The Convergence Between Developed & Developing Economies Will Be Accelerated by Blockchain Technology

One of the theories for why some countries continue to be economically prosperous while others remain poor is the World systems theory. Seeking to explain the structural factors that constrain development of certain countries, the theory talks about how there is an ‘international division of labor’ amongst countries of the world. The countries at the ‘core’ dominate in terms of industry and technology while the countries at the ‘periphery’ have less power and specialize in supplying the rich ‘core’ with raw materials and cheap labor. As such, global inequality persists.

We believe that the distinctive characteristics of blockchain technology and the digital economy it enables will help break this system and accelerate the development of the global south. The decentralized and permissionless nature expands the scale and scope of collaboration, capital and knowledge transfer across borders, while the token-based incentive mechanisms that rewards quality and intensity of participation, regardless of who you are or where in the world you’re located, promises a more egalitarian future than the current paradigm.

Thanks to blockchain, with just a computer and internet connection, workers have direct access to a level of connectivity that they have not experienced throughout history. This means that with the same amount of resources put into mining Bitcoin or staking a DeFi platform, a contributor in Nigeria can expect to be recognized similar to one in the US. This contrasts with the current digital landscape, where workers from developing countries who participate in global economic activities are still at a disadvantage as their geographies might affect their potential earnings (i.e call-center workers in the U.S. make about four times their Manila counterparts)¹. By participating in these blockchain-based activities, these workers will be on a level-playing field, where their efforts will not be constrained by middlemen or inefficient processes.

Secondly, with new incentive schemes arising from the innovation of blockchain, workers in developing countries can increase their productivity and earn higher income than historically. A notable example is blockchain play-to-earn gaming company Axie Infinity, which has gained extreme popularity in developing countries, and provided workers there an alternative to make much higher income. A player in the Philippines can spend 2 hours a day on Axie Infinity and already earns twice the minimum wage in the country². In addition, NFTs help to widen the scope of what developing countries can export and be rewarded fairly for. For example, the increasingly widespread appeal of afrobeats music adds to the cultural exports of African countries. With NFTs, African artists like Nigerian-born artist CKay, whose song “Love Nwantiti” became a Top 40 hit in the U.S. and one of Shazam’s most-searched songs, now have a mechanism to be compensated appropriately.

As we look into the future, the most possible outcome would be that digital activity enabled by blockchain will be driven mostly by developing countries, which will in turn help to reduce the gap with developed countries in terms of economic outcomes. This will be due to the increased internet connectivity and pressure on governments to seek innovative solutions for current market inefficiencies. Since 2005, the difference in % population having internet access between developed countries and developing countries has declined from 5 times (50% vs. 10%) to 1.5 times (90% and 60%)³. This, in addition to recent announcements like Google’s Equiano subsea internet cable that will link Africa to Europe via Portugal, providing 20 times more bandwidth once operational, is an encouraging sign that in the next decade, the internet connectivity gap will most likely be filled. In addition, as people in developing countries learn to extract the exponential economic value from blockchain, they will continue to demand more from their governments to adjust policy accordingly to accommodate these new economic activities.

There are two major risks we anticipate from this trend. Firstly, structural barriers might still persist within developing countries (especially in the areas of education and internet penetration), thereby limiting access to participation by a large segment of society. Secondly, the current world order might also persist where people from developing economies continue to be ‘the working class’ in the digital spaces created while most of the gains go to developed economy residents as a result of superior know-how and more access to capital.

Therefore, governments in developing countries have to act fast and smartly to take advantage of the blockchain surge in their countries to create new opportunities for their people to develop relevant skill sets and thus create new economic value. First, they have to clearly understand the trends that are going on in their countries, and from there identify appropriate growth areas to focus resources in. Similar to how India identified IT services in the late 20^th century to be the key growth enabler of the country, other developing countries will need to invest smartly in relevant education and training (especially in STEM areas) to set their countries up for success in the next decade. Secondly, there is an opportunity to lead the charge to create a clear regulatory framework which will attract talent and capital from abroad and thus improve the knowledge transfer process domestically.

Sources

• https://www.latimes.com/business/la-fi-philippines-economy-20150202-story.html
• https://asia.nikkei.com/Business/Technology/Southeast-Asians-jumping-on-NFT-bandwa gon-to-boost-incomes
• https://www.statista.com/statistics/209096/share-of-internet-users-in-the-total-world-p opulation-since-2006/
• https://www.rollingstone.com/music/music-features/afrobeats-global-rise-1282575/
• https://www.bloomberg.com/news/articles/2022-03-18/google-lands-first-subsea-cable-in-africa-to-spur-digital-access

Tim Nguyen

Tim Nguyen is a digital enthusiast who spent his career finding the intersection between business, technology and consumers. He previously worked as a management consultant, an educator, and a product manager in Southeast Asia and the US.

This author does not have any more posts.

AB

AR Buhari

AR Buhari is an economist with a passion for expanding access to education and opportunity for young people across Africa through technology.

This author does not have any more posts.