Resources |
BOLD 2003: Development and the Internet
Module
I |
Module II |
Module III |
Module IV |
Module V |
ICT and Entrepreneurship:
Digital Business Ecosystems and the Law
By James Moore and John Palfrey
with Urs Gasser
Table of Contents
Introduction
Case Studies
Required Readings
Assignment
Discussion Questions
Additional Resources
The first module of this online series has focused on ICT and development from the perspective of infrastructure and architecture. In this second module, we will continue the debate on digital development, specifically focusing on aspects of digital business ecosystems and digital entrepreneurship as key concepts of sustainable socio-economic development and poverty alleviation.
First, we introduce the concept of digital entrepreneurship. In this subsection, we will emphasize the role of the private sector in general and the business sector in particular in closing the digital divide. Furthermore, we will discuss the linkages between digital entrepreneurship, innovation and economic growth. The readings will both introduce some basic frameworks and provide insights with regard to the diversity of initiatives taken around the world in order to promote digital economies.
Second, we discuss the framework of digital entrepreneurship in the broader context of digital business ecosystems. This approach suggests that digital business ecosystems require a number of specialized complementary contributions on different layers. In analogy to biological systems, these specialized digitally-relevant capabilities emerge over time and in a specific order. To understand the evolution process of such a business ecosystem, it is first and foremost necessary to become aware of its complexity and its fragileness. The required reading in this particular subsection of the module addresses and deepens some of these systemic issues.
Third, against this background, we focus on a particularly important part of the digital business ecosystem: its legal ecosystem. In this key section of the module, we examine the multifaceted relationship between digital business ecosystems and the law, and introduce a basic framework that enables one to identify and analyze legal conflicts connected with the emergence of digital ecosystems and related to digital entrepreneurship. In a first step, we will discuss some particularly important substantive areas of law, and in a second step we address legal process problems that are widespread in developing countries.
As you review the following case studies, the required and optional readings for this module, and the assignments, consider the role of law in the process of promoting digital development and digital entrepreneurship. Please focus on sets of regulatory choices that must be made while establishing a digital business ecosystem, identify legal tradeoffs, and consider possible implications—including pitfalls—of different legal regimes.
a) Introduction
Afghanistan has fewer than 40,000 working telephone main lines for a population of approximately 25 million. Only one out of 645 Afghan citizens has access to telephone service. Many of the lines in service are 45 years old analog systems, some utilizing step-by-step exchanges. Analog and digital systems exist in Kabul, but by mid 2002 the two networks were not interconnected. More than 20 years of civil war and destructive regime disputes made Afghanistan one of the countries with the lowest level of teledensity in the world. Moreover, a great part of the local network infrastructure is in a poor condition or has been destroyed.
Until October 2002, the only alternative to the “almost totally destroyed” wired network was a single mobile communications services operator (Afghan Wireless Communications Corporation, a joint venture between the Ministry of Communication and Telecommunications System International Inc.) with approximately 20,000 subscribers, a coverage of three cities, and an accumulation of users in one city.
b) ICT Development Strategy and Entrepreneurship
Facing this lack of connectivity, the Islamic Transitional Government of Afghanistan has recognized the importance of rebuilding a modern communication infrastructure in order to stimulate economic growth and raise living standards. In its Telecommunications Development Strategy, the Afghan Ministry of Communications addressed these problems in a remarkable manner. With regard to the importance of embracing information and communications technologies to achieve the nation’s development and reconstruction goals, the strategy states:
“Telecommunications is necessary for the resumption of productive capacity and stimulating activity in all sectors of the Afghan economy. It plays a critical role in reestablishing basic economic linkages by relieving communication bottlenecks from financial, governmental and cultural information flows. Communications is an essential enabler for boosting productivity and creates a climate for job creating, investment and sustainable growth. Research data shows that positive economic effects flow to all parts of a community once basic telephone access is achieved. As important, an efficient telecommunications sector has the potential to quickly become the largest contributor of tax revenues to the national treasury.” (Telecommunications Development Strategy)
In order to achieve the goals of the national telecommunications sector strategy, the Ministry of Communication has identified a series of strategic initiatives and development principles. In this context, the importance of establishing an appropriate legal framework became visible; please go back and re-read section 2 of the Telecommunications Development Strategy.
c) Recent Example: Competition for a second GSM mobile service operator
To address the problem related to mobile communications services, the Ministry of Communications—authorized on behalf of the Transitional Government to "grant, issue, enforce, amend, renew, suspend and revoke telecommunications licenses …."—awarded in October 2002 as a result of an open and transparent competition process Afghanistan’s second GSM license to an international consortium with strong regional connections (see Press release October 5, 2002).
The consortium is led by the Aga Khan Fund for Economic Development (AKFED), the economic development arm of the Aga Khan Development Network (AKDN), a group of private development agencies seeking to improve opportunities and living conditions in specific regions of the developing world. It comprises Monaco Telecom International (MTI), the US-based MCT Corp. and telecommunications leader Alcatel.
The consortium initially targeted six main cities (Kabul, Herat, Kandahar, Mazar-i-Sharif, Jalalabad and Kunduz), invested US$ 55 million and plans to expand its network to other cities over the next years. The network investment will rise to US$120 million over the coming decade.
In an interview, Karim Kohja of AKFED summarized the relation between ICT, innovation, and economic growth as follows: “Addressing needs in as vital an area of infrastructure as communications is one of the ways in which AKFED is seeking to help jump-start economic development in Afghanistan. By working with experienced partners to bring telephony, fax, data transfer, conference calling, voice mail and similar services to an economy in the early thrust of reconstruction, we hope to be able to ‘leap-frog’ older technologies and quickly contribute towards increased efficiencies across a broad spectrum of activity nationally and regionwide.”
2. Busy Internet Cyber Cafe in Ghana
5:00 PM, Accra time. Ring Road traffic is hustling along, with only occasional
tie ups—a good day rush hour. Assorted pedestrians are running in
and out of traffic—risking their lives and providing alarming experiences
for drivers. The sky is a golden haze—mixed of car exhausts and
dust from Accra’s gravel and red clay sidestreets, warmed by the
equatorial sun that moves toward sundown every day at 6:00 PM, regardless
of season.
Swing fast into the front drive of BusyInternet. Note the uniformed guard
standing by the entrance, slot the car carefully, jump out, and run up
the steps. Inside you confront a sea of faces hunched over a hundred LCD
computer monitors. The sound is a mix of buzzing voices and the constant
clack of keyboards. Music from the PA, of course: Ghanaian rock, drums,
electric slide guitar. Your eyes adjust: Some of these faces look impossibly
young—must be school kids who have pooled their change to go online.
Many more of the customers are in their twenties—many of the locals
are wearing white shirts and ties, incongruous to a westerner in the heat.
And you note a smattering of backpackers: bandanas, piercings, low-cut
jeans.
Smile hello to the person behind the check-in counter. She smiles sweetly back—and you stride on through to the central stairs, up two low flights of stairs to an open area, opening into halls in two directions. The offices have glass doors and windowed walls—you peek in. Inside is an assortment of people with what I have come to call the “smell of entrepreneurship”—furrowed brow, hunched over screens. Ah, commerce! Twenty-odd companies are lodged together at the BusyInternet incubator. The social mission of the incubator is to provide ICT services to various sectors of the Ghanaian economy, thus improving efficiency and effectiveness. As Mark says, “developing countries are the most information-inefficient places on earth, and if we can bring information to bear on local problems, we can make an enormous difference.” Companies in residence range from systems and network engineering companies that provide services to local businesses such as banks and energy companies, to a company exporting Ghanaian craft and art products ordered over the web. A new gas pipeline is under construction between Nigeria and Ghana, and some of the gas services support organizations from major oil companies have also taken some space.
What are the amenities that attract them? Rarities in the developing world: BusyInternet provides high speed internet bandwidth, direct to the world by satellite. Computers are powered by reliable electricity provided through a combination of the notorious central power authority grid, and a $30,000 industrial-grade oil-fired generator-and-battery system that sits in the yard out back and kicks in as needed. And BusyInternet has air conditioning, bottled water, and one of the nicest, most modern public bathrooms in Ghana.
Plus, it provides a bar downstairs, called “Liquid,” with both an outside patio and an inside “sports bar” with television. Most important, entrepreneurs get membership in a community with others starting businesses—a cultural rarity in Ghana.
BusyInternet was founded by Mark Davies, a 39-year-old internet entrepreneur
from the United States who, with his partners Alex Rousselet and Ellen
McDermott, fell in love with Africa. They dream of setting up a chain
of cyber-cafes/business incubators across the continent. Their official
corporate description:
“BusyInternet was founded in New York in August 2000 to promote social and economic development in Africa through IT. Our approach is one of facilitation, where we combine the physical infrastructure (electricty, bandwidth, etc.) with the social environment of like-minded experts and entrepreneurs. Busy is a service business, focused on providing the appropriate resources for businesses and organizations to execute on their core competencies and develop their skills. Each city has a majority local ownership, with BusyInternet providing financial services, operational and management systems, as well as an affiliate program of international entrepreneurs, organizations and investors.”
BusyInternet Ghana is their first facility. It was built and launched with what, for Africa, is a very large amount of venture funding: $1.7 million. The funds for the facility came from the founders, as well as from one of the two local venture funds in Accra, which is known as Fidelity (Ghana). Two corporations are involved: BusyInternet International is a so-called Delaware S Corporation (treated as a partnership under United States tax laws, which means essentially that gains and losses can be passed through the entity to the individual partners), owned by the three founders and a small number of other investors. BusyInternet International is intended to be the master franchiser of the BusyInternet approach. The Ghanaian operation is owned by a Ghanaian corporation, which received investments from BusyInternet International and Fidelity (Ghana).
The basic business is good. Though there are a large number of other, smaller cyber cafes in Accra—most put the number at more than 200, BusyInternet is unique in being truly a kind of cyber oasis. Poet and songwriter John Perry Barlow visited BusyInternet in 2002, “To gaze across BusyInternet - the vast expanse of luminous displays, the hundreds of intently-angled dark heads - is to know that the Internet has truly arrived in Africa. And, as one might expect, it has arrived as a communal rather than solitary opportunity. BusyInternet is like a great village well of information. The people come together there and gather the waters of the future.”
The cybercafe operates 24 hours a day, and is full about three fourths of the time. Use shifts by time of day. In the middle of the Ghanaian night, after midnight, local journalists come to query Yahoo and the New York Times online, getting material for stories in the following evening’s papers. In the early morning there are often business people, checking on the world financial markets. During the day the mix is varied, but after school young kids start arriving to enliven the mix.
On the basis of the cybercafe seat rentals—which go for about 50 cents US per hour, the operation became cash-flow positive after the first seven months of operation. Rentals of space in the incubator add still more revenues, as does the bar. There are also public presentation spaces that can be rented for meetings, and a copying center modeled after Kinkos of the US.
The goal of this first location in Accra is not just to thrive, but to begin building a major brand that can be extended to other nations, and to perfect the business methods, software, training materials and other elements of the franchise business. BusyInternet has been blessed with a great deal of notice in the US press, including a major story in the Wall Street Journal in May of 2002.
The facility was constructed from an abandoned building. Design and fittings were specified by a local architect, and put together by local trades. Mark and Alex managed construction closely. They have their own sewage holding tank, and must cart in fresh water for drinking. Electricity, as has been noted, must be backed up with their own generator.
Despite the expense of the build-out, the underlying building is leased, rather than owned. Business rents in Accra customarily require huge up-front payments. In the case of BusyInternet, a year’s rent was paid in advance. As noted in the Wall Street Journal story, “Minutes after Mr. Davies wired $150,000 for the lease on the building, a former gas-bottling plant, an elderly neighbor informed him that it was actually her property and that rights to it were in litigation. After a panicked phone call, he stopped the wire transfer, but it took three weeks to confirm his lease was valid.” He was lucky the dispute did not end up in court, where such cases can languish for years.
Training has been a significant challenge. It turns out that technical training is the least of the problems. Ghanaians are known to be very gentle people, and as Mark comments, “For many Ghanaians, providing proactive customer service feels intrusive to the point of rudeness. We want BusyInternet service to feel like a fine western hotel—and our customers love the experience, which is quite unique in Accra—but our staff find they must work very hard to counter their personal reticence. We’ve learned that service training must be very culturally and individually respectful, while at the same time successfully introducing people to new behaviors and attitudes.”
Telecom is a central issue. BusyInternet at first used a local ISP, NCS, but wanted the security of its own VSAT satellite. The government of Ghana allows private connections, with licenses, and has now issued about 100 permits. However, these permits require a good bit of conferring with officials. In the case of BusyInternet the process required several months of negotiations with the government officials by way of their attorneys. Even so, the challenges were not over, as customs held up the imported satellite dishes for two months more. Voice over Internet Protocol (VOIP) is not allowed, although it is widely if quietly practiced. BusyInternet, with its high visibility, cannot participate in grey market services, and so has been lobbying with other entrepreneurs for the legalization of VOIP. If this happened, Busy could install internet phones and provide overseas voice calls—and charge many times the going rate for cyber terminals.
So far the Ghanaian facility has taken up all of the energy of the founders. They have scouted other locations in West Africa, and are in discussions with a number of potential partners, but have yet to begin their pan-African expansion. Meanwhile, two young brothers, sons of the CEO of Ashante Gold, the Ghanaian mining company, have launched a similar café in Durban, South Africa, apparently inspired by the model.
1. Digital Entrepreneurship and Digital Business Ecosystems in
Developing Countries
a) ICT and Digital Entrepreneurship
The discussion so far has made it clear that ICT is a powerful tool for development since it is central to economic innovation. Innovation, in turn, is one major impetus of growth (to recapitulate ICT-for-Development, click here). As illustrated earlier in this module, the business sector in general and digital entrepreneurship in particular (click here to listen to an audio clip to learn about the essence of entrepreneurship) play a key role in bridging the digital divide and fostering digital economy. This interrelationship between digital entrepreneurship, innovation and economic growth is described and analyzed by a growing number of reports, articles, working papers and other publications, and it becomes increasingly difficult to see the picture as a whole. To get a good understanding of the basic concepts and to learn about the key arguments in the many-layered and open dialogue on entrepreneurship and digital economy, please read the following two papers closely
What Works: Serving The Poor, Profitably: A Private Sector Strategy for Global Digital Opportunity, by C.K. Prahalad & Allen Hammond, Markle Foundation & World Resources Institute (2002).Options on the Future: The Role of Business in Closing the Digital Divide, by Christoph Nettesheim & Joe Manget, Boston Consulting Group (2002)
Click here for additional readings and materials on
Digital Entrepreneurship and ICT.
b) Digital Business Ecosystems
The previous paragraph introduced the concept of digital entrepreneurship and illustrated the variety of contributions and actions required in order to establish a digital economy and to foster digital entrepreneurship. The paper presented in this section bundles such specialized contributions together and conceptualizes them—in analogy to biological systems—as a digital business ecosystem.
This systemic approach illustrates with regard to digital business ecosystems in developing countries, that it is not enough just to count computers, look for applications, or recommend investments in education or in promoting entrepreneurship. Rather, the complexity of the digital business ecosystem must be explored and the chronological steps of its emergence must be considered carefully.
Furthermore, the following reading clarifies that developing countries are not usually open fields waiting for planting. Rather, they have their own pre-existing economic ecosystem with a particular allocation of power among the members of a society. Therefore, the implementation of a digital business ecosystem is often recognized as a threat to the established elites, as the paper puts it
2. The Law and Digital Business EcosystemsDigital Business Ecosystems in Developing Countries, by James F. Moore.
a) Introduction
In the previous two sections, we have considered two basic approaches on ICT and Development, namely, the concept of digital business ecosystems and the framework of digital entrepreneurship. The last reading suggested, among other things, that the rule of law is key for the emergence and the growth of a digital business ecosystem. Indeed, an appropriate legal framework is a prerequisite for digital business ecosystems in general as well as for the existence and success of digital entrepreneurs in particular; in other words: law matters (audio clip).
Against this background, this section of the module addresses the relationship between digital business ecosystems and the law. The basic objective is to introduce a basic framework that enables you to identify, structure, and analyze (potential) legal conflicts connected with the emergence of a digital business ecosystem and related to digital entrepreneurship.
This analytical framework is deployed in two steps. First, we provide a preliminary survey of specific substantive areas of law relevant to digital entrepreneurship and illustrate some major conflicts that may arise in the emergence of a digital ecosystems, and discuss legal actions that might be taken. Second, we address the foundations of an effective legal system and focus on legal process deficiencies that we have found in developing countries, and that hamper the emergence of digital business ecosystems.
b) The Law and Digital Business Ecosystems
The following is a preliminary survey of specific legal practice relevant to digital entrepreneurship, conflicts that arise in the emergence of digital ecosystems, and legal actions that may be considered to resolve conflicts and protect the public interest. This chart is intended to be illustrative rather than comprehensive, providing an introduction to the issues.
The following chart is limited to substantive areas of the law, and begs the question of the legal process problems that are endemic in developing countries. These issues are surveyed in a second chart which follows.
| Area of legal practice | Public interest | Conflicts that arise in the emergence of digital ecosystems | Examples of actions that may be considered to resolve conflicts and protect the public interest |
| Civil Liberties | Support free speech, privacy, freedom of the press, freedom of assembly, freedom from persecution | States may desire to censor speech and commerce, and prevent political organizing in cyberspace; states may desire to pursue surveillance in cyberspace; private parties may seek to pursue “commercial surveillance” in the form of behavior tracking and target marketing. Defamation, libel, and intellectual property claims may challenge free speech and press rights. | Lawyers may take action to preserve rights already available under the law, as well as work to advocate new laws that provide stronger protections. In addition, lawyers may are argue the case for rights “in the court of public opinion” in order to build public support. In cases where the local legal situation does not protect rights, lawyers may also appeal to international organizations for assistance. A clear understanding of the nature of these civil liberties by the public and the entrepreneurs who rely upon these civil liberties may emerge and become important to pre-empting disputes before they escalate in a costly manner. |
| Antitrust and competition | Protect consumers, promote economic innovation, level the playing field for entrepreneurs | Established companies, especially telcos, may impose monopoly pricing, thus rendering many applications non-economic, and thus slowing digital development. Dominant firms may pursue predatory and anti-competitive behavior, slowing the growth of other members of the digital ecosystem and preventing the introduction of new products and services. | Complaints can be brought before regulators of competition policy. Civil suits can be filed on the part of companies hurt by anti-competitive behavior, seeking relief. Suits may also be filed on behalf of classes of consumers who believe themselves to be injured. Regulators may also monitor and investigate major transactions before they are finalized if they could have substantial impact on the emergence of the marketplace and on consumers. |
| Intellectual Property | Create economic incentives for creators and innovators by establishing property rights, while also maintaining broad access to ideas and expressions of ideas as public goods | Overly restrictive intellectual property rules and enforcement may prevent the diffusion of innovative ideas to those who might apply them to the problems of society; lack of sufficient support for intellectual property rights may cause innovators to turn away from investing in creating innovations that could have broad applicability to social problems and have other forms of utility. | Civil action can be taken against pirates, and lawyers can seek to encourage the government to take criminal action, assuming the relevant statutes are in place. On the other side, lawyers can join with activists seeking broader access to intellectual property. This might include for example clarifying the status of open source software, as well as making available mechanisms for individuals to increase the availability of their intellectual property, along the lines of Creative Commons (www.creativecommons.org). In the case of AIDS drugs, activists have pushed governments to invoke clauses in WTO agreements that allow for emergency compulsory licensing of drug patents. |
| Communi-cations | Establishment of telecommunications access as a public good | Monopoly or oligopoly telcos may maintain extortive prices, thus rendering many applications uneconomic, and “cream skimming” from those few businesses and individuals who can afford such prices; incumbent telcos prevent the emergence of rivals, either in the form of competitive telcos or in the form of “self-provisioning” by users through such means as VSAT (satellite) connections, cooperative Internet exchange points and peering agreements, and home-grown ISPs and WANs—including WIFI wireless WANS. | In developing countries that have privatized or partially privatized their telcos—which is most of them—the telecom laws on paper are quitethorough and well-conceived. This is because law reform was built into the World Bank/IFC process that most of the countries used. Unfortunately, in many cases these laws are not enforced. In such instances lawyers might consider actions to try to compel enforcement, particularly where these laws include a “private right of action” that allows parties to sue the government if harmed. In addition, there are some options for seeking relief outside counties. There are efforts for example in West Africa to create a legally binding telecom appeal process that is regional in nature and part of the ECOWAS treaty organization. In addition, in the case of foreign investment, sometimes the country of residence of the investors, such as the US, can be encouraged to complain to the developing country government. In some cases this may stimulate action, though in others it can be seen as inappropriate meddling by one nation in the affairs of another, and can harden resistance. |
| Enterprise, Tax, e-commerce, and Labor law | Maintain open access to the commercial and labor markets and facilitate low-cost transactions among participants | States may use business licensing rules to exclude some entrepreneurs, and may also charge high licensing fees that have the effect of drawing excessive rents from those who can afford the fees, and blocking participation of those who cannot. Both effects reduce investment and entrepreneurial participation, and slow the development of the ecosystem. Similarly, states may use taxation as a way to extract excessive rents from those who participate in the digital ecosystem, thus slowing investment and reducing participation. Lack of effective commercial courts and alternative dispute resolution may cause private parties to become ensnarled in conflicts that otherwise could be resolved, and/or to avoid such conflicts by vertical integration—thus creating excessive bureaucracy within the ecosystem. Lack of specialized enabling laws covering e-commerce, such as laws clarifying the status of digital signatures, may slow the adoption of commercial applications. An over-restrictive labor law regime, e.g. allowing extensive non-competition agreements and restrictive labor contracts, may be regarded as barriers to job mobility. Facing the rapid transformation of digital economy, it might be crucial to reduce such barriers, since job mobility contributes, among other things, to a competitive wage market for workers with ICT skills, and ensures the diffusion of high-tech knowledge between different groups and legal entities. |
Lawyers can take action to assure that their clients are fairly treated in instances where existing law is consistent with client interests. Unfortunately commercial law often lags in developing countries, either because it simply has not been modernized, or because the ideology of the nation is unsupportive or confiscatory toward business. In other instances, ill-fitting commercial laws on topics such as e-commerce have been adopted without proper customization to the local ecosystem and require reform. There are a variety of international organizations, many funded by the US or European governments, that help nations improve their commercial laws and procedures. In addition, the US is currently negotiating a large number of bi-lateral trade agreements—and these agreements include requirements for commercial law reform. Local lawyers can get involved in these efforts, to help the process forward, to tailor laws effectively to the local ecosystem, and to learn how particular reforms might be used to support client interests. |
| International | Maintain and “condition” the exchanges among nations, including information and communication, trade and investment, and immigration | States may discourage interchange with the outside world based on a variety of policy objectives. Closed, authoritarian societies attempt to restrict communication. Many societies restrict trade and investment, based on various theories of economic development, as well as on the realpolitik of protecting powerful private interests. Finally, immigration restrictions can be used to protect local workers and also to retain local workers and prevent “brain drain”—on the other hand, such restrictions limit the exchange of ideas, and may be detrimental to the development of the digital business ecosystem. | By its nature, international law is strongly dictated by the foreign policy and globalization theories of the nation. As such, to have an impact, a lawyer or a group of entrepreneurs must find a way to have a voice in the policy process. In recent years there have been many “ICT policy” projects in developing nations, aimed at bringing together business, government and civil society. In a few cases, such as Senegal where tariffs on telecommunications equipment were reduced, such projects have led to important policy shifts. More promising, as ICT is seen as an important contributor to trade and economic development, government leaders are becoming more informed about how to promote it, and more receptive to the involvement of entrepreneurs. Often the most receptive government officials then become those concerned with trade and development—rather than those concerned with ICT per se, such as the departments of communications. Entrepreneurs and lawyers can seek to make common purpose with those with the most progressive agendas. |
c) The Ecology and Assembly Rules of the Law
The law also is a kind of “ecosystem”, and is dependent for its functioning on a variety of complementary contributions. The foundations of an effective legal system are in the processes of law, in addition to the substance. In many developing countries the substance of law is—on paper—well developed. What is missing is the foundation of practice. The following chart introduces the sorts of process deficiencies that may be present in developing countries, and that impinge on the development of digital business ecosystems. This list of deficiencies, inverted into competencies, provides an idea of the capabilities that need to be assembled at the roots of a legal ecosystem. A major challenge in developing countries is stimulation of the growth of such capabilities.
| Legal process deficiency | Example |
| Foundations | |
| Lack of an established ethos of “rule of law” | Limited experience with binding business contracts, no expectation that contracts will be enforced if a conflict arises; the result is that cooperation among members of the digital ecosystem can be impaired—and that the expertise of the community in using contracts is not developed. Willingness of the state to abrogate agreement made by previous governments, willingness of the state to appropriate assets without the due process afforded in more developed nations. A result is that investors are reluctant to bring capital to projects that might be helpful to the digital ecosystem. |
| Corruption of officials | Government contracts go to local favorites, creating unfair competition for competent members of the ecosystem, and often causing essential functions not to be performed effectively. Corrupt election processes may reinforce corrupt regimes and disallow meaningful legal reform. Successful entrepreneurs who are not willing to play along with corrupt officials, or who play with officials who fall out of power, may find their businesses threatened in a variety of ways. |
| Lack of documentation, lack of access to documents and records. This may pertain to official government decisions, laws and rulings, and results of hearings and other administrative or enforcement processes. | It is often very difficult to know what action has been taken by government, even in official actions of cabinet or the President. Laws are not available on-line, nor are court cases. Records of hearings are often not kept, or are not available. The public is not empowered by a right to access the information that the government retains. |
| Legal process issues | |
| An ability to set and shape the law | In many instances citizens do not have full democratic ability to make the laws. In some cases constitutions as well as specific laws have been determined by colonial tradition, dictatorships, or the intervention or requirements of international organizations. In cases the legislative system or the judiciary does not function effectively |
| Absence of relevant laws regarding substantive issues | In some cases, there is no relevant law. Example is that securities laws in some countries make it difficult to create certain classes of shares, or to protect shareholder rights. |
| Lack of effective civil and criminal procedure. “Good laws” but little corresponding process, limited translation into administrative organizations, monitoring, and enforcement | In other case, laws exist but are not made operational. The prime example is that in privatizations of telcos, typically the World Bank (who assists with financing and expertise) insists on the adoption of model telecom laws. The laws are in some cases adopted but not acted upon. For example, an independent regulator may be mandated in statute, but not organized and staffed. |
| Lack of effective means of enforcement and relief | Even when a judgment can be obtained, it can be very difficult to enforce it or to gain relief either in the form of monetary compensation, in the form of rectifying a past harm, or in the form of changing the behavior of the parties. |
| Conflicting processes with no clear path to appeal or reconciliation | For example, a court may provide one remedy, and an administrative body another—but with no way of reconciling the decisions in cases of conflict between the outcomes. |
| Policy-based overrides to the legal system | |
| Official policies and practices that distort the market | In all countries the working of the market may be distorted to achieve social ends. In doing so, nations also sometimes make laws to support such policies, and overturn existing statues and conditions, in a manner that undermines the consistency of law that enables rational business investment. These sorts of policy and legal actions may be taken to a degree or in a form that is unfamiliar in the developed world. For example, affirmative action and black empowerment in South Africa mandate that substantial portions of ownership of major businesses be set aside for specially mandated, racially-based community organizations. In the case of nations that are highly dependent on outside aid (e.g. Ghana, which receives three-fifths of its national budget from the World Bank and similar organizations), aid money often goes into businesses that compete with privately funded companies. This is particularly an issue with respect to state-owned or partially state-owned utilities. The result can be the undermining of the market, and slowing the rate of growth and diversity in the digital business ecosystem. |
As a result of the chronological evolution of information and communication
technologies, the term “ICT” has—in so-called developed
countries, at least—largely been used as a reference to the basic
elements (e.g. telephone network) of an information and communication
system (for further discussion see module
1), but much less with regard to advanced IC technologies such as
the Internet. In the context of developing countries, where communication
systems often have to be built from scratch, it seems easier and more
appropriate to conceptualize “ICT” in a broader sense, and
to include every information and communication technology available as
one single set of opportunity. The following two examples of digital business,
one concerning mobile commerce, the other dealing with Voice over Internet
Protocol (VoIP) (For a review of the Internet Protocol, click
here), illustrate this comprehensive approach.
Please choose either the Mobile Commerce case study or the Voice over IP assignment. In both cases, the assignment is to write a short memorandum (maximum 500 words) mapping the regulatory and legal issues which arise onto the analytical framework introduced in this module.
E-commerce is one of the most recognized examples of digital business in which information and communication technologies (ICT) can promote economic growth. A new form of E-commerce, brought up by the rapid growth of wireless technologies, is mobile commerce. In the UNCTAD Electronic Commerce and Development Report 2002 , M-commerce is introduced under the heading “M-Commerce: Wireless communication opportunities for developing countries”. Skim pp. 90-101 of the Report and read the case study on China (pp. 102-105).
An African Telecommunications Company and some foreign investors are working on a long-term strategy to implement wide-spread mobile phone service and to promote M-commerce applications in Africa. As a legal counsel, you are invited to write a short memorandum (500 words) from the viewpoint of a key advisor to an entrepreneur stating clearly which of the basic legal and regulatory issues that are most important to you. Please make use of the analytical framework provided above, where appropriate.
The following materials and websites might be of help:
IT Matters: Inexpensive Mobile Phones Can Push Back Rural Poverty, Business Times Columnm-Commerce in Africa – Innovation Overcoming Barriers, by Paul Hamilton
M-commerce – regulatory and commercial legal issues, by Mark Haftke
For background information on m-commerce, see Durlacher Report M-Commerce
Voice over Internet Protocol (VoIP) provides another example to illustrate the connection between the design of a legal framework and the emergence of digital entrepreneurship. A transmission of digitalized and packetized voice over an IP network has many advantages. For instance, it can offer low cost of service delivery, universal access to the service, simplicity of user interface, and high quality and functionality of service offered. From an economic perspective, VoIP not only drives down the costs of calls, but lowers barriers of entry since both capital and operating costs are significantly lower. However, certain regulatory trade-offs might exist.
Please read the following reports from countries at different stages of development, but both claiming restrictions on the use of VoIP:
Voice over IP in Africa: For different reasons, a significant number of African countries have placed restriction of the use of VoIP.
Please analyze both the regulatory and legal issues at stake and potential trade-offs, using the analytical framework introduced in this module. Write a short (maximum 500 words) memorandum, taking the perspective of a policy advisor to a developing country with a very poor network infrastructure which seeks to establish an appropriate policy related to use of VoIP. Please emphasize those elements of the legal infrastructure that you deem to be most critical to resolving the problems you and your country face. Please also highlight the tensions that you find most difficult to resolve as you seek to set VoIP policy.
The following materials and websites might be of help or interest:
International Telecommunication Union on IP telephonyVoice-over-IP: The Future of Communications, Global Internet Policy Initiative
Internet Telephony - The Regulatory Issues, by Hank Intven, Mark Zohar and Jay Howard
The discussion section this week covers two different issues: The first set of questions is related to the BusyInternet case study presented above. The second set focuses on a particular aspect of a broader issue generally discussed under the heading “Gender and Digital Divide”, namely on Women and Digital Entrepreneurship.
With regard to the discussion of the following issues, you are invited to present your personal viewpoints and to share your own experiences, thoughts, and visions with the other participants of this online course. However, please feel encouraged to use the frameworks and tools provided in this module for your analysis.
If you have signed up for H2O, please discuss the question set 1 only. If you are signed up for WebBoard, you might choose whether you want to address question set 1 and/or question set 2.
The following five questions refer to the case study BusyInternet Ghana presented above. While discussing these issues, please make references to the analytical framework provided in this module, if convenient and appropriate.
1. From the standpoint of promoting economic and social development in Ghana, what are the most important aspects of what BusyInternet is doing, and how do they contribute to development?
2. What dimensions of the law are likely to be most critical to the near term success of BusyInternet? How about longer term?
3. You are an attorney representing BusyInternet. On what expertise and relationships are you most likely to draw? Where are you likely to face the most difficult challenges?
4. You are an advisor to the President of Ghana, John Kufuor, who has asked you to suggest improvements in laws and legal procedure to promote the development and expansion of businesses like BusyInternet in the nation. What sorts of special conditions might you hope to establish in the legal system—for example, fast-track special courts, liberalized licensing, in order to promote such development?
5. You are a Ghanaian living in the United States, considering returning to your country to form a business based on information and communication technologies, and bringing with you substantial capital to invest. What aspects of the law are most important to you?
Question Set 2: Women and Digital Entrepreneurship
(Please note: If you have signed up for H2O, please discuss question set 1 above rather than the following questions).
Please skim the following report and think about the fundamental role of women in establishing a digital economy (for additional links to background materials on Gender and Digital Divide, please click here):
E-commerce training with small-scale entrepreneurs in developing countries: some findings; by Nidhi Tandon, July 2002The report discusses, among other issues, in what specific manner women and women-led enterprises contribute to the emergence of a digital business ecosystems, and makes it clear that women’s entrepreneurial spirit is crucial for economic growth and sustainability. Against this background and using the frameworks provided in this module, please discuss the following questions:
1. According to the findings in this and other reports, women are leading an entrepreneurial wave in many parts of the world. What are the characteristics of women-run businesses? In what way might these characteristics shape the landscape of a digital business ecosystem?
2. The report suggests that women structure their enterprises differently than men do. Please review the analytical frameworks provided in this module. Do you think that the differences in the way women-led business are structured require an adjustment of any particular legal institutions? If yes, what substantive areas of law should be reviewed or re-designed? In what way?
3. More generally, how can law foster the development of women-led digital businesses? Is it appropriate for the law to set such a goal?
4. This module has focused on a particularly important part of the digital business ecosystem: its legal ecosystem. Beyond that, other social subsystems are crucial for the emergence and sustainability of digital business ecosystems. Consider the structural conflicts female business operators are facing according to the report quoted above. What other subsystems and (social) norms, beside law, require adjustments in order to foster women-led entrepreneurship?
5. As a policy advisor to the Government of Fantasyland, you have to present an action plan in order to strengthen digital economy. What are the three major actions you propose to build a regulatory framework that includes incentives for women to engage as entrepreneurs?
1. Background on ICT and Digital Entrepreneurship
International action plans and efforts can focus on information and communication technologies (ICT) in order to promote economically, socially, and environmentally sustainable development in developing countries. These plans may include various initiatives and activities at different levels. To get an impression of the diversity of such initiatives and their promoters, please browse some of the following websites (as you browse, consider how the initiatives and actions presented could be structured and categorized systematically):
African Information Society Initiative
(AISI)
Bellanet
Digital Dividend
Digital Divide Network
United Nations Information and
Communication Technologies Task Force
Now visit bridges.org, which supplies a well structured link-list detailing initiatives of different sorts and provides references for further readings and research. For further links to ICT related materials—structured by organizations working with ICTs, and by region—visit United Nations Centre for Regional Development.
Finally, read Parts I-II and skim Part III of the white paper Digital Entrepreneurship and Innovation . This paper provides both a systematic overview of initiatives that promote the incorporation of ICT in economic development and a comprehensive framework for policy, legal and regulatory actions.
2. Selected examples of legal issues addressed
in the analytical framework
The following link list provides references to a few interesting case studies and some practical examples with regard to selected legal issues addressed in the analytical framework introduced above. Obviously, this small selection of materials is intended for illustrative purposes only.
- Antitrust and Competition Law: Anti-competitive strategies might block innovation and are likely to raise costs of information and communication services. A restrictive legal regime can hinder competition between ISPs and, thus, the development of Internet illustrates, for instance, the struggle over internet access in Uzbekistan.- Intellectual Property Law: The development of an adequate local intellectual property regime is a crucial element in order to set incentives for digital entrepreneurs to develop and trade in information-and-technology-rich goods and services. Developing nations are facing various challenges in the process of reviewing and re-defining their IP laws (listen, for instance, to the following audio clip). The following statement illustrates some areas of concerns from a Nigerian perspective with regard to the design of an appropriate IP regime: New Developments and Challenges in the Protection of Intellectual Property Rights (IPRS) – A Nigerian Perspective, by C.T. Owoseni. Please note: Module IV on Policy will provide further discussion on IP Law & Policy.
- Communications Law: It has been discussed that an effective interconnection regulation, as central part of communications law, is key to fostering digital entrepreneurship and bridging the Digital Divide. More specifically, interconnection is crucial for the development of the Internet. Specific interconnection issues arise, for instance, in the context Internet backbones and with regard to Internet Exchange Points (IXP). With reference to the latter question, please read the following article: Internet Exchange Points. Their Importance to Development of the Internet and Strategies for their Development – The African Example and this section of Module I.
- Enterprise Law: As discussed earlier in this module, enterprise law can become important to level the playing field between public and private sectors, to protect property rights, to limit entrepreneur’s liability, and to reduce administrative procedures. Regarding new business formation, the existence of an expedited path to obtain permissions, certificates, etc. as well as streamlined formation procedures, might be a strong incentive for enterprises in general and for digital businesses in particular. However, consider the fact that the value of a law depends more on its acceptance (and implementation) than on the fact of its enactment; read in this context Viet Nam Needs More and Better Laws.
- Tax Legislation: As previously discussed, sector specific taxation can hinder the emergence of digital businesses and can have a negative impact on innovation. Consider, for instance, that Panama blocked VoIP for tax reasons.
- International Law: International law plays, as described in the framework, a crucial role in a digital and globalized economy. For developing countries particularly important are, for instance, international conventions of copyrights. Assume a country has not signed a basic international convention of copyright. The effect of the resulting lack of protection could be that domestic authors are not willing to export their works. In turn, foreign authors of intellectual property would not get guarantees for protection of their rights in the developing country. Exactly this situation, which hinders the emergence of ICT, and has a negative effect on international trade, occurred in Uzbekistan; please read p. 27 of the UNDP Report.
- Anti-corruption: The importance of anti-corruption measures has been discussed earlier in this module. In this connection, it seems noteworthy that the UN Development Programme is involved in a number of pioneering initiatives. In Bulgaria, for instance, UNPD is concerned in bringing non-governmental organizations and municipalities together across a common network as part of a major anti-corruption initiative.
- Access to Legal Information: As discussed above, not only is the creation of a comprehensive legal regime essential, but it is also important that enterprises have access to legal information. Here, too, digital technology plays an important role. To see a success story, visit the Zambia Legal Information Institute.