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TECH TALK: As India Develops: Distribution Hubs (Part 3)

April 13th, 2004 · No Comments

Continuing from the RISC paper by Atanu Dey and Vinod Khosla:

Economic development is both a cause and consequence of urbanization. RISC achieves the urbanization of the rural population without requiring the massive and unsustainable rural-urban migration. It brings urbanization to the rural population by making available to them the full set of services and amenities that are normally available only in urban locations. It works within the constraints of limited resources by concentrating them in specific locations to obtain economies of scale, scope, and agglomeration. It helps lift the population out of a development trap by making available to them the benefits of technological advances and the increased access to local and national markets, when and as it becomes economically justified..

Conceptually and operationally, a RISC has two levels: the lower one is the infrastructure level (henceforth, the I-level) which consists of power, broadband telecommunications, and the physical plant (building, water, air-conditioning, sanitation, security); and above that the user services level (henceforth, the S-level) which consists of all services that are relevant to rural economic activity such as market making, credit, financial intermediation, education and library, health, social services, governmental services, and so on.

The I-level provides a reliable, standardized, competitively-priced infrastructure platform. This is achieved by the coordinated and cooperative actions of firms that specialize in the component activities, whether they be private, public, NGO or governmental. Ongoing investment gets a higher rate of return through better economic use. Co-located on the S-level are all kinds of firms and individuals that provide user services. The presence of the I-level, the economic scale of activity and hence competition, as well as better information and knowledge reduces the cost of products and services and therefore the prices that the users face, while at the same time increasing the diversity of products, services and providers. Economies of scope and agglomeration are obtained by the presence of a critical mass of consumers. Fundamentally the notion says small cities within a bicycle commute of most rural Indians are a better investment than making the same infrastructure and services investment in each village, even for the villagers themselves as it generates a higher rate of return for their benefit. The highest economic use of resources based on economic justification of each use, shared use of resources to increase capital efficiency, an agglomeration of consumers and diversity of services (to enable an autocatalytic economy and hence increased rates of growth) increases the rate of return and hence rural wealth for any given level of investment.

RISC is not an attempt at social engineering through centralized planning. Neither is it another model of internet kiosk or telecenter. It aims to solve a problem by appealing to the profit motives of all participants, be they private sector, NGOs, or the public sector, mostly by creating and facilitating efficient market mechanisms and resources. The good that will surely come out of it can only be attributed to Adam Smiths invisible hand. The model does not require additional investment by the government, but rather proposes mechanisms for better economic use of the money currently being spent. The model minimizes the social dislocation being caused by the rural-urban migration and gives most rural Indians access to facilities and infrastructure that they have an economic use for. We argue that todays paradigm of power, health, education, communication and other services in every home in every village is misguided investment, uneconomic and not in the best interest of the villagers. Their share of the National money is being channeled into lower return investments. A more sustainable and regenerative avenue for the investment is possible and will better serve the rural population.

Tomorrow: Distribution Hubs (continued)


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