Chapter Six of Overselling the Web? opens with an analysis of the technological divide separating India from the US:
Already, there is more than a seventy-fold difference in access rates between US and Indian households. That gap is far larger than the income divide between the two countries. Worse, the divide is linked to productivity, suggesting this differential access will promote ever-widening divergence in income. The divide I am talking about is, of course, the air conditioner divide.
Policies towards the Internet need to be designed with the recognition that it isn't the only technology where access is significantly lower in developing countries. Furthermore, and unlike some other technologies vital to development, ICT provision is an area where private, competitive operators have sparked an ongoing revolution in access. One of the best policies governments can follow if they wish to overcome the 'digital divide' is to get out of the way of the market. There may remain a government role to extend telecoms infrastructure access to remote communities. Sometimes, there may also be a role for support to pilot projects evaluating new approaches to Internet access, but such approaches need to incorporate innovation, sustainability and replicability as well as intensive monitoring and evaluation if they are not to be white elephants.
Policy makers also need to recognize that the enabling environment to attract ICT industries or the advanced ICT use extends far beyond sector-specific policies:
Malaysia’s multimedia supercorridor is a particularly powerful case study here. The $10 billion-plus investment by the government was matched by just $475 million of private investment and 7,300 jobs (that works out at more than $1 million per job). Reasons that companies cited for not moving to the corridor included concerns about government monitoring of Internet traffic, capital controls, red tape, slow visa approval, weak intellectual property rights and the absence of an appropriate skills base.
Subsidies and tax breaks for ICT industries are common the world over. The justification for such incentives based on 'cluster economies' is weak. This is particularly the case in developing countries, where it is likely that foreign consumers will be the biggest beneficiaries of any TFP gains from the ICT industry. Competition based on the size of subsidy paid will only reduce economic returns. And subsidies won't work at all if the broader environment is unattractive to firms.