WORLD DEVELOPMENT REPORT 2016 32 Box O.10 Opening the M-Pesa mobile money platform to competition Safaricom’s mobile money system is a well-known success because Safaricom incurred high costs developing the sys- story. It was able to grow quickly because Kenya’s banking tem. But in 2014, Kenya’s Competition Authority changed regulators initially decided to take a hands-off approach. the rules and opened the system to alternative mobile For seven years, Safaricom maintained a dominant position operators. The transaction cost of transfers of up to K Sh through exclusivity agreements locking agents into the 500 (US$4.91) fell from K Sh 66 to K Sh 44 (US$ 0.43). system. Initially such arrangements were perhaps justified Source: Plaza, Yousefi, and Ratha 2015, for the WDR 2016. much to traditional businesses that use the internet have the benefit of being able to learn from the expe- as to internet platforms (box O.10). rience in the transforming countries before devising their own solutions. Tailor “new economy” regulations to ensure competition Skills for the digital economy Internet firms create new business models and Technological change means that many routine tasks change market structure, posing new challenges for will soon be done by machines. In contrast to previ- regulatory authorities. On-demand economy firms ous episodes, the internet will also make many tasks like Uber and Airbnb scaled up traditional ride shar- carried out in white-collar jobs redundant. This puts ing and subletting to a global scale. But regulators a premium on different types of skills that automa- struggle to determine whether these companies are tion complements rather than replaces (figure O.23). taxi or hotel companies or simply software providers. Education systems have been slow to respond to this Offline competitors complain that they do not follow challenge. Furthermore, the pace of change is fast, the same regulations. Where these industries tend and the types of skills in demand change quickly. So to be overregulated and their markets distorted, as is workers will have to upgrade their skills frequently often the case in the taxi business, this new competi- throughout their careers. These dynamics already tion can encourage a general overhaul of the industry. play out in many transforming and some transition- In the United States, cities like New York and states ing countries, but even for emerging countries it is like Massachusetts have begun to develop appropri- not too early to prepare. ate regulations for these platforms, imposing safety and tax obligations but also reducing their competi- Start early with foundational skills tors’ regulatory burdens. Skills development starts at birth and lasts a lifetime. Similar regulatory puzzles are posed by firms Good parenting and early stimulation prepare chil- such as Amazon, Facebook, and Google. For example, dren for school, where cognitive and socioemotional Google is known as a search engine company but is foundations are laid. Technology can play a role. better described as an advertising firm. These firms Even though the record on simply providing laptops confound conventional competition law because they or tablets to students is mixed, videoconferencing do not act as traditional monopolies. Their services with English speakers from the Philippines has are often free to consumers. But given their domi- improved learning among first graders in Uruguay. nance in the markets for online ads and books, they Khan Academy provides resources for independent have considerable leverage over marketers and book- learning, and using a gaming approach to math sellers. This is similar to credit card companies’ posi- teaching benefited grade four children in Mumbai. tion with respect to retailers. Research by economists But in these and many other cases, one factor was such as Jean Tirole has shown that regulations in more important: the quality of teaching. It is no such industries must be carefully tailored to guaran- coincidence that Finland, one of the most connected tee competition and avoid harm to consumers. These and best-performing countries in educational test- are very challenging problems, and most pressing in ing, uses very little technology in the classroom. the transforming countries. Developing countries It takes time to improve the quality of teachers,