My colleague, Oleg Petrov, asked me how the e-Development team of the World Bank might encourage more rapid development of a Bank portfolio of e-Government projects. I have been thinking about that question, and will share some of the thoughts.
It seems to me that the first step is to convince the Bank staff that there is a demand for loans and other World Bank projects funding worthwhile e-Government efforts. By worthwhile, I mean projects for which the expected benefits would be sufficiently high to justify the investments. Demand would presumably be the result of efforts to convince governments that e-Government projects were sufficiently in their interests to justify the opportunity cost of using available World Bank resources for e-Government rather than other purposes,
“e-Government” is often used, in a restrictive sense, to refer only to the use of Internet technology to enhance the interface between government and others. In this respect, it would include government-to-citizen (G2C) communications, government-to-government (G2G( communications, and government-to-business (G2B) communications. Subcategories might include government-to-those-it-regulates communications, government-to-supplier communications, etc. I would suggest a broader definition might also be considered, including more broadly the use of information and communications technologies by government. This larger definition would broaden the scope to include ICT other than Internet technology for use in the interface between government and those outside government. It would also include the use of ICT internally within government.
“Government” of course is a broad term. Thus e-Government will differ from local, to provincial to national level. Similarly, there are a broad spectrum of government services, and the services considered to be governmental differ from country to country. In countries with socialized medicine, e-Government might be construed to include ICT applications in the health sector. In many countries, where education is a function of the national government, ICT applications in education are seen as nation-level e-Government; in the United States, where education is left primarily to local authorities, e-learning too is often seen as primarily a local function. And indeed, education and health service delivery are topics that have generated their own specific ICT application literatures, and may be seen by many as not e-Government at all.
I would suggest, however, that it might be very useful for the World Bank to program assistance for ICT support to a broad spectrum of governmental functions within integrated, broadly-construed, e-Government projects. There are economies of scale in expanding e-Development efforts and there are potential synergies among sectoral approaches that might be beneficial for Bank programming.
Non-Linear Returns
A significant difficulty in justifying ICT investments is that there are non-linearities in the rates of return to such investments, and the estimates of returns from early projects in the process of institutionalization of ICTs may be much less than the rates achieved later in the process (or on the average). In such a case, measurements of returns to early ICT project investments should not be taken as estimates of returns to later ICT projects, nor as estimates of average rates of returns.
It should be noted that while many, if not most, ICT projects are judged to fail, the process of ICT institutionalization in government has been ongoing for decades. Unless government managers are wildly misguided, the institutionalization of ICT must be assumed to be economically beneficial. One possible explanation of the apparent discrepancy between project results and long term institutionalization results is that even failing projects leave positive residues – trained people, revised procedures, modified organizational structures, etc. – that facilitate future projects. These subtle benefits would be external to those usually measured in monitoring or evaluating projects.
Measurement of Costs
The measurement of costs of ICT in organizations includes, of course, the measurement of the costs of hardware and software. It also includes the cost of maintaining and operating the hardware and software. There are also generally well understood start-up costs, including the development of systems, training of staff, and modification of organizational procedures.
It has been suggested that e-government (in the narrow sense of establishing interfaces between a government and outsiders) passes through predictable stages. These may include:
· Establishing a presence on the Internet via websites, etc.;
· Providing information via the Internet;
· Conducting transactions via the Internet; and
· Transforming the organization to fully utilize Internet technology.
The expenditures on preparation and maintenance of content will be expected to increase with each step in this process. Moreover, it will probably be difficult to allocate content preparation costs to the ICT innovation per se, rather than the normal course of business for the government organization.
As a government agency begins to conduct transactions via the Internet, it will be likely to have parallel systems conducting transactions via the traditional (face-to-face or snail mail) processes as well as via the Internet. Costs are likely to be high during the time while two parallel systems are being operated for the same tasks, and while the automated processing is debugged and confidence builds in the online processes. Again, such situations complicate cost estimation.
Reengineering government organizations, the fourth step, is likely to involve significant but hard to measure costs of changes in structure, process, and personnel.
The discussion thus far has focused only on the internal costs to the government of e-government. Clearly, however, those who would deal with the government via the Internet will themselves incur costs in doing so. Even those using computer kiosks or telecenters will incur costs in reaching those facilities and will have to invest time and effort in learning to use their facilities. When those dealing with the government must themselves acquire computers, software, connectivity, and the skills and staff to use them, the costs will be still greater.
We know that there are significant investments needed to institutionalize a market. A market is of course an institution providing an interface between buyers and sellers, but the institutionalization of a market involves establishing the rules of the game that allow trust among the participants. Thus, a body of commercial law accompanies the formation of a market, as do police to enforce the law and courts to adjudicate disputes. Moreover, one finds in mature markets a variety of ancillary institutions such as market research firms and consumer protection organizations. Developing e-commerce involves a variety of costs for such institutionalization that should be consdiered.
So too, e-Government involves institutionalizing the interfaces between and among different parties. Even the provision of information involves transactions between the informer and the informed, and the more complex e-government transactions involve the institutionalization of more complex processes. Thus, online tax payment can involve not only the government and the tax payer, but vendors of tax software, paid tax preparers, tax consultants, financial intermediaries (e.g. banks, credit card companies), legal processes to adjudicate tax disputes, etc. The costs of institutionalizing an online tax system involves not only the costs to the government and the taxed, but the costs involved in all these ancillary functions. More generally, the costs of building ICT into government will be expected to be born very broadly in the society.
Cost-Effectiveness Analysis
In theory one can justify an investment in ICT on several different bases:
· It will allow one to accomplish the same tasks equally well with less expenditure;
· It will allow one to provide more service with the same expenditure;
· It will provide better service with the same expenditure; or
· It will allow new services that would not be possible without ICT.
There are pitfalls in applying such simple ideas in developing nations. Thus, in many developing nations, government is expected to provide employment for a large portion of the educated workforce. Efforts to use ICT to increase worker efficiency, with the intent of substituting capital investment for labor costs, will be counter-productive in such circumstances.
It might (naively) be thought that use of ICT to provide educational services to more students, or to improve the quality of health services to patients would be easy to justify on cost-effectiveness grounds. But if governments are not interested in expanding educational opportunities to the target population, or in improving the quality of health services, such justifications are a waste of time. All too often, key decision makers find the nominal goals of the education or health service systems of government not to be compelling.
Extensive use of ICT is the only way to provide government services such as weather forecasts or disaster warnings. Technocrats may assume that it is self-evident that the use of technology is cost-effective in providing such services. All too often, political decision makers fail to authorize investments in such systems, and all to often the high costs of such failures become apparent with experience. It is thus important to recognize the underlying as well as the nominal objectives of key decision makers.
In theory, economic analysis should focus on the cost-effective means of accomplishing that which people actually want to accomplish. In real public life, where many interests vie for limited resources, explicit statements of the costs and effects of ICT projects may not be welcomed in many and politically important quarters!
Cost-Benefit Analysis
Government provides services of the kind economists call “public goods”, i.e. services that are non-rivalrous (use by one person does not prevent another from its use) and non-excludable (services from which it is hard to exclude beneficiaries). Such services might include the national defense, law enforcement or public roads. Government is also called upon to provide services with strong externalities, such as education and health services (i.e. services which have significant benefits to the community beyond the individual recipient.) By their very nature, it is hard to measure the value of such benefits, and thus hard to provide quantitative estimates for cost-benefit analysis of e-government programs. It is important, however, to recognize that significant benefits often exist even if they are difficult to quantify.
The difficulties of cost-benefit analysis should not be underestimated. These difficulties in part justify the common reliance on cost-effectiveness analysis. In situations in which cost-benefit analyses are required by law (e.g. projects proposed for the U.S. Corps of Engineers), experience has suggested that estimates of both costs and benefits are often in error, and projects desired by powerful political forces often are approved on the basis of analyses that prove deficient in retrospect.
A further difficulty in the application of cost-benefit concepts to e-Government projects and programs is that the ICT component is typically not solely responsible for the benefits. Thus it becomes important to attribute some portion of measured benefits to ICT and some to other factors involved in the production of those benefits.
Moreover, differing interest groups have different, sometimes conflicting interests. In theory, if not in practice, it might be possible to describe both the incidence of costs and the incidence of benefits over the population. But again, it may not be to the interest of all to do so explicitly. Thus ICT applications in health and education in developing countries are likely to benefit certain (relatively affluent) groups, while the costs of public provision of such services may be differently distributed; there may be considerable unease among political decision makers in making information on the incidence of the costs and benefits of such services explicit nor widely available.
Financial versus Economic Analysis
It is important to consider not only whether government ICT investments will bring sufficient benefits to the nation to be justified, but also how those investments will be financed. In countries with weak taxation capabilities, many useful government functions are sacrificed because they can not be paid for. Thus a second set of assessments is required to define the resource requirements, when those resources will be needed, the resources that can be acquired (especially through the use of ICT), and when those resources will be available. It seems likely that many e-Government projects can benefit greatly from in-kind and donated resources, and that such contributions are seldom included in the financial analysis.
Final Comments
World Bank staff, and the leaders of the Ministries of Finance with whom the Bank deals most closely, often think as economists. I suggest that economic arguments will often be persuasive in convincing such people of the importance and urgency of e-Government projects and programs. The discussion above, while pointing out the difficulty of making economic (and financial) estimates, should not be taken as opposing the use of economic concepts in the arguments.
