Disruptive Technologies & Developmental Leapfrogging

Development “leapfrogging” was a term first used in international development parlance in the early 1990’s and has since been the subject of vigorous debate. Leapfrogging refers to acts by firms, countries and/or regions to install and derive benefits from a cutting edge technology or technique without using earlier versions of the same.

The debate about the value of development leapfrogging is fragmented: opponents argue that the necessary explicit and tacit skills of people, firms, countries and regions are missed without experience with earlier iterations of the technology platform or the intellectual experience innovating and developing the technology. Jumping to the latest technology, it is argued, indirectly creates end users in developing countries that remain beholden to the technology inventors in more developed countries.

Proponents of technology leapfrogging make a good case, too, arguing that it is unimportant to know how a technology works and that by shortcutting the traditional development path, social, political, environmental and economic benefits accrue faster and this outweighs any absence of experience on the traditional development trajectory. It is further argued that without legacy technologies and the commensurate sunk costs associated with them, users, firms, countries and regions can develop at lower cost and be more agile to new opportunities as they leapfrog.

There is good evidence for both positions. Mobile telephony uptake in Africa occurred at three times the world average rate of uptake and made possible the success of services like M-Pesa. M-Pesa provides a safe system for storage and exchange of value which unlocked a bounty of African market productivity among what was prior a largely unbanked market. However under the surface of this apparent success some argue ask what would happen if Vodafone/Safaricom’s M-Pesa ceases operation? Would the African market be able to develop an alternative quickly and avoid a tremendous shock to their economies? Are African users forever beholden to the technology introduced despite the developmental gains made because of it?

Disruption by Blockchain

All technologies, in one way or another, are disruptive. That is their nature. Fire enabled the human caloric intake to dramatically increase disrupted our biological evolution. The printing press enabled recording and sharing of information across time and space and disrupted how we learned and who controlled information. The joint stock company disrupted trade and finance by enabling capital to be harnessed more effectively. The Internet irreversibly disrupted communication and commerce. It is argued that blockchain technology constitutes the most disruptive of all.

In 2008, when the Bitcoin protocol was published, it was difficult to discern the underlying blockchain technology from Bitcoin, the alternative to fiat currency. Today, the distinction is better understood and the disruptive potential of the single distributed ledger of like information (the blockchain) is clearer.

Using cryptographic techniques, which when distilled to their essence are based on the immutable and natural relationships between numbers (albeit very large numbers), a blockchain provides a single shared “world view” of a set of information that is tamper-proof and lasts for eternity. There is no single point of failure in a blockchain ecosystem as every member of the ecosystem has their own identical copy of the ledger.

Implications of Disruption

The implication of this technology reaches far and wide because “transactions” of any kind no longer needed a trusted intermediary to be known or enforced. A user simply downloads a piece of software and once installed and running, they are part of a virtual “community of interest” able to participate in particular “transactions” citizen-to-citizen without any form of intermediary needed.

From a technology perspective, blockchain provides a compelling alternative to building expensive central stores of government information and mechanisms or enacting government’s “business rules” with its citizens. Health records, business licenses, asset titling, tax accounts, citizen registration, government identifiers; need no longer exist in a government store. The potential cost savings to governments around the world have not gone unnoticed. What should developing country governments do? Could developing country governments create shared ledgers for all sorts of citizen transactions obviating the need for expensive centralised IT infrastructure?

From a financial perspective, the need for trust between parties wishing to exchange value saw the rise of countless intermediaries like banks, agents, settlement & clearance houses, market exchanges, legal firms, brokers; to ensure that the interests of counterparties were protected at all times. Governments around the ensure these intermediaries play by a legal and regulatory code. But this intermediation while necessary to engender trust between unknown parties in a transaction, introduces transaction friction. It takes days to clear an international financial transaction on our traditional networks, but not on the blockchain where it can take a second. Transaction friction is all the more pronounced when transactions take place across borders where different legal and regulatory codes need to reconcile with each other for the transaction to take place. How can developing countries benefit and what are some of the pitfalls to be avoided with lower transaction friction in their economies?

From a societal perspective, freedom of speech and the use of social media to spread information is facilitated by companies like Facebook or Twitter, but these are centralised points at which information is sent to when produced and downloaded from when consumed. What does it mean for a nation state if there is no longer a central store of media? What does it mean for nature of socio-political discourse if media moves directly from one citizen to every other citizen in the world instantly? Such is the potential disruption of blockchain technology.

From a governance perspective, the notion of the “social contract” can now be embodied in code, placed on a shared ledger, made visible for the nation to see, all while maintaining the privacy of the individual. What does that mean for e-government service design and delivery in developing countries? What are the opportunities and challenges that will emerge when information sharing no longer requires a “hub” to mediate? How can developing countries take advantage of this new model of decentralised distributed contracting as they establish and/or reform governance structures within their borders? Does the concept of a national border even matter?

From a political perspective, what is the role of the nation-state today if there exists a global “world view” of information and citizens can exchange value and communicate with unbreakable trust but without intermediaries? What does it mean for the political economies of developing countries?

Conclusion

This article encourages discussion and debate at the nexus of two topics: developmental leapfrogging and disruptive technologies, in particular, distributed ledger technology. Like mobile telephony disruption in Africa brought about new ways of looking at societal systems, in that case banking for the unbanked, blockchain technology looks to do the same, but in more than one domain. The need for consideration of opportunities and challenges to e-governance (from technical, political, social and economic perspectives) at this juncture of debate is vital if pitfalls are to be avoided and opportunities for developmental leapfrogging taken advantage of.

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