Can a Phone Be a Cow? (with Philip Auerswald)

Philip Auerswald: Thanks so much for having me. It’s a pleasure.

Philip Auerswald: So, A Phone Is a Cow comes from the story of Iqbal Quadir, who is a central figure in the book. And, Iqbal is the founder of Grameenphone, which is today the dominant provider of mobile telephony services in Bangladesh. And, Iqbal faced the challenge of creating a mobile phone company in Bangladesh at a time when per capita income in Bangladesh was about $400 a year, which was the same price as a mobile digital handset at the time. So, it was a daunting undertaking.

Iqbal is featured along with Strive Masiyiwa, because they were really the first two people to see mobile phones as a potential device for really everybody, including the rural poor in places like Bangladesh and Zimbabwe.

So, Iqbal was trying to understand essentially the business model to make mobile telephony work at the rural level, and he drew inspiration–in fact, partnership–with Grameen Bank. And, so, Grameen Bank is famously known for micro loans to women in villages to essentially use those loans for productive assets, including, say, a cow. So, the loan would really pay for itself through the productive use of the asset.

And, Iqbal’s really central insight in terms of making mobile phones viable in a place like Bangladesh in the mid-1990s was that a phone could be a cow. A phone was essentially a productive item, a productive asset, and not, as it really was seen in the West at the time, as a consumption good, a luxury good. So, that’s where A Phone Is a Cow comes from.

Philip Auerswald: Yes, yeah.

Philip Auerswald: Yeah, yeah. No, I mean, exactly.

And, I think one of the things I really loved about delving into Iqbal’s story, I mean, he and I have known each other for 20 years, so it was really an opportunity for me to work with him and really understand the details, the particulars of how that came about and situated in this kind of full context.

But, one of the details that surfaced was that he and his brother had a previous business idea, which was to develop a Bengali character set for the Macintosh–the earliest Macintosh. And, at that time, a Macintosh computer cost about $4,000, and the per capita income in Bangladesh was $200. So, it was basically roughly 20 to one. So, really, the obstacle was seeming completely insurmountable.

Now, I think perhaps at the time they started Grameenphone, now that I think about it, may have been more like $300; the handset was $400, so it was a little bit more than one-to-one. But, what Iqbal was looking at was not the absolute number, the one-to-one, but it was the change: that it had gone from 20-to-one to one-to-one. And, that trend on the cost side, there was every reason to believe that the cost, due to Moore’s law, which Iqbal was very well aware, would continue to drop exponentially, and that income would grow. And, so, he foresaw exactly the phenomenon that you described, and that was really what the vision for Grameenphone was based on.

Philip Auerswald: Yeah. I think one of the difficulties of situating this book–particularly in contemporary U.S. discussions about the mobile phone–is that we see the mobile phone not only as a consumer device, but as a pernicious consumer device–

Philip Auerswald: A time sink, a distraction engine. And, the idea that the mobile phone could be a productivity enhancer seems anachronistic, or, if not just completely made up, right? That’s just not our lived experience.

But, there’s something that you and I, and I think probably everybody else, knows, which is, the United States is not Bangladesh. The lived experience of a consumer in really what is, on average, the top 5% of the global income distribution, is not the same as it is for the other 95%, and certainly not for the bottom quartile.

And so, what does a mobile phone mean? What did a mobile phone mean in Bangladesh?

Actually, Iqbal’s brother started the dominant provider of mobile financial services in Bangladesh, so they’re a brother pair that have brought not just communications, but banking.

So, what’s the point there? The point is that the phone is not just being able to talk to people. It’s not just being able to make deals, and to understand what prices are, and understand market conditions, and save yourself a day’s travel–as occurred with Iqbal in the 1970s. One of the reasons that he saw that his favorite phrase, ‘Connectivity is productivity.’ And, he recalled an episode where he walked half a day to buy some needed medications for one of his siblings, only to find that the pharmacy was closed. And then walked home. Now, he’s a kid; what’s his time worth? Not much. But, it’s a day of time that you would save–literally a day walking back and forth–that you would save just by a phone call. And that experience was reinforced over and over again: that connectivity is productivity.

So, just simply the fact of telecommunication service can be just an incredible time saver, and saving time is saving money. Saving time is increased productivity.

And, beyond that–that’s what I get to in later chapters of the book, I only get to mobile financial services–but, the phone has been the delivery mechanism for an array of essential services that simply were not accessible–that did not exist–to the rural poor before mobile phones, just as telecommunication services did not exist. Landlines never came close to reaching the majority of the world’s population. And so, it is because we have this abundance of services, abundance of options, abundance of infrastructure, this accumulation of a century of depth of investment in our environment, that the mobile phone seems superfluous. But it is anything but superfluous to the majority of people on this planet.

Philip Auerswald: Well, that is not an easy question to answer, and that’s really the question I sought to answer in this book. So, who is responsible? Entrepreneurs are responsible, inventors are responsible, farsighted government bureaucrats allocating budgets to unlikely projects are responsible, consumers who are willing to try something, adapt to something, are responsible. And, really, the list goes on.

My good friend and somebody who has been an inspiration in my work for 30 years now, Sid Winter wrote an article two decades ago in which he really explored this question of: Who is responsible for a radical technological discontinuity? And, he used the mobile phones as his example. I didn’t even know that when I started the book, and I came across it. And so I quote him and cite him at length in the book on exactly this case.

But, so, we’ve talked about Iqbal, and really, that’s later in the story–the market pioneers who did what you might say, ‘oh, the last-mile delivery.’ But it’s not just ‘last-mile.’ It’s to the majority of people worldwide. It’s not a trivial thing to bring a frontier technology to most people, and that has not been done for many technologies.

So, that’s where we began. We began with those, what you might say, last-mile pioneers. But then, you trace it back; then there had to be the initial mobile phone companies in the United States, and those faced a lot of obstacles. There had to be the inventors.

So, you have the Marty Cooper. I tell the story of Marty Cooper at Motorola. Which was hardly an upstart, but it really was the challenger to Ma Bell [Mother Bell] at the time and not the obvious candidate for having developed the first mobile handset. And, Marty Cooper’s story is tremendous. Marty is still alive–the guy who made the first call on a mobile handset. Actually, Iqbal and I did an event with him on the day of the anniversary–50th anniversary–of the first call placed on a mobile handset. So, there’s Marty Cooper’s story and the whole story of how Motorola developed the first mobile handset.

And then, you go back again to AT&T[American Telephone & Telegraph], Bell Labs, and this notion that Bell Labs was possibly the greatest single institution responsible for invention in human history. It’s a claim that one can credibly make. And, mobile telephony is just one technology that really originated across multiple dimensions, not just the transistor, but the network and extension.

And, then, of course, we go back to–where did the name Bell come from? Alexander Bell. Alexander Graham Bell. So, that’s actually where the book begins, is at the Centennial Exposition in Philadelphia, 1876, America’s first World’s Fair, where Alexander Graham Bell debuted the telephone.

Philip Auerswald: What could be better, right?–

Philip Auerswald: No, not back then. No.

Philip Auerswald: Yeah, known to absolutely nobody.

Philip Auerswald: Yeah, E.K Jett, yeah.

Philip Auerswald: Well, there’s so much in that question, Russ, I don’t even know where to get started. I mean, you’ve picked out obviously two very significant names that I did not reference, and just to the point of how many contributors there really were to the mobile revolution. But, let me–

Philip Auerswald: No, no. [inaudible 00:19:05]–

Philip Auerswald: of course, just now.

Philip Auerswald: No, of course. I mean, there’s a lot about Claude Shannon, something about Steve Jobs.

So, I want to start by directly answering your question, which is that: I don’t know. One of the phrases I developed kind of for the marketing material in this book–I think it’s in the introduction someplace–is: ‘We too often confuse high net worth with net impact.’ And, we’re in a culture where we do celebrate entrepreneurs, and these entrepreneurs these days, at least from my vantage point, from how I see things, now have a little bit of a complicated public persona. When we think about an Elon Musk or a Mark Zuckerberg or so forth and so on.

So, a decade ago, it was a little simpler. I remember 15 years ago when Silicon Valley seemed a pretty nice place everyone was excited about. But these sort of tech titans, as we’re thinking about them–there’s a tendency, and it is a very flawed and mistaken tendency, a deeply flawed and mistaken tendency, to identify entrepreneurship with those few people–these few very wealthy, Silicon-Valley-situated success stories. That is not entrepreneurship. It has never been entrepreneurship. It will never be entrepreneurship. It is a very small fraction of what the entrepreneurial process is.

Strive Masiyiwa and Iqbal Quadir also are not representative. And, as we know, most entrepreneurship is a single proprietor: It’s anybody who takes initiative to build something, create something in the world.

So, it’s a huge phenomenon, it’s a global phenomenon. I think it’s a very significant phenomenon. But, why do we not celebrate these stories?

Now, you went beyond entrepreneurship. You talked about E.K. Jett, who was a government bureaucrat, but who wrote an article for the Saturday Evening Post that was really about the future of mobile telephony, and he wrote it in July 1945. And, so, it was the same month that Vannevar Bush wrote, As We May Think, talking basically about the Internet. So, these two visionaries saw the mobile phone and the Internet at the same time. Now, Vannevar Bush is known–

Philip Auerswald: more than E.K. Jett, but so it wasn’t just entrepreneurs you talked about.

And then, Claude Shannon. I mean, if anybody deserves to be a household name in the United States and anywhere else, it’s Claude Shannon. What an incredible figure. What a remarkable individual. And, to be able to contribute to adding to that [?]–I mean, of course people do write about Claude Shannon, he is remembered, but, so I don’t know the answer to that. I don’t know the answer to that. But that’s certainly one of the reasons I wrote this book.

Now, if I could just go on one more moment–

Philip Auerswald: about Steve Jobs.

So, one of the aspects of this story, when we think about–there’s a lot of the book, about first third–focuses on Iqbal Quadir’s story. And so, why so much about Iqbal? And then, Strive. And I think they do merit that.

So, Iqbal started working on what was Gonophone and then became Grameenphone in 1993–and we already talked about where Bangladesh was at that time. Iqbal exited Grameenphone. He sold his position in Grameenphone at the same time that Apple was beginning to think about the iPhone. So, that gives you a sense of how early Iqbal was. It was certainly not the iPhone that influenced Grameenphone. Grameenphone was in a previous generation. Nonetheless, I’m not saying that Steve Jobs doesn’t merit his reputation as really one of the great consumer tech visionaries of the last century.

And then, Shannon–we could just go on; that could be an entire different podcast around Shannon–but Shannon is a foundational figure in not just mobile telephony, but computing and communications, generally speaking. And, somebody to which we owe–whether we want to blame him or thank him–but a lot of the world we exist in was at least significantly advanced or would not exist without Claude Shannon.

Philip Auerswald: Yes. A person about whom you’ve done some thinking.

Philip Auerswald: you have some understanding–just a little bit, yeah.

Philip Auerswald: Yeah. Yeah.

Philip Auerswald: So, there are a lot of different types of entrepreneurs, and I’m not at all going to make the claim that Iqbal, who as I indicate and as I describe in the book, I know well, is typical. I don’t necessarily think he’s atypical, either, in the specific regard that I’m about to mention, which is that: Above all, he’s an economic theorist. He is somebody who, from the very beginning, was interested in ideas, interested in history, and focused on the practical application of what he learned from studying Smith and Hayek and works of history that he engaged with very deeply in his 20s and 30s. And, that didn’t just inform, but really formed his notion for Grameenphone.

So, Grameenphone is a expression of an understanding derived from theory, and a successful one. And among the theorists who was most influential in this was Adam Smith.

So, now let’s sort of contextualize Adam Smith. I certainly do not claim to be an expert on Adam Smith, but any of us who is in the field of economics, we’re all fans or influenced one way or the other.

My favorite book about Smith is actually Albert Hirschman’s The Passions and the Interests, which is barely about Smith at all, but is about the couple of centuries of economic thinking that led up to Smith. And, for anybody who has not read that book, I would say that is one of my top five favorite books in economics and just is full of really great insights that I believe are actually directly relevant to A Phone Is a Cow.

And, so, one of the beautiful things about, I think, the way that Iqbal was influenced by Smith, is it makes us rethink history as we understand it.

So, just: quick digression. This year we are celebrating the 250th Anniversary of the founding of the United States of America, or at least the Declaration of Independence. And so, one of the hallmark events that leading up to the Declaration of Independence was the Boston Tea Party, and that was a reaction to taxation without representation. Right? So, the Crown imposed taxes on the colonies, and we did not have a role in that.

A question that’s not asked, often, is: Why were those taxes imposed to begin with?

And the reason is: The taxes were imposed to finance Britain’s colonization of Bengal. Which was in some ways the economic center of Asia and a crossroads of the world. Bengal–the textile revolution began in Bengal and actually then migrated to the United Kingdom. And so, Bengal was a place of tremendous importance and significance and was Britain’s first expansionary colony, the colony of subjugation. The United States was a colony of colonization, Bengal was a colony of subjugation. And that required tremendous expenditures to maintain. And, that’s the reason we had the American Revolution, was because we were taxed to finance Bengal.

So, there’s a complete–we only think about Bangladesh. You know: Concert for Bangladesh and the famine and the revolution and the miserable history of Bangladesh in the 1970s.

Most people in the United States have not gotten past that idea. That’s still where we think about Bangladesh: desperately poor place; Muhammad Yunus, Grameen Bank, all the rest of it, right?

Well, there’s a lot more to the story of Bangladesh and to Bengal. And Smith saw that. Smith wrote about Bengal as this sort of crown jewel. And, he also wrote about Bengal as a place whose wealth was derived from its communications network, going back to what we were discussing about earlier, but where, in the case of Bengal, the communications network consisted of rivers and channels and waterways that connected the country as a delta country–it’s the delta of the Ganges River. That, they connected the country in an exceptional manner. And that allowed commerce to flow from the coast to the interior.

And so, Smith wrote very eloquently both about Bengal’s wealth[?], and also about its subjugation.

So, to see–to discover–as a young Bengali at Wharton in the readings of the writings of Adam Smith, to see Bengal reflected and celebrated was tremendously empowering for Iqbal. And, from then forward, I think he really reinforced his notion that the misery that he knew of his country was not the totality of the story. That there was a before and there would be an after. And he was committed to being part of that after.

Philip Auerswald: Yeah. Well, I mean, Russ, I won’t exaggerate things or seem to pander excessively by saying that I wrote this book just with the intent of appearing on EconTalk. It’s a lot of effort, more than five years, just for this hour–which, by the way, I do enjoy and appreciate.

But, this is one aspect of the book that I really thought you singularly would appreciate, because we don’t have that many philosophers in economics. And, I’m not saying we should. I mean, it’s become a very technical discipline. And, what constitutes a big idea in economics from the standpoint of the history of economic thought is not a very big idea.

And so–but this is a big idea. Predestination and agency, juxtaposed, is a big idea. It’s a bigger idea than me, it’s a bigger idea than you. It is among the biggest ideas that exist that we have. Right? Choice, free will, or destiny? God’s will, or our own agency? And so, that’s the third level. Right?

You talked about–the first level is the mobile phone, and Iqbal and Claude Shannon, and this detailed history–which I just loved getting into. And to me, that was the fun of the book. Right?

And then there’s this next level of the history of technology: How do we think about economic development, theories of economic development? And so, there’s a kind of like a theory level, but then it occupies.

And then, there’s this philosophical level. So, the closest I get to that is talking about Tolstoy’s second epilogue to War and Peace. And actually, Tolstoy has a–this is one thing I bookmarked–so, it was a long passage, but at the end of it, Tolstoy writes, “Reason gives expression to the laws of inevitability. Consciousness gives expression to the essence of freedom.”

And so, he juxtaposes this notion of inevitability–which could be technological inevitability. How much does it matter that we had Iqbal Quadir or Strive Masiyiwa? Right? Once you had the building blocks of a mobile phone–once you had the value that a mobile phone creates–it was going to get to Bangladesh. Does it really matter that one or another person did it? Do we have any choice at all in our technological future?

Once something is created in a planet of eight billion people, someone’s going to figure it out. And, if someone decides not to do something, somebody else will do it. Nuclear weapons, whatever it happens to be, these things are all inevitable in some sense, in some way of thinking. Our reason tells us that. Our minds tell us that we really have no way of controlling these forces that are beyond us.

And, the political philosophy of inevitability is Marxism. And, it’s Marxism, not in a derogatory term. It’s not to say, ‘Oh, it’s bad Marxism.’ It’s thoughtful Marxism. It’s thinking about history as, very specifically, class struggle; but beyond that, simply an inevitable force in which human beings play no significant part.

And then we have the opposite: the Great Man theory of history. Right? And, it could be the Steve Jobs, it could be the Iqbal, it could be the anybody. It could be the Mother Teresa. These exceptional people who, without whom, nothing that we see would have occurred. I just said that about Claude Shannon, right? You said we’re all living in Claude’s world.

And, so, how is this resolved? And, in my view–and I’ve held this view for a very long time: if there’s a single idea that’s motivated my intellectual interest for the last 30-plus years–it is the notion that they’re both true. It’s just not that hard a problem.

I mean, it’s made out to be a hard problem. The whole struggle between Socialism and Capitalism is made out to be a very hard problem. Is everything inevitable, or are we these just sort of capitalist, free-will people, Ayn Randian creators: Is it one or the other? It’s both, it’s just both.

And, that’s what I loved about Sid’s piece. Even though it’s just a couple of pages, it’s very simple. It’s both. We have entrepreneurial initiative, we have free will, and we exist in a world in which a lot is predetermined. They simultaneously–they coexist in this sort of magical way.

At least that’s the way I see it. I can’t see it any other way. And, that’s really what I’m intending to say in this book.

That’s what the book is fundamentally about: is to explore this duality of truly exceptional people who have capacities that other people do not have, who have determination that other people do not have, who deserve to be celebrated in just the way you said earlier. We should be telling these stories. And, at the same time, there’s this combinatorial progression of change over which we have not that much control, and these things exist simultaneously.

Philip Auerswald: Who they benefit, how they benefit people at certain points. Exactly.

Philip Auerswald: I appreciate your qualification, and you phrased it better than I did just now. It’s a little bit of a subtle thing to articulate. And, I was just looking in the book–you know how it is with books, you finish a book and then I’m well into my next book, and then you get the book–

Philip Auerswald: I actually, I read it yesterday. I read it yesterday, and I thought, this is pretty good, I like this book. But, that’s one of the things I love about–this is not my first experience with this–that when you discover a book, you get the physical book and there’s just something about the physical book. I’m old school–something about a physical book, even your own physical book, that when you read it, it reads differently. So, I have to say, full disclosure: I like the book. I mean, I feel like it’s probably the best thing I’ve done, such as it is.

But, so, I did say that by way of, I wanted to find the specific quote.

Philip Auerswald: Well, the quote from Smith, it was a very specific quote. Yes, here it is. I found it, amazingly.

Philip Auerswald: So, this is about agency:

The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security is so powerful a principle that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations…. [Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, B.IV, Ch.5, paragrah 82]

Philip Auerswald: Wealth of Nations, Book Four. I mean, I almost wanted to read it again, it’s so beautiful.

Philip Auerswald: To light streets–

Philip Auerswald: Which is central to that paper–

Philip Auerswald: Right, right. Yeah, right.

Philip Auerswald: Yeah. I mean, I guess a few of us economists who are specialized in the economics of technology and innovation–I guess any subfield probably talks their way into thinking, like, ‘This is the only subfield that matters.’ And, so, with deference to all the other subfields in economics–and then when you talk about the economics of Production Theory, which is really my technical area–that’s, like, 12 people that care about production. That’s a settled problem: nobody is thinking about the production function. But to me, that’s an interesting thing to think about.

So, the Nordhaus paper. The Nordhaus paper perfectly encapsulates what we were just discussing about free will versus inevitability. And you also referenced GDP [Gross Domestic Product] growth. We could talk about diffusion–technological diffusion, S-shape diffusion curves. Right? And, you look across any technology, there it is: there’s the S-shape diffusion curve. Everything is so regular and smooth that it’s hard to imagine that there’s any discontinuity, any insight, any moment of particular significance underlying it.

And so, Nordhaus’s paper traces out this incredible decrease in the amount of human effort required to illuminate at night. And so, on its surface–and it’s a very powerful paper; and one of the things that it goes back to one million B.C. You talk about the long view, it’s in terms of–

Philip Auerswald: Yeah, a wood fire. Yeah, fire, going back to fire.

So, in terms of the long view, in terms of the work that’s been recognized by the Sveriges Riksbank–the Nobel Prize of Economics, so-called–it’s kind of unique. But then, and I guess if I was trying to imagine what might have been new in this book about that paper, maybe I would have guessed correctly, which is the discontinuities underlying that.

I can’t really improve on the way you characterized it. I was pulling up the table, but you remembered off the cuff a lot of the highlights, and I think that the jump from whale oil to electrification is a terrific example. And, we can attack the fossil fuels industry, and of course we’re very concerned about climate change and all that, but before that, we were burning fellow mammals. And that was worse. So, I think this–

Philip Auerswald: And burning down forests, exactly–

Philip Auerswald: Just to stay alive. So, when we think about technological progress, what seems like regress in some sense–there’s always these paradoxes of progress. We don’t see the way in which we have improved across multiple dimensions, not just efficiency dimensions, but also ethical dimensions, as you were just referencing.

So, anyway, yes; that is a core point of the book and it’s reflected in that paper. And, I guess the big idea is that human progress is about new technologies coming into being and becoming widely used, and that’s what this book is about.

It’s not just technologies coming into being. It’s not just innovation–what Schumpeter talked about as innovation, a successful market demonstration. The landline was a successful innovation. It reached hundreds of millions of people. But it didn’t come close to reaching the majority of people worldwide. The mobile phone did.

And so, it’s a combination of creating new technologies–what Schumpeter talked about–carrying out new combinations. That was his phrase for entrepreneurship, ‘Carrying out new combinations.’ It’s to bring those market innovations to people. And that’s what Iqbal Quadir did, that’s what Strive Masiyiwa did. That’s really the focal point of this book, although there’s a lot of other elements to the mobile revolution.

And, I will maintain–given my areas of interest and expertise, I will maintain that there is no comparably important question in economics. Because, this is the question of human progress. This is the question of human wellbeing over the period of millennia. Everything else–about resource allocation, about policy, about macro–everything else is a footnote to this larger question of how new things come into being and how they reach most people. I cannot see it differently than that. [More to come, 51:38]