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Internet as a public good: A case for net neutrality

The internet has public good characteristics, and telecom liberalisation will not be sufficient to keep the internet healthy and growing.

Classic OPTE Project Map of the Internet 2005

Classic OPTE Project Map of the Internet 2005: Flickr

Knowledge is the currency of power today. Land, capital and unskilled labour will not matter as much as knowledge as ‘factors of production’ beyond a point in achieving growth and prosperity.

The internet is both the manifestation of the power of knowledge, and has allowed knowledge to have so much value by interlinking vast amounts of it. In the net neutrality debate, a lot of analogies have been drawn about what the internet is, on why you should either enforce neutrality or stick to market competition. People have compared the internet to highways, to cable TV, to milk cartons, to electricity grids and to many more things. Rather than improving clarity, metaphors are distracting here – as the internet is only very poorly comparable to most other things.

A basic notion about the internet is that it is a networked good, which means that its value increases with its size. As my colleagues Karthik Shashidhar and Saurabh Chandra have pointed out, the utility of a network increases as the square of the number of nodes on it. Any barriers in this network will fragment it, and reduce the overall value of the network. It can however be argued if the size of the network needs to increase, then there needs to be sufficient private gain for the network provider. Enforcing something like net neutrality, they argue, could come against that. This logic is certainly used in many other networks including that for cable TV.

The internet is all but a public good – which means that the marginal social benefit of consuming internet services is much larger than the private benefit of doing so. Human civilisation as a whole is better off when it is more interconnected, more radically networked, and capable of doing things previously unimaginable. In that context, the internet defies comparison to any other network previously built by humanity. After proto humans manage to walk upright, the quest for knowledge has been central to their progress. Since the invention of language and of writing, the internet might be the biggest radical jump in making the quest for knowledge easier.

It is true that the internet was not always open (remember AOLnet?) and that it took a series of accidents to get us where we are today. It is also true that future networks could be even more radical and we must not constrain our imagination to what is presently possible with the internet. Many argue that sufficient competition in the network provider space can ensure network health – that regulations enforcing net neutrality are both unnecessary and counter productive. My colleague Nitin Pai in fact bats for net neutrality because the ISP market is uncompetitive in India, with high entry barriers and intense regulation.

However, if  the internet is a public good – will competition ever be sufficient to ensure the vibrancy of the network? Will competition be sufficient to improve the effective network size? I would argue that it might fall short of the mark. Thus, regulations that enforce net neutrality may be necessary to prevent ‘walled gardens’ from springing up. Competition must certainly be encouraged, but restrictions must be placed both on differential pricing of data from different sources, and of content providers from directly paying for the data their consumers use. While this will lead to a few inefficiencies, it is a necessary trade-off to keep the internet as open and flat as possible.

PS. Read the takes of Pranay Kotasthane, Gautam John, Anupam Manur, Varun Ramachandra and Devika Kher on the net neutrality debate.

PPS. Also read Deepak Shenoy on how telcos aren’t really hurting and Nikhil Pahwa‘s useful definition of net neutrality.

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In Mint: Let India’s urban poor pay for good water

I write in Mint this week on how thinking along the lines of micro finance principles can change how we approach water pricing. Instead of an ideological stand on keeping water free, it’s better to ask how we can make clean water cheaper and more affordable for urban India’s most deprived.

In microfinance, people also acknowledge that it costs more to lend to the poor. When most people have to take a big loan from a bank, they have a steady income to show. They have a credit history. They also have assets they can pledge as surety, in case they default on the loan. The poorest of the poor don’t have salaries to showcase. They don’t have assets to pledge. The risk of defaulting on a loan is higher, and it is humane that they be allowed to default when the circumstances are dire. By allowing microfinance institutions to charge higher interest rates, the policies allow them to service these needs.

Similarly, the costs of supplying water for a city’s poor can be high. People often don’t have address proofs or any proofs of legal residence, making installing water connections harder. Getting even basic piping to reach the heart of a slum is not always cheap, given that there is hardly any road space to dig up. Maintaining pipes is even tougher. Installing and maintaining water meters is difficult, thereby making bill collection costlier.

It is highly disingenuous to ignore all these real issues and shout for a right to free water.The better approach is to ask, “how can we make water cheaper for the poorest?” And that line of thinking can birth an entirely new range of solutions.

Read the full article at Live Mint, February 13, 2015.

Live Mint e-Paper - Mint - 14 Feb 2015 - Page #11 Pavan Srinath

 

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Markets and Maamis

What I learnt about the state of markets in India from a conversation with my grandmother.

My maternal grandmother belongs to a rarified subset of people: she falls at the intersection of all who have read the Valmiki Ramayana in Sanskrit, and the Lord of the Rings in English. I always learn something new when I talk to her, given the five odd decades of difference in our perspectives. A recent conversation with her sparked a few thoughts on how markets work in India when I spoke to her about cotton wicks.

My grandma makes her own cotton wicks for lighting lamps. She takes a tuft of cotton, twirls it around her fingers and keeps adding cotton till there is a bushy tuft at the base and a stiff stem of cotton leading up top from it. This can be easily lowered into a variety of different lamps, doused with oil and lit aflame. With age and with softening hands, she uses a dab of water to retain her grip on the cotton.

IMG_0339

This sounds like a very natural thing for grandmothers to do, if you asked the average Indian grandchild. But it would also seem rather odd to an observer who has no context – why would a well-to-do old woman spend so much of her time labouring over something as simple as cotton wicks? Why would she not just buy them in the market instead? It is easy to dismiss such behaviour as the pedantry of the old, but there are often better explanations.

When asked why, my grandmother explains. Apparently the cotton wicks that are available in the market are too ‘loose’, where the wick is not tightly wound and is liable to get droopy and annoying to deal with. They also are often too thick, containing far too much cotton in the wick, leaving residues upon burning. What she makes remains far superior to what is commercially available, and she prefers to stick to that. She even goes far as lamenting how a couple of her daughters are forced to buy the inferior ones from the market.

What this actually means is that the market is not yet mature enough for cotton wicks. If the supply of cotton wicks were more sophisticated, someone would have figured out that tightly wound cotton wicks can perhaps be sold at a higher price to the discerning grandmotherly customers. It means that while the market is currently flooded by generic cotton wicks, there is the potential for the market to attract new buyers if they do two things: increase quality; and through signalling differentiate the two products. While this is true, there is also a lack of maturity on the demand side. A mature set of conumers will acknowledge that quality often demands a premium and are willing to pay for it.

This little nugget illustrates a lot of what people in India are going through while dealing with markets. Till the 90s, the Indian economy had not opened up and we used to highly regulate most markets. Incomes were also lower, whereby most families figured out how to produce a large variety of small goods that they consumed themselves. At best, they would be barters from a kind grandmother to some of her children.

As markets slowly developed, many people developed a disdain for goods that were commercially available, preferring the quality of home-crafted goods, romanticising the notion at the same time. Along with the disdain came a distrust of what the market could offer. This also means that the most discerning consumers retreated from the market, thereby making markets mature a lot slower. The notion of paying higher for better quality is being discovered rather slowly, with cost-saving being the primary reason for engaging with the market.

Forget cotton wicks, this explains the state of Indian markets in most goods – from agricultural produce to home food, Indian households prefer to consume a lot of things that they produce themselves. This retreat from markets denies people the opportunity to specialise, and reduces the amount of welfare one can gain by engaging markets.

Even my grandma readily admits that she’s much happier using clean cotton today compared to the seed-ridden, dirty cotton from a decade ago. She does not have to clean the cotton and she is happy to pay the premium for it. Here’s to hoping that Indian markets mature soon to deliver the kind of cotton wicks she wants, and more.

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