The knowledge divide: where some angels dare*

David Rooney

Two failures are major contributors to the digital divide: education and credit, or the lack of it. 

I am what is somewhat precociously known in my country of origin, the United States, as an “angel” investor. Some think that means one who invests his money in start-up enterprises so risky that only an angel would dare to write a check.

That is sometimes true. But I went in to angel-stage investing (that is, investments at the founding stage of a company), and primarily in Internet-oriented start-up companies, because it was a calling card to travel the world outside the United States in a time of what I believe, along with so many others, is revolutionary change. This revolutionary change has been brought on by the dramatic opening of markets by the bigger, richer OECD economies, the disassembling of state control over communication systems and finally and, most important, the invasion of our lives by wireless phones and the Internet.

I should add a bit of context here that I have heard during this conference many times, and with which I agree. These are exciting times for us. Yes, for us – you and me – the people who can not only get in on the digital revolution, but are traveling in first class, with PCs and broadband, global access cellular phones and Palm Pilots. We are blessed with the education and the earning power to be full participants in the digital revolution. More about us, the first-class passengers, a little later.

But are there things about the globalisation of technology on which we can fairly say we had agreement during this conference? I found there were some important ones. Most were not good news. Indeed, most of these points were made ever more stark by the contrast to the excitement of the digital revolution in the developed world.

History lesson 

The first was made by Welfare Economics Minister, Guy Hascoet, of France and repeated by many others: the global spread of technology has not brought clean water, or reliable and affordable electric power, to our poorest citizens. Among the many provocative insights offered to us by Bill Joy of Sun Microsystems was the notion that the advances of technology have caused a sort of disconnect with the collective memory of history, of when uncontrollable pestilence – the black plague – caused the loss of a third of the population of Europe. Maybe we first-worlders think technology can address any health challenge, even AIDS. But in Africa today AIDS is an epidemic of epic proportions, and technology has yet to make a serious dent in its deadly advance.

And let’s be clear – I cannot yet see a point in time for globalised technology to make a meaningful impact on the lives of the poorest of our fellow humans.

Pierre Sané of Amnesty International dramatically made the point that too many are still victims of heinous torture, abuse and death at the hands of their fellow man. The contribution of the digital revolution to this enduring horror has been to bring it to our TVs and our PCs instantaneously.

And the promise of the information revolution – how far must it reach out, how deep must it penetrate from where we sit today to begin to deliver the promise of consumer empowerment, distance learning or micro-enterprise opportunity?

Jacques Dunogué of Alcatel told us that with ever less costly network systems and cheaper information devices we could now see the point when the challenge of spreading the benefits of modern communication to the masses is no longer a technical challenge, but rather a regulatory and cultural challenge. He also reminded us however that over half of the earth’s population has never heard a dial tone. Most research I have seen, even the optimistic versions, predict that most of those cut off from this everyday experience for us will also never make a phone call before they die. So what about basic access to the communication revolution? How many of the world’s people really have the prospect of participating in the promise of these dramatic changes we are seeing unfold? Well, the news is both good and bad.

As Kent McGuire from the US Department of Education told us, whites are twice as likely to be connected to the Web as blacks in America. The college-educated are three times as likely. But the most disconcerting finding: Americans with incomes of over $75,000 were five times more likely to be connected. Indeed, the U.S. government has concluded that race is not really the important indicator of access to the Web. Nor is level of education. So far in the U.S. experience, it is mostly about income.

Connections 

Over 75 million people are now connected in the USA, some 38% of adults. Almost an equal number is connected in Europe today, but only about 18% of the adult population and, again, this is heavily weighted in favor of the higher-income countries of northern Europe. There are over 10 million users in Japan, some 10% of the population. The figures are 20% in Australia and 17% in New Zealand.

According to one source, there are 15 million PCs in China and over 25 million Internet accounts. But the real penetration rate in China? Under three-tenths of 1%. And India, the third world’s software factory and yet still among the poorest of nations in terms of GDP– what penetration level? One half of 1%.

Like so much of the digital revolution, being a participant seems to be mostly about being able to afford that first-class cabin. On a more positive note, I know from personal experience here in Europe, and in India, Southeast Asia and the Middle East, that one of the most profound changes that has been unleashed by the information revolution, a change that is as social as it is commercial, is this incredible outpouring of entrepreneurial risk-taking – what I have come to call a new culture of risk.

Jacques Attali made reference to the tendency of American culture to export its risk-taking individualism to the Internet age. I think he is right; this is definitely an aspect of American entrepreneurial culture that the Web generation is quickly globalising. This entrepreneurial blossoming is an essential element of the emerging new economy of high growth, low unemployment and historically low inflationary pressures.

“Start-ups”, as we call them in Internet speak. The “cast it all to the winds and go for broke” attitude so prevalent among today’s university and MBA graduates. This is a startling change from only half a decade ago. And with more venture funds in the capital markets than ever before (another new economy essential), it is getting harder and harder for large enterprises to hold on to talent. It is not just Cisco that is offering to fund and support their own employees in start-ups in order to keep them in the company. And I must tell you, as one who sees the process very close up, every day, side by side with my entrepreneur partners in Europe and Asia – the spirit is contagious.

But let us come back down to earth a bit, breathe a little less of that intoxicating pure oxygen the Internet age sometimes gives off, leave the first-class cabin we travel in and walk back to second class. Why is it that this digital divide between the haves and the have-nots is opening so fast? Why are whole parts of the globe being left farther and farther behind?

I for one don’t place as much blame on institutions of government as some others do. The leaders of the developing world have followed our advice in so many ways: privatising their communications markets to meet GATT rules; pressing subsidy programs to promote new enterprise; accepting strict controls from the IMF to meet fiscal standards; reaching out to the OECD for best practices in running their governments.

Digital divide 

I spent much of my career as a lawyer dealing with problems in the developing world and I am not naïve about the distance government has yet to go. But I think there are two specific and more insidious failures afoot which are major contributors to the digital divide. They are difficult for the governments themselves to tackle without a lot more help from the developed world. And they are not receiving enough attention from all of us in first class.

One is education. Or what Sweden’s Ylva Johansson referred to as the “knowledge divide”. A very large percentage of teachers in the developing world – indeed, many in the developed world – do not have the knowledge themselves to teach the basic operating skills for information and communication technologies to their students.

The challenge is not simply one of getting enough computers to the classroom. It is a problem of human software. The knowledge divide is a particularly dangerous challenge, because in middle class and poor countries the knowledge divide perpetuates social exclusion, and in the most basic way blocks any hope for individual empowerment in the communications revolution.

Banking failure 

The second problem is credit, or the lack of it, for access to the worldwide communications system we have built. In two to three years, the International Telecommunication Union (ITU) predicts the number of wireless phones in the world to exceed the number of fixed phones. That is an amazing statistic. In twenty years, wireless will have succeeded in catching the 90-year installation of fixed phones, and surpassing it!

Why? There are a number of reasons: lower capital costs for infrastructure, faster online connectivity, privatisation. But of the top eight cellular economies, measured in terms of penetration as a percentage of total telephones, three are Cambodia, Paraguay and Lebanon. Israel and Hong Kong, two higher-income but still classed as developing countries, are also on the list.

In fact, the ITU has only begun to uncover what I believe is a dramatic failure of the banking system to meet the needs of the communications revolution. Let me explain: in Cambodia, Paraguay and Lebanon, prepaid Subscriber Identity Module (SIM) cards are used to pay for over half of all cellular minutes. Good research is hard to come by in this area, but we know that the use of prepaid cards for wireless in the developing countries is 50 to 80% of all minutes sold. In the developed world, prepaid cards are becoming more prevalent as well.

According to studies done by Arthur D. Little in Italy, which has one of the highest cellular utilisation rates in the world, over 60% of all cellular minutes are prepaid.

The point is this. We in the developed world see bank accounts and credit cards as a way of life. However, credit systems, which give communications access to the rest of the world – wireless or Internet access – are alarmingly absent in the developing world. Less than 10% of Asians have internationally accepted credit access. Less than 3% if you exclude OECD countries. In China there are 100 million prepaid cards in circulation, and only 50 million cell phones. More than half of all cellular minutes in South America are now bought with prepaid cards.

Prepaid cards are a software device that simply bypasses the credit qualification process. They can be purchased at the corner shop, require no bank account, no proof of identity, no address, and are sold for wireless phones all over the world. Indeed, prepaid cards have been the unsung heroes in the amazing penetration of wireless phones in the developing world, with sales rising from less than a billion dollars in 1995 to an estimated five times that amount this year.

Nevertheless, the credit problem stands as the critical barrier to web penetration and the global distribution of content and services via the new medium of our age.

I have personally committed funding and time to an effort with a small company based in India to try to tackle this problem. But even an angel has his limits. And I have asked myself the question, why has such a huge opportunity not been a major target of the software houses of California and Scandinavia? I do not have the answer. But I suspect it is simply that software developers in California and Scandinavia all have credit cards.

* Based on a closing speech at Forum 2000, Paris, June 2000.

©OECD Observer No 223, October 2000




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