The Benefits of a Services-Based Economy and Electronic Commerce to Developing Countries

I would like to begin by thanking the organizers of this XIII Annual Meeting of the Coalition of Service Industries for inviting me to be a part of this program, which has been both extremely interesting and very insightful. Following several very high-powered sessions leaves one with a hard act to emulate. Nevertheless, I will offer a few remarks on the relationship between economic development, information technology, and electronic commerce in particular -- combine them and try to come out with some digestible ideas.

I very much agree with Senor Norman Caldera that "Knowledge is power," a notion relevant to all areas. The advent of electronic commerce and the growth of Information Technology is all about avenues to, and transmission of, knowledge through ways and means never before available -- at almost no cost -- with accessibility to all. This phenomenon is leading to the breakdown of traditional power structures inside economic systems that were based on the exclusive retention of knowledge, as well as the demise of traditional notions about economic development. Interestingly, the Internet service is being used now to replace unions in terms of increasing the bargaining weight of individuals in their search for a new job. Through Internet web sites which provide information on the average wages paid for specific professions, job seekers can be armed with tools which they can use to extract better terms in their contracts, since they obtain knowledge about the market. It is commonplace to repeat this, but "Knowledge is power", and now through electronic commerce, all consumers can be "empowered".

The interesting part of this empowerment is that it is not location-specific. Consumers and producers around the world, anywhere, at any time, can now have access to information. What is necessary is simply a computer, access to telecommunications systems, and an Internet provider. This amazing phenomena, which has grown from 32 hosts in 1972 to one million in 1992, only twenty years later, will most likely increase to as many as 300 million users by 2001, according to recent studies by the OECD and the WTO. In 1997 more than 110 countries were connected to the Internet, and possible universal coverage is foreseen for the future. This expansion of electronic commerce will also expand both the scope of what and how we trade. And this region of the world is very much a part of this process. In Latin America spending on Information Technology increased by over 20 % from 1996 to 1997, and the market is expected to grow 18 % by the year 2000. According to the Brazilian government, Brazil posted the world's fastest growth in new Internet users last year. And the number of Latin American computers connected to the Internet is growing at a rate of more than 300 percent per year!

The Internet to our generation, and especially to developing countries, is as revolutionary as was the printing press when developed by Gutenberg in the mid-15th century. The printing press allowed for books to be made available in the late Middle Ages to the educated classes of Europe on a wide basis, and at a much lower cost, and led to the establishment and spread of the university system outside of religious orders. Today the Internet allows for the spread of knowledge on an almost cost less and worldwide basis. It is clear that the 21st Century will be the dawn of a new technological way of living, method of learning, and manner of doing business, all based on Information Technology and the Internet. In the next century it is possible that most transactions will be done via the Internet. Our computers will mutate into an appliance similar to the television and telephone. Education will move to a "learning for life" approach, with the need for adaptation to constantly changing technology.

And this is fast becoming an international reality. By the end of this year, a personal computer will cost as little as $500, no more than a bicycle. By the year 2000, China will have more English-speaking people than the United States. By the year 2005 we will have thinking computers. And between 2005 and 2020 the third wave of computing will take place through deployment of earth system devices. The convergence of IT and medicine is expected to have a great impact on improving health, and this all around the world. The convergence of IT and education will allow for technology-enhanced learning, and for making university degrees available at a given institution to students all over the world, without the need to physically move to a location in order to receive a degree. This also is revolutionary in terms of its potential impact on economic development.

What are the implications of the advent of the Information Technology age? They are both economic and political. From an economic standpoint, the rapid spread of the use of Information Technology will allow developing countries access to the medical services and to education that was previously out of reach. In terms of development of productive activities, it will allow these countries to "leapfrog" stages of development and bypass the traditional focus on manufacturing and heavy industry in order to concentrate on development through all forms of services-based and particularly computer-based economic activity. This possibility is significant, as it has three very important consequences:

1. It allows for faster economic development than that which follows the traditional pattern, since the increase in productivity in certain service activities is estimated to be faster than that in traditional economic activities;

2. It minimizes environmental degradation from heavy industry; and

3. It can foster faster and more flexible adjustment in times of economic crisis or downturns.

Several Latin American countries are "leap-frogging" stages of development as they bypass cable-laying in favor of wireless communications. According to Micael Cimet, President of EDS, Latin America, wireless technology infrastructures are becoming the great equalizer, allowing those countries who are behind in the race of economic development to catch up quickly.

What is critical, however, for this to become a reality is that efficient and modern information technology be obtainable, through the availability of up-to-date basic and value-added telecommunications services. The opening of the telecommunications sector in developing countries to competition, therefore, is essential. But several pitfalls lie along this path. The first is the mistaken concept that deregulation of the sector through privatization necessarily introduces competition. Transferring monopoly power from the government to a private firm does not improve services nor lower prices. Only competition from additional suppliers can bring this about. The second is a fixation on foreign ownership. Competition can be introduced as efficiently through additional domestic suppliers as through foreign ones, although introducing forms of joint venture in order to induce technology transfer is often a useful intermediate step. The third pitfall is the move to liberalize value-added services while leaving basic telecom services with monopoly providers. This results in a dichotomy of service for domestic consumers and producers, but does not overcome the constraint to growth that an inefficient telecom sector represents. In leaving basic services more expensive, value-added services will also grow more slowly, as the development of the former can only go so far when the basic component is not liberalized. High-cost, inefficient supply of basic telecom services will also hinder the development of electronic commerce and the development of all of the other service sectors in an economy which are dependent upon Information Technology, such as medical services as education that have been mentioned earlier.

We do not yet have answers to all of the difficult questions posed by the need to liberalize the telecommunications sector. A few of those that must be addressed are:

1. What is the optimum number of service suppliers in a given market for basic services?

2. How can the development of adequate infrastructure be encouraged at the same time as the introduction of greater efficiency and competition into basic telecom services?

3. The WTO commitments are an extremely useful basis for liberalization. But are the commitment adequate for liberalization, given the speed at which electronic commerce is growing via the Internet? Will developing countries be left further behind if telecom is not opened up at a faster rate?

4. What kind of legal framework needs to be developed at the same time as liberalization of the telecom sector goes forward in order to ensure that electronic commerce is encouraged as much as possible? And who is to ensure the regulatory overview?

For developing countries to be able to "leapfrog" stages of development, both a well-developed telecommunications sectors with provision of modern and efficient Information Technology services is necessary, as well as a skilled and educated work force, or a strong human capital base. The latter implies the need for a greater openness in labor markets, to take advantage of the ability individuals with this knowledge to work across national borders. It also implies the need for even greater emphasis on computer literacy and practice as part of the core curriculum of primary education, before the secondary and university levels. Without these two ingredients, the mixture of inputs for leapfrogging stages of economic development will never become a reality.

From a political standpoint, the growth and spread of Information Technology and electronic commerce appears to be dividing the world increasingly along lines that are not made up of political ideologies, nor of nation states, but rather along lines of possession and access to knowledge. Social and economic classes today cut across borders and are being formed horizontally, on an international scale. The line of division is between those possessing knowledge, in other words the access to efficient information technology and Internet resources, and those who lack this fundamental element. The educated elite in Brazil or Jamaica or Singapore or Korea reads the same information, listens to the same news, consumes the same products, and undertakes the same activities in business and commerce, as those in the United States or Western Europe. The possession and access to IT and the Internet is the ultimate economic and personal freedom. And those who enjoy this will increasingly communicate and interact with each other, developing common values, life styles and consumption habits, across the globe, even as they do not leave their own localities. We are moving towards a true world marketplace for trade and consumption; the equalizer is Information Technology, and the vehicle is electronic commerce.

Thank you.