Two things are increasingly clear about the much ballyhooed $10 laptop touted by the Union ministry of human resource development. First, it probably won’t cost $10—the devices will need massive government subsidies, so the $10 price point is a mirage. Second, the device, which its backers hope will “take knowledge to every household”, as Mint reported on 29 January, might not even be a laptop. It looks to be more like an external storage device than a functioning computer.
Regardless of the true cost or nature of the device, the hype over the laptop should give us pause. It reveals a deep misunderstanding on the part of policymakers and the media over what yields prosperity.
Photo: Pal Pillai / AFP
A cheaper laptop may be a good thing in and of itself; it may even help take knowledge to individual households. But it can do little to address Indian economic development, without which no flood of knowledge from a laptop can help. Placing so much hope on an inexpensive laptop distracts us from the genuine obstacles to education, human capital formation and social welfare.
To understand why this is so, it’s important to realize how much our understanding of what generates prosperity has changed. Economists used to believe that what mattered to economic growth and wealth creation were tangible factors of production—in particular, land, labour and capital goods. This is a society’s hardware. According to this view, a cheaper laptop, by giving Indians a capital good they can use, will help solve many of their problems.
Over the last two generations, however, a more robust understanding of what yields genuine prosperity has emerged. According to the new view, it is intangible assets that matter most for long-run economic growth.
These include institutions, the rule of law, entrepreneurial initiative, property rights and healthy cultural norms and mores. This is a society’s software. These intangible sources of wealth and well-being dwarf the tangible factors in significance because only these factors can yield sustained and self-perpetuating growth over time.
Inexpensive laptops are terrific. The problems faced by India’s poor, however, do not involve lack of access to hard capital goods, including computers. The problems, instead, have to do with society’s hidden liabilities that retard development and growth. If these are fixed, tangible capital goods will follow.
In many of India’s major cities, such as Mumbai, the development of the necessary intangible assets has happened, and extraordinary growth is following. One sees evidence of this with the development not just of wealthy elites, but of a sizeable and growing middle class.
In those less developed areas of India, badly in need of political and institutional reform, however, no number of inexpensive laptops will solve the long-run problems. Indeed, in those areas of India that have begun to solve the intangible capital puzzle, such as its major cities, it is not clear that a laptop is what would best serve the needs of the poor and uneducated.
Technology is advancing so rapidly, it is possible that mobile devices will be the indispensable learning tools of the near future. Many mobile devices are de facto hand-held computers today. So, what is viewed by some as a pressing need today for cheap laptops may in just a few years give way to a pressing need for hand-held computers.
This is not the first time in history that bureaucrats have pointed to technology as a silver bullet cure for the problems faced by citizens. India is hardly alone in this. The technologist Nicholas Negroponte at the Massachusetts Institute of Technology several years ago proposed a one laptop per child programme that was designed to drive down the price of laptops to $100 and distribute them to the poor in developing countries.
It is not clear if the poor had $100, or an additional $10, to spend, they would use it to purchase laptops. A better solution may be to give them the money and let their purchase preferences give rise to markets that serve their more immediate needs. Millions of poor people empowered with extra resources will encourage entrepreneurs to serve them.
This is not to say that good technological hardware isn’t enormously beneficial, or that it can’t improve productivity. It can and it does; but it can only do this well once a society’s software is established to encourage growth and development. At that point, a society doesn’t need cheap laptop programmes, however well-intentioned.
Some might say, “What’s the big deal? Who minds if the government tries to get inexpensive computers in the hands of its citizens? Stop being so churlish and get on with the programme! Where’s the harm?”
The harm is that it misallocates precious resources that can be better spent by Indians themselves. The larger harm is that it fails to grasp the true sources of ignorance and stagnation. Time is better spent fixing those problems.
Nick Schulz is DeWitt Wallace Fellow at the American Enterprise Institute and author of From Poverty to Prosperity: Intangible Assets, Hidden Liabilities and the Lasting Triumph over Scarcity (forthcoming from Encounter Books). Comments are welcome at firstname.lastname@example.org