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Why techies should work with economists

Firms in the Silicon Savannah are just flying blind without economists. file photo | nmg
Firms in the Silicon Savannah are just flying blind without economists. file photo | nmg 

Two weeks ago, I wrote about why Kenya needs more micro-economists premised on the book “Trillion Dollar Economists: How Economists and Their Ideas Have Transformed Business” by leading economist Robert Litan.

Following through the responses, the most recurring question out of the article was how many economists Kenya has? In a few weeks’ time, I will try and put that estimate out more particularly the number of practising economists in Kenya’s public sector.

Though it’s important to note that the Economics discipline is not a linear profession per se like Finance, Accounting and even Law. More specifically, it’s a social science that practitioners apply to understand prevailing social, economic and business problems and also use it to solve those problems.

Moving on to this week, we look at the application of micro-economics in the technology world. In a TEDx talk in Kansas City in 2014, Robert Litan pitched how economists and their ideas had contributed to the rise of the entire internet economy and to some of the iconic companies within it.

For example, it’s economist Muriel Niederle who recommended the concept known as artificial scarcity to the dating site Cupid.com turning it into a profit making entity.

At the time, Cupid.com had a problem that its engineer had tried fixing for a while. Male customers were barraging females with so many requests for dates pushing away females from the dating site than matching up couples as the site intended.

Economists Muriel and Dan Ariely were brought on board and they advised the site to limit males to two approaches a month, creating an artificial scarcity. The effect of being constrained led men to reveal more about themselves and target more carefully and more successful matches were the results.

The artificial scarcity concept was later replicated across all dating sites and today the industry is worth $2 billion in the US alone. The contribution of economists in providing profound business models and structures to technology companies is beyond measure.

Prominent technology companies like Priceline, Google, Amazon, eBay, Airbnb owe their successful endeavours to economists. Leading tech firms Pandora, Uber and Netflix including the many Silicon Valley startups have thus embedded economic researchers among their staff.

Coming to Kenya, reputed as Africa’s leading startup technology hub, firms in the Silicon Savannah are just flying blind without economists.

The role of economists in developing sustainable business and pricing models to re-engineer markets is yet to be appreciated. This may explain much why the Silicon Savannah has no other discontinuous innovation with a tornado effect like mobile money revolution M-Pesa.

What we have seen are continuous innovations built upon the mobile money infrastructure and not another technology breakthrough enabling an entirely different kind of offer.

Much of the new innovations have been overhyped to the point that the market begins to believe that a tornado will touch down soon only for them to fizzle out.

So far, there has been no surge of mass market adoption of another new technology and the late Prof. Calestous Juma noted this by saying that Kenya’s biggest challenge for the future is building a technological foundation for economic transformation in other sectors what it has done for mobile money transfer and allied financial activities that has had a huge impact on ordinary Kenyans and the economy.

This will mean technology companies complementing their teams with economists who bring unique skills that move innovations beyond the gestation phase.

But the broader picture for Kenya in its vision to become a middle-income country by 2030 will mean taking on board more economists than techies to lay down that technological foundation needed for economic transformation.

Quoting Microsoft’s chief economist Susan Athey, “adding one economist to a team can bring a really valuable alternative perspective, and I’m not surprised that all the top tech firms are hiring them.”

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