News & CommentaryArchive
Jun 08, 2007
The Role of Cell Phones in Poverty Alleviation
Information and trust are the two bedrocks of efficient markets. Better information, as we learned in microeconomics 101, means that markets create more value for all involved. This is the idea behind many business tools, from stock tickers to the Sabre Travel Network reservation system used by travel agents. It was the rallying cry of late ‘90s Internet successes such as eBay. But it’s not only developed world markets that can benefit from better information.
The fishing industry in the northern part of Kerala state, in southern India has become an example, as reported in The Economist, of how simple tools of information exchange can drive value for all market participants in a real world situation. Previously in Kerala, fishermen would bring their catch to markets closest to their homes. The result was that some regional markets had abundant supplies of fish at rock-bottom prices, while others had more demand and higher prices. That began to change in 1997 when fishermen began acquiring cell phones. After they brought in their day’s catch, they called other coastal markets to determine which had the best prices. Once a critical mass of fishermen with access to market information was reached, average prices realized by the fisherman increased 8 percent (a gain which paid for the cell phone and the service just two months after purchase), while average prices paid by consumers fell 4 percent. Everybody benefits from efficient markets!
Given the vast numbers of poor who earn their livelihoods in agriculture and fisheries, it should come as no surprise that many of them sell their goods for less than they are worth due to a lack of pricing information. There is wider potential to learn from what happened in Kerala and expand it to other areas with similar inefficiencies. And though cell phone distribution and a reliable phone network are critical, this is slowly becoming less of a barrier, as rural communities that previously lacked complete land-based telephone infrastructure are gradually becoming connected via cellular grids.
Economist: To do with the price of fish