Ecommerce + Rural China – A Nurturing Combination

Using e-commerce to tackle the challenge of rural poverty should be considered a technological innovation. That was the proposal that I put forward during an AGLA debate last week. My tong xue[1] pushed back, arguing that using e-commerce to tackle rural poverty is simply an application of existing technology and should therefore not be considered technologically innovative. This might seem like semantics, but the question is not trivial. What should be considered technologically innovative is a question that has been troubling economists for decades. Consider Robert Solow’s famous statement “you can see the computer age everywhere but in the productivity statistics”, if a technology isn’t improving productivity[2], can it really be considered innovative? The productivity puzzle is one of the big reasons that real wages have remained stagnant in the western world and begs the questions whether the computer revolution is really as innovative as it seems. In some aspects it seems clear that it is not. Consider a washing machine, the original innovation allowed people to reallocate hours of their time from washing clothes to more productive activities, such as working, studying or passing human capital to their children. Connecting the washing machine to the internet seems like a small increment on this original innovation and hence could not be expected to have the same impact on productivity.

I was fortunate enough to study at the University of Chicago, where economics is the lifeblood of the institution, and there is one professor, Kevin Murphy, who left a great impression on myself and many of my classmates, as he does on many of the aspiring economists he teaches. Professor Murphy made me question the meaning of the word technology. Should an improvement in markets be considered an improvement in technology? After all, there is no technology that has had such a profound impact on the wealth and well-being of Chinese citizens as Deng Xiaoping’s decision to start using the price system as a way to allocate resources. If markets develop in a way that allows resources to be allocated in a more efficient manner, is this not also a technological innovation? Take the simplest model of economic growth, a two factor ‘Solow Model’.[3] Innovations in physical technology, such as the development of a washing machine are captured in the ‘Solow Residual’. Innovations in markets and allocative efficiency are also captured in the residual, why, therefore, should we distinguish between them by saying one is a technological innovation and one is not? We should classify them both as being technologically innovative, otherwise we risk skewing our resources to the production of physical products, rather than to the improvement of markets. As we have witnessed from Chinese economic development, it is improvements in markets that can have the biggest impact on human well-being. Furthermore, just like a product that comes out of a research lab, markets often advance because of the research done by economists.[4]

wei-longbao

While much of this might sound rather trivial or academic, it is actually extremely relevant to life in the AGLA program. This past week we spent time visiting villages in Zhejiang province to see how Alibaba’s is contributing to rural development in China. We followed the trip with a lecture from Professor Wei, a former deputy dean of Zhejiang University School of Management and a Fulbright Scholar at Harvard University. Professor Wei touched on many of the topics that I discussed above, including Chinese economic development, Chinese innovation strategy and rural development in Zhejiang province. His teaching sparked the lively debate between AGLA members that I described in the opening sentences. One of the reasons that I was attracted to the AGLA program was the chance to engage in such stimulating debate and so far I have not been disappointed. Whether it is in more formal classroom conversations such as this, or during side conversations over lunch, the AGLA class is constantly discussing ideas, new and old. I believe this is testament to the type of organization that Alibaba is; here everyone is a student and teacher just like original founders of the company.

rural-inno-3

I want to finish by explaining why I believe Alibaba’s use of e-commerce in rural areas is technologically innovative. I will use one village we visited as an example; they produced walnuts and had an annual GMV of RMB 300 million. The first Taobao shop opened in 2007. Consider if the village had developed a machine that processed walnuts much faster than before, would this be considered a technological innovation? Surely it would, and it would most likely increase productivity in the village. However, now consider if somehow a new marketplace could be developed in the village, so that instead of selling at the local market, the walnut producers could now reach 1.2bn people all over China with their product. Should this be considered a technological innovation? The answer was given to us during our visit, and it was a resounding yes. Since the village started selling on Taobao in 2007, annual incomes (productivity) have increased many times over and the population has increased 15%, halting the flow of talented young people to urban areas. The introduction of a new type of market has had an effect that no physical technology could ever have. Improving markets in rural areas of China is not easy, but the effects can be dramatic. I would argue that of all the technological innovations that are being developed at Alibaba, this is one of the most substantial and the increase in wealth and wellbeing seen in the villages we visited demonstrates that fact. For someone who is passionate about changing lives and having an impact on the world, I don’t believe there is a better place to work than Alibaba.

Gary Topp is a graduate of the University of Chicago; he lives and breathes economics. He has previously worked on economic development issues at the European Bank for Reconstruction and Development (EBRD) and for CGAP at the World Bank.


[1] At Alibaba, employees call each other Tong Xue, or classmate to represent that we all learn from each

[2] For the purposes of this article I will assume that productivity is a proxy for hourly wages or hourly income

[3] The two factors are labor and capital; the Solow model assumes that long run economic growth is only achievable through technological progress

[4] For example, Alvin Roth and others’ work in market design and matching is being used to improve markets in medicine, technology, school admissions and many more areas

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