Mobile Phones Became Productive Capital for the World’s Poor

Philip Auerswald’s title claim, “a phone is a cow,” comes from Iqbal Quadir’s attempt to make mobile telephony work in Bangladesh in the mid-1990s. Quadir founded Grameenphone, which Auerswald describes as the dominant provider of mobile telephony services in Bangladesh. The phrase was not metaphorical in the loose sense. It was a business-model insight.

At the time, Bangladesh’s per capita income was roughly $300 to $400 a year, while a digital mobile handset cost about $400. In a country that poor, a mobile phone looked, on the surface, like a luxury good whose customer base did not exist. Quadir’s answer drew on Grameen Bank’s lending model. Grameen Bank made small loans, often to women in villages, for productive assets such as cows. The loan could pay for itself because the asset generated income. Quadir saw the handset in the same way: not as a consumer indulgence but as productive capital.

Russ Roberts emphasized the apparent absurdity of the proposition. The prospective customers were in a desperately poor country, and the product could cost about a year’s income. Auerswald added that Quadir had already seen an even more extreme version of the same pattern. Quadir and his brother had earlier considered developing a Bengali character set for the Macintosh when a Macintosh cost roughly $4,000 and Bangladesh’s per capita income was about $200. That was a 20-to-1 ratio. By the time Grameenphone was being considered, the ratio between handset cost and income had moved toward one-to-one.

The static affordability problem was not what Quadir found most important. The direction of change was. Handset costs were falling, in part through the dynamics associated with Moore’s Law, and incomes could rise. Roberts noted that Bangladesh did eventually become much richer by its own baseline, while the price of cell phones fell dramatically. The result was not merely viability. Roberts said Bangladesh now has more cell phones than people.

Falling prices alone do not explain the transformation in Auerswald’s account. The point is that the phone helped create the conditions in which the transition occurred. Quadir’s favored phrase, as Auerswald rendered it, was “connectivity is productivity.” In a poor country with little infrastructure, the phone’s value was not comparable to the value of a phone in a rich country already saturated with roads, banks, landlines, retailers, and services. In contemporary American debates, Auerswald said, the mobile phone is often seen not only as a consumer device but as a pernicious one: “a time sink, a distraction engine.” That is not how the device functions for much of the world.

The concrete example behind Quadir’s insight was personal. As a child in the 1970s, he once walked half a day to buy medication for a sibling, only to find the pharmacy closed, then walked home. Even if a child’s time had little market value, the avoidable cost was plain: a whole day could have been saved by one phone call. Multiply that across transactions, trips, prices, bargaining, supply, emergencies, and family obligations, and telecommunications becomes productivity infrastructure.

The phone did not stop at voice communication. Quadir’s brother, Auerswald said, later started the dominant provider of mobile financial services in Bangladesh. The handset became a delivery mechanism for services the rural poor had not previously been able to access. Landlines, by contrast, “never came close to reaching the majority of the world’s population.” In rich countries, the phone can feel superfluous because a century of prior investment created an abundance of alternatives. For people outside that infrastructure, it was not superfluous at all.

The mobile revolution, in Philip Auerswald’s telling, does not have one author. Asked who was responsible, he answered with a list: entrepreneurs, inventors, far-sighted government bureaucrats allocating budgets to unlikely projects, consumers willing to try and adapt, and many others. The story includes market pioneers such as Iqbal Quadir in Bangladesh and Strive Masiyiwa in Zimbabwe, but it also reaches backward through American mobile-phone companies, Motorola, Bell Labs, AT&T, and Alexander Graham Bell.

The book begins at the 1876 Centennial Exposition in Philadelphia, America’s first World’s Fair, where Bell debuted the telephone. It later moves through Bell Labs, which Auerswald described as possibly the greatest single institution responsible for invention in human history — a claim he said could be credibly made. The mobile phone depended not only on the transistor, but on network concepts and extensions that emerged from that broader institutional lineage.

Motorola enters through Marty Cooper, the engineer who made the first mobile-handset call. Auerswald described Motorola as a challenger to Ma Bell at the time, not an obvious origin point for the first mobile handset. Cooper, he noted, was still alive, and Auerswald and Quadir had done an event with him on the 50th anniversary of the first mobile-handset call.

Russ Roberts pushed the point further by naming figures Auerswald had not initially mentioned: Claude Shannon and Steve Jobs. Shannon, Roberts said, laid intellectual foundations for much of the digital revolution. Jobs later helped make the phone into a pocket computer. Roberts’s point was that if the device had remained only a way to talk to other people, it would have been useful, but much less productive than a phone that could also become a bank and many other tools.

Chronology matters here. Quadir began working on what became Grameenphone in 1993, long before the iPhone. He exited Grameenphone around the time Apple was beginning to think about the iPhone. So the Bangladesh story was not downstream of Jobs’s consumer-tech vision. It belonged to an earlier generation of mobile adoption.

Shannon, by contrast, was foundational across mobile telephony, computing, and communications generally. Auerswald said a large part of the world now inhabited would either not exist or would have been significantly delayed without Shannon’s work. Roberts put it more bluntly: “we’re all living in Claude’s world.”

The unresolved question was why such intellectual explorers are not celebrated like physical explorers once were. Roberts recalled that as a child in the late 1950s and early 1960s, books about Vasco da Gama, Balboa, Drake, Scott, Columbus, and other explorers were common gifts for children. Those figures were treated as romantic agents of risk and discovery, even if later accounts complicated their legacies. By contrast, names such as Claude Shannon, D.H. Ring, and E.K. Jett remain obscure outside specialized circles, despite their effect on daily life.

Auerswald did not claim to know the answer. He suggested one cultural distortion: “we too often confuse high net worth with net impact.” Modern celebration of entrepreneurship tends to concentrate on a small set of very wealthy technology figures — Elon Musk, Mark Zuckerberg, and others — whose public image has also become more complicated than it seemed in the more optimistic Silicon Valley mood of 15 years earlier. But identifying entrepreneurship with those figures, Auerswald said, is “deeply flawed and mistaken.” Entrepreneurship is not reducible to a handful of Silicon Valley fortunes. It includes single proprietors and anyone who takes initiative to build something in the world.

The same point applies beyond entrepreneurship. E.K. Jett was not an entrepreneur but a government bureaucrat who wrote in July 1945 about the future of mobile telephony. That same month, Vannevar Bush published “As We May Think,” which Auerswald described as basically talking about the internet. Vannevar Bush is better remembered than Jett, but even his fame is limited. The people who imagined the communications world are not, in general, household names.

Philip Auerswald described Iqbal Quadir as, above all, an economic theorist. He did not mean a conventional academic theorist. Quadir was someone deeply interested in ideas, history, and the practical application of what he learned from Adam Smith, Hayek, and historical works he studied in his twenties and thirties. Grameenphone, in Auerswald’s interpretation, was an expression of theory put into practice.

Smith mattered to Quadir partly because, as Auerswald tells it, Smith treated Bengal not as a peripheral poor place but as historically central. Auerswald drew a line from the American Revolution back to British imperial finance. The familiar American story is taxation without representation: taxes imposed by the Crown on the colonies helped provoke the Boston Tea Party and the Declaration of Independence. Auerswald said a question less often asked is why those taxes were imposed. His answer was that they were imposed to finance Britain’s colonization of Bengal.

Bengal, in Auerswald’s account, was one of the economic centers of Asia and a global crossroads. He said the textile revolution began there and then migrated to the United Kingdom. He contrasted the United States as a colony of colonization with Bengal as a colony of subjugation, requiring heavy expenditures to maintain.

Smith, Auerswald said, wrote about Bengal as a kind of crown jewel, and also about its subjugation. Smith also saw Bengal’s wealth as connected to its communications network. In that earlier era, the network was not digital or telephonic. It was rivers, channels, and waterways across the Ganges delta, connecting coast and interior and allowing commerce to flow.

For Quadir, a young Bengali at Wharton reading Smith, this mattered. Seeing Bengal reflected and celebrated in Smith was empowering, Auerswald said. It reinforced Quadir’s sense that the misery associated with Bangladesh in the 1970s — famine, revolution, extreme poverty, and the image that many Americans still retain — was not the totality of the place. There had been a before, and there could be an after. Quadir intended to be part of that after.

The Smithian idea at stake was agency. Russ Roberts highlighted the novelty and importance of the idea that individuals can imagine a future for themselves or others and act to bring it about through products and exchange, not only through charity. This, he said, is both an American and Smithian idea, and one underappreciated for how novel it is in the long history of human beings thinking of themselves as pawns — of fate, class, hierarchy, or history.

Auerswald connected this directly to the book’s deeper philosophical level: predestination and agency. The mobile-phone history is one level; the theory of technological change and economic development is another; but the deepest level is the tension between inevitability and freedom.

He brought in Tolstoy’s Second Epilogue to War and Peace: “Reason gives expression to the laws of inevitability. Consciousness gives expression to the essence of freedom.” The question for the mobile phone is whether figures such as Quadir and Masiyiwa mattered, or whether, once the components existed and the value was obvious, mobile telephony would inevitably have reached Bangladesh and Zimbabwe. The Marxist view, as Auerswald presented it in non-pejorative terms, is the political philosophy of inevitability: history as a force in which individuals play little significant part. The opposite is the great-man theory of history, in which exceptional figures such as Steve Jobs, Iqbal Quadir, Claude Shannon, or Mother Teresa become indispensable causes.

Auerswald’s position is that both are true. People have entrepreneurial initiative and free will; they also operate in a world where many conditions are predetermined. That duality, not a clean choice between inevitability and agency, is the underlying claim.

Smith’s own language captured the same force. Auerswald read from The Wealth of Nations, Book IV:

Roberts said the passage made self-interest feel broader than grasping or bargaining advantage. In this sense, self-interest includes the desire to remake the world, to forge a life, to combine existing products and possibilities into something not yet present. Growth is not merely a stable percentage rate in an aggregate series. It is the expanding range of options and endowments that let people ask what can be made from what already exists.

The history of illumination makes one of Philip Auerswald’s central claims easier to see. The standard economic question is how much labor a person must perform to read at night, watch a play, or illuminate a home. That cost has fallen by extraordinary magnitudes. But the important point is not simply that candles got cheaper and brighter.

The sequence of technologies changed radically. Humans did not merely optimize one lighting technology over centuries. They moved from fire to candles to whale oil to electrification and beyond. Russ Roberts underscored the discontinuity: at one stage, illumination meant killing whales and using their innards to light streets. That is not a slightly worse version of the electric lights in a modern room. It is a different system.

Auerswald tied this to William Nordhaus’s paper on the historical cost of illumination, which traces the decline in human effort required to produce light back to fire and, in Auerswald’s description, even to one million BC. On the surface, such a long-run series can look smooth, almost lawlike. Like S-shaped diffusion curves for technologies, it can create the impression that no particular discontinuity, insight, or moment of importance lies underneath. But the smooth curve is made from abrupt substitutions, failed paths, and new combinations.

The whale-oil example also carried an ethical dimension. It is possible, Auerswald said, to criticize fossil fuels and be concerned about climate change, but before fossil fuels humans were “burning fellow mammals” and burning forests to stay warm. Progress can be paradoxical: a later technology may have its own costs and harms while still improving on prior systems along multiple dimensions, including ethical ones.

The larger claim is that human progress consists of new technologies coming into being and becoming widely used. Schumpeter’s idea of innovation as a successful market demonstration is not enough. The landline telephone was successful innovation and reached hundreds of millions of people. But it did not reach most of the world. The mobile phone did.

For Auerswald, this makes the diffusion of useful technologies to most people the central question in economics. Resource allocation, policy, macroeconomics, and other areas matter, but he described them as footnotes to the larger question of how new things come into being and reach broad use. That is the question of human well-being over millennia.

Roberts connected the Nordhaus story to Hayek and the invisible hand. The falling cost of illumination looks, in retrospect, as if someone decreed it or as if it followed a natural law. People want light: to eat, read, attend concerts, feel safe after dark, and extend the useful day. That persistent desire created incentives for thousands of people to find cheaper and better ways to banish darkness. But those ways were not predictable in advance. The apparent inevitability required individual insight, risk, and institutional conditions that allowed people to profit from improvement.

Moore’s Law, Roberts suggested, has a similar character. It looks predestined, but it is not gravity. Bad legislation or regulation could kill the pattern. If incentives for improvement remain, people may develop ways to continue it, even if no one can know beforehand exactly how. Roberts called this a Smith-Tolstoy story: an apparent law made out of human desire, institutional permission, and unpredictable agency.

Philip Auerswald located the argument in a longer line of work about entrepreneurship and innovation as “the carrying out of new combinations,” Schumpeter’s phrase from 1911. The mobile phone is not just a single invention; it is a recombination of prior pieces — communication networks, transistors, handsets, billing models, village lending, mobile finance, license access, and consumer adoption.

The combinatorial view helps resolve the tension between agency and inevitability. Auerswald invoked Stuart Kauffman’s concept of the adjacent possible: with a given set of components arranged in a given way, certain next steps become available. The metaphor was Lego pieces. If one arrangement is in your hand, you can add a piece, subtract a piece, or reconfigure it, but only some possibilities are immediately adjacent.

The search space of possible combinations is not merely large. Auerswald called it hyper-exponential, impossible to exhaustively search even across multiple lifetimes of the universe. Because all combinations cannot be tried, someone must choose a path. This is where agency enters long-run growth. He called it “combinatorial foresight”: the ability to select something to try, test it, and push into the adjacent possible. He linked the idea to Brian Arthur’s work on path dependency, to Ricardo Hausmann and Dani Rodrik’s notion of economic growth as self-discovery, and to the broader image of the pioneer. Someone must go first; for every Vasco da Gama remembered, many others ended at the bottom of the sea.

Russ Roberts added an important qualification. If one has 10 Lego pieces arranged in a certain way and two more to add, some additions may seem likely. But the more radical innovator may break apart the existing structure and use all 12 pieces differently. That is the difference between improving whale harvesting and inventing an entirely different system of illumination. It is still combination, but the goal is pursued through a new architecture rather than incremental extension.

Auerswald used the transistor as the clearest example in the mobile-phone story of something genuinely new. He said Schumpeter struggled late in life with the question of novelty: if innovation is new combination, what can be called truly new? In Auerswald’s view, the transistor qualifies. The move from vacuum tube to transistor, enabled by the properties of semiconductors, was a discontinuity.

Yet even the transistor was useless by itself. A transistor does not do anything until it is incorporated into something. It took time to manufacture transistors at scale and to find the first uses that would lead to many uses. Once the transistor became a usable “Lego piece,” it changed computation, telephony, refrigeration, and eventually the chip-based world. True novelty creates a new component. Most entrepreneurship then comes from recombining components, adapting them, and bringing existing technologies to markets that lack them.

That distinction matters for Iqbal Quadir. Auerswald said Quadir did not invent anything and “barely innovated anything” in the engineering sense. He was not a technologist. His innovation was to see an existing technology in a new context and create a business and institutional model that made it productive for people whom existing telecom systems had not reached. In that sense, the last mile was not a minor distribution problem. It was delivery to the majority of the world.

The entrepreneurial stories are not simple hymns to business vision. Russ Roberts emphasized that Iqbal Quadir and Strive Masiyiwa faced not only technical and commercial hurdles but regulatory and political ones. Their persistence was inseparable from the environments they had to navigate.

Philip Auerswald framed the problem through William Baumol’s work on productive, unproductive, and destructive entrepreneurship. The paper at issue was Baumol’s argument that entrepreneurial talent can be allocated in different directions depending on the rules of the game. As he made the point, Auerswald held up Baumol’s The Microtheory of Innovative Entrepreneurship, whose cover was shown on screen with Baumol’s name visible.

Human trafficking, Auerswald said, is entrepreneurship. Lobbying, of the kind described in a book he had recently read called The Wolves of K Street, is entrepreneurship too. It can involve creativity, diligence, imagination, reward, and effort while creating nothing or being net destructive. Rent-seeking is not the absence of entrepreneurship; it is entrepreneurship pointed toward extraction.

That framing helps answer a common discomfort with celebrating entrepreneurship. There is no guarantee that initiative serves human well-being. The state has the monopoly over the use of force, and the regulatory and governance environment creates opportunities for talented people to either build products and services or manipulate rules, block competitors, and capture rents.

Baumol’s argument, as Auerswald presented it, lands hard on the idea that societies have some subset of people with entrepreneurial capabilities, and that institutional organization shapes where those capabilities go. Roberts summarized it as rules of the game: set up bad rules and people will be encouraged to do bad things. Auerswald agreed. This is the piece of institutional “predestination” he accepts.

At the same time, he distanced himself from a strong institutional determinism associated with Daron Acemoglu and James Robinson’s Why Nations Fail. Auerswald said he mostly does not buy that account because, in his reading, it goes too far toward institutional predestination and misses human agency. Institutions matter, but they do not erase the role of particular people choosing, persisting, and forcing possibilities into existence.

Masiyiwa’s story in Zimbabwe became the central example. He left the country and studied in England while the struggle against Rhodesia’s white supremacist government was underway. A cousin involved in the revolution advised him not to return to fight, saying they would win and that Masiyiwa would probably be killed; he should instead study something useful for after victory. Masiyiwa earned an engineering degree.

The expected entrepreneurial story still did not begin there. He returned and took a job in the government telecommunications monopoly because those were the available jobs. Then, wanting to build a house, he found that construction quotes were twice the amount of his loan. To manage the project himself, he had to create a company. That construction company became successful, and only later did Econet emerge from it.

The obstacles then multiplied. Auerswald said Masiyiwa was abducted and threatened. He sued the Mugabe government and lost, then appealed to the Supreme Court on constitutional grounds, arguing that the people of Zimbabwe had a right to telecommunications services. The Supreme Court, he said, is one of the heroes of the story, showing the importance of an independent judiciary. It repeatedly ruled in Masiyiwa’s favor and made his success possible.

Masiyiwa’s struggle also became part of what Auerswald called a second stage of independence: market or personal independence after formal political independence. He described evangelical colleagues, ministers in Zimbabwe, and 4,000 students who protested in favor of Masiyiwa. The story was not only a founder versus incumbents. It was a society contesting whether access to telecommunications would be controlled by a monopoly and political cronies or opened to people.

Roberts gave the point a tragic edge: Masiyiwa could have made a larger difference if he had not had to spend so much talent overcoming a government trying to crush him in order to enrich Mugabe’s cronies. Auerswald accepted the force of the point but complicated the institutional lesson through Quadir’s experience in Bangladesh. In the early 2000s, he had told Quadir and Telenor engineers that it was incredible they achieved what they did in such an environment. They replied that in some ways it may have been easier than doing the same thing in the United States.

The reason was underappreciation. In Auerswald’s formulation, Masiyiwa and Quadir were first because they did not pay for licenses or spectrum in the way later entrants would. In Bangladesh, he said, there was a bidding process, but the licenses and cells were given away because nobody thought they were worth anything. Within a few years, licenses and spectrum for mobile telephony even in poor countries were going for tens or hundreds of millions of dollars. Once the market test was passed, those rights became valuable assets. Mo Ibrahim, Auerswald said, became a billionaire by aggregating such licenses.

So the institutional lesson is not simply that poor countries are harder and rich countries easier. In richer, more regulated environments, incumbent power can be entrenched and rules more defined. In poorer or less regulated settings, severe political obstacles may coexist with unpriced openings created by elites’ failure to see what is possible.