Global Communications: Opportunities for

Trade and Aid

September 1995

OTA-ITC-642

GPO stock #052-003-01451-3
Recommended Citation: U.S. Congress, Office of Technology Assessment,

Global Communications: Opportunities for Trade and Aid, OTA-ITC-642 (Washington, DC: U.S. Government Printing Office, September 1995).
iii

Foreword

lobal Communications: Opportunities for Trade and

Aid examines the question of how telecommunicationrelated aid policies might be designed to support both

United States trade and foreign aid goals. Communication and information technologies are particularly well suited

in this regard. These technologies are of critical importance in

today’s knowledge-based global economy. Not only do they

provide the networked infrastructure on which global businesses

will increasingly take place; they also constitute one of the fastest growing sectors of world trade and investment. There is

already mounting evidence and a growing appreciation of the

positive role that information and communication technologies

can play in supporting economic development.

By targeting poor and underserved areas, telecommunicationbased aid programs have the potential to enhance U.S. trade

opportunities in developing countries, and promote competition

and telecommunications regulatory reform, while at the same

time providing for the communities and people most in need. To

lay the groundwork for developing an effective telecommunications-related aid strategy, the report examines the likely scenarios for the deployment of communication and information

technologies in support of global trade; identifies the policy

issues, market failures, and regulatory barriers that need to be

overcome; and identifies and analyzes telecommunicationsrelated foreign aid strategies that the federal government might

pursue to address these problems.

OTA gratefully acknowledges the contributions of those who

participated in the workshops and interviews; commented on

drafts, and provided information, advice, and assistance. However, OTA bears the sole responsibility for the contents of this

report.

ROGER C. HERDMAN

Director

G
iv

Project Staff

Peter D. Blair

Assistant Director

OTA

Industry, Commerce, and 

International Security 

Division

James W. Curlin

Program Director1

Industry, 

Telecommunications, and 

Commerce Program

Andrew W. Wyckoff

Program Director

Industry, 

Telecommunications, and 

Commerce Program

1 Until September 1994.

PRINCIPAL STAFF

Linda Garcia

Project Director

Michael De Winter

Research Assistant

Mark Young

Contractor

ADMINISTRATIVE STAFF

Liz Emanuel

Office Administrator

Karry Fornshill

Secretary

Diane Jackson

Administrative Secretary

Karolyn St. Clair

PC Specialist
v

Contents

1 Summary, Findings, and Policy Strategies 1

Request for the Study 3

Scope and Organization of the Report 4

Key Findings 5

Criteria for Making Policy Choices 25

Foreign Aid Strategies to Meet These Criteria 28

2 Foreign Aid Policy: The Lessons Learned 41

Foreign Aid as a Policy Tool: The Ideal Case 42

The Historical Experience 45

A Foreign Assistance Model for the Future 69

3 Communication Technologies to Promote Foreign 

Aid Goals 75

A Framework for Analyzing Communication

Technologies and Social Change 76

Relating Causes to Effects 80

The Context in Developing Countries Today 87

Leveraging Communication Technologies 90

Development Challenges and Opportunities

for the Future 106

4 Meeting Third World Needs

In A Global Telecom Market 115

The Diffusion of Communication Networks 116

The Trend Toward Global Networking 119

Networking Prospects in the Third World 144

The Need for Telecommunication-Related Aid Policies 

that Support U.S. Trade Goals 156
vi

Appendix A: An Historical Analysis Relating

Causes to Effects 159

Communication Technology and the Rise of the U.S. 

Economy 159

Communication Technology and the Evolution of Politics 

in the United States 164

Appendix B: U.S. Public/Private 

Aid Related Telecom Programs 173

U.S. Government Assistance 173

U.S. Private Sector 174

U.S. Non-profit Organization Assistance 175

U.S. Academic Program Assistance 175

Appendix C: Participants for

Workshop One—October 18, 1994 177

Appendix D: Participants for

Workshop Two—December 19, 1994 179

Appendix E: Reviewers and Contributors 181
| 1

1

Summary,

Findings, and

Policy Strategies

n fiscal year 1995, the United States will

spend approximately $12.6 billion for bilateral and multilateral international development and security assistance to serve a

broad range of policy goals.1 Many foreign assistance programs have encountered increasing

resistance in the past few years for reasons that

include the uneven record of previous programs;

the rise of former recipients as major U.S. competitors; a questioning of the foreign aid rationale

in the light of the collapse of the Soviet Union

and the postwar security system, as well as more

general concerns about the size of government

and government spending.2

To ensure that foreign assistance programs

serve the interests of the United States as well as

those of developing countries, some policymakers are seeking to link aid policies more closely

to national trade objectives. To this end, for

example, the Peace, Prosperity, and Democracy

Act of 1994 (S1856), which was introduced by

the Clinton Administration in the 103d Congress,

would provide U.S. businesses greater support

1 U.S. Agency for International Development, Congressional Presentation, Summary Tables, Fiscal Year 1996. 2 Anne O. Krueger, Economic Policies at Cross Purposes: The United States and Developing Countries (Washington, DC: The Brookings Institution, 1993); See also Foreign Aid Reform: Hearings Before the Subcommittee on International Economic Policy, Trade, Oceans

and Environmental Affairs of the Senate Committee on Foreign Relations (Washington, DC: U.S. Government Printing Office, 1994).

for establishing markets in countries benefiting

from U.S. aid. The Trade for Aid Bill (S722)—

first introduced in the 102nd Congress, and subsequently revised and reintroduced in 1993—

goes even further, making aid in some cases contingent on trade. This bill not only limits the

amount of foreign aid that can be provided in the

form of cash transfers; it also requires that more

funding be targeted for capital projects, which

generally have the greatest payoff for American

businesses and workers.

Communication and information technologies

are particularly well suited to mutually serve foreign aid and trade goals. These technologies are

of critical importance in today’s knowledgebased global economy. Not only do they provide

the networked infrastructure on which global

business will increasingly take place; they also

constitute one of the fastest growing sectors of

world trade and investment.

There is already mounting evidence, and a

growing appreciation of the positive role that

communication and information technologies

I
2 | Global Communications: Opportunities for Trade and Aid

can play in supporting economic development.3

These technologies have proven extremely useful not only in promoting and sustaining economic activities of all kinds, as well as in

enhancing human potential—a key ingredient for

the success of any development program.

The value of networked information technologies for economic growth and development will

probably loom even larger in the future, given a

more service-oriented global economy in which

production and marketing activities are distributed on a world-wide basis.4 In preparation,

many developing countries are currently looking

to communication and information technologies

to help them bypass the long and arduous process

of industrialization, allowing them—straight

away—to become providers of global information services.5

 In contrast, developing countries

that fail in these new circumstances to keep pace

with the advance of technology, and to integrate

their communication systems into worldwide

business networks, will probably be left yet further behind.

The capabilities of information and communication technologies are also expanding to support

development goals. For example, advanced satellite systems—such as low earth-orbiting satellites—will soon be able to provide sophisticated

voice and data services on a global and, hence,

more cost-effective basis. In addition, because

communication systems are increasingly driven

by software, their components can now be

unbundled from the network to allow network

3 Robert J. Saunders, Jeremy J. Warford and Bjorn Wellenius, Telecommunications and Economic Development (Baltimore, MD: The

Johns Hopkins University Press, 1994); see also Seth W. Norton, “Transaction Costs, Telecommunications, and the Microeconomics of Macroeconomic Growth,” Economic Development and Cultural Change, vol. 1, October 1992, pp. 175–196. 4 Fernando Henrique Cardoso, “North-South Relations in the Present Context: A New Dependency,” in Martin Carnoy, Manuel Castells,

Stephen S. Cohen, and Fernando Henrique Cardoso (eds.), The New Global Economy in the Information Age: Reflections on Our Changing

World (University Park, PA: University of Pennsylvania Press, 1993); See also Bruno Lanvin (ed.), Trading in a New World Order: The

Impact of Telecommunications and Data Services on International Trade in Services (Boulder, CO: Westview Press, 1993); and U.S. Congress, Office of Technology Assessment, Electronic Enterprises: Looking to the Future, OTA-TCT-600 (Washington, DC: U. S. Government Printing Office, May 1994). 5 See, for instance, “Salinas’ Rush for ‘Bypass’ Technologies,” Satellite Communications, December 1992, p. 20.

users much greater flexibility and control.6 As a

result, communication networks can be recast

and customized to meet the specific and, more

often than not, varied needs of developing countries.

If developing countries are to take advantage

of information and communication technologies

to support development, however, they will need

considerable foreign capital and expertise. In

many developing countries, existing infrastructure is very primitive, providing in some extreme

cases only one telephone per 1,000 persons. And

the cost of upgrading these communication networks can be astronomical—on the order of $60

billion to $80 billion according to some estimates.7

 Compounding the problem, many developing countries have only limited access to the

foreign exchange required to purchase up-to-date

equipment and services in the global market.

In today’s increasingly liberalized, global telecommunications marketplace, many developing

countries’ communication needs can be met by

the private sector. Already, many firms are

eagerly competing to invest in and/or partner

with developing countries to serve their rapidly

growing communication markets. U.S. firms are

especially well positioned in this regard. They

are foremost in the development and deployment

of communication and information technologies,

and principal players in the information and

communication technology and services trade

arenas.

6 Unbundling refers to the ability to separately purchase communication functions and services that were formerly available only as a single unit. For a discussion, see U.S. Congress, Office of Technology Assessment, Critical Connections: Communication for the Future, OTACIT-407 (Washington, DC: U.S. Government Printing Office, January 1990), chap. 3. 7 According to the ITU World Telecommunications Development Report, it will cost $58.3 billion to provide basic communications infrastructure to most nations. The World Bank estimates the cost to be even greater, totaling $80 billion. Steven Tisch and John Williamson,

“World Conference Pushes for Policy Changes,” Telephony, Mar. 28, 1994, pp. 9, 17.
Chapter 1 Summary, Findings, and Policy Strategies | 3

This private-sector, trade-oriented approach to

deploying technology for economic development

serves today as the driving force behind the Clinton Administration’s vision of the Global Information Infrastructure (GII). Speaking in March

1994 at the World Telecommunications Development Conference in Buenos Aires, Vice President Gore called on all of the world’s leaders to

adopt a global vision of the information highway.

A global infrastructure based on private sector

initiatives will, according to Gore, not only foster

economic growth and development; it will also

promote political stability, social improvement,

and the spread of democracy.8

Some government incentives will probably be

required, however. Although new technologies

have considerable potential to improve social,

economic, and political conditions across the

globe, such an outcome is far from certain. How

and to what purpose these technologies are

developed and deployed will depend on more

than the characteristics and capability of the

technology; also important will be the social,

economic, and political forces driving the technologies’ deployment and use.

If, for example, developing countries are to

employ information and communication technologies to improve their social and economic well

being, access to advanced technologies will not

be enough. For real technology transfer to take

place, they must have the knowledge and handson expertise required to take full advantage of

new technologies. Similarly, if communication

technologies are to have a democratizing impact,

they must be widely shared so that the power of

the dominant groups in society is effectively

counterbalanced by the power of those in subordinate positions. It must also be stressed that,

although communication is sometimes viewed as

a means of reducing conflict, it can just as easily

serve to destabilize political situations and/or

exacerbate conflicts among people of different

origins and cultures.9

Thus, despite the growing availability of private investment for infrastructure deployment in

8 Steven Tisch, “Gore Urges Ambition for Global Telecom,” Telephony, Mar. 28, 1994, pp. 10–11. 9 Samuel P. Huntington, “The Clash of Civilizations,” Foreign Affairs, summer 1993, vol. 72, No. 3, pp. 22–50.

developing countries, foreign assistance can still

play a complementary—but nonetheless—pivotal role. Foreign aid programs can be targeted to

address specific market failures and to create

appropriate incentives to ensure that technology

deployment is carried out in a way that promotes

economic development, democracy, and greater

political stability.

If the U.S. government is to use foreign aid to

provide appropriate incentives, it will need a

clearer understanding of the opportunities and

problems associated with the deployment of

communication and information technologies, as

well as of the technical, political, economic, and

social conditions required for their optimal use.

This assessment seeks to contribute to such an

understanding. Examining the probable scenarios

for deploying communication and information

technologies in support of global trade and economic development, it identifies the policy

issues, market failures, and institutional barriers

that need to be overcome. In addition, it identifies and analyzes telecommunications-related

foreign aid policy strategies that the federal government might pursue, which are designed to

address these problems.

REQUEST FOR THE STUDY

This study was requested by the U. S. House of

Representatives’ Committee on International

Relations. In its letter of request, the committee

asked OTA to conduct a study that would provide a conceptual framework for assessing the

tradeoffs between U.S. trade policy with respect

to communication and information technologies

and services and the U.S. foreign policy objectives of promoting international stability, economic development, democratization, and

nation-building. In addition, OTA was asked to

identify the extent to which, and how, foreign aid

policies might be structured so as to reconcile

potential conflicts between trade and foreign policy goals while at the same time improving the

efficiency and effectiveness of U.S. foreign

assistance.
4 | Global Communications: Opportunities for Trade and Aid

SCOPE AND ORGANIZATION 

OF THE REPORT

Advances in communication and information

technologies can help developing countries to

cope better with their domestic social and economic problems and to become more fully integrated into a global economy. The United States

has much to gain from the Third World’s success

in this regard. Already, developing countries

constitute one of the fastest growing markets for

trade in telecommunications and information

technologies and services, and the rapid deployment of these technologies will open up economic opportunities in other sectors as well.

One way of fostering such a mutually beneficial outcome is to develop foreign aid programs

that incorporate a telecommunications component. Whether or not such programs will be successful, however, will depend on three major

factors: 1) the overall design and effectiveness of

aid programs; 2) the “fit” between the design and

capabilities of communication technologies and

the needs of developing countries; and 3) the

effectiveness of the global market in diffusing

information and communication technologies on

a worldwide basis. As depicted in figure 1-1, by

examining each of these three sets of factors, and

relating them to one another, it is possible to

identify a number of criteria for successful telecommunications-related aid policy strategies,

and to develop policies that meet these criteria.

This conceptualization forms the basis for the

scope and organization of this report. This chapter, chapter 1, lays out the findings, criteria for

making policy choices and strategies to meet

these criteria. Chapter 2, “Foreign Aid Policy:

The Lessons Learned,” describes the basis for a

sound foreign aid policy. Chapter 3, “Communication Technologies to Promote Foreign Aid

Goals,” outlines technology characteristics and

capabilities as they relate to developing country

needs; and chapter 4, “Technology Diffusion in a

Global Market Place,” examines the effectiveness of the market in deploying telecommunication and information technologies on a worldwide basis.

FIGURE 1-1: Organization of the Report

SOURCE: Office of Technology Assessment, 1995.
Chapter 1 Summary, Findings, and Policy Strategies | 5

KEY FINDINGS

❚ A Continued Role for Foreign Aid

As the leader in an increasingly integrated global

order, the United States has a vital stake in promoting democracy, sustainable growth, and

political stability worldwide. This stake will

probably loom even larger in the future. Just as

national boundaries are increasingly penetrable

to the flow of commerce, ideas, and people, so

too these boundaries will no longer constrain the

spread of political, economic, and environmental

problems. Foreign assistance provides a key foreign policy tool for addressing such problems,

and it will continue to do so in the future. The

role of foreign aid will also loom larger in generating new opportunities for trade. Today, Japan

and many newly industrialized countries are

competing for developing-country markets not

solely on the basis of their products; increasingly

they are promoting their own model of economic

development, which—if replicated by Third

World countries—will lay the groundwork for

establishing closer trading relationships.

The euphoria that accompanied the demise of

the Soviet Union and the Communist regimes in

Eastern Europe has, of late, been dampened considerably. Instead of signaling a new era of

greater peace and security, these events were a

prelude to the collapse of the social order in

many countries, where authoritarian regimes

were replaced not by democracy but by ethnic

conflicts and civil wars. Included among these

outbreaks of violence, for example, have been

civil wars in Afghanistan, Somalia, Rwanda and

Bosnia as well as ethnic conflicts in India, Iraq,

Liberia, and Sri Lanka.

These events have led to a continued, if not

expanded, U. S. military presence in the world.10

Operating under the auspices of the United

10 David C. Hendrickson, “The Recovery of Internationalism,” Foreign Affairs, September/October 1994, vol. 73, No. 5, p. 41.

Nations, the United States has become involved

in a growing number of peacekeeping operations.

As compared to 1988, when the United Nations

was engaged in five such operations, peace-keeping troops are today deployed in 16 locations.11

During the same period, the number of military

personnel deployed has increased from 9,570 to

62,333, while the United Nations annual peacekeeping budget has grown from $230 million to

approximately $3.6 billion.12

Deteriorating social and economic conditions

in many Third World countries do not bode well

for a better future, at least in the short and

medium terms. Over the past three decades,

income disparity across the globe has doubled.

Now, the richest 20 percent of the world’s population receive an income that is 150 times the

amount received by the poorest 20 percent.13

Nearly 35 percent of the world’s adult population

are, moreover, illiterate. In addition, infant mortality rates continue to hover at 114 deaths per

1,000 live births.14

Economic progress in many developing countries is far from adequate to address these thorny

problems. In the area of sub-Saharan Africa—

where these problems are the gravest—only marginal improvements in per capita income and

consumption are anticipated, even under the

most positive growth scenarios.15 Assuming a

less favorable global economic environment, a

number of Latin American countries will probably also experience difficult times. Continued

unrest in the Soviet Union and Eastern Europe

would make economic growth in this region

problematic as well (see table 1-1).

The short-term steps that many developing

countries are taking to relieve their immediate

social and economic problems could complicate,

or even jeopardize, their prospects for long-term

sustainability. For example, in some cases, there

11 Boutros Boutros-Ghali, “Peacemaking and Peacekeeping for the Next Century,” Vital Speeches of the Day, Mar. 15, 1995, vol. 61, No.

11, pp. 322–324. 12 Ibid. In FY 1994, Congress appropriated $401,607 million for current peacekeeping operations. See Mark M. Lowenthal, Peacekeeping and U.S. Foreign Policy: Implementing PDD-25, Congressional Research Service, IB94043, updated Sept. 23, 1994. 13 Human Development Report 1993 (New York, NY: United Nations Development Program, 1993), p. 11. 14 Ibid., pp. 11–12. 15 Global Economic Prospects and the Developing Countries (Washington, DC: The World Bank, 1994), pp. 1–7.
6 | Global Communications: Opportunities for Trade and Aid

has been excessive cropping, grazing, and timbering in areas that are already extremely fragile

from an ecological standpoint (see table 1-2).

Population growth and per capita income

growth will put new strains on the global environment. In 1960, for example, the world’s population was about 3 billion. Today it stands at 5.3

billion, and—based on a midrange forecast—it

could increase by 70 percent to roughly 9 billion

by 2030. Moreover, if global per capita incomes

increase at an estimated rate of 80 percent, world

economic output could grow to as much as $69

trillion, 3.5 times more than at present.16 If pollution keeps pace with this projected development, the environmental damage could be

astronomical.

Trends such as these not only affect the longterm sustainability of the international environment; they give rise to more immediate, international political problems, as well.17 Faced with

such overwhelming odds, governments in developing countries may well lose their capacity to

govern and to provide essential services. If the

social order breaks down as a result, people,

16 Developing country per capita incomes are estimated to grow by 140 percent. Calculated from data contained in the World Bank,

World Development Report, 1992 (Washington, DC: World Bank, 1993). 17 See Robert D. Kaplan, “The Coming Anarchy,” The Atlantic Monthly, February 1994.

instead of cooperating to help one another, may

seek support from competing tribal leaders and

local warlords, whose only mainstay is violence

and the use of force.18

As the United States tries to cope with these

kinds of problems, it may find that foreign aid,

conceived of as a long-term preventive measure,

is often its best recourse. Disputes involving

social mores, ethnic tensions, and farming practices—which are generally not politically

defined—are much less amenable to international negotiation than problems such as boundary disputes and disarmament agreements. Nor

can the United States routinely resort to economic sanctions and armed intervention, given

that such action will probably lead to further disintegration of civil society. Withdrawing into

isolationism is also not a realistic option. Such an

approach will entail a number of opportunity

costs so that, if problems persist, the United

States may be faced with far more serious threats

in the future as well as less favorable options for

dealing with them.19

18 Lester R. Brown, “Nature’s Limits,” in Lester R. Brown et al. (eds.), State of the World 1995: A World Wide Institute Report on the

Progress Toward a Sustainable Society (New York, NY: W.W. Norton Co., 1995). 19 Richard M. Haas, “Paradigm Lost,” Foreign Affairs, January/February 1995, vol. 74, No. 1, p. 50.

TABLE 1-1: Developing Regions: Growth of Real GDP

(percentage changes per year)

Trend Recent estimates 1994–2003

Developing region 1974–90 1991–93 Forecast Low case

All developing countries 3.4 0.9 4.8 3.6

Sub-Saharan Africa 2.1 1.7 3.9 2.4

Middle East and North Africa 0.9 3.0 3.8 3.2

Europe and Central Asia (ECA) 3.1 -9.8 2.7 1.5

South Asia 5.0 3.5 5.3 4.2

East Asia 7.3 8.3 7.6 7.1

Latin America and the Caribbean 2.5 3.2 3.4 0.8

Memorandum item

All developing countries, excluding ECA 3.5 4.6 5.2 4.0

SOURCE: Global Economic Prospects and the Developing Countries, A World Bank Book, 1994.
Chapter 1 Summary, Findings, and Policy Strategies | 7

An isolationist policy might similarly have

negative opportunity costs in terms of trade.

These costs will probably increase in the future

insofar as developing countries are now driving

worldwide economic growth. The 16 largest

developing economies are now expected to grow

at an average annual rate of 6 percent, twice that

of the mature economies of North America,

Japan, and Europe.20

The Japanese have already proven to be particularly successful in exploiting the commercial

benefits associated with aid to developing countries, and they are becoming increasingly more

sophisticated in their approach. Now the world’s

largest donor country—with contributions totaling $11.26 billion in 1993—Japan has recently

moved to broaden its assistance programs to

20 “Global Growth Is on a Tear,” Fortune, Mar. 20, 1995, p. 108.

focus more on environmental, population, and

healthcare goals.21 Instead of using tied aid to

promote its commercial ends, the Japanese are

leveraging their own economic development

model, in the hope that trade will follow the path

of shared research, training, technology transfer,

and personal exchanges. Not surprisingly, therefore, much of Japan’s aid is centered in Asia,

which is fast becoming Japan’s largest market.22

❚ The Need for More Cost-Effective 

Approaches to Providing Foreign Aid

If foreign aid policy is to better serve U.S. foreign policy goals and objectives, adjustments and

innovative approaches are called for to assure

that aid programs are more cost-effective. The

21 Hiroshi Hirabayashi, “Changes in the International Environment and the Direction of Japan’s ODA,” Japan 21st, vol. 39, No. 12,

December 1994, pp. 23–27; and Peter Evans, “Japan’s Green Aid,” The Chinese Business Review, July/August 1994, pp. 39–43. 22 Jonathan Friedland, “The Regional Challenge: Asia has Become Japan’s Biggest Market,” Far Eastern Economic Review, June 9,

1994, pp. 40–42.

TABLE 1-2: Estimates of Environmental Damage in Selected Countries

Country and Year Form of Environmental Damage

Annual Costs as a 

Share of GNP

(percent)

Burkina Faso (1988) Crop, livestock, and fuelwood losses from land degradation 8.8

Costa Rica (1989) Deforestation 7.7

Ethiopia (1983) Effects of deforestation on the supply of fuelwood and crop output 6.0–9.0

Germany (1990)1 Pollution damage (air, water, soil pollution, loss of biodiversity) 1.7–4.2

Hungary (late eighties) Pollution damage (mostly air pollution) 5.0

Indonesia (1984) Soil erosion and deforestation 4.0

Madagascar (1988) Land burning and erosion 5.0–15.0

Malawi (1988) Lost crop production from soil erosion

Costs of deforestation

1.6–10.9

1.2–4.4

Mali (1988) On-site soil erosion and losses 0.4

Netherlands (1986) Some pollution damage 0.5–0.8

Nigeria (1989) Soil degradation, deforestation, water pollution, other erosion 17.4

Poland (1987) Pollution damage 4.4–7.7

United States2 (1981) Air pollution control 0.8–2.1

(1985) Water pollution control 0.4

1Federal Republic of Germany before unification.

2Measures the benefits of environmental policy (avoided rather than actual damages).

SOURCE: “Environmental Damage Robs Countries’ Income,” World Bank News, March 25, 1993, based on David Pearce and Jeremy Warford,

World Without End (Washington, DC: World Bank, 1993).
8 | Global Communications: Opportunities for Trade and Aid

success rate of aid programs will probably be

improved to the extent that they are designed

around a more flexible and holistic approach that

can reconcile multiple goals and fully incorporate the wide ranging lessons garnered from past

experience.

Over the past 50 years, the United States has

employed foreign aid to achieve a variety of

national goals. Aid has been provided, for example, for humanitarian reasons; to promote worldwide security and political stability; to support

economic development and growth in trade; to

maintain the integrity of the international monetary system as well as to foster democracy and

protect the environment. To achieve these ends,

the United States has employed a number of different policy tools. Included among these, for

example, are direct monetary grants and grantsin-kind for humanitarian purposes and basic

human needs, military assistance, emergency

funding to support exchange rates in times of

financial crisis, grants and loans for special capital/infrastructure-related projects, funding to

insure private sector investments against excessive risks, etc. These tools have been used, moreover, by a wide range of aid organizations—

public, private, national, regional, and/or multinational.

Developing appropriate foreign policies to

address today’s global challenges can benefit

greatly from the lessons derived from this experience (see chapter 2). The case of the Marshall

Plan is particularly instructive, given its fundamental success. What distinguishes the Marshall

Plan experience from subsequent aid programs is

the extent to which aid policy tools were tailored—whether purposefully or not—to the situation at hand. Equally important was the degree

to which policy tools served to reinforce multiple

foreign aid goals (see table 1-3).

Thus, for example, the U.S. decision to make

aid contingent on European structural economic

reforms was coupled with changes in the U.S.

economy as well as to the broader revision of the

international monetary system. Similarly, the

transfer of financial capital to Europe was linked

to the prospect of future U.S. trade opportunities

there. Likewise, postwar defense arrangements

in Europe served not only to protect the West

against the Soviet threat; they also promoted

regional political stability, so that Western European governments could focus their attention on

cooperation and economic growth.

Today’s situation is considerably less conducive to success (see table 1-3). Trade policies are

now intensely competitive; fewer resources are

available for aid; the United States and other

donor countries are increasingly preoccupied

with domestic issues; the goals of the United

States and recipient countries (as well as other

donor countries) are often in conflict; recipient

countries lack the political and social resources

to fully benefit from aid; etc.

Drawing on the lessons of the past in the light

of present conditions, table 1-3 identifies the policy challenges that the United States faces in

developing a more cost-effective foreign aid policy, and identifies a number of policy strategies

that, when joined together into an integrated

package, might provide a more suitable model

for existing conditions in developing countries

today.

In the past several years, foreign assistance

programs have focused, for the most part, on

structural economic and state administrative

reforms. Although such programs are undoubtedly needed, they are hardly sufficient. For both

democracy and free markets to thrive, what is

required is not simply the establishment of free

markets and strong, competent governments. As

a growing body of evidence makes clear, equally

if not more important are social and cultural

institutions that foster trust and cooperation.23

Trust and cooperation constitute a form of

23 Robert Putnam, Making Democracy Work (Princeton N. J.: Princeton University Press, 1993). See also Fred Block, Postindustrial Possibilities: A Critique of Economic Discourse (Berkeley, CA: University of California Press, 1990), pp. 41–42.
Key

Factors

Marshall

Plan

Today’s

Context

1.

Status of World

Economic Regulation

,

Expanding trade in the context of trade

liberalization and internationally coordinated

post-War monetary system

Increased integration and interdependence in

global economy, driven by growth in trade,

translational corporations and financial

institutions Aggressive trade policies to

capture big emerging markets Trade

liberalization accompanied by new forms of

protectionism Strain on post-War

international monetary system

I

Today's 

Incorporate developing countries into the

global economy with win-win outcomes for all.

Policy -

I

Challenge

I

Today’s

Policy

Criteria

1 ) Develop mutually beneficial trade

agreements

2) Aid to support global economic institutions

in developing countries –- i.e. standards

financial markets, infrastructure privatization

regulatory reform

L —

Quantity and Allocation of Resources

Devoted to Aid Programs

I

High levels of mutually reinforcing financial

and military commitments were focused on

Europe The U S spent $554 billion (an

average of $13,8 billion in 1981 prices), Joint

participation in defense arrangement with the

formation of NATO

Dollar amount of economic aid in the

aggregate is equivalent to the Marshall-Plan

era, but resources are spread more thinly and

unevenly Areas requiring economic aid are

not necessarily the same as those requiring

military assistance A large proportion of U S

assistance focused on strategically important

areas such as Egypt and Israel

I

Develop more cost-effective ways to promote

aid goals.

1 ) Leverage across programs and agencies

2) Gain economies of agglomeration by

focusing comprehensive programs more

locally

National Support/

Perceived Stakes Involved

Stakes were perceived as very high and linked

to the notion of containing the Soviet threat.

President Truman’s Four Point Program

provided a vision to sustain political support

for aid

Shift in concern from international issues to

domestic problems — growing Federal debt

General questioning of the cost-effectiveness

and success of aid programs

I

- Greater vision for aid policy that better relates

to present U.S. priorities and concerns (i. e.,

trade)

- 1 ) Global exchange programs.

2) Involvement of business and other key

groups m executing aid programs
Donor/Recipient

Relationship

Aid to Europe provided on a quid-pro-quo

basis involving economic reforms and

European regional cooperation But U S and

Europe were in basic ideological agreement

about post-War priorities and institutions

Europeans negotiated and helped design the

structure of the Marshall Plan

We-They attitude persists as a result of debt

crisis when donors imposed conditions on aid

recipients Developing countries are now more

inclined toward liberalization and greater

integration into the world economy, but many

find Asian development model more appealing

than U.S. version

1’

Find ways to negotiate aid agreements that

enhance donor-recipient cooperation and that

are mutually responsive to both sets of needs

Revitalize existing forums or establish new

forums that cut across G7/G66 boundaries

where aid conditions can be negotiated in the

context of joint interests

Social/Political/institutional

Context of Recipient Countries

A shared common history and continuity of

political and economic institutions and a

socioeconomic infrastructure was capable of

absorbing and efficiently allocating aid

resources

Diverse settings weak institutional

frameworks, problems of political disorder and

social upheaval

Develop comprehensive aid programs that

foster social/politlcal institution-building

without undermining economic reforms

Incorporate into aid policies mechanisms to

foster cooperation that build on existing

cultural strengths and social networks

Measurability of Success/ Key

And Feedback Factors

Aid programs fostered both economic and

security goals and were perceived as being

highly effective Because of its widely

acclaimed success, the Marshall Plan served

as the inspiration for U S bilateral aid to

developing countries

Few concensus measures of success.

General perception of poor performance and

failure of aid to have an impact Inadequate

feedback mechanisms to achieve aid

accountability and Improve development

models

Marshall

Plan

Today’s

Context

Enhance our understanding of the

development process and develop qualitative Today’s

and quantitative measures to better evaluate Policy

aid programs Challenge

1 ) Experiment with small, innovative pilot

projects Today’s

2) Develop databases and networks for Policy

collecting and disseminating aid-related Criteria

information and results

0

SOURCE: Office of Technology Assessment, 1995.

II
Chapter 1 Summary, Findings, and Policy Strategies | 11

“social capital” that supports both free markets

and democracy, while serving at the same time to

better balance the relationship between them (see

chapter 2).

Many developing countries have minimal

“social capital” on which to build either efficient

markets or sustainable democracies. Their political cultures are characterized not by mutual

respect and reciprocity but, rather, by distrust

and alienation.

Foreign assistance programs might be specifically designed to counter this atmosphere, fostering community interaction and a basis for local

cooperation. Building trust is a problem of collective action, so generating it is no simple matter. Living in a society devoid of goodwill,

people fail to act in mutually beneficial ways,

even when it is in their own best interest. This

situation is a classic example of what economists

call the “prisoner’s dilemma.” Each person holds

back, fearing that—if he or she is the first to act

honestly—others will surely take advantage.

Once started, however, cooperation tends to be

self-sustaining.24 Thus, foreign aid investments

in cooperative behavior can, if successful, have a

high payoff. Over time, policies that promote

cooperation can help to generate the social capital that is required for both free markets and

democratic politics. This social capital can also

be drawn on to maintain government stability in

future times of trial (see chapter 2).

❚ Leveraging the Unique Role of 

Communication Technologies

Communication and information networking

technologies are uniquely suited to support eco24 See Robert Axelrod, The Evolution of Cooperation (New York, NY: Basic Books, 1984).

nomic development, democracy, and political

stability in the Third World, because communication is inherent in all these processes. These

technologies serve not only to sustain social processes; equally important, they mediate and

structure social activities. Thus, if communication technologies are to prove effective, they

must be well matched to the tasks at hand.

Depending on their design and capabilities, and

the social and economic context in which they

are deployed, communication technologies can

be used either to promote or hinder U.S. foreign

aid goals.

The development challenges facing Third

World countries today are monumental. Unlike

the countries of Western Europe, developing

countries do not have the luxury of executing the

processes of nation-building, economic growth,

and democracy in a sequential fashion, spread

out over centuries.25 Instead, these three processes must be carried out simultaneously, even

though they are not always mutually reinforcing.26

Compounding their problems, developing

countries must deal with these challenges in an

open, and increasingly networked, global economy. To be successful in such an environment,

they must become further integrated into the

world economy. Yet, by being more open, these

countries run the risk that international players,

with agendas of their own, could undermine their

efforts at nation-building by competing for economic resources as well as political and cultural

loyalties.27

Third World resources to meet these challenges are severely limited, especially in the least

25 For discussions of the implications of sequence see, E.A. Nordlinger, “Political Development, Time Sequence, and Rates of Change”

in Jason L. Finkle and Robert W. Gable (eds.), Political Development and Social Change (New York, NY: John Wiley and Sons, 1971), pp.

455–471; and Leonard Binder, James S. Coleman, Joseph La Polembara, Lucien Pye, Sidney Verba, and Myron Weiner (eds.), Crisis and

Sequence in Political Development (Princeton, NJ: Princeton University Press, 1971). 26 Thus, for example, democracy and political stability are not, as has generally been believed, highly correlated. Statistical evidence

shows that, in becoming mature democracies, countries experience a difficult transition, when mass politics tends to exacerbate nationalism

and national aggression. See Edward D. Mansfield and Jack Snyder, “Democratization and War,” Foreign Affairs, vol. 74, No. 3, pp. 79–80. 27 For a discussion of the relationship between local political participation and globalization, and its effect on the nation state, see

Zdranko Mlinar, “Local Response to Global Change,” Annals of the American Academy of Political Science, July 1995, No. 540, pp. 145–

156.
12 | Global Communications: Opportunities for Trade and Aid

developed countries.28 Having yet to recover

from the debt crisis of the 1980s, many countries

continue to experience low growth rates, with the

average for all developing countries ranging

between 1.4 and 1.6 percent.29 Consequently,

they have minimal capital at their disposal to

invest in improvements of any kind. Not surprisingly, therefore, despite deteriorating infrastructure, high rates of illiteracy, and highly

inadequate health care, the less developed countries also have the lowest per capita investments

in such areas.

Communication and information technologies, as they are advancing today, can make a

critical difference in determining Third World

success or failure. Ideally, these technologies can

serve not only to foster economic development,

democracy, and political stability, but also to balance these processes, so as to make them more

mutually reinforcing. Moreover, they can help

developing countries reinforce national and local

community ties while at the same time fostering

their global integration.

Table 1-4 lays out this interrelationship

between today’s technology advances and

changes in social processes. Column 1 describes

technological trends and the technology developments reinforcing them; column 2 lays out the

technological implications of, and the new applications that result from, these trends; while column 3 identifies their potential social, economic,

and political impacts (see chapter 3).

In examining this table, it is important to note

that it is the new capabilities and applications

made possible by advanced technologies that

engender social, economic, and political impacts,

and not the technologies or the trends themselves. Secondly, it is necessary to recall that

technologies are not neutral with respect to their

outcomes. Different trends give rise to different

impacts, all of which must be understood.

28 The World Bank defines these “low-income countries” as those with a gross domestic per capita income of less than U.S. $635. 29 The Least Developed Countries Report (Geneva, Switzerland, UNCTAD, 1995). Of the 54 countries considered to be “low-income

countries,” 32 continue to have severe debt problems. Most of these are in Africa. Together, their debt totals four times their exports, and it is

greater than their combined gross domestic products. “The Debt Trap and How To Escape It,” The Economist, May 6, 1995, pp. 74–75.

Technology Applications for 

Economic Development

As can be seen from table 1-4, advances in communication technology can foster economic

development in a variety of ways. If, for example, developing countries take advantage of

greatly improved cost/performance ratios to

deploy communication and information technologies on a national basis, they can increase the

size and efficiency of their markets as a result of

lower, information-related transaction costs. This

possibility is very important for developing

countries where, in some cases, markets do not

exist for lack of information. Many developing

country markets are characterized by imperfections of institutions, structures, and operations,

so that economic signals and incentives fail to

reflect the “real costs” of commodities or factors

of production (see box 1-1).30 There will also be

productivity gains, because larger, better integrated markets will allow Third World businesses to gain greater economies of scale and

scope—a benefit that was not available to them,

in most cases, until now.

The trend towards decentralized intelligence

throughout communication systems will also

give rise to economic benefits. Within developing countries, there is a lack of people with midlevel skills required for knowledge workers and

middle management. Nor is there an adequate

commercial and legal structure—such as banks,

insurance companies, commercial lawyers, and

stock companies—to permit Third World companies to effectively exploit many new business

possibilities. With the type of interactive, intelligent information systems that decentralized

intelligence allows, businessmen in developing

countries can access the required information

services via technology. Intelligent networks also

provide a platform on which Third World countries can, over the long run, develop their own

30 Karla Hoff, Ayishay Braverman, and Joseph Stiglitz (eds.), The Economics of Rural Organization (New York, NY: Oxford University

Press/World Bank, 1993).
Technology Trends

Increased performance at greatly reduced

cost -—— e.g., microelectronics, fiber optics,

voice and video compression, fast-packet

switching, very high-density storage

technology

I

Technology Capabilities and

Applications

Permits LDCs to leapfrog to advanced technology,

maximizes advantage of existing technology

Technologies also provide greater geographical

coverage

I

Technology convergence due to digitization,

wideband transmission, compression

technologies, and standards developments

1

Unbundling of communication functions and

services due to the emergence of competing

technologies, the dispersal of intelligence

throughout communication networks, the

demand of large users, and deregulatory

communication policies

I1

Increased ease of use as a result of

advances in storage, microelectronics,

speech recognition, and search engines

Applications include simple-to-use graphic

user Interfaces (such as Windows), network

browsers (such as Netscape) and intelligent

agents

Cost efficiencies in service due to economies of scale

and scope and greater networking versatility Greatly

enhanced applications, such as real-time video

transmission, videoconferencing and multimedia

applications for the home, the desktop, or (less

expensively) public point-of-sale terminals

I1 1

Permits users to separately purchase communication

functions and services Allows for greater flexibility in

network design and architecture. More networking

options and freedom to customize networks to

minimize costs or to match specific needs Lower

costs also due to greater competition among vendors

and service providers. Interoperability, network

integration, and network management likely to require

greater technology expertise.

I I

Social, Economic, and

Political Impacts

National political/economic integration more efficient

markets and more effective political control and

administration Potential for the erosion of national

boundaries due to reinforcement of global ties — e.g.

PeaceNet, EcoNet, etc

Greater support for the low-cost provision of public

services such as health care and education. Multimedia is

especially useful in LDCs given high Illiteracy rates.

Supports business applications, such as computer-aided

design, desktop fax videoconferencing.

I

Democratic process likely to benefit from greater diversity

of communication sources and network designs. Allows

developing countries to manufacture low-end components

and gain technology expertise. Less elaborate and

expensive systems may provide more “appropriate”

technology to meet developing country needs. On the other

hand, problems of interoperability and increased

complexity can create new reformation bottlenecks with

consequences for politics and the economy. Technology

experts and system integrators become new information

gatekeepers.

Supports greater network access and usage,

promotes deployment, and reduces the level of

expertise required to take advantage of information

technologies

Reduces access barriers with positive benefits for both

competitive markets and democratic politics
Technology Trends Technology Capabilities and Social, Economic, and

Applications Political Impacts

Decentralized Intelligence throughout Provides for two-way interaction and greater user In most LDCs, two-way, Interactive media can support

communications systems due to software- control Applications include interactive television, local grass-roots participation, thereby enhancing

driven and software-defined communication personal digital assistants, desktop publishing, democratic processes. Provides an opportunity to develop

networks. intelligent networks, and expert systems. Provide a specialized or local content to reinforce community ties

platform for creating value-added services, such as Value-added services provide or substitute for a lack of an

800 number, point of sale, credit authorization. information infrastructure (banks Insurance, legal

I I

Increased networking capabilities due in part

to advances in integration and switching

technologies such as routers, intelligent

hubs, and asynchronous transfer mode

(ATM), frame relay, together with advances

in wideband transmission technologies such

as SO NET, and software support

applications such as CAD-CAM, EDI,

groupware, as well as the development of

standards and networking protocols such as

TCT/lP and application programming

interfaces.

Increased mobility and portability due to

distributed intelligence and advances in

wireless technologies such as

satellite/VSAT, cellular telephony, PCS,

radio paging, digital radio, and wireless

LANs, WANs, and PBXs.

1 1 Supports distributed client-server computing and

cooperative work applications such as e-mail, EDI,

computer-integrated manufacturing, teleworking and

groupware Provides support for the development of

specialized functional networks, such as financial

services networks or special interest group networks

such as EcoNet

Low-cost alternative to wireline technologies for use

in difficult-to-reach, high cost areas. Greater ease

and speed of deployment Allows for greater network

flexibility and support for remote information access

and processing Applications include wireless

networks based on a mesh rather than hub

architecture When combined with unbundled,

intelligent peripherals, wireless networks support the

widespread distribution of information and

“intelligence” to all areas Applications include CDROM libraries or expert health care systems

Supports democratic politics by helping individuals locate

information, identify Iike-minded people, deliberate, and

voice opinions Networks help businesses and firms

reduce their costs by integrating processes and

information, and to gain a strategic advantage by

developing exclusive networks that lock m customers and

suppliers, Without access to advanced networking

technologies, developing countries may become locked

out

Facilitates open markets and democratic politics by

supporting access to political and economic Information

and communication networks as well as to expertise and

“intelligence” from and to anywhere Facilitates network

configuration and shared Information systems which

support the competence of local governments, and

reinforces community ties

SOURCE: Office of Technology Assessment, 1995.
Chapter 1 Summary, Findings, and Policy Strategies | 15

services and service industries. By taking advantage of such possibilities, the country of Singapore, for example, has become one of the

leading business service providers in the world.

Technology Advance in 

Support of Democracy

The prospects for democracy in developing

countries are also greater because of technology

advances (see box 1-2). For example, improved

networking capabilities, which make it possible

to develop specialized, distributed, many-tomany applications such as bulletin boards and

groupware, can help individuals locate information; identify like-minded people; deliberate their

ideas, organize their activities; and lobby for

their points of view. Already, such networks are

being used to link special interest groups across

national boundaries and with considerable effect

(see box 1-3).

The trend towards the unbundling of communication functions and services can also have a

significant payoff for democracy. Given the

greater flexibility in network design and architecture that unbundling allows, developing countries can deploy customized, lower cost systems

in remote areas, thereby extending information

access on a much wider basis. The diversity of

communication networks is also important for

democracy because it permits a greater variety of

information sources. This capability is especially

important in developing countries, where communications have typically been generated at the

center of power and then disseminated outward.

Technologies often have different geographic

and spatial biases, with some being more capable

than others in supporting communication both to,

and within, remote areas (see chapter 3).31

Technology Advances to 

Support Political Stability

Just as technology advances hold promise to foster economic development and democracy in

Third World countries, so too they can play a

supportive role in helping to sustain political stability in these areas. For political regimes to be

stable, they must not only prove themselves competent in carrying out the affairs of government;

they must also be able to assure that basic public

needs are met and that benefits are perceived to

be distributed equitably.32 In addition, if governments are to provide such services without themselves becoming overbearing, the capacity of

voluntary associations and local government

must simultaneously be upgraded.33 Communi31 James W. Carey, “Space, Time, and Communications: A Tribute to Harold Innis,” in James W. Carey (ed.), Communication as Culture: Essays on Media and Society (Boston, MA: Unwin Hyman, 1989), p. 147. 32 Juan J. Linz and Alfred Stephan (eds.), The Breakdown of Democratic Regimes (Baltimore, MD: Johns Hopkins Press, 1978). 33 As described in Human Development Report 1993, “Changing the power equation requires the organization of a countervailing force,

or even a revolution. People’s organizations—be they farmers’ cooperatives, residents’ associations or consumer groups—offer some of the

most important sources of countervailing power. And they often exercise it most effectively through the sharing of information and ideas—it

is ideas, not vested interests, that rule the world for good or evil.” op. cit., footnote 13, p. 29.

BOX 1-1: Markets and Information

Communication is inherent in the coordination of all economic activity. A market relies on the communication of information to identify buyers and sellers, allocate resources, and establish prices. Within

firms, the availability of timely and accurate information is key to decisions about whether to enter or exit

markets, how to secure financing, how to organize working relationships, and how to market and distribute goods. Where adequate information is not available, markets will fail and economic performance will

suffer because of higher business costs. Likewise, firms that lack adequate market information will be at a

competitive disadvantage.

SOURCE: Office of Technology Assessment, 1995.
16 | Global Communications: Opportunities for Trade and Aid

cation technologies have something to offer in all

three regards.

Taking advantage of the trends toward networking and decentralized intelligence, for

example, developing country leaders can, like

businessmen, enhance their governing capability

by using interactive expert systems and databases (see box 1-4). For even greater benefit,

these systems can be networked to let government officials remotely access the global store of

information.34 Equally—if not more—important,

these technologies can be used to help governments develop and network their own information resources regarding conditions in their

countries. Today, many developing countries are

dependent on foreign countries for information

about themselves.35

Communication technologies can also be used

to distribute public services such as distance

healthcare and educational services much more

34 Jacques Gaillard, Scientists in the Third World (Lexington, KY: University of Kentucky Press, 1991). Commenting on the lack of scientific journals, books, and other sources of technological information in developing countries, Gaillard notes that of the career scientists

interviewed in the course of this study, 36 percent had no communication with scientists in countries where they had originally studied and

done their research. 35 Raul Zambrano, “The UNDP Sustainable Development Network,” Bulletin of the American Society for Information Science, February/

March 1995, p. 23.

BOX 1-2: Communication and Democracy

Communication and information pervade political life. Without them there could be no nation; for it is

through the process of communication that people first develop a sense of community and a shared set

of values that legitimize political authority. By magnifying and amplifying some actions, the communication process distinguishes between what is a private act and what is a public affair. It organizes what

appears to be random activities to show how individuals and groups are related to one another in pursuit

of power, providing a roadmap for individuals who want to influence the course of political events. Citizens rely on the communication process to gather information, identify like-minded people, deliberate

their points of view, organize their forces, and articulate their political preferences. Furthermore, because

it generates a common fund of knowledge and information, the communication system facilitates productive and rational debate. Without some form of knowledge and understanding of how others are informed

and what they believe, individuals could not make reasoned and sensible arguments and decisions.

SOURCE: Office of Technology Assessment, 1995.

BOX 1-3: EcoNet

EcoNet is a virtual community of over 10,000 individuals and organizations in over 90 countries who

are working for environmental preservation and sustainability. Members of EcoNet have access to hundreds of private and public online electronic mail conferences through which they exchange information

and collaborate on environmental initiatives of local, national or global concern. Individuals or organizations in the United States may pay to join EcoNet through its parent organization—the Institute for Global

Communications (IGC) in San Francisco—which is part of the larger Association for Progressive Communications. The EcoNet Internet server provides a gateway not only to the home pages of member organizations such as the National Audubon Society and the Earth Island Institute, but also to the Internet sites

of thousands of organizations and government agencies worldwide with information on environmental

issues.

SOURCE: Office of Technology Assessment, 1995.
Chapter 1 Summary, Findings, and Policy Strategies | 17

cost-effectively.36 Technology convergence,

which provides the platform for nontext-based

multimedia applications, is especially promising,

given the high illiteracy rates in developing

countries. Finally, both of these developments

can be used in similar fashions to empower voluntary organizations and local governments.37

❚ Further Marginalization of 

Those Without Access

Because advanced communication technologies

can serve so many developing country needs,

countries without access to them will be at a considerable loss. Missed opportunities due to lack

of communication access will have much more

dire consequences in the future given intense

competition among nations in an increasingly

networked and knowledge-based, global economy. Assuming present rates and patterns of

technology diffusion, and the global forces driving them, uneven access will probably exacer36 See U. S. Congress, Office of Technology Assessment, Linking for Learning: A New Course for Education (Washington, DC: U.S.

Government Printing Office, November 1989); and U. S. Congress, Office of Technology Assessment, Healthcare on Line (Washington,

DC: U.S. Government Printing Office, September 1995). 37 Pieter Kok, “The Role of Information Technology in Community Empowerment and Development,” In Focus, February/March 1995,

p. 25.

bate the gap that is already widening between the

newly industrializing and the least developed

countries.

The development pattern of the Third World

countries began to diverge significantly in the

early 1980s with the onset of the debt crisis (see

chapter 2). Although developing countries all

faced many of the same hardships, a number of

them outperformed the others by a considerable

margin. Most successful in this regard were the

East Asian countries—Korea, Taiwan, Singapore, and Hong Kong, which developed highly

successful export-oriented growth strategies.

Between 1960 and 1989, for example, these

countries increased their exports from $2 billion

(which constituted five percent of all developing

country exports) to $246 billion (or 32 percent of

all developing country exports).38 This export

growth not only served to prime the newly industrializing countries’, (NICs) domestic economies; it also provided the foreign exchange

38 Anne O. Krueger, op. cit., footnote 2, p. 105.

BOX 1-4: The Sustainable Human Development Network Program

In many developing countries, decisionmakers do not have access to up-to-date information needed

to make key policy decisions. One program designed to assist in this regard is the Sustainable Human

Development Networking Program (SDNP), established by the United Nations Development Program in

May 1992. Participants include 12 countries from Africa, Asia, and Latin America.

The aim of SDNP is to link users and providers of information on sustainable human development via

computer networks that operate over the Internet. Designed to complement existing systems, SDNP provides support both for network deployment and training, information generation, and the norms of information sharing and exchange. The program is open to all interested parties, including national

governments, nongovernmental organizations, academics, business, and the media. The SDNP program

builds on local talent and expertise. In addition, each node on the system operates independently of

each other, and definitions of sustainable human development are determined locally. Seed money is

provided upfront, but projects are intended to become self-financing, so that funding will gradually be

reduced by as much as 50 percent or more.

SOURCE: Raul Zambrano, “The UNDP Sustainable Development Network,” Bulletin of the American Society for Information Science, February/March 1995, pp. 23–24.
18 | Global Communications: Opportunities for Trade and Aid

necessary for them to survive the subsequent

downturn in the global economy.

A similar line of demarcation is being drawn

today. Unlike most developing countries, which

continue to be mired in civil conflicts, political

instability, and economic decline, 12 countries

have improved their economic performance during the first half of the 1990s, with significant

increases in per capita output. Included are Bangladesh, Benin, Cambodia, Equatorial Guinea,

Guinea-Bissau, the Lao People’s Democratic

Republic, Lesotho, Mozambique, Myanmar, Sao

Tome and Principe, the Solomon Islands and

Sudan.39 As was the case with their predecessors a decade earlier, the success of these 12 can

be attributed, in part, to their ability to maintain

internal stability while reaching outward to the

global economy.

If other less developed countries are to be similarly successful, they too must gain the inner

capacity that will give them the flexibility to

adapt to the major structural changes taking

place in their external environment (see chapter

3). Most importantly given these changes, they

must be prepared to compete in a knowledgebased global economy in which production takes

place on a worldwide, but nonetheless decentralized and flexible, basis. The first countries to

adapt to these changes will gain a significant

competitive advantage, while those failing to do

so will probably experience greater decline.

Communication and information technologies

are not only driving these trends, they can also

help developing countries adapt to them. Taking

39 The Least Developed Countries Report, op. cit., footnote 29. As some OTA reviewers have pointed out, however, it is still not clear that

these countries have in fact successfully reached the point of “take off.”

advantage of global communication networks,

Third World countries will have a better opportunity to become full participants in the global

economy, reaping a number of benefits as a

result.40

Using technology to access worldwide

demand, for example, Third World businesses

can operate on a larger, more efficient scale, thus

becoming more competitive with firms in industrialized countries. Even small businesses will be

able to expand their activities.41 For example, a

small business that serves a single niche market

in a developing country can increase its size by

using communication technologies to identify

similar niche markets in other countries. Small

firms in developing countries can also use networking technologies to partner with the growing number of globally dispersed firms that

outsource many activities to Third World countries. Or alternatively, small businesses can use

communication networks to link their operations

together, allowing them to function and compete

as if they were much larger entities. This kind of

networking approach was used, for example, by

the Italian clothing manufacturer, Benneton, with

remarkable success.42

Equally important, by operating globally,

Third World businesses will have access to

greater financial resources and opportunities for

technology transfer. In the past, most large scale

Third World companies were subsidiaries of foreign firms. Because the parent firms were

located, and directed their operations from,

abroad—close to their major suppliers and mar40 See for a general discussion that focuses on the post Uruguay Round environment, Richard Harmsen, “The Uruguay Round: A Boon

for the World Economy,” Finance and Development, March 1995, pp. 24–43. 41 As described by R. Badrinath, “Previously, gaining entry into distant markets was out of the question for a majority of SMEs [small

and medium size enterprises]. Even assuming that they could organize the finance and production aspects of their operations effectively, foreign markets raised almost insurmountable obstacles. The process of market selection, buyer identification, visits abroad with quantities of

samples, preparation of business offers and counter proposals, discussion of specifications and so on required large investments of time,

energy, and resources. Today, much of this can be done without leaving the workplace, thanks to the telephone, fax and other telecommunication facilities.” R. Badrinath, “Helping Small and Medium-Size Firms to Enter Export Markets,” International Trade Forum, February

1994, p. 6. 42 Cristiano Antonelli, “New Information Technology and Industrial Organization—Experience and Trends in Italy,” in Information

Technology and New Growth Opportunities (Paris, France: OECD Development Center Studies, 1989). See also OTA, Electronic Enterprises, op. cit., footnote 4.
Chapter 1 Summary, Findings, and Policy Strategies | 19

kets—there were few positive “spillovers” for

developing countries. Today, this is no longer the

case.43 Local firms that partner with global companies as suppliers or value added providers have

much more to gain, as India’s highly successful

export-oriented software industry clearly

attests.44 Working with foreign firms, Indian

software contractors have been able to access the

latest standards, technological platforms, productivity tools, quality requirements, and upfront

financing, all of which have been critical to their

success.

If developing countries deploy advanced communication technologies in tandem with developed countries, they can also compete in the

expanding global services markets on a more

equal basis. One of the first countries to recognize this opportunity was Singapore, which has

prospered greatly as a result. By 1990, Singapore

had become the 17th largest trading nation in the

world, and was home to the regional headquarters of more than 600 multinational corporations

(see box 1-5).45

43 For example, a recent study examining the role of multinational firms in economic development found that foreign multinationals pay

higher wages than domestic developing countries and provide significant technology transfer. “The Role of Multinationals in Economic

Development,” Columbia Journal of World Business, vol. 29, No. 4, winter 1994, pp. 6–11. Alternatively, others argue that, in providing

such benefits, multinational firms tend to aggravate income disparities within developing countries, thereby creating problems of legitimacy

for political regimes. For this perspective see Kenneth Bollen, “World System Position, Dependency and Democracy: The Cross-National

Evidence,” American Sociological Review, vol. 48, No. 4, August 1983, pp. 468–479. 44 Nagy Hanna, Ken Guy, and Erik Arnold, The Diffusion of Information Technology: Experience of Industrial Countries and Lessons for

Developing Countries, World Bank Discussion Papers, No. 281 (Washington, DC: The World Bank, 1995), p. 120. 45 Robin Mansell and Michael Jenkins, “Networks, Industrial Restructuring, and Policy: The Singapore Example,” in Technovation, vol.

12, No. 6, September 1992.

National governments have not been alone in

recognizing the potential for information networking to enhance global trade. Recently, for

example, the United Nations sponsored the global Trade Point Program, which aims to promote

trade through the establishment of a series of

“trade points” or trade facilitation centers that

provide companies with greater access to communication networks and trade-related information. Already, there are 59 such Trade Points in

45 countries serving as clearinghouses for trade

leads, custom and tariff information, sources of

financing, qualified freight forwarders and insurers, and market overviews. Trade Points offer

services either physically, in a centrally located

office, or on-line by connecting customers and

service providers electronically. The United

Nations estimates that 100 Trade Points will be

in operation by 1996.46

As the benefits of using communication networks increase, so too do the costs of not having

access to them. Opportunity costs are especially

high in the case of networking technologies,

46 UN’s Conference for Trade and Development World Wide Web Server http://gatekeeper.unicc.org/unptdc//, and Trade Point U.S.A.

Columbus Ohio, http://www.natp.iftea.com/

BOX 1-5: The Singapore Strategy

When, in the early 1970s, multinational corporations began to transfer their manufacturing operations

from Singapore to lower cost labor countries such as Malaysia, Thailand, and Indonesia, the government

of Singapore was quick to adopt a more service-oriented, export-led strategy. Recognizing the role that

the communication and information infrastructure might play in capturing the benefits of global trade,

government officials undertook to create a totally electronic trading environment, with the aim of transforming Singapore by the end of the century into an “intelligent island.” By providing multinational corporations efficient, one-stop global networking and value-added trade services, Singapore was able to

establish itself as the major trading hub in Asia.

SOURCE: Office of Technology Assessment, 1995.
20 Global Communications: Opportunities for Trade and Aid

which give rise to “first mover advantages.”

Thus, as Singapore clearly recognized, the first

country to establish a technology-based global

trade network can gain a hefty competitive

advantage, not simply because the capital costs

entailed are so high, but also because electronic

networks require considerable “learning by

doing.” Moreover, once business users have

expended the energy, expertise, and financial

resources required to use a particular network,

and have become linked up with other network

users, they tend to get “locked in.”47

Given present rates and patterns of technology

diffusion, and the forces driving them, the poorest developing countries, as well as the poorest

regions within developing countries, will probably be left behind in a network-based global

economy (see chapter 4). There are today tremendous disparities in the diffusion of information and communication technologies throughout

the world. Because technology disparities mirror

those in income distribution, they will probably

reinforce the growing economic gap among

nations (see figure 1-2).

Even more alarming, this gap between the

telecommunications “haves” and “have nots”

shows little signs of receding. In the 10 years

since the Maitland Commission issued its report,

The Missing Link—which first noted the telecommunications gap, and called on developed

countries to take steps to reduce it—very little

48 There are today 50 progress has been made.

countries, which together comprise more than

half of the world’s population, that still have less

than one main telephone line for every 100 persons. Given their present rates of technology

deployment, many of these countries will fail to

reach this level of teledensity by the year 2000

(see figure 1-3 and figure 1-4).

Assuring the relatively even deployment of

communication technologies presents problems

of staggering proportions. Even as some countries race to keep up, others are deploying yet

Telephone main Iines per 100 inhabitants

70 ❑ a

❑

60

50 l

$5000 $10000 $15000 $20000 $25003 $30000

SOURCE: ITU, UN, World Bank, OECD

Millions

500

400

300

200 ‘- - ❒ High income I I

Upper-middle income

100 Lower-middle income

I ———. -— ——————. ❑ Low income ——————. —.— ----

I

1983 84 85 86 87 88 89 90 91 92

SOURCE: ITU/BDT Telecommunications Indicator Database

more advanced technologies. Thus, for example,

it is estimated that it will cost $120 billion

47 Joseph Farrell and Garth Saloner,“Horses, Penguins and Lemmings, “ in H. Landis Gabel (cd.), Product Standardization and Competitive Strategy (The Netherlands: North Holland, 1987).

48 World Telecommunications Development Report (Geneva, Switzerland: International Telecommunications Union, 1994), p. 73.
Chapter 1 Summary, Findings, and Policy Strategies 21

—- Main lines per 100 population

50

40

30-

20

loHigh income 

Upper-middle income

I

Lower-middle income

Low income . . .

 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

SOURCE: ITU/BDT Telecommunications Indicator Database.

between now and early 2005 just to upgrade the

Central and Eastern European communication

networks. During the same period, the European

Community plans to spend approximately $24.8

billion per year to develop a broadband telecommunications infrastructure. 49

A lack of education and technical expertise

will also make it difficult for developing countries to take advantage of many technologies (see

box 1-6). For example, although the Internet provides developing countries with an inexpensive

way of gaining access to networking services

such as e-mail and remote file transfer, its usage

requires a level of technical understanding and

comfort that is unlikely to be found in poorer

areas. Not surprisingly, therefore, Internet

growth has been strongest in countries such as

India and Malaysia, where a computer culture

already exists .50

❚ The Trade Dividend

In today’s increasingly liberalized, global telecommunications marketplace, many developing

countries’ communication needs can be met by

the private sector. Already, many firms are

eagerly competing to invest in and/or partner

with developing countries to serve their rapidly

growing communication markets. U.S. firms are

especially well positioned in this regard. They

are foremost in the development and deployment

of communication and information technologies

and principal players in the information and

communication technology and services trade

arenas. Some foreign support and incentives will

be necessary, however, if all developing country

needs are to be met. By providing such telecommunication-related foreign assistance on a targeted basis to those countries and rural areas

least likely to be served, the United States can

not only foster U.S. foreign policy goals; at the

same time, it can also promote deregulation and

generate greater telecommunications demand,

thereby creating new trade and investment

opportunities for the United States.

Information and communication technologies,

operating in a newly deregulated and increasingly competitive economic climate, are rapidly

reconfiguring national communication systems

and linking them together into networks spanning the globe. These changes have greatly

reduced telecommunication costs, and generated

a broad range of new products and services that

can be produced and traded on a global scale. As

a result, telecommunications is one of the fastest

growing sectors in the international market, with

total revenues of $535 billion for 1992, and

annual growth rates averaging between 8 and 9

percent. 51

The increased flow and demand for information and services across national borders is wear49 Donne Pinsky, "Euro. Infrastructure Group Proposed” Communications Week International, May 11, 1992, p. 6.

50 AS described by Goodman, et al., “Networks are often perceived by many in LDC’s (the “south”) as intended to ‘talk to people in the 

north. ’ There may not be much perception of the need for local-to-local communications. Furthermore, there may be little in the way of a

culture for sharing information locally, nor of doing business in an impersonal way.” S. E. Goodman, L. 1. Press, S. R. Ruth, and A.M.

Rutkowski, “The Global Diffusion of the Internet: Patterns and Problems,” Communications of the ACM, vol. 37, No. 8, August 1994, p. 30.

51 ITU Press Release of report released in Buenos Aires at the World Telecommunication Development Conference, Mar. 21, 1994.
22 | Global Communications: Opportunities for Trade and Aid

ing away the distinctions between domestic and

international communication systems and markets. Whereas national telecommunication

monopolies once controlled the manufacturing,

production, and provisioning of most communication products and services, today international

conglomerates are being formed to meet the

business demand for transparent and seamless

world-wide services. Already 45 percent of the

world’s telephone access lines are managed by

private companies.52

This shift towards a global communications

environment affords a number of opportunities

for U.S. telecommunication companies, which

are in the forefront in striking transnational

mergers, alliances, and other cooperative

arrangements (see chapter 4). U.S. exports of

telecommunications equipment including central office switches, transceivers for radiotelephony, fiber optics, satellites and customer

premises equipment grew at an average annual

rate of 18 percent between 1989 and 1993, when

the United States achieved a trade surplus in this

area for the first time in 10 years with exports

totaling $3.2 billion.53

52 “What Are the Implications for Your Business of the Global Telecoms Revolution,” Management Accounting, June 1992, p. 40. 53 “Industry and Trade Summary: Telecommunications Equipment,” U.S. International Trade Commission, Publication 2820, October

1994, Washington, DC, p. 31. The principal markets for U.S. telecom exports are Canada, Mexico, Japan, China, and the United Kingdom.

The prospects for continued growth in U.S.

trade and foreign investment are high, given

technology convergence and the development of

a wide array of new products and services; the

growth in worldwide demand; the provision for

telecommunication services within the World

Trade Organization (WTO) and the North Atlantic Free Trade Association (NAFTA); and the

liberalization and privatization of many telecommunication regimes. New opportunities will also

abound as countries throughout the world—recognizing the strategic nature of telecommunications investments—turn to new technologies to

modernize and upgrade their networks. This

international growth potential is especially

important for countries such as the United States,

where the domestic market for many telecommunication-related products and services is rapidly

becoming saturated.54

Trade and investment opportunities are especially promising in the developing world where

penetration levels are low and projected demand

is high, given increased prosperity and a rising

middle class.55 China, for instance, is replete

with possibilities for U.S. equipment manufac54 U.S. Congress, Office of Technology Assessment, U.S. Telecommunications Services in European Markets, OTA-TCT-548 (Washington DC: U.S. Government Printing Office, August 1993). 55 See Rahul Jacob, “The Big Rise: Middle Classes Explode Around the Globe, Bringing New Markets and New Prosperity,” Fortune,

May 30, 1994, vol. 129, No. 11, pp. 74–78, 82, 90; and Vivian Brownstein, “The U.S. Is Set To Be the Winner From Worldwide Expansion,”

Fortune, Nov. 28, 1994, vol. 130, No. 11, pp. 22–23.

BOX 1-6: Education and Training In Developing Countries

The problem of education in developing countries is not simply one of providing schooling; even more

significant is the difficulty of matching education to workplace needs. Thus, in many developing countries, one finds that the number of unemployed secondary school graduates is greater than those with

lesser education. The situation is even greater for those with university and graduate degrees. In Bangladesh, for example, almost 40 percent of those with master’s degrees are either unemployed or underemployed. Similarly, the rate of unemployment for university graduates in Thailand ranged between 20

and 30 percent from 1973 to 1983. This gap between education and jobs could be much greater in the

future, given cutbacks in government recruitment.

Source: Human Development Report 1993 (New York: NY: U.N. Development Program, 1993), p. 38.
Chapter 1 Summary, Findings, and Policy Strategies | 23

turers, given a telephone penetration rate of 0.98

and a population totaling more than 1 billion.

The prospects for U.S. companies in Latin America are equally great.56 In Mexico alone, the market for wireline equipment now exceeds $2

billion annually. As developing countries press

to modernize their networks, the market for

advanced technologies will also experience considerable growth. In 1992, for example, more

than $4.6 billion was spent on digital switching

in the developing countries. Estimates are that

this market will exceed $7 billion by the year

2000.57

Whether or not U.S. companies will be able to

access these growing market opportunities will

depend, to a considerable degree, on developments in the international telecommunication

regulatory environment. Despite a growing trend

towards liberalization and privatization of telecommunication regimes, national communication systems continue to differ considerably,

depending on the extent to which they are

government owned or operated, monopoly-based

or liberalized, and/or regulated or not. At one end

of the scale are countries such as the United States,

New Zealand, Singapore, Malaysia, and Mexico,

which are striving to minimize government

involvement. At the other end are countries such as

China, Brazil, and Uruguay, where the legacy of

the traditional PTT is very strong (see box 1-7).

Aware of the growing importance of communication for economic growth, many developing

countries hope that the privatization and liberalization of their telecommunication regimes will

help them gain access to the foreign capital and

expertise needed to develop their national communication infrastructures. Describing the moti56 Bruce E. Beebe and Peter Kennedy Jr., “Latin America Heats Up,” Journal of Business Strategy, vol. 15, No. 5, pp. 52–55. 57 Robin Bromby, “Digital Switching Markets in Developing Countries Report,” Telecommunications (International Edition), vol. 27,

October 1993, pp. 16–18.

vations and tensions inherent in these kinds of

decisions, one observer has noted:

Perhaps for the first time communications

are being recognized as the strategic underpinning of civilization, as important perhaps as the

provision of clean water. The implicit fear for

many countries must be that an adequate infrastructure will forever keep a national economy

out of the world economic structure that is shaping up for the 21st century, in addition to the

fear that government relinquishes an important

tool. It is into this cauldron that telecom policy

is being pushed.58

Seeking out new strategies, Singapore Telecom, for example, recently established a joint

public-private telecom venture, which many

view as a first step toward total privatization.59

Indonesia already has such a corporate arrangement. In Malaysia, the PTT is privatized, with its

stock now floated in the marketplace.60 In Latin

America, Mexico serves as a model for this kind

of industry restructuring, having privatized its

state PTT, TELMEX, with record speed. Similar

infrastructure modernization strategies are being

pursued in other parts of the world. India, for

example, is developing a plan to open up its telecommunication sector to private investment, as

are countries in Eastern Europe. Even China,

which has long opposed foreign investment, is

now considering foreign bids to support its goal of

providing 40 million new lines by the year 2000.61

Foreign direct investment (FDI) in the telecommunications sector has been particularly

popular, generally taking the form of either joint

ventures or corporatization and sale of a major or

controlling equity stake in the telecommunications provider. These kinds of arrangements offer

58 Stephen McClelland, “The International Dimensions: The PTTs,” Telecommunications, June 1992, p. 31. 59 “Singapore Starts Telecom Selloff,” Telecom Highlights International, vol. 15, No. 34, Aug. 25, 1993, p. 5. 60 “World Bank Paper Urges Telecom Liberalization,” Telecom Highlights International, vol. 16, No. 8, Sept. 8, 1993. 61 “World Bank Sets Telecom Aid Rules,” Telecom Highlights International, vol. 16, No. 11, Mar. 16, 1994, p. 4.
24 | Global Communications: Opportunities for Trade and Aid

a number of advantages to developing and developed countries alike.62

Developing countries can benefit in a number

of ways from the foreign purchase of either all,

or a portion of, their telecommunications operations. Often, investors are obligated to expend a

considerable amount of money to extend and

upgrade service in exchange for control over the

enterprise and certain guaranteed exclusive

rights. Such arrangements allow developing

countries to reduce their foreign debt while

upgrading their national infrastructure.63 At the

same time, they can gain greater access to

advanced technology, markets in developed

countries, as well as hard currency. Foreign

direct investments are also more secure than

other types of foreign investment, being less vol62 Robert R. Bruce, Jeffery P. Cunard, and Lothar A. Kneifel, “Exploring New Ways to Attract Capital for Privatization,” in Bjorn Wellenius and Peter A. Stern (eds.), Implementing Reforms in the Telecommunications Sector: Lessons From Experience (Washington, DC: The

World Bank, 1994), chap. 28, pp. 463–499. 63 Aileen A. Pisciotta, “Telecommunications Reforms: Options, Models, and Global Challenges,” IEEE Communications Magazine,

November 1994, p. 29. See also T. H. Chowdary, “Telecommunications Restructuring in Developing Countries,” Telecommunications

Policy, September/October 1992, pp. 591–611.

atile and subject to interest rate fluctuations. FDI

agreements can, moreover, be customized to

meet a developing country’s specific needs and

concerns. Flexibility and appropriate timing are

critical for success.64

For investors and businesses in developed

countries, there are similar gains to be made.

Above all, these partnering arrangements allow

foreign vendors to obtain a foothold—and often

a major competitive advantage—in some of the

most profitable and rapidly growing telecommunication markets. Given the tremendous backlog

of demand in developing countries, these investments can be made with minimal risk. By accelerating technology deployment in the Third

World, FDI in telecommunications also paves

the way for related service industries—such as

64 Peter L. Smith and Gregory C. Staple, “Telecommunications Sector Reform,” IEEE Communications Magazine, Nov. 1994, p. 51; and

Clive Cook, “Third World Finance: New Ways To Grow,” The Economist, Sept. 25, 1993, pp. SS5–SS7.

BOX 1-7: The Post, Telephone, and Telegraph (PTT) Model

In many countries, the government has historically assumed direct ownership and control over the

country’s telecommunication networks. The typical organizational pattern to emerge was that of the

PTTs—the government administrations of post, telephone, and telegraph. This model evolved in Europe

over a century and a half, during which time national governments, coveting the lucrative postal revenues, finally, and after intense struggles, assumed control over their respective postal systems. Eventually, however, it was the telephone that provided revenues to subsidize the PTTs’ activities.

As developing countries gained their independence, the PTT model was retained. This model

appealed to many Third World leaders, not only because it gave them control over the national communication infrastructure, but also because it generated a major source of government revenue. In fact, in

many developing countries, the PTT’s role in generating revenues has always had top priority. Instead of

reinvesting substantial amounts of the telecommunication administration’s operational surplus, funds

have been siphoned off by governments for other purposes. In Syria, for example, the state imposed an

80 percent tax on the state-owned telephone company from 1985 to 1991. The demand for telecommunications has also been dampened by artificially high prices, which are based on tariff structures that are

designed to generate general revenue. These policies have resulted in very poor service and a tremendous backlog in demand. Thus, for example, in more than 61 countries, call completion rates are lower

than 40 percent.

SOURCE: Office of Technology Assessment, 1995.
Chapter 1 Summary, Findings, and Policy Strategies | 25

banking, insurance, and tourism—as well as for

multinational corporations, which depend on networking technologies for their survival and

growth. In the long run, investments linked to telecommunications privatization may also enhance

the overall economic climate in developing countries in favor of open markets and greater economic reforms (see chapter 4).

For U.S. companies to achieve full market

access in foreign countries, privatization of telecommunication systems will not be enough.

Developing countries will also need to liberalize

their regulatory systems to allow for competition,

establishing pricing structures that mirror true

costs and rules of interconnection that are consistent, transparent, and comparable for all parties.

It is these rules that establish how alternate providers can access the public network, and determine the prices charged for such access.

Interconnection rules are required not only for

providers from different countries but also for

different kinds of providers within each country.

For example, there need to be common rules

governing the relationship between public and

private networks, between value-added data services and public networks, and between providers of public voice services whether they are

fixed or mobile (see box 1-8).65

Although the global market is driving the

deployment of advanced communication technologies and channeling investments in telecommunications to developing countries, its impact

is uneven. As has historically been the case for

all networked technologies, diffusion is following a sequential pattern, starting in centers of

economic activities and areas with major populations and working outward, from major cities, to

smaller towns, and eventually to rural villages

and remote areas.

In the past, most governments were able to

speed up, and smooth out, this diffusion pattern,

65 Graham Finnie, “Interconnect: New Operators Plug In,” CommunicationsWeek International, Mar. 16, 1992, p. 18.

using cross subsidies and price averaging. Subsidies, however, are no longer a tenable option in a

global economy in which developing countries

must compete to attract worldwide business.

Already, those countries that are slow to dismantle their traditional regulatory regimes run the

risk of being bypassed.66

In this interdependent global environment, the

United States has an interest—both from a trade

as well as from a foreign policy perspective—to

help assure that these underserved areas are not

left far behind. Networks are not only subject to

economies of scale and scope; they also exhibit

positive externalities. The value of networks and

the resulting demand for networking technologies will likely increase—at least in the early

stages of deployment—when networks, users,

and applications are extended and linked

together.67 Thus, support for networking in

underserved areas will not compete with, but

instead will complement and add value to, the

information networks that are presently being

deployed in high-density areas. As an added benefit, given more even deployment, Third World

governments will probably be under less pressure to use subsidies from local or international

calls to promote access, and hence be more willing to promote regulatory reforms and open their

markets to U.S. equipment and service providers.

CRITERIA FOR MAKING POLICY CHOICES

Telecommunication-based aid programs are

likely to have a high payoff. Because communication and information networking technologies

have a dual nature, which allows them to serve

both as an infrastructure and a commodity, they

are uniquely suited to support flexible and holistic development programs within the context of

competitive, open markets. By targeting poor

and underserved areas, telecommunication-based

aid programs can enhance U.S. trade opportuni66 Johannes M. Bauer, “The Emergence of Global Networks in Telecommunications: Transcending National Regulations and Market

Constraints,” Journal of Economic Issues, vol. 28, No. 2, June 1994, pp. 391–402. 67 Cristiano Antonnelli, “The Economic Theory of Information Networks,” in Cristiano Antonnelli (ed.), The Economics of Information

Networks (The Netherlands: North Holland, 1992), chap. 1.
26 | Global Communications: Opportunities for Trade and Aid

ties in developing countries, promote competition and telecommunications regulatory reform,

while at the same time providing for the communities and people that are most in need.

As experience suggests, designing U.S. foreign assistance programs to meet the multiple

goals of promoting democracy, economic development, political stability, and U.S. trade opportunities is no easy task. How communication

technologies will affect Third World countries

will depend on a broad range of technical, economic, social, and political factors. To lay the

groundwork for developing an effective telecommunications-related aid strategy, OTA has identified a number of criteria that such a strategy

must meet to enhance its chances of success.

These criteria comprise an interdependent and

total package. To the extent that policy measures

fail to address all these criteria, the chances for

success, and the likelihood that technology will

be deployed to the benefit of the United States

and the developing world, will be diminished.

❚ A Technology Strategy That Supports 

Development Goals

Many people look to information and communication technologies to help developing countries

overcome their problems and adapt to their rapidly changing environment. Experience to date,

BOX 1-8: Pricing Disparities and International Accounts

The impact that pricing disparities can have on trade is particularly apparent when trying to reconcile

international accounts. Because international calls entail the use of facilities in two countries, revenues

and costs need to be shared between them. To settle accounts, the provider in the country in which a call

originates pays the facility owner in the country where the call is completed a sum based on a bilaterally

negotiated “accounting rate” (the agreed upon cost of the call) and “settlement rate” (the agreed upon

percentage split of the revenues, which customarily is 50 percent).

If there is a large gap in the prices charged in each country, problems will likely arise, as is happening

in the United States today. When possible, users initiate calls in the United States because the rates,

which are subject to competitive pressures, are lowest there. This is not necessarily beneficial, however.

Because American providers initiate more calls than they receive, they must pay out an excess of funds,

which take the form of a trade deficit. Moreover, because international accounting rates are generally

inconsistent with true costs, it may be difficult for American service providers to cover their total costs. In

fact, depending on the accounting and settlement rates, they may actually subsidize a foreign vendor’s

service.

Within the international telecommunications community, there is increasing pressure to revise the system of international accounting rates. The pressure is coming from a number of directions. Settlement

payments provide an important and growing form of hard currency to a number of developing countries,

which if transferred to the operator, could be used to cross subsidize network development. Developing

countries would, therefore, like to see the 50-50 basis for sharing revenues shifted in their favor perhaps

to 55-45. They contend that the cost of providing infrastructure and, therefore, the cost of terminating a

call is much higher in some developing countries than in the advanced industrialized nations. On the

other hand, most developed countries strongly believe that accounting rates should be reduced in line

with technical improvements so as to more closely approximate costs. Efforts within the International Telecommunications Union (ITU) Study Group III to define the cost of providing international telecommunications services, however, have hit methodological and political snags. As a result, some countries would

prefer to replace the whole system of accounting rates with one that provides genuine incentives for price

cutting and offers more flexibility to establish innovative international services.

SOURCE: Office of Technology Assessment, 1995.
Chapter 1 Summary, Findings, and Policy Strategies | 27

however, demonstrates that technology alone

will not be enough. In cases where technology

has made a critical difference, it has been

employed in conjunction with successful social,

economic, and organizational change. Similarly,

most obstacles to success have had to do with

people and institutionalized behavior rather than

with technology.68 To develop appropriate technology-based development strategies, care must

be taken to reassure that technology deployment

patterns and network architectures reinforce, and

do not drive, development policies and goals. For

example, if communication technologies are to

have a democratizing effect, they need to be

widely available, easily accessible, and capable

of supporting two-way interactions. On the other

hand, communication technologies that are

intended to reinforce a sense of community, or to

support activities internal to a particular business

or firm, may need to be more restrictive both

with respect to content as well as access.

❚ A Multidimensional, Integrated Notion 

of Economic Development

Experience suggests that if foreign aid policies

are to serve the multiple goals of promoting sustainable economic development, democracy,

and political stability, aid policies and programs

must themselves be conceived of in a multidimensional, integrated fashion that accounts for

social, economic, and political change. Because

communication and information technologies are

common to all these activities, they can help support a holistic development approach. As an

added benefit, if communication technologies are

used to serve mutual development goals, their

cost will be lower because of the associated

economies of scale and scope.

❚ Minimum Cost and the Effective Use 

of Existing Resources

Given current national budget constraints and

questions about the benefits to be derived from

foreign assistance, any telecommunications

68 See Electronic Enterprises, op. cit., footnote 4.

related aid project will need to be financed at

minimum cost. Ideally, such programs should

leverage existing resources—both public as well

as private—be incentive based, and self-sustaining over the long run. Moreover, given recent

disagreements within the aid community about

where limited aid monies might best be spent

(i.e., structural reforms, environmental sustainability, poverty alleviation), a convincing case

must be made to show that investments in telecommunications are not only cost effective; they

can also support all these alternative spending

targets.

❚ Technology Neutrality

Advances in communication and information

technologies provide developing countries the

opportunity not only to “leapfrog” to high-performance technologies. They also offer much

greater variety and flexibility of use. If developing countries are to maximize these advantages

to design and deploy networks that are well

matched to their unique situations, telecommunications-related aid policies must be neutral with

respect to technology choices. Moreover, to the

extent that developing countries are free to make

use of a wide variety of technologies, competition and a liberalized regulatory environment

will probably be advanced. The prospects for

democratic participation will also be greater,

given a variety of communication channels and

outlets. A policy of technology neutrality is also

in keeping with U.S. goals of promoting free

trade and liberalization of telecommunication

regimes. Equally important, it is unlikely to favor

some U.S. stakeholders over others.

❚ Flexibility to Experiment, and to Deal 

With the Variety of Situations and Settings 

Found in Developing Countries

Approaches to foreign aid have fluctuated rather

significantly over the past 50 years, depending

on the political climate and prevailing school of

economic development thought. Given the diver-
28 | Global Communications: Opportunities for Trade and Aid

sity of outcomes in developing countries, policymakers have, more recently, come to appreciate

that no single policy approach is equally applicable under all circumstances. Our knowledge of

the development process continues to be imperfect, and conditions in developing countries vary

increasingly, both within and among countries.

Thus, development policies must be flexible

enough both to experiment with different types

of approaches and to address the unique needs

and strengths of each community. Communication systems will go unused, if they fail to serve

developing countries’ needs as they themselves

perceive them.

❚ Policies That Build On and Take 

Advantage of Local Competence

All too often, infrastructure projects in developing countries have deteriorated over the long run

for lack of maintenance and operational funding.

If telecommunication related aid projects are to

be self sustaining and to promote effective use of

technology, they must incorporate both a technology-transfer and an “entrepreneurial” component. Moreover, if such systems are to be truly

useful, they must take advantage of, and build

on, “local knowledge.”

Although technology advance and network

unbundling permits much greater flexibility in

network design, it can, at the same time, increase

the knowledge requirements and transaction

costs of putting systems together. Development

policies must therefore provide technical assistance to familiarize users with communication

technologies and assist them in planning and

devising appropriate deployment strategies.

Business training and support will also be

required; many economic-oriented development

projects have failed for lack of sound business

plans and practices and incentives and market

signals that correspond to real costs.69 To be successfully integrated into local practices, such

support will need to be provided as a comple69 Dwight H. Perkins and Michael Roemer (eds.), Reforming Economic Systems in Developing Countries (Cambridge, MA: Harvard

Institution for International Development, 1991); and Karla Hoff et. al., The Economics of Rural Organization, op. cit., footnote 30.

ment to, rather than substitute for, existing local

knowledge.

❚ Reconciliation of Trade and Economic 

Development Goals

In the past, foreign aid policies and U.S. trade

policies have often come into conflict, thereby

undermining both sets of goals (see box 1-9). In

a highly competitive—but increasingly interdependent—global economy, greater efforts must

be made to reconcile trade and aid goals, and to

develop policies that have win-win outcomes for

all.

In the specific case of telecommunications,

policies should not only be consistent with free

trade principles; they should also be designed to

encourage the liberalization of telecommunication regimes. To this end, they should promote

rather than substitute for private sector activities.

Meeting these criteria should not be excessively

difficult. By all accounts, the demand for

telecommunication services in developing countries far exceeds the supply. The inadequate

response to this demand results from regulatory

barriers and the failure of the market—especially

in rural areas—to effectively aggregate potential

demand.

FOREIGN AID STRATEGIES TO MEET 

THESE CRITERIA

❚ Targeting Rural Areas for Integrated 

Development Programs

Bounded by their geography, history, and culture, rural communities in the Third World constitute the focal point of events and social forces

that interact to determine the fates of their inhabitants. In such close-knit environments, problems

in one area of life spill over and feed on those in

others. The result is a vicious circle that spirals

downwards.

To reverse this pattern requires a concerted

and integrated effort that addresses all these
Chapter 1 Summary, Findings, and Policy Strategies | 29

problems at once. Only by adopting a multifaceted approach will the solutions be mutually

reinforcing as well (see box 1-10).70 Improvement will also be more likely to the extent that

development programs are community based.

Insofar as they are the source of many developing countries’ problems, rural communities are

similarly the place where solutions can most

readily be found.71

The need for an integrated, community-based

approach to rural development problems has

been reiterated by many international development experts and emphasized in the 1992 Rio

Declaration on Environment and Development,

which was adopted by the United Nations.

Encompassing all of the activities taking place in

rural environments, this approach calls for the

simultaneous development of all areas including

agriculture, education, communication, and

health care, among others (see chapter 2).

70 Partha S. Dasgupta, “Population, Poverty and the Local Environment,” Scientific American, vol. 272, No. 2., February 1995, p. 45. 71 ”People and Governance,” Human Development Report 1993, op. cit, chap. 2, footnote 13.

This emphasis on rural areas has been reinforced, of late, by the growing realization that a

healthy agricultural sector is critical for successful development. Having seriously underestimated agriculture’s role, leaders in developing

countries (as well as many development economists) have typically fostered policies that discriminate against agriculture and rural areas and

promote urban industrialization. Such policies

have greatly depressed investment in agriculture

and reduced farmers’ purchasing power significantly. In those countries exhibiting an urban

bias, for example, the income transferred out of

agriculture totaled—on average—46 percent of

GNP for the years 1960 to 1984. In a recent

study of 18 developing countries, the World

Bank found, for example, that industrial protection and exchange rate overvaluation depressed

agriculture’s domestic terms of trade by about 22

percent.72 Having recently come to recognize

that agricultural production generates significant

72 Maurice Shiff and Albert Valdesm, “The Plundering of Agriculture in Developing Countries,” Finance and Development, March 1995,

pp. 44–47.

BOX 1-9: United States Aid and Trade Policy

As a long-term advocate of freer trade, the United States has consistently sought to establish a formal

mechanism within the Organization for Economic Cooperation and Development (OECD) that would

restrict the practice of tying aid donations to the purchase of donor products and services. In 1987,

OECD nations agreed to provide at least 35 percent of all tied aid in the form of an outright grant. Many

countries often found ways to circumvent this decision, however. In August 1992, OECD members

reached a more restrictive agreement known as the Helsinki Accord. According to the Helsinki package,

tied aid is limited to those countries and projects that are unlikely to qualify for commercial financing.

Moreover, 80 percent of a project’s costs must be covered by concessional aid, unless the OECD agrees

otherwise. OECD members meet at monthly intervals to review tied aid project proposals. Tied aid credits

have decreased since 1992 from $15.4 billion to $6.95 billion in 1993. Two-thirds of all untied aid is in key

sectors such as telecommunications, transportation, and electric power, much of which is concentrated

in Asian markets.

To further counter tied aid, the United States established a Tied Aid Capital Projects Fund within the

Ex-Im Bank. The Em-Im Bank uses this fund of $150 million to counter potential tied aid offers made by

U.S. competitors.

SOURCE: “Tightening Up on Tied Aid,” The China Business Review, May-June 1993, pp. 36–40.
30 | Global Communications: Opportunities for Trade and Aid

rural household demand, which in turn stimulates

industrialization, many people now consider

agriculture-based rural communities to be prime

targets for economic development efforts.73

Rural communities are also gaining greater

priority among development experts because of

their potential to reinforce democracy at the local

level. Community-based actions can help reinforce a spirit of cooperation and the development

73 Yves Bourdet, “Rural Reforms and Agricultural Productivity in Laos,” Journal of Developing Areas, vol. 29, No. 2, January 1995, pp.

161–182; and Earl P. Scott, “Home-Based Industries: An Alternative Strategy for Household Security in Rural Zimbabwe,” Journal of

Development Areas, vol. 29, No. 2, January 1995, pp. 183–212.

of the type of civil society upon which democracy ultimately depends. At the same time, the

mobilization of a community and/or communitybased organizations can help to build local competence, thus providing a powerful counterweight to authoritarian governments and other

vested interests that oppose social and economic

change in developing countries (see box 1-11).

As described in the Human Development Report

1993:

BOX 1-10: Controlling Population Growth in Developing Countries

To appreciate the need for an integrated development approach, one has but to consider the intricate

linkages among rural problems. Population control is a case in point. Most population studies now show

that in Third World communities, pregnancy decisions both are determined by, and have an impact on, a

number of other interrelated social, economic, and environmental factors.

The correlation between fertility rates and education is particularly strong, for example.1 According to the

World Bank, women in developing countries who have no secondary education generally bear up to seven

children in their lifetimes. In contrast, those who have attended secondary school average only three births.

Levels of education as they affect birth rates are related, in turn, to the health of both women and children. In developing countries, pregnancy is, for example, the primary cause of death for women of childbearing age. In fact, in some parts of sub-Saharan Africa, it is not unusual to find one maternal death per

50 live births.2 Of equal note, when mothers are educated and have fewer children, they provide better

care for their children, whose health and prospects of survival are greatly enhanced as a result. In addition, girls born in such families are more likely to be educated and thus less likely to marry early, have

multiple pregnancies, and thus repeat the cycle.3

Education by itself is not enough, however. To discourage multiple births, women must also use their

education to increase their families’ incomes, raising them above subsistence levels. When rural families

are totally dependent on the land, women are prized primarily for the abilities to reproduce. In subsistence households, children are needed to carry out simple, but nonetheless essential, chores, such as

fetching water and fuel, cultivating crops, caring for livestock, cooking food, and producing simple marketable products. In these circumstances, having a large family is perceived not as a social or even individual cost but rather as an economic benefit.4

1 “Battle of the Bulge,” The Economist, vol. 332, No. 7879, Sept. 3, 1994, p. 23.

2 Partha S. Dasgupta, “Population, Poverty and the Local Environment,” Scientific American, vol. 272, No. 2., February 1995,

p. 42.

3 “Battle of the Bulge,” op.cit., footnote 1.

4 Dasgupta, op.cit., footnote 2.

SOURCE: Office of Technology Assessment, 1995.
Chapter 1 Summary, Findings, and Policy Strategies | 31

Decentralizing governance—from capital

cities to regions, towns and villages—can be

one of the best means of promoting participation and efficiency. Local officials and politicians can be much more open to public scrutiny

than national governments—and more accountable to the communities and individuals they

are supposed to serve. And public projects—be

they dams, roads, schools, or health programmes—all become more relevant and effective if the communities have a real say in their

planning and implementation.74

Targeting rural areas for integrated development programs also ranks high based on the criteria for telecommunications-related aid laid out

in this report. By focusing on rural areas, aid policies can be designed to be both comprehensive

and cost-contained. It is in rural communities, for

example, that small scale pilot projects can be

undertaken, and that aid policies can be most easily adapted to, and brought into line with, actual

social, economic, and political conditions. By

focusing at the community level, aid programs

can also be customized to tap into local entrepreneurship and growth potential, which is increasingly to be found in Third World rural areas.

74 Human Development Report 1993, op.cit., footnote 13, p. 66. See also Michael Keren and Rur Ofer (eds.), Trials of Transition: Economic Reform in the Former Communist Bloc (Boulder, CO: Westview Press, 1992); and A. S. Bhalla, Uneven Development in the Third

World: A Study of China and India (New York, NY: St. Martin’s Press, 1992).

Many rural problems are, moreover, amenable to

telecommunications-related interventions, so

they can be dealt with jointly on a local, geographic basis, allowing for significant economies

of scale and scope.75 In fact, research shows benefits from telecommunication investments are

greater when accompanied by investments in

social services and other types of physical infrastructure. Rural areas are, moreover, unlikely to

be served by the global market, so aid to support

telecommunication will support rather than

undermine telecommunications related trade.76

❚ Promoting Local, Bottom-Up 

Deployment Strategies

The demand for communication services in

Third World rural communities is, according to

most assessments, far greater than available supply. The market’s failure to adequately meet this

demand is due to at least four basic factors: 1)

high fixed costs entailed in deployment; 2)

national regulatory policies that discourage telecommunications investment and maintain artificially high prices; 3) problems entailed in

aggregating demand among geographically dis75 The International Space University, Global Access Tele-Health and Education System, Final Report (Barcelona, Spain: The International Space University, summer 1994). 76 Ruby Roy Dholakia and Bari Harlam, “Telecommunications and Economic Development: Econometric Analysis of the U.S. Experience,” Telecommunications Policy, vol. 18, No. 6, August 1994, pp. 470–477.

BOX 1-11: The Internews Network

Local broadcasters in the Soviet Union have played a critical role in providing an independent political

perspective despite strong pressure from the Kremlin to support government policies such as the war in Chechnya. To support such independent broadcast efforts, Internews Network—a voluntary organization supported by

U.S. Agency for International Development and the private financier, George Soros—is reaching out to independent television stations in Russia’s regions, providing seminars in journalism, business planning, advertising and

technical issues. Equally important, Internews Network has established a center in Moscow where these independent stations can get together to share news and other experiences. Most people agree that these stations

provide the most independent and balanced news coverage in the Soviet Union.1

1 Fred Hiatt and Daniel Southerland, “Grass-Roots Aid Works Best in Russia,” Washington Post, Feb. 12, 1995, p. A1

SOURCE: Office of Technology Assessment, 1995.
32 | Global Communications: Opportunities for Trade and Aid

persed users; and 4) the excessive information

costs and institutional imperfections found in

rural markets (see chapter 4). One way of promoting network deployment under such circumstances would be to lend support and provide

incentives for local, bottom-up deployment initiatives. Efforts focusing at the local level can

yield a number of benefits, far above and beyond

the actual deployment of technology itself.

Bottom-up approaches to technology deployment are not without considerable precedent. In

the United States, for example, a rash of independent telephone companies, community cooperatives, and mutual societies sprang up from the

midwest to California to provide service once the

Bell patents expired in 1894. Using local capital

and labor, and assembling much of their equipment themselves—purchased in some cases

through mail order catalogs such as Sears Roebuck and Montgomery Ward—rural communities in the United States were able to have

telephone service long before it would otherwise

have been made available to them (see box 1-

12).77

The United States experience is not unique.

Similar efforts took place in a number of European countries, including Norway, Sweden, Finland and the Netherlands. As in the United

States, these efforts served to speed the deployment of telecommunication services to rural and

remote areas. Organizational approaches varied

depending on local circumstances and political

culture. In Finland, for example, telephone service was introduced by private individuals in

1877, before Finland had become a nation state.

Absent government intervention, most telephone

entities were organized as cooperatives, with

subscribers exercising democratic control over

77 Malcolm Willey and Stuart Rice, Communication Agents and Social Life (New York, NY: McGraw Hill, 1935).

local telephone operations, services, and tariffs.78

Using a decentralized approach was not a real

option in many other countries because telephone systems belonged to national PTTs.79

Today, however, this type of strategy is increasingly viable. Given global pressures for telecommunications privatization, as well as technology

advances and network unbundling, it is again

feasible to deploy communication technologies

on an ad hoc and customized basis. In developed

countries, large businesses were the first to pursue this strategy by setting up private networks to

meet their own, specialized needs. Developing

countries can similarly employ such an approach

to serve users in small communities and rural

areas. 

Taking advantage of technology advance and

the wider range of choices now available, many

developing countries are already deploying less

costly communication systems. In Asia-Pacific

and Latin America, for example, countries are

increasingly using very small aperture terminals

(VSATs) to provide both public and private services (see figure 1-5).80 In Tibet and other areas

of the Pacific, the cost of providing VSAT is

being reduced by using mesh networks that do

not require the use of a central hub because the

switching function is incorporated into each

earth station.81 Systems such as these can support voice traffic, facsimile, and low-rate data

transmission. Moreover, between four and 40

channels can be provided at each site, depending

on a community’s demographics. Using an international gateway in Shanghai, calls made on

such phones in Asia can be routed via undersea

cable to Hawaii, and from there to any place in

the world.82

78 Andrew Davis, Telecommunications and Politics: The Decentralized Alternative (New York, NY: St. Martin’s Press, 1994). 79 Ibid. 80 “Satellite Communications in Developing Countries,” Satellite Communications, September 1994, p. 18; see also Elsa Savedra, “The

Rise of Solidaridad: A System 25 Years in the Making,” Satellite Communications, December 1994, pp. 20–21; and Ray Markets, “In Support of Latin American Economies,” Satellite Communications, July 1994, p. 30. 81 “The Tibetan Connection,” Satellite Communications, January 1994; and Carol A. Politi, “Pacific Communications: Voice and Data

Networking Via VSAT,” Satellite Communications, February 1994, pp. 31–32. 82 Ibid.
Chapter 1 Summary, Findings, and Policy Strategies | 33

In other countries, such as India, fixed cellular

radio systems are often used.83 These radiobased systems are easier to deploy than wireline

services, and they have lower up-front investment costs, which can be shared among subscribers. They can, moreover, be deployed on a stepby-step basis, with new cells added in response

83 Fixed cellular access systems have now been deployed in over 40 countries. Unlike mobile cellular systems, fixed cellular does not

require the complex tracking and switching needed to trade and hand off conversations as users move from one cell to the next. Jean-Philippe

Haag, “Fixed Cellular Solutions for Wireless Access,” Telecommunications, December 1994, pp. 57–61; see also Neil Weinstock, “Leapfrog,” World Trade, vol. 6, No. 19, November 1993, pp. 61–63.

to growing demand. Because radio technology is

more reliable, such systems also have lower

maintenance costs.84 To send data alone, digital

radio can be used in conjunction with low earth

orbiting satellites.85 And, in a somewhat more

novel fashion, rural telephone service can be provided by using telepoint technology in conjunc84 Rudi Westerveld and Ramjee Prasad, “Rural Communications in India: Using Fixed Cellular Radio Systems,” IEEE Communications

Magazine, October 1994, pp. 70–74. 85 Joe Sedlack, “Connecting Africa to the Rest of the World,” Satellite Communications, September 1994, p. 26.

BOX 1-12: The Deployment of Telephony in the Rural United States

When the Bell patents expired in 1894, American farmers and local entrepreneurs took it upon themselves to provide telephone services to their communities, relying almost exclusively on local capital and

labor. These “independent” companies took a variety of forms. In local villages, for example, they were

often established by doctors or other local professionals. In rural areas, such lines were generally set up

by farmers who depended, almost exclusively, on subscriber contributions.1 Expenses were kept to a

minimum because local farmers built these networks using their own materials and tools. When necessary, they purchased equipment from independent manufacturers and through mail order catalogs distributed by such firms as Sears and Roebuck and Montgomery Ward. Having built their own networks,

these farmers had little trouble maintaining them. Problems did arise, however, when farmers resorted to

low-quality equipment and poles, which sometimes included barbed wire and fence posts.2 Nevertheless, these bottom-up efforts were a great success. By 1917, for example, the state of Iowa had more

phones on farms and rural residences than any other state in the union.3

These local telephone companies were organized in a variety of fashions. Systems that were set up to

provide private service generally consisted of a single line owned and shared by a small group of people, and

operated on an intercom basis. Privately owned commercial systems and commercial stock companies,

although owned locally, were set up on a profit seeking basis. Mutual stock companies, which limited the sale of

shares to users, were organized informally, their members paying a prorated share of capital expenditures, maintenance, and improvement fees. Farmer lines were typically organized as purely private or mutually owned systems. To join the Liberty Telephone Company in 1910, for example, one had to pay an upfront fee of $25; provide

a telephone, a pole, and some labor; as well as pay a flat annual fee of $7 for service.4

1 Dale Hatfield, “Speeding Telephone Service to Rural Areas: Lessons From the Experience in the United States,” occasional

paper (Washington, DC: The Annenberg Washington Program, Communication Policy Studies, Northwestern University, May

1994). See also David Joshua Gabel, The Evolution of a Market: The Emergence of Regualtion in the Telephone Industry of Wisconsin (Madison, WI: University of Wisconsin. 1987).

2 Roy Alden Atwood, Telephony and Its Cultural Meanings in Southeastern Iowa, (Iowa City: Univeristy of Iowa, 1984).

3 Hatfield, op.cit., footnote 1, p.4

4 C. W. Meyer, “How We Built a Home-Owned Farmers Telehphone LIne,” Telephony, Nov. 16, 1912, as cited in Hatfield, op.cit.

footnote 1.

SOURCE: Office of Technology Assessment, 1995.
34 Global Communications: Opportunities for Trade and Aid

❑ North America ■ Latin America

❑ Europ e ❑ Asia/Pacific

SOURCE: Satellite Communications, April 1994.

tion with handsets and paging equipment to

notify users of incoming calls.86

Communication costs can also be contained

by serving individuals on a joint basis. Public

phones, for example, can be set up at some strategic location within a community. Or, alternatively, a local business equipped with a phone

might be willing to share access, given some

concession from the community or the provider.87 A telephone located in a shop or school

.

will probably be within walking distance of most

inhabitants because rural homesteads are generally located within or close to the center of a village. 88 These shared phone centers need not be

limited to providing voice alone. Some, for

example, now provide multimedia media applications such as remote learning (see box 1-13).

86 Bruce, et al, op. cit., footnote 54.

For delivering more costly or sophisticated

services, networks might be terminated in communication centers where they can jointly support small and medium sized local enterprises,

teleworking, long distance learning, public

administration, remote access to health care, etc.

For individual phone service, inexpensive public

telephone booths might also be provided. Delivering services to a community center can produce a number of synergisms, stimulating both

local enterprise as well as the demand for telecommunications services. This “telecottage”

approach has a long history in Norway and Sweden, and it has been used more recently in countries such as Japan, Australia, and South Africa

with considerable success.

In the future, national governments will no

longer be the sole network and service providers

in Third World rural communities. Increasingly

they are being joined and/or bypassed by businesses, research organizations, and nonprofit

groups, which are extending their networks to all

corners of the earth. In Africa, for example, the

nonprofit organization SatelLife uses UoSat 3 in

conjunction with HealthNet to provide information to African medical schools and medical centers. To support this system, SatelLife has

established ground stations in Eritrea, Ethiopia,

Kenya, Mali, Mozambique, Niger, Tanzania,

Uganda, Zimbabwe, and Zambia. 89 Similarly,

Volunteers in Technical Assistance (VITA), a

nonprofit organization founded in 1959, uses

communication technologies to promote sustainable economic and human development in developing countries (see box 1-14).

Efforts by national governments, businesses,

and nonprofit groups are playing an important

role in advancing the deployment of technology

and services to Third World rural communities.

The impact of their networking efforts on economic development and rural life may be some87 M.L. Morris and S.E. Stavrou, “Telecommunication Needs and Provision to Underdeveloped Black Areas in South Africa,” Telecommunications Policy, September/October 1993, p. 53.

88 Ibid.

89 Sedlack, op. cit., footnote 77.
Chapter 1 Summary, Findings, and Policy Strategies | 35

what limited, however, to the extent that they are

“external” to the community and that users are

relatively passive in relationship to them.90

An alternative approach to network deployment in Third World rural communities, which

would probably have a much broader social and

economic impact, is to develop local systems,

from the bottom up, much like those developed

in the rural United States and Northern Europe at

the turn of the century.91 Although such networks may require initial support and assistance,

they would offer a number of benefits from the

standpoint of foreign aid goals and the policy criteria identified above.

Supporting such networks, for example,

would not be excessively costly, especially if the

90 S.E. Goodman, L.I. Press, S.R. Ruth and A.M. Rutkowski, “The Global Diffusion of the Internet: Patterns and Problems,” Communication of the ACM, vol. 37, No. 8, August 1994, p. 30. 91 Dale Hatfield, “Speeding Telephone Service to Rural Areas: Lessons From the Experience in the United States,” occasional paper

(Washington DC: The Annenberg Washington Program, Communication Policy Studies, Northwestern University, May 1994).

technologies used could be deployed in stages as

demand increased. Any support, moreover,

would be temporary, since demand will probably

cover costs over the long run. World Bank studies show that the demand for such service is relatively inelastic; consumers have been shown to

be willing to pay for basic services, even when

prices exceed those found elsewhere.92 Even

greater demand can be anticipated if rural residents participate in network development, familiarizing themselves with the opportunities afforded

and customizing systems to meet their needs.

Taking advantage of local labor and capital,

the promotion of bottom-up networks can also

foster entrepreneurship, which is essential for

economic growth, as well as facilitate the trans92 ”Investing in Development,” The Economist, June 25, 1994, p. 70.

BOX 1-13: The Taos Community Network

Founded in Taos, New Mexico, La Plaza Telecommunity was recently recognized by the National

Information Infrastructure Task Force as one of the top six community projects in the United States. La

Plaza provides residents of the Taos area with free dial-in access to a centralized UNIX server connected

to a 28.8K modem bank. The La Plaza server is in turn linked to two computer labs and a Telecommunity

Center where users without personal computers and modems may access the Internet via a T1, or 1.5

Mbit/sec, connection. 1

Currently, 15 percent of the local calling area population use La Plaza to access such information as a

community calendar with the activities of local civic, religious and recreational groups, information on

adult education, employment opportunities from the New Mexico Department of Labor and other sources,

tourist attractions, local government initiatives and local health and business resources. The widespread

availability of such information opens new opportunities for participation in local government, greater

cooperation among public and private organizations and the stimulation of new businesses. Employees

and volunteers of La Plaza are also providing local residents with valuable training in the use of the network and in the use of the Internet. La Plaza was founded through the cooperation of several individuals

and organizations including the University of New Mexico-Taos Education Center, Los Alamos National

Laboratory, the Fielding Institute, Apple Computer, and several other corporate sponsors.

1 Patrick J. Finn and Cyd Strickland, “Community Networking: Bringing Communications On-line,” La Plaza Telecommunity

Foundation, Inc., Taos, New Mexico.

SOURCE: Office of Technology Assessment, 1995.
36 | Global Communications: Opportunities for Trade and Aid

fer of technology expertise.93 In some cases,

where appropriate technology is used, the local

production of some network components may

even be encouraged. Absent such technology

transfer, infrastructure projects will probably fail

over the long term owing to lack of maintenance

and neglect.94

Building local networks can also serve to

strengthen local administrative and political

competence, thereby fostering greater decentralization of governmental authority. In many developing countries, the authority to tax and to

distribute social services has traditionally been

concentrated at the national level.95 As a result,

local governments, as well as community organizations, have lacked the financial resources and

political capital required to establish countervailing bases of political power. Cooperating to build

local communication networks, community residents may not only develop the skills necessary

for political participation, even more important,

they can generate the type of “social capital” that

93 As described in Human Development Report 1993, “Some of the most effective contributions as a result of decentralization come from

local labor and materials. In the Baglung district of Nepal, local committees working under the auspices of village councils built 62 bridges

with little outside help, covering the whole district in five years They used local materials and artisans, and no one was paid. Each bridge cost

only a quarter of what the central government would have spent, and was built three to four times faster.” op. cit., footnote 13, p. 75. 94 According to the United Nations Development Program, the local involvement and training in 34 village water projects was significant

in accounting for their long-term success. Ibid. 95 Ibid., pp. 65–73.

leads to cooperation in other areas of community

life (see chapter 2).

Given this potential to strengthen local communities, one problem that may arise in establishing bottom-up networks is a political one. If,

for example, governments in developing countries continue to jealously guard their monopolies, community networks may lack the means

for interconnection with the public switched network. This possibility may be less likely in the

future, however, because of the trends towards

liberalization and privatization. But if rural communities are faced with such situations, some

mutually advantageous arrangements will need

to be worked out. National providers might

agree, for example, to franchise the development

of portions of the network to rural communities.

And, if necessary, agreements might be made to

allow national providers or privatized monopolies to subsequently acquire rural networks in

exchange for some form of equity ownership.96

Aid policies might be designed to encourage

such arrangements.

96 Bruce, et al., op. cit., footnote 54, p. 465.

BOX 1-14: Volunteers in Technical Assistance (VITA)

VITA’s global communication system VITACOMM is composed of three different communication systems that provide communication and data to areas not served by traditional telecommunication infrastructures: VitaSAT, a low earth-orbiting satellite system; VitaPac, a terrestrial digital radio system; and

VitaNet, a personal computer-based bulletin board mailing system. These three systems provide the

foundation for much of VITA’s development activities. For example, the Kibidula Farm Institute, an agricultural training center in the remote southern highlands of Tanzania, is two hours away from the nearest

phone. Since August 1993, however, the Institute has been able to transmit data on a daily basis to its

offices in the United States using a solar-powered earth station and VITA’s low earth-orbiting satellite system. PLAN International, a nongovernmental organization that provides tutoring and financial assistance

to 1,400 children in Sierra Leone, also uses VitaSat for data communication with its home office in Rhode

Island.

SOURCE: Office of Technology Assessment, 1995.
Chapter 1 Summary, Findings, and Policy Strategies | 37

❚ Targeting and Leveraging All Available 

Resources

Reflecting the growing appreciation of the role

communication technology can play in fostering

economic development, there are today a number

of forces promoting its greater diffusion. These

activities are both public and private, national

and multinational, trade-related and aid related.

Telecommunications-related aid policies that are

designed to leverage all these complementary

forces are bound to be the most cost effective.

Equally important, they will probably have a

synergistic effect resulting from many positive

externalities. Communications and economic

development serve not only to foster one another,

they also feed on themselves.

Alluding to these possibilities, Vice President

Gore—speaking to the International Trade Union

(ITU) World Development Conference held in

Buenos Aires in March 1994—noted that the

time was right “to bring all the communities of

the world together via a planetary information

network.” Calling on legislators, regulators, and

business executives to cooperate in building and

operating this global information infrastructure

(GII), he urged conference delegates to promote

policies in support of private investment, competition, and flexible regulations promulgated by

independent regulators.97

Vice President Gore’s vision of bringing all of

these forces together in support of a global information infrastructure is very apt. It comes at a

time when all major donor countries—struggling

with trade and budget deficit problems—are

being called on to reduce foreign aid.98 Such

pressures are particularly intense in the United

97 “Gore Backs Global Infrastructure at ITU Meeting,” Telecommunication Reports, Mar. 28, 1994, p. 24. 98 In 1994, aid to developing countries dropped by 1.8 percent, after falling 5 percent the year before. These declines reflect in part the cut

in U.S. aid. “Aid to Developing Nations Shrinks,” The Wall Street Journal, June 29, 1995, p. A12.

States, which accounts for one-fifth of all government foreign aid.99 Gore’s announcement

reflects, moreover, the growth of private investment in Third World countries, which is now

three times greater than the aid provided by foreign governments, totaling $179.9 billion in

1994. 100

Speaking to the United Nation’s social summit held in Copenhagen, Vice President Gore

reemphasized the need to move beyond the

present institutional framework for providing

aid. Noting that foreign assistance has not always

been used in accordance with the purposes for

which is was provided, Gore posited that, within

five years, nearly half of all aid provided by the

U.S. Agency for International Development

would be channeled to organizations instead of

Third World governments.

Other major donors agree that steps must be

taken to assure that foreign assistance is used

more effectively. Many have suggested that new

institutional methods and criteria such as targeting, decentralization, appraisal, evaluation and

monitoring may need to be adopted. The targeting of women in allocating assistance is considered to be essential by all.101

The prospect for developing new types of

cooperative arrangements is especially promising in the case of telecommunication-related aid.

Most, if not all, of the potential participants have

something to gain by working together. Not surprisingly, therefore, there are already a growing

number of telecommunications-related cooperative efforts underway that, drawing on a broad

range of institutional resources, seek to achieve

99 U.S. foreign aid totals approximately $13 billion a year, about half of which is devoted to programs relating to health, family planning

and economic development and administered by the U.S. Agency for International Development. Viewed in terms of per capita gross domestic product, the US devotes only .15 percent of GDP to foreign aid, far less than all other industrial countries, and this amount has continued

to decline over the past several years. Barbara Crossete, “Foreign Aid Budget: Quick, How Much? Wrong,” The New York Times, Feb. 27,

1995, p. A6. 100 “Private Investment to Poor Nations Hits a Record High at World Bank,” The Washington Post, Associated Press, Jan. 23, 1995, p.

A14.101 “Governments Agree That Targeting and Monitoring of DOA Could Increase Benefits to the Poor,” UNCTAD Press Release TAD/

INF/2554, June 16, 1995.
38 | Global Communications: Opportunities for Trade and Aid

complementary national, international, and private sector goals.

One such initiative, for example, is WorldTel,

an innovative investment venture that was

recently launched by the International Telecommunications Union (ITU). Organized entirely

around business principles, WorldTel was set up

to help businesses identify and execute profitable

telecommunications investment opportunities in

developing countries. Private sector support for

the plan spans the globe, including companies

such as AT&T, Ameritech, Sprint, Cable and

Wireless (United Kingdom), NEC (Japan),

Nokia (Finland), Teleglobe (Canada), Telekom

Malaysia, and Telstra (Australia). A number of

banks have also expressed interest in WorldTel,

which—initially capitalized at $30 million to $50

million—expects to realize real rates of return on

equity of up to 25 percent or more. By safeguarding investor interests, WorldTel seeks to attract

funds to high-risk countries where telecommunications investment would otherwise be unlikely.

Prime clients will be those Third World countries

that have regulatory and business environments

conducive to commercially viable partnerships.

As venture partners, investors will contribute

information and expertise as well as funds.

Focusing on wireless technology, most projects

will be carried out on a build, operate, and transfer basis. If successful, these joint ventures will

generate new markets, thus benefiting both First

and Third World nations alike.102

Nonprofits are similarly working with governments and businesses to promote development

goals through networking. For example, the Caribbean/Latin American Action (CLAA), a nonprofit organization operating in Latin America

and the Caribbean, is setting up a Telecommunication Task Force intended to improve access to

health care throughout Latin America and the

Caribbean. The task force’s first initiative is a

pilot telemedicine project that will examine how

better communication among rural health clinics

and six hospitals throughout Costa Rica might

102 Telecom Highlights International, Feb. 15, 1995, p. 6; and Karen Lynch, “Telcoms Funding Body Set,” Communications Week International, Feb. 6, 1995, p. 3.

improve rural health care. AT&T has supported

this project by donating several of its Picasso

Still-Image Phone systems, which allow doctors to

transmit images, records, and x-rays over ordinary

telephone lines. CLAA is also working with the

U.S. Chamber of Commerce’s Western Hemisphere Telecommunications Committee, the Pan

American Health Organization, the Inter American

Telecommunications Commission (CITEL), the

World Bank, and other organizations to expand the

pilot project into an “Americas HealthNet” that

would connect rural health centers throughout the

region to the Internet, thus allowing health professionals to access medical databases and other health

resources throughout the world.

The CLAA has also helped to form

AgroAmericas, Inc., a nonprofit association of

agricultural and information technology companies, which was established to increase agricultural trade in the Western Hemisphere through

data networking. AgroAmericas seeks to stimulate growth and productivity in this important

sector by first establishing a Hemispheric Electronic Network, AgriNet Americas, that provides

accurate and timely trade information to agricultural companies of all sizes and from all sectors.

Sprint Corp. and the Inter-American Institute for

Cooperation on Agriculture are important contributors to the initiative, which will eventually

provide member companies access to trade databases from the Organization of American States

and the U.S. Department of Agriculture, as well

as historical trade statistics, tariff schedules, current prices, and information on individual

import/export companies.

A number of projects supported by USAID

are similarly designed to promote cooperation

among public and private sector telecommunication stakeholders. With grants from USAID, for

example, the National Telephone Cooperative

Association (NTCA) has launched an international program to promote rural telephony in

countries such as Hungary, the Philppines,
Chapter 1 Summary, Findings, and Policy Strategies | 39

Micronesia, Bolivia, Poland, the People’s Republic

of China (non-USAID funded), and Tanzania.

In promoting rural networks, NTCA generally

works in three stages beginning with the education of appropriate government leaders and policy makers about the benefits of local networks.

Government champions are needed to assure that

local groups can reach an appropriate and timely

interconnection agreement with national regulators. Secondly, NTCA identifies local institutions and community leaders who want to

participate. Key supporters must garner community support and build a consensus for the cooperative’s ownership structure and operational

guidelines. NTCA provides training and assistance

in all aspects of network development—the preparation of financial and technical feasibility studies,

telecommunications management, engineering, and

actual equipment installation. Then, after performing a detailed country assessment of the financial,

regulatory, political and social environment, and

the status of existing communication and other

infrastructure, NTCA works to foster additional

cooperatives throughout the country.

There are a number of benefits to be gained

from collaborative efforts such as these. By

working with, and gaining the support of all relevant players, it is possible to circumvent many

potential and unforeseen road blocks. With First

World businesses and Third World government

organizations and local institutions cooperating as

partners in joint ventures, the potential for technology transfer and the sharing of business expertise is

great. At the same time, the need for monitoring

and evaluation is likely to be less relevant because

projects will be held more accountable to the conventional business standard—the bottom line.

Moreover, by substituting business personnel,

researchers, and members of nonprofit organizations for traditional aid field workers, the costs of

projects can be more easily contained.

By collaborating to promote information networking for development purposes even greater

gains can be made. Network deployment encourages social, economic, and political interaction,

which in turn stimulates network development

and deployment. When networks are subsequently linked to other networks, the benefits

grow proportionately. The key is to plant the

seeds and foster their germination.

These network seedlings can take the simple

form of an Internet host, or a regional e-mail network such as that set up by CERPOD—the Center for Applied Research on Demography and

Development—in Bamako, Mali, to communicate with colleagues in other Sahelian countries.103 It was, in fact, this type of “demand

pull” pattern of deployment that characterized

the evolution of Costa Rica’s network, which has

now become a regional hub providing services to

other Central American countries. Grants and

other donations were sought to build the infrastructure on an incremental basis, in response to

growing demand. Similarly, in Zambia, the network that was originally built by the deputy minister of health to connect to the provincial

hospitals was gradually extended to other users,

so that today it is one of the most successful networking efforts in subequatorial Africa.104

One way to foster such kinds of collaborative

efforts would be to require aid applicants to

include specific plans for collaboration, developed jointly with all the participants, as part of

their project proposals. Because the transaction

costs entailed in identifying, matching, and negotiating such collaborative agreements will probably be prohibitive for small and/or local groups

seeking assistance, aid officials might focus

greater attention on brokering such relationships.

One useful tool would be an electronic networked database—routinely updated and incorporating feedback from previous aid and

telecommunications projects—that could help

development groups to identify and communicate with collaborators, working together in

much the same fashion as those engaged in electronic commerce.

103 Telecommunications of the ACM, August 1994, vol. 37, No. 8, p. 28. 104 Ibid.
| 41

2

Foreign Aid Policy:

The Lessons

Learned

oreign aid has a very long and distinguished tradition. In the fifth century

B.C., for example, the Delian League—

an early defense support agreement—

provided financial aid to Athens, so that the

Athenians could build a navy capable of containing Persian imperial ambitions, thereby protecting the entire region.1 Centuries later, Napoleon

similarly used money to gain allies to support his

military ventures across the European continent.2

Likewise, the French government, under Louis

XVI, provided aid to American revolutionaries

not for altruistic reasons but rather to strengthen

France’s international position vis a vis Great

Britain.3

This centuries-old practice of granting aid to

foreign governments in order to shore up a

state’s own situation reflects a basic awareness

of, and appreciation for, the essential interdependence of peoples across the globe. It suggests,

1 Delos—the smallest of the Cyclades islands, which are located in the Aegean sea—was a major commercial center as well as the treasury of the Greek confederacy during the Persian wars in the late sixth century B.C. See, for a discussion, Rex Warner, trans., Thucydides,

History of the Peloponnesian War (London, UK: Penguin Books, 1954), p. 92. 2 W.W. Rustow, Eisenhower, Kennedy, and Foreign Aid (Austin, TX: University of Texas Press, 1985), pp. 75–76. 3 Robert Middlekauf, “The Revolution Becomes a European War,” The Glorious Cause: The American Revolution, 1763–1789 (New

York, NY: Oxford University Press, 1982), chap. 7.

moreover, that foreign aid can perhaps best be

viewed not as an end in and of itself, but rather as

a basic and well-tried, policy tool that can be

used to foster a range of national goals in the

international arena. Whether foreign aid is the

appropriate foreign policy tool in any given

instance will depend, in part, on world events

and the configuration of the world order.

Using foreign aid as a policy tool has special

relevance for today. Never before has the world

been so integrated, or have states been so interdependent. Now that advanced communication and

information networking technologies—operating in real time—span the globe, gyrations in the

Japanese stock market are experienced throughout the world within one business day; prior to

the development of the transatlantic cable in

1866, it took six weeks for stock prices to clear

between London and New York.4

 Likewise, with

instantaneous worldwide news coverage and

4 Kenneth D. Garbade and William L. Silber, “Technology, Communication, and the Performance of Financial Markets 1840–1975,”

Journal of Finance, vol. 33, June 1978, pp. 819–832.

F
42 | Global Communications: Opportunities for Trade and Aid

rapid diffusion of technologies such as the Internet, the media can now determine whether an

issue—such as the famine in Somalia or the

revolt in Chiapas, Mexico—is placed on the

international political agenda.

Complicating matters, the collapse of the

Communist regimes in the Soviet Union and

Eastern Europe has rendered the old world order

based on a Cold War balance of power obsolete,

while a new basis for world stability has yet to

emerge.5

 Lacking the threat of a major nuclear

war, the incidence of local quarrels and conflagrations has already increased. The year 1992,

for example, bore witness to more than 200

wars.6

At the same time, the number of highly complex and unprecedented social and economic

issues that need to be addressed at the global

level is on the rise. Just as national boundaries

are increasingly penetrable to the flow of commerce, ideas, and people, so too these boundaries

can no longer constrain the spread of social, economic, and environmental problems.7

 In the

future, the dangers to national security may stem

less from the outbreaks of war among nation

states, and more from the disintegration of civil

society and the depletion of the world’s human

and environmental resources.8

As in the past, policymakers can look to foreign aid as one way of coping with these highly

complex and unprecedented foreign policy

issues. Despite years of experience, however,

designing successful policies to address such

problems continues to be fraught with difficulties. The relationship between foreign assistance

and national goals such as national security,

political stability, and economic development is

by no means straightforward. Moreover, all too

often policymakers have drawn the appropriate

lessons from one set of foreign aid experiences,

5 The Quest for World Order, Daedalus, Journal of the American Academy of Arts and Sciences, summer 1995; see also Current History,

Global Security, entire issue, May 1995. 6 Benjamin Barber, “Jihad vs. MacWorld,” The Atlantic Monthly, March 1992, pp. 53–63. 7 Paul David Miller, “Leadership in a Transnational World: The Challenge of Keeping the Peace,” National Security Paper No. 2, Institute for Policy Analysis, 1993, p. 19. 8 See Robert D. Kaplan, “The Coming Anarchy,” The Atlantic Monthly, February, 1994.

only to have had the situation change so that new

solutions and approaches are required.

This chapter reviews the lessons to be learned

from past U.S. efforts to employ foreign aid policy to

achieve national goals. On the basis of this analysis,

it suggests a number of criteria that policymakers

will need to take into account in developing telecommunication-related approaches for providing foreign assistance.

FOREIGN AID AS A POLICY TOOL: 

THE IDEAL CASE

To understand how telecommunication-related

aid policies might mutually serve and perhaps

even reinforce foreign policy and foreign trade

goals, it is helpful first to consider the foreign aid

process—in the abstract—as an “idealized” system in which foreign aid serves as a policy tool

that aims to promote national security and international economic objectives (see figure 2-1). By

examining how the process is intended to

work—the assumptions on which it is based and

the conditions required for success—it is possible to identify and analyze potential problem

areas, as well as the points in the process where

telecommunication and information might best

contribute.

❚ Foreign Aid Goals and Policy Tools

Over the past 50 years, the United States has

employed foreign aid to achieve a number of

national goals. Aid has been provided, for example, for humanitarian reasons; to promote worldwide security and political stability; to support

economic development and growth in trade; to

maintain the integrity of the international monetary system; as well to foster democracy and protect the environment (see table 2-1). Although

program emphasis has changed over time and in
Chapter 2 Foreign Aid Policy: The Lessons Learned 43

* Humanitarianism

* Worldwide security and political stability

● Economic development and growth in trade

* Integrity of international monetary system

* Foster democracy

* Protect environment

I

* Direct monetary grants

● Grants-in-kind

* Military assistance

* Emergency funding

● Grants and loans for capital projects

(e.g., infrastructure)

● Funding to promote private-sector

investments

* Economic development

* Democracy

SOURCE: Office of Technology Assessment, 1995.

response to different circumstances, the range of

policy goals has remained fairly consistent.

Almost all these previous goals are echoed,

for example, in the Foreign Assistance Act of

1994, which—replacing the Foreign Assistance

Act of 1961—is intended to reshape the foreign

aid program, linking it closer to overall foreign

policy goals and the post-Cold-War international

environment. This legislation incorporates six,

interrelated objectives:

1. ensuring the economic competitiveness and

security of the United States;

2. supporting reform in Russia and the New

Independent States of the Former Soviet

Union;

3. renewing and revitalizing our critical security

relationships with the North Atlantic Treaty

Organization (NATO) and Europe;

4. expanding economic and political cooperation

across Asia and the Pacific;

5.

6,

a

forging an enduring peace in the Middle East;

and

meeting the challenges to American security

posed by global problems like proliferation,

environmental degradation, excessive population growth, narcotics trafficking, and terrorism.

Over the years, the U.S. government has used

variety of policy tools to achieve its foreign aid

goals. Included among these, for example, are

direct monetary grants and grants-in-kind for

humanitarian purposes and basic human needs,

military assistance, emergency funding to support exchange rates in times of financial crisis,

grants and loans for special capital/infrastructure-related projects, funding to insure private

sector investments against excessive risks, etc.

These policy tools are used, moreover, by a wide

range of aid organizations—public, private,

national, regional, and/or multinational alike.
44 | Global Communications: Opportunities for Trade and Aid

Generally speaking, the choice of policy tools

depends on factors such as historical interrelationships and geographic boundaries, policymakers’ values and perceptions of the problem,

available resources, and the mandates of funding

organizations, as well as the overall political and

economic context in which foreign aid organizations operate. Whether a given policy tool leads

to a successful outcome is related to factors such

as the worldwide economic environment; the situation and organizational context in which a program is implemented; its suitability for the task

at hand; and the quality of its execution.

❚ Achieving Intermediary Goals

As the arrows in figure 2-1 indicate, foreign aid

policies are intended to promote national security

and broad national economic goals indirectly, by

supporting economic development, democracy,

and political stability in select regions of the

world. Thus, how well these tools accomplish

their long-term national objectives will depend to

a large degree on their ability to deal with these

intermediary social, economic, and political

challenges. Achieving success requires that policymakers fulfill a number of conditions, all of

which are extremely difficult to meet. Policymakers must have a reasonable understanding of

the process of economic development, the nature

of democracy, and the impact of social and cultural forces. Moreover, they must be able to adequately identify and evaluate problems, and

develop the capacity and leverage to assure that

necessary adjustments are made.

❚ Longer Term Outcomes

Worldwide economic development is intended to

serve U.S. interests in at least two important, and

presumably, complementary ways. Foreign aid

programs, which promote economic development, aim to enhance stability in areas that are

threatened by forces inimical to the values and/or

security of the United States. At the same time,

economic growth and development also serve

U.S. economic interests. They not only foster stable worldwide economic institutions, which are

required for conducting business on a global

basis; they also help to generate a growing market for U.S. goods and services. U.S. environmental goals are also served to the extent that

foreign aid encourages sustainable economic

development.

TABLE 2-1: Development Ideas and U.S. Aid Rationales 1950–1990

Ideas Rationales

1950s Reconstruction of Europe

Establishment of Bretton Woods System

Containment

Humanitarian, development, commercial

Development, security

Security

1960s Stages: growth-stability

State-led growth

Import substitution industrialization (ISI)

Development, humanitarian, security

Development

Development, security

1970s Basic needs

New international economic order (NIEO)

Humanitarian, development

1980s Policy reform

Export-led growth

Democracy

Development, security, humanitarian

Development, security

Development, security

1990s Broad-based & sustainable development 

growth, democracy, environment, population

Economic security

Human development

SOURCE: U.S. Congress, Senate, Committee on Foreign Relations, Subcommittee on International Economic Policy, Trade, Oceans and Environment Affairs, Hearings on Foreign Aid Reform, hearing, Feb. 9, 22 and Mar. 3, 1994, S. Hrg. 103-560 (Washington, DC: U.S. Government

Printing Office, 1994).
Chapter 2 Foreign Aid Policy: The Lessons Learned | 45

Judging how well foreign aid has served the

interests of the United States is quite difficult,

given the complex set of factors involved. When

viewed on a project basis, and in terms of economic measures and goals alone, foreign aid programs have generally been rated successful,

exhibiting high average rates of return.9 But

ascertaining how such projects contribute to

overall economic growth and development in

developing countries is far more difficult.10 Generalizations about whether or not foreign assistance contributes to the achievement of

noneconomic goals—such as national security,

democracy, and political stability—are even

more problematic.

Clearly, all foreign assistance is not alike. The

impact of foreign aid depends not only on the

nature of the aid given but also on how it is used

by the recipients of aid. To understand the range

of possible outcomes, and the factors likely to

influence them, it is necessary to look more

closely—in light of past experiences—at the

assumptions on which the U.S. foreign policy

rationale has been based.

THE HISTORICAL EXPERIENCE

The uneven performance record of U.S. foreign

aid programs is due in part to the fact that many

of the assumptions on which these programs

were based are, in today’s context, less tenable.

If communication-based foreign aid programs

are to exhibit greater success, they must be

founded on a solid, up-to-date rationale that

incorporates the many lessons from the past.

9 Constantine Michalopoulos and Vasant Sukhatme, “The Impact of Development Assistance: A Review of the Quantitative Evidence,”

in Anne Krueger and Vernon W. Ruttan (eds.), Aid and Development (Baltimore, MD: Johns Hopkins Press, 1989), chap. 7; and Roger C.

Riddell, Foreign Aid Reconsidered (Baltimore, MD: Johns Hopkins Press, 1987), p. 126. 10 Ibid.

❚ The Marshall Plan: The Source 

of the Model

The U.S. foreign aid program dates back to the

end of the Second World War, when world conditions generally conformed to the assumptions

underlying the model outlined above. Perceiving

the Soviet Union to be a major threat to both

national security and the American way of life,

the United States sought to contain it by bolstering the economies of countries most vulnerable

to the appeals of communism. To this end, the

United States invested more than $13 billion

over a 5-year period, under the auspices of the

Marshall Plan, to help rebuild and sustain the

war-torn economies of Europe.11

Motivated by self-interest as well as generosity, this aid was not without conditions. Countries receiving aid had to provide matching funds

in local currencies, which were to be used to

improve the productive capacity of industry,

agriculture, and infrastructure. U.S. administrators also advised European governments on how

these matching funds should be used. In addition,

each aid recipient had to agree to balance its budget, free prices (hitherto controlled), halt inflation, stabilize its exchange rate, and devise a plan

for removing most trade controls.12 Moreover, to

promote West European integration, the Marshall Plan required European governments to

coordinate and jointly allocate American aid

through a new organization created for this purpose—the Organisation for European Economic

Cooperation (OEEC), which later became the

Organisation for Economic Cooperation and

Development (OECD).

11 Anne Krueger estimates this amount to be $55.4 billion in 1991 prices, or an average annual total of $13.8 billion. See Anne O. Krueger, Economic Policies at Cross Purposes: The United States and the Developing Countries (Washington, DC: The Brookings Institution,

1993), p. 200; See also Alan S. Milward, The Reconstruction of Western Europe 1945–1951 (University of California Press, 1984); and Stanley Hoffman and Charles Maier (eds.), The Marshall Plan: A Retrospective (Boulder, CO: Westview Press, 1984). 12 See Michael D. Bordo, “The Gold Standard, Bretton Woods and Other Monetary Regimes: A Historical Appraisal,” Federal Reserve

Bank of Saint Louis, March/April 1993, p. 166. See also “Bretton Woods Revisited: A Gift From the Cold War,” The Economist, vol. 332,

No. 7871, July 9, 1994, pp. 69–75.
46 | Global Communications: Opportunities for Trade and Aid

These conditions closely linked the Marshall

Plan to U.S. international trade and financial policies. Attributing the outbreak of hostilities in

World War II, in part, to the collapse of the

worldwide trading and financial systems, the

United States led the way in establishing a postwar open trading and monetary system based on

a set of multilateral economic institutions. Had

the European countries not had access to Marshall Plan aid, they would have been unable to

conform to these requirements for openness.

The cornerstone of the new economic order

was the Bretton Woods Agreement of 1944,

which called for the establishment of the International Monetary Fund (IMF), the International

Bank for Reconstruction and Development

(IBRD), and the General Agreement on Tariffs

and Trade (GATT).13 The IMF was set up to

manage the orderly transition of world currencies, by providing temporary funding to those

countries experiencing severe balance of payments difficulties. Complementing this role, the

IBRD (subsequently, the World Bank) was

designed to promote the flow of funds to developing countries. The GATT, which was intended

to be subsumed within the—subsequently

aborted—International Trade Organization

(ITO), was charged with trade liberalization.14

Together, these programs and institutions

were highly successful in fostering postwar economic reconstruction. By 1950, European production levels were 25 percent higher than in

1938. And, in the three years between 1947 and

13 Ronald I. McKinnon, “The Rules of the Game: International Money in Historical Perspective,” Journal of Economic Literature, vol.

31, March 1993, p. 12. 14 The General Agreement on Tariffs and Trade (GATT) was originally conceived as a holding operation until the ratification of the

treaty establishing the International Trade Organization (ITO). When the U.S. Congress failed to ratify the treaty, GATT came to serve as the

operational mechanism through which trade liberalization was negotiated. See Patrick Low, Trading Free: The GATT and U.S. Trade Policy

(New York, NY: The Twentieth Century Fund, 1993).

1950, agricultural output increased by one-third.

During the same time, the European trade deficit

fell from $8.5 billion to $1 billion.15 In 1952,

Europe generated a current account surplus and

by 1955, all European currencies were virtually

convertible.16

The United States similarly benefited from the

Marshall Plan and Bretton Woods arrangements.

Worldwide trade flourished in this stable economic environment. Between the years 1950 and

1960, for example, the value of world trade

increased from $57 billion to $144 billion, growing faster (in real terms) than output.17 In the

same period, U.S. exports totaled 5 percent of

gross national product (GNP), with 62 percent of

these exports going to industrialized countries.18

Judged, therefore, solely on the basis of U.S.

trade goals, the American investment in Europe

appears to have “paid off.”19

At the same time, postwar economic arrangements also served U.S. security goals, which had

become increasingly paramount in the face of a

mounting Soviet threat.20 By requiring European

countries to collaborate within the OEEC, the

Marshall Plan helped ameliorate potential conflicts among U.S. allies, thereby fostering European unity. Without such European cooperation,

NATO—on which U.S. defense strategy in

Europe depended—could never have succeeded.21

The United States gained, moreover, in a

much more fundamental and enduring way from

15 Organisation for Economic Cooperation and Development, From Marshall Plan to Global Interdependence (Paris, France: OECD,

1978); see also Robert Solomon, The International Monetary System 1945–1976: An Insider’s View (New York, NY: Harper and Row,

1976). 16 Bordo, op. cit., footnote 12, p. 166. 17 Krueger, op. cit., footnote 11, p. 12. 18 Ibid. 19 As described in The Economist, op. cit. footnote 12. 20 When Marshall presented his plan at Harvard University in June 1947, he left the door open to the Soviet Union and the Eastern Europeans to join the program, an offer that was turned down. As a result, the Marshall Plan came to be identified with the U.S. policy of containment. See Stephen Browne, Foreign Aid in Practice (New York, NY: New York University Press, 1991), p. 12. 21 Melvyn P. Leffler, A Preponderance of Power: National Security, the Truman Administration, and the Cold War, (Stanford CA: Stanford University Press, 1992).
Chapter 2 Foreign Aid Policy: The Lessons Learned | 47

these developments. As the chief financier of

postwar reconstruction, the United States was

successful in influencing the economic rules of

the global marketplace so that they mirrored and

reinforced American economic and political values.22 Thus, for example, participation in the

GATT was made contingent on a country’s

acceptance of free market principles. And, on

that basis, the Soviet Union and the countries of

Eastern Europe were excluded from the worldwide trading system.

Because of its widely acclaimed success, the

Marshall Plan served as the inspiration for U.S.

bilateral aid to the developing countries.23 As it

turned out, however, the Marshall Plan model

could not be easily replicated. Where conditions

diverged greatly from those in Europe, it yielded

some very different, and oftentimes unexpected,

results. Key to the Marshall Plan’s success was

the sheer magnitude of the financial commitment, a mutual purpose and atmosphere of trust,

the application of—what were generally agreed

to be—sound economic policies, and the existence of a social and economic infrastructure

capable of absorbing and efficiently allocating

aid resources.24

❚ Aid for Development in the Context

of the Cold War

Postwar conditions in the developing world differed radically from those in Western Europe.

Most less developed countries had only just

achieved independence, and their leaders—however capable—were as yet untried. The task of

22 Robert Gilpin, The Political Economy of International Relations (Princeton, NJ: Princeton University Press, 1987), pp. 131–134; and

Charles W. Kelley and Eugene R. Wittkopf, American Foreign Policy: Pattern and Process, 3rd ed. (New York, NY: St. Martin’s Press,

1987), p. 151. 23 As described by Paul Hoffman, an early administrator of the Marshall Plan, “We have learned in Europe what to do in Asia, for under

the Marshall Plan, we have developed the essential instruments of a successful policy in the arena of world politics.” Paul G. Hoffman, Peace

Can Be Won (New York, N.Y.: Doubleday, 1951), p. 130. Writing from an historical perspective, Albert Hirschman concurs. As he

describes, the Marshall Plan convinced policymakers that “the infusion of capital helped along by investment planning might be able to grind

out growth and welfare all over the globe.” A. Hirschman, “Rise and Decline of Development Economics,” in M. Gersovitz, et al. (eds.), The

Theory and Experience of Economic Development (London, UK: Allen & Unwin, 1982), p. 380. 24 Browne, op. cit., footnote 20, p. 13.

nation building, which lay before them, was

enormous. Rarely, if ever, did the geography,

history, and culture of these “nations” coincide.

The developing countries were, moreover,

extremely poor. For the most part, their economies were agriculture based, and thus dependent

on primary products for foreign exchange and

imports. Low standards of living, low savings

rates, high illiteracy rates, and relatively low life

expectancies were also common. These problems

were of such magnitude, in fact, that many leaders in the developing world believed that they

could only be overcome given very rapid economic development.25

This diagnosis was shared in the West.

Impressed by the results of the Marshall Plan,

Americans, in particular, were generally sympathetic to the notion of providing support to developing countries. Most people agreed, moreover,

that what was needed was the transfer of capital

and technology expertise. President Truman captured this vision in his 1949 inaugural address,

when, as his fourth major point, he called for a

technical assistance program for developing

countries.26

The altruistic motives that inspired Truman’s

Four-Point Program were soon superseded, however, by national security concerns. By 1953,

$4.5 billion—that is to say, 70 percent—of all

U.S. aid appropriations went to direct military

aid; another 20 percent took the form of economic assistance to less developed military

25 Krueger, op. cit., footnote 11. 26 David McCullough, Truman (New York, NY: Simon and Schuster, 1992), p. 729–731. See also Gregory A. Fossedal, Our Finest

Hour: Will Clayton, the Marshall Plan, and the Triumph of Democracy (Stanford, CA: Hoover Institution Press, 1993).
48 | Global Communications: Opportunities for Trade and Aid

allies.27 Once the Cold War had been brought to

a standstill in Europe, hostilities shifted to East

Asia. In June 1950—the same year that the U.S.

Congress passed the Act for International Development—North Korea invaded South Korea.

With the Soviet Union aiding the northern half of

the peninsula and the United States fighting on

behalf of the south, U.S. foreign assistance was

quickly channeled to the immediate military

objective of halting the Communist advance.28

When the fighting ended, the Cold War

shifted to more ideological battlegrounds, where

foreign assistance again played a critical role.

Seeking to extend their spheres of influence at

one another’s expense, the United States and the

Soviet Union sought to curry the developing

countries’ favor by proffering aid. Asia was a

key target of this competition. Including countries such as India, Indonesia, Pakistan, the Philippines, and Sri Lanka, which together accounted

for a large proportion of the developing world’s

population, Asia was considered to be more strategically situated than the regions of Africa or

Latin America.

Despite such superpower overtures, the newly

independent countries were not successfully

swayed by either camp. Meeting in 1955 at the

Afro-Asian Conference held in Bandung, Indonesia, they announced their joint decision to

remain nonaligned. Whether intended or not, this

decision served to raise the ante for granting foreign aid. Thus, for example, the United States

increased its aid to Indonesia, on learning that the

Indonesian government had accepted a $100 mil27 Subsequently, until the early 1960s, all U.S. foreign aid was administered by the Mutual Security Agency, which specified that aid

would be contingent on whether it “strengthened the security of the United States.” In keeping with these new guidelines, the United States

had, by the end of the war, not only invested $50 billion in South Korea’s democratic future; it had also deployed more than two million

troops there. David Louis Cingranelli, Ethics, American Foreign Policy, and the Third World (New York, NY: St. Martins Press, 1993), p.

138; and Browne, op. cit, footnote 20, p. 134. 28 According to Cingranelli, “Between 1946 and 1950, about 90 percent of the bilateral aid provided to less developed countries was for

economic development. With the outbreak of the Korean War in 1950, military aid began to dominate accounting for two-thirds of the total

by 1953.” Ibid.

lion loan from the Soviet Union. Similarly, the

Indian government, by remaining nonaligned,

was able to procure funds and credits to finance

its Second Five-Year Plan from the governments

of the Soviet Union, the United States, and Western Europe alike.29

The Cold War thus set a tone for U.S. development assistance that survives to some extent

today. Judged in the context of the period, and by

the overriding goal of containing communism,

U.S. aid policy was certainly a success. Measured in terms of Truman’s Four Point Program,

however, U.S. aid did not have its intended

effect. In fact, in some cases, it proved detrimental. When foreign loans increased a developing

country’s liability without improving its growth

potential, they served to make the recipient country further dependent on aid.30

The contrast between U.S. aid policy in

Europe and in the developing countries is striking. In devising the Marshall Plan the United

States worked closely with European countries to

develop a workable aid package that took into

account social and economic factors. In fact,

because of the importance attributed to social

and economic factors, the United States made aid

to Europe contingent on European cooperation

and on fundamental economic reforms. In the

developing countries, no similar dialogue ever

took place. Equally, if not more important, the

basis for granting aid to developing countries

was political correctness rather than economic

soundness.

29 The developing world’s policy of nonalignment also had its downsides. Using the stick as well as the carrot, the United States denied

assistance on a number of occasions for political reasons. Thus, for example, when Egypt began to establish closer ties with the Soviet bloc in

1955, and signed an arms agreement with Czechoslovakia in 1956, the United States canceled its offer to help finance the Aswan Dam, as did

the United Kingdom and the World Bank—the only other sources of noncommunist funding. Browne, op. cit., footnote 20. 30 This is a criticism that has been made from all sides of the political spectrum. For an overview, see Riddell, op. cit.; footnote 9.
Chapter 2 Foreign Aid Policy: The Lessons Learned | 49

❚ An Expanding Foreign Aid Environment

By the late 1950s, the rigid bipolar pattern of distributing aid began to erode. New kinds of foreign aid programs and rationales were introduced

to take into account the growing evidence and

data on economic development. Similarly, new

players with their own agendas were becoming

involved, including among them a number of

multinational organizations. The developing

world was also emerging as a political force in its

own right. Given this increasingly fluid international political environment, the United States

had less freedom to link foreign aid to foreign

policy and trade goals or leverage to control policy outcomes.

The narrow choice of foreign aid tools

reflected a lack of understanding and empirical

evidence about the nature and process of economic development.31 Given little experience

with the newly independent countries, American

policymakers attributed their poverty to a lack of

domestic capital required to fuel industrialization. Accordingly, they concluded that these

countries merely needed foreign capital. Because

the Congress was generally opposed to aid for

purposes other than military security, however,

most aid was provided on a loan rather than a

concessionary basis.32

When industrialization was not immediately

forthcoming, funders recognized that Third

World countries could not borrow and repay

loans as did developed countries. The IBRD, for

example, lent money at near market interest

rates, so it was only natural that—especially in

the early years—Japan and the countries of

Europe were its major clients. To meet the Third

31 As described by Krueger and Ruttan, “Until World War II, growth was not a conscious policy objective even in most industrial countries. Insofar as some governments attempted consciously to stimulate economic growth, little or no systematic knowledge was available to

guide their efforts.” Anne O. Krueger and Vernon W. Ruttan, “Development Thought and Development Assistance,” in Krueger and Ruttan,

op. cit., footnote 9, p. 13; and David A. Baldwin, Economic Development and American Foreign Policy: 1943–1962 (Chicago, IL: University

of Chicago Press, 1966). 32 Krueger and Ruttan, op. cit., footnote 9, p. 15.

World’s special needs, the United States—in

1959, at the end of the second Eisenhower

Administration—helped to establish two new, but

moderately funded, aid organizations—the Development Loan Fund (DLF), and the International

Development Association (IDA), later incorporated

into the World Bank. With an initial subscription of

$900 million, IDA provided concessionary development loans to low income countries.33

Over time, policymakers also began to

acknowledge that financial capital, by itself, was

insufficient to address the myriad of problems

facing the developing world.34 In this sense, the

Marshall Plan proved inadequate as a model. In

contrast to postwar Europe, where the major

problem was one of reconstruction, the newly

independent nations had to build social and economic institutions from scratch. U.S. policymakers soon came to realize that, if capital were to be

used effectively in the developing countries, it

would have to be linked to the transfer of technical and administrative knowledge and skills. At

the same time, the United States initiated a major

food assistance program, authorizing the sale of

surplus grains to developing countries at prices

below costs in return for local—and more often

than not—inconvertible currencies.35

A major shift in U.S. foreign aid policy

occurred in the early 1960s, with the advent of

the Kennedy Administration. A long time advocate of foreign aid, Kennedy was the first President to make Third World economic

development a prominent goal of U.S. foreign

policy.36 Speaking in Congress in 1959 in support of aid to India, Kennedy had—while still a

Senator—equated the importance of the “economic gap” with that of the “missile gap.”37

33 Cingranelli, op. cit., footnote 27, p. 139. 34 Krueger, op. cit., footnote 11, p. 28. 35 This program was established in the mid-1950s under the Agricultural Trade Development and Assistance Act (Public Law 480). 36 Cingranelli, op. cit. footnote 27, 169. 37 Rustow, op. cit., footnote 2, p. 157.
50 | Global Communications: Opportunities for Trade and Aid

Kennedy’s speech to the Senate followed on

the heels of a number of alarming incidents and

events such as the crises in Suez and the Formosa

Straits, as well as the roughing up of Vice President Nixon in Latin America. With the spread of

military and political unrest beyond the Soviet

bloc, Kennedy’s arguments resonated in Congress and among the public. Also important in

building the case for aid was the strong support

of a number of prominent academics, who marshaled theoretical arguments to demonstrate how

foreign aid might provide the necessary impetus

for sustainable growth in the developing world.38

Building on this growing consensus, Kennedy

increased funding for foreign assistance programs (most notably soft loans) early in his presidency. Equally, if not more important, he

extended the goal of aid to include economic

development as well as economic growth, while

at the same time expanding the notion of what

foreign aid programs should entail. To realize his

vision of the “development decade,” aid programs were to generate fundamental social and

economic change in the developing world.39 To

this end, Kennedy established new and innovative programs such as the Peace Corps and the

Alliance for Progress. In addition, in 1961, he

highlighted the role of foreign aid, by bringing

together and reorganizing programs within a

new, independent agency—the U.S. Agency for

International Development (USAID) (see box 2-

1).40 Enthusiasm for Third World economic

development reverberated throughout the industrial world.41 As Europeans recovered from the

Second World War, they began to assume greater

38 Describing his and his colleagues work at the time, Rustow notes, for example, “The central distinctive feature of our approach was

that we placed economic growth and foreign aid systematically within the framework of the process of the modernization of societies as a

whole.” W.W. Rustow op. cit., footnote 2, pp. 43–54. See also Raymond F. Mikesell, Robert A. Kilmarx and M. Kramish, The Economics of

Foreign Aid and Self-Sustaining Development (Boulder, CO: Westview Press, 1985), pp. 5–6. 39 As Cingranelli notes, “Kennedy stated boldly for the first time that U.S. foreign policy should seek to affect not just the foreign policies

of other nations, but their domestic affairs as well.” Cingranelli, op. cit., footnote 27, p. 169. 40 Robert E. Wood, From Marshall Plan to Debt Crisis: Foreign Aid and Development Choices in the World Economy (Berkeley, CA:

University of California Press, 1986), p. 75. 41 David Halloran Lunsdaine, Moral Vision in International Politics: The Foreign Aid Regime 1949–1989 (Princeton, NJ: Princeton University Press, 1993), pp. 238–239.

responsibility for the financial and administrative

burden associated with foreign assistance. Thus,

although the United States had accounted for

more than one-half of all foreign aid throughout

the 1960s, by 1970, the real value of U.S. aid had

dropped by one-fifth, constituting less than onethird of all aid flows.42

Equally impressive was the shift in the origins

of aid. Although the Japanese had been major

borrowers of World Bank funds throughout the

1960s, by the mid-1970s, they were major providers of concessionary aid, focusing their efforts for

the most part in East Asia. West Germans also

rose in rank to become the third largest donor

among the OECD countries. In the wake of the

1973 oil embargo, the OPEC countries also

became critical players in the world economy;

serving also as major lenders. By 1975, the OPEC

countries had increased their aid ninefold; most of

this aid was destined for the Islamic world.43

New donors clearly had their own priorities,

which were not always consistent with U.S.

goals. Less concerned than the United States

about communism, many pressed for economic

development over national security goals.

Included, for example, were the Netherlands, the

United Kingdom, and France, with France also

seeking to promote its own language and culture.

The Swedes, for their part, not only opposed

political and strategic aid; they were also among

the first to call for projects that stressed Third

World self-reliance and basic human needs.

Other countries, such as West Germany and

Japan, had economically oriented aid programs

intended to promote trade and exports.44

42 Browne, op. cit., footnote 20, p. 36. 43 Ibid. 44 Wood, op. cit., footnote 40.
Chapter 2 Foreign Aid Policy: The Lessons Learned | 51

BOX 2-1: The U.S. Agency for International Development (USAID)

USAID is one of several federal agencies responsible for administering the international affairs budget

of the United States. Established in 1961, USAID dispenses bilateral assistance to support its four sustainable development strategies of promoting broad-based economic growth, stabilizing world population, protecting the environment, and fostering democratic principles. USAID administered about onethird of the $21.5 billion spent by the U.S. government on International Affairs in Fiscal Year 1995. The

major USAID-administered programs and approximate budget figures are listed below.

1995 Estimate 1996 Request

Development Assistance Fund $1,319,402,000 $1,300,000,000

Development Fund for Africa 802,000,000 802,000,000

Microenterprise and Other Credit Programs 2,000,000 14,500,000

Housing Guaranty Program 27,300,000 24,000,000

International Disaster Assistance 169,998,000 200,000,000

Foreign Service Retirement and Disability 45,118,000 43,914,000

Operating Expenses 556,645,000 568,145,000

Subtotal: Development Assistance $2,922,463,000 $2,952,559,000

Economic Support Fund $2,450,900,000 $2,494,300,000

Assistance for Central and Eastern Europe 359,000,000 480,000,000

Assistance for the Newly Independent States 719,400,000 788,000,000

$6,451,763,000 $6,714,859,000

Development Assistance activities are designed to promote sustainable development in some of the

poorest countries in the world. The largest program in this category is the Development Assistance Fund

which in FY 1995 made grants to developing country governments, nongovernmental organizations, and

international agencies totaling approximately $1.3 billion. Roughly one-third of this total was aimed specifically at stabilizing world population. The Development Fund for Africa was created in FY 1988 as a single development fund for sub-Saharan Africa, thereby giving USAID greater flexibility in meeting the

region’s development needs. Funds for Microenterprise and Other Credit Programs are used to guarantee market rate loans for small enterprises developments which further USAID’s development agenda.

The Housing Guaranty Program extends guaranties to U.S. private investors who make loans to developing countries to assist them in formulating and executing sound housing and community development

policies that meet the needs of lower income groups.

The $2.5 billion spent through the Economic Support Fund in FY 1995 included $220 million for countries in transition such as Nicaragua, Haiti, and Cambodia and $2.3 billion for promoting peace and economic development especially in Israel, the West Bank, Gaza, Egypt and Turkey. USAID also continued

to support democratization in Central and Eastern Europe and the Newly Independent States of the

Former Soviet Union begun in 1989 with passage of the Support for Eastern European Democracy Act

and the Freedom Support Act.

SOURCE: Adapted from the Agency for International Development, Congressional Presentation, Fiscal Year 1996.
52 Global Communications: Opportunities for Trade and Aid

1955

1960

1965

1970

Special funding for development and IDA established (Development

I / /

, ,

SOURCE: David Halloran Lumsdaine, “Moral Vision in International Politics, The Foreign Policy Regime, 1949-1989” (Princeton, NJ: Princeton

University Press),

Responsibility for foreign assistance was further diffused, as more and more aid was channeled through the many multilateral

organizations that had proliferated and gained

prominence throughout the 1960s (see figure 2-

2). Thus, whereas in

aid was distributed

tions, by 1970, this

1964, only 6 percent of U.S.

via multinational organizafigure had risen to 14 percent, and by 1975, it reached 35 percent. A

parallel development occurred in other OECD

countries, with multilateral aid totaling 6, 14, and

23 percent for the same years .45

One growing source of multilateral funding

was the regional development banks. These

banks were set up during the 1960s to increase

funding to specific

eled after the IBRD

regions of the

and IDA, they

world. Modoffered loans

to the developing countries

and a concessionary basis.

both on a commercial

International politics played an important role

in the regional development banks’ establishment. Initially, recipient countries lobbied hard

on their behalf, while the United States consistently opposed them. The United States did not

want to further dilute its control over the flow of

aid. Nor was it eager for new development banks

to compete with private lenders.46 But eventually, and in each case, the U.S. Government was

forced to acquiesce in the face of pressing international events. Thus, the InterAmerican Development Bank was set up in 1959 to discourage

Latin American radicalism; the Asian Development Bank, in 1965 to offset military activities in

Vietnam; and the African Development Bank, in

45 Rustow, op. cit., footnote 2, p. 179. 

46 Wood, op. cit., footnote 40.
Chapter 2 Foreign Aid Policy: The Lessons Learned | 53

1974 to foster better relationships with the black

African states.

As a major donor, the United States was able

to exercise considerable leverage.47 Most important from a long term perspective, it steered the

bank’s loan policies so as to foster Western economic and political principles throughout the developing world. Moreover, when critical U.S. interests

were at stake, U.S. bank officials were generally

able to influence loan decisions to promote a more

specific or immediate foreign policy goal.48

U.S. influence was less pronounced in the

Development Assistance Committee (DAC) of

the OECD, a second major source of multilateral

assistance. Set up in 1963, the DAC aimed to

coordinate the growing number of bilateral

development programs that had evolved in parallel with USAID. Created at the high tide of the

“development decade,” the DAC was a clarion

for foreign assistance. Given its own professional

staff with the power to monitor, collect statistics,

and set standards, the DAC strongly influenced

international aid policy and distribution.49 By

setting higher and higher targets, the DAC generated greater quantities of aid. However, by focusing on the moral obligation to provide aid, the

DAC failed to sufficiently debate and develop a

more comprehensive and enduring foreign assistance rationale.50

Developing countries also came to play an

increasingly important role in promoting aid,

with the United Nations (U.N.) providing the

major forum for articulating their needs. Unlike

the multilateral developing banks—where voting

is weighted—in the U.N. General Assembly all

47 Organized along the lines of a joint stock company, the multinational banks use a system of weighted voting, which gave major donors

such as the United States a predominant voice. The United States also held the positions of president of the World Bank and executive vicepresident of the International Development Bank, which oversees concessionary funding. Ibid., p. 8. 48 Jonathan E. Sanford, Foreign Policy and Multilateral Development Banks (Boulder CO: Westview Press, 1982), pp. 39–40. 49 The original members included the six established donors—the United States, France, the United Kingdom, the Netherlands, Belgium,

and Portugal as well as four newer donors, West Germany, Japan, Italy, and Canada. Lunsdaine, op. cit., footnote 41, p. 246. 50 Browne, op. cit., footnote 20, p. 24.

parties have an equal voice. Comprising approximately two-thirds of U.N. members in 1960, the

Third World was not to be ignored. Proclaiming

the 1960s as the First U.N. Development Decade,

developing countries set an aid target totaling 1

percent of the combined incomes of the industrialized world. In the next four years, a number of new

aid programs were introduced, and the amount of

aid that was channeled through them quadrupled.51

The developing countries seemed to thrived in

this expanded aid environment. In particular, the

East Asian countries such as Taiwan, Hong

Kong, Korea and Singapore took advantage of

the opportunity to propel their economies beyond

the stage of “take-off” for sustainable economic

growth. 52 Even the poorest countries, however,

appeared to do well, achieving growth rates

above their norms. India, for example, experienced growth in gross domestic per capital

income of 1.5 percent. Although low in comparison with many other developing countries during

this era, India’s growth rate in the 1970s was

more than three times higher than it had been the

century before.53

For some countries, these economic gains

were illusory. When later put to the test in a contracting international economic environment,

these economies could not sustain their growth.

To the contrary, many governments continued to

borrow to keep their growth rates high. However,

such policies were ultimately self-defeating,

plunging many developing countries yet deeper

and deeper into debt.

For the United States, the record of this period

was also mixed. The massive growth in multilateral support for foreign assistance helped to

51 Included among these programs were the capital funded Special U.N. Fund for Economic Development (SUNFED), which when later

was consolidated with EPTA became the U.N. Development Fund, The World Food Program, created by the UN Food and Agricultural

Organization in 1963; the U.N. Development Organization (UNIDO) set up in 1967; and the World Employment Program, begun by the

International Labor Organization (ILO) in 1969. 52 The concept of “takeoff” was developed by W.W. Rustow as part of his model of the evolutionary process leading to nonreversible

economic development. See W.W. Rustow, The Stages of Economic Growth (Cambridge, UK: Cambridge University Press, 1960). 53 Krueger, op. cit., footnote 11, p. 13.
54 | Global Communications: Opportunities for Trade and Aid

reduce the heavy financial and administrative

burden that the United States assumed at the end

of the Second World War. At the same time,

however, the entry of new participants made it

harder for the United States to use aid for its own

foreign policy purposes. Eventually, this lack of

control served to undermine domestic support for

aid. As the decade wore on, U.S. aid representatives were increasingly chastised by Congress for

failing to adequately protect U.S. interests.54

❚ Disappointment and Retrenchment

The public and congressional enthusiasm that

accompanied Kennedy’s foreign aid initiative

was short-lived. Already by 1963, funding for

U.S. foreign assistance began to dwindle, and it

continued on a downward slope for more than a

decade (see figure 2-3).55 Public enthusiasm for

foreign assistance was also on the wane. In a poll

taken in 1980, more than eighty percent of the

respondents favored a cutback in all foreign aid. 56

Many factors accounted for this growing disillusionment. Included, for example, were a crisis in

the world economy, which led to greater preoccupation with domestic affairs; the growing

importance of private capital flows as a substitute for aid; failed expectations and a loss of confidence in aid policies; as well as emerging

North-South tensions.

Living up to the expectations of the 1960s

would have been difficult in any event. It proved

to be impossible, however, in the radically

changed international and domestic environment

characterizing the 1970s and 1980s. Nothing

confirmed this transformation more than the

1973 OPEC oil embargo and the rising price of

oil. Prior to the first hike in oil prices, industrialized countries had a current account surplus of

about 1 percent of GNP, while the developing

countries had an equivalent modest deficit of 1

54 Jonathan E. Sanford, op. cit., footnote 48, pp. 182–183. 55 Krueger, op. cit., footnote 11, p. 30. 56 Robert E. Wood, op. cit., footnote 40, p. 1.

percent. Within a year, the situation changed radically. Industrialized countries had lost their surplus, and many developing countries had

doubled their deficits.57

The second oil price increase, in 1979, was

even more devastating, creating balance of payments problems for industrialized countries, as

well. In the United States, these problems were

compounded by the drain on the economy due to

the protracted Vietnam War. The result was a

long period of stagflation characterized by both

high prices and minimal growth, leading to

increased protectionism and a decline in the

demand for Third World imports. Thus, the volume of world trade grew only 1.5 percent in

1980; was virtually nil in 1981; and dropped 3.2

percent in 1982. Although the volume of world

trade increased in 1983 by 2 percent, its value

fell proportionately.58

Faced with their own economic problems,

industrialized countries could not meet the developing countries’ growing capital needs. In the

United States, for example, President Nixon

called increasingly on the private sector to fill

this financial gap. To this end, the Nixon Administration created the Overseas Private Investment

Corporation (OPIC), which provided government insurance for private investments in developing countries (see box 2-2).

With “petrodollars to spare,” Western banks

eagerly took up the slack. Developing countries

appeared a good investment.59 Moreover, so

long as interest rates remained fixed and inflation

was on the rise, these countries could borrow

without increasing their debt-service ratios. And,

borrow they did. In the years between 1970 and

1980, private lending by commercial banks

increased in real terms from $9 billion to $47 billion. And the proportion of total net financial

57 Browne, op. cit., footnote 20. p. 31. 58 Raul L. Madrid, Overexposed: U.S. Banks Confront the Third World Debt Crisis (Boulder CO: Westview Press, 1992), p. 73. 59 Gilpin, op. cit., footnote 22, p. 318 and Wood, op. cit., footnote 40, p. 243.
Chapter 2 Foreign Aid Policy: The Lessons Learned 55

Billions U.S.$ (1978 prices) Percent

1960 1965 1970 1975 1980

70

60

50

40

30

20

10

0

SOURCE: World Development Report 1981 (World Bank) Table 16, p, 164-165 as cited in W.W. Rostow, Eisenhower, Kennedy, and Foreign Aid

(Austin, TX: University of Texas Press, 1985).

Since beginning operations in 1971, OPIC has been the key U.S. government agency encouraging

American private business investment in developing countries. It encourages investment by providing

project financing and political risk insurance to ventures with significant equity or management participation by U.S. companies. OPIC provides these ventures with direct loans and loan guarantees that provide

medium to long-term funding and look for repayment from project revenues. Political risk insurance is

used by recipients to insure against expropriation of assets, currency inconvertibility, political violence

and other forms of investment exposure. OPIC also supports a small number of privately managed investment funds that target emerging markets around the world and provides other investor services including

seminars and conferences throughout the United States, investment missions and reverse missions.

From FY 1988 through FY 1993, OPIC provided $434,030,732 in political risk insurance and

$195,650,000 in financing through direct loans and/or loan guarantees to developing countries.

SOURCE: OPIC 1994 Annual Report and “U.S. Government, Private Sector, NonProfit, and Academic Contributions to Communications Development, ” Information Infrastructure Task Force, March 1994.

receipts that constituted aid fell from 60 to 30 sion in 1980, accompanied by a shift to floating

percent in the years between 1960 and 1980.60 exchange rates, reduced the demand for developThis situation was untenable over the long ing country exports, forcing them to borrow

run, however. The onset of a worldwide reces- again and again to finance their current account

60 Anne 0. Krueger and Vernon W. Ruttan, in Krueger, Michalopoulos, and Ruttan op. cit., “Toward a Theory of Development Assistance,” footnote 9, chap. 3, p. 37.
56 | Global Communications: Opportunities for Trade and Aid

deficits. This time, however, worldwide interest

rates were much higher, so debt service costs

were no longer in their favor. The result was the

debt crisis of 1982, discussed below.

With developing countries no better off than a

decade earlier, many began to question the value

of aid. Criticism abounded, coming from all

quarters. Conservatives and radicals alike

opposed the foreign aid regime not simply

because it was ineffective, but rather—and much

more significantly—because it was considered to

be detrimental to economic development goals.61

Citing the long history of Western progress,

conservative critics emphasized that economic

development did not require economic aid. To

the contrary, economic growth—as they pointed

out—had occurred only in situations where markets were free and open, and where cultures were

supportive of individualistic, entrepreneurial

norms. Aid, they argued, could only stunt economic development. Foreign capital, when provided as aid, was likely to substitute for, rather

than to encourage, domestic savings. Moreover,

when distributed to those in power, aid was

likely to be used to promote government controls

and to perpetuate corrupt and inefficient business

practices.62

Like the conservatives, the critics on the left

also believed that the long run consequences of

foreign aid were negative.63 They argued that, if

anything, aid served only to widen the gap

between the rich and the poor. Rarely, if ever,

had aid benefited the people most in need.

Instead, it had been used primarily to bolster the

61 Roger C. Riddell, Foreign Aid Reconsidered, op.cit., footnote 9; See also Paul Mosley, Foreign Aid: Its Defense and Reform (Lexington, KY: The University of Kentucky, 1987). 62 Ibid. 63 Ibid., pp. 129–156.

positions of those in power.64 Donors, these critics claimed, were equally at fault, aligning themselves with elites in developing countries so as to

achieve their own political and economic objectives.65 From this radical perspective, what was

needed to assure that aid served the poor was

nothing less than a total redistribution of political

power.

This debate over the merits of aid raised fundamental questions about the nature of economic

development itself. The result was a major shift

in the direction of foreign assistance programs.

Economic development was no longer viewed as

a problem of increasing capital inputs so as to

generate greater national output. Instead, it was

conceived as a problem of reducing poverty and

providing for peoples’ basic needs.66 Accordingly, aid programs were redesigned to focus less

on infrastructure development and more on

income redistribution. The oil embargo had also

made people more conscious of the need to conserve natural resources. Increasingly, aid programs sought to take into account the effect of

economic and population growth on environmentally sustainable development.

Reflecting this shift in priorities, the Congress

passed the Foreign Assistance Act (referred to as

the Basic Human Needs Mandate or New Directions) in 1973. This legislation called for a new

aid strategy to help poor people in the Third

World improve their food production, health

care, nutrition, population planning, and educa64 F. M. Lappe, J. Collins, and D. Kinley, Aid as Obstacle: Twenty Questions About Our Foreign Aid and the Hungry (San Francisco,

CA: Institute for Food and Development Policy, 1980). 65 As described by Carty and Smith, “Underdevelopment... didn’t just ‘happen’—nor is it a problem solely generated within the Third

World. External forces have substantially created it. In every situation of underdevelopment, there are underdevelopers—structures, powers,

and governments which ride the backs of the southern nations and choke off their development possibilities.” R. Carty and V. Smith, Perpetuating Poverty—The Political Economy of Canadian Foreign Aid (Toronto, Canada: Between the Lines, 1981), p. 11, as cited in Riddell, op.

cit., footnote 9, p. 134. 66 The basic needs approach was first laid out by the Director-General of the International Labor Organization (ILO), in March 1976 during a speech to the World Employment Conference. See Employment, Growth, and Basic Needs: A One World Problem (Geneva, Switzerland: The International Labor Office, 1976), p. 31; see also Robert L. Curry Jr., “The Basic Needs Strategy, the Congressional Mandate, and

U.S. Foreign Aid Policy,” Journal of Economic Issues, vol. 23, No. 4, 1989, pp. 1085–1096.
Chapter 2 Foreign Aid Policy: The Lessons Learned | 57

tion.67 Five years later, in 1978, Congress reaffirmed that the principal purpose of U.S. bilateral

aid was to support equitable growth, so that the

world’s impoverished people could “satisfy their

basic needs and lead lives of decency, dignity,

and hope.”68

This new congressional mandate coincided

with, and was reinforced by, the Carter Administration’s foreign policy efforts to protect human

rights and improve North/South relations. Foreign aid was central to this effort. The provision

or denial of aid was often used to induce developing countries to respect human rights. Thus,

notwithstanding the overall downward trend in

funding, expenditures on foreign aid increased

from $4 billion in 1976 to $7 billion in 1980 during President Carter’s tenure.69

Parallel changes were also taking place in the

international arena. In the 1970s, the World Bank

restructured its lending programs around a threepronged approach. First, foreign assistance was

redirected to the 25 most impoverished countries.70 Many of these—located in Africa—had

previously received only a small proportion of

aid. Second, funds were shifted from large scale,

growth-oriented infrastructure projects to more

general programs designed to meet human needs

and provide purchasing power to the poor.

Finally, funding was set aside for direct intervention to alleviate poverty.71

Although the basic needs approach helped to

bring problems of poverty, rural areas, and

equity to the fore, it was limited in a number of

ways. One difficulty, which soon became obvious, was defining poverty and determining basic

67 Mark F. McGuire and Vernon W. Ruttan, “Lost Directions: U.S. Foreign Assistance Policy Since New Directions,” The Journal of

Developing Areas, vol. 24, January 1990, pp. 127–180. 68 Ibid. 69 Rustow, op. cit., footnote 2, p. 185. 70 Countries in poverty were designated in 1973, using criteria such as income per capita, literacy rates, manufacturing capabilities, etc. A

decade later, the number of countries in this category had actually increased. Browne, op. cit., footnote 20, pp. 116–117. 71 Ibid.

needs. Generalizing was problematic, because

peoples’ “needs” are highly contextual. Locating

the poor and gaining the support of local elites

also proved difficult.72

From the long-term perspective, the most serious problem was the inclination to downplay—

and in some cases even denigrate—the need for

economic growth.73 Proponents argued that

growth policies, which rely on “trickle-down”

benefits, are unlikely to serve the poor.74 What

they failed to take into account, however, is that

without growth, developing countries will not

have sufficient resources to provide for basic

needs. Moreover, when resources are channeled

for present consumption rather than for investments for the future, later generations may be at

risk.75

Significantly, those countries that deliberately

pursued growth-oriented development policies

far outperformed those that did not. Most successful in this regard were the East Asian countries—Korea, Taiwan, Singapore, and Hong

Kong, which developed highly successful

export-oriented growth strategies. Between 1960

and 1989, for example, these countries increased

their exports from $2 billion (which constituted 5

percent of all developing country exports) to

$246 billion (or 32 percent of all developing

countries’ exports).76 This export growth not

only served to prime the newly industrializing

countries’ (NICs) domestic economies; it also

provided the foreign exchange necessary to survive the subsequent downturn in the global economy.77

The basic needs approach posed problems not

only for aid recipients but for aid donors as well,

72 Robert Ayres, Banking on the Poor: The World Bank and World Poverty (Cambridge, Mass. MIT Press, 1983), pp. 102–103. 73 Sidney Dell, “Development Objectives: Basic Needs or Comprehensive Development,” in Sidney Dell, International Development

Policies: Perspectives for Industrialized Countries (Durham, NC: Duke University Press, 1991). 74 Judith Tendler, Rural Projects Through Urban Eyes: An Interpretation of the World Bank New Style Rural Development Projects,

World Bank, Working Paper, No. 532, 1982, p. 3. 75 Dell, op. cit., footnote 73. 76 Krueger, op. cit., footnote 11, p. 105. 77 Stanley Fischer and Ishrat Husain,“Managing the Debt Crisis in the 1990s,” Finance and Development, June 1990, p. 24.
58 | Global Communications: Opportunities for Trade and Aid

making it hard for them to design, evaluate, and/

or influence project outcomes.78 Because aid

was distributed to alleviate poverty, donors were

unable to channel foreign assistance to countries

that—given their policies and resources—could

use it most effectively. In addition, when aid programs were oriented towards general programs

rather than specific projects, donors had less control and fewer opportunities to work cooperatively with recipient countries, sharing

knowledge and information in a two-way fashion.

Given its focus on poverty and program flexibility, the basic needs approach was intended to

improve relations with the Third World. However, instead of ameliorating North/South tensions, foreign aid—and the related issue of the

developing countries’ role in the world economy—became a major source of contention. Far

from being pleased with the new aid regime,

developing countries complained that aid donors

did not go far enough in meeting their needs.

To rectify the situation, Third World countries

called for a new international economic order,

which—based on a wide range of institutional

reforms—would give them greater power and

control over their own fates. In late 1974, these

objectives were incorporated into the “U.N.

Charter of Economic Rights and Duties of

States,” in keeping with a vote of the General

Assembly, where the developing countries—

known as the Group of 77—had a solid majority.79

Unwilling to renounce their authority and

freedom of action, donor countries strongly

resisted such changes.80 While maintaining a

dialogue with the Group of 77, donor countries

were increasingly irritated by, and unreceptive

78 Krueger, et al., op. cit., footnote 9. 79 These demands were made at a special session of the U.N. General Assembly held in early 1974. At the end of the year, they were

incorporated into the U.N. Charter of Economic Rights and Duties of States. They included the rights to 1) form producer associations; 2)

link commodity export prices to the prices of manufacturing goods exported from the industrialized world; 3) nationalize foreign enterprises

and domestic control of natural resources; and 4) establish rules and regulations for multinational corporations located within their borders.

Gilpin, op.cit., footnote 22, p. 298; See also Steven Krasner, Structural Conflict: The Third World Against Global Liberalism (Berkeley, CA:

The University of California Press, 1985). 80 Wood, op. cit., footnote 40, p. 113.

to, their demands. This growing antagonism was

only partially assuaged when the U.N. proclaimed the 1980s the “Third Development

Decade.”81

Thus, the basic needs approach also failed to

alleviate political tensions between industrialized

and developing countries. To the contrary, U.S.

interactions with the Third World deteriorated.

The “Second Development Decade,” which had

begun inauspiciously with the oil embargo of

1973, closed in a resounding finale with the Iranian Revolution of 1979.

This deteriorating international political situation helps account for the abrupt shift in U.S. foreign aid policy that occurred at the end of the

seventies. On entering office, President Carter

strongly advocated the basic needs approach.

However, by the end of his term, the Carter

Administration was redirecting its foreign assistance programs to U.S. security needs In 1979,

the Administration’s overall appropriation bill

allocated $1.91 billion for security support assistance but only $1.3 billion to economic development. To facilitate this shift in focus, aid funding

was increasingly drawn from the Economic Support Fund (ESF) account, which—being totally

fungible—could rapidly be dispersed for any

politically expedient purpose. 82

The Reagan Administration went even further

in moving away from a basic needs approach to

one focusing on security-related foreign assistance. Early on, the Acting Assistant Secretary of

State for African Affairs announced that foreign

assistance would increasingly “emphasize areas

of strategic and political priority to the U.S.,” as

well as rely heavily on the ESF, which “provides

flexible resources necessary to carry forward our

81 Rustow, op. cit., footnote 2. p. 230. 82 McGuire and Ruttan, op. cit., footnote 67, p. 128.
Chapter 2 Foreign Aid Policy: The Lessons Learned | 59

U.S. policies in nations affected by rapidly

changing economic and security problems.”83

The ultimate—and perhaps inevitable—breakdown in the international aid regime did not

occur, however, until August 1982, when the

Mexican government announced that, without

assistance, it could not service its foreign debt.

Within two years, no fewer than 42 additional

countries—with outstanding foreign debts totaling $27 billion—followed suit.84 The Reagan

Administration had little choice but to intervene.

American banks held a major portion of the less

developed countries (LDC) debt, so their very

existence was at stake. The claims held by the

nine largest U.S. banks against Argentina, Brazil,

and Mexico constituted more than 135 percent of

their total capital.85

❚ From Debt Crisis to Structural 

Adjustment

The LDC debt crisis not only marked the end of

the old aid regime. Equally important, its mode

of resolution became the model, and modus operandi, for the aid regime to follow. Foreign aid

was henceforth no longer viewed as the key to

economic growth. Much more critical was the

role that developing countries could themselves

play in restructuring their economies in accordance with market principles. Most policymakers

agreed that, in the post-debt-crisis environment,

aid might best be used not to promote growth per

se, but rather to induce structural economic

adjustments to foster growth and facilitate the

developing countries’ integration into the global

economy.

The debt crisis served to winnow Third World

winners from losers. The few countries that pur83 As cited in Robert L. Curry, Jr., footnote 66, p. 1092. 84 Raul L. Madrid, op. cit., footnote 58. 85 Benjamin J. Cohen, “What Ever Happened to the LDC Debt Crisis?” Challenge, May/June 1991, p. 48. Argentina, Brazil, and Mexico

alone owed about $260 billion, which constituted 40 percent of the total Latin American debt.

sued growth strategies based on austerity and

export promotion survived the upheavals of the

seventies with their economies intact. On the

other hand, most developing countries borrowed

heavily throughout this period. And instead of

investing in development projects, they used

these funds to cover growing trade imbalances

and debt servicing requirements. Their growth

rates fell as a result, compounding their liquidity

problems and further stifling their development.86

Given such fundamentally different economic

outcomes, private investors and foreign aid providers alike began to examine how policies in

recipient countries might affect economic development prospects. Comparing experiences, they

concluded that developing countries’ problems

stemmed from their own economic policies,

which distorted market signals, misallocated

resources, and discouraged efficient production

and investment. For growth to occur, the developing countries—they contended—had to

restructure their economies according to free

market principles.87 Foreign banks holding

developing countries’ loans agreed with this

assessment, which served to justify their firm

stance in setting up rescheduling terms.88

Given no alternative sources of funding and

little bargaining power, debtor countries rapidly

acceded to the banks’ seemingly harsh demands.

In exchange for rescheduling of their debts,

developing countries agreed to reduce domestic

demand for both imports and exports by curtailing budget deficits, reducing real wages, and

devaluating their currencies.89

The multinational banks played a major role

in the rescheduling negotiations. Public lenders

increased their disbursements to the 17 most

86 Madrid, op. cit., footnote 58, p. 73. 87 For one discussion, see Anne O. Krueger, Economic Policy Reform in Developing Countries (Cambridge, MA: Blackwell, 1992). 88 The developing countries were not alone, however, in failing to foresee the dire consequences of such heavy borrowing. Despite

numerous warning signals about the deteriorated state of the developing economies, U.S. banks assiduously cultivated relationships with

Third World political and business leaders, hoping to outbid one another for these highly lucrative loans. Moreover, U.S. and other foreign

banks accumulated these mounting credit obligations with the blessings of the governments of the industrialized countries. Madrid, footnote

58, op. cit; and Dell, op. cit., footnote 73, p. 136. 89 Dell, op. cit., footnote 73, p. 144.
60 | Global Communications: Opportunities for Trade and Aid

debt-troubled countries from $3.7 billion in 1981

to $5.5 billion in 1983. By 1985, funding totaled

$6.3 billion.90 Without this increased support,

debtor countries would have been unable to refinance their loans. The multilateral banks also

legitimized the rescheduling process. Banks generally looked to the IMF to approve a debtor

country’s austerity program. In fact, in some

cases, they refused to enter into discussions with

debtor countries until the multinational lenders

had given their approval.91

These debt scheduling agreements proved,

however, to be unenforceable. Given the

imposed austerity programs, Third World economies went into reverse. Thus, for example, the

GDP of many Latin American countries fell during

the period from 1981 to 1985, as did income and

per capita consumption.92 Low growth rates

meant, moreover, that debtor countries were once

again in arrears. By the late 1980s, some countries

stopped making their interest payments, while others insisted on gaining greater bank concessions.93

Acknowledging the gravity of the situation,

the U.S. government sought to reduce the developing countries’ debt burden. In October 1985,

Secretary of the Treasury James Baker

announced a plan (subsequently referred to as the

Baker Plan) that called for a more broadly based

and equal sharing of the debt burden. Although

far more generous than the previous commercial

90 Ibid. 91 Ibid. Equally critical for debt rescheduling was the continued export credits and development grants provided by the industrialized

countries to the Third World. The Paris Club Creditors—as the participating countries were called—also provided debt service relief by

rescheduling payments on their previous medium and long term credits to the developing countries. In contrast to the commercial banks, the

Paris Club creditors were at times also willing to reschedule interest payments. 92 Michael P. Dooley, A Retrospective on the Debt Crisis, Working Paper No. 4963 (Cambridge, MA: National Bureau of Economic

Research, 1994), pp. 23–24. 93 The debtor countries attributed the stagnation of their economies to the austerity programs prescribed by the IMF, while the banks

claimed that the developing countries had not extended their reforms far enough to reap the benefits. By 1985, growing discontent threatened

to undermine political stability in many Third World countries.

bank agreements, the Baker Plan entailed the

same quid pro quo—additional funding in

exchange for trade liberalization, privatization,

and greater market reform.94

While moving in the right direction, the Baker

Plan did not go far enough. Instead of improving,

developing country economies either stagnated

or experienced decline.95 Between 1981 and

1987, for example, the real gross domestic product (GDP) of the most indebted countries was

less than the average growth rate of the previous

decade, and in 1987 their per capita GDP fell to

almost 6 percent below the 1980 level.96 Declining growth was, moreover, accompanied by

declining gross investment. As commercial

banks became more cautious in their lending policies, and domestic investors increasingly

hoarded financial assets abroad, gross capital formation in the most heavily indebted countries

dropped from 24 to 17 percent in the period

between 1981 and 1987.97

A new approach was clearly in order. Thus, in

March 1987, Treasury Secretary Nicholas Brady

proposed a new plan—the Brady Plan, which

provided permanent debt relief and debt service

reduction in exchange for greater economic

reform.98 Being market driven, the Brady Plan

gave commercial banks a chance to exchange

94 In accordance with the plan, commercial banks would make $20 billion available to the poorest 15 debtor countries within the subsequent three years, during which time multilateral banks would provide an additional $9 billion. For their part, the creditor nations would stimulate their economies and reduce their barriers to Third World imports. 95 John Endowed, “The World Bank’s Response to the Developing Country Debt Crisis,” Contemporary Policy Issues, vol. 7, April 1989,

p. 57. 96 Norman S. Fieleke, “Economic Adjustment in Heavily Indebted Developing Countries,” Contemporary Policy Issues, April 1990, p.

19. 97 Ibid. See also John Clark, “Debt Reduction and Market Reentry Under the Brady Plan,” Federal Reserve Bank of New York Quarterly

Review, winter, 1993/94, p. 39. 98 Moreover, in contrast with previous plans, which pitted debtor and creditors against one another, the Brady plan was intended to foster

cooperation. Offering a menu of options, the plan was also flexible enough to allow for diverse situations in debtor nations.
Chapter 2 Foreign Aid Policy: The Lessons Learned | 61

their developing country loans for government

issued “Brady bonds.”99

Once again, the multinational lending institutions reinforced the notion of a quid pro quo,

making aid contingent on major economic

reforms. The IMF and the World Bank not only

made reform a condition of lending, they also

instituted special types of loans and arrangements—such as the structural adjustment loan

(SAL)—to assist developing countries in carrying out the process.100 Working together, the

World Bank and the IMF advised developing

countries and designed comprehensive economic

reform packages for them.101

Many Third World countries were quick to

embrace the concept of structural reforms.102

Faced with dismal growth rates, continual debt,

and the failure of state-directed development

programs, they required a new development

model. Thus, one by one, developing countries

renounced the state-directed, import substitution

growth strategies—so tenaciously pursued since

the end of World War II—in favor of market

reforms and export driven growth.103 Although

there were no pat formulas, most programs incor99 These bonds were lower in value and had a longer term of maturity, so their purchase entailed a partial write-off of the banks’ claims.

Many banks were willing to accept this loss, however, because the Brady bonds were backed by treasury securities as collateral. Debtor

countries, for their part, benefited from lower principals and better terms. To participate in the plan, the developing countries had to purchase

treasury securities as collateral against the principal and interest on a portion of their debt, as well as adopt even greater economic reforms. 100 See Azizur Rahman Khan, Structural Adjustment and Income Distribution: Issues and Experience (Geneva, Switzerland, International Labor Office, 1993), p. 33. 101 For a discussion of the need for structural reforms, see Anne O. Krueger, “Lessons From Developing Countries About Economic Policy,” The American Economist, vol. 38, spring 1994; For a summary and discussion of the empirical and theoretical literature, see Dani Roderick, Trade and Industrial Reform in Developing Countries: A Review of Recent Theory and Evidence (Cambridge, MA: National Bureau of

Economic Research, Inc. 1993). 102 G. John Ikenberry, “The International Spread of Privatization Policies: Inducements, Learning and ‘Policy Bandwagoning,’” in Ezra

N. Suleiman and John Waterbury (eds.), The Political Economy of Public Sector Reform and Privatization (Boulder, CO: Westview Press,

1990), chap. 4. 103 Not surprisingly, therefore, between 1980 and 1991, 76 Third World countries received World Bank SALs. And by 1991, close to half

of these countries had already carried out the reforms associated with more than one SAL agreement, while 19 had implemented five or more

such agreements. Kahn, op. cit., footnote 100, p. 33.

porated four basic elements—stabilization, liberalization, deregulation, and privatization.104

Together, these measures were intended to create

a market environment conducive to growth (see

box 2-3).

Despite their popularity, economic reform

programs have not improved the situation in

many developing countries. Despite a few major

success stories, overall results have been disappointing, especially in low income countries.105

As can be seen in table 2-2, it is difficult to distinguish between the performance of those countries undertaking reforms and those that did not.

Of the 55 developing countries that pursued such

programs in the period between 1980 and 1988,

only seven benefited across the board from

greater stabilization, the restoration of growth,

and a reduction in poverty. Twenty-seven of the

55 countries experienced negative growth in per

capita income, while another 13 failed to reduce

their external debt to a sustainable level.

Convinced of the general need for reform,

economic development experts have studied and

compared these cases in an effort to identify the

factors that account for success. To date, most

104 Lawrence H. Summers and L.H. Pritchett, “The Structural Adjustment Debate,” Economic Development: Recent Lessons, AEP

Papers and Proceeding, May 1993, pp. 383-389. See also Ulrich Hiemenz and Norbert Funke, “The Experience of Developing Countries

With Macroeconomic Stabilization and Structural Adjustment, “ in Chung H. Lee and Helmut Reisen (eds.), From Reform to Growth: China

and Other Countries in Transition in Asia and Central and Eastern Europe (Paris, France: OECD, 1994), p. 79. 105 According to one analysis, growth in middle income countries increased from 2.1 percent to 4.8 percent per year in the period

between 1981 to 1990, while in low income countries it only increased from 1.2 percent to 3.6 percent. During the same time, annual growth

rates for exports increased in middle income countries from 26 to 34 percent, but increased by only one percentage point in poor countries,

from 22 to 23 percent. Kahn, op. cit., footnote 100.
62 | Global Communications: Opportunities for Trade and Aid

agree that constancy and commitment to reform

are the key.106 There is, however, considerable

disagreement about how best to develop and sustain this commitment. At issue is the timing and

sequencing of events.107

Pointing to successful development strategies

pursued by many Asian countries, some believe

it best to introduce reforms gradually and in a

certain sequence, starting with microeconomic

structural reforms, followed by stabilization and

trade liberalization.108 Citing the case of China,

they claim that structural reforms generate

106 Ulrich Heimenz and Norbert Funke, “The Experience of Developing Countries With Macroeconomic Stabilization and Structural

Adjustment,” in OECD, From Reform to Growth, op. cit., footnote 104, p. 79. See also Summers and Pritchett, op. cit., footnote 104. 107 R. McKinnon, The Order of Economic Liberalization: Financial Control in the Transition to a Market Economy (Baltimore, MD:

Johns Hopkins Press, 1991); see also Heimenz and Funke, op. cit., footnote 106, pp. 79–89. 108 Barry Naughton, “Reforming a Planned Economy: Is China Unique?” in OECD, From Reform to Growth, op. cit., footnote, 104, pp.

49–71; see also Pradumna B. Rana and Wilhelmina Paz, “Economies in Transition,” in OECD, op. cit., footnote 104.

growth, new economic opportunities, and new

winners with a stake in maintaining reform. If

such benefits are sufficiently widespread, they

argue, early structural reforms can legitimate a

government’s efforts and help to develop a

broader base of support for them.109

Gradualists also stress the need to begin by

privatizing and introducing competition into sectors—such as agriculture and consumer goods—

that do not compete with state owned enterprises

(SOEs). As productivity increases in sectors such

as agriculture, they argue, private investment and

new jobs will gradually emerge at the fringe of

109 Naughten, op.cit. footnote 108. For a discussion of the importance of legitimacy in maintaining regimes, see Juan J. Linz and Alfred

Stephan (eds.), The Breakdown of Democratic Regimes (Baltimore, MD: Johns Hopkins University Press, 1978).

BOX 2-3: Economic Reform Measures

Stabilization programs were designed to bring inflation under control by contracting the economy.1 A

stable currency is required to encourage savings and investment, and to allow the market to provide

accurate information. Stabilization can be brought about by devaluating exchange rates, reducing current account and fiscal deficits, and by tightening the money supply. Although necessary for the effective

functioning of the economy, these types of measures can dampen economic activity. Thus, they work

best when counterbalanced by structural adjustment efforts that are designed to foster growth.

Structural adjustment measures—such as trade liberalization, deregulation, and privatization—shift

economic activities from the public to the private sector.2 They can generate growth by increasing the

productivity of existing resources and by channeling them into more efficient usage. Trade liberalization, for example, is designed to heighten domestic competition and to create greater incentives for

governments and firms to allocate national resources on a more efficient and global basis.3 Similarly,

deregulation and privatization measures are intended to enhance efficiency by reducing unproductive government rent seeking, improving the productivity of public investment, freeing up credit and

inducing savings, and eliminating price distortions. If designed and timed correctly, structural

adjustment measures can help to offset some of the negative growth impacts associated with stabilization.

1 See, for a discussion, Sebastian Edwards, “The Political Economy of Inflation and Stabilization in Developing Countries,”

Economic Development and Cultural Change, 1994, pp. 235–266.

2 Ira W. Liberman, “Privatization: The Theme of the 1990s: An Overview,” The Columbia Journal of World Business, spring

1993, p. 11

3 See, for a discussion, Jim Love, “Engines of Growth—The Export and Government Sectors,” World Economy, vol. 17, March

1994, pp. 203–218.

SOURCE: Office of Technology Assessment, 1995.
Chapter 2 Foreign Aid Policy: The Lessons Learned | 63

TABLE 2-2: Relative Performance of Adjusting and Nonadjusting Countries

Indicator Adjusting countries1 Nonadjusting countries21. Growth in per capita GDP 

between 1980 & 1989

27 of the 55 countries had negative rates of growth. 16 of the 31 countries had negative rates of growth.

2. Per capita private 

consumption

The rank in terms of growth rate of per capita private consumption improved slightly between 1971–79 and 1980–87 (for 25 intensely adjusting (IA) countries the rank improved from 36 to 37).For 24 IA countries per capita private consumption increased in 1980 PPP$ by 8.2% between 1970–79 and 1980–87.

The average rank in terms of growth in per capita private consumption declined slightly between 1971–79 and 1980-

87.For 27 countries per capita private consumption increased in 1980 PPP$ by 19.0% between 1970–79 and 1980–87.

3. Public expenditure in social 

sectors

Sectoral expenditure as % of total public expenditure in 11 IA countries:Year Educ. Health Total (social sectors)1980 14.8 6.6 36.21986 12.0 5.5 32.7Per capita expenditure on education, health and social sectors in 1980 PPP$ increased from 225.70 in 1980 to 227.30 in 1986.

Sectoral expenditure as % of total public expenditure in 12 countries:Year Educ. Health Total (social sectors)1980 10.0 4.5 25.71986 12.1 4.7 28.6Per capita expenditure on education, health and social sectors in 1980 PPP$ increased from 124.70 in 1980 to 188.90 in 1986 in 12 countries.

4. Infant mortality rate In 23 IA countries, the rate of decline during 1977–82 was 

12.7% and during 1982–87 was 12.6%.

In 29 countries, the rate of decline during 1977–82 was 13.0% and during 1982–87 was 11.2%.

5. Average undernutrition rate For 24 IA countries: 7.81% in 1980 & 8.44% in 1986. For 32 countries: -2.54% in 1980 and 4.31% in 1986.

6. Primary school enrollment rate For 25 IA countries: 94.2% in 1980 & 90.1% in 1985. For 33 countries: 86.0% in 1980 and 91.1% in 1985.

1The adjusting countries are (intensely adjusting countries are in italics): Burkina Faso, Burundi, Cote d’Ivoire, Central African Republic, Chad, Congo, Gabon, Gambia, Ghana, Guinea, GuineauBissau, Kenya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Niger, Nigeria, Senegal, Sierra Leone, Somalia, Sudan, The United Republic of Tanzania, Togo, Uganda, Zaire, Zambia, Zimbabwe,

Bangladesh, China, Indonesia, Republic of Korea, Nepal, Pakistan, Philippines, Thailand, Morocco, Tunisia, Turkey, Hungary, Yugoslavia, Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica,

Ecuador, Guyana, Honduras, Jamaica, Mexico, Panama and Uruguay. For most indicators, information is limited to a subset of intensely adjusting countries.

2The nonadjusting countries are: Benin, Botswana, Cameroon, Ethiopia, Lesotho, Liberia, Mozambique, Rwanda, Myanmar, India, Malaysia, Papua New Guinea, Sri Lanka, Algeria, Egypt, Jordan, Oman, Syrian Arab Republic, Yemen AR, Yemen PDR, Poland, Portugal, Dominican Republic, El Salvador, Guatemala, Haiti, Nicaragua, Paraguay, Peru, Trinidad and Tobago, and Venezuela.

For most indicators, information is limited to a subset of countries. For items 5 and 6 the number of countries exceeds the basic set of 31.

SOURCE: For items 2–6, Kakwani et al., 1990. Item 1 calculated from World Bank 1991C. As indicated in “Structural Adjustment and Income Distribution Issues and Experience,” Azizur RahmanKhan, International Labor Office, Geneva, 1993, p. 36.
64 | Global Communications: Opportunities for Trade and Aid

the state-planned economy, which will generate

incentives for SOEs to be more competitive. On

the other hand, if SOEs are suddenly faced with

competition, they will probably fail, resulting in

overwhelming fiscal and unemployment problems that will undermine political support for

reform. It is precisely because of the possibility

of such a disaster that developing country leaders

waver so in their commitment to structural

adjustment.110

Other analysts recommend a “big bang”

approach to reform.111 They point out that Eastern European countries such as Poland and the

Czech Republic, which undertook reforms on all

fronts and in one stroke, outperformed those that

pursued a gradualist approach.112 Big-bang

advocates claim that partial reforms signal a lack

of commitment, which is especially damaging in

former communist countries where—given an

institutional vacuum—perverse incentives tend

to thrive. As in Russia, tentative reforms, they

say, will likely give rise to both insufficient benefits and inadequate readjustment, resulting in

political backlash.113 Employing the big-bang

rhetoric, the Russian government privatized

state-owned enterprises in 1992, but balked when

it came time to institute trade liberalization and

stabilization measures. 114

110 Ibid. 111 Jeffrey Sachs and Wing Thye Woo, “Understanding the Reform Experiences of China, Eastern Europe and Russia,” in OECD, From

Reform to Growth, op. cit., footnote 104, pp. 23–48; See also Ronald I. McKinnon, Rapid Liberalization in Socialist Economies: Financial

Policies in China and Russia Compared (San Francisco, CA: International Center for Economic Growth, 1994); D. Papageorgiou, M.

Michaely, and A. M. Choski (eds.), Liberalizing Foreign Trade (Oxford, UK: Blackwell, 1991); and Paul Collier and Jan Willem Gunning,

“Aid and Exchange Rate Adjustment in African Trade Liberalization,” Economic Journal, vol. 102, No. 413, July 1992. 112 The Czech and the Slovak Republics, for example, both experienced major unemployment crises in the post-reform period. Beginning

in 1991, unemployment in the Slovak Republic rose to 12.7 percent in 1992. See John Ham, Jan Svejnar, and Katherine Terrel, “The Emergence of Unemployment in the Czech and Slovak Republics,” Comparative Economic Studies, vol. 35, No. 4, winter, 1993, pp. 121-133; See

also Saul Estrin, “Industrial Restructuring and Microeconomic Adjustment in Poland: A Cross-Sectoral Approach, Comparative Economic

Studies, vol. 35, No. 4, winter 1993, pp. 1–19. 113 Grant Kirkpatrick, “Transition Experiences Compared: Lessons from Central and Eastern Europe’s Reform,” in OECD, From Reform

to Growth, op. cit., footnote 104, pp. 95–119; and Sachs and Woo, op. cit., footnote 111. 114 Sachs and Woo, footnote 111, p. 27.

Diverse crosscultural experiences suggest

there is no single recipe for success. In most

cases, structural reform policies must be crafted

to fit the situations at hand.115 Rarely, if ever, do

existing conditions adequately match the

assumptions posited by economic theory.116 And

in some countries, there may be little room for

choice, given prevailing social and economic

conditions. Although gradualism may succeed in

countries that have a strong and stable—albeit

not necessarily democratic—institutional base, it

may fail in cases, such as those in Eastern

Europe, parts of Latin America, and Africa,

where there is a lack not only of market institutions but also of strong civic traditions.117 In

such environments, successful programs will

require a broader, multifaceted approach that

addresses institutional as well as economic

needs.

❚ Need for a More Integrated and 

Multifaceted Approach to Development

Difficulty in explaining the variable outcomes

associated with economic reforms across countries and cultures signals the need for a broader

approach to economic development, which takes

political and cultural factors into account.118

Economic analysis is necessary to understand

115 Comparative analysis now shows that the stage of development at which policies are introduced is perhaps the most important variable determining success. See, for a comprehensive discussion, Zehra F. Arat, Democracy and Human Rights in Developing Countries

(Boulder, CO: Lynne Riennes Publishers, 1991). 116 As Kahn points out, “Growth prospects may actually be harmed by any number of inflexibilities so characteristic of the developing

countries,” Kahn, op. cit., footnote 100, pp. 12–13. 117 For a comparison of the Eastern European and Latin American contexts, see Tina Rosenberg, “Overcoming the Legacies of Dictatorship,” Foreign Affairs, vol. 74, No. 3, pp. 134–152. 118 Arat, op. cit., footnote 115.
Chapter 2 Foreign Aid Policy: The Lessons Learned | 65

development failures and to design better ways

to improve Third World economic prospects. But

economic analysis, by itself, is not enough.

Failed efforts result not only from the particular

sequence in which reforms are introduced but

also from the fragile political and institutional

environment in which they are implemented and

consolidated.119 If future foreign assistance programs are to promote sustainable economic

development, which supports democracy and

political stability, social and political factors

must be better incorporated into their design.

Because structural adjustment measures

emphasize the shift of economic activity from

the public to the private sector, the government’s

critical role in reform efforts has often been

downplayed.120 However, market reform does

not—as might be implied—entail the “withering

away of the state.” To the contrary, the state—at

least in the initial phases of reform—must play a

central role both in creating and in preserving

economic markets. At the most fundamental

level, for example, it is government that determines the norms governing market behavior.

Governments also define economic actors—proprietors, workers, and corporations—by establishing and enforcing their rights and obligations,

the rules by which they interact, and the means

119 Jose Maria Maravall, “The Myth of Authoritarian Advantage,” Journal of Democracy, Economic Reform and Democracy, Special

Issue, October 1994, pp. 22–23. See also Stephan Haggard and Robert R. Kaufman, “The Challenges of Consolidation,” in Journal of

Democracy, Ibid., pp. 5–6. 120 See Jan Kregel, Egon Matzner, and Gernot Grabher, The Market Shock (Vienna, Austria: Austrian Academy of Sciences, Research

Unit for Socioeconomics, 1992).

they use for exchange. These decisions are of

major importance, determining both economic

opportunities and the performance of the economy as a whole.121

The challenges facing governments shifting

from a command to a market economy are monumental. Political leaders must not only design

and implement a new legal and institutional

framework to govern emerging markets; they

must also—and at the same time—generate a

political consensus to support these arrangements as well as consolidate their own political

power. The time frame for achieving success is,

moreover, highly compressed.122

The overwhelming problems encountered in

executing economic reforms raise fundamental

questions about today’s operating model of economic development, central to which is the

assumption that economic freedoms and political

freedoms go hand in hand.123 Experience with

economic reforms suggests, however, that this is

not necessarily the case. Democratic governments, for example, appear to be somewhat disadvantaged in carrying out market reforms.124

Depending for their existence on popular support, democratic leaders are more vulnerable

than their authoritarian counterparts to ideologi121 See Douglas C. North, Institutions, Institutional Change, and Economic Performance (Cambridge, UK: Cambridge University Press

1990); see also Joseph Stiglitz, “Social Absorption Capability and Innovation,” CEPR Publication No. 292, Center for Economic Policy

Research, Stanford CA, November 1991. 122 See, for discussion of the importance of sequence, E.A. Nordlinger, “Political Development, Time, Sequence and Rates of Change,”

in Jason L. Finkle and Robert W. Gable (eds.), Political Development and Social Theory (New York, NY: John Wiley and Sons, 1976), pp.

455–471; Leonard Binder, James S. Coleman, Joseph LaPolembara, Lucien Pye, Sydney Verba and Myron Weiner (eds.), Crisis and

Sequence in Political Development (Princeton, NJ: Princeton University Press, 1971); and Dankwart A. Rustow, “Transitioning to Democracy: A Global Revolution?” Foreign Affairs, vol. 69, No. 4, fall 1990, pp. 75–91. 123 This assumption received support from the crossnational quantitative research program led by sociologist Seymour Martin Lipset in

the late 1950s and early 1960s. Using a wide range of indicators, these researchers found a positive correlation between the level of economic

development and democracy. Subsequent analyses have shown the relationship between democracy and economic development to be much

more complex. As described by Arat, “Increasing levels of economic development do not necessarily lead to higher levels of democracy,

even for the less developed countries....Developing countries do not display a linear relationship but instead more complex patterns or no

relationships at all. In fact, in most of these countries, especially the ones located in the middle of the development axis, there is a higher level

of instability—a continuous back and forth shift. See Arat, op. cit., footnote 115, p. 49. See also Evelyn Huber, Dietrich Rueschemeyer, and

John D. Stephens, “The Impact of Economic Development on Democracy,” Journal of Economic Perspectives, vol. 7, No. 3, summer 1993,

pp. 71–85. 124 Adam Przeworski and Fernando L. Inougi, ”Political Regimes and Economic Growth,” in Journal of Economic Perspectives, vol. 7,

No. 3, summer 1993, pp. 51–69.
66 | Global Communications: Opportunities for Trade and Aid

cal contradictions, institutional failures, and lobbying by special interests. When democratic

governments fail in their reform efforts, public

support for democratic values, as well for the

prevailing government, is jeopardized.

Political pressures to dilute and delay reform

are likely to be particularly greater early on when

costs are already apparent but benefits are still

elusive. It is precisely at this point, however, that

political leaders must rise above the immediate

crisis to undertake the kinds of long-term legal

and institutional changes that serve universal

rather than particularistic goals. Since democratic politicians are periodically held accountable to the electorate, the time they have to forge

such a consensus is very short. 125

Privatization, deregulation, and liberalization

programs may also be problematic for democratic regimes if they are carried to extremes,

making it impossible for governments to generate sufficient resources to carry out their programs. Such was, in fact, the case in Latin

America, where trade liberalization during the

1980s led to a rapid decline in state revenues.126

Faced with major fiscal problems, Latin American governments were forced to cut back on public expenditures, causing the deterioration of

infrastructure and a decline of many services.

Public discontent mounted as a result, giving rise

to widespread political instability.

If overly stringent, economic reforms may

also inhibit adequate investments in social policies, which are necessary to provide some buffer

to groups bearing an inordinate burden due to

125 Stephan Haggard and Robert R. Kaufman, op. cit., footnote 119, pp. 5–6.; Joan M. Nelson, “Linkages Between Politics and Economics,” in Journal of Democracy, op. cit., footnote 119, p. 54; and Jose Maria Maravall, “The Myth of Authoritarian Advantage,” in Journal of

Democracy, op. cit., footnote 119, p. 17–31. 126 Moses Naim, “Latin America: Second Stage of Reform,” in Journal of Democracy, op. cit., footnote 119, pp. 32–48.

reforms. Trading off social goals—such as

equity—has proven at best unnecessary and at

worst self-defeating.127 As experience in Asia

and Southern Europe makes clear, when governments have carried out social programs in conjunction with economic reforms, the results have

been very successful indeed. In contrast, if governments fail to take social justice into account,

interest groups often pit themselves against one

another, thereby undoing the very basis for political consensus.128

Acknowledging the political constraints that

many developing countries face in executing

economic reforms, foreign assistance organizations have designed new programs to help political leaders improve their governing capacity.

The World Bank, for instance, had added the

notion of “good governance” to its development

repertoire.129 Good governance, the World Bank

argues, is a prerequisite for successful reform.

Recognizing that many political leaders lack the

experience and skill required to carry out such

reforms, the Bank has initiated assistance programs to help them build up their governments’

administrative and legal capacities. 130

While these types of government-oriented

assistance programs address some of the formal

legal and administrative problems associated

with carrying out structural economic reforms,

they are inadequate for dealing with the rampant

problems of political disorder and social

upheaval to be found in many developing coun127 As Haggard and Kaufman note, “When citizens believe that the costs of reform are distributed fairly, economic reforms are more

likely to succeed and democratic regimes are more likely to survive.” Stephen Haggard and Robert Kaufman, op. cit., footnote 119, p. 12. 128 Ibid., and Naim, op. cit., footnote 126, pp. 32–48. 129 The World Bank, Governance and Development (Washington DC: The World Bank, 1992). It should be noted that the World Bank’s

mandate as laid out in its Articles of Agreement limits its ability to become involved in political issues per se. Thus, for example, it cannot

interfere in the partisan politics of a member. Nor can it use its lending policies to influence the political situation in a recipient country. 130 Good governance, according to the World Bank, can be measured by the degree to which developing countries are able to establish

clear boundaries between the public and private spheres, minimize government rules and regulations, and institute economic incentives and a

framework of law and governance that is transparent, predictable, and conducive to economic growth.
Chapter 2 Foreign Aid Policy: The Lessons Learned | 67

tries today.131 Nor will such programs necessarily serve democratic goals.132 As history makes

all too clear, efficient government administration

is no guarantee against autocratic or totalitarian

governments; to the contrary, it is typically

required to sustain them.

For both democracy and free markets to

thrive, what is required is not simply the reemergence of strong, competent states but rather the

redefinition and balancing of their roles and relationship with respect to both the marketplace and

society at large. As a growing body of evidence

makes clear, social and cultural institutions that foster trust and cooperation constitute a form of “social

capital” that supports both free markets and democracy, and at the same time serves to better balance

the relationship between them (see box 2-4).133

Most developing countries have very little of

this social capital on which to build either efficient markets or sustainable democracies. To the

contrary, the political culture in many of these

countries fosters distrust and alienation. Based on

authority and dependency, interpersonal relations

are characterized not by mutual respect and reciprocity, but rather by distrust and alienation.134

If developing countries are to extricate themselves from the vicious circle that leads to political, economic and environmental decay, they

must begin by making much greater investments

131 See, for one critical view of the Banks Governance Program, Mick Moore, “Declining To Learn From the East? The World Bank on

‘Governance and Development.’” IDA Bulletin, vol. 24, No. 1, 1993, pp. 39–50. See also Carol Lancaster, “Governance and Development:

The Views From Washington,” IDA Bulletin, vol. 24, No. 1, 1993. 132 As described by Naim with reference to Latin America, “Paradoxically, the high interventionist doctrines that gave the state a virtual

monopoly over a vast array of activities greatly contributed to its decline. Even while the state was stretched far beyond its capacities, its economic centrality and political voraciousness hindered the emergence and development of spontaneous forms of social organization (clubs,

nongovernmental organizations, voluntary organizations, civic forums, and so on) that constitute the backbone of what Robert Putnam calls

“social capital.” Without patterns of social cooperation based on tolerance, trust, and widespread norms of active citizen participation, the

modicum of political stability required for the effective operation of public bureaucracies is periodically lost.” Naim, op. cit., footnote 126, p.

42. 133 See, in particular, Robert Putnam, Making Democracy Work (Princeton, NJ: Princeton University Press, 1993); and also Fred Block,

Postindustrial Possibilities: A Critique of Economic Discourse (Berkeley, CA: University of California Press, 1990), pp. 41–42. 134 Putnam, op. cit., footnote 133, p. 88.

in the development of social capital. Building trust,

however, represents a problem of collective

action—the classic case of the “prisoner’s

dilemma.” Living in a society that is devoid of trust

and goodwill, people are unlikely to act in mutually

beneficial ways, even when it serves their own best

interest. Each person fears that, if he or she is the

first to act honestly, others will surely take advantage.

Broadbased foreign assistance programs can

foster the development of trust, thereby providing

greater basis for cooperation. Once started, cooperation tends to be self-sustaining, so investment

in cooperative behavior can have a high payoff.135

Over time, it can generate a wealth of social capital, which can be drawn on in future times of trial.

Comprehensive, multifaceted aid programs

are also necessary to balance multiple foreign

assistance goals, directing policymakers to focus

on the development of mutually reinforcing policy criteria. Efforts to promote “sustainability”

provide an example of one such approach. 136

Given a growing awareness of the potential negative impacts that economic growth might have

on the global environment, academics, policymakers, nongovernmental organizations, and

businesses alike have worked since the Rio Declaration of 1992 to define and operationalize the

goal of “sustainability,” so that it might be better

135 Robert Axelrod, The Evolution of Cooperation (New York, NY: Basic Books, 1984). 136 The pursuit of “sustainability,” has been inspired by findings from the World Commission on Environment and Development (the

Brundtdland Commission), the 1992 U.N. Conference on Environment and Development, and a host of reports emanating from such bodies

as the World Bank, the Organisation for Economic Cooperation and Development (OECD), and the Business Council for Sustainable Development, which warn that a continuation of current patterns of economic growth could result in levels of environmental degradation severe

enough to jeopardize the ability of future generations to meet basic needs. Global environmental problems, including loss of biodiversity, climate change, and stratospheric ozone depletion, have become increasingly of concern.
68 | Global Communications: Opportunities for Trade and Aid

incorporated into development policies.137 To

explore such questions, the Clinton Administration has recently constituted the Council on Sustainable Development, which is composed of 25

U.S. government, business, and environmental

leaders. This council, meeting for two years, aims

to develop a set of plans and policies to ensure

continued economic growth without damage to

human health and natural resources.138 Other governments and organizations are pursuing similar

efforts.139

More recently, new policy goals such as poverty alleviation and the promotion of women’s

rights, are also being brought to the fore.

Although international meetings such as the

137 Maurice F. Strong, “From Rio to Copenhagen,” Futures, vol. 27, No. 2, March 1995, pp. 238–240. 138 Glen Hess, “President’s Council Seeks Growth While Protecting Environment,” Chemical Marketing Reporter, vol. 245, No. 17,

April 25, 1994, p. 27. 139 Included among these, for example, are Holland’s National Environmental Policy Plan, To Choose or To Lose; the UK’s White Paper,

This Common Inheritance and Sustainable Development: The UK Strategy, 1994; Japan’s New Earth 21; and the European Commission’s

Fifth Environmental Action Programme—Toward Sustainability. Also underway is the 2050 Project, a 4-year effort by the World Resources

Institute, the Brookings Institute, and the Santa Fe Institute to define the conditions under which the global society might be sustainable in the

year 2050.

World Summit on Social Development are necessary to highlight the need to pursue such goals,

care must be taken to assure that—like sustainability—these goals are not pursued single-mindedly but are rather incorporated into a broadbased development program. 

Comprehensive foreign assistance programs

can serve not only to promote holistic development; they can also foster improved trading relationships with Third World countries at a time

when these markets are rapidly growing in size.

Development programs that are based on reciprocal, cooperative interactions among donors and

recipients can generate ongoing social and economic networks that spill over into trading relationBOX 2-4: The Role of Social Capital in Supporting Free Markets and Democratic Politics

Cooperative social relations and interactions can make markets more efficient and political interactions more effective. For example, all market activities are based on some form of cooperative human

interaction, which is sustained by social networks. Well established social networks help to reduce the

costs of market transactions because the participants need to acquire less information to do business.1 If

buyers and sellers are well known to each other, their shared expectations and mutual trust allow them to

come to terms without having to haggle over prices. Similarly, given the existence of social sanctions,

they do not need to expend energy making sure that bargains are kept. By reducing these kinds of

“transaction costs,” social networks help markets operate more effectively. To the extent that this is the

case, there is less need for government to intervene with rules and regulations. Cooperative behavior

similarly reinforces democratic values and participation. Over time positive social interactions give rise to

societies based on trust and civic norms.2 In a civic culture, people interact with each other as equals

and according to cooperative and reciprocal norms.3 When people support one another voluntarily, there

is similarly less need for government in private life.

1 See Douglas C. North, Institutions, Institutional Change, and Economic Performance (Cambridge, UK: Cambridge University

Press 1990).

2See, for instance, Gabriel A. Almond and Sidney Verba, The Civic Culture: Political Attitudes and Democracy in Five Nations

(Princeton, NJ: Princeton University Press, 1963). See also Robert N. Bellah, Richard Madsen, William M. Sullivan, Ann Swidler,

and Stephen M. Tipton, Habits of the Heart: Individualism and Commitment in American Life (New York, NY: Harper and Row, 1986)

3Robert Putnam, Making Democracy Work (Princeton, NJ: Princeton University Press, 1993).

SOURCE: Office of Technology Assessment, 1995.
Chapter 2 Foreign Aid Policy: The Lessons Learned | 69

ships. Participating donor countries can gain a

considerable competitive trade advantage as a result

without violating the principles of free trade.

The Japanese have been particularly successful in establishing these kinds of aid networks

(see box 2-5). Now the world’s largest donor

country—with contributions totaling $11.26 billion in 1993—Japan has recently moved to

broaden its assistance programs to focus more on

environmental, population, and healthcare

goals.140 At the same time, the proportion of Japanese aid that is tied to the purchase of Japanese

products is on the decline. In 1993, for example,

82.9 percent of Japan’s total overseas development assistance was untied, as was 96.9 percent

of its foreign assistance loans.141 Instead of

using tied aid to promote its commercial ends, the

Japanese are leveraging their own economic development model, in the hope that trade will follow

the path of shared research, training, technology

transfer and personal exchanges. Not surprisingly,

therefore, much of Japan’s aid is centered in Asia,

which is fast becoming Japan’s largest market.142

A FOREIGN ASSISTANCE MODEL

FOR THE FUTURE

Notwithstanding the growing disillusionment

and disappointment in the outcomes of many for140 Hiroshi Hirabayashi, “Changes in the International Environment and the Direction of Japan’s ODA,” Japan 21st, vol. 39. No. 12,

December 1994, pp. 23–27; and Peter Evans, “Japan’s Green Aid,” The Chinese Business Review, July/Aug. 1994, pp. 39–43. 141 Ibid. 142 Jonathan Friedland, “The Regional Challenge: Asia Has Become Japan’s Biggest Market,” Far Eastern Economic Review, June 9,

1994, pp. 40–42.

eign assistance programs, foreign aid will probably continue to serve as major policy instrument

in the United States foreign policy repertoire.

Just as the Cold War led a reluctant Congress to

provide concessionary aid in the 1950s, and the

foreign debt crisis in the 1980s led the Reagan

Administration to help resolve the international

debt crisis, so future governments will likely utilize foreign aid policy in an effort to limit the

damage due to environmental impacts, natural

disasters, civil wars, and international conflicts.

Given such a likelihood, it behooves foreign policymakers to reflect on past successes and failures.

Looking at any one particular segment of

time, U.S. foreign assistance appears to conform

to a model in which goals, policy tools, policy

mechanisms, and policy outcomes are laid out in

a linear fashion. Standing back and surveying the

last 50 years all at one glance, however, the picture is not quite so orderly. Although overall

goals have remained relatively stable over

time—albeit with some shifts in emphasis—the

means adopted to achieve them have been altered

quite abruptly, as new situations arose, different

political ideologies gained prominence, and new

models of economic development came into

vogue. Seen from this long-term perspective, foreign assistance corresponds much more to the

sharp swings of a pendulum. Thus, for example,

BOX 2-5: Japanese Support for Standard Setting

The Japanese have sent technical experts to five developing countries to assist them in the development of their standards program. In the Philippines, for example, the Japanese International Cooperation

Agency conducted a 13-person team, 500-person-day study of the Philippine national standardization

system and provided a U.S.$23.1 million grant to establish three regional labs. At the same time, the Japanese Government has paid for 28 people from developing countries to come to Japan for language and

technical standards training.

SOURCE: Office of Technology Assessment, 1995.
70 | Global Communications: Opportunities for Trade and Aid

whereas at one point the transfer of capital was

viewed as the key to success, the emphasis soon

thereafter shifted 180 degrees to a poverty-oriented, basic needs approach, later moved again

in a radically different direction with attention

focused on structural economic reforms, economic sustainability, and more recently back

again to poverty alleviation and basic needs.

Having focused on a single “right” way of

achieving economic development, which presumably could be applied to all settings and circumstances, policymakers reacted to each failure

by darting off in new directions in search of new

solutions. Little effort was made in the process to

draw on the more positive aspects of each

approach so as to weave them into a comprehensive package.

Today, the United States’ stake in the fate of

Eastern Europe and the developing world is commensurate with its interest, 50 years ago, in the

revival of postwar Europe. Just as in 1945—

when the U.S. government recognized that its

own economic recovery was dependent on that

of Europe—so today policymakers find that the

United States’ greatest trading opportunities are

now situated in Eastern Europe and the Third

World. If the United States is to benefit from

these opportunities, it will need to promote the

health of Third World economies as well as their

successful integration into the global economy.

As the debt crisis and—more recently—the

devaluation of the Mexican peso makes clear, in

an increasingly global economy, economic problems, even when they emerge in developing

countries, quickly reverberate throughout the

industrial world.

U.S. security interests are also inextricably

tied to Third World developments. Just as the

United States adopted the Marshall Plan in an

effort to shore up the power vacuum created by

the collapse of the interwar international system,

so the U.S. government is increasingly being

called on to maintain peace across the globe.

Given the demise of the Soviet Union and—with

it—the collapse of the Cold War defense system,

states and political regimes are, one by one, coming apart at the seams. To “contain” the violence,

the United States has found it necessary to

become engaged in 21 new peacekeeping operations in the period between 1988 and 1994 (as

opposed to 13 during the period from 1947-

1988).143

Developing appropriate foreign aid policies to

address these global challenges can benefit

greatly from the lessons of the past. The case of

the Marshall Plan is particularly instructive,

given its fundamental success. What distinguishes the Marshall Plan experience from subsequent aid programs is the extent to which aid

policy tools were tailored—whether purposefully

or not—to the situation at hand (see table 2-3).

Equally important was the degree to which policy tools served to reinforce multiple foreign aid

goals.

Thus, for example, the U.S. decision to make

aid contingent on European structural economic

reforms was coupled with changes in the U.S.

economy as well as to the broader revision of the

international monetary system. Similarly, the

transfer of financial capital to Europe was linked

to the prospect of future U.S. trade opportunities

there. Likewise, postwar defense arrangements

in Europe not only served to protect the West

against the Soviet threat; they also promoted

regional political stability so that Western European governments could focus their attention on

cooperation and economic growth.

Today’s situation is considerably less conducive to success, as can be seen in table 2-3. Trade

policies are now intensely competitive; fewer

resources are available for aid; the United States

and other donor countries are increasingly preoccupied with domestic issues; the goals of the

United States and recipient countries (as well as

other donor countries) are often in conflict;

recipient countries lack the political and social

resources to fully benefit from aid, etc.

143 Mark M. Lowenthal, Peacekeeping and U.S. Foreign Policy: Implementing PDD-25, CRS Issue Brief, IB94043, Updated Sept. 23,

1994.
Chapter 2 Foreign Aid Policy: The Lessons Learned | 71

Designing successful aid programs in this

context will be very challenging indeed. To be

successful, aid policies must not only promote

economic growth; they must also foster the

development of social, political, and economic

institutions that are conducive to the generation

and equitable distribution of wealth. These policies will, moreover, need to be implemented

using fewer resources spread over a broader

array of situations and locales. Thus, aid policies

will need to be highly cost-effective and mutually reinforcing, pooling and leveraging

resources whenever possible.

Despite previous disappointments and the

prospect of even greater challenges in the future,

foreign aid will likely continue to serve as an

important policy tool for fostering U.S. foreign

policy goals. In an increasingly interdependent,

global economy, the alternatives to foreign aid—

whether they be national isolationism or the use

of military force—will often be counterproductive.

Drawing on the lessons of the past in the light

of the present conditions, table 2-3 identifies a

number of policy strategies that, when joined

together into an integrated package, might serve

as the basis for developing a revised foreign aid

model that is more suitable for today. At a minimum, in fashioning telecommunication-related

aid policies to promote the United States’ foreign

policy goals, these strategies can serve as a useful starting point.
Key Status of World

Factors Economic Regulation

Expanding trade m the context of trade

Marshall Iiberalization and internationally coordinated

Plan post-War monetary system

Today’s

Context

r

Today’s

Policy

Challenge

Increased integration and interdependence in

global economy, driven by growth in trade,

transnational corporations and financial

institutions Aggressive trade policies to

capture big emerging markets Trade

liberalization accompanied by new forms of

protec-tionism Strain on post-War

international monetary system

1

Incorporate developing countries into the

global economy with win-win outcomes for all

1 ) Develop mutually beneficial trade

Today’s agreements.

Policy 2) Aid to support global economic institutions

Criteria m developing countries -— i e standards,

financial markets, infrastructure privatization,

regulatory reform

Quantity and Allocation of Resources

Devoted to Aid Programs

High levels of mutually reinforcing financial

and military commitments were focused on

Europe The U S spent $554 billion (an

average of $138 billion in 1981 prices) Joint

participation in defense arrangement with the

formation of NATO

Dollar amount of economic aid in the

aggregate is equivalent to the Marshall-Plan

era, but resources are spread more thinly and

unevenly Areas requiring economic aid are

not necessarily the same as those requiring

military assistance. A large proportion of U.S.

assistance focused on strategically important

areas such as Egypt and Israel,

Develop more cost-effective ways to promote

aid goals

1

1 ) Leverage across programs and agencies

2) Gain economies of agglomeration by

focusing comprehensive programs more

locally

National Support/

Perceived Stakes Involved

Stakes were perceived as very high and linked

to the notion of containing the Soviet threat

President Truman’s Four Point Program

provided a vision to sustain political support

for aid.

Shift in concern from international issues to

domestic problems — growing Federal debt

General questioning of the cost-effectiveness

and success of aid programs

Greater vision for aid policy that better relates

to present U.S. priorities and concerns (i.e.,

trade).

1 ) Global exchange programs

2) Involvement of business and other key

groups in executing aid programs

II
Donor/Recipient

elation ship

Aid to Europe provided on a quid-pro-quo

basis involving economic reforms and

European regional cooperation. But U S and

Europe were in basic Ideological agreement

about post-War priorities and institutions

Europeans negotiated and helped design the

structure of the Marshall Plan

We-They attitude persists as a result of debt

crisis when donors imposed conditions on aid

recipients. Developing countries are now more

inclined toward Iiberalization and greater

integration into the world economy, but many

find Asian development model more appealing

than U.S. version.

Social/Political/institutional

Context of Recipient Countries

A shared common history and continuity of

political and economic institutions and a

socioeconomic infrastructure was capable of

absorbing and efficiently allocating aid [

resources

Find ways to negotiate aid agreements that

enhance donor-recipient cooperation and that

are mutually responsive to both sets of needs

|

I

Revitalize existing forums or establish new

forums that cut across G7/G66 boundaries

where aid conditions can be negotiated in the

context of joint interests

I

Diverse settings, weak institutional

frameworks, problems of political disorder and

social upheaval

Develop comprehensive aid programs that

foster social/political institution-building

without undermining economic reforms

Incorporate into aid policies mechanisms to

foster cooperation that build on existing

cultural strengths and social networks

Measurabilit y of Success/

And Feedback

Aid programs fostered both economic and

security goals and were perceived as being

highly effective Because of its widely

acclaimed success, the Marshall Plan served

as the respiration for U S bilateral aid to

developing countries,

Few concensus measures of success

General perception of poor performance and

failure of aid to have an impact. Inadequate

feedback mechanisms to achieve aid

accountability and improve development

models

Key

Factors

Marshall

Plan

Enhance our understanding of the

development process and develop qualitative Today’s

and quantitative measures to better evaluate Policy

aid programs Challenge

1 ) Experiment with small, Innovative pilot

projects Today’s

2) Develop databases and networks for Policy

collecting and disseminating aid-related Criteria

information and results

SOURCE: Office of Technology Assessment, 1995.
| 75

3

Communication

Technologies to Promote

Foreign Aid Goals

he foreign aid goals of promoting sustainable economic growth, democracy,

and political stability do not always go

hand in hand. For these goals to be mutually reinforcing, aid policies must be designed to

foster a number of criteria. Developing countries

must have access to new growth opportunities,

and their markets must be free and competitive to

better take advantage of them. In addition, their

governments must be representative, accountable, and competent in meeting public needs.

Finally, their citizens must engage with one

another, and cooperate to find solutions to common problems.

Recent advances in communication technologies provide new opportunities for developing

countries and foreign aid organizations alike to

help meet these criteria. To expand their trading

opportunities, for example, developing countries

can use high-speed broadband global networks to

link up to foreign markets. Similarly, low-cost

networked information technologies, such as the

Internet, can be used to facilitate political and

community participation. Equally important,

social services—such as health care and education—can now be provided via satellite on a

much more cost-effective basis.

Recognizing this potential, many developing

countries are poised to make major investments

in communication infrastructure in the hope of

fostering economic development and facilitating

the integration of their markets into a knowledge-based global economy. Foreign assistance

organizations are similarly considering telecommunication-related programs to reduce the costs

and enhance the benefits of providing foreign

aid.

The time is ripe to make such investments.

The costs of communication technologies are

plummeting, while their performance is improving phenomenally. Soon these technologies will

be essential given an increasingly informationbased and electronically networked global economy. Countries that take advantage of these technologies will gain competitive advantages, while

countries that fail to recognize the potential, or

who cannot gain access to these technologies,

will probably experience decline. In Third World

countries, advanced communication technologies

can play a special role. These technologies not

only allow countries to leapfrog to a modern

infrastructure; they can also serve as a catalyst,

helping to promote social and economic behavior

more conducive to development.

TA
76 | Global Communications: Opportunities for Trade and Aid

Although recent advances in communication

technologies hold promise to improve political

and economic conditions in Third World countries, the realization of this promise is far from

certain. As history bears witness, the evolution of

technologies is replete with disappointments and

unintended consequences.

If communication technologies are to prove

effective, their capabilities and characteristics

must be well matched to the task at hand. Communication technologies are not equal in this

regard; for any given purpose, some are much

more suitable than others. If, for example, communication technologies are to have a democratizing effect, they need to be widely available,

easily accessible, and capable of supporting twoway interactions. On the other hand, communication technologies that are intended to reinforce a

sense of community, or to support activities

internal to a particular business or firm, may

need to be more restrictive with respect to both

content and access.

Successful outcomes also depend on the

social, economic and political context in which

technologies are deployed. If, for example,

developing countries do not have the requisite

skills and expertise, they will be unable to use

technologies effectively. Equally important, if

Third World leaders use communication technologies solely to perpetuate their own control, or to

reinforce unproductive practices, technology

deployment may serve to make countries worse

off. To be effective, technology deployment

strategies must be closely linked to complementary social and economic policies that address

other, often more formidable, developmental

barriers.

The stakes in selecting appropriate technology

policies for development are extremely high.

Many of these choices will be irreversible, at

least in the short and medium terms. Once a decision is made, technology tends to become firmly

fixed on a given trajectory.1 This pattern is especially evident with networked information technologies, which require vast amounts of capital

and social investment. Thus, periods of rapid

technology advances, such as are occurring

today, provide a rare opportunity for reassessing

and redirecting both the nature of a particular

technology itself, and the economic and social

relationships that are structured around it.2

This chapter seeks to better inform this important decisionmaking process. To this end, it does

the following: 1) presents a framework for analyzing communication technologies and social

change; 2) lays out the existing evidence relating

technology change to economic development,

democracy, and political stability; 3) characterizes the range of situations presently to be found

in developing countries; 4) identifies recent

trends and advances in communication technologies; and 5) analyzes the implications of these

trends for developing countries.

A FRAMEWORK FOR ANALYZING 

COMMUNICATION TECHNOLOGIES 

AND SOCIAL CHANGE

Communication technologies have little direct

impact on society. Rather, they affect relationships, indirectly, by providing structure to communication processes. It is communication

processes themselves—which may or may not be

technology based—that give rise to social opportunities and impacts. Advances in communication technologies can, however, provide a

catalyst for change. By altering the nature of

communication processes as well as human perceptions, they can restructure the way that people

interact and carry out activities.3 To evaluate the

potential of new communication technologies to

promote foreign aid goals, it is necessary to

define and characterize these interconnections.

1 Brian W. Arthur, “Positive Feedbacks in the Economy,” Scientific American, February 1990, pp. 92–99. 2 For a discussion of how institutions get locked in, see Douglas North, Institutions, Institutional Change, and Economic Performance

(Cambridge, UK: Cambridge University Press, 1990). 3 See Daniel Katz and Robert L. Kahn, The Social Psychology of Organizations (New York, NY: John Wiley & Sons, Inc., 1966).
Chapter 3 Communication Technologies to Promote Foreign Aid Goals 77

❚ Communications Defined

To relate communication and information technologies to the process of economic development, democratization, and political stability

requires a definition of communication that can

serve equally to describe social phenomena as

well as technology. Previous ways of defining

communication are inadequate in this regard, so

a working definition for this discussion is needed

(see box 3-l).

The word “communicate” comes from the

Latin root “communis,” signifying communion

or the idea of a shared understanding of, or participation in, an idea or event. In this original

sense of the word, communicate was used as a

noun of action that meant “to make common to

many (or the subject thus made common).”4

Toward the end of the 17th century, the notion of

imparting, conveying, or exchanging information

and materials was incorporated into the concept.

Academic researchers have traditionally defined communication in accordance with the sender/

receiver model developed by Shannon and Weaver in their work on information theory. 1 As depicted

below, this model characterizes communication as a systemic process, the main components of which

include: sender, message, transmission, noise, channel, reception, and receiver, Despite a long history,

this model is less useful today, given the convergence of information and communication technology and

an interactive, multimedia environment in which communication no longer takes place in a linear fashion.

With a computerized bulletin board, for example, how does one identify and distinguish between who is

the sender and who is the receiver of a message? And similarly, who is considered the sender of a message when the receiver can now access information on demand?

The Shannon and Weaver model is also inappropriate for analyzing social processes and policy

issues, The somewhat passive notions of “message,“ “sender,” and “receiver, ” draw attention to the

problems of effective communication. However, they downplay any problems involved in, or issues

about, who gets to formulate, send, and access information; on what basis, and with what objectives and

effects, It is, in fact, precisely these kinds of issues that may determine whether, and the extent to which,

communication and information technologies serve U.S. foreign aid goals.

1 Claude Shannon and Warren Weaver, The Mathematical Theory of Communication (Urbana, IL: University of Illinois Press,

1949), p. 5.

SOURCE: Office of Technology Assessment,

Sender

1995

Transmission

/ /

4 Daniel Czitrom, Media and the American Mind (Chapel Hill, NC: The University of North Carolina Press, 1982), p. 10
78 Global Communications: Opportunities for Trade and Aid

This sense of the term became increasingly popular with the development of railroads, canals,

and roads.5 Both connotations are germane to the

issues addressed here.

To incorporate both perspectives, this study

defines communication as “the process by which

messages are formulated, exchanged, and interpreted.” As depicted in figure 3-1, which

describes this communication process, the definition used here assumes that these three activities

are related to one another in a process insofar as

they are all required for an act of communication

to take place. In light of interactive technology,

however, the process in which these activities are

related is not considered to be linear; nor does

the process entail a predictable sequence of

events. Technology and human beings are also

understood to be interchangeable at any point in

the process, and they can come together in any

number of ways. Moreover, the process of communication is not viewed, as in the past, as a

mere transmission process. As defined here, it

includes the application and content that is communicated.

❚ Communications and Society

Defined broadly in this fashion, it is clear that

communication is the basis for all human interaction and one of the means for establishing and

organizing society. Without it, a society could

not survive. It is the means by which group

norms are established, expectations are voiced,

individual roles are assigned, change is enacted,

and social control is exercised.

Communication, for example, is inherent in

the coordination of all economic activity. The

exchange of information is at the heart of the

market system.6 A market relies on the communication of information to identify buyers and

sellers, allocate resources, and establish prices.

Within firms, the availability of timely and accurate information is key to decisions about

n

SOURCE: The Office of Technology Assessment, 1995

whether to enter or exit markets; how to secure

financing; how to organize working relationships; and how to market and distribute goods.

Where adequate information is not available,

markets will fail and economic performance will

suffer because of higher business costs. Likewise, firms that lack adequate market information will be at a competitive disadvantage.

Communication and information also pervade

political life. Without them there could be no

nation; for it is through the process of communication that people first develop a sense of community and a shared set of values that legitimize

political authority.7 By magnifying and amplifying some actions, the communication process

distinguishes between what is a private act and

what is a public affair. It organizes what appear

to be random activities to show how individuals

and groups are related to one another in the pursuit of power, providing a roadmap for individu5 Ibid and Ray~o~d wil]ia~5, @words: A Vocabulary of Culture and Society (New York, Ny: Oxford university press! 1976)* pp.

62-63. “’

b For ~ in.depth discussion, see James R. Beniger, The Control Revolution: Technology and the Economic Origins Of the lnfor~tion

Society (Cambridge, MA: Harvard University Press, 1986).

7 SW Kwl Deut~ch, Na~iona/i~m and Social Communication (New York, NY: Free press! 1963).
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 79

als who want to influence the course of political

events.8 Citizens rely on the communication process to gather information; identify like-minded

people; organize their forces; and articulate their

political preferences. Furthermore, because it

generates a common fund of knowledge and

information, the communication system facilitates productive and rational debate. Without

some form of knowledge and understanding of

how others are informed and what they believe,

individuals could not make reasoned and sensible arguments and decisions.9

Communication is similarly the process by

which culture is developed and maintained. Only

when people develop language, and thus a way

of communicating, can a culture emerge and be

imparted.10 Information—the content of communication—is the basic source of human intercourse. Thus, the communication of information

permeates the cultural environment and is essential to all aspects of social life. It is the means by

which knowledge is created and shared, roles are

negotiated, and social relationships are legitimated.11 Through communication, culture is

both maintained and changed; behaviors, and the

values that underlie them, are accepted, questioned, or reinterpreted according to circumstances.12

Supporting all forms of human activity, communication runs like a thread entwined throughout the course of history. As Lucian W. Pye has

described it:

Communication is the web of human society.

The structure of a communication system with

its more or less well-defined channels is in a

sense the skeleton of the social body which

envelops it. The content of communications is

of course the very substance of human intercourse. The flow of communications determines

8 Lucian Pye (ed.), Communications and Political Development (Princeton, NJ: Princeton University Press, 1965), p. 6. 9 Ibid.

10 Beniger, op. cit., footnote 6, pp. 84–91. 11 Donald P. Cushman and Dudley D. Cahn, Jr., Communication in Interpersonal Relationships (Albany, NY: State University Press,

1985); and Martin Lawrence LeFleur, Theories of Communication (New York, NY: David McKay Co., Inc., 1970). 12 When people communicate, meaning is both assumed and negotiated—some things are taken for granted, and others are interpreted in

new ways or brought up for explicit discussion. When people communicate, they are both differentiating and integrating—displaying their

distinctiveness as well as demonstrating their commonality.

the direction and the pace of dynamic social

development. Hence it is possible to analyze all

social processes in terms of the structure, content, and flow of communications.13

How communications processes are ordered,

therefore, will have a major impact on developing countries and their ability to achieve economic, political, and social goals.

❚ Technology Advance as It Affects 

Communication Processes and Economic, 

Political, and Social Outcomes

Communication processes do not occur in a vacuum; they are facilitated and sustained by an

underlying network of individuals, institutions,

and technologies that provide the means and

mechanisms for formulating, exchanging, and

interpreting information, and for creating the

necessary linkages among these activities. As

part of the infrastructure, communication and

information technologies not only support communication processes; they also mediate them,

restructuring the way in which they take place.

Communication and information technologies

can affect communication processes in a variety

of ways. For example, they can alter:

■ the speed of communication,

■ the cost of communication, ■ the distance that, within any given period of

time, information can travel,

■ the amount of intelligence/functionality that

can be transferred, ■ the relationships and interdependencies among

parties to an act of communication, and

■ the perceptions of the parties communicating.

It is these changes in communication processes—and not the actual deployment of tech13 Pye, op. cit., footnote 8, p. 4.
80 | Global Communications: Opportunities for Trade and Aid

nology itself—that eventually gives rise to social

and economic opportunities and impacts. Thus,

for example, communication technologies such

as fiber optics and optical switches, which

increase the speed and reduce the cost of communication, can foster economic growth by permitting a greater number of transactions to take

place. Similarly, inexpensive, stand-alone media

technologies—such as videotapes and video

cameras—have served in Eastern Europe and a

number of developing countries to enhance political participation (and, on occasion, to increase

political instability) by reconfiguring relationships so that citizens could bypass existing information gatekeepers.

Because the impacts of communication technologies are indirect, change takes place in an

evolutionary, rather than a revolutionary, fashion.14 Moreover, the path change follows is not

direct; it zigzags and meanders in response to the

openings and obstacles encountered along the

way (see box 3-2).15

Technology advances are tempered by social

forces as well as by the historical conditions

under which new technologies are brought into

use.16 These forces often override the idealistic

aspirations and hopes that are attached to technological change. If, for example, the social and

14 As described by Braudel with respect to the industrial revolution, “When one is talking about social phenomena, rapid and slow change

are inseparable. For no society exists which is not constantly torn between the forces—whether perceived as such or not—working to undermine it. Revolutionary explosions are but the sudden and short lived volcanic eruption of this latent and long term conflict.” Fernand Braudel,

Civilization and Capitalism 15th-18th Century: The Perspective of the World, vol. 3 (Berkeley, CA: University of California Press, 1992),

pp. 537–538. 15 Analytical models differ with respect to the degree and timing of how society and technology influence one another. According to one

school of thought, technology is essentially neutral before it has been developed. And it is only as technologies are exploited and molded in

accordance with particular social, economic, and political conditions that they take on a determining force of their own. For this view, see

Clifford Christians, “Home Video Systems, A Revolution?” Journal of Broadcasting. vol. 17, 1973, pp. 223–234. Others think of technologies as being biased in favor of particular outcomes at the moment of their conception because they are envisioned and designed with certain

purposes and practices already in mind. For this perspective, see Raymond Williams, Television Technology and Cultural Form (New York,

NY; Schockien Books, 1973). 16 The development of the penny press is one example. Many social reformers hoped that it could be used to reestablish a broad moral

and political consensus across the United States after the turmoil caused by the Civil War. Social and economic conditions worked against

them, however. The penny press emerged not only in a period of cultural upheaval and transition, but also in a period of intense competition

for advertisers and readers. Instead of trying to improve the cultural and moral standards of people, newspaper publishers felt compelled to

adopt any sensationalist device so long as it would bring in additional readers. Czitrom, op. cit., footnote 4, pp. 92–93.

technological infrastructure is inadequate to

exploit the benefits of new advances, some technologies will be slow to develop or perhaps

never be applied at all.17

Whether or not new technologies are developed, and who bears their costs and reaps their

benefits, will also be determined by the

responses and reactions of those who have a

stake in maintaining the status quo.18 Made in

the context of existing institutional structures,

laws, and practices, technology choices will

depend on who the key decisionmakers are; how

they perceive their needs, interests, and objectives in the light of new technology; and the

power and authority they have to determine

events.

RELATING CAUSES TO EFFECTS

Given the complexity of the relationships

involved, anticipating how communication technologies might affect the prospects of Third

World countries is decidedly difficult. Nonetheless, to make sound telecommunication investments, developing country leaders and foreign

aid providers must assess the full range of associated benefits and costs. They also need to under17 Such was the case in ancient Alexandria, for example. Although inventors had the theoretical knowledge necessary to create primitive

versions of a steam engine and a wheeled cart, these ideas lay dormant and only became practicable in application centuries later in conjunction with the industrial revolution. Langdon Winner, Autonomous Technology: Technics Out of Control as a Theme in Political Thought

(Cambridge, MA: MIT Press, 1977), pp. 11–12. 18 For an historical account of the conservative role that communication stakeholders played with respect to new technology developments, see Brian Winston, Misunderstanding Media (Cambridge, MA: Harvard University Press, 1986), pp. 15–34.
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 81

stand the conditions under which success will

most likely occur.

To gain a sufficiently broad understanding of

these issues, it is useful to consider historical evidence drawn from analogous situations. Only an

historical picture can capture all the variables

and their relationships to one another. Comparing historical inferences to statistical data, it is

then possible to suggest whether, and the extent

to which, the conclusions of such analyses might

be generalized.

❚ An Historical Overview

To select an historical case that is somewhat

analogous to the situation in developing countries today, one need look no further than the

United States. Judged by European standards of

the time, the United States was, in its earliest

years, “underdeveloped.” By the turn of the 19th

century, however, the United States had been

forged into a major industrial nation spanning the

continent and a multiplicity of cultures. Telecommunications, as described below, played a

major role in this economic and political transformation.

The important role that communication (and

transportation) technologies played in the rise of

the United States economy can be seen by tracing the development of these technologies in

conjunction with the nation’s industrial developBOX 3-2: The Printing Press as an Agent of Change

The printing press had a major impact on Europe.1 In fact, the printing press is often viewed as a “revolutionary” information technology responsible for the Reformation. Its incorporation into the existing

social, economic, and political framework occurred over time, so its impact was filtered by historical

events.

Printing greatly increased the speed and reduced the costs of reproduction, and thus facilitated the

dissemination of ideas. By increasing the general level of literacy, it also made more people susceptible

to, and eager to partake of ideas. As a result, the market for information products and literary works grew,

and the economic value of these works was greatly enhanced. Later, as books and manuscripts moved

beyond monastery shelves and became simultaneously available to many people, they began to serve as

an important forum for public discussion. Printing and the widespread use of books also fostered new

relationships among scientists, artists, intellectuals, and their geographically distant counterparts. As

Eisenstein has pointed out:

The fact that identical images, maps, and diagrams could be viewed simultaneously by scattered readers

constituted a kind of communication revolution itself.2

Occurring at the time of religious and political turmoil, printing presented the monarchs of Europe with

both a political threat and an economic opportunity. While direct censorship was the most effective

means of confronting the political threat brought about by the new technology, it also stifled the printing

industry, and thus limited the government’s economic benefits from printing. Seeking to both end the dissemination of heretical and seditious literature, but still profit from the burgeoning printing trade, the

English government aligned itself with publishers. In exchange for an agreement to enforce the censorship laws, the government granted the publishers’ guild, known as the Stationers, a monopoly right to

print, publish, and sell works—a copyright.3

1 For the classic account, see Elizabeth L. Eisenstein, The Printing Press as an Agent of Change: Communications and Cultural

Transformations in Early Modern Europe, vols. I and II (Cambridge, England: Cambridge University Press, 1982).

2 Ibid., vol. 1, p. 56.

3 Stephen Stewart, Law of International Copyright and Neighboring Rights (London, England: Butterworths & Co., Ltd., 1983).

SOURCE: Office of Technology Assessment, 1995.
82 | Global Communications: Opportunities for Trade and Aid

ment. Between 1830 and 1887, a plethora of new

technologies emerged, which gradually replaced

many of the social and institutional communication networks that had hitherto sustained economic activities in the New World (see table 3-1).

The deployment of these technologies, together

with the social and organizational changes that

they facilitated, increased economic activity and

fostered economic growth in a number of interrelated ways, many of which served to reduce

transaction costs (see appendix A for a detailed

account).

These effects can be summarized as follows.

First, communication technologies dramatically

increased both the speed and the number of economic transactions that could take place. Second,

by diminishing the relevance of geographic distance, communication technologies facilitated

the expansion of trade and markets. At the same

time, the development of mass media technology

served to reinforce national markets by helping

to mold tastes and preferences into a more uniform cast. This increased market size, in turn, led

to greater specialization, standardization, and

economies of scale. By enhancing intrafirm coordination, communication technologies allowed

businesses to grow vertically and horizontally,

and thus to exploit these economies.

Communication technologies also restructured

relationships among economic actors, making

some better and some worse off. Most vulnerable

were those who—like jobbers and local retailers—were either replaced or bypassed, by technology. Winners were those who, being the first

to gain access, were able to use communication

technologies to reorganize their activities in

response to the fundamental social and economic

changes entailed in the process of industrialization, thereby gaining a competitive advantage.

The role of communication, however, was not

constant over time. Rather, it increased along

with technology advance, and as markets grew

and business processes became more complex

and information-intense. Initially, for example,

middlemen and their personal networks provided

the medium by which market information was

transported, and market interactions consisted

almost entirely of face-to-face exchanges. With

the onset of industrialization, mediated communication replaced most of this primary contact.

Just as communication technologies served to

promote U.S. economic growth and development, so too they played a critical role in the

political evolution of the United States. Like

political leaders in many developing countries

today, the U.S. Founding Fathers were faced

with the mammoth task of “building” a nation in

the context of a democratic political system. At a

minimum, this effort entailed establishing

national sovereignty and national security; maintaining internal security and social welfare and

ensuring an open political system based on participation, deliberation, and representation.19

Communication technologies, and the rules

that governed their use and development, were

critical not only to carry out these activities, but

also in determining the relationship—as well as

resolving the tensions—among them (see appendix A for a detailed description). Serving as a

mechanism for both national integration as well as

individual (and group) differentiation and participation, these technologies provided a mechanism

for balancing the need for political participation as

well as social control (see box 3-3).20

19 The United States was designed to be a representative or republican form of government. This design reflects the Founders’ belief that,

while government should be based on popular sovereignty, it should also protect the minority against majority rule. Thus while power was

given to the people, it was done in a limited, or restricted, fashion. Qualified participants were defined narrowly to include only white, property-owning males. Moreover, the President and the Senate were not directly elected by the people but rather were indirectly chosen by the

Electoral College and the State legislatures. And finally, “the people” were themselves divided into two constituencies—one at the federal

and one at the state level. 20 For example, many political theorists have argued that some constraints are necessary in order to preserve democracy. Aristotle, for

example, favored “constitutional government” but was opposed to “direct democracy,” which he called perverted because it failed to protect

the rights and interests of the minority. James Madison made much the same case in The Federalist Paper. Aristotle in Twenty-Three Volumes, XXI Politics, translated by H. Rackham (London: Heineman, 1977), Book III, p. 207.
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 83

TABLE 3-1: Selected Innovations in Information Processing and Communication, 1830–1887

Year Innovation

1830s Wagon lines carrying freight between rural towns and ports begin to operate on regular schedules.

1837 Telegraph demonstrated, patented.

1839 Express delivery service between New York and Boston organized using railroad and steamboat.

1840s Freight forwarders operate large fleets on canals, offer regular through-freight arrangements with other 

lines.

1842 Railroad (Western) defines organizational structure for control.

1844 Congress appropriates funds for telegraph linking Washington and Baltimore; messages transmitted.

1847 Telegraph used commercially.

1851 Telegraph used by railroad (Erie). First class mail rates reduced 40–50 percent.

1852 Post Office makes widespread use of postage stamps.

1853 Trunk-line railroad (Erie) institutes a hierarchical system of information gathering, processing, and 

telegraphic communication to centralize control in the superintendent’s office.

1855 Registered mail authorized, system put into operation.

1858 Transatlantic telegraph cable links America and Europe, service terminates after 2 weeks.

1862 Federal Government issues paper money, makes it legal tender.

1863 Free home delivery of mail established in 49 largest cities.

1864 Railroad postal service begins using special mail car. Postal money order system established to insure 

transfer of funds.

1866 Telegraph service resumes between America and Europe. “Big Three” telegraph companies merge in 

single nationwide multiunit company (Western Union), first in United States.

1867 Railroad cars standardized. Automatic electric block signal system introduced in railroads.

1874 Interlocking signal and switching machine, controlled from a central location, installed by railroad (New 

York Central).

1876 Telephone demonstrated, patented.

1878 Commercial telephone switchboards and exchanges established, public directories issued.

1881 Refrigerated railroad car introduced to deliver Chicago-dressed meat to Eastern butchers.

1883 Uniform standard time adopted by United States on initiation of American Railway Association.

1884 Long-distance telephone service begins.

1885 Post Office establishes special delivery service.

1886 Railroad track gauges standardized.

1887 Interstate Commerce Act sets up uniform accounting procedures for railroads, imposes control by 

Interstate Commerce Commission.

SOURCE: Reprinted by permission of the publishers from The Control Revolution by James R. Beniger, Cambridge, MA: Harvard University

Press. Copyright 1986 by the President and Fellows of Harvard College. All rights reserved.
84 | Global Communications: Opportunities for Trade and Aid

Summarizing how communication technologies affected the evolution of American politics,

four major impacts can be identified. First, communication technologies helped to integrate the

nation by extending nationally oriented messages

over broad geographic areas in a manner that

bypassed traditional local, cultural, or socially

based information gatekeepers. Second, communication technologies simultaneously provided

mechanisms for individuals and groups to access

information, identify and organize like-minded

people, and promote their ideas at all levels of

government, thereby holding the government

accountable and assuring the representation of

their views. Third, communication technologies

provided government the means to administer

laws, maintain order, assure the national defense,

and promote the general welfare in an increasingly complex and interdependent social and

economic environment, which required dealing

with events such as industrialization, the Depression, and the Second World War. Finally, by supporting all of these functions on a relatively

equal basis, communication technologies helped

to maintain the balance—necessary to sustainable democracy—between participation and control.

Looking at the role of communication technologies in American politics, however, it is

clear that these technologies have been neither

equivalent nor technologically neutral with

respect to political outcomes. The telegraph and

mass media not only fostered national integration; they also diminished the interests of particularistic groups. The telephone, on the other

hand, facilitated political organization at all levels. Cable broadcasting increased the number of

outlets available for competing political perspectives. With such a wide range of communication

technologies available, striking the appropriate

balance between participation and control was

more easily accomplished.

Channeling information to some gatekeepers

while circumventing others, communication

technologies also helped to determine the distribution and locus of political power. Over the

course of American history, for example, the role

of information gatekeeper was shifted from the

local newspaper proprietor, to the legislative representative, to the political party leader, to the

television news analyst, transforming American

politics in the process (see box 3-4).

Although communication technologies

strongly influenced American politics, these

technologies were not autonomous in their

effects. Fully aware of their political potential,

the U.S. Founding Fathers established a basic

legal framework in the Constitution that served

to establish the general direction in which communication technologies have evolved. Within that

framework, politicians, vendors, users and other

stakeholders have all sought—both in the marketBOX 3-3: Politics and Communication Technologies

Political organization is constrained by the prevailing modes of transportation and communication,

and it changes with advances in these modes. Before the age of modern communication and transportation, political philosophers—ranging from Plato and Aristotle to Rousseau and Montesquieu—agreed that

size and population served to limit democracy. Based on the model of the Greek city-states, the ideal size

for a democracy was a unit “so small that any citizen could travel on foot from the most remote point in a

city-state to its political center and return in one day.”1 Similarly, the population of a democracy had to be

small and contained enough to allow interaction among its members. A polity so configured provided not

only for popular representation, but also for effective government administration.

1James W. Carey, Communication as Culture: Essays on Media and Society (Boston, MA: Unwin Hyman, 1989), p. 3.

SOURCE: Office of Technology Assessment, 1995.
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 85

place as well as in the political arena—to ensure

that these technologies are developed in accordance

with their preferences. Thus, in interpreting the

impact of communication technologies in Third

World countries, the specific institutional context in

which they evolve must be kept in mind.

❚ Statistical Evidence Linking 

Telecommunications to Economic 

Development and Democracy

Although historical evidence provides a good

picture of the ways in which, and circumstances

under which, communication technologies can

affect economic growth, democracy, and political stability, it provides no real measures of the

magnitude of such impacts. This kind of quantitative information is useful, especially when

making investment decisions. Unfortunately,

existing statistical analyses of the impact of telecommunications focus solely on the telephone,

and on its impact on economic growth per se.

Despite this limitation, these analyses do corroborate the conclusion that telephone deployment

and economic growth are positively related.

They suggest, moreover, that the benefits of telephone deployment are greater to the extent that

deployment occurs in conjunction with other

development-related variables—such as education and physical infrastructure development.

Statistical regression and correlation analysis

relating telecommunications to economic growth

dates back to 1963, when Jipp first demonstrated

a strong correlation between telephone density

and national wealth.21 Since then, there have

been a number of cross-sectional and time

series studies linking telecommunications and

economic development.22 The conclusions of

these analyses were inconclusive, however,

because the models used were overly simplistic—accommodating only a few independent

variables—and the data on telecommunications

services—drawn from developed and less

developed countries alike—were for the most

part incomparable. Even more troublesome,

these studies, while linking telecommunications

deployment to economic growth, failed to demonstrate causality.23

21 A Jipp, “Wealth of Nations and Telephone Density,” Telecommunications Journal, July 1963, pp. 199–201. 22 See, for discussions, Robert J. Saunders, Jeremy J. Warford, and Bjorn Wellenius, Telecommunications and Economic Development

(Baltimore, MD: John Hopkins University Press, published for the World Bank, 2nd ed., 1994), pp. 85–98. 23 Ibid.

BOX 3-4: The Role of Communication Gatekeepers

“...The important point about the way in which electronic and mass media operate is the fact that, as

new sources of information or belief, they create counterweights to established authorities. Simultaneous

radio coverage of the war, a moon walk or whatever absorbs and fascinates the mass audience directly,

cuts out traditional local purveyors of information and interpretation. It is not the imam or the chief of state

who tells the people what happened and what it means. The people were there, along with the camera

crew. The broadening of the arena of action transfers authority from the village bigwig returned from a

visit to the district town, to nouveau powerful national leaders and eventually beyond them to world figures.”1

1Ithiel de Sola Pool, “Direct-Broadcast Satellites and Cultural Integrity,” in Arthur Asa Berger (ed.), Television in Society, (New

Brunswick, NJ: Transaction Books, 1987), p. 231.

SOURCE: Ithiel de Sola Pool.
86 | Global Communications: Opportunities for Trade and Aid

More recent studies have addressed this problem of causation. For example, examining data

from 60 nations for the years between 1960 to

1973, Hardy found that causality operated in two

directions. Telecommunications investment

increased to a significant degree with economic

growth; similarly, although to a lesser degree,

economic growth expanded along with investment in telecommunications.24 Cronin, et al.,

came to a similar conclusion in their 1991 analysis, which was based on 31 years of U.S. data.25

To explain the relationship between telecommunications and economic development, Cronin et al. performed a sector-by-sector analysis

looking at the impact of telecommunications on

productivity.26 Their quantitative results show

that investments in telecommunications infrastructure are causally and significantly related to

national total factor productivity.27 The investigators found that advances in telecommunications production and enhanced consumption

possibilities for end-user industries account for

25 percent of the total direct and indirect aggregate productivity gains in the United States since

1978.28 Dholakia and Harlam, using statistical

data for the 50 states in the United States, also

24 Andrew P. Hardy, “The Role of the Telephone in Economic Development,” Telecommunications Policy, vol. 4, No. 4. December

1980, pp. 278–286. In this study, Hardy used a path analysis and cross-lagged correlation techniques, with time-lagged offsets on one year.

See Heather E. Hudson, Economic and Social Benefits of Rural Telecommunications: A Report to the World Bank, March 1995, p. 11. 25 Francis J. Cronin, Edwin B. Parker, Elisabeth K. Colleran, and Mark A. Gold, “Telecommunications Infrastructure and Economic

Growth: An Analysis of Causality,” Telecommunications Policy, vol. 15, No. 6, December 1991, pp. 529–535. 26 As the authors note, “Studies have found that highly developed national economies are correlated with highly developed telecommunications infrastructure. In fact, the evolution of this research, employing state-of-the-art statistical techniques, has now confirmed the existence of a feedback process in which telecommunications investment enhances economic activity and growth, while economic activity and

growth stimulate demands for telecommunications infrastructure investment. This relationship has been found, in general, to hold at the

national, state and sub-state level of analysis and for definitions of telecommunications infrastructure investment including total investment,

cable and wire and central office equipment.” Francis J. Cronin, Elisabeth K. Colleran, Paul L. Herbert, and Steven Lewitzky, “Telecommunications and Growth,” Telecommunications Policy, December 1993, vol. 17, p. 677. 27 Total factor productivity refers to the changes in final output per unit of combined labor, capital, and material inputs. 28 Cronin, et al., op.cit., footnote 26, p. 678.

found a strong causal link between telecommunication infrastructure and economic development.

Comparing resource inputs, using a multiple

regression analysis, they found that the link

between telecommunications and economic

growth is greatest when inputs such as education

and physical infrastructure are considered simultaneously.29

To explain the relationship between telecommunications and economic development, some

researchers have pointed to the ability of telecommunications to reduce transaction costs (i.e.,

the information related costs entailed in doing

business). According to Leff, for example, telecommunications not only lowers transaction

costs within markets; these benefits also spill

over to make other economic institutions more

efficient.30 Norton similarly found that reduced

transaction costs due to telecommunications

account for macroeconomic growth. His study

suggests, moreover, that benefits of reduced

transaction costs may be greatest for developing

countries where adequate market information is

very costly, to the extent that it is available at

all.31

29 Ruby Roy Dholakia and Bari Harlam, “Telecommunications and Economic Development: Econometric Analysis of the U.S. Experience,” Telecommunications Policy, vol. 18. No. 6, August 1994, pp. 470–477. 30 In his 1984 study, Leff pointed out four significant relationships: 1) lower communication costs serve to reduce resource allocation

decision costs between rural and urban sectors: 2) with lower communication costs, the optimal amount of search rises increasing the quantity and quality of decisionmaking; 3) by increasing the opportunities for arbitrage, lower communication costs make financial markets more

efficient, resulting in lower capital costs; and 4) lower communication costs lead to more information on the probability distribution of prices,

and permit the transformation of uncertainty into risk. See Nathaniel H. Leff, “Externalities, Information Costs, and Social Benefit-Cost

Analysis for Economic Development: An Example from Telecommunications,” Economic Development and Cultural Change, vol. 32, January 1984, pp. 255–276. 31 Seth W. Norton, “Transaction Costs, Telecommunications, and the Microeconomics of Macroeconomic Growth,” Economic Development and Cultural Change, vol. 41, October 1992, pp. 175–196.
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 87

THE CONTEXT IN DEVELOPING 

COUNTRIES TODAY

Both the historical and the statistical data relating

telecommunication to economic and political

development are drawn almost exclusively from

experiences in Western countries, which share a

common historical and institutional frame of reference. Many of these commonalities are absent

in developing countries today. Thus, to anticipate

how communication technologies will affect

political and economic development in Third

World countries, one cannot simply transpose the

lessons from the past. As has always been the

case, the impact of today’s technologies will

depend to a considerable degree on the specific

social, economic, and political context in which

they evolve.

The development challenges facing Third

World countries today are monumental. Unlike

the countries of Western Europe, developing

countries do not have the luxury of executing the

processes of nation-building, economic growth,

and democracy in a sequential fashion, spread

out over centuries (see box 3-5). Instead, these

three processes must be carried out simultaneously, even though they are not always mutually reinforcing.32 Compounding their problems,

developing countries must deal with these challenges in an open, and increasingly networked,

global economy. To be successful in such an

environment, they must become further integrated into the world economy. Yet being more

open, these countries run the risk that international players, with agendas of their own, could

undermine their efforts at nation-building by

competing for economic resources as well as

political loyalties.33

Deteriorating social and economic conditions

in many Third World countries magnify their

problems. Over the past three decades, income

disparity across the globe has doubled. Now, the

richest 20 percent of the world’s population

receives an income that is 150 times the amount

received by the poorest 20 percent.34 Nearly 35

percent of the world’s adult population is, moreover, illiterate. In addition, infant mortality rates

continue to hover at 114 deaths per 1,000 live

births.35

Third World resources to meet these challenges are severely limited, especially in the least

developed countries.36 Having yet to recover

32 Thus, for example, democracy and political stability are not, as has generally been believed, highly correlated. Statistical evidence

shows that, in becoming mature democracies, countries experience a difficult transition period when mass politics tends to exacerbate nationalism and national aggression. See Edward D. Mansfield and Jack Snyder, “Democratization and War,” Foreign Affairs, vol. 74, No. 3, pp.

79–80. 33 For a discussion of the relationship between local political participation and globalization, and its effect on the nation state, see

Zdranko Mlinar, “Local Response to Global Change,” Annals of the American Academy of Political Science, July 1995, No. 540, pp. 145–

156.34 Human Development Report 1993 (New York, NY: United Nations Development Program, 1993), p. 11. 35 Ibid., pp. 11–12. 36 The World Bank defines these “low income country” as those with a gross domestic per capita income of less than U.S. $635.

BOX 3-5: The Development of Markets in Western Europe

Without markets, economic growth cannot take place. In Western Europe, it took 300 years for markets

to become firmly established. And their emergence required no less than the consolidation of political

authority; the secularization of society; the establishment of property rights that were free from feudal obligations; and the division of society into groups and rankings that, while based on economic interest, permitted social mobility. Today, developing countries are attempting to do in a few years what it took the

ruling powers of Europe three centuries to accomplish.

SOURCE: Office of Technology Assessment, 1995.
88 | Global Communications: Opportunities for Trade and Aid

from the debt crisis of the 1980s, many countries

continue to experience low growth rates, with the

average for all developing countries ranging

between 1.4 and 1.6 percent.37 

In the area of sub-Saharan Africa—where

these problems are the gravest—only marginal

improvements in per capita income and consumption are anticipated, even under the most

positive growth scenarios.38 Assuming a less

favorable global economic environment, a number of Latin American countries will probably

also experience difficult times. Continued unrest

in the Soviet Union and Eastern Europe would

make economic growth in this region problematic as well (see table 3-2).39 

The short term steps that many developing

countries are taking to relieve their immediate

37 The Least Developed Countries Report (Geneva, Switzerland: UNCTAD, 1995). 38 Global Economic Prospects and the Developing Countries (Washington DC: World Bank, 1994), pp. 1–7. 39 Ibid.

social and economic problems could complicate,

or even jeopardize, their prospects for long term

sustainability. For example, in some cases, there

has been excessive cropping, grazing, and timbering in areas that are already extremely fragile

from an ecological standpoint (see table 3-3).

Population growth and per capita income

growth will put new strains on the global environment. In 1960, the world’s population was

about 3 billion. The world population today

stands at 5.3 billion and—according to a

midrange forecast—it could increase by 70 percent to roughly 9 billion by 2030. Moreover, if

global per capita incomes increase at an estimated rate of 80 percent, world economic output

could grow to as much as $69 trillion by 2030,

3.5 times more than at present.40 If pollution

40 Developing countries per capita incomes are estimated to grow by 140 percent. Calculated from data contained in World Bank, World

Development Report, 1992 (Washington, DC: World Bank, 1993).

TABLE 3-2: Developing Regions: Growth of Real GDP

(percentage changes per year)

Developing region

Trend

1974–90

Recent estimates

1991–93

1994–2003

 Forecast Low case

All developing countries 3.4 0.9 4.8 3.6

Sub-Saharan Africa 2.1 1.7 3.9 2.4

Middle East and North Africa 0.9 3.0 3.8 3.2

Europe and Central Asia (ECA) 3.1 -9.8 2.7 1.5

South Asia 5.0 3.5 5.3 4.2

East Asia 7.3 8.3 7.6 7.1

Latin America and the Caribbean 2.5 3.2 3.4 0.8

Memorandum item

All developing countries, excluding ECA 3.5 4.6 5.2 4.0

SOURCE: Global Economic Prospects and the Developing Countries, A World Bank Book, 1994.
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 89

keeps pace with this projected development, the

environmental damage could be astronomical.

The problems facing developing countries are

inextricably linked to one another, as the case of

population control clearly illustrates. Most population studies now show, for example, that pregnancy decisions in Third World countries are

both determined by, and have an impact on, a

number of other interrelated social, economic, and

environmental factors. For example, the correlation between fertility rates and education is particularly strong.41 According to the World Bank,

women in developing countries who have no secondary education generally bear up to seven chil41 “Battle of the Bulge,” The Economist, vol. No. 7879, Sept. 3, 1994, p. 23.

dren. In contrast, those who have attended

secondary school average only three births.

Levels of education as they affect birth rates

are related, in turn, to the health of both women

and children. In developing countries, pregnancy

is the primary cause of death for women of childbearing age. In fact, in some parts of sub-Saharan

Africa, it is not unusual to find one maternal

death per 50 live births.42 Of equal note, when

mothers are educated and have fewer children,

they provide better care for their children, whose

health and prospects of survival are greatly

enhanced as a result. In addition, girls born in

such families are more likely to be educated and

42 Partha S. Dasgupta, op. cit., footnote 41, pp. 42–45.

TABLE 3-3: Estimates of Environmental Damage in Selected Countries

Country and Year Form of Environmental Damage

Annual Costs

as a Share of GNP

(percent)

Burkina Faso (1988) Crop, livestock, and fuelwood losses from land degradation 8.8

Costa Rica (1989) Deforestation 7.7

Ethiopia (1983) Effects of deforestation on the supply of fuelwood and crop output 6.0–9.0

Germany (1990)1 Pollution damage (air, water, soil pollution, loss of biodiversity) 1.7–4.2

Hungary (late eighties) Pollution damage (mostly air pollution) 5.0

Indonesia (1984) Soil erosion and deforestation 4.0

Madagascar (1988) Land burning and erosion 5.0–15.0

Malawi (1988) Lost crop production from soil erosion

Costs of deforestation

1.6–10.9

1.2–4.4

Mali (1988) On-site soil erosion and losses 0.4

Netherlands (1986) Some pollution damage 0.5–0.8

Nigeria (1989) Soil degradation, deforestation, water pollution, other erosion 17.4

Poland (1987) Pollution damage 4.4–7.7

United States2 (1981)

(1985)

Air pollution control

Water pollution control

0.8–2.1

0.4

1 Federal Republic of Germany before unification.

2 Measures the benefits of environmental policy (avoided rather than actual damages).

SOURCE: “Environmental Damage Robs Countries’ Income,” World Bank News, March 25, 1993, based on David Pearce and Jeremy Warford,

World Without End (Washington, DC: World Bank, 1993)
90 | Global Communications: Opportunities for Trade and Aid

thus less likely to marry early, have multiple

pregnancies, and repeat the cycle.43

Some form of intervention is needed if developing countries are to extricate themselves from

these downward spirals of deterioration. Overwhelmed by short-term problems of immediate

survival, most Third World countries have,

unfortunately, only limited resources to invest in

altering their futures. Thus, notwithstanding

recent improvements in infrastructure for transport, power, water, sanitation, telecommunications, and irrigation, there are today more than

one billion people in the developing world who

lack access to clean water, and nearly two billion

without adequate sanitation.44

One ray of hope is the recent economic

progress made by a number of Third World

countries. Unlike most developing countries,

which continue to be mired in civil conflicts,

political instability, and economic decline, 12

countries have improved their economic performance during the first half of the 1990s, with significant increases in per capita output.45 Included

are Bangladesh, Benin, Cambodia, Equatorial

Guinea, Guinea-Bissau, the Lao People’s Democratic Republic, Lesotho, Mozambique, Myanmar, Sao Tome and Principe, the Solomon

Islands, and Sudan.46

As was the case with the “newly industrializing countries” a decade earlier, the success of

these 12 can be attributed, in part, to their ability

to maintain internal stability while reaching outward to the global economy. If other less developed countries are to be similarly successful,

they too must gain the inner capacity that will

give them the flexibility to adapt to the structural

changes taking place in their external environment. Most important, they must—as described

below—be prepared to compete in a global

knowledge-based economy, where production

takes place on a worldwide, but decentralized

43 Ibid. 44 World Development Report 1994, Infrastructure for Development (Washington DC: World Bank, 1994), p. 1. 45 The Least Developed Countries Report, op. cit., footnote 37. Viewing the situation more pessimistically, some OTA reviewers point

out that continued progress in these 12 countries is by no means a foregone conclusion. 46 Ibid.

and flexible, basis. The first countries to adapt to

these changes will gain a significant competitive

advantage, while countries failing to do so will

fall behind.

LEVERAGING COMMUNICATION 

TECHNOLOGIES

Communication and information technologies, as

they are advancing today, can make a critical difference in determining Third World success or

failure. Ideally, these technologies can serve both

to foster economic development, democracy, and

political stability and to balance these processes,

so as to make them more mutually reinforcing.

These technologies can, moreover, make it easier

for developing countries to reinforce national

and local community ties while at the same time

fostering their global integration.

❚ Technology Trends

Present advances in communication and information technologies can best be summarized in

terms of the following seven trends. It is these

trends that are altering the technical characteristics and capabilities of the infrastructure in Third

World countries, and changing the manner in

which communication processes will likely be

carried out.

Greatly Improved Performance 

at Decreasing Costs

The technical performance of all network components has greatly increased at the same time

that the costs have fallen. This, more than any

other development, will have a pervasive impact

on the communication infrastructure. Many of

these improvements result from advances in

computer technologies which are increasingly

ubiquitous throughout all communication systems.
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 91

Advances in computer architecture and software have also helped to harness the processing

power in communication applications. In the

past, switching mechanisms were used to replicate the manual operations entailed in placing a

telephone call. The development of common

channel signaling and intelligent databases now

permits network switches to operate as computers, making real-time routing decisions based on

the status of the network, call loads, and the characteristics of callers. With new developments in

fast packet switching technologies, such as frame

relay and asynchronous transfer mode (ATM),

these kinds of intelligent network operations can

be executed with much greater flexibility and

increasing speeds.

Advances in transmission technologies are

keeping pace with, if not exceeding, those in

switching. Developments in fiber optics, which

provide an excellent medium for transmission,

have been most significant. With minimum

transmission loss, fiber allows many more signals to travel over longer distances with smaller

numbers of repeaters than does copper wire.

Thus, it can support new broadband applications

such as video telephony, multimedia services,

and very high speed data services.

The capabilities of lightwave transmission, for

example, are doubling every year, a trend that is

likely to continue for another decade. Already,

commercial systems have been developed that

transmit 2.4 gigabits (billion bits) per second.

Within the next few years, the use of laser systems and wavelength division multiplexing on a

single fiber will permit the transport of multiple

channels of information yielding a capacity of 40

gigabits per second.47 These gains in capacity

have, moreover, been matched by a decline in

price. At present, the price per unit of transmission for fiber optics has been dropping at a rate

of 40 percent per year.48

Network performance has also been improved

through the use of digital compression technology, which reduces capacity requirements by

selectively eliminating redundant data.49 When

used together with advanced switching technologies, digital compression can greatly enhance the

capacity of existing copper-based networks.

Thus, for example, it is now possible to transmit

data at speeds of 10 megabits using twisted pair

wire. Moreover, researchers claim that, by compressing signals in the channel rather than at their

source, copper telephone wire can be upgraded to

achieve the capacity of fiber, thus greatly reducing the need for infrastructure investment.50

Major strides are also being made in video

compression, which requires considerably more

bandwidth than data and voice.51 With compression technology, for example, it is now possible

to fit multiple video signals into a satellite transponder or a 6 MHz cable channel—an amount

of space that previously could only accommodate an analog signal.52

Digital compression has also facilitated

advances in storage technologies (see figure 3-2).

Consider, for example, CD ROM—the cheapest

47 David Brody, “Internet@Crossroads $$$,” Technology Review, May/June 1995, p. 28. With wave division multiplexing, each fiber

optic cable can accommodate multiple channels by assigning each data stream a different wave length or color. 48 Michael J. Mandel, “This Investment Book Gives the Economy Running Room,” Business Week, July 25, 1994, pp. 68–70. 49 In the case of audio, for example, a compression algorithm will eliminate that portion of the information that the human sensory system

would typically select out before a message reaches the brain. See Mary Ann O’Connor, “The Latest in Compression Technology,” CD-ROM

Professional, January 1994, p. 153. 50 Paula Bernier, “Compression Helps Copper Equal Fiber,” Telephony, Jan. 31, 1994, pp. 9–10. 51 As opposed to the 64-kb/s streams that are typically used for voice telephone to the home, video signals require approximately 140 Mb/s

of bandwidth. With digital compression, signals can be compressed to about 1.5 Mb/s for videocassette recorder-quality movies, and to about 12

MB/s for real-time compressed video. See Richard Karpinski, “Video Dial Tone: Putting the Pieces Together,” Telephony, July 25, 1994. 52 Richard A. Langhans, “A Beginner’s Guide to Digital Compression,” Satellite Communication, November 1994, p. 24.
92 Global Communications: Opportunities for Trade and Aid

20

15

10

1994 1996 1998 2000

SOURCE: IEEE Spectrum, January 1995.

53 Using existing storage media available today.

technology, the entire Encyclopedia Britannica

and the complete works of Charles Dickens can

now be stored on a single disk. Electronics companies are, however, working on a standard—

High-Density CD ROM—that will increase CDROM storage capacity by an order of magnitude

54 These high-capacity CD-ROMS to 6.7 gigabits.

can be used to distribute interactive video, much

as audio CD-ROMs are presently being used.55

The Convergence of Communication

Functions, Media, and Services

Technology advances over the last decade have

also led to the convergence of communications

functions and media. For example, data processing and telecommunications were once clearly

distinct sets of operations, carried out by quite

different economic actors. This is no longer the

case. Digital switching and data processing now

serve as the centerpieces of modern communication networks. With the deployment of fast packet

switching and the integration of further intelligence

into communication networks, it has become

increasingly difficult to distinguish between the

functions of switching and transmission.

One major technology advance contributing to

this trend is digitization-the process of transforming “analog” messages (a spoken work, a picture, a

letter) into signals made up of discrete pulses that

can be transmitted, processed, and stored electronically. When in a digital form, audio, video and textual messages can be combined and recombined,

allowing information to be integrated in a way that

was previously impossible.56

In the case of telephony, digitization was first

introduced in the short-haul exchange of the telephone network in the early 1960s, and into the

long-haul sectors and local exchange markets in

the 1970s. With the development of digital loop

technologies providing digital connectivity to the

customer, it became possible to offer digital data

services. Transmitting digital data is much more

efficient than transmitting analog data because

the data do not have to be converted into tones

simulating voice signal. Improvements in the

performance and reliability of digital technologies, together with a reduction in their size and

cost, have also fostered these developments.

The development of lightwave technology

also spurred the trend towards convergence.

Given the generous bandwidths provided by

fiber optics, telecommunication providers were

no longer technically precluded from transmitting high-speed digital images.

53 Al~ J Ryan, ~~It~~ All in the Disc,” Daf~afion, VOI. 41, No. 3, Feb. 15, 1995, pp. 61-62.~~so. BMW Fox! “CDS: The ‘ext ‘negation,” New Scientist, Sept. 10, 1994, pp. 33–35; and Stephanie Losee, “Watch Out for the CD-ROM Hype,” Fortune, Sept. 19, 1994, pp.

127-140.

~ Michale Nadeau, CD-ROM World, VOi. 10, No. 1. JaIIUaIY 1995, P. 1O.

55 N~~cy K. Herther, “cD.R(_)M at Ten,” Online, MarCMAPril 1995. PP. 8693.

56 As de~cn~d by S@wWd Bmnd, ~~with ~git~mtion all of the me~a becomes translatable into each other-computer bits mig~te

merrily-and they escape from their traditional means of transmission ....with digitalization the content become totally plastic-any message,

sound, or image may be edited from anything into anything else.” Steward Brand, The Media Lab: Investing the Future at MIT (New York,

NY: Penguin Books, 1988), p. 19.
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 93

Epitomizing this trend towards convergence

are broadband networks. Based on a common set of

standards, these networks are designed to provide

efficient interconnection for all possible communication services. Because they do not require separate systems for voice, data, and video, such

networks are truly integrated. To provide broadband capacity, networks take full advantage of digitization, advanced switching, and lightwave

technology.

The effects of digitization are being experienced far beyond the realm of telecommunications. For example, providing the ability to

integrate and process voice, video, and text, digitization is giving rise to a wide range of multimedia

applications that are designed to run on networked

technologies.57 Today, for example, voice, fax,

and visual data can all be provided interchangeably on the desktop, so that information accessed

from a database can be seen as well as heard. Multimedia software programs can be used to enhance

all types of computer applications—business, education, and entertainment alike—with sounds,

brilliant images, and outstanding animation.

Decentralization of Intelligence Throughout 

Communication Systems

The greatly improved performance of computer

technologies and their convergence with communication technologies have facilitated the dispersal of intelligence and control throughout

communication systems. More and more, systems are becoming defined and driven by software, which provides network structure and

functionality, determining such critical features

as interconnection, interoperability, and ease of

use. Software-defined communication facilities

are not only more flexible and versatile, they

empower users, giving them greater control over

network access, configuration and use.

57 Multimedia refers to the ability to combine text, high-quality graphics, sound, animation, photo images, and video into a single interactive presentation in conjunction with networked computer technology. See Joseph C. Otto, “Multimedia—What is It?” Business Forum, summer/fall 1994, pp. 8–9.

This dispersal of intelligence throughout communication systems is well illustrated in the

intelligent network (see box 3-6). The first computer-controlled switching systems were

deployed 20 years ago. In the 1970s, when

advances in integrated circuit technology permitted the creation of a solid-state exchange, telecommunication providers began to deploy digital

switches. With the deployment of even more

powerful microprocessors, faster computing

speeds, and larger memories, it became possible

to locate intelligence not just in the central office

switch, but also at nodes throughout the network.

Because these “intelligent” nodes can communicate

in real time with one another, as well as with other

networks, communication based on this kind of

architecture offers greater flexibility—they can

respond to network problems and to changes in user

demand, optimize network capacity, and ensure

greater system and service reliability. Moreover,

because software databases and intelligent switches

can be accessed and modified by customers as well

as by service providers, the integration of intelligence into the network allows users greater control

over the provisioning of their services.

Intelligence can also be delivered directly to

users with hand-held personal computers or at

the desktop. Personal digital assistants (PDAs),

for example, can now be programmed to execute

tasks on the user’s behalf. With PDAs connected

to intelligent wireless networks, users can

instruct an agent on the network to contact them

on receipt of a message. In turn, messages can be

instructed according to their content to be immediately responded to; to be forwarded to a fax or personal computer; or otherwise dispensed with.58

Similarly, with fax on demand, callers can dial a

telephone, listen to a voice menu describing the

various documents they can receive by fax, and

opt either to receive the fax at a specified location

58 Robin Gareiss, A Value Added Service With Brains,” Data Communications, January 1995, pp. 66–70.
94 Global Communications: Opportunities for Trade and Aid

The advanced intelligent network, elements of which are currently installed in today’s public switched

telephone network, envisions greatly increased operating efficiency as well as a broad array of sophisticated network services by separating the call transport (i.e., the voice circuit) function from the signaling

and control function and employing the powerful software in the switches.

Imagine, for example, an instance where a caller places a call to a family member who, while on vacation, has indicated that calls from certain numbers are to be rerouted to the new location and given a

unique ring to indicate priority. In this illustration, the vacationer would have preprogrammed the priority

telephone numbers (other calls might be routed to an answering service or machine) and the new destination number by dialing into the intelligent peripheral and inputting these data. When the caller dials the

number, the local switch queries the signal transfer point for billing and accounting information. It also

ascertains from the service control point a clear path through the local network to the point of presence of

the caller’s long-distance carrier of choice. The signaling networks of the two local exchange companies

and the long distance carrier interact to learn the status of the called party and, thus, how to set the call

up; in this case, the call has been redirected to a telephone address in a new location, so a third local

company is involved and once again the status of the called party is learned (for example, if the line was

in use, the network would direct local carrier A to transmit a busy signal to the caller) and establishes a

calling path. Local carrier C is also instructed to deliver the special ring.

SOURCE: Office of Technology Assessment, 1995.

Transport or call-carrying circuit

---- - Signaling circuit I
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 95

or have it automatically transmitted, perhaps to a

PC, as an editable document.59

Intelligence is also increasingly being incorporated into home-based customer equipment.

Consumers can now, for example, program their

telephones, their home security systems, and

their VCRs, while at the same time interacting

with their televisions.

Unbundling of Communication 

Services and Functions

Unbundling refers to the ability to separately purchase communication services or functions that

were formerly available only as a single unit.

Linked to the trends of convergence and decentralized intelligence, this phenomenon is becoming increasingly prevalent in all communication

systems.

Unbundling first appeared in telecommunications with the Carterfone decision of 1968,60

which allowed customers to add equipment to

their telephones as long as they did not adversely

affect the operation of the telephone system or its

usefulness to others. A clarification of this decision by the Federal Communication Commission

(FCC) in December 1988 extended its provisions

to microwave systems and computers. The Carterfone decision ruptured the well-established

arrangement whereby AT&T was assigned the

responsibility of providing national end-to-end

telephone service. Applied broadly, these decisions encouraged the entry of new entrepreneurs

who wanted to plug into the network with new

kinds of customer-premise equipment, or

enhance the value of their private systems by

interconnecting with the public network.61 Thus,

they cleared the way for the development of

entirely new communication industries. Today,

59 Ron Levine, “Surprise! Fax Servers Smarten Up,” Datamation, May 15, 1995, p. 63. 60 The Carterfone was a device that permitted callers to use the telephone network to communicate directly with others located at remote

mobile radio terminals. It was not the first telephone attachment to be developed outside of the Bell System. As Alan Stone has pointed out,

there have always been inventors developing attachments that could supplement or even substitute for Bell equipment. However, both AT&T

and state regulatory authorities strongly opposed the use of such components, viewing them as inimical to the well-established requirement

that AT&T provide end-to-end service. For a discussion, see Alan Stone, Wrong Number: The Break Up of AT&T (New York, NY: Basic

Books, Inc., 1989), pp. 87–90. 61 To sort out this issue, the FCC undertook a series of computer inquiries called Computer Inquiry I, II, and III, none of which fully

resolved this problem.

the unbundling of the communication infrastructure is clearly demonstrated by the emergence of

a whole range of competing communication

equipment and service providers.

Unbundling has also occurred in the computer

and computer networking environment. With

greater standardization and advances in interconnection devices such as routers, bridges, and

intelligent hubs, computer networks can be more

easily interconnected into larger networks. Most

computing functions, moreover, are no longer

hard wired into systems themselves but rather are

rendered in software, which is available in a

number of different varieties. And, with developments in applications program interfaces (APIs),

different software programs are increasingly portable from one computing system to the next.

Increased Portability

Miniaturization and the ability to unbundle intelligent equipment from the communication infrastructure are also increasing the portability of

communication products and services as well as

the mobility of users. Employing portable equipment, such as pagers and cellular telephones, users

can communicate from any geographic location.

These technologies serve a number of niche applications, such as taxi dispatching, mail tracking,

and point-of-sale. Many are now outfitted to handle data and fax transmission as well as voice.

Although all mobile technologies are based on

cellular architecture, they differ with respect to

the types of services that they can provide (see

box 3-7). Paging devices and networks operate,

for example, on a receive-only basis. Although

palmtop computers have CPUs with limited

memories, they can run a wide variety of applications, such as calendars, schedules, and spread
96 Global Communications: Opportunities for Trade and Aid

Modern terrestrial systems use a cellular architecture that provides coverage within many low-power

transmitters. Each of the low-power transmitters in a cellular system provides coverage to an area a few

miles, known as a cell (see figure). Cells are often drawn as circles or hexagons, but real-world cells are

irregular in shape because buildings and trees obstruct the radio waves. By deploying enough transmitters or base stations, cellular operators provide continuous coverage wherever their customers are likely

to be. Because users often pass through several cells as they travel through a city, a cellular system has

to automatically hand-off the call from base station to base station. As the user nears the edge of a cell,

the system reassigns the user to a new cell by determining which of the other base stations in the area

can provide the strongest signal,

The cellular architecture makes efficient use of the spectrum and increases system capacity. In a conventional single-tower system, each channel can only be used by one customer at any one time. By contrast, a cellular system allows a channel used in one cell to be reused by a different user in another cell,

as long as there is enough separation between cells to minimize interference. Network operators can further increase system capacity by splitting large cells into smaller ones, The greater the number of cells,

the greater the number of users who can use a channel at the same time.

SOURCE: Office of Technology Assessment, 1995

Base station

I

telephone I

Frequency group C I

4
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 97

sheets. Wireless local area networks (LANs) are

limited in range, but when equipped with wireless interface cards and antennas, they can interconnect with mobile units or a fixed network.

Wireless wide area networks (WANs) can provide wide area coverage for low bandwidth data

services at a rate of 19.2 kbps.62

Improved Ease of Use

As technologies become more sophisticated and

communication systems more complex, systems

interfaces that make it easier for people to interact

with technology in human terms are becoming

increasingly important. Enhancements in computer-processing and storage technologies, for

example, have led to the development of iconbased graphical user interfaces, such as are found in

the Windows environment. Advances in speech

processing and its integration into computer and

communication systems are also playing an important role in making these technologies more accessible. By the turn of the century—given the present

rate of progress in computerized analysis of natural

languages, together with increased computing

power—estimates are that it will be possible to recreate practical spoken conversation.

Equally important have been the development

of search engines and navigational tools for sorting through the vast amounts of data that are

increasingly available on-line. Most revolutionary in this regard have been the recently developed tools designed to browse the Internet,

62 Tomasz Imielenski and B. R. Badrinath, “Wireless Computing,” Communication of the ACM, vol. 37, No. 10, October 1994, p. 18.

including for example, Gopher, Mosaic, and

Netscape. Simply by pointing and clicking a

mouse, users can conduct searches using key

words from menus resembling tables of contents.

Moreover, many navigation tools now allow

users to organize and arrange vast amounts of

information into clusters of related documents, as

well as keep track of searches.63

Increased Networking Capability

Although seemingly paradoxical, the unbundling

of the communication infrastructure, in conjunction with the distribution of intelligence throughout communication systems, has led to the

simultaneous reintegration of communication

systems through the process of computer networking. A computer network is a collection of

computers that communicate with each other

using common protocols. The computers may be

personal computers, commonly used in homes

and businesses, or they may be larger workstations, minicomputers, mainframes, or supercomputers. Transmission can be provided using

coaxial cable, optical fiber, satellite links, twisted

pair lines, or telephone lines. Connections

between hosts can be limited to a local area

(local area networks, or LANs), or they may provide long-haul connectivity (wide area networks,

or WANs). Employing such systems, data in the

form of text, voice, and video can, in principle,

be stored, modified, and exchanged by anyone,

anywhere in the world.

63 “Searching With a 3-D Gopher,” The Internet Letter, vol. 2, No. 8, May 1, 1995, p. 3; Greg R. Noless, “On the Nets,” Database,

December 1994, pp. 79–81; and “With InfoMagnet, Listserv Searches Are a Breeze,” The Internet Letter, May 1, 1995, p. 4.
98 Global Communications: Opportunities for Trade and Aid

Computer networks offer a number of benefits. At a minimum, they can provide electronic

mail (see figure 3-3). Increasingly, they are being

used to link businesses together, supporting a

wide range of applications such as remote processing, shared information systems, enterprise

integration, groupware and electronic data interchange (box 3-8). With standardization of the

technology and the integration of ATM switches

into the network, broadband applications—such

as high speed local area networks, desktop videoconferencing and video entertainment services will

continue to evolve.64

Nothing attests to the benefits of networking

more than the recent phenomenal growth of the

Internet. The Internet is a global computer network that provides technical compatibility and

transparent connectivity based on a widely used

suite of protocols—TCP/IP (see box 3-9). It is

currently made up of approximately 5,000 networks to which 500,000 computers are connected. Originally funded through Department of

Defense’s Advanced Research Projects Agency

(ARPA), and later the National Science Foundation (NSF), to support defense communication

and research, the Internet today is a worldwide

communication network that provides a platform

for the delivery of a wide range of services,

number of which are now being provided on

commercial basis.

❚ The Impact of Technology Advances

a

a

Table 3-4 lays out the interrelationship between

today’s technology advances and the social and

economic changes likely to take place in developing countries. Column 1 summarizes the tech-

(J.S. e-mail platform installed based. estimates

198081 82 83 84 85 86 87 88 89 90 91 92 93

SOURCE: Electronic Mail and Micro Systems, Jan. 1, 1994, pp. 1-10

nological trends (listed above) and the

technological developments reinforcing them;

column 2 lays out the technological implications

of, and the new applications that result from,

these trends; while column 3 identifies their

social, economic, and political impacts.

In examining this table, it is important to note

that it is the new capabilities and applications

that advanced technologies make possible that

give rise to social, economic and political

impacts, and not the technologies or the trends

themselves. Secondly, it is necessary to keep in

mind that technologies are not neutral with

respect to their impacts and outcomes. Different

trends give rise to different kinds of impacts, all

of which must be taken into account.

64 Asynchronous transfer mode (ATM) is a high. speed virtual circuit oriented cell-switching technology that provides communication at

speeds between 45 and 155 Mbps. ATM can support different kinds of services such as voice, data, image, video and multimedia, including

real-time information, over a single network. Using ATM, networks are easier to run, more reliable, and more flexible. See for discussions,

Jonathan Reeves, “Low-Speed Access: Extending the Reach of ATM,” Telecommunications, February 1995, pp. 23–29; Harry Flinsenberg,

“Broadband Network Evolution,” Telecommunications February 1995, pp. 32–37; Alwyne Sinclair, “ATM: Today’s Network Solution,”

Telecommunications, October 1994, pp. 83–84; and James J. Lane, “Is ATM a Miracle or Another Terrible Mistake,” Telephony, Oct. 24,

1994, p. 28.
Technology Trends

Increased performance at greatly reduced

cost — e.g., microelectronics, fiber optics,

voice and video compression, fast-packet

switching, very high-density storage

technology

r

Technology Capabilities and Social, Economic, and

Applications Political Impacts

Permits LDCs to leapfrog to advanced technology;

maximizes advantage of existing technology.

Technologies also provide greater geographical

coverage.

National political/economic integration; more efficient

markets and more effective political control and

administration, Potential for the erosion of national

boundaries due to reinforcement of global ties — e.g.,

H

PeaceNet, EcoNet, etc.

Technology convergence due to digitization,

wideband transmission, compression

technologies, and standards developments

I

I

Unbundling of communication functions and

services due to the emergence of competing

technologies, the dispersal of intelligence

throughout communication networks, the

demand of large users, and deregulatory

communication policies.

Increased ease of use as a result of

advances in storage, microelectronics,

speech recognition, and search engines.

Applications include simple-to-use graphic

user interfaces (such as Windows), network

browsers (such as Netscape), and intelligent

agents,

 Cost efficiencies in service due to economies of scale

and scope and greater networking versatility. Greatly

enhanced applications, such as real-time video

transmission, videoconferencing and multimedia

applications for the home, the desktop, or (less

expensively) public point-of-sale terminals.

Greater support for the low-cost provision of public

services such as health care and education Multimedia is

especially useful in LDCs given high illiteracy rates.

Supports business applications, such as computer-aided

design, desktop fax, videoconferencing.

I I

I 1 ’ I

Permits users to separately purchase communication

functions and services Allows for greater flexibility in

I network design and architecture More networking

, options and freedom to customize networks to

minimize costs or to match specific needs, Lower

costs also due to greater competition among vendors

and service providers interoperability, network

integration, and network management likely to require

greater technology expertise.

I

1

Supports greater network access and usage,

promotes deployment, and reduces the level of

expertise required to take advantage of information

technologies.

Democratic process likely to benefit from greater diversity

of communication sources and network designs. Allows

developing countries to manufacture low-end components

and gain technology expertise. Less elaborate and

expensive systems may provide more “appropriate”

technology to meet developing country needs. On the other

hand, problems of interoperability and increased

complexity can create new information bottlenecks with

consequences for politics and the economy. Technology

experts and system integrators become new information

gatekeepers.

Reduces access barriers with positive benefits for both

competitive markets and democratic politics,
Technology Trends Technology Capabilities and Social, Economic, and

Applications Political Impacts

Decentralized intelligence throughout Provides for two-way interaction and greater user In most LDCs, two-way, interactive media can support

communications systems due to software- control. Applications include interactive television, local grass-roots participation, thereby enhancing

driven and software-defined communication personal digital assistants, desktop publishing, democratic processes Provides an opportunity to develop

networks intelligent networks, and expert systems. Provide a specialized or local content to reinforce community ties.

platform for creating value-added services, such as Value-added services provide or substitute for a lack of an

800 number, point of sale, credit authorization, information infrastructure (banks, insurance, legal

I I I

I

Increased networking capabilities due in part

to advances in integration and switching

technologies such as routers, intelligent

hubs, and asynchronous transfer mode

(ATM), frame relay, together with advances

in wideband transmission technologies such

as SON ET, and software support

, applications such as CAD-CAM, EDI,

groupware, as well as the development of

standards and networking protocols such as

TCT/lP and application programming

interfaces.

Increased mobility and portability due to

distributed intelligence and advances in

wireless technologies such as

satellite/VSAT, cellular telephony, PCS,

radio paging, digital radio, and wireless

LANsI WANs, and PBXs

Supports distributed client-server computing and

cooperative work applications such as e-mail, E D 1,

computer-integrated manufacturing, teleworking and

groupware. Provides support for the development of

specialized functional networks, such as financial

services networks or special interest group networks

such as EcoNet.

I

Low-cost alternative to wireline technologies for use

in difficult-to-reach, high cost areas Greater ease

and speed of deployment. Allows for greater network

flexibility and support for remote information access

and processing. Applications include wireless

networks based on a mesh rather than hub

architecture When combined with unbundled,

- intelligent peripherals, wireless networks support the

widespread distribution of information and

‘(intelligence” to all areas. Applications include CDROM libraries or expert health care systems

Supports democratic politics by helping individuals locate

information, identify like-minded people, deliberate, and

voice opinions Networks help businesses and firms

reduce their costs by integrating processes and

information, and to gain a strategic advantage by

developing exclusive networks that lock in customers and

suppliers Without access to advanced networking

technologies, developing countries may become locked

out.

1“

Facilitates open markets and democratic politics by

supporting access to political and economic information

and communication networks as well as to expertise and

“intelligence” from and to anywhere. Facilitates network

configuration and shared information systems, which

support the competence of local governments, and

reinforces community ties.

SOURCE: Office of Technology Assessment, 1995.
Chapter 3 Communication Technologies to Promote Foreign Aid Goals 101

I

I

Electronic data interchange (EDI) is a notable example of how information and communication technologies are emerging as important strategic tools for efficient and effective business operations. EDI is

essentially the modern, computer-based method by which companies order, invoice, and bill their products and services. Such common transaction functions as invoices, shipping notices, and bills, which traditionally have entailed the transfer and processing of paper documents, are replaced by electronic

transfers between the business computers (see figure).

EDI improves the efficiency and effectiveness of operations by enabling businesses to purchase supplies and to produce and distribute products precisely when and where they are needed. The company’s

computer system, for example, will initiate a purchase order and execute the purchasing transaction

when an item is requested and removed from the inventory. The price, terms, and conditions of the contract are all stored in the computer. In addition to the considerable savings gained as inventory costs are

reduced, EDI also minimizes human clerical error and the considerable processing costs involved with

paper transactions. By reducing or eliminating the prolonged and often error-plagued paper trail, large

retailers and manufacturers are able to gain a competitive advantage by streamlining transactions with

their suppliers and buyers.

SOURCE: Office of Technology Assessment, 1995.

,

I Standardized

purchase order Computer generates

?. A standardized P.O. form

I | I

I

monitors inventory

and production, and

automatically reorders . . .

inventory

Flash

report

——

Specifier

Expert system

Instant data to:

* Sales

● Manufacturing

● Engineering

Shipping

4
102 | Global Communications: Opportunities for Trade and Aid

BOX 3-9: The Internet

The Internet is the largest network of computer networks in the world. It is a three-level hierarchy consisting of backbone networks that may span thousands of miles, regional or mid-level networks, and local

area networks belonging to government agencies, universities, businesses or organizations. The Internet

is unique for its ability to support a wide variety of applications and for the impact that these applications

will have in the industrialized and developing world.

The Internet dates back to 1969 when ARPAnet, a pioneering longhaul network funded by the U.S.

Department of Defense’s Advanced Research Projects Agency (ARPA), became operational. The impetus for ARPAnet’s creation was the desire for a computer network that would remain operational in the

event that part of the network was destroyed by a nuclear explosion. The ARPAnet therefore had no central control center. Rather, each node on the network was equally capable of sending and receiving

packets of data throughout the network.

A breakthrough in the achievement of such resilient packet switched networking was the development

of transmission control protocol/internet protocol (TCP/IP). A protocol is a set of formal rules describing

how to transmit data across a network. TCP, or “transmission control protocol,” converts messages into

streams of packets at their source and then reassembles the packets into messages at their destination.

IP, or “Internet Protocol,” makes sure that packets are routed to their proper destination.

Included among the TCP/IP protocol suite are a number of tools that allow users of networks with TCP/IP

capability to send electronic mail to other users, participate in discussion groups, carry out distance computing, and locate and retrieve text, data, software and other information available for public access. Special

computers on TCP/IP networks called “servers” or “hosts” facilitate these applications by responding automatically to queries from other servers or from personal computers that are linked to the network. TCP/IP networks

will also support video transmission and, more recently, real-time voice traffic.1 Access to an “Internet server,”

sometimes called a “point of presence,” is the key to the applications mentioned above.

Surprisingly, the Internet is not technology specific. Networks that make up the Internet incorporate

communication technologies as diverse as traditional twisted pair copper telephone lines and the latest

short-haul laser transmission technologies. Satellites and undersea fiber optic cables are used to link networks separated by large land areas or by oceans.

The Internet has doubled in size every year since 1988, and analysts estimate that as many as 30 million people in 90 countries worldwide have full Internet access, that is, are linked to networks with TCP/IP

capability. A still larger group of people in an additional 70 countries are able to send and receive electronic mail to computers on the Internet through networks such as USENET, UUCP, FidoNet, and BITNET.

Based on the geographic distribution of Internet hosts, it is estimated that 70 percent of Internet users are

in the United States with nearly half of those users residing in California.2 Globally, sub-Saharan Africa is

by far the least-connected part of the world.

Internet networks currently transmit data at maximum speeds of 45 Mbps, however, a new very highspeed backbone network service (vBNS) initiated in the spring of 1995 will connect six U.S. supercomputing sites and permit initial data transmission rates of 155 Mbps. The vBNS initiative is a five-year, $50

million cooperative agreement between the National Science Foundation and MCI Telecommunications

Corporation. The project will facilitate research in advanced Internet routing technologies and in areas

such as energy efficiency and the environment. By the end of the five-year program, data transmission

rates may reach 2.2 Gbps (2,200 Mbps).3

(continued)
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 103

Technology Applications for 

Economic Development

As can be seen from this table, advances in communication technology can foster economic

development in a variety of ways. If, for example, developing countries take advantage of

greatly improved cost/performance ratios to

deploy communication and information technologies on a national basis, they can increase the

size and efficiency of their markets as a result of

lower, information-related transaction costs. This

possibility is very important for developing

countries, where—in some cases—markets do not

exist for lack of information (see box 3-10).65

There will also be productivity gains, because

larger, better integrated markets will allow Third

World businesses to gain greater economies of

scale and scope—a benefit that was not available

to them, in most cases, until now.

The trend towards decentralized intelligence

throughout communication systems will

65 For a discussion of market failures in developing countries, see Karla Hoff, Ayishay Braverman and Joseph Stiglitz (eds.), The Economics of Rural Organization (New York, NY: Oxford University Press/World Bank, 1993). As the authors of these papers point out, developing country markets are characterized by imperfections of institutions, structures and operations, so that economic signals and incentives

fail to reflect the “real costs of commodities or factors.” For a discussion of market failures in rural credit markets, see, Timothy Besley,

“How Do Market Failures Justify Interventions in Rural Credit Markets,” World Bank Research Observer, vol. 9, No. 1, January 1994, pp.

27–47.

alsogive rise to economic benefits. Within

developing countries there is a lack of people

with mid-level skills required for knowledge

workers and middle management. Nor is there

an adequate commercial and legal structure—

such as banks, insurance companies, commercial lawyers, and stock companies—to permit

Third World companies to effectively exploit

many new business possibilities. With the type

of interactive, intelligent information systems

that decentralized intelligence allows, businessmen in developing countries can access the

required information services via technology.

Intelligent networks also provide a platform on

which Third World countries can, over the long

run, develop their own services and service

industries. By taking advantage of such possibilities, the country of Singapore, for example,

has become one of the leading business service

providers in the world.

The ARPAnet was replaced by the National Science Foundation (NSF)-funded NSFNet, which until

recently spanned the continental United States and had connections outside the U.S. to Canada, Mexico,

Europe and the Pacific Rim. NSFNet itself ceased to exist at the end of April 1995 when the cooperative

agreement through which NSF carried Internet traffic over the NSFNet backbone expired. The proliferation of commercial backbones and regional network interconnections has eclipsed the need for a federally funded backbone and so NSF will now fund only four regional hubs or network access points (NAPs).

These NAPs will serve as neutral interconnection points for all U.S.-based and international Internet traffic. NSF funding of these hubs will be phased out completely over the next four years, ending the federal

government’s financial support of the Internet.

1 VocalTec Inc. of Israel began selling a Windows-based software package for voice transmission on the Internet beginning in

February, 1995 and was followed by Electric Magic Co. of San Francisco, California in March, 1995. Camelot Corp. of Dallas, Texas

expects to ship its version of voice enabling software at the end of June, 1995. Ricardo Castillo, “Standards Tug at Market for Internet Phone Calls,” CommunicationsWeek International, Mar. 6, 1995, p. 9.

2 “Internet Notes,” Telcom Highlights International, Mar. 1, 1995, p. 18.

3 “NSF Backbone Network Speeding Along,” High Performance Computing and Communications Week, Apr. 20, 1995, vol. 4,

No. 16. p. 3.

SOURCE: Office of Technology Assessment, 1995.

BOX 3-9: The Internet (Cont’d.)
104 | Global Communications: Opportunities for Trade and Aid

Technology Advance in 

Support of Democracy

The prospects for democracy in developing

countries are also greater due to technology

advances (see box 3-11). For example, improved

networking capabilities, which make it possible

to develop specialized, distributed, many-tomany applications such as bulletin boards and

groupware, can help individuals locate information; identify like-minded people; deliberate their

ideas; organize their activities; and lobby for

their points of view. Already, such networks are

being used to link special interest groups across

national boundaries and with considerable effect

(see box 3-12).

The trend towards the unbundling of communication functions and services can also have a

significant payoff for democracy. Given the

greater flexibility in network design and architecture that unbundling allows, developing countries can deploy customized, lower cost systems

in remote areas, thereby extending information

access on a much wider basis. The diversity of

communication networks is also important for

democracy because it permits a greater variety of

information sources. This capability is especially

important in developing countries, where communications have typically been generated at the center of power and then disseminated outward.

Different communication technologies often have

different geographic biases, with some being more

capable than others in supporting communication

both to and within remote areas.66

Technology Advance To Support 

Political Stability

Just as technology advances hold promise to foster economic development and democracy in

Third World countries, so too they can play a

supportive role in helping to sustain political stability in these areas. For political regimes to be

stable, they must not only prove themselves competent in carrying out the affairs of government,

they must also be able to assure that basic public

needs are met. In addition, if governments are to

provide such services without themselves

becoming overbearing, the capacity of voluntary

associations and local government must be simultaneously upgraded.67 Communication technologies

have something to offer in all three regards.

Taking advantage of the trends toward networking and decentralized intelligence, for

example, developing country leaders can, like

businessmen, enhance their governing capability

by using interactive expert systems and databases (see box 3-13). For even greater benefit,

these systems can be networked to let govern66 John Carey, “Space, Time and Communication: A Tribute to Harold Innis,” in James W. Carey (ed.), Communication as Culture:

Essays on Media and Society (Boston, MA: Unwin Hyman, 1989), p. 3. 67 As described in Human Development Report 1993, “Changing the power equation requires the organization of a countervailing force,

or even a revolution. People’s organizations—be they farmers, cooperatives, residents’ associations or consumer groups—offer some of the

most important sources of countervailing power. And they often exercise it more effectively through the sharing of information and ideas—it

is ideas, not vested interests, that rule the world for good or evil.” op. cit., footnote 34, p. 29.

BOX 3-10: Markets and Information

Communication is inherent in the coordination of all economic activity. A market relies on the communication of information to identify buyers and sellers, allocate resources, and establish prices. Within firms, the

availability of timely and accurate information is key to decisions about whether to enter or exit markets, how to

secure financing, how to organize working relationships, and how to market and distribute goods. Where adequate information is not available, markets will fail and economic performance will suffer because of higher

business costs. Likewise, firms that lack adequate market information will be at a competitive disadvantage.

SOURCE: Office of Technology Assessment, 1995.
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 105

ment officials remotely access the global store of

information.68 Secondly, communication technologies can also be used to distribute public services such as distance healthcare and educational

services much more cost effectively. Technology

convergence, which provides the platform for

nontextual multimedia applications, is especially

68 For discussions of the implications of not having access to scientific and technological information see, Jacques Gaillard, Scientists in

the Third World (Lexington, KY: University of Kentucky Press, 1991) and Phillip W. Jones, World Bank Financing of Education: Lending,

Learning and Development (London, UK: Routledge, 1992). Commenting on the lack of scientific journals, books, and other sources of technological information in developing countries, Gaillard notes that of the career scientists interviewed, 36 percent had no communication with

scientists in countries where they had originally studied and done their research.

promising, given the high illiteracy rates in

developing countries. Multimedia can also

greatly improve the overall quality of healthcare

and educational applications (box 3-14). Finally,

both of these developments can be used in similar fashions to empower voluntary organizations

and local governments.69

69 As described by Pieter Kok, “The lack of information and appropriate technology often prevents sustainable community development.

Even if community members know what they need, a lack of knowledge of available resources and how to use them effectively easily creates

passivity or disinterestedness among beneficiaries. In other cases, it results in the perception that the community’s contribution will not make

a difference anyway. The result may be one-off development exercises initiated by outside agencies and a long-term dependency on their

input.” Pieter Kok, “The Role of Information and Technology in Community Empowerment and Development,” In Focus, February/Market

1995, p. 25.

BOX 3-11: Communication and Democracy

Communication and information pervade political life. Without them there could be no nation; for it is

through the process of communication that people first develop a sense of community and a shared set

of values that legitimize political authority. By magnifying and amplifying some actions, the communication process distinguishes between what is a private act and what is a public affair. It organizes what

appears to be random activities to show how individuals and groups are related to one another in pursuit

of power, providing a roadmap for individuals who want to influence the course of political events. Citizens rely on the communication process to gather information, identify like-minded people, deliberate

their points of view, organize their forces, and articulate their political preferences. Furthermore, because

it generates a common fund of knowledge and information, the communication system facilitates productive and rational debate. Without some form of knowledge and understanding of how others are informed

and what they believe, individuals could not make reasoned and sensible arguments and decisions.

SOURCE: Office of Technology Assessment, 1995.

BOX 3-12: EcoNet

EcoNet is a virtual community of over 10,000 individuals and organizations in over 90 countries who

are working for environmental preservation and sustainability. Members of EcoNet have access to hundreds of private and public online electronic mail conferences through which they exchange information

and collaborate on environmental initiatives of local, national or global concern. Individuals or organizations in the United States may pay to join EcoNet through its parent organization—the Institute for Global

Communications (IGC) in San Francisco—which is part of the larger Association for Progressive Communications. The EcoNet Internet server provides a gateway not only to the home pages of member organizations such as the National Audubon Society and the Earth Island Institute, but also to the Internet sites

of thousands of organizations and government agencies worldwide with information on environmental

issues.

SOURCE: Office of Technology Assessment, 1995.
106 | Global Communications: Opportunities for Trade and Aid

DEVELOPMENT CHALLENGES AND 

OPPORTUNITIES FOR THE FUTURE

How successful developing countries are in

employing communication and information

depends not only on their present situation and

resources, but also on future developments and

events. Three major trends are critical in this

regard: 1) the emergence of a competitive global

economy; 2) the trend towards a knowledgebased economy; and 3) the shift to decentralized,

flexible, networked economic activities. Communication and information technologies are not

only driving these trends; they can also help

developing countries adapt to them.

❚ The Emergence of a Competitive 

Global Economy

In the period following the second World War,

most Third World countries pursued economic

development strategies that sought to shelter

their economies from global markets. Modeled

after the ideas of the renowned Latin American

economist Raul Prebisch, these policies aimed to

discourage the production of exports—through

the use of quotas, taxes, and licenses—while at

the same time promoting the domestic production of import substitutes.

The limitations of such an approach became

all too clear in 1982, with the onset of the international debt crisis.70 The few countries that had

pursued growth strategies based on export promotion and austerity measures survived the

upheavals with their economies intact, whereas

those that followed policies based on import substitution did not. Most successful in this regard,

for example, were the East Asian countries—

Korea, Taiwan, Singapore, and Hong Kong.

Between 1960 and 1989, these countries

increased their exports from $2 billion (which

constituted 5 percent of all developing country

exports) to $246 billion (or 32 percent of all

developing country exports).71

The rapid emergence of a competitive global

economy makes any development strategy based

on artificial trade barriers increasingly untenable.

Pursuing such policies, developing countries will

suffer not only by channeling growth away from

70 See chapter 2 for a discussion. 71 See Anne O. Krueger, Economic Policies at Cross Purposes: The United States and the Developing Countries (Washington DC: The

Brookings Institution 1993), p. 105.

BOX 3-13: The Sustainable Human Development Network Program

In many developing countries, decisionmakers do not have access to up-to-date information needed

to make key policy decisions. One program designed to assist in this regard is the Sustainable Human

Development Networking Program (SDNP), established by the United Nations Development Program in

May 1992. Participants include 12 countries from Africa, Asia, and Latin America.

The aim of SDNP is to link users and providers of information on sustainable human development via

computer networks that operate over the Internet. Designed to complement existing systems, SDNP provides support both for network deployment and training, information generation, and the norms of information sharing and exchange. The program is open to all interested parties, including national

governments, non-governmental organizations, academics, business, and the media. The SDNP program builds on local talent and expertise. In addition, each node on the system operates independently

of each other, and definitions of sustainable human development are determined locally. Seed money is

provided upfront, but projects are intended to become self-financing, so that funding will gradually be

reduced by as much as 50 percent or more.

SOURCE: Raul Zambrano, “The UNDP Sustainable Development Network,” Bulletin of the American Society for Information Science, February/March 1995, pp. 23–24.
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 107

sectors such as agriculture, which are increasingly recognized as being critical for economic

success. By failing to integrate themselves into

the expanding global economy, they will also cut

themselves off from the many new opportunities

that growth in world trade affords.

The integration of the international economy

is being driven by a number of related developments. Included among these, for example, are:

■ the increasing similarity among countries with

respect to tastes, infrastructure, distribution

channels, and marketing approaches; ■ the emergence of a global capital market, as

witnessed by the large flow of funds between

countries; ■ declining tariff barriers and the establishment

of regional trading agreements; ■ shifting opportunities for competitive advantage due to technology restructuring;

■ the integrating role of advanced information

and communication technologies;

■ uneven world economic growth that has

fanned the flames of international competitiveness; and

■ the emergence of new global competitors,

principally from East Asia.72

Together, these developments have led to a

global economy in which patterns of international trade primarily reflect patterns of international production. Specialization takes place on

the basis of parts and specialized components,

rather than—as in the past—on the exchange of

finished products. Thus, interfirm and intrafirm

trade is steadily replacing interindustry trade.73

Today, for example, Japan provides approximately 40 percent of U.S. component parts in

electronics and automobiles.74

72 Michael Porter (ed.), Competition in Global Industries (Boston, MA: Harvard Business School Press, 1986), pp. 408–409. 73 Robert Gilpin, The Political Economy of International Relations (Princeton, NJ: Princeton University Press, 1987). 74 Porter, op. cit., footnote 73.

BOX 3-14: Project SHARE

Project SHARE, a three-year collaboration on the part of Intelsat and the International Institute of Communications, is one example of the international community working together to use tele-education and

telemedicine applications to address the health care and education needs of developing countries.

Beginning in 1985, Intelsat made transponder space on its global satellite network available for free to

over 20 projects located throughout the world. A total of 22 countries participated in Project SHARE medical projects, while 43 countries took part in various educational projects. Most projects involved interactive or at least one-way video broadcasts and were either one-time events or longer term, recurring

projects. In total, over a billion people participated in one or more SHARE projects, which together would

have cost in the millions of dollars if provided commercially.1

Among the lessons learned from Project SHARE are that cost and lack of technical expertise are significant hurdles to the development of communication infrastructures in developing countries. Often satellite video services were impractical in rural areas of developing countries for lack of earth stations or

supporting communication links and equipment. In other cases successful projects were discontinued

because the financial or human resources did not exist to sustain them. Another insight gained from

Project SHARE is that projects that combined education and health/medicine content were often the most

successful and generated the most enthusiasm among participants. This observation highlights the value

of telecommunication networks as providing an infrastructure for multipurpose communication.

1 Joseph Pelton, “Project SHARE: the IIC INTELS AT Experiment in Distance Learning,” Vision and Hindsight, The First 25 Years

of the International Institute of Communications, Winsbury/Fazal.

SOURCE: Office of Technology Assessment, 1995
108 Global Communications: Opportunities for Trade and Aid

Patterns of direct investment abroad also highlight this trend toward global economic integration and interdependence. Between 1960 and

1988, for example, direct investment abroad by

all firms in all nations increased by over 10 percent per year to more than $1.1 trillion (see fig- 75 Most important for developing

ure 3-4).

countries, foreign direct investment (FDI) now

serves as a major source of capital. Such investment, for example, is today three times greater

than the amount of aid funding provided by foreign governments. In 1994, FDI in Third World

countries totaled no less than $179.9 billion.76

Multinational corporations are also driving the

trend toward globalization. To compete in

today’s global economy, companies must integrate their activities on a worldwide basis, allocating activities among a number of countries to 77 Depending on the gain the greatest advantage.

particular case, for example, firms might disperse most of their production facilities (e.g.

facilities for design modification, fabrication,

and assembly) to foreign countries, while focusing their own domestic production on the fabrication of key components. Alternatively, firms

might decide to manufacture their products

domestically but transfer abroad downstream

activities such as distribution, sales, marketing,

and service. When not fully integrated into multinational corporations, these firms are networking

their activities across global boundaries through

a variety of arrangements such as cross-licensing

of technology, joint ventures, orderly marketing

agreements, offshore production of components,

secondary sourcing, and crosscutting equity

ownership .78

These developments also have implications

for developing countries. In the past, for example, most largescale Third World companies

European

Community - 36% Other developed

/’”

United States -

Developing

countries - 12%

29

rn Europe - 12%

(including former

USSR)

SOURCE: Institute for the Future, “The Electronic Enterprise,” contractor report. Prepared for the Office of Technology Assessment,

May 1993.

were subsidiaries of foreign firms. Because the

parent firms were located, and directed their

operations from, abroad---close to their major

suppliers and markets—there were few positive

“spillovers” for developing countries. Today,

this is no longer the case. Local firms that partner

with global companies as suppliers or value-

-added providers have much more to gain, as

India’s export-oriented software industry clearly

attests. 79 Working with foreign firms, Indian

software contractors have been able to access the

latest standards, technological platforms, productivity tools, quality requirements, and upfront

financing, all of which have been critical to their

success.

❚ The Trend Towards an lnformationBased Economy

There is an interrelated trend toward a networked

information-based economy that will likely have

equally important implications for developing

75 John w Ru~ter,f*DirwtInvestmentu@~e: T~nds in In&mationalDinxt Investment,” U.S. Depafiment of commerce! Intemation~

Trade Administration, September 1989.

76 “Private Investment to Poor Nations Hits a Record High at World Bank,” The Washington Post, Jan. 23, 1995, p. A14.

77 pofler, op. Cit., fOOtXIOte 73”

78 pe~r coWheY ad John ~onson, ~anaging the world Economy: The Consequences Of corporate Allia~es (New York: ‘

y: Councfi

on Foreign Relations, 1993),

79 Nagy Han, Ken Kuy, and Erik Arnold, The Diffusion of Information Technology: Experiences of hhstrial Countries ati ‘Ssonsfor

Developing Countries, World Bank Discussion Paper, No. 281 (Washington , DC: World Bank, 1995), p. 120.
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 109

countries.80 As information comes to serve

increasingly as a primary resource and a key factor of production, many developing countries

will find themselves at a new, major crossroad.

Given the knowledge, expertise, and intellectual

wherewithal, Third World countries have a

unique opportunity to “leap frog” from a preindustrial era to an information age. Failure to take

advantage of this opportunity, however, may

leave developing countries yet further behind.81

In today’s economy, information is treated more

and more as a commodity to be bought and sold

in the marketplace. As the economic value of

information increases, so do the economic

rewards of those who have the greatest access to

it.82

The trend toward a networked, informationbased economy results, in part, from the deployment of information and communication technologies. These technologies provide numerous

ways to improve efficiency and increase productivity, and thus engender growth. Information is,

for example, reusable. Unlike capital resources

such as steel and iron, it requires very few physical resources to produce and distribute. Information can be used, moreover, to substitute more

efficiently for labor and to improve the overall

efficiency of the productive process itself. As

productive processes become increasingly complex, the largest reserve of economic opportunities will be in organizing and coordinating

80 OTA, Electronic Enterprises, op. cit., footnote 4. 81 As described by Manuel Castells, “The critical point is that the current dramatic transformation of the world economy into a dynamic,

highly integrated system could bypass entire countries or the majority of their population. ...Within the framework of the new information

economy, a significant part of the world population is shifting from a structural position of exploitation to a structural position of irrelevance.” Martin Carnoy, Manuel Castells, Stephen S. Cohen, and Fernando Cardoso (eds.), The New Global Economic in the Information

Age: Reflections on Our Changing World (University Park, PA: Pennsylvania State University Press, 1993), p. 37. 82 As noted by Merrifield, “Wealth will no longer be measured primarily in terms of ownership of fixed physical assets, but rather in

terms of time-critical access to needed resources; and to knowledge-intensive value-added operations. The value-added dimension, moreover, will be the deciding source of the comparative advantage required for industrial competitiveness. This shift in the basis of wealth formation is a major break with the past, a discontinuity that is driven by accelerating forces of change. One of these factors involves an

explosion of technology that has created about 90 percent of all scientific knowledge over just the last 30 years. Moreover, this knowledge

base is likely to double again in the next 15 years. D. Bruce Merrifield, “Global Strategic Alliances Among Firms,” International Journal of

Technology Management, Special Issue on Strengthening Corporate and National Competitiveness Through Technology, vol. 7, 1992, p. 77.

productivity activity through the process of

information-handling.83

Technology advances have also given rise to

new businesses that specifically cater to business

information needs. Information can now be processed in a variety of new ways, adding to its

value from the point at which it is created or

composed to the point at which it is assimilated

or used. As the opportunities for creating new

information products and services have

increased, so too have the number of commercial

providers. Responding to the increased demand

for information, the new technologies have

spawned a rapidly growing industry. For example,

in 1992, the worldwide market for online services

totaled $10.1 billion, a 9.2 percent increase from

$9.3 billion in 1991 (see box 3-15).84

If developing countries deploy advanced communication technologies in tandem with developed countries, they can also compete in this

expanding global market on a more equal basis.

One of the first countries to recognize this opportunity was Singapore, which has greatly prospered as a result. By 1990, Singapore had

become the 17th-largest trading nation in the

world, and was home to the regional headquarters of more than 600 multinational corporations.85

When, for example, in the early seventies

multinational corporations began to transfer their

manufacturing operations from Singapore to

lower cost labor countries such as Malaysia, Thai83 Charles Jonshur, “Information Resources and Economic Productivity,” Information Economics and Policy I (North Holland: Elsevier

Science Publishers, 1983), pp. 13–35. 84 Online Services: 1993, Review, Trends & Forecast (Wilton, CT: SIMBA/Communication Trends, 1993), p. 11. 85 Robin Mansell and Michael Jenkins, Networks, Industrial Restructuring, and Policy: The Singapore Example,” in Technovation, vol.

12, No. 6, Sept. 1992.
110 | Global Communications: Opportunities for Trade and Aid

land, and Indonesia, the Government of Singapore

was quick to adopt a more service-oriented,

export-led strategy. Recognizing the role that the

communication and information infrastructure

might play in capturing the benefits of global

trade, government officials undertook to create a

totally electronic trading environment, with the

aim of transforming Singapore by the end of the

century into an “intelligent island.” By providing

multinational corporations efficient, one-stop

global networking and value-added trade services, Singapore was able to establish itself as

the major trading hub in Asia.86

As the benefits of using communication networks increase, so too do the costs of not having

access to them. Opportunity costs are especially

high in the case of networking technologies

because they give rise to “first mover advantages.” Thus, as Singapore clearly recognized,

the first country to establish a technology-based

global trade network can gain a hefty competitive advantage, not just because the capital costs

entailed are so high, but also because electronic

networks require considerable “learning by

doing.” Moreover, once business users have

expended the energy, expertise, and financial

86 “Asia-Pacific Telecom Hubs: Let’s Make A Deal,” Data Communications Magazine, vol. 24 No. 8, pp. 53–54.

resources required to use a particular network,

and have become linked up with other network

users, they tend to get “locked in.”87

❚ The Trend to Decentralized, Flexible, 

Networked Economic Activities

To gain competitive advantage in a knowledgebased, global economy, firms must also adopt

entirely new ways of doing business. Global customers are now more diverse and sophisticated,

and new, highly skilled competitors require communication networks to participate in foreign

markets. Success in the global economy no

longer depends only on achieving efficiency and

cost reduction.88 Increasingly, it depends on the

effectiveness of businesses—their ability to

innovate, respond just in time, focus on quality,

and establish more cooperative interfirm and

intrafirm relationships. To enhance their effectiveness, firms are taking advantage of more

timely and appropriately packaged information

to help them shift from business models based on

mass production to those centered around the

concept of flexible, decentralized production.

Networked information technologies are especially useful in helping firms to restructure and

87 See Joseph Farrell and Garth Saloner, “Horses, Penguins and Lemmings,” in H. Landis Gabel (ed.), Product Standardization and Competitive Strategy (The Netherlands: North Holland, 1987). 88 R. Ray Gehani, “Concurrent Product Development for Fast Track Corporations,” Long Range Planning, vol. 25, No. 6, pp. 40–47,

1992.

BOX 3-15: Annual Online Publisher Growth

The online services market is growing rapidly. Worldwide sales in 1992 topped $10.1 billion. Of this

amount, North American-based companies accounted for 60 percent and European-based companies

accounted for 32 percent. Annual sales growth was 9.2 percent in 1992 and averaged 9.1 percent

between 1983 and 1992 in the number of databases, database producers, and online services (vendors

who distribute database information. While these numbers are large, they are only a subset of a much

larger information market that includes the sale of information and services over private networks, electronic data interchange (EDI), networking offered by value-added networks (VANs), airline customer reservations systems (CRSs), real-estate multiple-listing services (MLSs), electronic funds transfers (EFTs),

and automated teller machines (ATMs).

SOURCE: Gale Directory of Databases, Volume 1: Online Databases, Gale Research, Detroit, MI, 1993.
Chapter 3 Communication Technologies to Promote Foreign Aid Goals | 111

reengineer their operations to be more competitive. Businesses are using these technologies to

reorganize their activities into more versatile and

flexible networks and teams. Some businesses,

for example, are using networking technologies

to build long-term, integrated business relationships with their customers and suppliers. Others

are teaming up with outside firms for specific

short-term ventures. Some of these business relationships, operating through electronic networks,

cross national as well as organizational boundaries. Networking technologies such as wide area

networks (WANs), videoconferencing, computer integrated engineering, and manufacturing

and electronic data interchange (EDI) are necessary to support these flexible business arrangements (see box 3-16 and box 3-17).89

In addition to having an impact on how firms

conduct their business, information and communication technologies also affect the size, structure, and openness of markets. As these

technologies are integrated into reliable commercial networks, more trade will take place in electronic markets, online. How these electronic

markets evolve, and the form that they take, will

have significant consequences for the functioning of the global economy. Electronic markets

can reduce the net costs of doing business, and

thus improve overall efficiency and expand

trade. However, if these networks fail to interconnect, or are unevenly deployed, they could

create technological barriers to trade and restrict

competition.90 

89 OTA, Electronic Enterprises, op. cit., footnote 62. 90 Ibid.

For Third World countries to compete on an

equal footing and partner with companies in the

First World, they too will need to reorient their

businesses away from mass production towards

just-in-time, flexible production. While information and communication technologies are not

necessarily essential to carrying out these organizational changes, having access to them can

greatly expand a firm’s opportunities and

enhance its efficiency by reducing transaction

costs (see appendix A).91 

With networking technologies, even small

businesses will be able to expand their activities.92 A small business serving a single niche

market in a developing country, for example, can

increase its size by using communication technologies to identify similar niche markets in

other countries. Small firms in developing countries can also use networking technologies to

partner with the growing number of globally dispersed firms that outsource many activities to

Third World countries. Or, alternatively, small

businesses can use communication networks to

link their operations together, allowing them to

function and compete as if they were much larger

entities. This kind of networking approach was

used, for example, by the Italian clothing manufacturer, Benneton, with remarkable success.93

National governments have not been alone in

recognizing the potential for information networking to enhance global trade. Recently, for

example, the U.N. sponsored the global Trade

Point Program, which aims to promote trade

through the establishment of a series of “trade

91 Some of the most successful early applications of this approach, for example, took place in the industrial districts of Northern Italy and

Baden-Wurttemberg, Germany, where technology was not an issue. 92 As described by R. Badrinath, “Previously, gaining entry into distant markets was out of the question for a majority of [small and

medium sized enterprises] SMEs. Even assuming that they could organize the finance and production aspects of their operations effectively,

foreign marketing raised almost insurmountable obstacles. The process of market selection, buyer identification, visits abroad with quantities

of samples, preparation of business offers and counter proposals, discussion of specifications and so on required large investments of time,

energy, and resources. Today, much of this can be done without leaving the workplace, thanks to the telephone, fax and other telecommunication facilities.” R. Badrinath, “Helping Small and Medium-Size Firms to Enter Export Markets,” International Trade Forum, No. 2, 1994,

p. 6.93 See Cristiano Antonelli, “New Information Technology and Industrial Organization—Experience and Trends in Italy,” in Information

Technology and New Growth Opportunities (Paris, France, OECD Development Center Studies, 1989).
112 Global Communications: Opportunities for Trade and Aid

Networking provides new opportunities for businesses to enter new markets, gain strategic advantage, and reduce transaction costs. These networks are effective because they cut across traditional

organizational boundaries, either within or across firms,

Business networks come in a number of varieties, As depicted in the figure, some networks are internal to the firm. They generally cut across traditional business functions, allowing firms to reorganize

around processes that support team-based work for total quality control and just-in-time delivery. A wide

range of groupware applications are being developed to support such networks. Businesses may also

set up networks to create new interorganizational connections as can be seen in section B. An electronic

data interchange (EDI) network might be used, for example, to connect a firm to its suppliers. Networking

can also be used to support virtual corporations and agile manufacturing as illustrated in section C.

SOURCE: Office of Technology Assessment, 1995

A: Fully-integrated firm

I I

Firm

( Management )

B: Outsourcing

Core firm

C: Virtual corporation

I

v

I I
Chapter 3 Communication Technologies to Promote Foreign Aid Goals 113

Enterprise integration is presently facilitated by the use of shared information systems, across groups

and facilities, so that teams can leverage the information resources of others, wherever they may be. To

support enterprise integration, communication must be seamless and reliable so information can be

relayed in a timely manner and without errors.

There are a number of technologies that support shared information systems. Networking options

include local area networks (LANs), wide area networks (WANs), and metropolitan area networks

(MANs), supported by a vast array of transmission and networking technologies, including asynchronous

transfer mode (ATM), integrated services digital network (lSDN), fiber optics, satellite, and many other

radio-based technologies. The figure illustrates how the data communications portion of the information

superhighway is composed of a complex network of interconnected networks. A firm’s internal computer

network typically consists of several smaller, linked LANs, which in turn are interconnected to increasingly

wider networks, MANs and WANs. Open systems architecture and object-oriented programming environment will enable systems to be built more efficiently and effectively to facilitate information-sharing. Client/

server architectures that distribute data over a network of desktop workstations (as opposed to having

the data reside in a central mainframe computer) will allow departments to own their own data and make

it available to the people who need it. Software such as groupware and distributed databases will provide

the ability to store, search, and refine disparate pieces of information.

SOURCE: Office of Technology Assessment 1995.

points” or trade facilitation centers that provide market overviews. Trade Points offer services

companies with greater access to communication either physically, in a centrally located office, or

networks and trade-related information. Already online by connecting customers and service prothere are 59 such Trade Points in 45 countries viders electronically. Depending on available

serving as clearinghouses for trade leads, custom resources, Trade Points may also offer the use of

and tariff information, sources of financing, communication technologies such as voice and

qualified freight forwarders and insurers, and video conferencing, electronic mail, bulletin
114 | Global Communications: Opportunities for Trade and Aid

boards and shared databases. In addition to the

free resources offered on the Internet, Trade

Points have begun to provide trade information

generated by the private sector, as well as space

on its Internet server for company home pages,

on a fee basis. The U.N. estimates that 100 Trade

Points will be in operation by 1996.
| 115

4

Meeting Third

World Needs

in a Global

Telecom Market

nformation and communication technologies, operating in a newly deregulated and

increasingly competitive economic climate,

are rapidly reconfiguring national communication systems and linking them together into

networks that span the globe. This has greatly

reduced telecommunication costs and generated

a wide range of new products and services.1 As a

result, telecommunications is one of the fastest

growing sectors in the international market, with

total sales of $400 billion in 1992 and annual

growth rates averaging between 10 to 15 percent.2

Increases in the flow of and demand for information services across national borders are wearing away the distinction between domestic and

international communication systems and markets. Whereas national monopolies once controlled the manufacturing, production, and

provisioning of most communication related

products and services, today international conglomerates are being formed to meet the business

1 For example, the price of leasing a single voice-grade channel in 1970 was between $8,000 and $9,000 per month. Today it would cost

about $6,000 to lease a 64 kbps line that could provide eight times more transmission capacity. See Michael Fahey, “From Local to Global:

Surveying the Fiber Landscape,” Telecommunications, November 1993, p. 34. 2 “Expanding Your Orbit,” Public Utilities Fortnightly, Feb. 1, 1993, p. 27.

demand for transparent and seamless worldwide

services.

In this increasingly liberalized, global telecommunications marketplace, many developing

countries’ communication needs can be met by

the private sector. Already, many firms are

eagerly competing to invest in and/or partner

with developing countries to serve their rapidly

growing communication markets. U.S. firms are

especially well positioned in this regard. They

are foremost in the development and deployment

of communication and information technologies

and principal players in the information and

communication technology and service trade

arena.

Although the global market is driving the

deployment of advanced communication technologies, and channeling investments in telecommunications to developing countries, its impact

will likely be uneven, with some countries and

some areas remaining unserved. In many developing countries, existing infrastructure is very

primitive, providing in some cases less than one

I
116 | Global Communications: Opportunities for Trade and Aid

main telephone line per 100 persons.3 And the

cost of upgrading these networks can be astronomical—on the order of $60 billion according

to some estimates.4 Compounding the problem,

many developing countries have only limited

access to the foreign exchange required to purchase up-to-date equipment and services in the

global market.

To meet the needs of all developing countries

in a global economy, some foreign assistance and

support may be required. The need for such support is typical in the case of communication technologies. Historically, for example, most national

governments have found it necessary to promote

universal access and the deployment of communication infrastructure, owing to the failure of the

marketplace to support universal service and

other related economic and social goals.

The economic incentives provided in today’s

international marketplace may similarly inhibit

the deployment of technology to all corners of

the earth, rich and poor alike. In a highly competitive, global economy, however, Third World

governments can not—as did governments in the

past—speed up and smooth out the technology

diffusion pattern, using cross subsidies and price

averaging. To the contrary, if Third World countries are to attract worldwide business and investment in telecommunications, they must dismantle

their traditional regulatory regimes and veer

toward greater liberalization and privatization.

Otherwise, they will most likely be bypassed

altogether.

In an interdependent global environment, the

United States has an interest—from a trade as

well as from a foreign policy perspective—to

help ensure that technology deployment proceeds on a relatively even basis. Designing a

telecommunications oriented foreign aid pro3 According to the International Telecommunications Union (ITU), by the end of 1992 almost 50 countries accounting for more than half

the world’s population had a teledensity of under one main telephone line per 100 people; at current growth rates this situation will not

change until the end of the century. Denis Gilhooly, “Road to Kyoto,” CommunicationsWeek International, Sept. 12, 1994, p. 12. 4 According to the ITU World Telecommunications Development Report, it will cost $58.3 billion to provide basic infrastructure to most

nations. The World Bank estimates the cost to be even greater, totaling $80 billion. Stephen Titch and John Williamson, “World Conference

Pushes for Policy Changes,” Telephony, Mar. 28, 1994, pp. 9, 7.

gram, which carefully targets unserved areas and

leverages free market, private sector developments, however, will require a clear understanding of potential market failures and barriers to

deployment in a global telecommunications market.

This chapter seeks to contribute to such an

understanding. To this end, 1) it characterizes the

typical technology diffusion pattern associated

with communication networks and the key factors likely to affect it; 2) it examines how this

pattern might be influenced by the forces driving

globalization of the telecommunications market;

and 3) it identifies and describes the implications

for Third World countries of the most probable

deployment scenario.

THE DIFFUSION OF 

COMMUNICATION NETWORKS

Technology diffusion is typically a long-term

and uneven process that depends on a number of

factors, making it very difficult to access in any

event.5 The problem of predicting diffusion rates

is compounded in the case of a networked communication infrastructure. Because the infrastructure as a whole is constituted by hundreds of

technologies coexisting, each at different points

on their diffusion curves, how quickly communication innovations are adopted is highly dependent on factors such as interconnectivity and the

interdependence of content and equipment.

Moreover, because communication infrastructures support both social and economic activities,

network evolution will probably be determined

by many social and political factors as well as by

technological and economic factors. Not surprisingly, therefore, national governments have generally played a major role in determining

network deployment and use.

5 For a crosscultural and crosssectoral analysis, see Pavio Arcageli, Giovanni Dosi, and Massimo Moddi, “Patterns of Diffusion of Electronic Technologies: An International Comparison with Special Reference to the Italian Case,” Research Policy, vol. 20, 1991, pp. 515–529.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 117

❚ Major Technological/Economic Factors

As a general rule, the diffusion of new technologies takes the form of an S-shaped curve. This

pattern reflects the forces of supply and demand,

and the way in which users respond to new technologies. Vendors market new technologies

slowly at first because investment and product

development costs are high, while demand and

profitability are low. As costs and prices fall and

demand and profits rise sharply, vendors will

greatly increase their supply.6 Users reinforce

this pattern. Their initial reaction to new technologies is generally very cautious, but their

demand will eventually quicken and reach a critical mass as prices fall, knowledge of and familiarity with the technology spreads, and

applications multiply and are adapted and

readapted to new and different tasks.7

Achieving a critical mass is especially important in the case of interdependent networks.8

Because these networks represent a large

installed base, users are generally reluctant to

purchase incompatible components. Instead, they

may postpone the adoption of new, superior technologies until their entire network can be written

off. On the other hand, once there is a critical

mass, users will likely “jump on the bandwagon.” This happens because network users

and network services are, like network components, also interdependent. The value that users

attach to a network will generally increase in

proportion to the number of users it has, and the

6 Christopher Freeman, The Economics of Industrial Innovation (Cambridge, MA: MIT Press, 1982); and Edwin Mansfield, “The Diffusion of Eight Major Industrial Innovations,” N.E. Terleckjy (ed.) The State of Science and Research: Some New Indicators (Boulder, CO:

Westview Press, 1977). 7 Everett M. Rogers, Communication Technology: The New Media in Society (New York, NY: The Free Press, 1986); pp. 116-149; and

Ronald Rice and Everett Rogers, “Reinvention in the Innovation Process,” Knowledge: Creation, Diffusion, Utilization, vol. 1, No. 4, June

1980, pp. 499–514; See also Paul Attewell, “Technology Diffusion and Organizational Learning: The Case of Business Computing,” Organizational Science, vol. 3, No. 1, February 1992, pp. 1–19. 8 See Cristiano Antonnelli, “The Economic Theory of Information Networks,” in Cristiano Antonnelli (ed.), The Economics of Information Networks (The Netherlands: North Holland, 1992), chap. 1.

services it can support. Thus, when a critical

mass of users adopts a new technology, others

are quick to follow, fearing they will be left

behind.9 As has generally been the case, when teledensity approaches the range of 10 to 20 percent,

communication networks will likely “take off.”

Even after a critical mass has been achieved,

however, diffusion will continue to be patchy,

typically following a hierarchical pattern. Such a

pattern was clearly evident, for example, in the

case of the United States with the deployment of

the telephone and telegraph. In both instances,

diffusion followed a sequential pattern starting in

areas with major populations. First, major trunks

were linked to Northeastern cities, followed by

lines to smaller towns in their immediate hinterlands. Then, connections were made to major

Midwestern cities, which were later extended

outward in a similar fashion. Although the telephone was patented in 1876, it did not reach Chicago until 12 years later, and transcontinental

service was not inaugurated until 1915. For rural

areas, the situation was even worse. As late as

1940, only 25 percent of all farm residences in

the United States had telephone service. As a

result, favorably situated businesses in the urban

Northeast enjoyed a head start of several decades

in utilizing regional and interregional telephony.10 In the case of the telegraph, it took 17

years to link both coasts, with the small towns

and rural areas again being the last to be

served.11

9 Joseph Farrell and Garth Saloner, “Horses, Penguins, and Lemmings,” H. Landis Gabel (ed.), Product Standardization and Competitive

Strategy (The Netherlands: North Holland, 1987); and Paul A. David, “The Dynamo and the Computer: An Historical Perspective on the

Modern Productivity Paradox,” American Economic Papers and Proceedings, May 1990, pp. 355–361. 10 Richard Kielbowitz, “The Role of Communication in Building Communities and Markets,” contractor report prepared for the Office of

Technology Assessment, 1987. 11 Ibid. See also Richard DuBoff, “The Telegraph and the Structure of Markets in the United States, 1845–1890,” Research in Economic

History, vol. 8, 1983, pp. 269–270; and U.S. Department of Agriculture, Rural Electrification Administration, A Brief History of Rural Electric and Telephone Programs (Washington, DC: USDA, REA, 1989).
118 | Global Communications: Opportunities for Trade and Aid

Recent networked communication technologies have followed a similar pattern. Included

among these, for example, have been commercial television stations, cable television, competitive long distance services, AT&T data services

as well as interuniversity BITNET e-mail systems.12 Even the fax machine, which has had a

very rapid rate of diffusion, exhibited this same

pattern. Like the telephone, many of these technologies were initially driven by business usage.

❚ The Role of Government in 

Supporting Network Diffusion

National governments have played a major role

in determining the evolution of communication

technologies. Viewing these technologies as a

critical infrastructure that sustains all social

activities—political, economic, and cultural

alike—governments have, over time, consistently intervened to either promote or retard their

availability.

In the United States, the Founding Fathers recognized that the widespread flow of communication was essential to developing a unified market,

forging a common culture, and creating a democratic polity. To foster such communication, they

incorporated three important provisions in the

Constitution—the First Amendment provision

for free speech; the authorization of intellectual

property protection under Article 1, Sec 8; and

Article 1, Sec. 8, Paragraph 7, which gives government the power to establish post offices and

postal roads.13 This goal of fostering communication has persisted throughout American history. Almost 150 years after the Constitution was

written, Congress reaffirmed this commitment

with the passage of the Communications Act of

12 Aharon Kellerman, Telecommunications and Geography (London, UK: Belhaven Press, 1993). 13 Ithiel de Sola Pool, Technologies of Freedom, (Cambridge, MA: Belknap Press of Harvard University, 1983), pp. 16–17.

1934. This act laid out the objective of providing

“so far as possible, to all people of the United

States, a rapid, efficient, nationwide, and worldwide wire and radio communication service with

adequate facilities at reasonable charges.”

To implement its objective, the U.S. Government adopted a regulatory framework that, while

allowing the industry to remain in private hands,

still provided some social control over the negative impacts of the single-mindedness of the market. Under this system, the telephone company

was permitted to operate as a regulated monopoly, while serving the public interest as a common carrier.14 And, when this system failed to

promote adequate service in rural areas, the government took more proactive measures to

encourage deployment, by channeling loans and

technical assistance through the auspices of the

Rural Electrification Administration (REA).15

As the United States became drawn into the

world of international politics, communication

policies were designed not only to support

domestic policy goals but foreign objectives as

well. Thus, for example, the U.S. government—

having witnessed the military benefits of radio

technology first hand during World War I—

intervened to help establish the Radio Corporation of America (RCA), which subsequently

bought out the British dominated American Marconi Company. In this way, the Government

helped to solidify the U.S. position in international communication.16 Similarly, to meet the

defense needs of World War II, the U.S. government took the lead in providing the necessary

finance and support required for the development

of a number of critical communication and electronic technologies.17 To support U.S. foreign

policy throughout the Cold War, the government

14 See Richard A.K. Vietor, “AT&T and the Public Good: Regulation and Competition in Telecommunications, 1910-1987,” Harvard

Business School, unpublished paper, April 1987, revised March 1988. 15 Legislation permitting REA to play such a role was passed in 1949. Accordingly, REA was able to achieve high-quality, state-of-theart service, working mainly with the “independent” telephone companies. By 1980, 90 percent of all farms in the United States were served

by telephones. U.S. Department of Agriculture, op. cit., footnote 11. 16 Daniel J. Czitrom, Media and the American Mind, (Chapel Hill, NC: University of North Carolina Press, 1982), p. 86. 17 David C. Mowery and Nathan Rosenberg, Technology and the Pursuit of Economic Growth, (New York, NY: Cambridge University

Press, 1989), p. 144.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 119

promoted the values of democracy and a free

market economy through the Voice of America

Service.

Historically, some foreign governments have

gone much further than the U.S. government to

ensure that their telecommunication systems not

only support but actually promote, national

social and economic goals.18 To this end, most

foreign governments have assumed direct ownership and control over their telecommunication

networks.19

The typical organizational pattern to emerged

in Europe—and later worldwide—was that of the

PTTs—the government administrations of post,

telephone and telegraph. The hierarchical, government-owned monopoly model evolved in

Europe over a century and a half, during which

time national governments, coveting the lucrative postal revenues, finally, and after intense

struggles, assumed control over their respective

postal systems. Eventually, however, it was the

telephone that provided revenues to subsidize the

PTTs activities. The PTTs are, thus, much more

than administrative agencies; they are deeply

embedded in national social and political structures.20

Government policy will continue to play a

critical role in determining technology diffusion.

However, to partake of the benefits of new technologies, governments must reassess and adapt

their communication policies and institutions to

take into account the fundamental social and economic changes occurring in their midst. The ratebased regulatory framework that served well in

the early years of telephony, when a common,

universal service was required, is no longer

appropriate today, given the variegated communication needs of a knowledge-based global

economy.21

18 Andrew Davis, Telecommunications and Politics: The Decentralized Alternative (New York, NY: St. Martin’s Press, 1994), pp. 62–

63. 19 Eli Noam, “The Establishment of the PTT System,” in Eli Noam, Telecommunications in Europe, (Oxford, UK: Oxford University

Press, 1991). 20 Noam, op. cit., footnote 19. 21 Eli M. Noam, “The Future of the Public Network: From Star to the Matrix,” Telecommunications, March 1988, pp. 58–59, 65, and 90.

With the breakup of the Bell Telephone System in January 1984, the United States created a

worldwide precedent, and set the pace for regulatory reform (see box 4-1). Under similar pressures today—made even more powerful by the

threat of global competition—many countries

throughout the world are reassessing, if not

restructuring, their regulatory policies. Despite,

in some cases, considerable resistance, a number

of these countries are already dismantling their

Postal and Telecommunication Administrations

(PTTs) in favor of some form of privatized ownership and liberalization of entry barriers.

Describing the motivations and tensions inherent in these kinds of decisions, one observer has

noted:

Perhaps for the first time communications

are being recognized as a strategic underpinning

of civilization, as important perhaps as the provision of clean water. The implicit fear for

many countries must be that an inadequate

infrastructure will forever keep a national economy out of the world economic structure that is

shaping up for the 21st century, in addition to

the fear that government relinquishes an important tool. It is into this cauldron that telecom

policy is being pushed.22

Given this radically changing international

regulatory environment, developing countries

will probably have less opportunity than the

developed countries once had to use government

policies to assure the widespread and even

deployment of communication networks.

THE TREND TOWARD GLOBAL 

NETWORKING

Technology diffusion does not take place in isolation. It is influenced greatly by the larger technological, social, and economic context in which

new technologies evolve. The single, most over22 Stephen McClelland, “The International Dimensions: The PTTs,” Telecommunications, June 1992, p. 31.
120 | Global Communications: Opportunities for Trade and Aid

BOX 4-1: The Demise of the U.S. Telecommunication Regulatory Regime

Technological developments were a major factor in the demise of the U.S. regulatory regime. The convergence of information and communication technologies blurred the distinction between what constituted a

monopoly—and hence regulated—service and what constituted a competitive service to be provided in the marketplace. In addition, as new technologies both increased in capability and declined in cost, the barriers to entry

into the telecommunications market were greatly reduced. Under these circumstances, many newcomers were

able to make significant inroads into AT&T’s traditionally protected market. Their chances for success were

greatly enhanced, given the requirement that AT&T provide universal service, while its competitors could target

products to the most lucrative business markets. Thus, new providers put pressure on the system of subsidy

pricing, which had been so elaborately constructed over the years.1

Economic developments also greatly increased the incentives for others to try to enter the telecommunication/data communication market. In particular, as information came to play an enhanced and more

strategic role in the realm of business, large users began to seek alternative, more efficient ways of purchasing telecommunication services.2 Where their needs were great, or where they wanted more strategic control over their operations, users established their own internal telecommunication networks. In

other cases, business users were able to make the best deal by bypassing the Bell System and purchasing services and equipment in the unregulated market.

Changes were also taking place in the way regulators thought about the regulatory structure.3 As early

as 1962, a number of regulatory economists began to question the public-utility concept. Together, their

work—if it did not itself give rise to the new deregulatory climate—served at least to legitimate it.4

Under similar pressures today—made even more powerful by the threat of global competition—many countries throughout the world are reassessing, if not restructuring, their regulatory policies. Despite, in some cases,

considerable resistance, a number of these countries are already dismantling their Postal and Telecommunication Administrations in favor of some form of privatized ownership and liberalization of entry barriers. Describing

the motivations and tensions inherent in these kinds of decisions, one observer has noted:

...Perhaps for the first time communications are being recognized as a strategic underpinning of civilization,

as important perhaps as the provision of clean water. The implicit fear for many countries must be that an inadequate communication infrastructure will forever keep a national economy out of the world economic structure

that is shaping up for the 21st century, in addition to the fear that government relinquishes an important tool. It is

into this cauldron that telecom policy is being pushed.5

1 For a discussion of this pricing system, see Separation Procedures in the Telephone Industry: The Historical Origins of a Public Policy (Cambridge, MA: Harvard University, Center for Information Policy Research, 1981).

2 Dan Schiller, “Business Users and the Telecommunications Network,” Journal of Communication, vol. 32, No. 4, Autumn 1982.

3 For one discussion, see Alfred E. Kahn, “The Passing of the Public Utility Concept: A Reprise,” in Eli Noam (ed.), Telecommunications Regulation Today and Tomorrow (New York, NY: Harcourt Brace Jovanovich Publishers, 1983), ch. 1; For an account of these

changes in attitude as seen from within the regulated industry, see Peter Temin, The Fall of the Bell System (New York, NY: Cambridge

University Press, 1988), who argues that changes in ideology were in many ways more significant than changes in technology.

4 As Roger Noll has described, “Economists generally entered the study of regulation with the naive view that regulatory institutions were set up for the purpose of rectifying market failures. Unfortunately, and almost without exception, the early empirical

studies—those commencing in the late 1950s and continuing into the 1970s—found that the effects of regulation correlated poorly

with the stated goals of regulation. By the early 1970s, the overwhelming majority of economists had reached consensus on two

points. First, economic regulation did not protect consumers against monopolies, and indeed often served to create monopolies

out of workably competitive industries or to protect monopolies against new firms seeking to challenge their position. Second, in

the circumstances where market failures were of enduring importance (such as environmental protection) traditional standard-setting regulation was usually a far less effective remedy than the use of markets and incentives.” Roger G. Noll, “Regulation After

Reagan,” AEI Journal on Government and Society, No. 3, 1988, pp. 13–20.

5 Stephen McClelland, “The International Dimensions: The PTTs,” Telecommunications, June 1992, p. 31.

SOURCE: Office of Technology Assessment, 1995.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 121

riding contextual factor affecting the pattern of

technology deployment in Third World countries

today is the trend towards global communication

networking. Thus, to anticipate the evolution of

communication technologies in developing

countries, it is necessary to begin by considering

what such globalization might entail.

❚ Globalization Defined

The term “globalization” suggests two related,

but nevertheless distinct phenomena, which can

at times work in opposition to each other. One

relates to notions of comprehensives and universality.23 Global communications, as embodied in

these notions, entails the distribution of communication networks and information flows on a

worldwide, and equally accessible basis. The

value or goal implied by this use of the term globalization is availability and access, while the

means for achieving this goal is technology

advance and deployment. Thus, measures of this

type of globalization might include the ubiquity

of technology and technology applications, as

well as the cost and connectivity of technology.

The second meaning attached to the term globalization relates not to geographic scope, but

rather to territorial boundaries. In this sense, globalization can be said to occur when social interactions and transactions transcend territorial,

state boundaries, and thereby supersede both

national and intergovernmental decisionmaking

processes.24 From this perspective, globalization

of communication entails a shift in the provisioning of communication and information from the

public to the private sector in an international

marketplace. The value associated with this shift

is efficiency; communication resources are

assumed to be more efficiently allocated if provided in response to global market signals of

23 Webster’s Third International Dictionary. 24 As Ruggie describes, “Perhaps the best way to put it is that the globe itself has become a region in the international system, albeit a

nonterritorial one. Thus, global does not mean universal. Instead the concept refers to a subset of social interactions that take place on the

globe. This subset constitutes an inclusive level of social interaction that is distinct from the international level, in that it comprises a multiplicity of integrated functional systems, operating in real time, which span the globe.” John Ruggie, “International Structure and Institutional

Transformation: Space, Time, and Method,” in Ernst Otto Czempiel and James N. Rosenau, Global Changes and Theoretical Challenges:

Approaches to World Politics for the 1990s (Lexington, MA: Lexington Books, 1989), p. 31.

supply and demand. Evidence and measures of this

type of globalization might take the form, for example, of the growth and development of a world market for communication and information products

and services; the proliferation in the number and

variety of private sector communication providers;

or the emergence of new, transnational and nongovernmental centers of decisionmaking.

These two types of globalization are interrelated, often driving one another. The global

deployment of communication technologies, for

example, facilitates the development of transnational organizations. These organizations, in

turn, through their demand for communications,

help to drive the diffusion of technology and the

development of a global marketplace.

The interrelationship between the two types of

globalization may not always be mutually reinforcing, however. The values of universality and

efficiency sometimes conflict. As the history of

technology diffusion illustrates, market incentives may be insufficient to support both universal service and other, related social and economic

goals. Nor is the international marketplace, on its

own, likely to give rise to communication networks that are interconnected on a global basis.

❚ Globalization as Measured by 

Deployment and Interconnection

Just as the birth of the telegraph, telephone, and

television gave rise to communication systems

and networks that stretched across the globe, so

too will many of the technology advances being

witnessed today facilitate worldwide access.

However, whether or not these advances promote

worldwide access will depend not only on technology but also on the technological and regulatory mechanisms that provide for interconnection.
122 | Global Communications: Opportunities for Trade and Aid

New Technological Capabilities

As described in chapter 3, major improvements

continue to be made with respect to all aspects of

communication networking. These advances are

fostering both the supply and demand of communication systems and services. Cost reductions

and improvements in performance support the

extension of communication systems and services over wider geographical areas. Global

demand is stimulated by the reductions in the

cost of service provision, improvements in network capabilities, as well as by the development

of new and more flexible communication systems and services.

One major step toward global service capacity

has been the development of fiber optic technology. Most fiber optic lines in use today can handle a maximum of 32,000 long-distance calls

simultaneously, or 2.5 billion bits per second.

Researchers at AT&T’s Bell Laboratories, however, have recently transmitted 300 billion bits of

information per second down a single strand of

fiber, a technology which may be commercially

available in as little as two and a half years.25

These gains in capacity have, moreover, been

matched by a decline in price. At present, the

price per unit of transmission for fiber optics has

been dropping at a rate of 40 percent per year.26

Improvements in fiber optics have not only

greatly reduced costs and increased capacity;

they have also facilitated digital connectivity

25 Leslie Cauley, “Scientists Search for More Room on Phone Lines,” The Wall Street Journal, Sept. 28, 1994, p. B7. 26 Michael J. Mandel, “This Investment Boom Gives the Economy Running Room,” Business Week, July 25, 1994, pp. 68–70.

among nations. As a result, an unprecedented

number of new transoceanic fiber cable projects

have been undertaken in the past few years (see

table 4-1).27 

The undersea fiber-optic cable system AMERICAS-1—the first fiber-optic cable connecting

Latin America, the Caribbean and the United

States—is capable of handling anywhere from

80,000 to 320,000 simultaneous phone calls or

the equivalent voice and data.28 Other projects

include the 12,000 kilometer Asia Pacific Cable

Network to link eight countries in the AsiaPacific region by 1996, and a 2,200-mile fiberoptic cable in the Black Sea region being built by

a consortium of 30 telecommunications companies.29

Advances in wireless technology also hold

great promise for the extension of global communications systems.30 With wireless technology, service can be extended to countries and

regions where the high costs of communication

systems and/or unsuitable geographic terrain

have historically stifled development. Equally

important, developing countries can use wireless

to “catch up” with the industrialized world. Having no sunk investment in outmoded systems,

they can leapfrog directly to advanced telecommunication systems. Wireless technologies can

also be used to upgrade existing wireline services.

27 As described by Davis, Dinn, and Falconer, “Due to technology, the costs of transport for transatlantic cable systems has been going

down dramatically ever since TAT-1 was installed in 1958. In today’s equivalent dollars, each circuit in TAT-1 cost about $6 million. In 35

years, the equivalent cost of a transatlantic cable circuit has been reduced by a factor of 1,500.” See, for a history and overview, John H.

Davis, Neil F. Dinn, and Warren E. Falconer, “Technologies for Global Communication,” IEEE Communications Magazine, October 1992,

p. 38. 28 AMERICAS-1 cable system is the first fiber-optic cable connecting Latin America, the Caribbean and the U.S. and is the world’s first

undersea application of optical-amplifier technology. Optical amplifiers increase the number of transmitted calls by boosting digital signals

as they travel along the system, rather than electronically regenerating them. See IDB Worldcom Inaugurates Americas-1 Undersea Cable

System,” Telecom Highlights International, Wednesday, September 1994, p. 5. 29 See, “(AT&T Corp.) Phone Concern’s Unit, KDD Win Asia-Pacific Cable Pact,” The Wall Street Journal, Oct. 4, 1994, p. A 15. See

also “U.S. Big 3 Join in European Fiber-Optic Deal,” Telecom Highlights International, Aug. 10, 1994, p. 4. 30 Radio waves are the basic unit of wireless communicate. By varying the characteristics of a radio wave—frequency, amplitude, or

phase—these waves can be made to communicate information of many types, including audio, video and data. Although the term “radio” is

most commonly associated with commercial radio broadcasting services, it encompasses the entire range of wireless communication technologies and services, including television, microwave, radar, shortwave radio, mobile, and satellite communication. For a discussion of new

developments in wireless technologies, see U.S. Congress, Office of Technology Assessment, Wireless Technologies and the National Information Infrastructure, OTA-ITC-622 (Washington, DC: U.S. Government Printing Office, August 1995).
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 123

Since the launching of the first communication satellite—Hughes Early Bird—in 1965, satellite technology has played an important role in

the transmission of information over long distances and to remote areas. Early satellites transmitted telephone calls across the Atlantic and

Pacific Oceans and were used domestically to

distribute network television programs. The

range of satellite services has increased with

each technological improvement. Today, systems are being developed that transmit information directly to end users and that support

broadband communication services such as multimedia.

Satellites have proved especially useful in

providing service to areas such as Eastern

Europe and the former Soviet Union, where

demand is much greater than existing infrastructure can handle. In 1994, five outlying Russian

cities received telecommunications service

through a combination of five new regional satellite earth stations and existing analog connections. By 1996, 25 cities throughout Russia will

have regional earth stations and an additional 125

locations will be reachable by very small aperture terminal (VSAT).31

Given the geography of the region, satellite

communications is also a logical choice for Latin

American countries, where they have been in use

since the late 1960s. Most countries in Latin

America currently use PanAmSat and several

Intelsat satellites to provide international voice,

data, and imaging services for business. With the

launch of the second-generation Brasilsat and

31 “Russian Provider Gets $100M Boost,” CommunicationsWeek International, July 18, 1994, p.1.

TABLE 4-1: Capacity and Cost per Voice Path of Selected TransOceanic Cable Systems, 1956–2000

Year in 

service

Cable

system

Cost ($US)

per voice path

Capacity

(voice paths)

Trans-Atlantic 1956

1965

1970

1983

1988

1989

1991

1993

1994

1996–97

TAT-1*

TAT-4*

TAT-5*

TAT-7*

TAT-8

PTAT

TAT-9

TAT-10

CANTAT-3

TAT-12/13

557,000

365,000

49,000

23,000

9,000

6,000

5,500

4,000

1,000

1,000

89

138

1,440

8,400

37,800

85,000

75,600

75,600

302,000

600,000

Trans-Pacific 1957

1964

1974

1975

1988

1991

1992

1996

Hawaii 1*

TPC-1*

Hawaii 2*

TPC-2*

TPC-3*

North Pacific

Cable

TPC-4

TPC-5/6

378,000

406,000

41,000

73,000

16,000

5,000

5,500

2,000

91

167

1,690

1,690

37,800

85,000

75,600

605,000

Japan/Saudi Arabia/U.K. 1997 FLAG 1,500 605,000

*No longer in service.

Notes: Costs are capital and construction costs only, stated in US$ to the nearest $500, unadjusted for inflation. Current technology permits

approximately five virtual voice paths to be derived from a digital channel operating at 64,000 bits per second (64 kbit/s). Fiber optic cables are

expected to have a useful life of at least 25 years. Table reports average cost per voice path for cables with multiple landing points. For example,

the TAT-9 system connects the United States and Canada with the United Kingdom, France, and Spain. The average U.S.-U.K. cost per voice

path is approximately $4,000. Reserve capacity of cables is generally excluded.

SOURCE: Telegeography, 1994.
124 | Global Communications: Opportunities for Trade and Aid

Mexican 30-band spacecraft later this year, more

than 10 satellites will be available to meet the

region’s telecommunication needs.32

Satellite technology has also allowed the

newly industrialized nations of the Pacific Rim

to provide communication services at a pace

commensurate with the vigorous growth of their

economies. International high-speed, digital, private-line service, provided through Intelsat Business Service, was introduced in 1989 to link

Japan and the United States. Carriers from Hong

Kong, Japan, Malaysia, and Singapore quickly

followed suit. With growth rates exceeding 50

percent, however, demand soon exceeded Intelsat’s capacity, and domestic and regional satellites were required to fill the gap.33 Japan has

already launched a second domestic satellite,

while South Korea, Malaysia, Thailand, and the

Philippines have either committed to or are planning their own systems. A second wave of operators is also emerging to provide services in Asia,

which includes Thaicom, PanAmSat, Apstar,

Koreasat, Rimsat and Measat.34 As competition

among carriers becomes more intense, users benefit from specialized service offerings and discounted prices.

In Europe, satellites (along with cable technology) have been used primarily to support commercial broadcasting. During the period from

1988 to 1990, the number of European satellites

increased from nine to 17, while the number of

satellite channels increased from 67 to 138.35

The Europeans have been much less inclined,

32 Sylvia Ospina, “The Restructuring of a Region: Updating Latin American Communications,” Satellite Communications, September

1994, p. 24. 33 Ellen Hoff, “The Race is On: Asian Carriers Increasingly Must Adjust to Regional Competition,” CommunicationsWeek International,

Jan. 18, 1993. 34 “Global Satellite Industry Alive and Well Says New Report,” Telecom Highlights International, Sept. 7, 1994, pp. 16–17. 35 Anton Lensen, Concentration in the Media Industry: The European Community and Mass Media Regulation (Washington, DC:

Annenberg Washington Program, 1992), p. 8.

however, to foster satellite usage for data and

voice services. Satellite services are themselves

still somewhat restricted.36 And the European

Telecommunications Standards Institute (ETSI)

has been accused of delaying the development of

a VSAT market. In 1993, there were about 1,600

two-way interactive VSAT terminals operating

in Europe, with approximately 3,000 more on

order; in contrast, in the United States, more than

50,000 such dishes had been installed by Hughes

Network Systems, Inc., alone.37

Looking farther into the future, global networks based on the development of low earth

orbiting satellites (LEO) offer great promise,

allowing communication services to be relayed

anywhere throughout the world. Low-earth orbiting satellites fall into two categories, “little

LEOs” and “big LEOs.”

The term little “LEOs” refers to systems that

will use multiple small satellites to provide nonvoice, data messaging to fixed and mobile terminals on a potentially global basis. Little LEOs

operate in frequencies below 1 gigahertz (in the

very high frequency/ultra high frequency bands).

These satellites are each expected to cost

between $6 million and $10 million.38 There are

at present eight companies in the United States

that propose to offer little LEOs using similar

system architectures. If these systems are to provide services on a global basis, some international spectrum licensing issues must be

resolved.39

36 Dawn Hayes, “Space Segment Still Out of Reach,” CommunicationsWeek International, December 1991, p. 12; and Dawn Hayes,

“Satcom Protest,” CommunicationsWeek International, Dec. 16, 1991, p. 4. 37 Andreas Evagora, “VSAT Advances Pitched in Europe,” CommunicationsWeek International, Apr. 5, 1993, p. 23. 38 For a more detailed discussion of this technology, see U.S. Congress, Office of Technology Assessment, The 1992 World Administrative Radio Conference: Issues for U.S. Spectrum Policy—Background Paper, OTA-BP-TCT-76 (Washington, DC: U.S. Government Printing Office, November 1991), p. 23. 39 Ibid.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 125

“Big LEOs” will operate in frequencies above

1 gigahertz. These systems can provide a wide

range of global, or nearly global, mobile digital

voice and data services. Applications include, for

example, facsimile, paging, satellite-based news

gathering, position location, search and rescue,

disaster management, environmental monitoring,

cargo tracking, and industrial monitoring and

control services. Because these systems are

larger and more complex than little LEOs, they

are likely to be more expensive, costing on average $10 million to $20 million per satellite (see

box 4-2 and box 4-3).40

On a more modest scale, microwave transmission can also be used to enhance global communication. Microwave has long been a mainstay in

telecommunications network technology. Historically, its primary use was high-capacity, longhaul service, and it will continue to be important

in such markets. Today microwave provides

about one-third of all worldwide transmission

capacity. Although there may be limited prospects for this technology in advanced industrial

countries, where technology options abound, a

growing market is predicted in developing countries where costs are high and alternatives few.41

One of microwave’s advantages is its relatively low construction costs for rural applications compared to other technologies. Unlike

terrestrial wireline technologies, it does not

require replacement of physical cable plant, usually the highest component of development costs.

Rooftops, hills, and mountains often provide an

inexpensive base for microwave towers. Unit

costs of microwave service are also falling, as

more high-powered systems expand the usable

spectrum. Very small capacity systems with only

a handful of circuits are also now available.

40 Andrease Evagora, op. cit., footnote 37. 41 C. Bruce Page, “Microwave Vendors Gear Up for New Growth,” Re: Transmission, Apr. 6, 1992, pp. 10–11.

Recently, firms such as Alcatel and Northern

Telecom have adapted microwave for use in high

speed networks. One major disadvantage of

microwave is that it requires line-of-sight of the

transmission path. A second is that microwave is

subject to electromagnetic interference.

The Role of Interconnection

Some technologies, such as satellite, are inherently global in scope, but other technologies can

be used to provide global service if interconnected on a world-wide basis. Cellular radio is a

particularly promising technology in this regard,

given its rapid growth in markets throughout the

world. According to the International Telecommunications Union (ITU), subscribership to global cellular systems grew by 47 percent in 1993,

totaling 43 million. This growth rate far outpaced

the 5 percent growth reported for fixed-line telephone subscriptions. The number of cellular subscribers in developing countries rose from just

under 3.5 million in 1992 to over 5.3 million in

1993. This number is expected to increase to 26

million by the end of the decade.42

If cellular is to fully support global service,

however, there will probably need to be greater

consensus on international standards. Although

Europe has settled on the GSM (Global System

for Mobile Communication) standard, U.S. providers have been unable to agree on one of two

competing standards.43 The situation might

improve in the future, however, given considerable momentum in support of the European standard. Europe will itself have a sizable market for

cellular, increasing from $6.07 billion in 1991 to

$14.44 in 1996. Countries outside Europe that

have committed to GSM include Australia, Hong

42 Newsletter of the ITU, July, 1994, pp. 21–23. 43 The U.S. Cellular Telecommunications Industry Association originally came out in support of time division multiple access (TDMA).

However, six of the Bell Regional Operating Companies have been conducting trials using code division multiple access (CDMA), a technology that was first developed in the military, but which is now being adapted for civilian use by Qualcomm Inc. See Andreas Evagora, “Common Mobile Components Sought,” CommunicationsWeek International, Mar. 2, 1992, pp. 1, 6; Tom Crawford, “Why CDMA Should Be the

Choice for Digital Cellular Carriers,” Telecommunications, March 1993, pp. 49-51; and John Williamson, “Bids for Global Recognition in a

Crowded Cellular World,” Telephony, Apr. 6, 1992, pp. 37–40.
126 | Global Communications: Opportunities for Trade and Aid

BOX 4-2: Big Low Earth-Orbiting Satellites (LEOS )

A new generation of mobile satellite service (MSS) systems called Big LEOS (low earth-orbiting satellites) is in development stages to provide mobile telephone service to nearly any point on earth. The proposed “Big LEO” MSS systems, though not yet in use, received international frequency allocations at the

1992 World Administrative Radio Conference. More recently, on January 31, 1995, the Federal Communications Commission (FCC) granted licenses to three of five U.S.-based applicants who sought approval

to deploy MSS systems: 1) Motorola Satellite Communications, Inc.’s Iridium; 2) Loral/Qualcomm L.P.’s

Globalstar; and 3) TRW, Inc.’s Odyssey. TRW’s Odyssey system actually proposes to use 12 satellites in

medium earth orbit or 10,354 km above the earth. Motorola’s Iridium system proposes 66 satellites at 770

km and Loral/Qualcomm’s Globalstar system proposes 48 satellites at 1,401 km. A fourth organization,

the London-based International Maritime Satellite Organization (INMARSAT), also plans to deploy a

medium earth-orbiting MSS system through a separate affiliate called ICO Global Communications, Ltd.1

These system developers are hoping to initiate services as early as 1998 to a market that could reach 5

million to 10 million users worldwide by early in the next century.

Services

All three MSS systems licensed by the FCC in January 1995 seek to provide global, or nearly global,

mobile digital voice and data services, including cellular-like telephone services and data transmission

for applications such as facsimile, paging, satellite-based news gathering, position location, search and

rescue, disaster management, environmental monitoring, cargo tracking and industrial monitoring and

control services. Systems under development would provide service to and from mobile and hand-held

terminals in addition to fixed locations. The market for such anytime anywhere services is expected to

include international tourists and business travelers, emergency relief organizations and government officials. If deployed, these systems will have a relatively low incremental cost per call, and so system operators may be in a position to make a limited amount of capacity available at low prices for use in

underserved regions of the world. Fixed terminals could also be deployed for shared use in developing

countries where mail line telephone density is sometimes less than one for every 100 people. Handset

costs are expected to range from $500 to $3,000 with service costing anywhere from $.40 to $3.00 per

minute in addition to monthly service charges.

Technology

Big LEO systems operate in frequencies above 1 GHz and employ orbital locations between 500 and

1,400 km. By employing satellites in low earth orbit, these systems have the potential to alleviate the delay in

conversations characterized by voice transmitted over geosynchronous satellites which are up to 60 times

higher in the sky. The LEOs are also expected to be less costly to manufacture and easier to deploy.

The proposed systems differ both in the number and arrangement of satellites but employ similar strategies for call completion. All four systems use “dual mode” handsets, which facilitate transmission via both

terrestrial cellular networks and the satellite constellation. A call initiated from a handset would first seek

transmission over the local cellular network for connection to the wireline network. Calls originated in areas

outside the reach of cellular would be transmitted up to the satellite and relayed back to a ground station

from which the call would be routed over the public switched network. Motorola’s Iridium system is unique in

its plans to incorporate intra-satellite transmission links which would make possible direct transmission from

one Iridium handset to another. Satellite-to-satellite transmission requires more sophisticated, and thus

more costly, satellites than the “bent-pipe” style satellites employed by Globalstar, Odyssey and InmarsatP. These satellites relay traffic from ground terminals directly to the nearest gateway.

(continued)
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 127

Kong, Hungary, India, Russia, Singapore, and

the United Arab Emirates. Also favoring the

European standard are Brazil, Columbia, Iran

and New Zealand.44

With the evolution of more advanced terrestrial based services such as personal communication systems (PCS) and future public land mobile

telecommunications systems (FPLMTS), care

will be needed to assure that the interoperability

problems that have been associated with GSM

are not replayed.45 Interoperability is still possible, but by no means certain.46

Standard setting has suffered from the slow

and arduous process of consensus building,

which has typically failed to keep pace with

44 Karen Lynch, “U.S. Seen Losing Cellular Advantage,” TelecommumnicationsWeek International, Mar. 22, 1993, p. 44; See also Mark

Newman, “GSM Takes on the World,” TelecommunicationsWeek International, Oct. 2, 1994, pp. 1, 60. 45 Still in the concept phase, future public land mobile telecommunication systems is seen by the Europeans to be the successor to GSM.

As presently conceived, it would consist of a terrestrially based system (perhaps supplemented by satellite technology) using large towers

located throughout a region to provide an array of voice, data, and video services to mobile users. The United States has remained somewhat

skeptical of this technology, on the grounds that clear service definitions and specifications have yet to be developed. Instead, the United

States has concentrated on the development of personal communication systems (PCS). OTA, The 1992 World Administrative Conference,

op. cit., footnote 39, p. 77. 46 Although the United States and the Europeans disagreed at the World Administrative Radio Conference (WARC)-92 about bandwidth

allocation for FPLMTS, the (Federal Communications Commission) FCC has recently proposed to allocate PCS bandwidth that falls, to a

considerable degree, in the same range of spectrum as that allocated at World Administrative Radio Conference (WARC) to FPLMTS. Thus,

even if the U.S. and Europe pursue different technologies, a FCC decision such as this would still allow for a viable, worldwide mobile communication system. Ibid.

rapid advances in communication technologies.

To encourage agreement, make allowances for

technology change, and facilitate interoperability

among an increasing number of interdependent

parties, networking standards are often incorporated in elaborate reference models and defined

in overly broad and generic terms.47 Thus, even

after standards have been formally set, users still

have had to specify the particular uses to which

these standards will be applied; vendors have to

implement compatible technologies that meet

standards and specifications; and products need

to be certified as to their compatibility with one

another.48 The process can be so complex and

time consuming that the window of opportunity

47 These standards are referred to as anticipatory standards because the process of setting standards anticipates the creation of the product.

For a discussion, see Carl F. Cargill, Information Technology Standardization: Theory, Process and Organizations (Cambridge, MA: Digital

Press, 1989). 48 Ibid.

A key characteristic of all three systems licensed by the FCC is the method chosen to ensure that multiple users may simultaneously access the same satellite. TRW’s Odyssey system and Loral Qualcomm’s

Globalstar system both use code division multiple access (CDMA) to achieve this goal. CDMA allocates

each user the same band in its entirety on a continuous basis. Interference is avoided by assigning each

user a unique spreading code for spreading his/her signal to fill the band. The Iridium system uses time

division multiple access (TDMA), which allocates to each user a different time to transmit. Digital techniques have refined this technique so that turns can be taken so quickly that it appears to each user that

he has a full-time channel. Finally, all Big LEO systems employ at least two satellite-tracking stations to

monitor satellite functioning and orbital location.

1 For a description of each of these four MSS systems, see box 4-3. The FCC did not grant licenses for the MSS systems proposed by Mobile Communications Holdings, Inc. and Constellation Communications. Two entities, Personal Communications Satellite Corporation and Celsat, Inc., have applied to construct geostationary MSS systems in the 2 GHz MSS allocations.

SOURCE: Office of Technology Assessment, 1995.

BOX 4-2: Big Low Earth-Orbiting Satellites (LEOS (Cont’d.))
128 | Global Communications: Opportunities for Trade and Aid

BOX 4-3: Four Proposed “Big LEO” Satellite Systems

Iridium: Motorola Satellite Communications, Inc.

The Iridium system plans a constellation of 66 low earth-orbit satellites (LEOS) arranged in six different

planes and 15 to 20 earth-based gateways. Iridium is unique in its plans to employ satellite-to-satellite

crosslinks at 25 Mbps which would circumvent the need to downlink voice and data to intervening hubs.

The satellites will travel longitudinally, ringing the planet from pole to pole, at an altitude of 770 km. System capacity is 3,840 full duplex circuits/satellite which would support transmission rates for voice and

data of 4.8 kbps and 2.4 kbps respectively. Three tracking stations will track Iridium satellites and monitor

battery life, temperature and transponder status.

The cost to construct, launch and operate Iridium for one year after the launch of the first satellite is

expected to be $3.759 billion. As of February 1995, investments in Iridium totaled $1.57 billion. Motorola,

Inc., is the largest investor with 27 percent of Iridium Inc.’s stock. Iridium’s second largest investor is a

consortium of 17 Japanese companies that invested about $235 million led by DDI Corporation, Japan’s

second-largest telecommunications company. Other investors include: Vebacom GmbH, the German

energy conglomerate Veba AG’s telecommunications arm; Korea Mobile; Sprint; STET, Italy’s PTT; Bell

Canada; Raytheon; Lockheed; and other participants from North and South America, Europe, and Asia.

Iridium handsets are expected to cost as much as $3,000 with calls costing approximately $3 per

minute. Motorola approved the project in June of 1990 and in August 1992, Iridium received an experimental license to construct and launch an initial network of five satellites. The license granted to Iridium

on January 31, like those granted to Globalstar and Odyssey, gives Motorola the authority to construct, at

its own risk, a system capable of operating in the feeder link frequency bands they requested, but not the

authority to operate in those bands.1 Satellite construction is already under way and Iridium, Inc. has said

it intends to begin satellite launch by January, 1997. Commercial service is expected to become available in 1998.

Globalstar: Loral Qualcomm Satellite Services, Inc.

The Globalstar system would have a network of 48 satellites equally divided into eight orbital planes

that would orbit the earth at an altitude of 1,401 km. Satellites would be “bent pipe” style and possess a

1,500-mile-wide footprint to provide “global” coverage between 70 degrees latitude north and south. System capacity would be 2,800 full duplex circuits/satellite, which would support transmission rates for

voice and data of between 1.2 kbps and 9.6 kbps depending upon channel conditions.

The cost to construct, launch, and operate Globalstar for one year is expected to be $1.554 billion.

Globalstar, L.P., an international partnership founded by Loral Corp. and Qualcomm, Inc., invested $275

million in an initial financing round in March 1994. An initial public offering in February 1995 raised an

additional $188 million, bringing total funds to $492 million. Investors include AirTouch Communications,

Inc.; Alcatel N.V. and France Telecom of France; Vodafond plc of the United Kingdom; DACOM Corp.

and Hyundai Electronics Industries Co. Ltd. of South Korea; Daimler Benz Aerospace AG of Germany;

Finmeccanica of Italy; and the international Space Systems/Loral aerospace consortium.

Globalstar handsets are expected to cost $700 with calls costing approximately 40 cents per minute

plus a monthly service charge of between $8 and $10. Globalstar plans to begin launching satellites in

the second half of 1997 with service to begin in 1998.

(continued)
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 129

Odyssey: TRW, Inc. and Teleglobe

The Odyssey system proposes 12 medium earth-orbit satellites, equally divided into three orbital

planes at an altitude of 10,354 kilometers and 10 to 11 earth stations. Like Globalstar and Inmarsat-P,

Odyssey’s satellites would be “bent-pipe” style and so would not utilize inter-satellite transmission. System capacity is 2,300 full duplex circuits/satellite which would support transmission rates of 4.8 kbps for

voice and between 1.2 kps and 9.6 kbps for data. Satellite lifetime is projected at 10 years.

TRW, Inc. estimates the cost to construct, launch, and operate the system for one year at $1.8 billion.

Teleglobe and TRW will provide 5 percent and 10 percent of the equity, respectively. They are seeking

financing for the remaining eighty-five percent, most of which is expected to be in equity and the balance

a combination of debt and vendor financing. TRW said it has sufficient current assets and operating

income to finance the project and submitted a declaration from its CFO during the licensing process

committing TRW to expend the funds necessary to construct, launch, and operate the Odyssey system.

Odyssey handsets are expected to cost less than $500 with calls costing 75 cents per minute plus a

monthly service charge of $24. Satellite launch is scheduled to begin in the third quarter of 1998. TRW

expects the system to become operational by the end of 1998 with six satellites giving single-satellite service to selected regions. Full constellation deployment is envisioned by the end of 1999.

Inmarsat-P: ICO Global Communications Limited (consortium including Inmarsat and 38

Inmarsat signatories)

Inmarsat-P, sometimes referred to as Project-21, would employ 10 or 12 satellites in intermediate circular orbits (10,355 km). Each satellite would have the capacity for 4,000 circuits and an expected lifetime of 10 years.

The cost to construct, launch, and operate the system for one year is expected to be $2.8 billion. About

$1.4 billion in initial financing was committed by 39 signatories to Inmarsat including a commitment of $150

million by Inmarsat as an organization. The Inmarsat Council has indicated that Inmarsat and its affiliates will

maintain at least 70 percent ownership. Additional pledges of $900 million were turned away and the remaining $1.4 billion will be financed through equity and debt. The U.S. investor is Comsat Corp., the U.S. government’s representative in international satellite treaties. In Europe, the biggest investors are Deutsche Telekom

AG’s mobile-phone unit and the Swiss, Spanish and Dutch state phone companies. Other major investors are:

the Beijing Maritime & Shipping Co., an arm of the Chinese Ministry of Transport; Japan’s main international

phone carrier, KDD, Ltd.; India’s international phone company; and Singapore Telecom Pty.

Inmarsat handsets are expected to cost between $1,000 to $1,500 with calls costing $2 per minute.

Inmarsat has started the licensing process in the United Kingdom and hopes to begin offering service in

1999 with the system fully operational by the year 2000.

1 The Federal Communications Commission (FCC) did not award unconditional authorization to any of the three systems licensed on January 31 for specific feeder link frequencies, that is frequencies for transmission links between the satellites and gateway earth stations. Some of the feeder link frequencies are currently allocated to other services and require allocation action at an

International Telecommunications Union World Radio Conference, or are being considered for uses other than satellite services

domestically, in other Commission proceedings. “International Bureau Grants Three Licenses for ‘Big LEO’ Satellite systems.” Jan.

31, 1995, FCC News Release.

SOURCE: Office of Technology Assessment, 1995.

BOX 4-3: Four Proposed “Big LEO” Satellite Systems (Cont’d.)
130 | Global Communications: Opportunities for Trade and Aid

sometimes closes and those standards are overtaken

by new technologies and events (see box 4-4).

Discouraged by the lagging process, many

vendors and users have begun to circumvent the

traditional standards-setting process by developing standards consortia.49 Operating in a relatively closed environment, these groups have

greatly simplified the standards process. Membership is generally restricted, and fees can reach

as high as $650,000 per year.50 Given such

exclusivity, consortia often replicate the dynamics of the market. Instead of consensus, they can

lead to competing vendor alliances, each supporting a different standards. In such cases, consortia may serve to reduce the total number of

technology alternatives, but they offer little in

terms of developing open systems.

Nowhere have the benefits of interconnection

been more vividly illustrated than in the case of

the Internet, which, as described in chapter 3, has

been growing globally and at a phenomenal rate.

The Internet is a global computer network that

provides technical compatibility and transparent

connectivity based on a widely used suite of protocols, TCP/IP. Like the Internet itself, Internet

standards evolved in a very informal way as part

of the efforts of the Defense Advanced Research

Projects Agency (DARPA) in 1969, with funds

from both the Department of Defense and the

National Science Foundation, to establish computer networks linking researchers across the

country. The original participants were few, and

they were bound together by a common research

purpose. Thus, despite rapid network growth, the

Internet standards setting body—the Internet

49 Vendor consortia have been established, for example, to set standards for switched multimegabit data service (SMDA), fiber distributed data interface (FDDI) over twisted pair, asynchronous transfer mode (ATM), and frame relay technologies. For a discussion, see Martin

Weiss and Carl Cargill, “Consortia in the Standards Development Process,” Journal of the American Society for Information Science, September 1992, vol. 43, No. 8, pp. 559–565. 50 Ibid.

Engineering Task Force (IETF)—has been able

to hold to its tradition of openness and inclusively. Conducted for the most part online, this

open process has not occurred at the expense of

timeliness. Today, the Internet is the forerunner

of a truly global information network with over

five million host computers providing full TCP/

IP connectivity to more than 90 countries around

the world.

Its success notwithstanding, in terms of global

connectivity, the Internet should be viewed as the

exception rather than the rule. Other technologies

and applications have been slow to take off on a

global basis because of inconsistencies in standards and technology deployment. Thus, for

example, although the demand for electronic data

interchange (EDI) is rapidly growing, the international EDI market barely exists at present.51

This delay is due in part to the fact that, while the

United States has adopted the ANSI x.12 standard for EDI, most of the rest of the world is

using EDIFACT.52 In Asia, the biggest standards

barrier to the use of EDI is one of language.53

The Need for a Consistent Technology Base

For networks to interconnect, they must also be

comparable in terms of quality, and the types of

service offered. Thus, one finds, for example,

that the worldwide deployment of integrated services digital networks (ISDN) has suffered not

only from a lack of interoperablity but also from

the lack of a ubiquitous and consistent technology base. To understand the problem, one need

only consider the situation in Europe where,

despite a common communication policy set out

51 The European EDI service market generated $100 million in revenue in 1991, and is predicted to reach $500 million in 1996. The

North American EDI market, which suffers from less fragmentation, is expected to reach $1.5 billion by 1998. See Donne Pinsky, “AT&T,

BT, and IBM Connect Euro Edi,” CommunicationsWeek International, Oct. 19, 1992, p. 48. 52 Alice LaPlante, “Handling Standards That Aren’t Standard,” Computer World, Apr. 13, 1990, p. 80. 53 Paul Kimberley, “EDI: Status in the Asia-Pacific Region,” Telecommunications [International Edition], vol. 1, n. 28, January, 1994,

pp. 39–48.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 131

by the European Union (EU), which calls for harmonization, ISDN deployment varies greatly.

Whereas in France, deployment has reached

almost 100 percent, in countries such as Greece,

it is virtually nonexistent.54 Spotty interconnection discourages usage, and hence further

deployment.

Frame relay technology has experienced a

similar fate. Many multinational corporations

would use frame relay as a networking technology if it were available in more than a few major

cities. In February 1993, Finland was the only

country in Europe where a public frame relayservice was available. Although customized services are available from public network providers, the costs are prohibitive for most companies.

Frame relay also suffers from interoperability

54 As described by the European telecom manager for Westinghouse Communication Systems, “It is not always easy to match up ISDN

in the United States with ISDN in Europe... And in countries where we need it most like Spain, ISDN is just not available.” Cited in Terry

Sweeney, “Mix and Match Networks,” CommunicationsWeek International, Apr. 5, 1993.

problems, since unlike x.25 packet switching,

frame-relay networks use different trunking protocols.55

Institutional Barriers to Global Deployment

Interconnection problems are not just technical

in nature; more often than not they involve institutional arrangements. Institutional arrangements

are critical because, if global communication

systems are to be truly seamless, they require not

only common standards and interfaces but also

common rules of access and pricing. Achieving

such commonality can be very difficult, however, given that rules of interconnection reflect

both national social and economic goals as well

as communication policies.

55 David Yuen and Bob Reinhold, “Frame Relay Faces National Boundary,” Network World, Apr. 13, 1992, pp. 17–18; and Donne Pinsky, “So Close Yet So Far,” CommunicationsWeek International, Jan. 18, 1993, p. 3.

BOX 4-4: Integrated Services Digital Network (ISDN)

ISDN is a public switched service that allows the digital transport of voice, data, and image communication over a single network. Although originally lauded for its ability to provide advanced services on a

ubiquitous basis over the public network, its prospects seem much less promising today. After 10 years

of development, ISDN has yet to be widely deployed.

ISDN’s poor showing is the result, in part, of ineffective marketing, regulatory barriers, and poor pricing. However, these problems might have been more easily overcome had it not been for the problem of

interoperability. Like all networking technologies, ISDN required a critical mass for the market to take off,

but such a market could only develop if vendors’ systems could interconnect. Given the competitive environment, however, the momentum to create the requisite standards for interconnection was lacking.

Notwithstanding years of considerable effort to develop ISDN standards, vendors continued to create

products that, although they were said to conform to these standards, were incompatible. Even when

AT&T, Northern Telecom Inc., and Siemens Stromberg-Carlson agreed to modify their switches to conform to a single standard, the Regional Bell Operating Companies (RBOCs) continued to deploy ISDN at

varying rates. Even Bellcore’s effort, ISDN1—which sought to produce a standard basic rate interface

protocol—was a disappointment. Within a week of Transcontinental ISDN Project Trip 92, a major industry-sponsored event designed to demonstrate coast-to-coast interoperability, two RBOCs—Southwestern

Bell and U.S. West—announced that they would not, in fact, adhere to the new standard.

SOURCE: Office of Technology Assessment, 1995.
132 | Global Communications: Opportunities for Trade and Aid

Rules of interconnection establish the basis on

which public network operators allow other providers to access the public network and determine the prices that are charged for such access.

If communication systems are to be truly global,

comparable rules of interconnection need to be

consistently, and transparently, applied. Interconnection rules are required, moreover, not only

for providers from different countries, but also

for different kinds of providers within each country. For example, there need to be rules governing the relationship between public and private

networks, between value-added data services and

public networks, and between providers of public

voice telephone services whether they are fixed

or mobile.56

Establishing interconnection procedures was

relatively easy in the past, when there were fewer

types of services, and when providers were modeled after one another, assuming for the most part

the form of the classic PTT. Such uniformity no

longer exists today.57 National communication

systems now differ significantly, depending on

the extent to which they are government owned

or operated, monopoly based or liberalized, and/

or regulated or not regulated.58 At one end of the

scale are countries such as the United States,

New Zealand, Great Britain, Japan, Singapore,

Malaysia, and Mexico, which are striving to minimize government involvement. At the other end

are countries such as China, Brazil, Venezuela,

and Uruguay, where the legacy of the traditional

PTT is very strong.59 Discrepancies in rules for

interconnection reflect these basic organizational

and, at bottom, philosophical differences.

56 Grahm Finnie, “Interconnect: New Operators Plug In,” CommunicationsWeek International, Mar. 16, 1992, p. 18. 57 See Mehreroo Jussawalla (ed.), Global Communication Policies: The Challenge of Change (Boulder, CO: Westview Press, 1992), p. 4. 58 Colin D. Long, “Interconnection in Europe: The Legal and Regulatory Dimension,” Telecommunications Policy, July 1991, pp. 95–98. 59 Stephen McClelland, “The International Dimension: PTTs,” Telecommunications Policy, June 1992, pp. 31–37.

❚ Globalization Measured in Terms

of Worldwide Trade and Provisioning

of Services

Viewing global networking from the perspective

of ubiquity and universality, globalization still

appears a long way off, with many barriers yet to

be overcome. On the other hand, if instead the

term global communication is used to refer to the

transcending of national boundaries, then the evidence points much further in the other direction.

Moreover, there are a number of developments

driving this trend toward globalization, including

among them an increase in the demand for

worldwide service; the growth in world-wide

trade and the development of a worldwide market; the privatization and commercialization of

the telecommunications sector; and the emergence of global service providers.

The Growing Demand for Worldwide Services

The provisioning of communication products

and services on a world-wide basis both mirrors

and serves to drive the broader trend toward the

development of a global economy. This global

economy is characterized by the emergence of

economic actors who buy and sell their products

and provide services world-wide. Equally, if not

more important, they establish their base of operations on a transnational basis, allocating all their

activities among a number of countries to gain

the optimum advantage.60 When not fully integrated into multinational corporations, these

firms are networking their activities across global boundaries through a variety of alliances and

arrangements such as cross licensing of technology, joint ventures, orderly marketing agreements, offshore production of components,

60 Thus depending on the particular case, it might be best for a firm to disperse many of its production facilities—such as design modification, fabrication and assembly—to foreign countries, and to focus its own domestic production on the fabrication of key components. Or,

alternatively, a firm might decide to manufacture a product domestically, but transfer abroad such downstream activities as distribution,

sales, marketing, and service. See Michael Porter (ed.), Competition in Global Industries (Boston, MA: Harvard Business School Press,

1986).
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 133

secondary sourcing, and crosscutting equity

ownership.61

As companies spread their corporate boundaries, they must have access to advanced telecommunication products and services that can

span the globe. Transnational corporations, for

example, must operate on a real time basis in

response to their rapidly changing environment.

Moreover, they must be able to balance their global operations with the requirements of local

markets—such as the need to establish special

marketing channels, service contracts, and work

relationships. To function as a single unit, they

must be able to apply information and knowledge to an ever growing number of complex

business problems, as well as to share and leverage these resources both within and across organizational and national boundaries. For these

purposes, seamless worldwide networking technologies, which can support applications such as

electronic data interchange, computer integrated

manufacturing, databases for information management, videoconferencing as well as other

kinds of groupware, will be critical.

In developing such global strategies, businesses have benefited from major reductions in

the cost of buying international communication

services. In 1970, for example, a firm had to pay

approximately $8,000 to $9,000 per month to

lease a single voice-grade channel. Today, it is

possible to lease a 64kbps line, which provides

eight times the transmission capacity for approximately $6,000 per month. Declining prices stem

not only from technology advances such as fiber

61 See Peter Cowhey and John Aronson, Managing the World Economy: The Consequences of Corporate Alliances (New York, NY:

Council on Foreign Relations, 1993); See also, David Lei and John W. Slocum, Jr., “Global Strategy, Competence Building and Strategic

Alliances,” California Management Review, fall, 1922, pp. 81–97. Once generally associated with U.S. industries, multinationals are, themselves, increasingly becoming global in nature. For example, globally networked Japanese and European firms, while differing somewhat in

style from U.S. firms, have significantly grown in number in the course of the past decade. See Bruce Kogut, Weijian Shan, and Gordon

Waler, “Knowledge in the Network and the Network as Knowledge,” in Gernot Grabher, The Embedded Firm: On the Socioeconomics of

Industrial Networks (London, UK: Routeledge, 1993), p. 90.

optics; equally, if not more, important has been

the growth of international competition. With the

pressures toward liberalization and the privatization of many telecommunication regimes (as

described below), this competition will become

even more intense in the future, continuing to

force prices down and demand up.62

Increased competition and growth in worldwide demand is also due to the emergence of

new suppliers and the development of new kinds

of products and services that are based on the

convergence of communication technologies.

Included among these, for example, are systems

integration; 24-hour commodity trading, payments, and settlements; credit authorization; and

computerized reservation systems.63 Greater

competition and many more such services can be

expected in the future, because the barriers to

entry are relatively low. Often, all that is required

is software and a computer-network link.

Consider, for instance, telecommunication

discount companies, such as International Discount Telecommunications (IDT). Capitalizing

on the gap between U.S. telecommunication

prices and prices in other, less deregulated, countries, IDT uses computerized switches in the

United States to reroute calls from foreign subscribers. These companies undercut their competitors’ rates by as much as one-third.64

Similarly, the small but rapidly growing telecommunication services company Viatel sells software-based value-added services to small and

62 Karen Lynch, “Global Services Showdown: Communications and Computer Companies Jockey to Redefine Themselves as International Service Providers,” CommunicationsWeek International, May 11, 1992, p. 22. 63 Bruno Lanvin, “Information Technology and International Trade,” in Bruno Lanvin (ed.), Trading in a New World Order: The Impact

of Telecommunications and Data Services on International Trade in Services (Boulder, CO: Westview Press, 1992, p. 4; see also Office of

Technology Assessment, U.S. Telecommunication Services in European Markets (Washington, DC: U.S. Government Printing Office,

August 1993). 64 Meheroo Jussawalla, “Introduction,” in Meheroo Jussawalla (ed.) footnote 57, op. cit., p. 4.
134 | Global Communications: Opportunities for Trade and Aid

medium-sized businesses in Latin America and

Western Europe.65

The demand for global networking services

has also been spurred on by the growing complexity of the worldwide marketplace. Given a

multitude of available services and service providers, divergent standards and levels of technology deployment, as well as differing national

languages, rules, and regulations, many businesses are finding that it is more cost-effective to

“outsource” the management of their international networks on a contract basis.66 Thus, for

example, J.P. Morgan & Co. has contracted with

BT North America to handle all of its overseas,

terminal-to-host networks, at a cost of $20 million. Similarly, BT North America has contracted with Gillette Co. to manage its

telecommunications operations in 180 countries.

AT&T also provides virtual private network services on a global basis. For example, AT&T is

currently providing the network linkages for GE

in 16 different countries.67

The Growth in Worldwide Trade

The growth in worldwide trade in telecommunications and information-based networking services attests to the demand for more versatile

products and seamless worldwide services.68

Communications is, today, one of the fastest

growing sectors in the international market, with

expansion over the past decade outstripping

growth in GNP.69 In 1990, the market for inter65 See, “Soros Makes Investment in Viatel,” Telecom Highlights International, vol. 15, No. 41, Oct. 13, 1993, p. 5. 66 Rita Das, Kenneth E. Ferrere, and Douglas P. Macbeth, “Global Networks—The Easy Way,” AT&T Technology: Products, Systems

and Services, No. 4, 1993, p. 10. 67 Ibid. 68 OTA, U.S. Telecommunication Services in European Markets, op. cit., footnote 65. 69 “Telecommunications Is the Measure of Economic Growth,” Telecommunications Highlights International, vol. 15, No. 49, Oct. 6,

1992, p. 2.

national calls totaled $50 billion.70 In 1990, the

world market in telecommunication equipment

and services was estimated at $370 billion, growing to $400 billion in 1991 and 1992, despite the

world recession. Estimated annual growth rates

in the telecommunications market ranged

between 10 to 15 percent.71

Spending on information technologies has

remained closely aligned with spending on communication technologies—a fact that bears witness to the growing convergence of these

technologies. Excluding telecommunication

hardware and services as well as information services, world-wide spending on information technology totaled $305 billion in 1990. Growth in

this sector was approximately 12 percent

between 1989 and 1990, with software contributing the greatest proportion with a growth rate of

17 percent.72

Globalization is also evidenced by the growing percentage of national revenue that is derived

from international offerings. According to one

account, for example, 16.3 percent of worldwide

value-added services revenue stemmed from

international offerings in 1990. Estimates are that

this figure will increase to 28 percent by 1996.73

This international growth potential is especially important for countries such as the United

States, where the domestic market for many

products and services is rapidly becoming saturated (see tables 4-2 and 4-3). The European

market for value-added services, for example, is

70 Gary C. Staple (ed.), Telegeography 1992: Global Telecommunications Traffic Statistics and Commentary (Washington, DC: International Institute of Communications, 1992). 71 An FCC report, Preliminary 1993 Section 43.61 International Telecommunication Data, reported that U.S. customers spent about

$12.0 billion for international services in 1993, an increase over the previous year of $1.2 billion. In 1993, U.S. customers made a total number of calls equaling 1.9 billion, while those received were 1.2 billion. According to the FCC report, U.S. carriers supplied 14,172 private line

circuits between the United States and international points in 1993. See, “FCC Released International Traffic Data,” Telecom Highlights

International, Oct. 12, 1994, p. 8. 72 Information Technology Outlook 1992 (Paris, France: OECD, 1992), pp. 6–7. 73 Karen Lynch, “Global Service Showdown: Communications and Computer Companies Jockey To Redefine Themselves as International Service Providers,” CommunicationsWeek International, May 11, 1992, p. 22.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 135

TABLE 4-2: Top 25 International Telecommunications Carriers

Rank Company

International 

communications 

revenue

($m 1993)

Total revenue 

($m 1993)

Income

before taxes

($m 1993)

Employees

(1993)

Employment 

change

(1992–93)

Outgoing MITT

(m 1993)1

State

ownership

1 AT&T (U.S) 8,976Y 39,8632 6,204 308,7003 -1% 7,235T 0%2 DBP Telekom (Germany) 5,534Y 35,679 1,934 231,000 0% 4,880T 100%3 Cable & Wireless (U.K.) 3,425 7,058 1,634 41,348 +4% NA 0%4 France Telecom (France) 3,364 22,426 3,527 154,548 -1% 2,751 100%5 BT (U.K.) 2,944 20,540 4,140 156,000 -9% 2,301 0%6 MCI (U.S.) 2,772Y 11,921 1,045 36,235 +17% 2,839 T 0%7 KDD (Japan) 2,159 2,159 299 5,772 -2% 952 T 0%8 Telmex (Mexico) 1,557 7,898 3,301 48,771 0% 625 T 0%9 Stentor (Canada)4 1,525 10,852 NA 88,500 -9% 1,669 3%10 PTT Telecom (Netherlands) 1,464Y 6,370 1,441 34,359 -2% 1,236 100%11 Telstra (Australia) 1,190Y 9,089 1,719 65,200 -5% 640T 100%12 Sprint (U.S.) 1,188Y 11,368 776 50,000 0% 1,181 0%13 Swiss PTT (Switzerland) 1,184Y 6,392 519 20,521 -2% 1,572 100%14 Telefonica (Spain) 1,043 9,587 844 74,340 0% 802 32%15 Teleglobe (Canada) 975 1,110 89 2,128 +2% 808 0%16 Singapore Telecom 

(Singapore)

968 1,975 937 10,937 +1% 480 89%

17 Iritel (Italy)5 935 1,436 NA NA NA 1,190 100%18 Embratel (Brazil) 899 4,736 388 12,083 +2% 164 100%19 DGT (Taiwan) 824 4,496 799 NA NA 441T 100%20 Telia (Sweden) 705 4,541 508 34,090 -18% 685 100%

(continued)
136 | Global Communications: Opportunities for Trade and Aid 21 OPT (Austria)6 688Y 4,824 250 55,194 0% 767 100% 22 VSNL (India) 665 665 81 NA NA 284T 85% 23 Belgacom (Belgium) 641 3,207 353 25,643 -6% 979 100% 24 Bezeq (Israel) 623 1,769 172 9,878 -1% 176T 76% 25 Korea Telecom (South Korea) 598Y 6,205 1,095 NA NA 265T 98% Notes: Figures for 1993 fiscal year. Figures for Japanese, U.K., Australian carriers aare for year ended 31 March 1994. Figures for KDD are for year ended 31 March 1993. Figures converted to U.S. dollars at 1993 average exchange rates. Domestic operators excluded from ranking. NA=not available.

YYankee Group estimates.TEstimates by TeleGeography Inc., Washington.1Minutes of international telecommunications traffic.2Excludes product revenues.3T&T employee figures include equipment manufacturing.4International services to U.S. only.5International services to European countries.6OPT Austria figures include postal and bus services.

SOURCE: The Yankee Group Europe, Watford, England.

TABLE 4-2: Top 25 International Telecommunications Carriers (Cont’d.)
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 137

TABLE 4-3: Top 15 Communications Equipment Manufacturers

Rank93 92 Company

Communications

 equipment 

revenue

($m 1993)1

Total 

revenue 

($m 1993)

Change in 

total 

revenue 

(1992–93)

Income 

before 

taxes

($m 1993)

Change in 

income 

(1992–93)

Employees 

(1993)

Total

revenue

per

employee

Main

communications

products

1 1 Alcatel Alsthom (France) 14,544 27,605 -3.3% 1,582 -7.4% 196,500 140,485 Public, private network systems2 2 Siemens (Germany) 11,986 49,385 +4.0% 1,761 -8.9% 391,000 126,304 Public, private network systems3 3 AT&T (U.S.) 11,783 67,156 +3.5% 6,202 +4.1% 308,700 217,545 Public, private network systems4 4 Motorola (U.S.) 10,105 16,963 +28% 1,525 +91% 120,000 141,358 Mobile, data communications products5 7 NEC (Japan) 8,714 32,192 +1.8% 226 NR 147,910 217,648 Public, private network systems6 5 Northern Telecom (Canada) 7,861 8,148 -3.1% (1,070) NR 60,293 135,140 Public, private network systems7 6 Ericsson (Sweden) 7,703 8,088 +34% 399 +150% 69,597 116,215 Public, mobile network system8 8 IBM (U.S.) 5,300 62,716 -2.8% 8,797 NR 256,207 244,786 Computer networking products & systems9 9 Fujitsu (Japan) 4,388 28,231 -9.3% 236 NR 163,990 1172,153 Publiic, private network systems10 10 Bosch Group (Germany) 2,655 19,655 -5.6% 433 -42% 156,615 125,501 Public, private network systems11 17 Nokia (Finland) 2,161 4,418 +30% 1,146 NR 25,800 1160,785 Mobile, public network system12 18 Matsushita Electric (Japan) 2,046 59,565 -6.1% 1,153 -21% 254,059 234,452 Private network equipment13 11 GEC (U.K.)2 1,917 14,571 +3.1% 1,301 +0.1% 86,121 169,191 Public, private network systems

14 13 Philips (Netherlands) 1,831 31,672 +0.5% 822 NR 238,500 132,798 Mobile, public network systems15 26 Samsung Electronics (South 

Korea)

 1,788 10,159 +34% 262 +122% 44,733 227,119 Public, private network systems

Notes: Figures are for 1993 fiscal year. Figures for Japanese and U.K. companies are for year ended 31 March 1994. All figures converted to U.S. dollars at 1993 average exchange rates.1Communications equipment revenue estimates by Sirius.2GPT revenue included in GEC figures, not Siemens.

SOURCE: CommunicationsWeek International; Sirius, Montpellier, France.
138 | Global Communications: Opportunities for Trade and Aid

projected to grow much faster than the U.S. market.74 Moreover, the export of services to Europe

is expected to foster the sale of U.S. telecommunications equipment and strengthen the competitiveness of the U.S. services industries—such as

airlines, hotels, and banks.75

Third World markets are also very promising,

because penetration levels are so low, and many

of these countries are now opening their markets

to foreign competition. For example, with a penetration rate of 0.98, and a population totaling

more than one billion, China provides a major

opportunity for U.S. equipment suppliers. In the

case of Latin America, the potential for American companies is equally great. In Mexico alone,

the market for wireline equipment now exceeds

$2 billion annually.76 As developing countries

press to modernize their networks, the market for

advanced technologies will also experience considerable growth. In 1992, more than $4.6 billion

was spent on digital switching in the developing

countries, and it is estimated that the market will

total more than $7 billion by the turn of the century.77

The Convergence of Prices and Product 

Offerings

The development of a global market depends not

only on a greater exchange of communication

and information-related products and services

across national boundaries. For a unified market

to exist, there must also be widespread access to

market information and a convergence of prices

and product offerings. The expansion of trade—

such as we are witnessing today in telecommunications—will help to drive this convergence.

For, as markets become more global, so will

74 OTA, Telecommunication Services in European Markets, op. cit., footnote 65. 75 Ibid. 76 Ibid. 77 Robin Bromby, “Digital Switching Markets in Developing Countries Report,” Telecommunications (International Edition), Vol-27,

October 1993, pp. 16–18.

competition and the availability of marketrelated information. At the same time, however,

to the extent that price differentials are artificially maintained, the cost and complexity of

doing business will be increased—and global

trade will be inhibited, and global trading patterns distorted, as a result.

Telecommunications pricing is reflected in

public tariffs, which lay out all of the telecommunication options, together with price and conditions of service.78 These tariffs have always

been subject to political as well as economic factors, because governments have traditionally

been the providers of services, for the most part.

Thus, rates have been set not only to reflect costs

but also to promote universal services through

cross subsidization or—as is happening in many

developing countries today—to generate revenues for unrelated government operations. Not

surprisingly, under these circumstances, prices

and services have varied significantly from country to country.79

Significant price distortions were tenable in a

national regulatory environment, in which most

of the trade that took place was internal to the

firm. Some services could be used to subsidize

others, so long as costs were covered overall.

When transactions occurred across national

boundaries, as in the case of international telephone calls, pricing arrangements were negotiated through the appropriate state authorities.

In today’s global economy, such pricing strategies will have much greater consequences, serving to inhibit and distort international trade.

Without standardized services and a relatively

common scheme of pricing, businesses will find

it extremely difficult to manage global networks.

78 A tariff describes the services available, the conditions under which they will be provided, the cost structure, and the price of service.

For a discussion of tariffing and the general factors on which it is based, see Phyllis Bernt and Martin Weiss, International Telecommunications (Carmel, IN: Sams Publishing, 1993), pp. 37–53.

79 Ibid. See also Robin Mansell, “Tariffs: Who Should Pay for the Telecommunication Network?” Telecommunications, July 1993, pp.

41–45.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 139

Special efforts will be required to identify and

negotiate the appropriate services and terms.

Where there are major price and service disparities, traffic will likely be routed in round about

ways through countries such as the United Kingdom or Singapore.80 In other cases, however, the

search costs entailed in setting up a network may

simply be so high as to outweigh any benefits

from their use.81

The impact pricing disparities can have on

trade is particularly apparent when reconciling

international accounts. International calls entail

the use of facilities in two countries, so revenues

and costs must be shared between them. To settle

accounts, providers in the countries where a call

originates pays facility owners in the countries

where it is completed a sum based on a bilaterally negotiated “accounting rate” (the agreed

upon cost of the call) and “settlement rate” (the

agreed upon percentage split of the revenues,

which customarily is 50 percent).

If there is a large gap in the prices charged in

each country, problems are likely to arise, as is

the case in the United States today. When possible, users initiate calls in the United States

because the rates, which are subject to competitive pressures, are lowest there. This is not necessarily beneficial, however. Because American

providers initiate more calls than they receive,

they must pay out an excess of funds, which take

the form of a trade deficit.82 Moreover, because

international accounting rates do not match true

costs, American service providers may not cover

their total costs. In fact, depending on the

80 Singapore is now connected to three international cable systems and plans to be a partner in six by 1996. See “Singapore Telcom

Announces SEA-ME-WE Inauguration,” Telecommunication Highlights International, Nov. 2, 1994, p. 3. 81 Bernt and Weiss, op. cit., footnote 80. 82 Mansell, op. cit., footnote 81, p. 41.

accounting and settlement rates, they may actually subsidize a foreign vendor’s service.83

Nonetheless, the pressures for liberalization

continue to swell. These include, for example,

the incorporation of telecommunication services

within the framework of the General Agreement

on Tariffs and Trade (GATT) and the North

American Free Trade Agreement (NAFTA);

competition from multinational providers and

advances in networking technology that permit

bypass of the public switched network; the European Community Open Network Directive; as

well as the persistent demand of large, multinational business users (see box 4-5).84 Given these

forces for change, it is not surprising that, even in

the case of such traditional state-oriented stalwarts as Ireland, Spain, Portugal, and Italy, steps

are being taken to move towards more international cost-based tariffs.85

Privatization and the Shift of Networking 

Activities to the Marketplace

Globalization is also being furthered through the

movement to privatize the provisioning of communication products and services.86 This trend

towards privatization reflects the growing economic value of communication and information

in society. Although communication has always

served a critical function, its economic value

looms even larger today in a global knowledgebased society. To capitalize on this development,

PTTs throughout the world are selling off either

all or part of their telecommunications facilities

to global private sector providers and investors,

with expertise and capital to spare. According to

83 Bernt and Weiss, op. cit., footnote 80, pp. 83–97. 84 Ibid. See also “Study Says EC Firms Favor Opening Telecommunications,” Telecom Highlight International, Sept. 29, 1993, vol. 15,

No. 39, p. 7. 85 “The Countries of Europe React to Spur of Global Competition,” INTUG News, October 1993, p. 4. 86 See, for a general discussion, G. John Ikenberry, “The International Spread of Privatization Policies: Inducement, Learning and ‘Policy

Bandwagoning,’” in Ezra N. Suleiman and John Waterbury, The Political Economy of Public Sector Reform and Privatization (Boulder, CO:

Westview Press, 1990), pp. 99–106. For a discussion of privatization in telecom, see Bjorn Wellenius and Peter A. Stern (eds.), Implementing

Reforms in the Telecommunications Sector: Lessons From Experience (Washington, DC: World Bank, 1994).
140 | Global Communications: Opportunities for Trade and Aid

BOX 4-5: Telecommunications and Trade

The Uruguay Round of the General Agreement on Tariffs and Trade (GATT) was the first in the GATT’s

50 year history to cover trade and investment in the service sector. The General Agreement on Trade in

Services (GATS) contains three interrelated sections. The first establishes the rights of users and service

providers in foreign countries in such areas as most-favored-nation treatment (nondiscrimination among

foreign service providers), national treatment (equal treatment for domestic and foreign service providers), transparency (publicly available information), market access, and the free flow of transfers and payments.1 The second section provides a timetable by which each country commits to applying the

specified rules. The final section sets forth guidelines for continued negotiations in telecommunications,

financial services, air transport, and labor mobility.

The telecommunications component of the GATS—the telecommunications annex—covers only

“enhanced” or “value-added” services (i.e., services in which signals require some form of manipulation).

Examples of such services include electronic data interchange, electronic mail, credit-card verification

and database access. The annex ensures that national telecommunications regulations be transparent

and that foreign firms and individuals have access to basic telecommunication services as well as intracorporate communications across national borders. The annex also includes a commitment by developing

nations to raise the percentage of telecommunications equipment on which tariffs would not be raised

above a certain bound rate.2

The United States sought unsuccessfully to include the provision of basic long-distance and local telecommunications services within the scope of the telecommunications annex. The practice of subsidizing

local telephone service with higher rates on long-distance service was also left unaddressed by the

annex. However, the signatories did agree in April 1994 to initiate a Negotiating Group on Basic Telecommunications to pursue further market liberalization through voluntary negotiations to be completed by

April 1996. Negotiators from 24 nations and a representative from the European Union met four times in

1994 to discuss differences among national regulatory regimes and strategies for greater market liberalization. The group has since grown to include India, which privatized its basic and cellular telephone services at the end of 1994, and an additional 31 nations that are participating as observers.3 The group will

continue to meet every other month during 1995 to explore possible bilateral agreements, and a full plenary session was scheduled for July 10, 1995.4

The provisions for telecommunications trade liberalization in the North American Free Trade Agreement (NAFTA) mirror very closely those achieved in the Uruguay Round of the GATT. The greatest market-opening achieved by NAFTA is the Mexican market for enhanced services previously off limits to

companies with majority foreign ownership. The Mexican long distance market will become open to private investment in 1997 creating further opportunities for U.S. companies.

(continued)
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 141

one estimate, 45 percent of the world’s access

lines are privately managed today.87 

In Europe, privatization aims to enhance the

competitiveness of national telecommunication

providers.88 One by one, European governments

are recognizing that state owned PTTs will be

greatly disadvantaged in an intensely competitive and rapidly expanding global market. In fact,

they may be unable to join the fray, without the

freedom and flexibility required to enter new

markets and establish new alliances.89 Most

striking in this regard is, perhaps, the recent conversion of the French and German governments.

Long a proponent of centralized state control, the

87 See, “What Are the Implications for Your Business in the Global Telecom Revolution?” Management Accounting, June 1992, p. 46;

See also Stephen McClelland, “The International Dimensions: PTTs,” op. cit., footnote 22, June 1992, p. 31. 88 In its green paper on telecommunications, the Commission of the European Community called for a competitive community-wide telecommunications market by 1998. 89 As described by McClelland, “Internationalization has become the order of the day, with a first strike at someone else’s territory as the

preferred method of defense.” op. cit., footnote 87, p. 31.

French government decided to transform France

Telecom into a joint stock company with the

state retaining monopoly control. Similarly, the

German parliament has agreed to a plan for

privatizing Deutsche Telekom.90

Similar motives are driving privatization in

Asia—at least among the most economically

advanced countries—with Japan, Australia and

New Zealand leading the way. Change is also

taking place in the less well-off regions of Southeast Asia. Singapore Telecom, for example, has

established a joint public-private telecom venture, which many view as a first step toward total

90 “The Countries of Europe React to Spur of Global Competition,” INTUG News, October 1993, p. 305; and “Deutsche Telkom Plan

Approved,” Telecom Highlights International, July 7, 1993, vol. 15, p. 27.

The first World Telecommunications Development Conference (in Buenos Aires, Argentina, in March

1994) and the vision of a “Global Information Infrastructure” (GII) articulated by Vice President Al Gore,

have further energized the drive toward telecom deregulation and market liberalization. Vice President

Gore outlined the five principles guiding the U.S. plan for the National Information Infrastructure (NII)—

private investment, competition, flexible regulatory framework, open access and universal service—and

suggested that they be incorporated into the Buenos Aires Action Plan, the blueprint for the next four

years of telecommunications development. The same five principles plus a sixth regarding diversity of

content including cultural and linguistic diversity were endorsed by representatives of the 34 democracies in the Western Hemisphere at the recently completed Summit of the Americas. The GII was also a

topic for discussion at the Asia Pacific Economic Cooperation forum in November 1994, and the Republic

of Korea is considering a Ministerial Meeting on telecommunications for 1995. Finally, members of the

Group of 7 Industrialized Nations held a Ministerial Conference on the Global Information Society in February of 1995 to discuss further market opening.5

1 See M. Angeles Villarreal, “Telecommunications Services: Provisions in the Uruguay Round and in NAFTA,” Congressional

Research Service, Aug. 11, 1994.

2 The percentage of telecommunications equipment covered by bound tariffs increased from 35 to 95 percent. U.S. Department of Commerce.

3 Nations participating as observers include: Brazil, Indonesia, Singapore, Venezuela and South Africa. “WTO Telecom Talks

Pick Up Momentum,” Telcom Highlights International, Mar. 15, 1995, p. 4.

4 Ibid.

5 Raphael Cung and Susan Gates, “Secretary Brown Leads Mission to Asia, Represents U.S. at APEC Meetings,” Business

America, November, 1994, pp. 6–9.

SOURCE: Office of Technology Assessment, 1995.

BOX 4-5: Telecommunications and Trade (Cont’d.)
142 | Global Communications: Opportunities for Trade and Aid

privatization.91 Indonesia already has such a corporate arrangement. In Malaysia, the PTT is

privatized, with its stock now floated in the marketplace.92

Fully aware of the growing importance of

communication for economic growth, many

developing countries hope privatization will

facilitate access to the foreign capital and expertise needed to develop their national communication infrastructures. In Latin America, Mexico

serves as a model of industry restructuring, having privatized its state PTT, TELEMEX, with

record speed.93 The government plans to sell its

remaining stake in TELMEX for approximately

$600 million. Foreign capital has also been

invested in Telefonos de Venezuela and Telefonica de Argentina.

Similar modernization strategies are being

pursued in other parts of the world. India, for

example, is developing a plan to open up its telecommunication sector to private investment, as

are countries in Eastern Europe.94 Even China,

which has long opposed foreign investment, is

now considering foreign bids to support its goal

of providing 40 million new lines by the year

2000. Such privatization strategies have also gotten a boost from the World Bank, which has

made financial aid for infrastructure development contingent on competitive reforms.95

91 “Singapore Starts Telecom Sell-off,” Telecom Highlights International, vol. 15, No. 34, Aug. 25, 1993, p. 5. 92 “World Bank Paper Urges Telecom Liberalization,” Telecom Highlights International, vol. 16, No. 8, Feb. 23, 1994; and “More Notes

on the S.E. Asia Market Potential,” Telecom Highlights International, Mar. 16, 1994, vol. 16, No. 11, p. 3. Taking advantage of Western capital and expertise, Malaysia aims to increase phone subscribers from 2.3 million today to 7.8 million by the year 2000. 93 Restructuring usually takes place by selling companies privately. In some cases, however, they are first sold to a consortium, the stock

of which is later sold publicly. Sometimes the U.S. portion of the consortium and the stock are later sold to institutional investors. See Margaret Price and Marlene Givant Star, “Privatization Brings Global Opportunities,” Pensions and Investments, July 26, 1993, p. 3. For a comparison of the approaches being followed in Latin America, see Randa Zadra, “The Telecommunication Revolution in Latin America,”

Telecommunications, July 1993, pp. 33–36. 94 For example, Matav, the state telephone company of Hungary, recently sold 30 percent of its holding to an American-German consortium made up of Ameritec Corporation and Deutsche Bundespost Telekom, for $850 million. This deal is the largest to date in Eastern

Europe. The consortium will have exclusive rights to provide local service in 29 out of 56 regions for the next eight years. See “Western Ventures Helping Eastern Europe,” Telecom Highlights International, vol. 16, No. 2, Jan. 12, 1994, p. 1. 95 “World Bank Sets Telecom Aid Rules,” Telecom Highlights International, vol. 16, No. 11, Mar. 16, 1994, p. 4.

Investors to fund such national privatization

efforts have not been hard to find. To the contrary, global telecommunication investors view

emerging economies as a bargain, if not a potential gold mine.96 Purchasing prices and interest

rates are low, and the cost of the technology is

declining. At the same time, dividends are rising

and the annual per-share earning growth rates of

telecom range between 15 to 20 percent.97 Investors also benefit from preferred access to a new

and rapidly expanding market sector.98 Regulatory restrictions in the United States provide the

Bell Operating Companies with an additional

incentive for foreign investment, and indeed they

have been among the most active in this

regard.99

Privatization efforts are not limited to nation

states. There is a move underway to privatize

Inmarsat, an international treaty organization

established in 1979 to provide communication

services to ships—especially those from poor

countries. As Inmarsat has expanded into more

and more lucrative activities, the pressure has

grown to transform it into a private sector organization. Thus, a proposal has been made to allow

its members to trade their holdings. The stakes

are considerable. Providing services such as portable satellite communication for emergency services, the media, and the airlines, Inmarsat has

grown at an annual rate of 20 percent over the

96 Ibid. 97 Patricia Kranz and William Glasgall, “Bells Are Ringing All Over the World,” Business Week, December 27, 1993, pp. 96–97. 98 Margaret Price and Marlene Givan Star, op. cit., footnote 95, p. 3. 99 OTA, Telecommunication Services, op. cit., footnote 65.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 143

past decade and now has accumulated assets

totaling $400 million.100 Not surprisingly, its

competitors—including among them stateowned, nonprofit organizations and private sector companies—want to limit its activities. They

argue that Inmarsat has an unfair advantage,

given its intergovernmental treaty status.101

Worldwide Provisioning of Services

Global providers of telecommunication and

information-based products and services are

emerging to meet worldwide demand. Less hampered by domestic constraints, a rash of telecommunication providers has appeared on the global

scene.102 To stake out new markets, share the

high risks and costs of technology development,

and better provision their services on a worldwide basis, these carriers are aggressively setting

up global partnerships, consortia, and joint ventures.103

However, despite the rapid growth in worldwide demand and the present high rates of

investment, many suspect that—over the long

term—there will not be sufficient money or markets to go around.104 Estimates are, for example,

that when the inevitable shake out occurs, only

five to seven global conglomerates can survive.105 So the time is short, and the competition

for partners fierce. As aptly described by one

participant observer, “We’re at the stage of [the

game of] Monopoly where you buy everything

that is available. The next stage is to form consortia with other players as the initial opportunities become limited. The last phase, yet to come,

could be some form of cash-flow race for the finishing line.”106

100 “Notes on the Possible Privatization of Inmarsat,” Telecom Highlights International, Dec. 8, 1993, vol. 15, No. 49, p. 15. 101 Ibid. 102 Peter Heywood, “Fresh Air for Cross Border Networking,” Data Communications International, April 1993, p. 93. 103 Klaus Grewlich, “Agenda for the 1990s,” in Meheroo Jussawalla (ed.), op. cit., footnote 62, pp. 233–234. 104 Paul Strauss, “The Struggle for Global Networks,” Datamation, Sept. 15, 1993, vol. 39, No. 8, p. 26. 105 Stephen McClelland, “Global Chess,” Telecommunications International, vol. 27, No. 7, July 1993. 106 Richard House, “A Global Mating Game,” Institutional Investor, September 1993, pp. 65.

The top contenders are focusing on the lucrative “outsourcing” market. They are striving to

be the major provider of seamless global communication to the world’s largest 500 multinationals. This market is estimated at $10 billion,

and rapidly growing.107

AT&T, for example, has established WorldPartners, a one-stop-shopping consortium and

joint venture, in conjunction with Japan’s largest

international provider, KDD, and Singapore

Telecom. The WorldPartners Association also

includes members of Unisource, the network services company formed by PTT Telecom Netherlands, Spain’s Telefonica, Sweden’s Telia, and

Swiss Telecom PTT. Unisource has most

recently been exploring an equity partnership

with AT&T to cement their global services

agreement.108

Soon after the announcement of WorldPartners, British Telecommunications (BT) and MCI

struck a $4.3 billion deal, which has received the

approval of both the U.S. Justice Department and

the European Commission. The partnership calls

for both a new outsourcing venture to provide

global voice and data services, and for BT’s purchase of a 20 percent stake in MCI. BT will own

75 percent of the joint venture, NewCo., with

MCI holding the remaining share. The Norwegian, Dutch, and Finish phone companies have

also joined the BT-MCI alliance.109

Alarmed at the prospect of competition from

global outsourcers, France Telecom and Deutsche Telekom have also established a joint venture called Eunetcom. This group has had some

difficulty getting off the ground, and especially

in finding partners.110 Its first choice, MCI,

107 “Global Telephone Networks Expand,” Corporate Growth Report, June 14, 1993, p. 6685. 108 Peter Olsthoorn and Jennifer L. Schenker, CommunicationsWeek International, Sept. 12, 1994, p. 2. 109 Richard L. Hudson and Charles Goldsmith, “Phone-Industry Alliances in Europe Face Tough Scrutiny, Regulator Warns,” The Wall

Street Journal, Sept. 20, 1994, p. A7C. 110 Jonathan Levine, “A Counter Coup in Telecom,” Business Week, Nov. 15, 1993, pp. 51–52.
144 | Global Communications: Opportunities for Trade and Aid

defected to establish a joint venture with British

Telecom, and it is awaiting approval of an alliance with U.S. long-distance carrier Sprint.111

NETWORKING PROSPECTS 

IN THE THIRD WORLD

The forces for globalization are, today, converging in the Third World. How this trend will affect

the prospects for networking in developing countries is difficult to predict. The outcome will

depend not only on the rate of technology diffusion, the quality and sophistication of the network, and network architecture. Equally

important will be the financial and human

resources available in Third World countries, the

functioning of their markets, the quality of their

legal and regulatory frameworks, as well as their

levels of government competence.

❚ Third World Networks: An Overview

There is a tremendous gap between the developed countries and the Third World in terms of

the number, variety, and quality of communication and information networking technologies. In

the average U.S. home, for example, there is

likely to be at least one, if not two or more, telephones, televisions, as well as subscriptions to

cable services. And, an ever growing number of

American families now have computers that can

be linked up to access global information services. In stark contrast, more than half of the

population of the developing world has never

made a simple phone call. In some regions, such

as Rwanda and Niger, there is only one main

telephone line per 1,000 persons.112

Even more alarming, the gap between the telecommunications “haves” and “have nots” shows

little signs of receding. In the 10 years since the

111 Hudson and Goldsmith, op. cit., footnote 111. 112 All told there are 23 countries that have five or fewer lines per 1000 persons. See World Development Report 94, op. cit., footnote 4.

p, 224.

Maitland Commission issued its report The Missing Link—which first noted the telecommunications gap and called on developed countries to

take steps to reduce it—very little progress has

been made.113 There are today 50 countries,

which together comprise more than half of the

world’s population, that still have under one

main telephone line for every 100 persons. Given

their present rates of technology deployment,

many of these countries will fail to reach this

level of teledensity by the year 2000.114

One factor accounting for this disparity in network diffusion has been insufficient investment.

Investment is especially important in highly capital intensive sectors such as telecommunications. Although developing countries have

increased the amount that they invest annually—

from $3 billion in the 1970s to $12 billion in the

late 1980s—they have been unable to keep up

with the unmet demand for telephone services.

(in 1988 U.S. dollars.)115 To achieve such a goal,

estimates are that Third World countries must

invest approximately $25 billion on an annual

basis throughout the 1990s.116 The pay-off for

such investments will likely be high in terms of

both financial returns and network diffusion. As

is depicted in figure 4-1, countries that reinvested

a higher proportion of their telecommunications

revenues (with the exception of SubSahara

Africa) experienced the most rapid rates of network growth. Financial returns are similarly

high. According to the World Bank, the economic return on World Bank supported telecommunications projects averages 19 percent (see

table 4-4).

Inadequate investment in network infrastructure can be explained in part by the paucity of

financial and technical resources to be found in

113 ITU, World Telecommunications Development Report:World Telecommunication Indicators (Geneva, Switzerland, 1994), p. 73. 114 Ibid. 115 Robert J. Saunders, Jeremy J. Warford, and Bjjorn Wellenius, Telecommunications and Economic Development (Baltimore, MD;

Johns Hopkins University Press, 1994), p.74. 116 ITU, World Telecommunication Development Report, op. cit., footnote 115.
Chapter 4 Meeting Third World Needs in a Global Telecom Market 145

Telecommunications Annual growth in

investments as

% of revenue

telephone main lines 1

. -

50

40

30

20

10

nu

Asia-Pacific I-AC Arab States Sub-Saharan

Africa

SOURCE: ITU, World Telecommunications Development Report,

1994.

Telephone main lines per 100 Inhabitants

70 ❑ 0

❑

Per capita GDP

SOURCE: ITU, UN, World Bank, OECD

sector 1974-82 1983-92

Irrigation and drainage 17 13

Telecommunications 20 19

Transport 18 21

Airports 17 13

Highways 20 29

Ports 19 20

Railways 16 12

Power 12 11

Urban development . . 23

Water and sanitation 7 9

Water supplya 12 8

Infrastructure projects 18 16

All Bank operations 17 15

.. Not available.

a Rates are financial, not economic, rates of return.

SOURCE: World Bank data.

the Third World. The relationships between teledensity and financial resources (as measured by

GDP) is depicted in figure 4-2.

Constrained by the need to restructure their

economies and pay off their foreign debts, many

Third World countries have lacked the funds to

invest in infrastructure development. Foreign

exchange for advanced telecommunication

equipment has been especially in short supply.

117 While domestic currency can be used to

finance the technology for the local portion of a

telecommunication network, more sophisticated

technology —which can only be purchased in the

global market—will be required for the major

backbone portions of Third World networks. The

foreign exchange problem is particularly acute

for countries-such as many of those in Africa—

that have no indigenous telecommunications sec117 AS noted by the ITU ~~The ~m~ of ~de for developing countries deterior~ed during me 1980S so that I’lMIIy COUlltlit!S are nOW *

spending an increasing amount of their foreign exchange earnings on debt servicing. Total external debt as a percentage of exports rose from

125 percent in 1980 to 177 percent in 1991 for low- and middle-income countries. Some developing countries m also faced with ongoing

currency devaluations which make imports more expensive.” Ibid., p. 88.
146 | Global Communications: Opportunities for Trade and Aid

tor and/or that have major outstanding foreign

debts.118

In some countries, government-owned PTTs

have consciously made telecommunication

investment a second order priority. Instead of

reinvesting their operational surplus, telephone

administrations siphon it off for other government purposes. In Syria, for example, the government imposed an 80 percent tax on the state

owned telephone company from 1985 to

1991.119 Such practices may diminish in the

future, given greater appreciation of the economic benefits associated with network deployment. Already, by 1990, 40 Third World

countries had either begun or were preparing to

revamp their telecommunication administrations

so as to achieve greater network modernization.120

In the poorest areas, resources for network

deployment are also limited by the lack of a sizable middle class with disposable income to buy

the services and equipment required to effectively drive sales and investment. Even when

demand is high—as is often the case in urban

areas—it may be dampened by artificially high

prices, which are based on tariff structures

designed not only to cover costs but also to generate general revenues.121

Uneven network deployment occurs not only

between countries but also within the developing

countries themselves. As depicted in table 4-5,

when Third World countries have had resources

for investment, they generally use them to build

up telephone infrastructure in large cities instead

of rural areas. Of course, this focus makes sense,

because cities are home to most businesses, mid118 See chap. 2, for a general discussion of the debt problem. 119 ITU, op. cit., footnote 115, p. 119; see also Norm Wingrove, “Telecommunications Spur Technology Advance in Vietnam and Other

‘Little Dragons,” Research Technology Management, January/February 1994, p. 2. 120 Saunders, Warford, and Bjorn Wellenius, op.cit., footnote 115. p. 19. 121 As described by the ITU, “Telephone subscription charges as a percentage of average per capita income are over 5 in many developing countries; in the low-income countries they are often over 10. In contrast, in most developed countries, subscription charges amount to

less than 1 percent of per capita income. op. cit., footnote 115, p. 77.

dle class consumers, and politically active citizens alike.122

The prospects for the poorest countries and

poorest regions within countries thus seem bleak,

even given major technology advances. Consider, for instance, the case of low earth orbiting

satellites (LEOs), which have been touted for

their promise for developing countries. Although

LEOs can greatly extend the geographic scope of

communications, they will not necessarily

improve access. Given the high costs of developing these systems, services will likely be prohibitively expensive for many, at least in the near

term.123 For example, even when mass produced, Motorola’s Iridium phone will cost an

estimated $1,500. At this price, a person living in

the Central African Republic, earning on average

$376 per year, would have to work four years to

buy a telephone. With service estimated to cost

about $3.00 per minute, he or she would have to

work 17 hours to pay for a one-minute phone

call.124

A lack of education and technical expertise

will also make it difficult for developing countries to take advantage of many new technologies. For example, although the Internet provides

developing countries with an inexpensive way of

gaining access to networking services such as email and remote file transfer, its usage requires a

level of technical understanding and comfort not

likely to be found in poorer areas. Not surprisingly, therefore, Internet growth has been the

strongest in countries such as India and Malaysia

where a “computer culture” already exists.125 In

contrast, growth has been slowest in the Middle

East, where communication is restricted and

information is generally thought of as a source of

122 Ibid. 123 See Joseph Pelton, “Will Smart Sat Markets Be Large?” Satellite Communications, February 1993, pp. 39–42. See also, Richard L.

Hudson, “Inmarsat Begins Fund-Raising Drive for $2.6 Billion Satellite Phone System,” The Wall Street Journal, Sept. 12, 1994, p. B8. 124 OTA, The 1992 World Administrative Conference, op. cit., footnote 39, p. 124.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 147

TABLE 4-5: Number of Main Telephone Lines Per 100 Persons in 

Selected Countries as of January 1, 1988

Region and country National Main citiesa Other areas

Industrial countries

Austria

Canada

Denmark

France

Germanyb

Italy

Japan

Norway

Spain

Switzerland

38.38

44.49

55.13

44.68

39.27

33.28

40.81

46.41

26.18

52.87

54.20

59.20

59.58

47.98

50.20

41.48

56.13

55.81

31.84

65.54

31.32

43.45

52.36

29.27

35.98

30.65

37.48

41.89

21.02

46.73

Developing Countries

Africa

Algeria

Ethiopia

Kenya

Malawi

Morocco

Sudan

Togo

Tunisia

Zambia

Zimbabwe

2.70

.24

.66

.28

1.14

.24

.28

3.01

.73

1.45

7.13

3.39

4.95

2.20

3.17

1.32

1.27

7.00

1.36

6.39

1.58

.04

.19

.07

.42

.04

.00

.79

.17

.41

Asia

Iran

Malaysia

Pakistan

Papua New Guinea

Sri Lanka

Thailand

Turkey

3.15

7.21

.61

.91

.54

1.67

7.01

6.31

22.65

2.69

5.91

1.12

6.94

7.46

1.10

5.17

.19

.22

.29

.45

6.56

Latin America

Brazil

Colombia

Costa Rica

Ecuador

Peru

Uruguay

Venezuela

5.59

7.20

8.62

4.41

2.30

10.61

9.19

10.17

13.26

15.28

8.27

4.90

16.05

16.20

4.14

1.83

2.57

1.91

.52

5.24

5.08

a Defined by the national administration; population thresholds, and consequently the number of cities included, vary widely among countries

b Estimated from combined Federal Republic of Germany (January 1987) and German Democratic Republic (January 1988) data.

SOURCE: World Bank
148 Global Communications: Opportunities for Trade and Aid

power. In 1994, Muslim countries accounted for

a mere 42 of the 15,000 nets on the global Internet; and as many as 29 of these nodes were

located in Tunisia. 126

As in the case of all networking technologies,

the acceleration of network deployment in the

Third World requires a critical mass of users.

Based on experiences in other countries, this

“take-off” stage will occur when teledensity

approximates 10 to 20 percent. As can be seen in

figure 4-3, many regions in the world have far to

go before they reach this point. Thus, if countries

are to have access to even the most basic form of

communication services, a greater priority must

be given to infrastructure investment. According

to the ITU, developing countries must invest at

least 3.5 percent of their gross domestic investment.

Even after a critical mass has been achieved,

significant national disparities in technology

deployment will likely persist due to the rapid

pace of technology change, the money required

for investment, as well as major national discrepancies standards of living and the ability of countries to generate both the capital and the human

resources required to develop and deploy

advanced communication/information systems.

Even as some countries race to keep up, others

are deploying yet more advanced technology.127

For example, it is estimated that it will cost $120

billion between now and early 2005 just to

upgrade the Central and Eastern European communication networks. During the same period,

the European Community will spend approximately $18.6 billion per year to develop a broadband telecommunication infrastructure. 128

❚ Alternative Sources of Funding

Third World countries must provide the bulk of

investment required to develop their own com126 Ibid.

World average

DAC

Developing countries

ClS

East Europe

South America

North America

except U. S., Canada

Asia except Japan

Pacific except

Australia, New Zealand

Africa

2.3

13.6

13.2

5.5

1.9

1.5

1.3

1 I I I

o 10 20 30 40 50 60

Main lines per 100 inhabitants

KEY: DAC=Development America Assistance Committee of the

OECD; ClS=Commonwealth of Independent States

SOURCE: NTT America.

munication and information infrastructures.

However, in many cases, access to additional

funding may be critical to success. Given the

growing number of lucrative businesses opportunities to be found in the developing world, foreign investment can be expected to provide most

of this funding. Such investment has already

reached an all time high, last year tripling the

amount received from governments as foreign

assistance. 129

127 As ~@d by ~~ 1~, 44The ~ajonty of telecommu~cations ~pital spending is in developed countries. Of the $125 bflfion spent ‘n

telecommunications in 1992, 80 percent was in high-income economies. Of that figure, over 60 percent was in just three countries: Oermany,

Japan, and the United States, ITU, op. cit., footnote 115, p. 87.

128 Jennifer L s~henker, “NO T~ng B~k,” CommunicurionsWeek ]nfernution.d, Sept. M 1994, p. 12–15.

129 Accord ing” to tie World Bank, private investment inc~=d 50 percent in 1993, md another 9 percent the following y- tO total

$179.9 billion in 1994. In contrast, governmental aid remained unchanged during this period, totaling $54.5 billion in 1994. See “Private

Investment to Poor Nations Hits a Record High at World Bank,” The Washington Post, Jan. 23, 1995, p. A14.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 149

Despite the growth of private financial flows

to developing countries, foreign assistance can

still play a critical role. Circumventing the poorest

countries, most private funding has been channeled

to those Third World countries that are already

experiencing rapid growth. Foreign assistance, if

targeted carefully, can be used to leverage this private investment and to fill in the funding gaps.130

The Growth in, and Distribution of, 

Private Foreign Investments

Private capital flows to the Third World totaled

$165.6 in 1992, an increase of $32 billion—or 23

percent—from the previous year.131 This strong

growth in private financial flows is being driven

by high competitive rates of return, growing confidence in Third World political and economic

stability, as well as by the developing countries’

concerted efforts to reform their economies and

open them up to trade and foreign investment.

Two types of investment merit special attention—equity and foreign direct investment. A

fair portion of these funds will find their way into

the telecommunication and information technology and services sectors.

Equity investments

Equity investments can provide an increasingly

important source of funding for telecommunication infrastructure, given many developing countries’ efforts to upgrade, and revitalize, their

stock exchanges. Third World stock markets

130 The Revival of Private Flows to Developing Countries,” Financial Market Trends, Oct. 9, 1993, pp. 21–40. 131 Ibid.

already constitute approximately 7 percent of

world market capitalization and 10 percent of the

total value of the worldwide stock market.132 As

developing countries take further steps to privatize

portions of their national telephone administrations,

their telecom stock issues are becoming more and

more prevalent.133 These telecom stocks are generally rated very highly, especially in the fastest

growing regions such as Asia’s Pacific Rim.134

Equity investments, however, are far from

being equally distributed throughout the developing world. The countries that are the most

developed are the ones to be targeted for this

kind of investment, with the poorest countries

receiving but an insignificant amount (see table

4-6).135 This distribution pattern reflects the tendency of equity markets to develop after countries have adopted market oriented reforms, and

when they can boast of reasonable levels of political stability. Poorer countries have also been

more reluctant than those with dynamic economies to encourage this type of investment. Not

having a strong indigenous economy of their

own, they are more vulnerable to the potential

instability of foreign equity investment. These

countries are concerned, moreover, lest foreign

investors come to dominate key sectors such as

telecommunications.136

Foreign direct investment (FDI)

The trend towards privatization in the developing

countries has also opened the door to greater

132 Peter Cornelium, “The Internationalization of Emerging Stock Markets,” Intereconomics, May/June 1994, pp. 131–138. 133 Dean Lewis points out five different ways of privatizing: 1) negotiated sale of 100 percent of the company to a single buyer; 2) sale of

a minority stake to a single buyer or group of buyers; 3) public offerings in the domestic market or international markets or both; 4) sale of a

minority stake to a single purchaser combined with a public offering; and 5) break up and sale of components. As he notes, “How the enterprise is sold will be determined largely by the government’s objectives for the privatization program and by the commercial and policy constraints surrounding the transaction.” Dean Lewis, “Options for Selling a Telecommunications Company,” in Bjorn Wellenius and Peter A.

Stern, Implementing Reforms in the Telecommunications Sector: Lessons From Experience (Washington, DC: World Bank, 1994), chap. 28,

p. 431. 134 See “Asian Telecoms Ringing Off the Hook,” Barron’s, Oct. 12, 1993, p. 50; see also Lilia Clemente, Columbia Journal of World

Business, vol. 29, summer 1994, pp. 92–121. 135 As described by Clemente, “In 1993... new purchases of foreign equities reached $170 billion. The most common destination was

Europe, largely from other European markets, but almost $40 billion flowed into Latin America and Asia’s Pacific Rim. U.S. investors

accounted for 40 percent of the flows into the Asia/Pacific region and 75 percent into Latin America.” Clemente, op. cit., footnote 136, p. 94. 136 Cornelium, op. cit., footnote 132.
150 | Global Communications: Opportunities for Trade and Aid

TABLE 4-6: Emerging Stock Markets—Overview

Market Capitalization

(US$ millions)

Value Traded

(US$ millions)

Number of Domestic 

Companies at end

Market 

Concentration1

1983 1992 1992 1992

Africa -

Cote d’Ivoire 248 331 4 24,000 -

Egypt2 1,106 2,594 293 656 -

Kenya - 607 12 57 -

Mauritius - 377 10 22 -

Morocco 253 1,876 70 62 -

Nigeria 2,970 1,243 23 153 53.6

Tunisia - 46 2 17 -

Zimbabwe 265 628 20 62 47.7

Asia

Bangladesh 48 315 11 145 -

China - 18,314 13,363 53 -

India3 7,178 65,119 20,597 6,700 32.2

Indonesia 101 12,038 3,903 155 61.4

Korea 4,387 107,448 116,101 688 22.4

Malaysia 22,798 94,004 21,730 366 14.0

Pakistan 1,126 8,028 980 628 19.1

Philippines 1,389 13,794 3,104 170 30.6

Sri Lanka - 1,439 114 190 -

Taiwan 7,599 101,124 240,667 256 15.4

Thailand 1,488 58,259 72,060 305 36.3

Europe

Greece 964 9,489 1,605 129 50.4

Portugal 84 9,213 3,455 191 22.1

Turkey 968 9,931 8,191 145 11.4

Middle East

Iran - 1,157 225 118 -

Jordan 2,713 3,365 1,317 103 31.6

(continued)
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 151

(FDI), which—despite the global economic

recession—has continued to grow at an amazingly rapid pace.137 Between 1991 and 1993,

FDI to the developing countries increased by 100

percent—from $40 billion to $80 billion—constituting more than one-half of all private flows

to the Third World.138

FDI in the telecommunications sector has

been particularly popular, generally taking the

form of either joint ventures or corporatization

and sale of a major or controlling equity stake in

the telecom provider.139 These kinds of arrange137 UNCTAD, World Investment Report: Transnational Corporations, Employment, and the Workplace (New York, NY: The United

Nations, 1994), p. xix; See also, David D. Hale, “Stock Market: New World” Columbia Journal of World Business, vol. 29, summer 1994,

pp. 14–28. 138 Ibid. 139 Robert R. Bruce, Jeffery P. Cunard, and Lothar A. Kneifel, “Exploring New Ways To Attract Capital for Privatization,” in Wellenius

and Stern, op. cit., footnote 135, pp. 463–469.

ments offer a number of advantages to developing and developed countries alike.

Developing countries can benefit in a number

of ways from the foreign purchase of either all,

or a portion of, their telecommunication operations.140 Such arrangements allow these countries to reduce their foreign debt while upgrading

their national infrastructure.141 At the same time,

they can gain greater access to advanced technology, the markets in developed countries, as well

as hard currency.142 FDI are also more secure

than other types of foreign investment, being less

volatile and subject to interest rate fluctuations.

140 For a discussion of the arguments for and against, see T.H. Chowdary, “Telecommunications Restructuring in Development Countries,” Telecommunications Policy, September/October. 1982, pp. 591–611. 141 Often, investors are obligated to expend a considerable amount of money to extend and upgrade service in exchange for control over

the enterprise and certain guaranteed exclusive rights. See Aileen A. Pisciotta, “Telecommunications Reforms: Options, Models, and Global

Challenges,” IEEE Communications Magazine, November 1994, p. 29. 142 Clive Crook, “Third World Finance: New Ways to Grow,” The Economist, Sept. 25, 1993.

Western Hemisphere

Argentina 1,386 18,633 15,679 175 72.5

Barbados - 258 2 15 -

Brazil4 15,102 45,261 20,525 565 51.2

Chile 2,599 29,644 2,029 245 57.9

Colombia 857 5,681 554 80 62.9

Costa Rica 118 477 11 93 -

Jamaica 113 3,227 386 48 -

Mexico 3,004 139,061 44,582 195 39.4

Peru 546 2,630 398 287 -

Trinidad & Tobago 1,011 514 22 27 -

Uruguay 9 368 9 26 -

Venezuela 2,792 7,600 2,631 66 80.0

Total 83,222 774,093 594,685 13,217 -

1Share of value traded held by ten most active stocks.

2Cairo.

3Bombay.

4Sao Paulo.

SOURCE: International Finance Corporation: Emerging Stock Markets Factbook 1993, Washington, DC, 1993.

TABLE 4-6: Emerging Stock Markets—Overview (Cont’d.)
152 | Global Communications: Opportunities for Trade and Aid

FDI agreements can, moreover, be customized to

meet a developing country’s specific needs and

concerns.143

For investors and businesses in developed

countries, there are likewise gains to be made.

Above all, these partnering arrangements allow

foreign vendors to obtain a foothold—and often

a major competitive advantage—in some of the

most profitable and rapidly growing telecommunications markets. Given the tremendous backlog

of demand in developing countries, these investments can be made with minimal risk. By accelerating technology deployment in the Third

World, FDI in telecommunications also paves

the way for related service industries—such as

banking, insurance, and tourism—as well as for

multinational corporations, which depend on networking technologies for their survival and

growth. In the long run, investments linked to

telecom privatization may also enhance the overall economic climate in developing countries in

favor of open markets and greater economic

reforms.

As in the case of the global equity market, foreign direct investment is somewhat skewed in its

distribution. Faced in the 1980s with enormous

debt problems, the countries of Latin America

were among the first to privatize their telecom

operators to attract foreign investment.144 More

recently, many other developing countries are

following suit. Today, there are ongoing privatization efforts in the Philippines, Malaysia, Indonesia, and Thailand, to name a few. Countries in

sub-Sahara Africa, however, have been notice143 Flexibility and appropriate timing are critical for success. As pointed out by Smith and Stable, “A large body of international experience with the divestiture of state-owned telecommunications operators indicates the importance of several common procedural and substantive issues. These include the need to state clearly the objectives for divestiture at the outset; allow sufficient time to prepare a carrier for sale,

typically two to three years; and secure the legal conditions for sale, which usually involve adopting a legislative reform package and organizing a regulator independent of the incumbent operator. Experience also suggests that the success of a divestiture will be decisively

affected by the economic incentive reflected in the price-control rule and the network performance targets, both quantitative (e.g., in the number and location of access lines to be added) and qualitative (e.g., in the number of permissible faults and response to outages).” Peter L.

Smith and Gregory C. Staple, “Telecommunications Sector Reform,” IEEE Communications Magazine, November 1994, p. 51. See also

Robert R. Bruce, Jeffrey P. Cunnard, and Lothar A. Kneifel, “Exploring New Ways To Attract Capital for Privatization,” in Wellenius and

Stern, op. cit., footnote 135, chap. 28, pp. 463–469. 144 See Stephen J. Dalla Betta, “Telecom Privatization in Latin America,” Telecommunications, March 1994, pp. 61–64; see also Randy

Zadra, “The Telecommunication Revolution in Latin America,” Telecommunications, July 1993, pp. 33–36.

ably absent from these developments (see box 4-

6).

Foreign Assistance for Telecommunications

Aid for telecommunication infrastructure development in the Third World is available from a

variety of sources. Because networking is characterized by positive economic externalities,

these sources of support will likely be mutually

reinforcing. To make the most of this, this aid

should be nonduplicative and well coordinated.

Multilateral assistance

Multilateral aid for telecommunications accounted

for approximately 3 percent of all global telecommunications investment in 1992.145 For countries

that have very limited foreign exchange and minimal foreign investment, this aid constitutes a primary source of infrastructure investment.146 In

1992, for example, total capital spending on telecommunications in all of Africa was less than that

provided by multilateral lenders.

Telecommunications-related foreign assistance is not a priority for most multinational

development banks, accounting for 6 percent of

their loans in 1992.147 This limited funding

appears, moreover, to lack a basic, or shared,

rationale. As a result, there are few agreed upon

measures with which to evaluate its impact, or to

justify its future support. Not suprisingly, therefore, the uses of telecom related aid programs has

fluctuated up and down, varying considerably by

donor, agency and region.

145 ITU, op. cit., footnote 115, p. 90. 146 Ibid. 147 Ibid.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 153

In 1992, the European Investment Bank (EIB)

was the largest contributor to such programs,

providing close to $3 billion. The bulk of this

funding, however, remained in Europe where it

was used to help European operators finance

overseas operations and acquisitions.148 Nonetheless, on balance, the EIB provided more telecommunication funding to non-European

countries—especially those in Central and East148 Ibid.

ern Europe—than most other development agencies (see table 4-7).

The InterAmerican Development Bank ranked

at the opposite extreme. Throughout the entire

period between 1983 and 1992, the number of

telecom-related loans distributed by the IDB

totaled 3. In 1992, the IDB provided virtually no

telecommunication funding.149

149 Ibid.

BOX 4-6: The Africa ONE Project

The African continent is home to 12 percent of the world’s population but has only 2 percent of the

world’s main telephone lines. As of 1993, Africa’s measure of teledensity—the number of main telephone

lines per 100 people—was 1.6. The comparable teledensity figures for the Americas, Europe and Oceania are 27, 31 and 38 respectively.

A number of African network operators, notably the Pan-African Telecommunications Network

(PANAFTEL) and the Regional African Satellite Communications System (RASCOM), are using satellite,

radio and other technologies to expand the reach of communications throughout the African continent.

But the task of improving telecommunications availability in Africa and connecting the continent more

fully to global communications networks remains enormous. Recognizing the magnitude of the challenge

and the importance of telecommunications to Africa’s social and economic development, the International Telecommunications Union approached AT&T Submarine Systems, Inc. (AT&T SSI) in October 1993

with the challenge of devising a regional telecommunications system that would contribute to the above

stated goals.

The result is the Africa ONE Project—a proposed 35,000 kilometer undersea fiber optic ring around

the continent with landing points in 41 African countries and in Saudi Arabia and Italy. The cable would

utilize the latest optical amplifier technology to provide maximum flexibility and capacity for growth and

be capable of transmitting data at the rate of 2.5 billion bits per second. A planned three tier approach

would, first, concentrate on linking Africa’s populous coastal centers via the undersea cable. Second,

inland areas would be interconnected with Africa ONE by satellite or some other means. Finally, Africa

ONE would be integrated into existing undersea fiber optic networks and likely spur new transoceanic

cables to South America and Australia.

A Regional Authority comprised of representatives from participating National Telecommunications

Authorities, RASCOM, international telecommunication carriers and other network investors will govern

the operation of Africa ONE. Investment in the expected $1.9 billion network is open to anyone and the

Regional Authority that owns and manages the network will operate on a for-profit basis. AT&T SSI, the

world leader in the installation of undersea fiber optic cables, hopes that financing for Africa ONE will be

in place by the end of 1995 and that the cable will be completed by the end of 1999.

SOURCE: Testimony of William B. Carter, President of AT&T Submarine Systems, Inc. AT&T Corporation before the U.S. House of

Representatives Committee on International Relations Subcommittee on Africa and Subcommittee on International Economic Policy and Trade, “Joint Hearing on Trade and Investment in Africa,” Mar. 8, 1995. And “AT&T Has Plans for Africa,” Telcom Highlights International, Apr. 12, 1995, p. 5.
154 | Global Communications: Opportunities for Trade and Aid

Bilateral governmental assistance

Bilateral assistance for telecommunications is

similarly diverse in terms of its amount, location,

and rationale. The Japanese, for example, provide more telecommunication funding than some

multilateral lenders. Most of this funding, which

is often bound by trade contingencies, is targeted

for countries in Asia. In contrast, the Swedish

International Development Authority—in keeping with its long tradition of providing aid for

basic needs—has been a major supporter of telecommunications for economic development.

Thus, in the decade between 1982 and 1983,

Sweden provided approximately $70 million to

sub-Sahara Africa, an amount equal to one-third

of that provided by the African Development

Bank during the same period.150

Other sources of telecommunication support

A number of regional and international agencies,

which provide social and economic services,

have developed networks as part of their operations. The United Nations Development Program, for example, is linked up to nodes in over

100 nations.151 Similarly, the World Health

150 Ibid., p. 91. 151 Communication of the ACM, August 1994, op. cit., footnote 28.

Organization and the UN Disaster Relief Organization have developed their own specialized networks to support their ongoing activities. In

addition, the Organization of American States

(OAS) sponsors a number of low-budget projects

that aim to foster networking in Latin America.

International nonprofit organizations, such as

ECOnet, have likewise contributed to the development of global networking.

U.S. Aid for Telecommunications

Finding precise figures for U.S. expenditures on

telecommunication-related aid projects is very

difficult (see appendix B for an overview). Funding is generally dispersed through different agencies, geographic bureaus, and applied aid

projects—such as energy or health care—where

the telecommunication component may be hidden.152 Moreover, because the rationale for funding varies according to the goals of specific

projects, it is difficult to generalize from one

project, or region, to the next.

Funding by region runs almost in parallel with

that of the multilateral banks. Over the last few

152 Ibid.

TABLE 4-7: Telecommunication Loan Approvals

Lender 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

AsDB 0 72.6 69.0 0 0 135.0 125.4 160.9 0 185.5

AfDB 44.4 28.9 50.9 9.1 0 0 0 73.9 10.5 60.2

IDB 0 25.9 0 0 0 0 0 300.0 0 0

IBRD 32.0 150.0 67.0 50.4 682.3 36.0 161.0 616.7 349.8 430.0

EIB 22.3 0 21.4 22.6 13.9 3.8 54.4 101.8 86.8 219.2

EBRD — — — — — — — — 210.9 321.8

Total 98.7 277.4 208.3 82.1 696.2 174.8 340.8 1253.3 658.0 1216.7

Note: Not including telecommunication loans by EIB to Western Europe.

Key: AsDB: African Development Bank; AfDB: Asian Development Bank; IDB: Inter-American Development Bank; IBRD: International Bank for

Reconstruction and Development—The World Bank; EIB: European Investment Bank; EBRD: European Bank for Reconstruction and Development.

SOURCE: ITU/DDT Telecommunication Project Database.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 155

years, the Eastern European bureau within the

U.S. Agency for International Development

(USAID) has spent approximately $2 million per

year on telecommunication related projects.153

On the other hand, USAID does not formally

designate any telecommunication related aid for

Latin American.

United States telecom-related aid projects also

reflect the general shift in the direction of U.S.

aid policy, which occurred in the mid-1980s,

from a “basic needs approach” to one focusing

on structural economic adjustments.154 As can

be seen in box 4-7, of the six telecom projects

being sponsored by USAID in Eastern Europe

and the Newly Independent States, only one

involves technology deployment. Five programs

aim to promote and facilitate structural changes

in the telecommunication regulatory environment, while the remaining program is designed

to help defray the high cost to U.S. companies of

developing telecommunications projects in this

area. The State Department’s telecommunications program similarly focuses on structural

telecommunication reforms.

❚ Implications for Developing 

Country Networking

Communication and information technologies

can have far-reaching consequences. They not

only affect relationships of time and space; they

also help to structure social and economic organization, as well as values.155 If information networking technologies are to serve Third World

development needs, they must be made available

in a timely fashion; equally important, however,

they must be deployed in a manner that is consistent with economic development goals.

In a networked-based global economy, communication needs are relative, and timing is

everything. Where networks are involved, “first

movers” generally have a major advantage, and

technology laggards are often left behind. It is, in

fact, precisely for this reason that those developing countries aspiring to use information technol153 More precise figures were unavailable. 154 See chap. 2 for detailed description of this shift in aid policy. 155 See chap. 3 for a discussion of the relationship between communication technology and social and economic outcomes.

ogy to “leap frog” beyond the industrial era to

prominence in the information age are in a

heated race with one another to deploy networking technologies.

Patterns of network diffusion are likewise critical. If diffusion is uneven, and network quality

unequal, networking technologies will likely

serve to reinforce, instead of diminish, social and

economic disparities within and among countries

throughout the world. In places where network

modernization trails too far behind, community

residents will be unable to link up to critical

communication facilities such as educational and

healthcare centers or networked business enterprises. To interconnect efficiently, communication networks must be comparable.

Network architecture must also be supportive

of economic development goals and strategies.

Technology choices and the way in which they

are arranged, distributed, and interconnected will

determine who is able to communicate, under

what conditions, and how effectively. Thus, for

example, if future development strategies place

greater priority on promoting productivity in

agriculture—as is the case today in China—networks must be designed to ensure rural access.

In the past, governments played a key role in

shaping their national infrastructures to serve

economic and political goals. In a highly competitive, global economy, this option is no longer

tenable. As described above, national telecommunication rules and regulations are easily

bypassed. And in many cases, developing countries are rapidly dismantling them, in an effort to

compete for global business.

In a global economy, which is highly dependent on networking, multinational businesses

will necessarily be the major drivers of technology. As already noted, these businesses and

financial interests are competing intensely with

one another to finance and build facilities in the

most lucrative, developing country markets. In

this open, market-driven environment, technology diffusion can be expected to follow the same
156 | Global Communications: Opportunities for Trade and Aid

hierarchical pattern that characterized the evolution of communication networking in the past.

THE NEED FOR TELECOMMUNICATIONRELATED AID POLICIES THAT SUPPORT 

U.S. TRADE GOALS

The shift toward a liberalized, global communication environment affords a number of opportunities for the United States. The prospects for

increased trade in equipment and services are

particularly great, given technology convergence

and the development of a wide array of new

products and services, the growth in worldwide

demand, the provisions for telecom services

within the GATT, and the liberalization and

privatization of many telecommunication

regimes. Foreign manufacturing and investment

opportunities will also abound, as developing

countries adopt new technologies to modernize

and upgrade their communication networks. GloBOX 4-7: U.S. Agency for International Development (USAID) Telecommunications Projects in 

Central and Eastern Europe and the Newly Independent States

USAID telecommunications-related assistance to countries in Central and Eastern Europe and the

Newly Independent States (NIS) has averaged approximately $2 million per year in recent years. Some of

the programs described below were conducted in conjunction with the U.S. Department of State. Program descriptions adapted from USAID documents are provided below.

Newly Independent States Regional, FY 1993–1994

State Department/cip Telecom Assistance Program—Program organized telecommunications seminars on basic telecommunications legislation, tariff regime, mobile communications, packet switching,

and regulatory issues.

Central and Eastern Europe Regional, FY 1992–1995

Joint State/aid Telecommunications Policy, Law, and Regulations Program—Program organized seminars on telecommunications regulations and spectrum management. Also provided funding through the

U.S. Trade and Development Agency for major policy/legal framework studies in Hungary.

Capital Development Initiative Telecom—Through an intensive program of policy interventions, this

program aims at fostering the development of telecommunications infrastructure in Central and Eastern

European countries through creation of a business environment conducive to private investment in telecommunications and promotion of U.S. private investment in developmental telecommunications

projects.

Central and Eastern Europe Regional, FY 1993–1994

Development Cost Support Grants—Program awarded grants competitively to U.S. companies to help

defray on a cost sharing basis the high expenses of telecommunications project development in Central

and Eastern Europe.

Rural Telephone Cooperative Development—Program supports the U.S. National Telephone Cooperative Association (NTCA) rural telephone development activities in Poland under grants from USAID. Two

telephone cooperatives assisted by NTCA are in operation. NTCA contributed significantly to the acceptance of private ownership of telephone operations in Poland.

Grant For U.S. Telecommunications Training Institute, Telecommunications Training Program—Grant

brought dozens of telecommunications managers to the United States for telecommunications training

donated by U.S. telecommunications companies through the U.S. Telecommunications Training Institute.

SOURCE: Information provided by U.S. Agency for International Development, January 1995.
Chapter 4 Meeting Third World Needs in a Global Telecom Market | 157

bal communication networks may also serve to

promote worldwide economic growth and development, by allowing businesses to reconfigure

and redistribute their research and development,

production, and marketing activities to their best

advantage regardless of their geographic location.

In this interdependent global environment, the

United States has an interest—both from an economic as well as a foreign policy perspective—to

help ensure that Third World countries are not

left behind. When networks are extended and

linked together, in the early stages of their development, everyone gains. A network’s value

increases with the number of users, as does the

demand for equipment and services. Moreover,

in an information, networked economy, electronic networks serve to channel the flows of

trade and investment, much as railroads, telephones, and highways influenced the course of

business in the industrial age. If U.S. businesses

can not interconnect with Third World networks,

they will have less opportunity to compete in

these rapidly growing markets. Moreover, they

will be unable to globally reconfigure their businesses to take advantage of low-cost labor and

resources.

In the past, there was only one way to build a

network—hierarchically and all of one piece.

Today, this is no longer the case. Taking advantage of the higher performance and enhanced

variety of new communication technologies, as

well as the much greater flexibility that they

afford, new small scale “bottom up” networking

solutions can be developed to extend services to

people and places that—in an increasingly liberalized regulatory environment—might otherwise go unserved.

The United States can promote both its foreign aid and trade goals by helping Third World

countries to develop grassroots networking in

remote areas. Infrastructure related aid projects

have generally had a high pay off. At the same

time, experience has shown that it is this type of

aid project that is most likely to stimulate trade.

Bottom-up networking can also support the kind

of comprehensive, “holistic” development strategies that have proven essential for sustainable

growth. For example, if grassroots networks are

set up by local people, using their own labor and

resources, they can serve to promote entrepreneurship, stimulate local activity, and reinforce

community ties. Given the wide range of technologies now available, local networks can also

be customized to match the needs and resources

of specific areas. Equally important, these networks will not compete with, but instead will

complement and add value to, the information

networks that are presently being deployed in

high density areas. As an added benefit, given

network growth in unserved areas, Third World

governments will likely be under less pressure to

use subsidies to promote universal access, and

hence more willing to promote regulatory

reforms and open their markets to U.S. equipment and service providers.
| 159

A

Appendix A:

An Historical

Analysis Relating

Causes to Effects

iven the complexity of the relationships

involved, anticipating how communication technologies might affect the prospects of Third World countries is

decidedly difficult. Nonetheless, to make sound

telecommunication investments, developing

country leaders and foreign aid providers must

assess the full range of associated benefits and

costs. They also need to understand the conditions under which success will most likely occur.

To gain a sufficiently broad understanding of

these issues, it is useful to consider historical evidence drawn from analogous situations. Only an

historical picture can capture all the variables

and their relationship to one another. Comparing

historical inferences to statistical data, it is then

possible to suggest whether, and the extent to

which, the conclusions of such analyses might be

generalized.

To select an historical case that is somewhat

analogous to the situation in developing countries today, one need look no further than the

United States. Judged by European standards of

the time, the United States was, in its earliest

years, “underdeveloped.” By the turn of the 19th

century, however, the United States had been

forged into a major industrial nation spanning the

continent and a multiplicity of cultures. Telecommunications, as described below, played a

major role in this economic and political transformation.

COMMUNICATION TECHNOLOGY AND 

THE RISE OF THE U.S. ECONOMY

The important role that communication (and

transportation) technologies played in the rise of

the U. S. economy can be seen by tracing the

development of these technologies in conjunction with the nation’s industrial development.

Between 1830 and 1887, a plethora of new technologies emerged and gradually replaced many

of the social and institutional communication

networks that had hitherto sustained economic

activities in the New World. The deployment of

these technologies, together with the social and

organizational changes that they facilitated,

increased economic activity and fostered economic growth in a number of interrelated ways

(see table A-1).

G
160 | Global Communications: Opportunities for Trade and Aid

TABLE A-1: Selected Innovations in More Generalized Information-Processing

and Computing Technologies, 1880–1939

Year

Desk-top

calculating

Digital 

computing

Analog 

computing

Punch-card 

processing

1880

1882

1884 Keyboard Electric

1886 add-subtract tabulator

1888 calculator Part of

1890 Multiplier analytical

1892 engine

1894 Four- Equation

1896 function solver

1898 calculator 80-element Automatic

1900 harmonic bin sorter

1902 analyzer Plug-board

1904 tabulator

1906

1908

1910 Gyrocompass

1911 computer

1912 Profile

1913 tracer

1914 End-game 80-input tide

1915 chess machine predicator

1916 Battle

1917 tracer

1918

1919 Printing

1920 Electro- tabulator

1921 mechanical

1922 calculator

1923 Electric

1924 Electric Product keypunch

1925 printing integraph

1926 calculator

1927 Electric

1928 Multiple- Calculators network 80-column

1929 register linked as analyzer punch

1930 cumulating difference Differential card

1931 calculator engines analyzer

1932

1933 Mechanical Punch card

1934 programmer accounting

1935 Electrical machines

(continued)
Appendix A An Historical Analysis Relating Causes to Effects | 161

From the 15th century until the development

of the railroad and the telegraph in the last half of

the 19th century, material goods were transported very slowly—at the speed of draft animals

if they traveled by roadway or canal, or “at the

whim of the winds” if they traveled by sea.1

Because transportation and communication over

long distances was difficult and slow, trade was

discouraged and markets were geographically

limited in size. At such distances, merchants did

not have a great deal of information on which to

base their sales. Prices differed significantly

from market to market and considerably

exceeded the costs associated with distribution.

As a result, most merchants refrained from longdistance trading. When they did engage in such

trade, they generally remained at home, relying

on merchants in other trade centers to sell their

goods on a commission basis. To minimize and

spread the sizable risks involved, they sold a

wide variety of products rather than specializing.2

 Given the 4-month lag in transatlantic communication, as well as European mercantilist

policies, trade between the American colonies

and Great Britain was generally limited.

Although the speed of transportation and communication did not greatly increase in post-revolutionary America, the volume of trade did grow

1 James R. Beniger, The Control Revolution: Technology and the Economic Origins of the Information Society (Cambridge, MA: Harvard

University Press, 1986), p. 219. 2 Ibid.

as a commercial infrastructure was gradually

established, and as more effective means of transportation and communication were deployed.3

Equally important to the development of trade

was the establishment of a network of people

who, in their various roles as middlemen, helped

to convey market information and goods across

both the North American continent and the Atlantic Ocean. Included among them were shippers,

financiers, jobbers, transporters, insurers, brokers, auctioneers, and retailers.

The impacts of these developments were

cumulative. Trade gave rise to more trade. As

markets expanded, so did the density of merchant

exchange networks and the amount of available

market information. As a result, distribution

costs declined, and merchants were further

encouraged to engage in trade. Moreover, with

larger markets and better information, merchants

faced fewer risks, and thus they were able to specialize in particular aspects of trading such as

importing, wholesaling, retailing, or exporting.

This increased specialization led, in turn, to

greater coordination of markets and reduced

costs, making trade even more attractive.4

The positive effect that increased information

exchange had on trade was clearly exhibited, for

example, with the development of the transatlan3 The commercial infrastructure was comprised of commercial banks (1780s), a federal banking system (1791), State insurance regulations (1799), federal bankruptcy law (1800), and joint stock companies (1810). The new technologies included a federal postal service

(1791), the first turnpike (1795), coastal steamboat travel (1809), mail delivery by steamboat (1813), regular packet service to England (late

1810s), steam railroads and Atlantic clipperships (early 1830s), local postal delivery service (1836), regular transatlantic steamship service

(1847), and regular steamboat to California (1849). Ibid., p. 130. 4 Ibid.

1936 analog linked for

1937 computer computing

1938 Electronic

1939 Electronic Bell Labs analog

calculator Model I computer

SOURCE: James R. Beniger I, The Control Revolution: Technology and Economic Origins of the Information Society (Princeton, NJ: Princeton University Press, 1986), p. 400–401.

TABLE A-1: Selected Innovations in More Generalized Information-Processing

and Computing Technologies, 1880–1939 (Cont’d.)
162 | Global Communications: Opportunities for Trade and Aid

tic cable in 1866. Before the completion of the

Atlantic telegraph, New York financiers were

unwilling to trade in London markets, unless

prices were very attractive, because it took six

weeks to clear prices and have their orders executed there. The completion of the undersea

cable radically changed the situation, bringing

about an immediate convergence of prices on

both sides of the Atlantic.5

Also critical to the growth of markets was the

development of mass media technologies such as

power-driven, multiple rotary printing and the

national postal system. By drawing audiences

into larger and larger communities, these technologies accelerated the marketing of consumer

goods on a national scale. The increased use of

syndicated material in newspapers and the

advent of nationally circulated magazines in the

late 1800s anticipated true mass communication.6 Catalogs also became popular as an advertising medium. In 1887, Montgomery Ward

distributed nationally a 540-page catalog that

offered more than 24,000 items for sale.7

Despite the development of national markets

and greatly increased trade, specialization and

rationalization of production was limited until

the late 1800s by the relatively low speed of

transportation and communication technologies.

Specialization can only take place, and productivity can be increased only to the extent that

goods can be moved, processed, and distributed,

and that the production process itself can be

coordinated.8 It was only with the development

of the railroads in the 1830s and the telegraph in

5 Kenneth D. Garbade and William L. Silber, “Technology, Communication, and the Performance of Financial Markets 1840-1975,”

Journal of Finance, vol. 33, June 1978, pp. 819–832. 6 Theodore Peterson, Magazines in the Twentieth Century (Urbana, IL: University of Illinois Press, 1964, 2d ed.). 7 Beniger, op. cit., footnote 1, pp. 18–19.

8 Ibid., p. 208; and Alfred D. Chandler, Jr., The Invisible Hand: The Managerial Revolution in American Business (Cambridge, MA: Harvard University Press, 1977).

1844 that the requisite speed and control in the

processes of production and exchange could be

achieved. By increasing the speed of communication and extending the range of possible control, the railroad, the telegraph, and later the

telephone facilitated the growth of large-scale

organizations with modern management structures, a first step in the centralization of production and distribution.9

Given the speed of the new technologies, the

growth of the modern corporation was not limited by national geographic boundaries. Employing communication technologies to coordinate

their activities, a number of these new enterprises

invested abroad in what proved to be very successful international ventures.10

Although communication technologies affected

all economic relationships, their impact was not

distributed equally nor experienced uniformly. As

Joseph Schumpeter has pointed out, technology

gives rise to economic growth through the process

of “creative destruction.”11 Thus, although the

economy as a whole prospered as a result of

communication and information technologies,

some sectors of society found themselves worse

off.

For example, the invention of the telegraph

served, in some cases, to diffuse economic

power. In the early history of the United States,

New York City was able to capitalize on its position as a national information center to become

the center of worldwide trade.12 News continued

to flow faster and more fully in and out of New

9 Ibid., and Beniger, op. cit., footnote 1. Before the development of these technologies, businesses were usually run by their owners who,

focusing on a single line of products, generally operated either a single unit of production or a single unit of distribution. There were only a

few salaried managers who typically worked directly with the owners. Alfred D. Chandler, Jr., “The Evolution of Modern Global Competition,” Michael E. Porter (ed.), Competition in Global Industries (Boston, MA: Harvard Business School Press, 1986), p. 405. 10 For a description of these undertakings see, Porter, op. cit., footnote 9. 11 Joseph Schumpeter, The Theory of Economic Development, trans. by R. (Cambridge, MA: Harvard University Press, 1934). 12 See Ronald F. Abler, “The Geography of Communications,” Michael Eliot Hurst (ed.), Transportation Geography: Comments and

Readings (New York, NY: McGraw-Hill, 1974).
Appendix A An Historical Analysis Relating Causes to Effects | 163

York than any other city, giving it a strong economic advantage. Southern cities, in fact, communicated faster with New York City than

within their own region, a fact that engendered

increasing resentment in the South for cultural as

well as economic reasons.13 With the invention

of the telegraph, however, New York’s central

position in the national market began to erode.

The opening of the New York-Philadelphia Line

enabled brokers in one city to learn prices in the

other, and to place orders before the market had

closed. Similarly, prices in other distant markets,

such as western grains, also became items of

trade through instantaneous communication.14

Communication technologies also served to

undermine the middleman’s role in the wholesale

trade. As marketing tasks were vertically integrated together in large-scale firms, the middleman’s function of transmitting and distributing

market information and goods was no longer

required. The new mass retailers, such as department and chain stores as well as mail-order

houses, could use technology to circumvent

wholesalers, purchasing from manufacturers

directly and thereby reducing their costs.15

13 See Robert Albion, The Rise of New York Port, 1815–1939 (New York, NY: Charles Scribner’s Sons, 1939); and Allen Pred, “Urban

Systems Development and the Long Distance Flow of Information Though Preelectronic U.S. Newspapers,” Economic Geography, vol. 47,

October 1971, pp. 498–524. 14 See Garbade and Silber, op. cit., footnote 5, and Richard DuBoff, “The Telegraph and the Structure of Markets in the United States,”

Research in Economic History, vol. 8, 1983. As Duboff notes with respect to the cotton market, “Data on cotton prices in New York show

diminishing fluctuations over time. The average spread between lowest and highest prices narrowed steadily, except during the Civil War and

its aftermath, and the steepest decline in high-low price ranges and dispersion of prices from decade averages came in the 1850s—‘the telegraph decade.’ as it might well be called.” Richard Duboff, “The Telegraph and the Structure of Markets in the United States,” Research in

Economic History, vol. 8, 1985, p. 257. 15 As Beniger notes, “Between 1869 and 1879 the ratio of wholesale to direct sales rose to 2.40 from 2.11, with only $1 billion worth of

goods passing directly from manufacturers to retailers in the latter year, while some $2.4 billion worth went by way of wholesalers. After

1889, however, when wholesaling’s predominance had already declined slightly to 2.33, the ratio began to fall ever more sharply: to 2.15 in

1899, to 1.90 in 1909, and to 1.16 by 1929.” Beniger, op. cit., footnote 1, p. 258.

The new technologies also favored large firms

at the expense of small ones, contributing to the

growth of oligopoly.16 As the scale of operations

also grew, size served as a barrier to entry

because most small firms lacked the resources

needed to function nationally or regionally. With

the development of national advertising, the

small, local retailers, who had once served their

communities with little competition, found themselves facing a succession of challengers—

department stores, mail order firms, and chain

stores.

Rural areas were hit particularly hard because

advances in transportation and communication

technologies were linked to the decline of agriculture and the corresponding rise of industrialization. By extending their ties and expanding

their markets, communication technologies made

rural communities less self-sufficient and more

vulnerable to external developments and events

over which they had little control.17 Industrialization, for example, brought with it new kinds

of problems, with which increasingly smaller

16 As described by DuBoff, “...The telegraph dramatically enlarged information networks; it saved time, reduced the need for large inventories, decreased financing requirements, and prompted elimination of middlemen. But ‘competition’ and ‘monopoly’ are not, as neoclassical

theory implies, polar opposites. The telegraph improved the functioning of markets and enhanced competition, but it simultaneously

strengthened forces making for monopolization. Large-scale business operations, secrecy and control, and spatial concentration were all

increased as a result of telegraphic communication.” Richard DuBoff, op. cit., footnote 14. 17 For the classic discussion of how communication technologies can disadvantage local, vis a vis metropolitan, areas, see Harold Innis,

The Bias of Communication (Toronto: University of Toronto Press, 1951). According to Innis, communication technologies that served to

overcome the barrier of distance and time tended in the long run to make rural areas overly dependent on urban centers. As James Carey

notes with reference to Innis’ work “Innis attempted to show how localities and regions resisted the spread of communication, how the relationship was decided by a protracted series of conflicts over the spread of standard time, the mail order house, parcel post and rural free delivery, the department store and the regionalized corporation.” See James W. Carey, “Space, Time, and Communications: A Tribute to Harold

Innis,” James W. Carey (ed.), Communication as Culture: Essays on Media and Society (Boston, MA: Unwin Hyman, 1989), p. 143.
164 | Global Communications: Opportunities for Trade and Aid

farm communities could not deal.18 To meet

these developing needs, new towns and trade

centers emerged, located at a reasonable traveling distance from farm communities. Taking

advantage of improved transportation and communication networks, these centers were, in turn,

linked more and more to urban areas, leaving

rural areas to fend for themselves.19

Notwithstanding the problems associated with

the deployment of communication technologies,

rural areas could not have afforded to forgo

them, for the shifts in the national economy were

not accidental. They were closely associated with

the development of regional and national infrastructures, and a rural area’s proximity to these

trade networks proved to be a critical factor in

determining its ability to survive.20

As is clear from this historical account, communication technologies contributed to growth in

the United States in a number of interrelated

ways, many of which served to reduce transaction costs. First, communication technologies

dramatically increased both the speed and the

number of economic transactions that could take

place. Second, by diminishing the relevance of

geographic distance, communication technologies facilitated the expansion of trade and markets. At the same time, the development of mass

media technology served to reinforce national

markets by helping to mold tastes and preferences into a more uniform cast. In turn, this

increased market size led to greater specialization, standardization, and economies of scale. By

enhancing intrafirm coordination, communication technologies allowed businesses to grow

18 According to Swanson, rural communities were “self-contained production units.” However, with industrialization, “Previous social

formations, such as the rural church or the one room six grade schoolhouse, gave way to the demands of new industrial employers and

regional and national trade. Rural schools were not expected to prepare children for the financial and technical demands of a rapidly industrializing agriculture and nonfarm sector. Local socioeconomic networks such as cooperative harvesting (and risk taking) and quasi-barter

exchange systems that mediated local production and consumption under non-commercial conditions were gradually subordinated to and/or

eclipsed by new institutions,” See Louis Swanson, “Rethinking Assumptions About Farm and Community,” in A.E. Luloff and Louis E.

Swanson (eds.), American Rural Communities (Boulder, CO: Westview Special Studies in Contemporary Social Issues, 1990), p. 22. 19 Ibid. 20 As one observer described in 1850: “[Business merchants, farmers, bankers, shippers, and others soon learned the] great advantages of

this mode of instantaneous communication of intelligence [which] is with them not so much as a matter of choice as of necessity, for, without

availing themselves of it, they must necessarily be behind in that which is essential to the success of their business.” As cited in Ibid., p. 21.

vertically and horizontally, and thus to exploit

these economies.

Communication technologies also served to

restructure relationships among economic actors,

making some better and some worse off. Most

vulnerable were whose who were either replaced,

or bypassed, by technology. Winners were those

who, being the first to gain access, were able to

use communication technologies to reorganize

their activities in response to the fundamental

social and economic changes entailed in the process of industrialization, thereby gaining competitive advantage.

This brief account of U.S. economic development also highlights that the role of communication technologies was not constant over time.

Rather, it increased along with technology

advance and as markets grew and business processes became more complex and information

intense. Initially, for example, middlemen and

their personal networks provided the medium by

which market information was transported, and

market interactions consisted almost entirely of

face-to-face exchanges. With the onset of industrialization, mediated communication replaced

most of this primary contact.

COMMUNICATION TECHNOLOGY AND 

THE EVOLUTION OF POLITICS IN THE 

UNITED STATES

Just as communication technologies served to

promote U.S. economic growth and development, so too they played a critical role in the

political evolution of the United States. Like

political leaders in many developing countries

today, the U.S. Founding Fathers were faced
Appendix A An Historical Analysis Relating Causes to Effects | 165

with the mammoth task of “building” a nation in

the context of a democratic political system. At a

minimum, this effort entailed establishing

national sovereignty and national security; maintaining internal security and social welfare; and

assuring an open political system based on participation, deliberation, and representation.21

Communication technologies, and the rules that

governed their use and development, were critical not only to carry out these activities, but also

in determining the relationship—as well as

resolving the tensions—among them. Serving as

a mechanism for both national integration as well

as individual (and group) differentiation/participation, these technologies provided a mechanism

for balancing the need for political participation

as well as social control.

Political activities not only depend on communication; they also require constraints on the

manner in which communication occurs. Thus,

those in powerful positions have always

attempted to control, or even restrict, access to

communication pathways.22 While limitations

on communication may not accord with some

characterizations of democracy, many political

theorists have argued, in fact, that constraints on

participation are necessary in order to preserve

democracy. Aristotle, for example, favored “constitutional government” but was opposed to

“direct democracy,” which he called perverted

21 The United States was designed to be a representative or republican form of government. This design reflects the Founders’ belief that,

while government should be based on popular sovereignty, it should also protect the minority against majority rule. Thus, while power was

given to the people, it was done in a limited, or restricted, fashion. Qualified participants were defined narrowly to include only white, property-owning males. Moreover, the President and the Senate were not directly elected by the people but rather were indirectly chosen by the

Electoral College and the state legislatures. And finally, “the people” were themselves divided into two constituencies—one at the federal

and one at the state level. 22 As Donohue et al. have noted, “When man devised the first rudimentary form of mass communication centuries ago, he immediately

developed ways of controlling it. Printer, king, teacher and merchant were almost equally inventive in contriving ways to bring information

under control. Their diligence arose from man’s historic recognition of a fundamental social principle: knowledge is basic to social power.”

See George A. Donohue, Phillip J. Tichenor, and Clarice N. Olien, “Gatekeeping: Mass Media Systems and Information Control,” F. Gerald

Kline and Phillip J. Tichenor (eds.), Current Perspectives in Mass Communication Research (Beverly Hills, CA: Sage Publications, 1972).

because it failed to protect the rights and interests

of the minority.23 James Madison made much

the same case in Federalist Paper 10, when he

argued on behalf of “a government in which a

scheme of representation takes place.” Accordingly, democracy can be said to depend on the

establishment of a delicate balance between “too

little” and “too much” political communication.

In negotiating this balance, “communication

gatekeepers” play a critical role.24 Gatekeepers

are the individuals or groups in a society that

determine who makes decisions about the flow

of information and knowledge. How, and to

whom, the role of communication gatekeeper is

assigned varies across cultures, in different historical contexts and organizational settings.

Technological developments can also determine

where and how gatekeeping takes place, and who

will assume the role.

In the United States, the role of communication gatekeeping was established early in American history. Fully appreciating the role that

communication could play in forging a cohesive

nation state, the Founding Fathers were, at the

same time, deeply aware of its potential for disruption. Three years before the Declaration of

Independence, they had—as “revolutionaries”—

wrested control of the posts from the British.25

Setting up a “Constitutional Post,” which transmitted news from New Hampshire to Virginia,

23 Aristotle in Twenty-Three Volumes, XXI Politics, translated by H. Rackham (London: Heinemann, 1977), book III, p. 207. 24 The term “gatekeeper” is borrowed from the field of journalism. For a discussion see D. M. White, “The Gatekeeper: A Case Study in

the Selection of News,” Journalism Quarterly, vol. 27, fall, 1950, pp. 383–390. 25 Newspapers and pamphlets served as the primary vehicles for public protest and revolt, providing a network of political communication that was crucial to revolutionary activities. And, with the revolution, printers, functioning as editors and publishers, took on a key role. In

fact it was in their shops that many a political story and idea were exchanged. See Richard Buel, Jr., “Freedom of the Press in Revolutionary

America: The Evolution of Libertarianism, 1760–1820,” Bernard Bailyn and John B. Hench (eds.), The Press and the American Revolution

(Worcester, MA: American Antiquarian Society, 1980), pp. 59–97; and Frank Luther Mott, American Journalism (New York, NY: Macmillan Co., 1941).
166 | Global Communications: Opportunities for Trade and Aid

they sought to fuse the colonies into a unified

whole.26

This respect for the power of the pen, together

with concerns about its ability to foment opposition, may account for the reluctance of the Constitution’s authors to let journalists interpret the

events of the Constitutional Convention for the

public. For while prohibiting newspaper coverage of the proceedings, they themselves made

very effective use of newspapers and other communication outlets to build support for the ratification of the Constitution. Disguised as the

columnist Publius, Alexander Hamilton, John

Jay, and James Madison wrote a series of newspaper articles on behalf of the Constitution.

These Federalist Papers proved critical in generating public understanding of, and support for,

the new government.

Taking a longer term view, the Founding

Fathers also recognized that building a nation

required the development of a unified market, the

forging of a common culture, and the creation of

a democratic polity. And they believed that the

widespread flow of communication was essential

to these tasks. Arguing that open communication

was required to maintain a pluralistic society,

James Madison wrote, for example:

Popular government without popular information, or the means of acquiring it, is but a

prologue to a farce or tragedy, or perhaps both.

Knowledge will forever govern ignorance, and

a people who mean to be their own governors

must arm themselves with the power which

knowledge gives.27

To foster such communication, the Founding

Fathers incorporated three important provisions

in the Constitution. These included the First

26 Ward L. Miner, Goddard: Newspaperman (Durham, NC: Duke University Press, 1962), pp. 111–136. 27 Saul K. Padover (ed.), The Complete Madison: His Basic Writings (Millwood, NY: Kraus Reprint, 1953), p. 337.

Amendment provision for free speech; the authorization of intellectual property protection under

Article 1, Sec. 8; and Article 1, Sec. 8, Paragraph

7, which gives government the power to establish

post offices and postal roads.28 Moreover, as

early as 1792, both political parties agreed that

the government should subsidize newspapers. 29

The Founders, it should be added, were also

well aware of the more pragmatic aspects of

political communication. Recognizing their own

needs to communicate with constituents, the

Members of the First Continental Congress

granted themselves free postage, a privilege that

was continued after the Constitution was

adopted.

Communication was intended not only to integrate the nation; it was also expected to foster

diversity, providing individuals and groups a

means to join together to express and promote

their views. It was believed that the only way to

guard against domination by a majority faction

was to promote a large number of diverse competing ones.30 Writing to Thomas Jefferson,

James Madison summed up this view:

Divida et impera, the reprobated axiom of

tyranny is, under certain qualifications, the only

policy by which a republic can be administered

on just principles.31

Americans were well suited to play this role.32

From the outset of the new republic, they demonstrated a penchant for joining factions and establishing associations, a trait that did not escape the

observation of Alexis de Tocqueville when he

visited American in the mid-1800s. As he

described in Democracy in America:

Nothing...is more deserving of our attention

that the intellectual and moral associations of

28 See Ithiel de Sola Pool, Technologies of Freedom (Cambridge, MA: The Belknap Press of Harvard University, 1983), pp. 16–17. 29 Inside Congress (Washington DC: Congressional Quarterly, 1979), p. 127. 30 See Marc F. Plattner, “American Democracy and the Acquisitive Spirit,” in Robert A. Goldwin and William Sebambu (eds.), How

Capitalist is the Constitution? (Washington, DC: The American Enterprise Institute, Constitutional Studies Series, 1982), chap. 1. 31 James Madison to Thomas Jefferson, Oct. 24, 1787, Galliard Hunt (ed.), The Writings of James Madison, 9 vols. (New York, NY: G.P.

Putnam’s Sons, 1906), as cited in Ibid. 32 For cross cultural comparisons, see Robert Wuthnow (ed.), The Voluntary Sector in Comparative Perspective (Princeton, NJ: Princeton University Press, 1991).
Appendix A An Historical Analysis Relating Causes to Effects | 167

America. Americans of all ages, all conditions,

and all dispositions constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but

associations of a thousand other kinds, religious, moral, serious, futile, general or

restricted, enormous or diminutive. 33

In promoting their activities, these burgeoning

groups and factions took advantage of improvements in printing technology and the postal

delivery system. Political groups, for example,

used newspapers both to foster party cohesion,

and to disseminate the party’s perspective to outlying communities.”34 At the same time, taking

advantage of postage-free printers’ exchanges,

the party papers received political information

from States and localities. Thus, their editors

helped to synthesize a national political community that transcended local orientations.35 The

various social movements of the 19th century

developed similar communication mechanisms

to advance their causes.

Despite this growth in social and political

communication, the United States remained a

society of “island communities”—cities and

towns with limited interaction—throughout most

of the 19th century.36 One constraint on national

integration was the failure of the communication

infrastructure to keep pace with the nation’s geographical and cultural expansion. Before the

advent of the railroads and the telegraph, the

postal system provided the primary bridge that

connected a population that was increasingly dispersed and socially differentiated.

33 Alexis de Tocqueville, Democracy in America (1963 ed.), as cited in U.S. Congress, Office of Technology Assessment, Global Standards: Building Blocks for The Future (Washington DC: U.S. Government Printing Office, 1992), p. 46. 34 William Chambers, Political Parties in a New Nation (New York, NY; Oxford University Press, 1963), p. 42. 35 As Kielbowitz points out, print communications remained relatively open throughout the 1800s, largely because of government efforts

to ensure access. Subsidized postage rates allowed readers to subscribe to distant publications. Any town with a newspaper and post office

could become a source of news for the rest of the Nation. See Richard B. Kielbowitz, “News Gathering by Printers’ Exchanges Before the

Telegraph,” Journalism History, vol. 9, summer 1982, pp. 42–48; and Samuel Kernell, “The Early Nationalization of Political News in

America,” Studies in American Political Development (New Haven, CT: Yale University Press, 1986), pp. 255–278. 36 Robert Wiebe, The Search for Order, 1877-1920 (New York, NY: Hill and Wang, 1967), p. xiii.

Resistance to cultural intrusion—made possible by communication—also played a role in

inhibiting national integration. Notwithstanding

their desire to have access to national news and

market information, many communities resisted

the potential economic and cultural influence

that was associated with them.37 Improvement in

communications thus gave rise to a cultural debate

about how to foster national integration through

communication without undermining the viability

of local communities. These cultural issues exacerbated the growing conflict between the North

and the South, which led ultimately to the collapse

of the union and the outbreak of civil war.

The Civil War lasted four years and took

600,000 lives. It signaled a breakdown in the

legitimacy and hence control of the political system, as well as its failure to effectively manage

conflict among competing interests. In the aftermath of the war, the need to integrate the nation

and to build consensus was as great, if not

greater, than before.

As in the early years of the Republic, political

leaders in the Reconstruction Period looked to

communication and transportation to bind the

nation. Even before the Civil War had ended,

Congress passed the Morill Act and the Pacific

Railroad Act, which provided land grants to both

higher education and transcontinental railroads.

This aid was considered by most Americans “as

an investment in national unity and economic

growth that would benefit all groups in society.”38

Publicly supported education was also promoted at the community level. This commitment

37 As described by McPherson, “Southern self-condemnation of this ‘degrading vassalage’ to Yankees became almost a litany during the

sectional crisis from 1846 to 1851. ‘Our whole commerce except a small fraction is in the hands of Northern men,’ complained a prominent

Alabaman in 1847. ‘Take Mobile as an example—7/8 of our Bank Stock is owned by Northern men...Our wholesale and retail business—

everything in short worth mentioning is in the hands of men who invest their profits at the North... Financially we are more enslaved than our

negroes.” James M. McPherson, Battle Cry of Freedom: The Civil War Era (New York, NY: Oxford University Press, 1988), p. 92. 38 McPherson, op. cit., footnote 37, pp. 451–452.
168 | Global Communications: Opportunities for Trade and Aid

to public schooling was, in fact, so intense that it

gave rise to a national crusade.39 Concerned

about the problems of reconstruction in the

South, the influx of Catholic immigrants, and the

advent of industrialization in the North, Americans saw public schooling as a way of preserving

the social, economic, and political system. By

educating American youth in public schools,

they hoped to inculcate them with a common set

of patriotic, Protestant, and republican values.40

With the industrialization and urbanization of

American society, it was expected that schooling

would serve not only to prepare American youth

for a common political role as citizens, but also

to prepare a growing number of people from

increasingly different social, economic, and ethnic backgrounds for an increasingly differentiated

set of economic roles. To perform this economic

function, the public schools were restructured in

accordance with business principles.41

These efforts to promote national integration

were reinforced by continual advances in communication technologies, which greatly improved

their prospects for success. In the last half of the

century, new media and media distribution channels were developed, making it possible to communicate on a national scale. These included the

telegraph, nationally distributed magazines,

motion pictures, the telephone, and radio.

39 Bernard Bailyn, Education in the Forming of American Society (New York, NY: W.W. North, 1980); and Lawrence A. Cremin, Traditions in American Education (New York, NY:Basic Books, Harper 1976). 40 Rush Welter, Popular Education and Democratic Thought in America (New York, NY: Columbia University Press, 1962); and David

Tyack and Elisabeth Hansot, “Conflict and Consensus in American Public Education,” America’s Schools: Public and Private, Daedalus,

summer 1981; Robert A. Carlson,. The Quest for Conformity: Americanization Through Education (New York, NY:John Wiley & Sons,

1975); “Public Education as Nation Building in America: Enrollments and Bureaucratization in the American States 1870–1930,” American

Journal of Sociology, vol. 85, No. 3, November. 1979. 41 David K. Cohen and Barbara Neufeld, “The Failure of High Schools and the Progress of Education,” America’s Schools: Public and

Private, Daedalus, summer 1981; Sol Cohen, “The Industrial Education Movement, 1906–1917,” American Quarterly, spring 1968, pp. 95–

110; and Martin Trow, “The Second Transformation of American Secondary Education,” International Journal of Comparative Sociology,

vol. 7, 1961.

The telegraph helped to homogenize social

existence across the nation. Because of high

costs, the telegraph was initially used solely by

businesses and the press; few people used it for

social communication, at least in the United

States.42 However, the impact of the telegraph

was experienced more broadly. By fostering the

standardization and the central processing of

news reports, the telegraph allowed Americans to

share common accounts of the “latest” national

and international news stories.43 Delivered by

fast trains, weekly editions of metropolitan newspapers shaped the political sentiments of farmers

a thousand miles away.44

The telegraph also served to standardize the

routine of people’s daily lives. Before the railroad and telegraph, society’s “island communities” geared their time to local rhythms. For

example, Michigan had 27 time zones, Indiana 23,

and Wisconsin 39. The advent of the railroad

required the coordination of schedules over large

areas, and conducting business via telegraph

required knowledge of precise times around the

world.45

The national distribution of inexpensive popular magazines also fostered national integration.

Entrepreneurs launched national magazines in

the 1880s and 1890s expressly to serve as vehicles for advertising brand name consumer items

featured by mass retailers.46 This new genre of

42 In European countries, where the telegraph was a government monopoly supervised by the postal authorities, people made greater use

of the wires for personal correspondence. 43 Before the telegraph, editors obtained nonlocal news through the mails essentially cost free. They culled their exchanges and selected

accounts deemed suitable for local readers. News-gathering by wire, in contrast, entailed more costs; press associations, such as the New

York Associated Press, were organized to spread the expense of news-gathering and transmitting among many users. See F.B. Marbut, News

From the Capital (Carbondale, IL: Southern Illinois Press, 1971). 44 McPherson, op. cit., footnote 37, pp. 12–13. 45 James Carey, “Technology and Ideology: The Case of the Telegraph,” Prospects, vol. 8, 1983, pp. 303–325. 46 Theodore Peterson, Magazines in the Twentieth Century (Urbana, IL: University of Illinois Press, 1964), pp. 1–43.
Appendix A An Historical Analysis Relating Causes to Effects | 169

magazines, epitomized by Curtis Publishing

Co.’s Saturday Evening Post, Ladies’ Home

Journal, and Country Gentleman, cut subscription rates to attract a mass middle-class audience.

With advertising-filled periodicals blanketing the

nation, the heavily subsidized second-class mailings grew 20 times faster than the population in

the four decades after 1880.47

Motion pictures also did much to shape a

national community of tastes, style, and culture.

Weekly attendance in the United States rose

from an estimated 40 million in 1922 to 115 million 8 years later.48 With this explosive growth,

which cut across geographic and socioeconomic

lines, came concerns about the effects of the new

medium. While the censors watched for scenes

that seemingly encouraged crime or sexual promiscuity, they missed a more subtle yet pervasive effect: film’s power to nationalize tastes for

cultural fare as well as consumer goods.49

Radio augmented the effects of magazines and

motion pictures as agents of national culture.

Although radio was originally envisioned as a

local medium, local stations were soon taken

over by national networks.50 Within 10 years, 97

percent of all radio stations were affiliated with a

network. Through the 1930s and 1940s, radio

was the preeminent medium of mass impression,

eclipsing newspapers, magazines and even film.

47 Ibid. 48 Malcolm Wiley and Stuart A. Rice, Communication Agencies and Social Life (New York, NY: McGraw Hill, 1935). 49 Garth Jowett, Film: The Democratic Art (Boston, MA: Little Brown and Co., 1976), p. 202. 50 A number of factors promoted the development of national networks, including agreements among key industry players; audience

demand for expensive programming; a system of financing based on national advertising; and the incentive structure embedded in national

regulatory decisions. See Christopher Sterling, “Television and Radio Broadcasting,” in Benjamin Compaine (ed.), Who Owns the Media?

Concentration of Ownership in the Mass Communication Industry (White Plains, NY: Knowledge Industry Publications, Inc., 1979).

The role of the telephone was distinct, but by

no means less important. The telephone empowered the individual. In contrast to the telegraph and

mass media, it allowed people to formulate and

receive messages, and to represent themselves,

directly, without resort to any institutional intermediaries. With the telephone, any person could organize groups and canvass and lobby on behalf of a

particular politician or social cause. Using telephones for such purposes was initially limited

because of cost. Even at the turn of the century,

telephones cost $200 a year, a sum that was well

beyond the means of most workers, for example.51

Telephones also reinforced community ties,

especially in rural areas. Whereas the telegraph and

mass media technologies had directed local community attention outward, most telephone conversations were local in nature.52 Between 1907 and

1927, for example, the average’s person’s local

point-to-point communication—letters, telegraphy,

and telephony—increased primarily because of

growth in telephone use.53 This reinforcement of

social interaction at the local level played “a part in

the preservation and even in the enhancement of

local patterns of attitude, habit and behavior, and

served as an inhibitor of the process of cultural leveling which is so often assumed as an outstanding

and unopposed tendency of American life.”54

51 Ithiel de Sola Pool, Forecasting the Telephone: A Retrospective Technology Assessment (Norwood, NJ: Ablex Publishing Co, 1983),

p. 82. 52 Changes in William Allen White’s Emporia (Kansas) Gazette during the 1920s, as a result of the telegraph, illustrate some of the consequences for rural areas. According to Griffity: “The net effect, then of the Gazette’s increased advertising and greater access to syndicated

materials was to diminish the very centrality of its community. Emporians could no longer gain the impression from reading their local newspaper that Emporia—or their own lives—mattered much in the scheme of things... [The community’s citizens] may also have been aware of

a concomitant waning of a sense of the legitimacy of their day-to-day lives. For, rather than focusing on local events, the paper dramatized

far-away people and places. Instead of recording the life passage of their neighbors, it reported the abnormality of strangers.” As cited in

Richard Kielbowitz, “The Role of Communication in Building Communities and Markets,” contractor report prepared for the Office of Technology Assessment, November 1987. 53 In 1907, an average of 4.5 months elapsed between each toll telephone call but only 3 days between each local call. Wiley and Rice,

op. cit., footnote 48. 54 Ibid., pp. 153–154.
170 | Global Communications: Opportunities for Trade and Aid

The value of telephony to rural communities

and markets was reflected in penetration levels;

some Midwestern states had more phones per

capita than Eastern states. The benefits of the

telephone were many; rural households used the

phone to summon doctors, visit each other,

obtain weather reports, learn about sales in

towns, and follow prices for agricultural commodities in local or regional markets.55 Not surprisingly, residents in rural areas heralded the

telephone’s potential to end their isolation. Impatient to receive service, a number of towns and

cities launched their own systems, with farmers

in some cases constructing crude systems using

barbed wire attached to fence posts.

In integrating the nation, communication technologies served not only to break down barriers

of geography, culture, and class. These technologies

were used at the same time to circumvent traditional

information gatekeepers and political intermediaries

such as the press and political parties.

It was not long after telephones had been

invented, for example, that politicians came to

see them as being central to their activities. In

1878, Congress set up the first telephones in

Washington to connect the Public Printer’s

Office with the Capitol so that members could

order extra copies of their first speeches. With

the deployment of telephones in more and more

homes, they began to be used to canvass voters.

By 1910, one commentator noted, “In a political

campaign the telephone is indispensable.”56

Politicians also used communication technology to establish a direct relationship with the

public. Thus, President Roosevelt used his “fire55 These latter two applications were among the few by which the telephone enhanced the competitive position of small producers and

retailers. For discussion of the impact of telephony on rural communities, see Michael Olsen, “But It Won’t Milk the Cows: Farmers in Colfax County Debate the Merits of the Telephone,” New Mexico Historical Review, vol. 61, January 1986. 56 Ithiel de Sola Pool, Forecasting the Telephone: A Retrospective Technology Assessment (Norwood, NJ: Ablex Publishing Co., 1983),

p. 82.

side chats” to lift spirits during the depression

and to rally Americans behind the war effort. Similarly, in 1948, the Republican, Democratic, and

Progressive parties all held their conventions in

Philadelphia to take advantage of the coaxial cable,

which allowed them to broadcast the proceedings

over four networks to 18 stations in nine cities.57

Whereas network television tended to focus a

single message to a large number of viewers, the

development of cable television enhanced viewers’ choices, and allowed them to select programming that was more closely targeted to

groups of specific viewers. The original goal of

community antenna television (CATV) was to

provide a practical way of enhancing television

signals for communities on the fringe or outside

of good broadcasting reception. Eventually,

however, cable operators were able to expand

their markets by importing broadcast signals,

thus being able to offer many more programming

channels as well as better service.

Communication technologies, it should be

emphasized, were employed not only in the

realm of politics. Towards the end of the 19th

century, the government itself began to make

greater use of these technologies for purposes of

both national defense and public administration.

In the First World War, for example, radio technology (radar) proved critical in controlling

long-distance sea and air transportation. By

1922, radar technology was capable of detecting

ships at sea and planes in flight, for which purpose it was deployed on all U.S. battleships during the Second World War.58

57 Ruben Frank, “1948 Live ...From Philadelphia...It’s the National Conventions,” The New York Times Magazine, April 17, 1988, pp. 37,

62–65. 58 Beniger, op. cit., footnote 1, p. 414. Having witnessed the military benefits of radio technology first-hand during World War II, the

U.S. Government intervened to help establish the Radio Corporation of America (RCA), which subsequently bought out the British-dominated American Marconi Company. In this way, the Government helped to solidify the U.S. position in international communication. See

Daniel Czitrom, Media and the American Mind (Chapel Hill, NC: University of North Carolina Press, 1982), p. 86.
Appendix A An Historical Analysis Relating Causes to Effects | 171

The Government also took advantage of computers and data processing technology to help

provide public services and oversee an ever more

complex and interdependent domestic economy

(see table A-2). In 1930, for example, the Census

Bureau used punch card tabulating machines for

the first time, increasing average punching rates

from 500 to 700 cards per day and daily tabulating

rates from 10,000 to 80,000 persons per day.59

Other agencies were quick to follow suit; tabulating machines were subsequently used, for example to centralize federal records on insurance,

public health and vocational education, to monitor

the economic depression, to maintain employment

statistics, to control security exchanges and overthe-counter markets, as well as to process social

security taxes and benefits payments.60

From this account of the ways in which communication technologies have affected the evolution of U.S. politics, four major impacts can be

identified. First, communication technologies

helped to integrate the nation by extending

nationally oriented messages over broad geographic areas in a manner that bypassed traditional local, cultural, or socially based

information gatekeepers. Second, communication technologies provided at the same time

mechanisms for individuals and groups to access

information, identify and organize like-minded

people, and promote their ideas at all levels of

government, thereby holding the government

accountable and assuring the representation of

their views. Third, communication technologies

provided government the means to administer

laws, maintain order, assure the national defense,

and promote the general welfare in an increasingly complex and interdependent social and economic environment, which required dealing with

events such as industrialization, the depression, and

the Second World War. Finally, by supporting all of

these functions on a relatively equal basis, communi59 Describing the impact of tabulating machines on government some 80 years later, the National Commission of Federal Paper Work

estimated that “Federal agencies are today churning out forms, reports, and assorted paper work at the rate of over 10 billion sheets per year.

That’s 4.5 million cubic feet of paper,” As cited in Beniger, op. cit., footnote 1, p. 420. 60 Ibid., p. 420.

cation technologies helped to maintain the balance—

necessary to sustain democracy—between participation and control.

Looking at the role of communication technologies in American politics, however, it is

clear that these technologies have been neither

equivalent nor technologically neutral with

respect to political outcomes. Although the telegraph and mass media fostered national integration, they served at the same time to diminish the

interests of particularistic groups. On the other

hand, the telephone facilitated political organization at all levels, while cable broadcasting

increased the number of outlets available for

competing political perspectives. With a range of

technologies available, striking the appropriate

balance between participation and control was

more easily accomplished.

Channeling information to some gatekeepers

while circumventing others, communication technologies also helped to determine the distribution

and locus of political power. Over the course of

American history, for example, the role of information gatekeeper was shifted from the local newspaper proprietor, to the legislative representative, to

the political party leader, to the television news analyst, transforming American politics in the process.

Although communication technologies have

strongly influenced American politics, these

technologies were not autonomous in their

effects. Fully aware of their political potential,

the American Founding Fathers established a

basic legal framework in the Constitution that

has served to establish the general direction in

which communication technologies have

evolved. Within that framework, politicians, vendors, users and other stakeholders have all sought

to ensure that technologies match their preferences. In interpreting the impact of technologies,

the institutional context in which technology

evolves must always be kept in mind.
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TABLE A-2: Selected Innovations in Information Processing and Communication, 1830–87

Year Innovation

1830s Wagon lines carrying freight between rural towns and ports begin to operate on regular schedules

1837 Telegraph demonstrated, patented

1839 Express delivery service between New York and Boston organized using railroad and steamboat

1840s Freight forwarders operate large fleets on canals, offer regular through-freight arrangements with other 

lines

1842 Railroad (Western) defines organizational structure for control

1844 Congress appropriates funds for telegraph linking Washington and Baltimore; messages transmitted

1847 Telegraph used commercially

1851 Telegraph used by railroad (Erie)

First-class mail rates reduced 40-50 percent

1852 Post Office makes widespread use of postage stamps

1853 Trunk-line railroad (Erie) institutes a hierarchical system of information gathering processing and 

telegraphic communication to centralize control in the superintendent’s office

1855 Registered mail authorized, system put into operation

1858 Transatlantic telegraph cable links America and Europe, service terminates after 2 weeks

1862 Federal Government issues paper money, makes it legal tender

1863 Free home delivery of mail established in 49 largest cities

1864 Railroad postal service begins using special mail car

Postal money order system established to insure transfer of funds

1866 Telegraph service resumes between America and Europe

“Big Three” telegraph companies merge in single nationwide multiunit company (Western Union), first in 

United States

1867 Railroad cars standardized

Automatic electric block signal system introduced in railroads

1874 Interlocking signal and switching machine, controlled from a central location, installed by railroad

(New York Central)

1876 Telephone demonstrated, patented

1878 Commercial telephone switchboards and exchanges established, public directories issued

1881 Refrigerated railroad car introduced to deliver Chicago-dressed meat to Eastern butchers

1883 Uniform standard time adopted by United States on initiation of American Railway Association

1884 Long-distance telephone service begins

1885 Post Office establishes special delivery service

1886 Railroad track gauges standardized

1887 Interstate Commerce Act sets up uniform accounting procedures for railroads, imposes control by 

Interstate Commerce Commission

SOURCE: Reprinted by permission of the publishers from The Control Revolution by James R. Beniger, Cambridge, MA: Harvard University Press.

Copyright 1986 by the President and Fellows of Harvard College. All rights reserved.
| 173

B

Appendix B:

U.S. Public/Private

Aid Related

Telecom Programs

xecutive Summary from the publication:

“U.S. Government, Private Sector, NonProfit, and Academic Contributions to

Communications Development,” Information Infrastructure Task Force, March, 1994.

The United States has a long tradition of supporting international communications development as a means for sustained economic growth

and improvement of health, environment, and

welfare. Our support for communications development comes form a variety of sources—the

U.S. Government, the private sector, non-profit

organizations and academic institutions. The

U.S. Government has committed substantial

financial resources to international communications development in the form of export credits

and guarantees, loans and investment guaranties,

grants, training services and feasibility studies.

The U.S. private sector has contributed new technology, financial and other resources for training

programs and technical assistance, as well as

substantial product and service expertise. In

addition, U.S. non-profit and academic institutions have lent support to international communications development needs through training and

exchange programs, grants, fellowships and

relief services.

U.S. GOVERNMENT ASSISTANCE

A wide range of U.S. Government agencies,

from the Department of Commerce to the Federal Aviation Administration in the Department

of Transportation, contribute to international

communications development. Highlights of

these contributions include the activities of the

U.S. Agency for International Development,

which in 1993 expended almost $34 million on

telecommunications training, technical assistance, and infrastructure. In addition, between

1991 and 1993, the Export-Import Bank’s loans

and guarantees in the telecommunications sector

totaled $1,854,976,535 excluding insurance

authorizations, which totaled approximately

$400 million. In Fiscal Years 1988 through 1993,

the Overseas Private Investment Corporation

provided $434,030,732 in political risk insurance

and $195,650,000 in financing through direct

loans and/or loan guarantees to developing countries. Another important contributor is the U.S.

Trade and Development Agency, which committed $8 million of its budget toward communications development projects for 1994.

There also are a number of U.S. Government

agencies which provide assistance to developing

countries, not only through financial resources,

but through critical training, studies, and other

E
174 | Global Communications: Opportunities for Trade and Aid

services. For example, the National Telecommunications and Information Administration

(NTIA), an agency within the U.S. Department

of Commerce, under the Protocol on Cooperation

in the Field of Telecommunications Science and

Technology between the United States and the

People’s Republic of China (PRC) has engaged

with China in cooperative studies and other

activities in radio frequency spectrum management and disaster communications. Technical

exchanges were the primary activities under the

Protocol in 1993 and 1994, such as an exchange

with spectrum management officials from the

Chinese Ministry of Posts and Telecommunications in March 1994. NTIA is expected to lead a

delegation of experts in disaster communications

to the PRC in late 1994 or 1995. In addition, the

Federal Communications Commission, the U.S.

Government agency which regulates communications activities in the United States provides

specialized training and technical assistance

bilaterally, as well as through the International

Telecommunication Union and the United States

Telecommunication Training Institute (USTTI).

This year, the FCC will conduct courses on Spectrum Management in the Civil Sector, Radio

Spectrum Monitoring and Measuring, and Radio

Spectrum Monitoring Techniques and Procedures for USTTI.

One of the U.S. Department of State’s objectives is to promote expansion of the economic

and social benefits of the communications and

information revolution to developing countries.

Through the Bureau for International Communications and Information Policy (CIP), numerous

organizations have received grant funds for

development activities, totaling about $250,000

per year. Organizations which have been recent

recipients of such funds include the International

Telecommunication Union, the Inter-American

Telecommunications Conference (CITEL), the

Black College Satellite Network, the TransAtlantic Dialogue on European Broadcasting, the

Organization for Economic Cooperation and

Development, and the United States Telecommunications Training Institute. CIP also administers

programs for telecommunications development

assistance to countries in Central and Eastern

Europe (CEE) and the Newly Independent States

(NIS) of the former Soviet Union under Interagency Agreements with the U.S. Agency for

International Development (USAID). The CEE

program has been funded at about $3 million

over four years, and the NIS program is funded

in the current fiscal year at $365,000.

The National Science Foundation (NSF) is

another U.S. government agency affecting international telecommunications development. With

private sector assistance, NSF has vastly

enhanced the global connectivity of information

networks, including implementing or expanding

links to networks in Europe, Latin America,

Pacific Asia, and Russia and other Newly Independent States. NSF also provides support to

U.S. scientists and engineers to enable them to

collaborate with colleagues in other countries

around the world. The United States Information

Agency (USIA) also contributes substantial

resources in the area of communications development. It spends more than $100 million annually on communications development activities

providing overseas information, education, and

cultural affairs programs, including the Voice of

America, the WORLDNET satellite television

network and educational and cultural exchanges.

U.S. PRIVATE SECTOR

U.S. private sector activities include contributions of companies such as the Communications

Satellite Corporation (COMSAT), MCI, Motorola, NYNEX, Southwestern Bell, and from organizations representing groups of companies, such

as the Telecommunications Industry Association.

Contributions of these entities frequently involve

conducting training courses and participation in

conferences. For example, COMSAT funds a

major part of INTELSAT’s $500,000 annual

International Assistance and Development Program and has trained over 190 United States

Telecommunications Training Institute participants at its corporate facilities in the United

States. In addition, Motorola’s Government

Relations Office, which is divided into regions
Appendix B U.S. Public/Private Aid Related Telecom Programs | 175

and has offices around the world, has offered

seminars to developing countries on effective

spectrum management practices. The Telecommunications Industry Association, with a number

of U.S. companies, for the past four years has

cosponsored the Southeast Asia Telecommunications Conference, as well as the first Latin American Telecommunications Summit. Both of these

conferences provided an opportunity for Ministerial level officials from the regions to meet with

senior representatives from U.S. companies and

U.S. Government officials.

U.S. NON-PROFIT ORGANIZATION 

ASSISTANCE

U.S. non-profit organizations also have made

substantial contributions to international communications development. For example, both the

public and private sectors in the United States

support the United States Telecommunications

Training Institute (USTTI). USTTI is a nonprofit, joint industry-government initiative that

encourages communications and technological

advances on a global basis by providing free

training courses for qualified men and women

from developing countries. Over 3,000 officials

from 136 countries have attended USTTI

courses—with over 800 of these being supported

by U.S. Agency for International Development

funding. In 1993, the USTTI’s sponsors contributed a total of $4,829,647 in cash and in-kind

contributions to the USTTI.

Another example of U.S. non-profit organization assistance is the work of the Volunteers in

Technical Assistance (VITA). VITA’s 5,000 volunteers, located in over 100 countries, have

responded to more than 200,000 requests form

around the world for technical information about

a variety of developmental issues. VITA has

published more than 200 manuals and technical

papers on specific technologies and developmental issues and publishes an electronic newsletter

on international development, DevelopNet

News, which is distributed through BITNET and

Internet. In addition, over the past decade, VITA

has implemented more than $50 million in major

projects that have built VITA’s capacity to

ensure effective and cost-efficient project implementation. Furthermore, VITA has been granted

an experimental license to operate a data-only

low earth orbit satellite system, a little LEO system.

U.S. ACADEMIC PROGRAM ASSISTANCE

Academic organizations such as the American

Society for Newspaper Editors (ASNE) also have

made substantial contributions to communications development. ASNE, an organization of

approximately 900 newspaper editors in the

United States, sponsors an International

Exchange Program to bring journalists from

around the world to the United States for six

weeks of study and work. In 1993, the Exchange

Program exclusively solicited applicants from

the editors’ ranks in developing countries,

including the new democracies of Central and

Eastern Europe, and other countries in transition.

Another academic program, the World Press

Freedom Committee, a non-profit, U.S.-based

private coordination group of U.S. and international media organizations, has made 150 grants,

totaling approximately $1 million, since 1977 to

aid news media and journalism schools in the

developing world, Central and Western Europe,

and the former Soviet Union.
| 177

C

Appendix C:

Participants for Workshop

One—October 18, 1994

❚ Workshop Title: 

Identifying the Issues

Phyllis Bernt

Professor of Communications

University of Ohio

Martin Carnoy

Professor of Education and 

Economics

Stanford University

Fred H. Cate

Professor of Law

Indiana University School of 

Law

C. Mark Dadd

Chief Economist

AT&T

Meheroo Jussawalla

Senior Research Fellow/

Economist

East-West Center

Don E. Kash

Hazel Chair of Public Policy

George Mason University

Ali Al’Amin Mazrui

Director, Institute of Global 

Cultural Studies

Binghamton University

Lauren Miller

Director for Corporate 

Planning

AirTouch Communications, 

Inc.

Eli M. Noam

Professor of Finance and 

Economics

Director, Columbia Institute 

for Tele-Information

Bhikhu Parekh

Professor of Political Theory

University of Hull

Joseph N. Pelton

Director, Center for Advanced 

Research in 

Telecommunications

University of Colorado

Sidney Weintraub

Holder of Simon Chair

Center for Strategic and 

International Studies

Steven Wildman

Associate Professor of 

Communication Studies

Northwestern University
| 179

D

Appendix D:

Participants for Workshop

Two—December 19, 1994

❚ Workshop Title: 

Telecom Deployment in 

Developing Countries

Fred Bieganski

Telecommunications Specialist

United States Agency for 

International Development

Lew Cramer

Assistant Vice President

U.S. West, Inc.

Dan Craun-Selka

International Projects Manager

National Telephone 

Cooperative Association

Lynne Gallagher

President

Telecom Telematique, Inc.

Clell G. Harral

Director, Telecommunications 

Sector

European Bank for 

Reconstruction and 

Development

Dale N. Hatfield

Senior Fellow

Annenberg Washington 

Program

Assaad Jabre

Division Manager 

Telecommunications

International Finance 

Corporation

Timothy Nulty

Managing Director

Central European 

Telecommunications 

Investment Fund

Judith O’Neil

Attorney

Reid and Priest Law Firm

Joseph N. Pelton

Director, Center for Advanced 

Research in 

Telecommunications

University of Colorado

Lee Schmidt

Vice President

GTE Telephone Operations

Charles Weiss

President

Global Technology 

Management, Inc.
| 181

E

Appendix E:

Reviewers

and Contributors

Phyllis W. Bernt

Professor of Communications

University of Ohio

Kenneth W. Bleakley

President

Caribbean Latin American 

Action

Lori Hylton Brown

Analyst

U.S. International Trade 

Commission

Robert Bruce

Attorney

Debevoise & Plimpton

Martin Carnoy

Professor of Education and 

Economics

Stanford University

Fred H. Cate

Professor of Law

Indiana University School of 

Law

Warren Clark

Senior Advisor, 

Communications and 

Information Policy

State Department

John Coakley

Analyst, Center for Economic 

Growth

USAID

Peter Cowhey

Chief of Multilateral and 

Development Branch

FCC

C. Mark Dadd

Chief Economist

AT&T

Robert Fri

President

Resources for the Future

Robert Frieden

Associate Professor

Pennsylvania State University

Michael R. Gardner

Chairman

U.S. Telecommunications 

Training Institute

Ron Grosz

Communication & 

Information Technology

U.S. Agency for International 

Development
182 | Global Communications: Opportunities for Trade and Aid

Dale N. Hatfield

Senior Fellow

Annenberg Washington 

Program

Meheroo Jussawalla

Senior Research Fellow/

Economist

East West Center

Don E. Kash

Hazel Chair of Public Policy

George Mason University

Robin E. Mansell

Reader in Communication and 

Information Technology 

Policy

University of Sussex

Lauren Miller

Director for Corporate 

Planning

AirTouch Communications, 

Inc.

Eli M. Noam

Professor of Finance and 

Economics

Director, Columbia Institute 

for Tele-Information

Judith O’Neil

Attorney

Reid & Priest Law Firm

Joseph N. Pelton

Director, Center for Advanced 

Research in 

Telecommunications

University of Colorado

Anthony Rutkowski

Executive Director

Internet Society

Vernon W. Ruttan

Regents Professor, 

Department of Applied 

Economics

University of Minnesota

Lee Schmidt

Vice President

GTE Telephone Operations

Joseph Sedlack

Government Relations

Volunteers in Technical 

Assistance

Lawrence P. Seidman

Associate Director, New 

Venture Organization

Hughes Telecommunications 

and Space Sector

Robert Siegel

U. S. Agency for International 

Development

Gregory C. Staple

President

TeleGeography, Inc.

Gary L. Vaughan

Trade Development Officer

U.S. Agency for International 

Development

Shelly Weinstein

President

National Education 

Telecommunications 

Organization

Dr. Sidney Weintraub

Holder of Simon Chair

Center for Strategic and 

International Studies

Charles Weiss

President

Global Technology 

Management, Inc.

Martin B. H. Weiss

Associate Professor

University of Pittsburgh
Appendix E: Reviewers and Contributors | 183

Bjorn Wellenius

Telecommunications Advisor

World Bank

Steven Wildman

Associate Professor of 

Communication Studies

Northwestern University

Ernest Wilson

U.S. Information Agency/

Global Information 

Infrastructure Commission

Center for Strategic 

International Studies

Yvonne Zecca

Executive Director

Annenberg Washington 

Program in Communications 

Policy Studies of 

Northwestern University

❚ OTA Reviewers

John Alic

Industry Telecommunications 

and Commerce Program

Vary Coates

Industry Telecommunications 

and Commerce Program

Bill Creager

Industry, Telecommunications 

and Commerce Program

Jim Curlin

Industry, Telecommunications 

and Commerce Program

Patty Durana

Oceans and Environment 

Program

David Eichberg

Industry, Telecommunications 

and Commerce Program

David Jensen

Industry, Telecommunications 

and Commerce Program

David Wye

Industry, Telecommunications 

and Commerce Program