Earlier this month, I attended TiEcon 2005, the annual conference of The Indus Entrepreneurs, a South Asian networking organisation born in Silicon Valley, now becoming a global force. This year?s theme was ?Energising the global entrepreneurial spirit,? with CEOs of tech companies like Google and Adobe, venture capitalists, and start-up entrepreneurs providing insight into what makes the global economy tick, where cutting-edge innovation is heading, and how to make it work commercially.

The conference kicked off with a keynote address by Thomas Friedman, the international affairs correspondent for The New York Times, whose travels to India, China and elsewhere led him to take a year off to write his new book, The World Is Flat. What Friedman means, of course, is that the global economic playing field has been levelled by advances in technology, coming on the heels of political developments that spurred economic policy reforms. The Internet, world wide web, supporting physical infrastructure, and collaborative software applications layered on top of these, have changed the manner in, and extent to which, people in India, China and eastern Europe can and do participate in the global economy.

For educated Indians, this observation is nothing new. It is more of a wake-up call for the citizens of Friedman?s own country, who now face a different kind of global competition for jobs, careers and lifestyles. Friedman puts it quite picturesquely: earlier, parents in the US might tell their children to finish what was on their plate, as children in India and China were starving. Now, American parents should tell their children to finish their homework, as those Indians and Chinese are starving for their future jobs. The perspective also implies that even if 150 million people in emerging economies can compete globally, it would make a difference, as it matches the size of the US labour force. However, as Friedman probably realises, this will not be good enough for India and China. The world will not truly be ?flat?, until these countries are flat too. Leaving China (or even Latin America and Africa), let?s focus closer home.

How can India become ?flat?? We know the main station on the road to this goal: ensure basic levels of health, nutrition and education, and provide broad access to higher education, credit, and certain types of insurance. The dispute in India is how to reach the basic levels. We know the government can?t easily achieve this. In The Federalist, No 51, James Madison says, ?If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.? This statement is in his argument for checks and balances, and for decentralisation, but also has implications for thinking about the benefits of competitive markets.

When India?s Constitution was being written, people like Dr Ambedkar had no illusions about the shortage of angelic qualities in the hierarchical Indian village, but the framers of that document did seem to think they were somewhat closer to the angels, and set in place institutions they hoped would ?flatten? India from the top down. That has not worked.

India is in the process of dramatic changes. Economic activity driven by private sector competition rather than government control and monopoly has led to a flatter India. The diverse backgrounds of those who succeeded in its IT industry reflect this truth. Ceding some policy space to state governments by the Centre has also ?flattened? India in some ways, though some of the poorer, and poorly governed states have fallen further behind. Local government reform will, in the long run, ?flatten? India too, moving the country away from systems that retained too many features of the colonial (or even Mughal) era. Local governments have the potential to be more responsive to local needs for basic schooling, sanitation and health care, if true democratic participation is enabled, and efficient revenue sources developed.

Let?s go back to Friedman?s observation on what made it possible for Bangalore to compete with Silicon Valley. The driving force was the enormous expansion in communications and collaboration made possible by information technology. Of course, Bangalore was ready. The problem for Bhatinda, Vadodara or all of Bihar may be much greater. Capabilities have to be built up before opportunities can be exploited. But IT helps here as well. I have seen this in my own fieldwork, in many villages in India, that even a single Internet-enabled kiosk can become an information services hub, providing education, health services, guidance for farmers, and much more.

The economics is simple. In rural India, high transaction costs reduce the efficiency of functioning markets, and preclude some markets all together. Reducing these costs through IT enables rural markets to function, raising productivity and growth. An abstract model can show this (as in my paper, ?Transaction costs, information technology and development?), but the reality is powerful enough. In a recent survey of the ?digital divide,? The Economist extolled the importance of cell phones, and pooh-poohed rural computers. They missed the point.

All kinds of digital communication, storage and processing devices are important, and the boundaries between them are blurring. We need to scale up from small experiments, which requires organisation-building and entrepreneurship (check out what n-Logue has achieved, for example). Put commercially sustainable information kiosks in 2,50,000 villages (with government support for infrastructure, perhaps, but keep it out of operations). This will be the biggest step in making India ?flat?. The best part is, even those at the top of the heap (except those who rely solely on corruption) will do quite well if it happens.

The writer is professor of economics, University of California, Santa Cruz