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.

Paying for Pucca Housing for all Indians & 100 Smart Cities

Reserve Bank of India (RBI) Governor Raghuram Rajan comes across on television as the savvy voice of financial street smarts but his 11 August speech in Mumbai on “Finance and Opportunity in India” showed him to be confused and out of touch with Indian realities.

The first sign of that was his observation that because life expectancy in India was lower six decades ago “it is safe to say that most Indians born just after independence are now no more.”

 It is not safe to say that at all.

Life expectancy is an average heavily weighted by high infant mortality in developing countries; it is not a measure of the actual longevity of those who survive.

 That conceptual misstep is perhaps forgivable, but not Rajan’s explanation of why poor Indians keep re-electing corrupt politicians.

“Their “tolerance for the venal politician is because he is the crutch that helps the poor and underprivileged navigate a system that gives them so little access.”

“While the poor do not have the money to “purchase” public services that are their right, they have a vote that the politician wants. The politician does a little bit to make life a little more tolerable for his poor constituents – a government job here, an FIR registered there, a land right honoured somewhere else. For this, he gets the gratitude of his voters, and more important, their vote.”

 A footnote in the text crediting that view to an American writer in the early 20th Century underlined how vaguely it relates to India; our corrupt politicians endure not because they help the poor but because they exploit the prevailing dynamics of caste, community, illicit funding and venal mass media.

Given that broad misreading of Indian reality it is not surprising that Rajan’s argument for financial inclusion is dicey.

He believes that giving the poor money instead of public services such as subsidized food, public schools and hospitals will be “liberating,” freeing them on the one hand, from the corrupt politician, and on the other hand, allowing them to “patronize” private providers newly respectful of their financial clout.

Rajan discounted the fears of some NGOs that cash transfers will be misused and noted several other problems that might crop up. However, he ignored the most likely outcome of a cash transfer system: that as with any other public service for the poor, corrupt politicians will steal much of the money and cut deals with private providers to cheat the intended beneficiaries.

 His take on what cash transfers will achieve was rosy: they would “help the poor out of poverty and towards true political independence.” Credit and advice “to the entrepreneurial amongst the poor,” and giving households “the ability to save and insure against accidents” would free them “from the clutches of the moneylender” and “set them on the road to economic independence, thus strengthening the political freedom that good public services will bring.”

I don’t quite understand how political freedom will be strengthened by giving the poor - some 60 per cent of the Indian population - “unique biometric identifiers” linked to bank accounts into which the government makes regular transfers. In fact, such a system is likely to make the poor incapable of resisting official pressures on any issue and that could tip the country quite easily into a bureaucrat-controlled fascism.

Those concerns were accentuated by the clarity with which Rajan stated the interest of the corporate elite in the whole matter. There “should be profits at the bottom of the pyramid … the government should be willing to pay reasonable commissions punctually for benefits transfers, and bankers should be able to charge reasonable and transparent fees or interest rates for offering services to the poor.”

 It is amazing that this regressive proposal has been unveiled at a time when there is a clear alternative, the democratization of the financial sector through crowd-funding.

So far, the only action the RBI has taken on crowd-funding has been to limit participation to Internet users who have demat accounts (perhaps in a bid to protect people without experience in investing). But there is need for much more pro-active action to realize the potential of changes that will transform all economic realities and put traditional financial institutions on the path to extinction.

To see what must be done, consider a concrete situation: achieving Prime Minister Modi’s vision of housing and proper sanitation for all Indians.

Those goals cannot be met in a country as poor as ours if we rely on conventional mortgage/public financing but are well in reach with innovative crowd-funding policies and mechanisms.

 How?

 I suggest the government establish a web-based National Housing Lottery and appoint a Commission to oversee the operations of a portal segmented by region, district, city and town.

The portal would allow owners and developers to present housing units as prizes in lotteries. Each property would have a fixed number of tickets for sale, enough to reimburse the owner/builder and cover the costs of the lottery itself.

Such a system would finance a robust house building sector at no cost to the exchequer. Winners of the lottery would get housing for the price of a ticket, which should be set at no more than ten rupees each.

Those who win properties they do not want to use should be free to put them back into the lottery and get a fixed lump sum. That should ensure the continuing popularity of the lottery and also attract an international clientele: in effect, the entire world would be crowd-funding the Indian housing sector.

For the scheme to succeed, it will be essential to develop strict building standards and impose rigorous inspections for properties put up as prizes. Inspections should be left to a new business sector of small and medium enterprises operating within the framework of regulations set by the Lottery Commission. A zero tolerance policy on corruption, encouraging whistle-blowers and banning offenders from the lottery for life should help maintain high standards.

Overall, the scheme will send the national GDP growth rate into the stratosphere and provide millions of new jobs at all skill levels.

Housing & Smart Cities

The rapid buildup in housing should dovetail with the government’s proposal to build 100 “smart cities” over the next decade, with policy-makers deciding on the look, feel and nature of development to suit location-specific human and natural environments.

This does not mean massive urban planning. On the contrary, it means little more than formulating a local consensus on the aesthetics of development and providing the relevant institutional framework for growth.

What will that entail?

To answer that question it is necessary to look at the profound impact on urbanization of the ongoing IT and connectivity revolutions.

Over the last four centuries, the growth of cities was driven by the need to realize industrial economies of scale: factory production required large volumes of raw materials (brought in by road, ship or train), plentiful and cheap energy, a large enough workforce and the ancillary services necessary to sell to mass markets.

All those factors are irrelevant to the urban areas of the Information Age. Silicon Valley in the United States, one of the most important economic hubs in the world, has little in common with America’s old “rust belt” manufacturing centres. Similarly, the giant film industries of India and the United States have no need for most industrial era infrastructure. Neither does tourism, now the world's largest "industry."

In creating our 100 “smart cities,” the government might need to do no more than decide on an overall plan in areas where it will offer enhanced support and incentives to attract a range of preferred economic enterprises, including orchards, farms, flower gardens and entertainment complexes.

The detailed planning and building of the necessary infrastructure could be left to corporations, domestic and foreign, that have the necessary expertise and capacities. The government role should be to prevent corruption and ensure that contractual goals are met. (Any public finance necessary could be derived from small adjustments in the pricing of units in the housing lottery.)

Achieving clarity on where the country should develop what kind of smart city should be a high priority on the agenda of the new brains trust that is to replace the Planning Commission.