David Francis's blog

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The World Bank released a report Wednesday entitled Global Economic Prospects 2008: Technology Diffusion in the Developing World. As the name implies, the report details what kind of technical progress developing countries are making—how many people have computers, access to the Internet, that kind of thing. The report is quite long, so I'm going to focus on a few key points:

The number of people living in absolute poverty in developing countries has decreased from 29 percent in 1990 to 18 percent in 2004. This is one of the upsides of globalization and the spread of technology. As technology spreads to poor countries, incomes grow. Yet as the World Bank acknowledges, it's very difficult to quantitatively prove a relationship between technology and income growth, so the causation here is murky.

There is a large technology gap between the rich and poor. This is one of the downsides of globalization. A good example of this phenomenon is India. India has a robust high-tech industry concentrated in its cities. However, in poorer rural areas less than 10 percent of people have access to a telephone let alone a computer, according to the Bank's own figures. Such stratification is dangerous and becomes a self-fulfilling prophecy. Look at income growth in the United States over the last few decades: the gap between the rich and the poor has grown dramatically. Once this separation starts, it's hard to stop.

Developing countries have difficulty absorbing new technologies and are incapable of innovations. Because of low literacy rates and infrastructure shortcomings in poor rural areas, poor countries have difficulty embracing technology. For instance, computers are great, but are pretty worthless if the person trying to use one can't read. And cell phones are a great way to connect people, but many rural areas in developing countries don't get coverage. These difficulties embracing basic technology make it impossible to innovate.

The spread of technology is inevitable, and it does have enormous benefits. But the second and third points listed above have dangerous implications. Once the fortunes of rich and poor begin to diverge, the trend is nearly impossible to reverse. And problems in developing countries make it very difficult to get technology into the hands of the poor. Hundreds of millions of people are being dug into a technological hole that they can't emerge from. They're being left behind by the global economy.

Last June, during an evening newscast in Prague, a shot of the Krkonose Mountains in Bohemia was suddenly filled with a bright yellow light. When the light faded, a mushroom cloud was visible. A nuclear weapon had been detonated in the Czech countryside. Panicked viewers phoned state-owned CT2, the station which aired the image, asking if nuclear war had begun.

The shot was, of course, a fake. It was a prank, planted into the shot by Ztohoven, a Prague-based artists collective. The group wanted to show how easily images can be manipulated. And they succeeded. Take a look at the video:

The Czech government didn't find the prank funny. Six members of the group are now on trial and face up to three years in prison for spreading false information.

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In the latest issue of FP, I wrote (subscription required) about the efforts of ICANN, the group that gives out Internet domain names, to "internationalize" the Web. Starting this year, ICANN will allow users to use non-Roman characters in top level domain names. For example, Arabic-speaking users will no longer have to end Web addresses in ".com"—they can register the last part of their Web address in their own native language.

Tina Dam, the executive director at ICANN who is in charge of the change, said that part of the reason for the switch was fears that China could "split the root," or create a second Internet that only recognizes Chinese characters. This would allow the Chinese government to control what people see. If, for instance, a Chinese user tried to access an FP article on censorship in China, the government could direct them to a completely different site.

Dam said she was confident the change would appease the Chinese. But ICANN now has a problem with Russia. Despite ICANN's efforts to incorporate Russian alphabet characters into Web addresses (it is one of 11 sets of characters the group is incorporating), Moscow is pushing for the creation of an Internet that recognizes only Cyrillic characters. Expert warnings echo those voiced about a Chinese Internet: increased international isolation and more government censorship of the Web. Given the wide control the Kremlin already has over media in Russia and its unwillingness to play nice with pretty much anyone these days, a separate Russian Internet might be just as dangerous a prospect as a separate Chinese one.

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Sometimes, a tree is not just a tree.

In the Moldovan capital of Chisinau, the pro-Russia communist President Vladimir Voronin (shown at left with Russian President Vladimir Putin) removed a Christmas tree put up by pro-Europe Mayor Dorin Chirtoaca, an advocate for strong ties with neighbor and new EU member Romania. Voronin said the tree should not be displayed until after the New Year, the traditional time for Russian Orthodox. But Chirtoaca fought to display the tree at a traditionally European time.

In a victory for the pro-European mayor, a Christmas tree now stands in Chisinau, about 300 meters from government buildings. But it raises the larger question encountered by members of the Commonwealth of Independent States during this holiday season: Are they to be Russian and abandon the freedoms of the EU, or tilt toward Europe and risk falling victim to the wrath of Putin?

Photo: JOHN THYS/AFP/Getty Images

Last, week, the European Central Bank (ECB), the Federal Reserve and other central banks flooded markets with cash. Then on Tuesday, the ECB infused another $500 billion into the market.

The banks are trying to alleviate a credit crunch and restore confidence in world markets after the fallout from the subprime mortgage market spread to the wider economy earlier this year. On its face, that's a good thing. But if you ask me, this needs to stop. Why? The market needs to correct itself. The central banks have to come to terms with the fact that a recession is possible if not likely no matter what they do. Here are a few reasons to let the markets be:

Wall Street is not going to be happy not matter how much cash is infused or how low interests rates go. The Fed's rate cut on Dec. 12 is the perfect example of how spoiled Wall Street has become. It gets a cut, and it trades the market down 300 points because it wasn't big enough. This follows an autumn during which the market traded up irrationally on hopes of a rate cut. Wall Street needs to start expecting that the good times it has had over the last few years can't last forever.

As interest rates go down, chances of inflation go up. Despite news that inflation was flat in November, there is a real risk that prices could rise if interests rates keep getting cut and if oil prices stay high. The Fed acknowledged this risk in a statement accompanying its latest cut. And the Fed apparently had no problem with subprime borrowing when the market was up. It didn't act then. It shouldn't act now.

Buyer beware. Investors bet on instruments backed by subprime mortgages because they were risky; they could make a lot of money or lose a lot of money. For a while, they made buckets of money. Now, they're losing it. It is not the job of central banks to bail out that made bad investments.

Buyer beware II. The same principle applies on the homeowner side, apart from those who were suckered into these kinds of loans (and now it looks like the right kind of protections are being put in place). Many subprime borrowers were homeowners who wanted to upgrade to a bigger house or borrow against the value of their house. They took out these loans betting that the value of their homes would continue to rise. When housing prices started to plateau and eventually decrease, these owners got stuck with payments they couldn't make. Others should not have to pay for their mistakes.

Recessions are painful, but, just like good times, they don't last forever. They're an ordinary part of the market cycle. The actions by the ECB and Fed are simply prolonging the inevitable, whether it be a recession or simply a brief correction. Either way, it's time to let the market take its natural course.