Innovation, Economic Empowerment, and Democratization: Uncovering the Hidden Links

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Introduction

In 1994, when Iqbal Z. Quadir registered a company called Gonofone – which means “phone for the masses” in Bengali and became the launch pad for Grameenphone – few thought that offering mobile telephones to Bangladesh’s poor was a winning business proposition. At the time, only one in 500 people in the country had a telephone and two-thirds of those telephones were in the capital city, leaving about 80 percent of the population in the rural areas without telephone access. Two years later, a partnership between Gonofone, Grameen Bank, and the Norwegian telephone company Telenor gave rise to Grameenphone, paving the way for phones for the masses to become a reality.

Grameenphone turned out to have not only a sustainable business model but also the ability to economically empower the country’s poorest citizens. Today, there is one telephone for every three people in Bangladesh. Telephone access no longer depends on economic standing or geography. This unprecedented access to communication technology has allowed ordinary Bangladeshis to increase productivity and create new economic opportunities. The telephone industry, previously dominated by the state, now attracts entrepreneurs who deliver mobile services to an increasing number of customers. Those services allow many other entrepreneurs to build viable businesses based on productivity gains owed to the widespread use of cell phones.

Technology-enabled economic empowerment has also contributed to democratization in many developing countries. By giving the poor greater economic clout, mobile phones have helped those citizens become stakeholders in their countries’ economic future and be more involved in public affairs. The increased economic power of the masses, bottom-up citizen engagement, and transparency create pressure on governments to provide a policy environment that is conducive to entrepreneurship and economic growth.

Therefore, what Quadir calls “massive progress” and democracy are deeply interconnected: when the poor gain sufficient economic power for governments to depend on their economic success, accountability and governance improve.

Technology is not a panacea for democratic development. Yet, because it can empower people economically and politically, technology plays a crucial role in building stakeholders among previously disenfranchised segments of society. This dual empowerment can in turn facilitate the policy environment that leads to inclusive economic growth and development. CIPE interviewed Quadir to explore the hidden links between innovation, economic empowerment, and democratization.

CIPE: In your experience, what are the key challenges that developing countries face in creating conditions favorable for entrepreneurship and broad-based economic growth?

Iqbal Z. Quadir (IZQ): The key challenges to achieving broad-based economic growth are those that prevent ordinary people from using their ingenuity and initiative productively. When mineral wealth or foreign aid for geopolitical reasons fills state coffers, as is the case in many developing countries, governments do not depend on citizens’ taxable income. Power is concentrated in the state, creating a bottleneck for people’s empowerment.

Unwarranted state power gives rise to bureaucratic red tape, which impedes entrepreneurial progress, as does the state’s failure to provide the necessary legal and physical infrastructure for entrepreneurial endeavors. With impediments to entrepreneurship, few local jobs are created and purchasing power remains low. This discourages other would-be entrepreneurs from launching new ventures. Likewise, foreigners are reluctant to make investments in such markets and in turn foreign markets are not opened to entrepreneurs from poor countries. This is why, for instance, the average import tariff for French goods entering the U.S. is less than 1 percent whereas the average import tariff on Bangladeshi goods is 15 percent.

The proliferation of immigrant communities in rich countries proves that people in poor countries have an overwhelming desire to increase their economic productivity. If their ingenuity could be activated at home, many of them would create enterprises to lift up their own countries. With taxable income, people would gain the economic clout to hold their governments accountable. Therefore, entrepreneurs who deliver tools and opportunities for people to increase their productivity and generate income can help remove the bottleneck of excessive state power.

Professor Iqbal Z. Quadir is the founder and director of the Legatum Center for Development and Entrepreneurship at the Massachusetts Institute of Technology (MIT) and Professor of the Practice of Development and Entrepreneurship at MIT. In the 1990s, Quadir founded Grameenphone, established in late 1996, which provides effective telephone access throughout Bangladesh. To date, it has built the largest cellular network in the country with investments of nearly $3 billion and a subscriber base of nearly 25 million. Quadir is an accomplished entrepreneur who writes about the crucial roles of entrepreneurship and innovations in improving the economic and political conditions in low-income countries. Prior to MIT, he taught at the John F. Kennedy School of Government at Harvard University. Earlier in his career, Quadir served as a vice president of Atrium Capital Corp., an associate of Security Pacific Merchant Bank, both in New York, and a consultant to the World Bank in Washington, DC. He received an MBA and an MA from the Wharton School, University of Pennsylvania, and a BS with honors from Swarthmore College.

The views expressed by the author are his own and do not necessarily represent the views of the Center for International Private Enterprise (CIPE). CIPE grants permission to reprint, translate, and/or publish original articles from its Economic Reform Feature Service provided that (1) proper attribution is given to the original author and to CIPE and (2) CIPE is notified where the article is placed and a copy is provided to CIPE’s Washington office.

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