:: The Park Paradigm ::

Markets for the Digital Generation

My desert island business tool would have to be my netvibes homepage: by allowing my to efficiently follow and ingest over a hundred different feeds covering the entire breadth of my varied (and some would say eclectic) interests it has become the substrate upon which much of my work is done. It’s my deck.* Themes emerge and disappear, are reinforced, modified, diverted, consolidated. And sometimes enough interesting pieces of the puzzle emerge, pushing me to anchor them in my thoughts by writing a post here.

I’ve written a number of times on the potential for mobile telephony to shift the paradigm in Africa, but post the Safaricom IPO this is perhaps more of a mainstream view today and needs less repeating.

What is perhaps less talked about is the potential to combine increasing mobile and broadband penetration with robust and inexpensive local networks to transform outcomes even in the most remote environments. One of the major challenges facing the African continent is building out mobile coverage outside of urban areas and increasing access to broadband internet pretty much everywhere. White African frames the problem eloquently here:

While it’s good to talk about mobile phone penetration, I was a lot more interested in seeing the discussion going on around mobile broadband internet and how that is the next big move in Africa for the operators. Passing data, not just voice, is the battleground of the future in Africa - and all the carriers are fighting to position themselves to win.

This is important and I think the tipping point has (or is about to be) passed, but for a variety of economic, political and regulatory reasons it is difficult to predict how and when a more robust and ubiquitous broadband access will be available to most Africans. In the mean time, it would seem to me that a great opportunity exists to build (tens of) thousands of small, local, ‘community’ networks using a combination of technologies such as wireless mesh and femtocells connecting mobile phones and sturdy “appliance computers” (via Emeka):

Aleutia’s currently working to integrate ZigBee into our desktops, a new wireless mesh-networking technology that doesn’t drain batteries like Wi-Fi does and has a range of up to 1km. In areas where connectivity is expensive and hard to obtain, this would allow one computer to share its Internet connection with hundreds of others, and, in areas without Internet connectivity, would enable free email, file transfer, and messaging over an enormous geographic area.

All powered by renewable (solar, wind, micro-hydro) local power sources, which besides being more robust and sustainable (in the economic sense), should also help underwrite the capital costs of building the network through sales of imputed carbon credits.

These networks would be valuable on their own - providing an information and communications backbone for education, health and markets for the local community - but also would serve as excellent platforms (in terms of building knowledge and acceptance of these tools) ahead of the local network being tied into the rest of the world via broadband internet when the infrastructure and pricing permits. In fact, by building up the network infrastructure in this way - ie by creating a network of networks - Africa has a chance to actually create a more robust infrastructure than currently exists in most of the developed world, without the need to re-engineer; another leapfrogging opportunity…As John Robb continues to powerfully argue, “smart local networks” are crucial to creating a more resilient societal infrastructure, tolerant to faults, accidents and attacks - black and white swans alike:

Most of the local loops (from telco fiber to cable company coaxial) currently in place and/or being installed in the US are dumb (I suspect it is the same globally). They simply route data from local customers to regionally clustered corporate server farms and then outwards/back. This means that any disconnection (physical or logical fault) between local customers and these remote systems will result in a complete cessation of service. To correct this deficiency, communities need to start to think more like a corporation: security of data services are considered central to a company’s survival. So, as part of future negotiations with cable/telcos, communities should request that companies allow them to piggyback on their “dumb” networks to create a smart local loops.

Just the sort of infrastructure that is needed in the all too often hostile (political and natural) environments in which these networks need to operate. And it ties in well with the idea of a resurgent localism, a theme that motivated Stowe to create a new blog, /Ground:

One of the most salient trends — one that I think trumps others — will be the rise of localism. As nation states increasingly falter, and lose relevance we will see people shifting their sense of belonging away from mass organizations and political constructs, like nationalism and global religions.

Layer on top (of these networks) the best that Web2.0 has to offer in terms of social software (wikis, twitter, blogs, freebase, etc .), along with solutions unique to Africa (FrontlineSMS, Ushahidi, etc.); mix in the strong culture of communal and family identity and… voila! You have a potentially very powerful and transformational piece of kit. Alpha this, beta this, build, iterate, build again… and I’m pretty sure that once you’ve industrialized the process, you will have a very exportable proposition: a turn-key solution for installing a smart (and green) local network.

In fact, I think this is a very real and interesting commercial opportunity. Maybe even a candidate for an X-prize in Global Entrepreneurship? I’d love to find a credible, motivated team that has the skills and the vision to make this happen and take us one step closer to the sixth paradigm. Looking forward to seeing the business plan!

*Cyberspace Deck: Also called a “deck” for short, it is used to access the virtual representation of the matrix. The deck is connected to a tiara-like device that operates by using electrodes to stimulate the user’s brain while drowning out other external stimulation. As Case describes them, decks are basically simplified simstim units. Another way to think about it might be like a lineman’s telephone—a tool used to actively maneuver through cyberspace rather than to passively perceive pre-recorded physical and emotional sensations (like a simstim unit).

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One of the main failings of much (most?) mainstream reporting and commentary on financial markets and financial services is that all too often it reduces the issue to a black or white caricature of the reality. Absolutist headlines are more compelling I guess… And at the risk of sounding elitist, I suspect that too many journalists writing on the subject of financial derivatives and financial engineering more generally, are not sufficiently comfortable with the subject to form more nuanced analyses. It must also be said that ‘Wall Street’ has been content to perpetuate the aura of mystery that surrounds derivatives; this attitude was a natural consequence of their traditional business model which was predicated on information arbitrage - aka ‘knowing more than your customers.’

I have to admit, I can understand why - given the egregious behavior of so many ‘financial engineers’ over the past 5 years or so, and the very real and unfortunate consequences now being borne indifferently by guilty and innocent alike - the public might rally around the pitchfork journalists and the witches’ coven they claim to expose. And my frustration is aggravated as this reminds me that through their reckless actions, a bunch of greedy, cynical, cowardly so-called professionals have put in peril the very real and tangible benefits modern financial technology can bring to the global economy and human society; something I passionately believe in. Think of the jerks you knew when you were a kid: the ones that didn’t know when to stop, the ones that pushed until the adults were forced to intervene, the ones that ‘ruined it for everyone else’. (I suspect it’s not just a metaphor: it wouldn’t surprise me if many of the worst offenders were these kids growing up…)

And so, given this context, I hope you’ll understand why I was especially heartened when I read about JPMorgan’s simple but innovative use of carbon derivatives to drive sales of more efficient cooking stoves in east Africa:

JPMorgan (JPM, Fortune 500) is quietly pushing the boundaries of the carbon market - a sprawling international experiment to reduce the greenhouse gases that cause global warming - by subsidizing the distribution of efficient cooking stoves in poor countries. Because the new, improved stoves save fuel and produce less carbon dioxide than traditional stoves, they generate so-called carbon credits that can be sold to companies or individuals who want to offset their own emissions.

The business is complicated, controversial and potentially very profitable.

How profitable? If all goes according to plan, JPMorgan will expand its support for cook stoves from Uganda into Kenya, Ghana, Cambodia and beyond. Each stove is estimated to reduce carbon dioxide emissions by two to three tons a year; each ton generates a credit worth $10 or $15 a year, and potentially more, for the bank.

“If you can distribute 10 million stoves, you are talking about a substantial tonnage of carbon,” says Odin Knudsen, who oversees JPMorgan’s carbon finance business. Do the math - you could be looking at a business with modest costs and between $200 million and $450 million a year in revenues.

But even here we run into the biases I highlighted above - “…complicated, controversial…” How? Why? Completely unsubstantiated. But I suspect most readers will read this and involuntarily nod their heads in agreement, conditioned to accept these assertions as given. Complicated? The author misses the irony, given that within the article the trade is succinctly and accurately described. I suspect most readers understood. Controversial? How so? To whom? The author fails to back this up with any real evidence or even a compelling example of what could go wrong. (Even though there are a few fairly obvious ways such an initiative could ‘go off the rails’, that would be worth reporting.) I assume it is just a knee-jerk assumption that any big bank making money from poor people is doing something evil.

Putting that meta-analysis aside…what a great initiative. While only scratching the surface, this kind of transaction is typical of what I believe we will see more and more of as we move to the sixth paradigm. The really exciting part is how this illustrates what is possible when you start to marry global financial markets to local, micro-economic outcomes. Take it one step further and you can start to provide credit secured on individual carbon allowances, to finance efficient capital investments. Or imagine not just selling a stove, but a fix-price fuel contract in tandem. And where the stoves are used for heating, embedding weather derivatives in the contract as well.

I hope they have much success with this initiative. I look forward to hearing more about it in the next few years (and maybe getting involved in some way…) I just hope the individuals at JPMorgan driving this project weren’t those immature jerks in high school!

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I have to admit it’s always exciting to see validation points for strongly held convictions. As you know I firmly believe that the confluence of technology and emerging - or in the new jargon more precisely ‘frontier’ - markets will generate significant and exciting new innovations and opportunities, and I remain convinced that fundamentally new and robust business models will emerge as a result. The fact that this might improve the human condition in some of the world’s heretofore least fortunate corners is of course icing on the proverbial cake. And so I was happy to read that Google, for example seems to share (at least some of my) sentiments on this:

We believe that the Internet is a transformational force for societies. And it’s making us all much more powerful as individuals, regardless of whether one is in New York, Stockholm, Bujumbura, Ouagadougou, or Cape Town. Regardless of background, education, social status, gender, age or economic situation, online access to information enables people to create opportunities for themselves. Seeing a student in a cybercafe doing his research using a search engine, a businessman chatting with a colleague abroad with instant messaging, or a young woman posting her photos to a social networking site - it’s clear the extent to which academic, business and social life is fundamentally changing all over Africa.”

At the same time, a couple of days ago, a very interesting article in the NYTimes also leant support to my thesis that the infrastructural constraints and challenging business environment of sub-Saharan Africa would engender innovative and resourceful approaches and a unique approach to harvesting the potential of information and communications technologies:

Still, Nairobi is home to a digital brew that invites optimism about its chances for creating unusual innovations. The city has relatively few wired phone lines or networked personal computers, so mobile phones are the essential digital tool. Four times as many people have them as have bank accounts. Text messages are far more popular than e-mail. Safaricom, the dominant mobile provider, offers a service called M-pesa that lets customers send money with text messages. Nokia sells brand-new phones here for as little as $33.

While engineers in the United States lavish attention on expensive phones that boast laptoplike features, in Kenya there are 10 million low-end phones. Millions more are used elsewhere in Africa. Enhancements to such basic phones can be experimented with cheaply in Nairobi, and because designers are weaned on narrow bandwidth, they are comfortable writing compact programs suited to puny devices.

“Applications are heavy in America,” says Michael Wakahe, a Nairobi code writer. “Here we have to make them light,” because simpler hardware requires smaller programs. These can have advantages in wireless systems…

…The prospect of marrying low-end mobile phones with the Internet is earning Nairobi notice from outsiders, who wonder whether the city might emerge as a test-bed for tomorrow’s technologies. One intriguing possibility is broadcasting local television programs on mobile phones.

In Nairobi’s highest-profile validation, Google opened a development office here last September. “Africa is a huge long-term market for us,” Eric E. Schmidt, Google’s chief executive, said by e-mail. “We have to start by helping people get online, and the creativity of the people will take care of the rest.”

One of the most obvious - yet no less powerful or potentially transformational for it - themes is the combination of mobile communications, internet and geo-location technologies to disseminate information and increase connectedness from the bottom up. This emergent collective intelligence is all the more remarkable, given the typical history of entrenched ‘top-down’ politico-economic structures in place in these countries. Much of the early innovation is centered around information gathering and crisis management with tools like Ushahidi (quickly developed in response to the post-election political unrest in Kenya earlier this year) and FrontlineSMS being quickly adopted by citizens and NGOs and having an immediate positive impact on the ground. It doesn’t take much imagination to start dreaming up additional - more commercial - potential applications for these kinds of platforms. Ken Banks, the man behind FrontlineSMS describes his view as developing the ‘long-tail’ of mobile applications as the right approach for not-for-profit “social mobile”:

low-end, simple, appropriate mobile technology solutions which are easy to obtain, require as little technical expertise as possible, and are easy to copy and replicate. From my own experiences the number of NGOs present in this space is by far the greatest, making it the area to focus on if we want to create the highest amount of mobile-enabled social change. Add up all the value here, and it easily outweighs the rest along the higher (more lucrative) parts of the tail.

I would suggest that this approach might work equally well to enable commercial, for-profit, applications as well. Indeed on the other side of the continent you find Mark Davies esoko/TradeNet: Africa’s first mobile2mobile peer2peer trading platform and market information network:

…designed to provide the very latest agricultural market information to stakeholders. Accessed via SMS, fax, web, PDAs, farmers and traders can get daily price information, download video/audio files, access research documents, post buy/sell offers to the community, and contact other market participants. The concept is to make african markets more transparent and efficient, improve intra-regional trading, and provide stakeholders with enough recent and accurate information to make better decisions on bringing products to market and at what price.

I’m sure it won’t be easy or without enormous challenges but the opportunity is vast. Africa: it just might be the new new new thing.

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I’ve been mulling this over for years, but with the release of the iPhone 18 months ago, it became easier to start to imagine the outlines of this future.

Broad reaching changes will emerge from the bottom up - this recent article from Macworld illustrates some possible examples:

…there’s incredible power in a device that knows where it is and that can purchase stuff based on its location…We already have an example of this power in the form of iPhone-friendly Starbucks outlets. Walk into such a Starbucks and a new Starbucks entry appears within the phone’s iTunes application. Tap it and you can learn what’s recently been played in the store and then purchase one of these tracks simply by tapping a Buy button…

It’s 11 a.m. and time for your coffee break. Leave the office and stroll the 14 steps to the café next door. Your iPhone vibrates and asks if you’d like the usual double-wet cappuccino. Of course you do, so you tap Yes. Within a minute your name is called and you have your caffeine-rich libation in hand. Again, no cash or credit card necessary because your iPhone automatically picked up the tab.

It’s not (yet) as sophisticated, but the success of mobile-based payment systems like M-Pesa in Kenya is not only very exciting but is a precurser to much much more. (I first wrote about M-Pesa in November 2006; seeing opportunities like this with no way to ‘participate’ was a significant motivator in developing my current venture.)

(from the CGAP technology blog:)

Since its introduction in March of 2007, the M-PESA application has had great success all over Kenya. There are currently over 2.3 million registered users. Over 18 Billion Ksh had been moved through the system, via person-to-person transfers.

Some of the work that I have been doing makes several arguments as to why M-PESA has become so popular. Firstly, it is the young, male, urban migrants who are driving the uptake of services – customer adoption. These migrants are what innovation researchers call ‘early adopters’ of a technology. They are usually better educated and earn higher incomes than those in the village. Because these migrants are the senders, they can choose the channel for money transfer…

…Despite these cash float problems, the majority of customers in both the urban and rural areas assert that they prefer M-PESA over other money transfer services. This means that M-PESA must be offering them some kind of substantial benefit. In Bukura, this benefit comes in the form of savings on transport. Customers do not need to travel into Kakamega, the nearest town, to access the service. One elderly farmer commented that “I can just walk from my shamba (farm) and get money. I don’t have to spend and go into town. If the agent does not have cash today, then I will come back tomorrow. It is cheaper to wait”. Finding strategies to manage the cash float problem will undoubtedly be one of the greatest challenges for Safaricom. For now, however, it seems like customers are willing to accept the inefficiencies of the service. It is, after all, cheaper to wait.

One of the revelations (to me at least) of this year’s Supernova conference was Ken Banks of kiwanja.net. For anyone interested in the innovative use of mobile communications in developing markets, his essay “Mobiles in Africa: A Travellers Perspective” is a must read. (Sadly, I didn’t get the chance to meet him as I had to rush off but hopefully I will get a future opportunity.) An exerpt:

When it comes to mobile innovation, the gap between developed and developing countries is not much of a gap at all. Mobile innovation in the West, largely technology-lead, sits in contrast to that in the developing world where combating the geographic, economic and cultural constraints of users is considered a more sensible way to go. This explains the emergence of the torch phone, for users who live in areas with little or no regular light, or multiple phone books for users who share their phones with family members. On the heavyweight side, a plethora of financial applications have hit the streets, with Safaricom’s m-Pesa service getting by far the biggest press to date…

…Innovation is not always as official or formalised as this, however. People in developing countries are rarely simple, passive recipients of a technology, and rarely wait for outsiders to provide solutions to their problems. The entrepreneurial spirit is alive and well, evident by the masses of thriving small businesses you find on the street corners of every village, town and city.

Many developing countries for all intents and purposes have ’skipped’ the fixed-line telephony paradigm. Wanna bet that they ’skip’ the branch banking/atm paradigm in retail financial services?

I know it’s not their typical market target, but I’d love to see Apple (or RIM) develop a ‘rugged’ iPhone (analogous to ‘rugged’ mobile hard drives), targeting emerging markets. Not as a competitor / replacement for existing mobile phones, but as a substitute to personal computers: effectively giving traders and business people an effective web appliance (ideally with Skype pre-loaded!)

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In case you still aren’t convinced, have a read of what the Consultative Group to Assist the Poor has to say on the subject:

Banking regulators still don’t get it: The best candidate for making access to finance truly universal in a developing country is the mobile phone.

…Globally, mobile phones will handle $587 billion in financial services by 2011, UK. consulting firm Juniper Research Ltd says. In many developing countries, mobile-phone companies are miles ahead of banks in using technology to cut the cost of processing a transaction. In India, for instance, phone companies have a 100-fold cost advantage…

…Real breakthroughs in financial inclusion may only occur when telecommunications companies lead the effort and regulation promises smooth running.

Why do you think I encouraged my friend JP to go ‘get some experience’ at a phone company?

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As we start talking to people about our investment universe and the pillars that underlie our investment thesis - which is centered on identifying and catalyzing disruptive (technology-enabled) innovation in financial services and markets - when we mention that one vector we will look to target is opportunities in ‘frontier’ markets - in particular Africa - we get some puzzled looks. Especially with people who haven’t been long-standing or assiduous readers of The Park Paradigm and haven’t come across my previous posts on the subject.

In a nutshell, it really comes down to the power of looking at the industry from a completely different perspective: understanding how markets and financials services can be made to work in the context of sub-saharan Africa, necessarily forces you to see the industry through a radically different prism: infrastructure, distribution, price points, market structure, etc. So not only do native opportunities exist to vastly grow financial service and markets from very small existing starting points, but also by doing so I am convinced that a number of non-intuitive and powerful learnings applicable to innovating in this sector in developed markets will emerge. And that’s why Africa is actually an obvious element in our strategy and worldview.

Here’s an interesting take from Stuart Henshall via the Supernova 2008 blog:

The mobile is making low income groups more efficient and productive. Less time waiting and more time working or getting a better price etc. It will also mean they come at other technology products from a mobile technology perspective. Will one of these users ever part with a mobile and want a laptop instead? What if your next choice is a used smart phone or a laptop? What are the trade-offs? Or will you just settle for a TV and make the phone last longer. My bet is on trading up or passing on the computer or TV.

Here we have stopped thinking about bazaar’s and marketplaces. We go to the supermarket. It’s a very very fortunate few that can go to a tailor or have their clothes made. Yet when I walk around India I see vege traders, and sari makers everywhere. They both make efficient use of their inventory and their labor. I see use of missed calls to make “tacit connections” at no cost. I see SMS use and notifiers growing. In fact many of these users are subscribing to SMS notification services for sports and business because they want that greater connection. They are not yet overwhelmed. They are in effect on an accelerated course of “connectivity”. We need to look here to see how mobility and knowledge sharing is changing.

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Watching this compelling TED Talk - by The Bottom Billion author Paul Collier - over the weekend reminded me how important transparency can be in fostering better governance, and aloowing better leaders to emerge. This is as true for companies as it is for nations. His call for (voluntary) international standards in ‘best practice’ governance is intelligent and, probably more importantly, pragmatic:

And it catalyzed me to rewatch Patrick Awuah’s talk from TED Africa, that for me was one of the highlights of a unforgettable gathering. He states:

The question of transformation in Africa is a question of leadership: Africa can only be transformed by enlightened leaders…but when I speak of leadership, I’m not talking about just political leaders…I’m talking about the ‘elite’: those who have been trained, who’s job it is to be the guardians of their society - the lawyers, the judges, the policemen, the doctors, the engineers, the civil servants. Those are the leaders, and we need to train them right.

Watch this video and tell me it doesn’t make you want to do better. Appreciate more. Your parents. Your schooling. Your good fortune. Your leaders (however imperfect they may seem.)

I’ve often been asked why I am interested in developing nations, and Africa in particular. And, more to the point, how it fits in with the other main themes that define my blog. I guess it comes from an intense curiosity to on the one hand study, understand and learn from failure, and an fundamental belief that in failure and distress lies great opportunity. At the risk of sounding politically incorrect, it is not driven so much by compassion or the desire to ‘do good’ (although I would hope that I have at least the median amount of these attributes), but by a deep frustration and impatience with the wasted potential too often associated with these countries. It is also - and I hope you don’t think this makes me a bad person - driven by an enlightened self-interest. I am convinced that through gaining a better understanding of the failings and challenges faced in these societies, I will be smarter in the face of understanding any market, society or economy. I guess you could say it is part of the “you-learn-more-from-failure-than-success” canon.

One of the other primary themes I address on these pages is the power of traded markets. As regular readers would probably know, I have deep-seated conviction of the usefulness of markets in creating wealth and building stronger (more transparent) economies and societies. I also believe that some of the power of markets arises because they are fundamental to human culture and cognitive processes. Now I’m no anthropologist, nor sociologist, but (without any experimental robustness) I find that the emergence of fundamental market mechanisms in the most anarchic or chaotic societies - too often found in Africa, as proof that markets are fundamental to building working (even if pathological) human societies.

By becoming more knowledgeable about these markets and how to adapt products and services to be successful in what - a priori - are extremely hostile economic environments, I believe will generate many investment opportunities, primarily along two vectors: most obviously, within these developing markets themselves and, less obviously (but probably financially even more significant), by bringing learnings from operating in these markets back to developed markets and economies. Yes, I firmly belief that knowledge transfer can be a two-way street, not just one way from developed to developing economy. A good example is a company I recently discovered called Obopay:

Go mobile with your money. That’s the simple yet powerful idea behind Obopay.

Obopay is the first truly comprehensive mobile payment service in the United States. That means we’re the only service that lets you instantly get, send and spend money anywhere, anytime with anyone. With Obopay you can instantly pay back a friend, split a dinner bill, get money from your parents, get quick cash, pay up or collect on a friendly wager, track purchases, check your balance, and much, much more. And, you can do it all from your phone; anywhere, anytime with anyone.

The Obopay Story
Obopay is not your ordinary brainchild. It didn’t happen in a conference room or during a grueling brainstorming session. The concept for Obopay happened while Carol Realini, Obopay’s founder and CEO, was doing volunteer work in Africa. It was there she observed an interesting phenomenon: people living in some of the most remote corners of the world carried a mobile phone even if they didn’t carry a wallet. Combining the two seemed like an ideal marriage of empowerment and convenience. And that’s when the idea for Obopay was born. Returning to the U. S. she saw incredible opportunities within the ever-growing mobile youth market. Although Carol had not planned on rejoining the work force after a three decade run as a successful entrepreneur, her passion for this new idea changed her mind. She pulled together an all-star team of seasoned mobile and financial professionals, raised venture capital and successfully launched Obopay in 2005.

It sounds like Carol is (at least) two steps ahead of me! I’d better get back to work, if I want to have any hope of participating in future obopay’s…

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I imagine even the most ignorant politicians would not promote the onion-esque policy I’ve chosen as a headline for this post as a serious solution to the issue of climate change. And yet…

An increasing number of politicians around the world - in both developed and developing nations - are touting entirely analogous ’solutions’ in order to deal with rising commodity, especially food, prices. Stop transparent and efficient markets from functioning, from doing their job - ie aggregate vast amounts of information into an accurate and concise price signal - and voila problem disappears. Makes sense right? If we can’t see the price going up, it must mean that it isn’t. Brilliant.

As a bonus, let’s apply the same logic to climate change and instead of spending billions on developing alternative and more efficient energy technologies, or wasting time with the whole palaver of carbon markets and such; let’s just pass legislation that restricts those pesky thermometer manufacturers to stop making thermometers that go past 30 degrees. Of course you could apply for a special permit to produce say meat thermometers or gauges used in steel mills or nuclear plants that can show higher temperatures. And in order to enforce strict adherence to ‘authorized’ uses only (so no wise guy could hack a meat thermometer to discover it’s really 37 degrees in Hyde Park) you could of course set up a Federal Temperature Control Agency and in the bargain create a new bureaucracy and a lot of new jobs. Win/win!

Joking aside, the knee-jerk, supposedly populist policy reactions of too many governments seems to be to stop markets from functioning. I say “supposedly populist” because these policies ultimately (which is to say pretty damn quickly) hurt the most vulnerable to the benefit of a small elite who then control the distorting gates through which all commerce must pass. The greater irony is that at best it creates an ‘opportunity loss’ for those bogeymen the speculators (oooh!) who such politicians love to hate, and at worst creates even more lucrative opportunities for (especially the least ethical) of them. (See Oxonomics for an excellent and compact deconstruction of the evil speculator myth.)

Instead of shutting down or curtailing the activities of dynamic and empowering markets like the MCX in India:

India’s Forward Markets Commission, a regulatory authority, has banned trading in the four commodities for at least four months, according to media reports on Thursday.
Last year, India banned trading in rice and wheat futures…

…The four commodities, which were suspended from trading Thursday, account for a daily turnover of about $288 million on the Multi Commodity Exchange of India (MCX) and the National Commodities and Derivatives Exchange (NCDEX), the International Herald Tribune reported Thursday.

…governments should be encouraging them to develop even faster - especially in the developing world. Eleni Gabri-Madhin’s TED Talk from Arusha last June should be required viewing for any senior policy maker considering regulation of agricultural markets:

As Eleni points out, observed (agricultural) price volatility is higher in Africa than anywhere else in the world because there is no (or relatively very few) functioning ‘exchange’ markets. This is exactly contrary evidence to the fallacy propagated by so many politicians, that exchanges are the cause of price volatility. Yeah, just like thermometers are the cause of high temperatures, and barometers cause droughts or floods…

A big part of the solution is encouraging robust and transparent markets in agricultural goods (and inputs) and in particular facilitating access to these markets by producers everywhere. The thing is, for probably the first time in history - thanks to technology, in particular the mobile phone - this is a tractable problem even for small and relatively poor farmers in the rural developing world.

From the Economist Blog:

What can governments do to bring down the price of precious food crops like rice? How about eliminate export restrictions? Rice futures slumped by their daily limit of 50 cents for a second day on Tuesday after Cambodia, one of the world’s top 10 rice exporters, said it will lift restrictions on exports.

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What’s not to like? My mind was set racing after reading about Max Donelan’s “energy harvester” in the Economist recently:

The “energy harvester” that Max Donelan of Simon Fraser University and his colleagues describe in this week’s Science looks like an orthopaedic knee-brace. It tucks behind its wearer’s knee and has extensions that strap around the front of his calf and his thigh. When the wearer walks, the knee’s motion drives a set of gears which turn a small generator.

On the face of it, that sounds like a recipe for making walking difficult. Surprisingly, it is not. Although the leg muscles perform “positive” work when they accelerate the leg forward to begin a step, when the leg straightens at the end of the step they perform “negative” work as they slow the leg down. If the generator in the harvester were connected during the accelerating phase the process would, indeed, be expected to increase the load on the muscles. But if it were connected only during the decelerating phase it would impose no load. It might even make things easier.

(The BBC website has a video here.)

The potential for this kind of power generation seems vast, especially in the developing world. Not only could it prove to be a robust and portable personal power source , because it doesn’t rely on a centralized infrastructure it is at once an empowering technology (excuse the pun) and without negative environmental consequences. Not only could individuals in places like rural Africa and India have free (beyond the inital investment in the equipment) access to power for things like lighting, mobile phones, and even networked computers or even femtocells, they would not be emitting any greenhouse gases, and insofar as they could replace dirty fuel burning lamps with LED lighting, pollution would even be reduced.

One of the biggest changes has been the use of light-emitting diodes (LEDs). This has transformed wind-up lighting products, says Rory Stear, chairman of Freeplay Energy, which specialises in such “self-powered” devices. The company’s Indigo lantern, for instance, can provide up to two hours of light from just one minute of winding. LEDs also last for a long time: those in the Indigo are rated for 100,000 hours, whereas a filament bulb might burn out after 16 hours.

Such products can make a huge difference to power-starved people. Freeplay’s charitable foundation reckons that the use of kerosene, candles and firewood for lighting absorbs 10-15% of monthly household incomes in sub-Saharan Africa. It is planning to test a range of wind-up LED lanterns in Kenya and South Africa this year. These, it hopes, will allow people to do things like studying at night, increasing their security and coping better with medical emergencies. Freeplay Energy is also developing self-powered medical equipment, including a fetal-heart monitor.

Imagine this married to the emerging global carbon markets, and you can imagine a day not so far in the future when a farmer in Tanzania can pay for efficient LED lighting, a mobile phone and usage fees (which he uses to stay in touch with market conditions for his produce, including hedging commodity and weather risk and as a payments platform) all by selling his carbon emissions allowance to the market. Of course, we are a bit away from having a workable “retail” CER market, but if you ask me this is exactly the sort of thing the World Bank should be working on in cooperation with entrepreneurs in developing markets.

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I’ve written in the past about my belief that a number of innovations in business are likely to originate in the developing world only to be exported and adopted in the developed world in the coming decade, turning conventional wisdom on its head. My thinking on this tends to revolve around businesses in the developing world harnessing the power of cheap and ubiquitous communications and computing (ie mobile phones) to develop innovative, robust, low-cost business models driven by (1) the need to deliver products and services profitably at extremely low (by developed world standards) price points, and (2) the lack of inhibitions with respect to thinking outside “established” ways of approaching markets and customers.

Although manufacturing - and especially auto-making - lies outside the field of my interest and expertise, this post from the Indian Economy blog highlights the new Tata Nano as an example of exactly the phenomenon I subscribe to above.

In summary, the Tatas look set to become the dominant player in the Indian car market via the new market segment established by the Nano. If allowed to compete on fair terms they should take this new segment to other developing countries too.

Will the price USP help it in developed countries though? In the United States there is a huge market for cars costing less than $10,000. Small cars were always popular in Japan and are catching on big-time in Europe too. There are lots of people even in the first world who cannot afford new cars. So there is a huge market in the biggest car markets in the world for a strong price warrior. The Nano was not made for these markets but the huge price difference it has with the cheapest cars in those countries offers plenty of room for redesign. Do you hear someone say that is impossible? Really – “impossible”?

Update:
It seems I’m in good company…

(from Fortune) …To stay ahead, Immelt is pushing GE hard into an advanced phase of globalization he calls “in country, for the world.” That may sound like some celebrity ditty composed for Live Earth, but Immelt is quite serious. He believes that by figuring out how to meet demand in these still relatively poor growth markets, he’s going to achieve hard-to-imagine price breakthroughs. And here’s what’s truly radical: As GE and others do this, these products won’t just be sold in emerging markets. Instead they’ll filter back into the rich economies - a new deflationary force that should delight buyers but devastate competitors who lack a global footprint.

Examples? “Water,” says Immelt. “There’s a shortage everywhere, even in places like California and Florida. Some systems we’re working on in the Middle East, India, and China are trying to do water desalination at $0.001 per milliliter, which is an off-the-charts low cost. We’ll never hit that in the U.S. But we’ll hit it someplace outside. And the second we do, a huge market is going to open up inside as well.” Immelt sees the same thing happening with coal-sequestration technology or MRI scanners, where GE is working on a product in China that could cut prices in half. “At the right cost point, you not only sell it in China, you open up a market among the 35% of U.S. hospitals that today cannot afford to have an MR scanner,” he says. “We’ve got 15 or 20 projects like this that are going to open up big markets around the world over the next five years.”

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