Saturday, February 03, 2007

How an Economy Really Gets Developed

by Ken Houghton

I can't find the reference now, but there was one of those "which developing countries have growing technology-based economies and which don't" surveys about a year ago where the list of "successes" looked very familiar.

In fact, it was pretty much the list of countries known for pirated software as presented in Bruce Sterling's sickly subversive Islands in the Net.

Now (h/t Boing Boing) comes more evidence that first-generation piracy leads to second-generation development:
ROMANIAN PRESIDENT Traian Basescu [said] that his country's IT industry would be nothing if it was not for pirated Windows software.

Basescu said, during a joint news conference with [Bill] Gates, that piracy helped the younger generation discover computers. It set off the development of the IT industry in Romania.

It also helped Romanians improve their creative capacity in the IT industry, which has become famous around the world. He claimed that all this piracy "ten years ago" was an investment in Romania's friendship with Microsoft and with Bill Gates.

The Underground Economy/"black market" tends to be viewed as a bad thing by economists, one suspects because measures of it generally cannot be done accurately or directly, though there has been some recent interesting work in that direction. But the reality is that being able to overcome "barriers to entry" does not just apply to a firm; it is a prerequisite for working in a market, and not being able to work in a market rather clearly means you cannot participate in it.

Follow-up note from the WaPo version of the Reuters article:
Foreign investors say Romania's IT sector is one of most promising industries in the fast-growing economy thanks to high level of technical education in Romania, low wages and the country's thriving underworld of computers hackers.

That seems like a fairly direct utility function; treating the third as part of an error term would be an error in itself.

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could you check some other variables, please, besides piracy? I mean:
1. Widespread working knowledge of the English language
2. Early presence of IBM, SUN and Cisco training programs and early availability of IBM, SUN and Cisco hardware
3. Fairly developed native IT industry present before anybody heard of Mr. Gates and Microsoft
4. Well developed "big iron"-age IT infrastructure, widely available microcomputers and good network of wires and optic cables.
5. Science oriented and geek friendly school system.

Mr. Basescu was making fun of Bill Gates ... The Prime Minister even asked B.G. what he thinks about the OLPC project ...

Microsoft was a scourge for Romania: it drained the country of developers and money, and fed unrealistic expectations to the office workforce.
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