The link between ICT and economic growth in the discourse of

development

1 INTRODUCTION
st
A striking feature of the world at the beginning of the 21 century is the gross inequalities between the
socio-economic conditions of different communities. The most visible of these relate to the world
development problem of inequalities among nations. Contemporary discourses on development
consistently identify ICT as a requirement for economic growth and the improvement of social
conditions. Strictly speaking, this is not a new discourse; ever since the advent of computers, government
policy advisors and international development agencies have pointed to the opportunities the technology
opens for development. More recently, however, the link between ICT and development has been
articulated in the alarming terms of the ‘digital divide’. There is concern that developing countries are
deprived of the opportunities for economic growth and life improvement generally enjoyed by advanced
economies because of the scarcity of ICT, particularly limited Internet connectivity.

The lack of ICT is understood to be an important factor contributing to the widening of the gap between
‘developed’ and ‘developing’ countries, as shown by world socio-economic indicators published in the
annual reports of international development agencies, such as those from the World Bank and the United
Nations Development Programme (UNDP) discussed later in this paper. Many high profile initiatives
have been undertaken to remedy this problem. They typically aim to create awareness on the benefits of
ICT, raise investment, and promote policy measures for the deployment of telecommunications
infrastructures and the diffusion of ICT applications in all societal sectors. Notable examples of these
projects include the Digital Opportunity Task Force of the eight major industrial nations, G-8 (Dot force
initiative, http://www.dotforce.org), the World Summit for the Information Society of the United Nations
and the International Telecommunications Union (WSIS initiative, http://www.itu.int/wsis) and the World
IT Forum of the International Federation of Information Processing (WITFOR programme, http://
www.witfor.lt).
For many information systems scholars and professionals, such a general association of ICT with
socio-economic effects is of questionable validity. It is well understood in information systems studies
that the actual ‘effects’ of ICT in the place where it is used cannot be identified in terms of the potential
of the new technologies as manifested in the laboratory or as realized in other social settings. ICT
innovation is a process that takes place within the formative conditions of a particular social and
organizational context (Suchman 1987; Ciborra and Lanzara 1994; Avgerou 2002a). With specific
reference to the question of ICT and development, the literature on information systems in developing
countries includes a substantial amount of empirical evidence, mainly case studies, that reveals the
situated manner in which information systems projects take shape within communities striving to improve
their life conditions – see, for example, the publications of past IFIP 9.4 conferences (Bhatnagar and
Bjorn-Andersen 1990; Bhatnagar and Odedra 1992; Odedra-Straub 1996; Avgerou and Walsham 2000;
Sahay 2000; Krishna and Madon 2002). At the organizational level of analysis, information systems
researchers and professionals are well aware of the tension between the situated nature of the course of
change and general, apparently rational, theoretical propositions on the way ICT impacts – or should
impact – on organizational performance.
Nevertheless, the discourse of international development agencies on the role of ICT merits attention in
information systems research because it constitutes part of the institutional context of the micro-level
processes involved in the formation of information systems (Avgerou 2002b). This discourse influences
the legitimacy of professional interventions towards specific objectives and sensitizes ‘users’ to a
particular view of the way ICT may affect their lives. The current emphasis on the digital divide as the
major contemporary problem facing developing countries also determines the way the meaning of ICT-
based information systems is understood in universalist terms. It conveys specific views on why Internet
connectivity is important and what it should achieve for even the remotest communities of the world. For
example, interventions to develop community ICT services in poor regions bear implicit promises for
economic benefits through participation in the global market and for rationalized citizens/government
interactions. Moreover, there is a tendency to see such ICT centres as sustainable businesses in their own
right (Best and Maclay 2002). In other words, a universalist discourse on ICT and development constructs
and spreads in developing countries specific development visions of new, technology-mediated modern
lives.
In this paper, I examine the relationship between ICT and economic development in four recent
influential publications: UNDP’s 2001 Human Development Report, Making New Technologies Work for
Human Development (United Nations Development Programme 2001); the 2002 World Development
Report, Building Institutions for Markets, of the World Bank (2002); and two publications by the Center
for International Development at Harvard University, The Global Information Technology Report:
Readiness for the Networked World (Kirkman et al. 2002), and The Global Competitiveness Report 2001-
2002 (Porter et al. 2002a).
All these publications propose ICT as an instrument for economic and social gains within a market
regime, and they elaborate on the conditions under which ICT plays this kind of developmental role. The
central issue in the discourse in these texts concerns the socio-economic conditions that are favourable for
the mutual re-enforcement of ICT innovation and an effective market. To examine the logic underlying
the suggested conditions, I then look briefly at the theories that inform these documents and the
controversies surrounding them. I conclude by arguing that the tool-and-effect link between ICT and
economic development exemplified in these publications is dubious. My contention is that such a link is
based on a narrow economic perspective of human action which ignores recent socio-economic theory of
development and is not informed by the evidence on processes of development that has emerged from the
th
few countries which achieved substantial economic growth in the last decades of the 20 century.

2 EXAMPLES OF THE DISCOURSE ON ICT AND DEVELOPMENT

UNDP’s 2001 Human Development Report (United Nations Development Programme 2001) is a good
example of the association international organizations make between ICT and development, not least
because this series of UNDP reports takes a broad view of development as a socio-economic condition
that goes beyond a narrow consideration of economic growth. The 2001 UNDP report seeks to present a
clear association between technology and desirable development effects, giving special attention to ICT –
particularly the Internet. Indicatively, it quotes a World Bank study (Preker et al. 1999) that showed
‘technical progress accounted for 40-50% of mortality reductions between 1960 and 1990 – making
technology a more important source of gains than higher incomes or higher education levels among
women’ (ibid., p. 29). The UNDP report asserts that, ‘(c)ross-country studies suggest that technological
change accounts for a large portion of differences in growth rates’ (ibid.).
More importantly, this report attempts to qualify how technology, especially ICT, is ‘enabling’
development effects. The association between technology and human development is presented as
follows. Technological innovation enhances human capabilities – such as a healthy life, knowledge,
creativity, and participation in the social, economic, and political life of a community – and impacts on
economic growth through productivity gains. At the same time, human capabilities are an important
means for achieving technological innovation. Therefore, technology innovation and development are
‘mutually reinforcing, creating a virtuous circle’ (ibid., p. 28).
This ‘virtuous circle’ model is a significant step towards tracing the dynamic relationship of technology
innovation and development, which goes beyond the static association of ICT diffusion and growth rates.
Nevertheless, the UNDP report chooses to elaborate mainly on the argument that ICT innovation achieves
developmental goals, thus retaining and cultivating a view of an instrumental relationship between the
means of ‘technological advance’ and the desirable effect of ‘human development’. Although the authors
of the report explicitly recognize that technology may well be ‘a reward of development’, rather than
being a tool for development, they are keen to dismiss this interpretation and assure readers that
‘technology is a tool for, not just a reward of, growth and development’ (ibid., p. 27).
This indicates a need to take a closer look at the reasoning that sustains the tool-and-effect association of
ICT and development, in order to help answer the question: How is ICT understood to contribute to the
process of economic development? For this, relevant explanatory insights are provided by the two recent
publications of the Center for International Development at Harvard University mentioned in the previous
section.
The report on the ‘networked world’ begins with the statement that ‘the Internet and other ICTs have
fundamentally changed the way the world works’ (Kirkman et al. 2002). It then sets out to analyse,
understand, and measure the link between ICT and development, with a particular focus on the issues of
developing countries. The economic reasoning of its premise on the role of ICT in the development
process is that the technology enhances the functioning of the markets because it provides information to
producers and consumers in order to help them make efficient choices (Eggleston et al. 2002).
Kirkman et al. (ibid.) propose a framework of factors contributing to a country’s capacity to exploit the
opportunities offered by ICT. On the basis of this framework, their report derives the ‘Networked
Readiness Index’ and ranks 75 countries on it. This index is composed of (a) measurements of the
diffusion of the Internet and other ICT components and (b) assessments of a number of factors considered
to be preconditions for high quality use of the Internet and its further proliferation and application.
Important factors to that end identified by the authors of the report include: infrastructures for network
access; the level of competition in the economy, particularly in the telecommunications and ICT sectors;
social conditions, such as education level and the incorporation of ICT in education; and the extent to
which ICT has been incorporated into business and government activities.
In this analysis, the market is the mechanism through which ICT is associated with economic
development. In effect, this report identifies the virtuous circle process more specifically in terms of ICT
and an effective market regime. But the relationship between ICT and market-driven development is
presented in a self-referential way. The existing capacity of ICT in the socio-economic fabric is
considered a condition of ‘readiness’ for further ICT development through network-based activities. The
diffusion of ICT in all sectors of the economy and society, together with the liberalization of the
telecommunications sector, are set up as desirable policy targets in their own right. And it is assumed that
market mechanisms are required to achieve the developmental potential of the technology. For example,
‘quality of learning’ is taken to be the extent to which ICT is incorporated into education, and the
privatization of telecommunications is identified as the main criterion for assessing network policy.
However, at present there is little evidence that ICT contributes to better educational systems, even in
industrialized societies, while there are studies showing that market mechanisms cannot be relied upon to
provide telecommunications access for poor communities in remote areas of developing countries
(Bhatnagar 2003).
Porter et al. (2002b) in their Global Competitiveness Report 2001-2002 provide an analysis that
differentiates the role of ICT for development in different socio-economic conditions within the global
market. They present economic development as a process that moves successively through three general
states based on national income levels. At the low-income level, economic growth is determined mainly
by the mobilization of land, primary commodities and unskilled labour. At middle-income level, national
economies get integrated into the international production system and economic growth is increasingly
achieved by adopting foreign technologies in local production. Economies at the high-income level
achieve global competitiveness through rapid technology innovation and high rates of learning, especially
science-based learning.
In discussing these three states of development, Porter et al. (ibid.) suggest that technology innovation has
little significance in low-income economies, for which the main challenge is to get the basic market
factors of land, labour, and capital to work properly. The harnessing of ‘global technologies’ acquires
greater importance as countries move from low to middle income. The institutional characteristics of the
knowledge-based economies at the high-income level include continuous training and upgrading of the
workforce, high labour mobility across enterprises, and a dynamic combination of fierce competition and
cooperation among enterprises. Governments play a crucial role in the higher education, R&D, and
market regulation that supports start-ups and high-tech enterprises, while business firms become less
hierarchical and form flexible buyer-supplier networks.
From this report’s perspective, the role of ICT therefore varies according to the extent to which a
country’s market economy has developed the capacity to enter the global market and to sustain
competitive advantage. The problem of pursuing the virtuous circle of ICT innovation and development
in the global competitive market surfaces again here. The analysis of the role of ICT in terms of
competitiveness does not explain how progression on the ranking scale occurs. The linearity of the model
and the notion of competitiveness suggest that the more successful economies in the global market are
more capable of technology innovation to enhance their economic gain and, thereby, to disadvantage
those less techno-economically capable of doing so.
Indeed, the authors of the report note that the hardest transition along their three-stage model of
development is from a technology-importing, efficiency-based ‘middle’ level economy to the innovation-
based, high-income knowledge economy. They point out that the challenge for policy lies in the process
of adaptation to new institutional conditions at the transition points of the model. This observation
suggests the need to shift the study of the way ICT is associated with development from tracing the purely
economic reasoning of the market to consideration of the social conditions that sustain it. What are the
institutional conditions of the mutually reinforcing processes of ICT innovation and a growth-fostering
competitive market?
The 2002 World Development Report of the World Bank elaborates on institutional conditions considered
conducive to competitive economic action (World Bank 2002). It explains a particular view of how
institutions support markets: they channel information about market conditions, goods, and participants;
they define property rights and enforcement mechanisms; and they increase competition in markets. Thus,
state government is seen to be important for the regulation of property rights and their enforcement.
This report highlights the importance of the historical context of an economy and advises that new
institutions should be built by complementing existing ones. Nevertheless, it provides clear direction
towards ‘good governance’. This is understood in a somewhat cyclical manner as the state provision of:
institutions for the creation, protection, and enforcement of property rights; a regulatory regime to
promote market competition; and sound macroeconomic policies that create a stable environment for
market activity. In short, to the extent that social change is understood to be implicated in the dynamic
intertwining of technology innovation and an effective market economy, the current discourse on
development seeks to emulate the institutions of the few societies that have achieved the mobilization of
ICT innovation to sustain economic growth through competitiveness in global markets.
However, this leads to the question of whether it is possible for developing countries around the world to
emulate the human and institutional conditions of the few techno-economically advanced societies, and
whether such emulation is an effective development strategy. I examine these questions in the following
section by addressing the economic theory that underpins the views of market-driven development.
3 CONTROVERSIES IN ECONOMIC THEORIES OF DEVELOPMENT
The central concern preoccupying the four publications examined in the previous section focuses on how
ICT can become an instrument for development in the context of the global market economy. This
reflects the prevailing views in this domain and takes us to the core issue of development theory since the
th
mid 20 century: economic growth. However, these views are not uncontroversial. To understand better
the limitations of these propositions on ICT and development, and the reasoning that seeks to justify
them, I now examine the theoretical underpinnings of economic development and their related policy
debates. In a nutshell, the prevailing perception of the development problem focuses on how to establish
efficient markets in societies that, for various historical reasons, have low production capacity, ineffective
allocation of existing productive resources, and inadequate trade mechanisms. In neo-classical economic
theory, economic growth rests on two fundamental assumptions: the rational behaviour of economic
agents – individuals and business organizations – and the capacity of market competition to eliminate
inefficient producers and to create equilibria of production and consumption at optimal conditions of full
employment and the lowest consumer prices. From this view, development therefore consists of efforts to
transform the socio-economic regimes that exist in different countries into such free markets. To achieve
this, development policies are expected to include: abolishing protection of national industries from
foreign competition and eliminating trade barriers, in particular barriers to the flow of capital;
privatization of organizations governed by political control, such as telecommunications; and exploitation
of natural resources, mainly oil and minerals. Governments following such policies assume the minimal
regulatory role of overseeing the legal framework of property rights that is required for the free market.
Two serious problems arise when putting this theory into practice. First, the experience of applying these
principles in Western economies has led to an understanding that the free market tends to run into crises,
known as ‘market failures’. Imbalances of production, prices, and consumption give rise to combinations
of undesirable conditions, such as inflation and unemployment. The second problem is that although,
arguably, the theory is the basis of economic performance of the few rich countries of the world, little is
known about how it can be fostered in the countries that are currently poor.
The main challenge to the neo-classical economic perspective of development stems from the theory of
new institutionalist economics (NIE). This assumes that the rational individual choice on which neo-
classical theory is built is unrealistic because individuals rarely possess complete information about the
market. As a result, economic transactions require the search for relevant information, with such a search
entailing costs. In addition, economies involve negotiations and the establishment of contracts for
minimizing risks; they also need mechanisms to enforce such contracts. Moreover, the rationality of
individuals’ decisions is biased by their ‘mental models’ (North 1995), their culturally-formed values
about the world. Collectively, these factors can lead to inefficient economies.
With these observations, NIE broadens the analysis of rational behaviour across cultural and political
dimensions. It shifts attention to the significance of institutions, that is, the formal rules and informal
conventions that govern the behaviour of economic actors – whether individuals or firms. Institutions are
important because they limit the scope of search of economic choices, thereby reducing transaction costs.
They also reduce uncertainty by providing enforcement mechanisms. While market competition remains
the core mechanism for increasing efficiency, NIE shows economic and non-economic institutions play a
key role in shaping the economy. Indeed, the economic history of today’s advanced economies shows the
importance of government organizations in preventing and correcting market failure. A network of
organizations standing watch over the market dynamics are ready to intervene, primarily in financial and
capital markets, not only with regulatory capacity but also as economic actors in their own right.
Moreover, state organizations play a significant role in shaping the political rules and social norms that
drive, or at least influence, the decisions of economic actors.
In effect, NIE regards non-market institutions as mechanisms for overcoming the costs and risks of the
market, thus serving the economic interests of rational individuals and firms. It provides both the grounds
for an interventionist state and legitimacy for the involvement of multiple civic actors in the development
effort, which are seen as necessary for providing support in the transition to an efficiently functioning,
largely free-market economy. Moreover, NIE recognizes the diversity of mental models that are found in
different cultures and implicated in economic behaviour and institutional arrangements. Policy
possibilities depend on the institutional history of an economy. In the jargon of NIE, economic change is
‘path dependent’, in that it is constrained by the historically developed institutions of a society (Toye
1995).
Policies of development in almost all countries demonstrate the influence of varying combinations of neo-
classical and NIE theories. Many policy analysts, though, are critical of the prevalence of neo-classical
ideas in the policy recommendations of the most powerful international development agencies. For
instance, Stiglitz voices strong criticisms of the policies of the International Monetary Fund (IMF) and
US Treasury – what he calls the new ‘Washington Consensus’ about the ‘right’ policies for developing
countries – because they are based on the orthodoxy of the neo-classical economic prescription of
economic restructuring towards a global free market regime with unrestricted trade and capital flows
(Stiglitz 2002). This kind of policy, he argues, does not target the poor who are only marginal in the
underdeveloped markets; the expectation is that the incorporation of developing countries into the global
free market will have ‘trickle-down’ beneficial effects for their poor populations. Stiglitz’s critique
emphasizes the importance of building institutions for the free market along locally-meaningful routes,
such as the World Bank’s advice to establish a competitive banking system and a legal system able to
enforce contracts (World Bank 2002).
Stiglitz (ibid.) goes even further than suggesting the importance of developing institutions for the market.
He is critical of policies that aim to reduce the role of government in developing countries as he argues
that strong and effective government, rather than less government, is required for the transition to
effective markets. He looks at the course of development during the 1990s of different countries, some of
which followed the development prescriptions of the IMF while others resisted these pressures by
implementing policies and taking action they considered locally appropriate. He cites China, Malaysia
and Poland among the developing countries that have done better in raising their populations above
poverty, avoiding crises, and coping with international economic crises. He argues that their governments
have succeeded by seeking to change towards free-market regimes through a careful sequencing of the
opening of the economy to the building of necessary institutions and by the pursuit of ‘homegrown’
policies sensitive to the specific needs and concerns of the country.
Other critics of neo-classical economic theory highlight the significance of politics in the development
process (Bates 1995; Leftwich 2000). The basic premise here is that the assumption of rational choice for
the economic actor is complicated by a diversity of interests, preferences, values, and ideas. Thus,
economic behaviour – basically the use, production, and distribution of resources – involves activities of
conflict, cooperation, and negotiation. This consideration of politics alters significantly the understanding
of the market-led development process in at least two ways. First, it highlights the centrality of state
government in shaping the course of development. Second, it reinforces the contextual, historically
contingent nature of a society’s development process.
Evidence for the validity of such an understanding of the development process comes from the history of
the so-called ‘developmental states’ clustered in East and South East Asia: South Korea, Taiwan,
Singapore, China, Indonesia, Thailand, and Malaysia (Wade 1990). These are the very few countries that
managed to achieve average annual GNP per capita growth rates in excess of 4% between 1965 and 1997.
Governments in all these countries had a much more prominent interventionist role in the economy than
suggested by neo-classical economic theory and most versions of the NIE. For instance, the economic
growth of Taiwan, South Korea, and Japan in the 1980s shows that the governments of these countries
used state power heavily to manage the market (Wade ibid.). This included raising surplus for investment,
ensuring that a high proportion of this was invested in productive capacity within the country and in
industries that would yield higher wages in the future, and exposing investment projects to international
competition.
Studies of technology innovation in the developmental states have also recognized the significance of
interventionist government policies in fostering high-tech industries, as well as in steering technology
innovation across industries (Freeman 1987; Hobday 1995; Archibugi and Michie 1997). However, it is
important to note that studies of this region have not resulted in alternative universal theories of
development, or general models of techno-economic action. In looking at the way Korea, Taiwan,
Singapore and Hong Kong achieved innovation-driven growth, Hobday (1995, p.4) notes that
‘(h)ighlighting the plurality of government policies and development models within the region, the study
shows that there was no single path to development, nor any single model or lesson for other developing
countries’. The main conclusion towards which such studies converge is the broad observation that the
political institutions of the developmental states diverge from those associated with successful economies
in western democracies.
The position outlined above can be summarized as suggesting economic development is a situated,
context-specific process that is entangled with indigenous politics and historically-formed institutions.
This echoes Granovetter’s (1985) thesis of economic action embedded in social structures; his critique of
economics as an under-socialized conception of rational action is particularly relevant here. In this light, it
is not surprising that ICT does not serve all societies equally well as a tool for development. Therefore,
although universalist models of rational economic behaviour may offer useful working hypotheses, the
social relations within which economic action is embedded may drastically change the scope of desirable,
feasible – and therefore rational – action.

4 CONCLUSION
The static picture of ICT and development measures presented in the tables of development
indicators assembled by international development agencies makes a strong association between ICT and
development: the more successful economies have more technologies and are better prepared for using
them to their competitive advantage. This paper’s brief discussion of four such publications has shown
that this association tends to be interpreted as indicating that ICT is an instrument for development.
However, if we consider the dynamics of ICT and development, that is, if we consider ICT
innovation and development as processes rather than as states exemplified by existing societies, the close
correlation between ICT innovation capabilities and success in the market tells a different story. It shows
that a few economies have historically developed an institutional setting that sustains the mutual re-
enforcing of competent free-market economic activity and ICT innovation, but that such a process has not
been set in motion in developing countries. Yet, developing countries are now advised to simultaneously:
acquire the ICTs that served the advanced market economies well; emulate their institutions; and engage
in innovation-driven free market competition. This is an unrealistic expectation because, as the critics of
neo-classical economic theory and policy have pointed out, economic and institutional change is a path-
dependent, historically-contingent process. Thus, ICT continues to be a factor responsible for the
widening of the huge difference between the rich and the poor societies measured along the multiple
linear scales of progress in the global market economy.
This argument does not suggest that ICT is inappropriate for developing countries, but it does
indicate the misguided nature of the universalist visions of economic and institutional development that
currently accompany efforts to promote the diffusion of the technology. These visions frustrate efforts to
make sense of locally meaningful ways of accommodating ICTs in socio-economic activities. They
prescribe what ICT is used for and restrict the scope for the improvisation that is necessary for making
technology a trusted actor amidst the negotiations which bring about effective courses of action for
change in industry or government.
Information systems professionals in developing countries have for several decades been called on
to support the transfer of business practice that has been considered to be effective in the successfully
competitive economies, such as business process re-engineering, integrated enterprise information
infrastructures, or customer relationship management systems. More recently, they have been channelling
their professional skills into e-government projects, which has involved them in intervening in the
explicitly political setting of government administration. There is a widespread expectation that
government can be transformed into a network of rationalized institutions, as seen desirable from an
acontextual view of economic development.
It is important that information systems professionals in developing countries should be aware that this
view is controversial in economic theory and policy, and that there is hardly any evidence to date that it
delivers its promised results of entering a virtuous techno-economic circle. As emulation of western
organizational practices in developing countries has rarely succeeded, the pleas in information systems
literature for situated action appropriate to formative contexts have taken on a particular poignancy.