The visible hand(set)

Will information and communication technology help the poor? It is tempting to say ‘yes’ to the question. The ‘how’ part is more difficult to explain. Studies on this issue tend to be macroeconomic (an x percent increase of phones or internet per capita is associated with a y percent of income per capita, or the likes).

Others are anecdotal evidence, although doesn’t mean that they are flawed. In a seminar, C.K. Prahalad of the Ross Business School, University of Michigan, mentioned that internet-literate wheat farmers in India examine the world price fluctuation through the Chicago Board of Trade website before deciding how much they should sell to the market. (Our fellow Rizal once said, “How internet helps the poor? Sell the computer, buy them food!)

A forthcoming paper by Robert Jensen (was my advisor at Harvard, now at Brown) provides a deeper analysis. The paper will be published in the Quarterly Journal of Economics next August. A review of the paper is available in the Economist. His work showed that the penetration of mobile phone had increased the average profit of fishermen in Kerala, South India.

At any given day, Kerala’s fishermen have to make a difficult choice: to sell their catch at the local market, or to go to another market along the coast. Whatever the decision is, you need to hope that your fellow fishermen go to the other market so that you would face fewer competitors. This is a one-off decision. Once you come to a certain market, it is almost impossible to move even if the market is full. You need fuel and time to travel. As the result, in a certain market there are plenty of fish that are thrown away (you can not keep the fish). In another market fifteen kilometers away, however, some buyers have to leave the market empty-handed.

This was the situation before 1997. Starting in 1997, mobile phones were available in Kerala. With mobile phones, fishermen were able to call around to find the best price, or to decide to which market they should go while they were still at sea (within 20-25 km from the coast).

The paper was more than just anecdotal. The gradual introduction of mobile phones provided a pseudo-randomization. So the author can divide the population into ‘treatments’ (the early birds) and ‘controls’ (the late comers). The result was very interesting. Once coverage became available in a region, fishermen who ventured beyond their home markets jumped from zero to 35%. The number of excess supply (wasted fish) or excess demand (unlucky buyers) went down to almost zero. Price disparities among markets fell in a typical ‘law of one price’ movement. And, more importantly, fishermen’s profits rose by 8%, and consumer price fell by 4%, on average.

This study provides more insights than that. It shows that the market, when it works, helps the poor instead of exploiting them. True, sometimes the market doesn’t work. The introduction of (information) technology makes the market work. And, beautifully, it was the profit-maximizing mobile phone companies who eventually helped the poor. Not the government, nor charity organizations.