Closing the digital divide or it’s a digital toxic trade?

Have you have walked into any of these ‘fourth hand’ computer and other IT accessories’ shops mushrooming around town? Their merchandise is so rotten that you will have to let them fix it before you leave their shop. This is the same scenario being replicated in all the poor and developing countries the world over. Much of the growth in the IT sector in developing countries has been fueled and supported by the importation of hand-me-down, used equipment from rich, developed countries, whose consumers are all too happy to find buyers for it. As a result, many brokers and businesses have sprung up to channel used equipment from North to South, rich to poor. The reality is that this burgeoning trade is not driven by altruism, but rather by the immense profits that can be made through it and those involved are oblivious to, or unconcerned with, its adverse consequences. Too often, justifications of ‘building bridges over the digital divide’ are used as excuses to obscure and ignore the fact that these bridges double as toxic waste pipelines to some of the poorest communities and countries in the world. While supposedly closing the ‘digital divide,’ the rich nations are opening a ‘digital dump’. Like those shops around town, most often the electronics shipped to these countries are obsolete, missing important parts such as the appropriate software or are unfixable. The only use they can get out of such e-waste is to dismantle it and try to retrieve valuable parts and metals. Electronic equipment contains toxic substances such as lead, nickel, chromium, mercury, and others. According to EPA in 2007 only about 16% of electronics were recycled in the US. Of these 16 %, 50 to 80% are exported to poorer countries for recycling. In most of these countries the technology to recycle electronic equipment properly simply is not there. Recycling is done in the most primitive manner without any consideration for the safety of the worker and the environment. Because of the ever increasing innovations and the public desire for better and faster electronic gadget, the amount of waste may be doubling. It is bad enough we are filling the landfills with huge amounts of bulky material that maybe mostly not biodegradable. What needs serious scrutiny and serious measures is the enormous amounts of toxins that leaks into our soil, ground water and into the air This electronics waste, especially the most toxic parts gets shipped to my country by recycling companies because it is not profitable to recycle it themselves. Toxic e-waste such as CRT monitors and television are costly to recycle in house so these recycling companies ‘sell’ them to countries where health and safety and environmental laws, enforcement, infrastructure and citizens’ rights are very weak. Why does e-waste end up in my humble country? Aren’t there any laws against it? Simply stated, the rich countries are solving their e-waste problem by exporting it to poor countries around the globe. In these countries with no real electronics recycling infrastructure, the e-waste ends up in backyard recycling operations, often literally behind peoples’ homes or it’s shelved for us to be ripped off later. badthoglous@yahoo.com Emmanuel Nyagapfizi is a Management Information Systems manager Eswar PrasadCapital controls are back in vogue. Facing sharp currency appreciation and fearing asset-price booms fueled by hot money, countries such as Indonesia, Korea, and Taiwan have recently taken steps to limit inflows.Nervous central bankers in many other emerging markets, including India, facing pressures from exporters hurt by rising exchange rates, are contemplating broader controls on capital inflows as well. Earlier this year, the International Monetary Fund came out in favor of capital controls.So, does the new fascination with capital controls hold up to scrutiny?Capital controls remain a bad idea – an idea that is far more seductive in theory than in practice. Moreover, there is good reason to see inflows into emerging markets as an opportunity to strengthen domestic capital markets, rather than primarily as a threat to financial stability.Unrestricted capital flows could indeed spell disaster for an economy that has dysfunctional financial markets, high levels of corruption, and weak monetary and fiscal policies. So it might seem reasonable that emerging markets halt or even reverse the progress they have made on liberalizing capital flows in order to get their houses in order first.But re-imposing capital controls is simply not a fruitful option. When the incentives for money to flow across borders are strong, it will find a way, abetted by the proliferation of firms with operations in multiple countries and the expansion of international trade –which serves as a conduit for masking capital flows and evading controls.Even in a tightly managed economy like China, massive capital inflows have been able to find their way around controls over the last decade. Moreover, establishing controls on one type of inflow simply leads to its being disguised in other forms.Capital controls have real costs, even if they fail to stanch inflows. They create a layer of protection from competition for those who are better connected, politically or economically, or have the sheer heft to get around the restrictions. This puts medium-sized firms – the main engines of job creation – at a big disadvantage.Imposing controls also spawns uncertainty about a country’s policies. The stock-market collapse in Thailand in December 2006, following the imposition of a modest tax on equity inflows, is one example of what can happen. More generally, the cat-and-mouse games that ensue as the authorities try to stay one step ahead of investors’ efforts to evade controls benefit neither stability nor growth.Emerging markets should cope with inflows by finding ways to use foreign capital more effectively, which involves strengthening domestic financial markets. For example, in India, there is a great need for financing large infrastructure projects – a need that cannot easily be met by local banks. Freeing up corporate-bond markets would help foreign investors contribute to the development of the country’s infrastructure while earning a good return as India’s productive potential increases.A complementary approach is to liberalize capital outflows further, in order to offset inflows. This would give domestic households and firms more avenues to invest abroad and diversify their portfolios. Indeed, China has done this by expanding its qualified domestic institutional investor program to allow more investment abroad.None of this is to say that the risks of foreign-capital flows have evaporated, and that emerging markets should throw open their capital accounts all at once. There are still huge inefficiencies in international financial markets, which remain beset by herding behavior and other pathologies.Mantras about good fiscal and monetary policies may give little solace to a central banker or finance minister desperate to stave off surging inflows and domestic pressure to block currency appreciation. But knee-jerk reaction to stifle the exchange-rate appreciation that should follow from strong productivity growth only stokes more inflows. Ultimately, it is indeed good policies and stronger financial markets and other institutions that will help stabilize and manage inflows.As tempting as they are, quick fixes like capital controls merely provide a false sense of security and delay needed adjustments in an economy. The harsh reality is that emerging-market policymakers have little choice but to manage actively the process of liberalization in order to improve the cost-benefit tradeoff, rather than to try fighting against the inevitable.The latter course risks the worst of all worlds – all of the costs of capital controls and all of the domestic policy complications from volatile capital flows, but few of the potential benefits of foreign capital.Eswar Prasad is Professor of Economics at Cornell University and a senior fellow at the Brookings Institution. He is the former head of the IMF’s Financial Studies Division. Copyright: Project Syndicate, 2010.