Friday, October 31, 2014

Human Development in the Information Age

Through most of history land has been the primary basis for creating wealth and everywhere, farmers monetized it to enrich small military elites. After 1600, when British merchants first innovated the joint stock company to share the risk of trading with India, land lost that primacy and corporate funds became the capital of the mercantile era. With industrialization that concept of capital evolved further: money became the active agent in bundling raw materials, technology and labor in profit-making enterprises.

Just as the concept of capital changed radically in each of those transitions, it is now undergoing yet another transformation. Change is being driven by the connectivity of a world in which the number of mobile phone subscriptions is nearing that of its total population and Internet users are surging towards the 3 billion level, two-thirds of them in developing countries.

Computerized information processing technologies are now at the heart of wealth production, and that is setting off a paradigm shift in economics with historically unprecedented potential to erase poverty and move all of humanity onto the same level of socioeconomic development.  

For an illustrative example of that potential consider the target of “housing for all by 2022” set by India's newly elected BJP government.

The general consensus among Indian commentators is that it will be impossible to achieve that target. The Times of India reported on 9 August 2014 that to meet it the government would have to build 2.5 million housing units every year for the next 8 years, a very tall order considering that all programs for low-cost housing have together added only 200,000 units in the last three years.

With nearly 48 per cent of the population below the ADB poverty line (set at $1.51 daily income), it is also unrealistic to think that the private sector can take up the slack even if heavily subsidized: in mid-2014 there were only 58 housing finance institutions in the country.

However, the prospects are transformed if we consider a third alternative, using the Internet and the Worldwide Web for crowd-funding. 

Crowd-Funding the Housing Sector

Mobilizing crowd-funding for the housing sector will require an innovative new institutional framework with a web-based National Housing Lottery (NHL) as its central organization.

An NHL could be established under the aegis of the National Housing Bank (NHB), a wholly owned subsidiary of the Reserve Bank of India with a quarter century of experience in formulating and implementing sustainable housing policies at the central and state levels.

The lottery would offer as prizes housing units provided by owners or builders, with all of them required to meet technical specifications set by the NHL in a number of downloadable templates.

The NHL would fix the number of lottery tickets sold for each unit to cover payment to owners/builders, its own organizational expenses, and the costs of developing essential infrastructure.

That infrastructure would include off-grid renewable energy (solar with supplementary biogas), sanitation, sustainable water supply (primarily from local watershed management) and broadband connectivity.

To allow people who do not want to move to a new location to participate in the lottery the NHL would also offer as prizes the services of builders to upgrade existing housing to the standard of one of its templates.

Finally, the NHL would allow anyone who won a housing unit to put it back in the lottery and take an attractive cash prize instead. That would generate continuing interest in the lottery and not just from within India but globally.

To ensure compliance with the standards set by its templates the regulatory arm of the NHB would oversee the growth of a new business sector of small and medium enterprises devoted entirely to inspecting buildings. The companies would specialize in four areas of code compliance: quality of construction, environmental standards, public health and broadband connectivity.

To jump-start this sector the NHB could invite firms engaged in similar work in developed countries to set up Indian subsidiaries.

By providing the largest profits for the housing most in demand and strong punitive action against anyone cutting corners, the NHL could regulate supply with a minimum of bureaucracy, expense and effort. A web-based information dissemination and feed-back system for end users would ensure that problems that crop up are efficiently addressed.

Such a lottery would provide housing to people for the price of a lottery ticket (which should ideally be no more than Re.10 each). It would generate a steady flow of finance to builders, create a multitude of jobs at every level of skill, implement environmental standards painlessly and improve sanitation standards rapidly.

Those multiple targets would be met without the traditional headaches of cross-sectoral coordination of policies and programs. Broader goals such as the government's plan to build 100 new "smart cities" would also become easier, for most of the essential parameters could be included in the housing templates. Perhaps most importantly, all that would be financed through crowd-funding, at minimal cost to the exchequer.

On the negative side, the conventional housing finance units now in existence would have to be wound up, but their staff could easily be absorbed by the new NHL and the expanded NHB regulatory arm.

 Other Profound Implications

The implications of the new Information and Communications Technologies (ICT) are equally profound for a range of other industrial era realities we have come to accept as part of the natural order of things.

Consider, for instance, what will happen to mass markets shaped by the requirements of behemoth corporations when they face competition from small and medium enterprises capable of locating and serving niche areas of demand.

As all mass markets are the homogenized creation of advertising they will be quickly disaggregated by such competition and giant corporations will find their lunch eaten by small and medium enterprises far more efficient in adjusting to changes in their home markets.

The full impact of this process probably will not be realized until the technology for 3-D printing matures. That technology works by coding information into a machine capable of layering a variety of materials into any desired shape; it should eventually enable production of a finely engineered Mercedes Benz car in a village workshop.

The disaggregation of mass markets will have a variety of other spectacular effects. As mass production becomes less efficient, it will power down the imperatives that have driven the growth of every modern city, taking the wind out of the urbanization globally.

The new efficiencies of disaggregated markets will give powerful impetus to the growth of off-grid renewable energy. To understand the potential of that trend we have merely to consider that the total solar energy incident on India annually is 5000 trillion kilowatt hours. At present our solar energy production capacity is only 2.5 gigawatt, constituting just one per cent of the country’s total energy production. (It is expected to cross 3 gigawatt by the end of 2014. For sake of comparison: German solar energy production capacity is 38 Gigawatt per year; China, Italy, and the US have over 10 Gigawatt.)

The rising curve of solar/biogas energy will make the coal/petroleum/natural gas economy increasingly uncompetitive; and as industrial era patterns of concentrated production and consumption fade, so will the viability of the entire sector. Efforts to cut fossil fuel consumption and reduce release of greenhouse gases should become much easier.

Other dramatic results will be radical revaluations of much urban real estate and significant sectoral reallocation of labor. Fortunately, the latter should coincide with broad growth in new employment opportunities.

In sum, these changes will be a huge plus for human development.

It should be possible to set and meet a target to get all of humanity on the same level of human development within the period envisaged by the post-2015 agenda for action.

Part 2 of this post will deal with how we can counter elite efforts to subvert the democratic promise of the Information Age.

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