Two scary steps forward

The technological innovations that are going to disempower business and government - and for which they are unprepared

One of the most cherished myths of our ruling party is that Rajiv Gandhi, with a little help from Sam Pitroda, somehow created the telecom revolution. This is, of course, nonsense. Technological innovation - most of it developed with no thought of the Indian market in mind - created the telecom revolution. All that policy makers in this country have done is desperately try to keep up, and in most cases they have tried to frame policy with a horizon of decades even as tech advances change the economics of the business every couple of years or so. And yet, Indian policy makers continue to ignore quite how disruptive technological advance can be.

They should be a lot more scared than they are. Technology usually makes people's lives better, but it frequently makes business', policy makers' and governments' lives worse. Two advancements that are just around the corner - in truth, they're already here, you just haven't heard about them yet - will reduce every economic policy makers' plans and expectations to rubble.

 

The first is this odd, futuristic thing called the three-dimensional printer. Imagine an old-fashioned inkjet printer. Now imagine that, instead of ink, this printer squirts out metals, or plastics, or paper, or plaster - and does it in three dimensions. It can eat up, say, waste plastic, and produce - once given the right data - a perfect cell phone cover. Or vase. Or, for that matter, a car door. In fact, if told to reproduce itself, it can produce most of its own parts. Very Star Trek, I know. But then, Star Trek gave us the mobile phone.

Well, that's nice for hobbyists, you'd say - but how is it relevant for real people? Surely these things cost the earth. Actually, they don't any more. In fact, perfectly serviceable 3D printers are, in fact, cheaper than an iPhone.

The implications are staggering. First: speciality and precision manufacturing ceases to turn on a company's ability to control the cost and quality of its output. Instead, like so many industries, it becomes all about the intellectual property of what's being produced. The moment the blueprint of, say, a particular part - or even an expensive mechanical watch - is out there, it can and will be printed out. High-end manufacturing is in trouble, and will see margins collapse.

But, more to the point, what of India? Don't we worry ourselves madly about the fact that all sorts of cheap plastic and electronic gewgaws are made in China and not here, and that thus we are missing out on good manufacturing jobs? Don't we have a manufacturing policy to reverse that? Yes - but what happens to our hopes when things can be printed out at your local 3D-printer-wala, soon to be as ubiquitous as your local mobile top-up guy or Xerox shop? Everyone complained this Holi that all the pichkaris (water guns) for the most Indian of festivals were made in China. The idea is to fix that, and have them made in India. Suppose that happens - but not in some small-scale enterprise in a flatted factory park in Noida, but through downloading free pichkari blueprints from the internet onto a USB and walking five minutes to your preferred printer-wala?

Manufacturing, as we know it, is dead. It just doesn't know it yet.

And the implications for powers that governments take for granted are similarly immense. What happens to proscribed items - to guns, say, or explosives? Already, some American libertarians have managed a blueprint to print out a working plastic gun - but not, so far, bullets. And what will it do to the government's excise and customs revenue, but more on that later.

The other strange new invention is electronic currency. (I would have said "virtual", except regular money is virtual, too.) A few years ago, claiming to be disillusioned with financial institutions after the 2008 crisis, a Japanese programmer - or more likely a software collective hiding under an assumed identity - created something called Bitcoin. Bitcoin uses public key cryptography, allowing everyone to have relatively secure "wallets", and pass on a single Bitcoin to anyone else. The usual problem with such electronic transactions is to make sure that I don't pass my unit of currency over to more than one person; and so, usually, there are centralised registers of how much people have. Regular currencies have bank accounts. Electronic currencies - like Facebook's - have centralised structures with a company-controlled register. Bitcoin's real innovation is to decentralise that register - rather than any one location, it's out there in the electronic ether, in a peer-to-peer network like Skype. No single person or entity has control.

Bitcoin, helped by the Cyprus crisis, recently passed the $1 billion mark in value, and has become an object of speculation - being treated almost like a commodity, not a currency. It is the target of hackers, and subject to considerable growing pains. Its exchange rate is too volatile for general use at the moment. But it is still growing, with parameters set in stone - a certain amount of Bitcoins enter the system every week, and the total amount in circulation is set to asymptote, absolutely predictably, to a final value some decades from now. When the market expands, volatility will decrease.

Essentially, this is a hard monetarist's dream come true - a technological solution capable of killing off monetary policy. Seignorage revenue, the destruction of fiat currency value at the orders of governments, is likely to be hit hard. Assuming, of course, that enough transactions are electronic to make it worth people's while, and that exchanges can be set up. It might be tough to pay for real goods with electronic currencies that governments frown upon: at some point in the chain of production there is a real input, which you may have to use a national currency to buy. But that's not the case with services, is it? And we may well have a situation, sooner than expected, where a vast proportion of the services sector can produce and transact completely invisibly to the government. How precisely will the taxman track down Bitcoin transactions? What happens to the Centre's optimistic expectations of the broadening of the services tax net? Will we suddenly return to a modified Fera regime, where, instead of regulating foreign currencies, the government desperately tries to prevent rupees being turned into Bitcoin? Does anyone think, if so, the effort will succeed?

Bitcoin and 3D printing are both the stuff of science fiction, and also startlingly real and present. Both empower individuals, but disempower traditional business and government. Unlike their predecessor, telecom, the sectors and government functions they encroach upon are big and crucial. But business and government are completely unprepared. The future holds shock, confusion and ineffectual regulation. The more things change, the more they stay the same.