Show Me the Subsidy! M-Pesa, Vodafone and the Entrepreneurial State

Screen Shot 2014-04-12 at 13.21.52Scanning the back pages of London’s Financial Times is not something that we at Mediolana do nearly enough of, but a recent spare five minutes yielded exactly this activity – and in one respect at least we were genuinely shocked at what we found. And the surprise didn’t come in the news that Vodafone are planning to launch a version of M-Pesa – a mobile payments system that has proven phenomenally successful in Kenya and Tanzania – in Europe: as living standards continue to stagnate or decline in much of the eurozone and beyond, a new generation which is less tied into conventional financial structures such as the traditional bank account needs to be catered for.

The stupefaction came in the detail. M-Pesa originally began as a humble pilot project in 2006. The value of this project? A mere £2m – not bad for software than handles an estimated 33% of Kenya’s gross domestic product per month in SMS-ed cash. But what is arguably the bigger revelation is the fact that of that initial £2m, half of the investment was not put up by Vodafone, but contributed by the UK government’s Department for International Development (‘DFID’).

Of course, this sum of money was only the beginning: Vodafone and its East African subsidiary Safaricom have pumped in significant volumes of capital since to build up the M-Pesa network – as well as attempting to export the model to other emerging markets with varying levels of success. But the fact remains that without the DFID subsidy, M-Pesa as we know it today would have been nothing more than just another idea which never made it beyond the conceptual stage. As the inimitable Mariana Mazzucato copiously illustrates in her excellent and provocative thesis The Entrepreneurial State, there is a definite pattern of corporations riding off the coattails of government subsidy in ‘risky’ investment areas such as high technology: companies only allocate resources to sectors in which the state has already tested the water.

Yet as Vodafone prepares to roll out M-Pesa in the Old Continent, the urgency of reexamining the equity and expectations of this type of financial aid has perhaps never been greater. As the FT rhetorically poses: ‘…should taxpayers have shared in M-Pesa’s long-run upside…?’ Should citizens demand much, much more from both their governments and state agencies in determining exactly how their money is risked – and in securing an apposite financial return commensurate to the risk involved? And should there be a much greater reconceptualisation of the state as entrepreneur than has thus far been envisaged?

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Filed under Economic Development

4 responses to “Show Me the Subsidy! M-Pesa, Vodafone and the Entrepreneurial State

  1. I think the State has to relook at its relationship with large corporations to really sort this out. Unfortunately the politicians and political parties that run governments seem to be very fearful of taking on powerful organisations. The present inability to do anything to regulate the city properly and the difficulties of press regulation show how weak politicians are. Perhaps this is a product of globalisation where UK governments have lost of sense of how powerful they really are. Since the time the currency speculators forced the UK out of the ERM, plus the financial crisis, plus the rise of a potentially hostile China, UK governments probably feel vulnerable and a little at sea. So I’m not sure they’ll be capable of asking for financial returns on their investments in the near future. That would need a deep change in psychology.

    • Terrific blog post and Suleman’s follow-up comment is spot on.

      It’s a sin to say it in this day and age, and political classes are virulently against such a notion in general, but the public sector can do things better than the private sector, as long as (and this is key) it has the right management, structures and discipline (none of this job-for-life-just-for-average-performance and three-months-paid-sick-leave-because-you-have-minor-backache type culture, for instance).

      It’s a tragedy, for instance, that East Coast trains, a profitable public-sector owned franchise, is going to be sold to the capitalist profiteers because of this dogma that private sector = good, public sector = bad.

      • The irony is that state-owned companies from China, France and possibly Russia will be running much of the UK’s nuclear power infrastructure – an unintended consequence of privatisation?

    • The change in psychology is needed from top to bottom…we wonder what will finally engender it…

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