectual property - are all new, often indigestible, concepts, emblems of Western hegemony and monopolistic practices. Widespread copyright violation, software piracy, and hacking are both status symbols and political declarations of sorts. Admittedly, the dissemination of illicit intellectual products may have served to level the playing field. But now it is hindering entrepreneurship and holding back development.

After Asia, the countries in transition are the second largest centre of piracy. Software, films, even books - are copied and distributed quite freely and openly. There are street vendors who deal in the counterfeit products - but most of it is sold through stores and OEMs. This despite massive efforts (e.g., in Russia, Bulgaria, Ukraine, and, lately, in Macedonia) by software developers, licensed film libraries, and distributors - to fight these phenomena.

Intellectual property may go the way the pharmaceutical industry has. Content owners and distributors may team up with sponsors (multilateral institutions, private charities and donors). The latter will subsidize intellectual property and, thus, make it affordable to the denizens of poor countries. This is already happening in scholarly publishing.

This is very promising. But it far from leapfrogging development. In hindsight, leapfrogging may have been nothing but another of those intellectual fads whose time has gone before it ever came.

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