Richard Layard recommends the most illuminating of recent books on the wired society but draws more pessimistic conclusions than the authorby Richard Layard / March 20, 1999 / Leave a comment
Lifts in singapore are monitored on-line from western Australia; students in Sri Lanka are taught on-line from Milton Keynes; and US army surgeons operate by remote control on wounded patients in the field. These are the typical images of the outer reaches of the communications revolution. But will it produce a new impersonal world of increasingly isolated individuals, or will it lead to a better and more satisfying style of life?
Frances Cairncross is optimistic. Her book makes bold predictions: first, more home-working; second, more small companies; third, less inequality between countries, and more inequality within countries; fourth, less international migration; fifth, more dominance of English worldwide, but a revival of local culture; sixth, less privacy and less unsolved crime; seventh, lower taxes and a weaker state. Finally, fewer wars.
How reasonable are these predictions of the effects of almost costless communications? Take home-working. Easier communications certainly make it simpler to work from home, but they also help to operate giant businesses. When the telephone was invented, you might have thought that workplaces would become more dispersed, but it was the telephone which made possible the skyscraper and the concentration of work in city centres. Before the telephone, messages had to be carried by messenger boys and the number of lifts which were needed made skyscrapers uneconomic. But the telephone did away with most of the messenger boys and created the modern city centre. So there are always contrary forces at work. However, it is probably true that commuting costs are now so horrendous that better electronic communications will lead to greater physical dispersion of workplaces. This is certainly true of standard footloose industries such as computer software and data-processing, simple accounts, insurance and the handling of calls.
But will the new workplace be the home? As Cairncross says, people are social animals. Most of us like to work in groups and want to get out of the home. This will lead more teleworkers to work in “telecottages,” like call centres, than to work exclusively from home.
And what about the size of companies? Cairncross believes that better communications favour the small firm, except in the specialised area of communication networks. I am not so sure. Better communications certainly reduce the “transactions costs” of sub-contracting and monitoring your supplier or franchisee, and in this sense reduce the argument for size. But the new information technology also makes it easier to control a large company-which works in the opposite direction. Many big organisations that decentralised in the 1980s are now re-centralising.
Marxists used to argue that it was only the cost of information processing which limited the scope for central planning. They were only half right, because the problem of incentive in large organisations is at least as serious. But the lower cost of information certainly helps the large company at least as much as the small one.
To my mind, the more decisive issue is the sheer size of the market. The global market is so much larger than any market seen before that the scope for large companies selling global brands is that much greater. Look at what is happening to banking. You might have thought that electronic business would have made it easier to assemble big sums of money from a variety of lenders-making small banks more viable. But this is not what is happening. Size seems to count for more and more.
Or take accounting. Cairncross says that “a knowledge-based firm can farm out a much larger share of its activities than can a firm in a traditional heavy industry.” This would be plausible were it not that customers find it more difficult to judge a “knowledge-product” than a piece of industrial equipment. They therefore go even more for “the name.” That is why there are only five names left in the world of accountancy.
Cairncross does indeed talk of “more minnows, and more giants,” but she stresses the minnows. I would stress the giants. The outcome will depend not only on economic forces but on antimonopoly legislation. Like Cairncross, I favour competition, open systems and free entry. But even so it will always be difficult to control size.
Will the main gainers from the communications revolution be the shareholders of the multinationals? No: the main gainers will be the people of the third world. They are poor because they have been able to use so little of the world’s share of knowledge. As knowledge becomes available at lower cost, these countries will be the greatest gainers. Much of the knowledge must be embodied in capital, but the capital will flow provided trade liberalisation continues (and extends into services). Wages will rise in dev-eloping countries until people of the same level of skill are paid more equally, wherever they live. This will cause great problems for unskilled people in advanced countries, as the work they once did is transferred to the third world. Only one thing can save them. Although more and more services can be supplied at a distance, there will always be some services which cannot: I would not want my hair to be cut at a distance.
There will remain some income differences between people of similar skills in different countries and, pace Cairncross, this will keep up the pressure to migrate. Moreover, the main impediment to migration was always lack of information. As information becomes easier, migration from the third world is unlikely to diminish, especially if English becomes a world language.
But Cairncross is surely right to argue that small, remote nations will become increasingly able to earn a decent living through trade, without belonging to a larger nation-state which supports, protects and defends them. The communications revolution will therefore strengthen the move towards regional independence that we see in so many parts of the world.
At the same time we will continue to move towards a universal culture based on the English language, and on American (and some European) movies, music and literature. But the digital revolution also makes possible the dissemination of dozens of cultural channels tailored to the tastes of quite small groups. So it is possible, as Cairncross suggests, that we shall see both the growth of more local cultures and a more universal one-with less space for the nation.
So what happens to the power of the state? From one side, it grows: the state, like private business, will know far more about every individual citizen. It will be able to monitor our habits and spending, and probably know where we are at any time. This, Cairncross believes, will make it easier to catch up on most criminals. We have already seen the power of closed circuit television to cut down high street crime. But on the other hand, the power of certain types of criminals becomes greater with new technology: fraudsters, computer hackers, terrorists and pornographers. Their field of battle is wider.
How can we control the spread of terrorist manuals, racist literature and pornography across the globe through the internet? It is extremely difficult to trace it to the input stage at such a distance-it can so easily move from one website to another. It has therefore been proposed that the ISP (internet service provider) should be the agent who is held responsible. The German courts have held Compuserve responsible for the pornography passed through its service providers. But the US courts have held that it is no more reasonable to blame the internet for what it carries than any other public carrier, such as the telephone company or the post. The responsibility will probably have to lie with the consumer, who can limit what comes up on the screen by using dedicated providers which guarantee a limited range of material-that is, they will use the principle of opt-in. Few countries will find it feasible or worthwhile to censor the internet. Some do-such as China. Others, such as Singapore, censor the input to private homes but not to business-excluding from homes both pornography and criticism of the government.
This kind of Chinese wall is bound to be porous. Rupert Murdoch may have compromised with the Chinese government so that he can collect his television. But in the end nothing will be able to control the spread of foreign reporting into the minds of oppressed people. So the power of all dictators will be weakened by modern communications. The technology of Big Brother will not bring us to 1984.
How will all this affect democratic states? Cairncross believes that globalisation will force governments to lower taxes in order to attract business. She also thinks that taxes will become increasingly difficult to collect when more and more services are delivered on-line, often across borders. But I wonder whether Cairncross has not underestimated the power of nations to collaborate, when that is what their electorates want. If the people want publicly-financed education, health and social security, they may (to Cairncross’s disgust) support the efforts of the European commission to reduce the race-to-the-bottom in tax competition between countries.
This brings me to war and peace. Cairncross points out that the biggest growth in trade will now be in services. This involves closer human interaction than trade in goods. It will therefore provide a more powerful force for international understanding than trade in goods has ever provided. Free traders have always believed that trade would reduce conflict. In 1910, Norman Angell believed that trade made war unthinkable. Much has changed since then, but many of the basic xenophobic impulses continue to grip mankind. If wars are to be avoided, I would put more faith in international ideals and institutions than I would in trade.
Where Cairncross offers a mainly optimistic view of the new technology-including keeping Granny happy at the other end of a videoconference-I would assume that new technology will always have big downsides too. If life on earth is to become better, it will need not only better technology but better people. But I strongly recommend this book. It requires concentrated reading. I have put a chained copy in the Centre for Economic Performance, and everyone else who cares about our future should read it too. The death of distance
Orion Business Publishing 1998, ?9.99