Leapfrogging

Dates are important in history, even if the relations between them are accidental. The Eastern bloc fell apart in 1989: the round table in Poland and the elections on June 4, the opening of the Hungarian-Austrian border and the exodus of East Germans, the collapse of the Berlin Wall—these are the most important icons of this time. In 1991, the Soviet Union expired and Lithuania, Estonia, Ukraine, and other former Soviet republics started to enjoy their independence on its ruins.

In the same period, on the border between Switzerland and France, in the European Organization for Nuclear Research (CERN) in Geneva British physicist Timothy Berners-Lee worked on a system the first draft of which he presented in 1989 and its details in 1991. Today the system is called WWW, World Wide Web, and in combination with the physical network of the Internet it forms the foundation of contemporary digital civilization. It is also worth noting that in 1991 Finland launched the first digital telephony network in the GSM standard.

No one knew then how the process of post-socialist transition would look like; the bloody course of the revolution in Romania showed what the real stakes of the transition were. They went up steeply during the breakup of Yugoslavia, but the division of Czechoslovakia occurred peacefully. And very few people at the time had the awareness of the consequences of technological change. Predictions for the spread of mobile telephony spoke about at most several dozen million users in 2000, while in fact they numbered almost one billion by that date. To round up the theme of symbolic dates, the year 1991 symbolically connects the history of the Internet with the history of Central Europe; it was then that such countries as Poland were included in the global net after the barriers limiting their access to Western technologies were lifted.

We should remember in what situation we found ourselves in at that time. In the late 1980s in Poland a resident of Warsaw had to wait 25 years for a stationary phone plug-up. Despite ambitious plans for computerization of socialist economies, infrastructural backwardness and lack of access to up-to-date technologies were behind the fact that all countries of the Eastern bloc entered capitalism as an ICT backwater. But the backwardness did not mean lack of aspirations and competence, IT and engineering education were of a high quality, which provided the basis for developing a vision of the “leapfrog.” According to this vision you can jump across some stages of modernization and immediately adopt new technologies. This allows you not only to catch up with, but even to overtake the leaders, for they are stuck in a “technology lock,” that is they amortize their investments in technologies of the previous generation.

An example of the “leapfrog” in action is going straight to financial transactions based on payment cards with virtual bypassing of cheques, still popular in such countries as the United States. Thanks to another “leapfrog,” that is adopting wireless communication technologies, such countries as Poland did not have to catch up in expanding the network infrastructure based on copper wires. Other examples of successful “leapfrogs” in the countries of Central Europe is electronic banking and e-administration services (Estonia is an outstanding example here not only in the region, but worldwide).

The “leapfrog” doctrine also produces myths, which societies of Central and Eastern Europe eagerly soak up so that they might think better about themselves. The contribution of Estonians to the creation of Skype, an application which revolutionized the telecommunications market by providing cheap phone calls over the Internet; the achievement of the Czech Seznam, which for many years successfully resisted Google; the Hungarian application Prezi, Polish “The Witcher,” or Ukrainian and Russian programmers and hackers show that a Pole, a Slovak, a Hungarian, and a Czech can do it.

But it is good to set myths against hard data. The examples quoted above are true, but do they really allow us to claim that Central Europe is a dormant Silicon Valley and any time soon it will explode with an eruption of milestone innovations? It worked quite well in South Korea, a country which followed a similar course of development and was able to manage its post-industrial transformation in such a way that without losing its industrial base it built one of the most modern digital economies with such global brands as Samsung.

South Korea ranks 12th in the international Network Readiness Index published for more than a decade by the World Economic Forum. The index is based on an analysis of several dozen factors measuring how a given country copes with utilizing new technologies in various areas: how they are used by business, government, and individual citizens. The leaders of the ranking are not a surprise: Singapore, Finland, Sweden, Holland, Norway. Central Europe appears with Estonia which is 22nd, then there is a large gap and we have Lithuania ranking 31st and Latvia 33rd. The leader of the Visegrad Group is the Czech Republic at 43, Poland at 50, Hungary (53) and Slovakia (59).

Such a sequence in the global ranking is more or less stable since the measures are taken. To have a better grasp of it we should take a look at partial indicators, for they have also changed very little in each of the surveyed countries. And they are extremely interesting, for it turns out, for example, that in Poland a major hindrance for the digital transformation is the government. In the category “Importance of ICTs to gov’t vision” Poland is as far back as 118, Slovakia 109, Hungary 93. The said leader of the former socialist bloc, Estonia, is 12th. This has a huge impact on the development of other areas of digital modernization, with its ultimate effect on the economy.

An interesting supplement to the World Economic Forum reports is the study published this year by the Polish think tank “Polityka Insight” called “It is time to speed things up: digitalization of Poland’s economy.” In the “index of digital economy” category the Czech Republic is the leader of the former Eastern Bloc with the 9th place in Europe, while Poland, Hungary, Bulgaria, and Romania are at the back of the pack.

Can speeding things up work? It perhaps would, if this idea occurred to only one competitor and the rest decided not to bother. But the “Polityka Insight” report shows that no one in the European race is giving up. And indeed, in the period between 2008 and 2014, Poland improved its digitalization of the economy index by 14%, Slovakia by 14.8%, the Czech Republic by 18.6%, but the much more advanced Norway went up by 10%, Ireland by 10.8%, and Finland made a similar advance. This news is both good and bad. It is good for it shows that you can systematically modernize your economy through investing in new technologies. But when everybody uses a similar development strategy, it is still too little to reduce the gap between the leaders and the back of the pack.

Does that mean that the fragmentation of Europe into “many digital speeds” is permanent and the theory of the “leapfrog” is not working? To give an answer to that, we must first understand the reasons behind the differences. The most obvious reason has already been mentioned, namely the structural backwardness inherited after the period of the so-called real socialism. The foundation of a digital economy is ICT infrastructure, that is the density of the data transmission networks. The problem is not only that they are easier to develop in countries with an existing dense ICT network. The problem of Poland, Romania, Bulgaria, and even Hungary lies with their settlement structure—their large share of rural population significantly raises the cost of building the network compared to urbanized countries. The success of South Korea was largely based on the fact that an overwhelming majority of its residents live not only in cities, but also mainly in apartment blocks.

Infrastructural gaps may be bridged by spending EU funds and Central European countries eagerly use this opportunity. But it turns out that overcoming the physical barrier to access to the network is not all when “soft factors” come into play. I mean here digital competence, that is the ability to use the new technologies, the level of education and awareness in business, the structure of consumer needs, and the competence of public administration in making use of the new technologies. Interactions between these factors are very subtle and cause-and-effect relations are complex. Does the low use of e-commerce come from lack of ability or from insufficiently attractive offer, which, in a vicious circle, companies are not developing, for the demand is too low? Or perhaps still something else is behind it, for example the low level of social trust endemic in post-communist societies. And social trust, as studies showed already in the late 1990s, is crucial for economic growth in general and even more for the development of digital economy based on indirect relations between market participants.

Still, an analysis of internal factors is not enough to explain the stable patterns appearing in rankings comparing the development of digital economy. This analysis has to be supplemented with external factors—after all, Central European economies have a semi-peripheral status and their growth and structure to a large extent depend on decisions taken by capital owners. These decisions are made according to the logic of effectiveness of accumulation, which means that the technological foundation built through foreign investment will be developed only to the level defined by marginal profitability of capital and not by the modernization goals of a given country.

This logic spreads through virtually the whole economy, for in a semi-peripheral arrangement even companies controlled by domestic capital are usually subcontractors in value-producing networks controlled by global players, and they must adopt imposed standards of cooperation, also in the area of technology. Only a few players are capable of shedding this dominant pattern, those which stake everything on their own original idea. If they are successful, as the makers of “The Witcher” game were, they become an example confirming the validity of the “leapfrog” doctrine. Unfortunately, we do not know how many ambitious projects like this went to the ground.

Superimposed on the global center/peripheries pattern is one more element—called “path dependence.” Digital modernization, although described in terms of a revolutionary rhetoric, is simply yet another modernization wave drawing on the achievements of previews waves and modern institutions created by them. This is why the Czech Republic has the highest digital economy index, although Estonians, to name but one example, attach more importance to digital technologies than the Czechs. The Czechs are profiting from the level of development of their economy in the first stage of modernity, which also brought a profound modernization of the society, which today favors the process of further modernization, the digital one.

So what did South Korea owe its success to? Was the population density, making it easier to build infrastructure, the decisive factor? No, already on the eve of their artificially accelerated authoritarian industrial modernization, Koreans chose the path of creating domestic capital groups. This is how such corporations as Samsung, a conglomerate with a global reach, were born.

To sum things up, the key to modernization, also (or perhaps especially) in the digital era, is not technologies, but controlling reality through the management of capital and the global networks of value circulation connected with it. Digital autarky is impossible.