The information revolution will soon reach a critical point in its brief but seismic history. It will shortly have to prove whether it can become a mass movement or whether it will remain the plaything of a digital elite-those able to afford the ?1,000 or so needed to buy the computer and modem required to gain access to the internet.
The phrase "information technology revolution" has been repeated so often it has become a clich?efore the actual event it describes has taken place. It is 15 years since Margaret Thatcher declared 1982 to be information technology year complete with its own minister (Kenneth Clarke's finest hour many would argue). Typical British equipment of the early 1980s was the Sinclair or BBC B computer with 32k (32,000) bytes of memory (a byte being the memory sufficient to store the equivalent of one character). Today a similarly priced computer might come 500 times more powerful with 16m bytes of memory.
In those days the future of the information revolution was seen partly in terms of computers and partly in terms of the expected invasion of US cable companies. The worldwide network of computer networks known as the internet was then used at an embryonic level by universities in the US, but was unknown in Britain. Now it is the main medium of the revolution making possible things that were undreamed of in 1982.
Like what? Like being able to sit in front of a computer screen knowing that you are three or four seconds away from getting data on almost any subject you want-as long as you know exactly what it is you want and the key words to discover it. For example, if you type the words "information overload" into the appropriate space on one of the internet's search facilities, then wait a few seconds during which thousands of data bases all over the world will be searched, the screen will present you with hundreds if not thousands of references arranged in merit order with the ten most likely to meet your requirements at the top. It is a stunning capability the wonder of which ought not to be lessened by constant use.
You can also download still pictures, voice recordings, even moving pictures; send and receive electronic mail and exchange views with like-minded user groups; join doctors participating remotely in operations taking place thousands of miles away, and so on. The problem is not information but "information overload"; the yawning gap between mere information and knowledge and the need to have a navigational system that will bridge it.
This rapid advance is the result of three simultaneous revolutions in different areas of technology. First, digitisation. A new economic era is unfolding based solely on rearranging combinations of the figures one and zero. Almost anything-words, data, sound waves of our voices, films, videos, architectural plans or the software that drives an increasing proportion of the products we buy-can be converted into these combinations of computer code. This enables them to be sent down telephone wires at speeds which could transmit the Encyclopaedia Britannica to the other side of the globe in seconds.
The second pillar of the revolution is the development of optical fibres in the trunk routes of the world's telephone network. A single hair-thin strand of these fibres can carry millions of telephone conversations or hundreds of video transmissions simultaneously. So far they have been laid mainly on international and national trunk routes. Had they been laid to the home directly then-as long as the constructor had "common carrier" obligations-it would not have been necessary to dig up our roads for cable or put dishes up to receive satellite television. Fibre is still not being laid to the home on a large scale, but this lack is made up for by the fact that it is now possible to send moving pictures down conventional copper cables using advanced techniques of compressing digitised data.
Neither digitisation nor optical fibres would have got very far without the third pillar of the revolution-the huge fall in the cost of computing power illustrated earlier. This means that unlike the benefits of the industrial revolution which took over 100 years to spread widely, the information era could become widely affordable within a relatively short time.
So far the benefits of these advances in technology have been confined to better-off people because of the high capital cost of buying a computer, modem and printer. But now a fresh generation of companies are about to slash the cost of entry by as much as two thirds. These new net computers (NCs) have been stripped of all the sophistication of personal computers (including the disk drives) to enable anyone to understand as well as afford them. A big chunk of the software normally located in the computer will be positioned at the end of the telephone line in cyberspace where it will be shared with other users, thereby bringing costs down further.
It is the prospect of a mass market that is the driving force behind the corporate wars being fought for control of the world's information highways-a kind of electronic imperialism. Telephone companies (such as British Telecom and the American giant, AT&T), software houses (such as Microsoft) and programme providers (such as Rupert Murdoch) are risking vast sums in an attempt to colonise the world.
There are two battlefields. One is for control of the infrastructure. This includes the world's telephone network, underground cable systems, satellite or radio transmission and the internet itself with its labyrinth of computers and servers which is fast becoming an industrial sector in its own right.
We are now witnessing an epidemic of corporate mergers and takeovers as the world's established media companies and a shoal of ambitious upstarts slug it out for supremacy. BT's $20 billion merger with the US communications group MCI-the biggest in UK corporate history-is just one of a series, all of them involving US links. Others include Sprint's link-up with Deutsche Telekom and France Telecom, Bell Atlantic with Nynex and two other Baby Bell companies, SBC Communications and Pacific Telesis with ambitions in the Pacific.
The second, more important battle is over the content that will be piped through the global highway. The contest between providers features Rupert Murdoch's media empire (BSkyB satellite broadcasting and Fox studios) competing with the likes of Time Warner, CNN and Disney. That is why Murdoch has been securing the rights to sporting events all over the world and why he and others have been buying up the rights to thousands of Hollywood films. On the computer software side Micro-soft is trying to defend its 80 per cent plus world share of personal computer (PC) compatible software against new arrivals such as Netscape which are trying to leapfrog Microsoft by using a new generation of software that can be downloaded (often at little or no cost) directly from the internet.
The battle for control of content is almost entirely an American affair (Murdoch is now an American citizen). But the UK does have a major presence in transmission through the BT-MCI hookup and Cable & Wireless. If BT-MCI can establish a foothold in the far east (where C&W already has a base in Hong Kong) then the potential is enormous. BT has a headstart over monolithic European corporations through having been privatised and-more importantly-deregulated a decade ago.
Mostly, the infrastructure builders are separate from the content providers-the big exception being Murdoch. By being first in the field with the digital technology Murdoch is about to extend his grip in Britain by establishing a de facto monopoly on the decoder boxes that will sit on top of our sets converting the digital signals not only from his own satellite channels but also from the digital channels (both terrestrial and satellite) that the BBC and other independents sign up to. In theory the BBC can make its own decoding boxes, but since they will cost several hundred pounds each it is unlikely that many people will buy two. Consumers wanting to receive the BBC could be dependent on the terms Murdoch awards it after discussions with the regulator. The BBC's channels are unlikely to be the first ones you will see when you switch on.
Murdoch's activities exemplify the paradoxical economics of the digital revolution. It is an unresolved conflict between the centripetal forces embodied by the BTs, Microsofts and Murdochs and the centrifugal forces of the internet which are supposed to push power downwards to the individual. In practice corporate giants such as Murdoch and Microsoft appear to be ruling the new world, but in theory a lone entrepreneur working in, say, Newcastle might devise a product that could be distributed down the telephone lines almost instantaneously to millions of homes all over the world.
Monopolies are a constant threat to the liberating powers of the digital age-yet there is a curious ambiguity about public attitudes to them. At one level they are seen as ruthlessly exploiting their global power in order to run rings round national regulatory bodies, as Murdoch did when he established BSkyB in Britain avoiding the burden of programming and tax paying that the terrestrial broadcasters are subject to. But on another level corporations prepared to risk their monopoly profits to establish or preserve a technological lead-as with Microsoft, BT and even Murdoch-are seen as role models in their own countries.
There is no interna-tional regulator governing the global media giants (although there are international agreements). The only reason this is not yet the international problem it might be is that the digital revolution is overwhelmingly American and so the big players such as Microsoft, Netscape, IBM, AT&T are subject to tough US anti-trust authorities. However, the biggest threat to, say, Microsoft's software monopoly is not anti-trust laws but the astonishing way that world monopolies can be threatened almost overnight by the dizzy pace of new inventions. In less than a year Netscape emerged from nothing to win a dominant 40m subscribers worldwide for its web-browsing software before Microsoft realised what had happened. Microsoft is fighting back by giving a similar facility away free with the software it sells for PCs, and investing $2 billion to make sure it does not happen again.
the information highway may force us to rewrite not only monopoly laws but core concepts in economics as well. Some economists-such as Takuma Amano and Robert Blohm-estimate that the internet by itself is responsible for the whole of the expansion of the US economy this year. The idea that technological change drives economic growth is not new but economists such as Paul Romer argue that digitisation turns old ideas on their head. A digital world is liberated from the constraint of allocating scarce resources because the scope for rearranging all those ones and zeros is infinite. If new ideas applied to technology generate growth, then the future might be much rosier than many people think.
Romer is one of the architects of Gordon Brown's celebrated "endogenous growth theory." According to him the key to success is an adequate stock of human capital, because "economic growth can be generated from within an economy rather than outside by, say, expanding international trade." If you want to know the importance of human capital look at Microsoft. It is housed in a handful of buildings with a few thousand employees yet its capital value on the stock markets is ?58 billion. One of the lessons emphasised by Romer is that people constantly underestimate the possibility of new ideas and discoveries.
The most startling example of digital economics is Netscape. It manufactures computer software in the form of a "browser" enabling people to roam through the internet. You could easily imagine people paying hundreds of pounds for this product, but it is mainly given away free to non-corporate consumers. This is partly because it is an improved version of something that was originally given away free on the net, but it also reflects the corporation's hope of cornering the world market by establishing a huge customer base from which it can recoup its investment later.
The interesting point is the conceptual break from the traditional economics of manufacturing. Once Netscape had been developed, albeit at a high cost in terms of software programmers, it costs nothing extra to produce and deliver millions of extra copies. It is available on the net on a central computer ready to be downloaded by anyone with the necessary equipment. As a result over 40m are in use globally because the cost of transport (the price of a local computer to computer telephone call) is born by the customer. It is as cheap for Netscape to produce 40m as it is to produce one. There are no longer any diminishing returns because nothing is diminishing and there were no returns in the first place.
This raises the second consequence of the digital revolution on economics. If inflation is too many people chasing too few goods, what happens in the example of Netscape (and other "free-ware" products) where supply is almost infinite at no extra cost? The effect is of someone having bought something without it appearing in either the GDP or the inflation figures of the recipient country.
Technological deflation does not just apply to software or computers where power doubles every 18 months while prices remain stable. Thanks to the information revolution many products (such as cars) have become much more reliable and contain extra facilities-yet prices have hardly moved at all. If you get a far better product for the same price that is really a price reduction. The information revolution also creates deflationary pressures in labour markets. If software companies find that national labour is getting scarce they do not have to raise wages. They can "outsource" via the internet to faraway countries such as India (where British Airways subcontracts many of its ticketing operations). In Silicon Valley in recent years most job creation has involved temporary contracts, where employees have little power.
If theories of technological deflation are true then governments may be applying yesterday's solutions to tomorrow's problems. By raising interest rates to slay an enemy that is not there (inflation) they may unwittingly be running their economies at well under their productive potential.
Previous economic revolutions-the agricultural and industrial revolutions-were "bottom up" phenomena. They started in nation states and slowly spread outwards. In the case of the industrial revolution the ripples were so slow that they are only now reaching remoter parts of the world. The information revolution, by contrast, has the property of being able to start with a global reach which imposes itself downwards with scant regard for national conventions. New rules may be needed to solve the problems thrown up by this process.
One of the most worrying is what will happen to taxes. Globalisation already enables footloose multinationals (and individuals) to play a kind of fiscal beggar-thy-neighbour with nation states in order to minimise their tax liabilities. With the commercial exploitation of the internet this evasion will expand. There are inbuilt forces moulding the internet into a tax free zone. This is partly because of the net's founding culture of not charging for information exchanges, but it is also because of the difficulty of monitoring transactions that may originate from digital tax havens using encrypted electronic money which is impossible to trace. If that happens then governments, trapped between an electorate increasingly unwilling to pay income tax and multinationals able to minimise their payments of corporation tax, will be forced to widen the tax base (to include undertaxed items such as property and food) if they want to continue to finance welfare states.
But the most important factor in the evolution of the political economy of the internet is whether the information revolution becomes an enabling, or a disabling process. The importance of a mass market cannot be underestimated if the information revolution is to realise its true potential. Access to the internet ought to be regarded as the same sort of right as that to a basic education. There is a danger that if its future is left entirely to the market then the poor, who have most to gain, will be disenfranchised.
So far-both in the US and Britain-development has been led by lightly regulated market forces. But this is only part of the story. The success of the internet is a "mixed economy" phenomenon. The establishment of the original infrastructure was entirely due to the public sector. It was pioneered during the 1970s by the US defence department which wanted to establish a diffused information exchange that could survive a nuclear war. It was enlarged during the 1980s into a university network before burgeoning into a kind of electronic utopia in the 1990s on which people exchanged information for free. The history of the second half of the 1990s is the attempt to commercialise it. There is nothing wrong with that. If the internet is to have any chance of empowering individuals at the local level-enabling them to work from home-then ways must be found for people and companies to charge for their wares.
Information providers will properly only invest in things that can make a profit. That is why, for example, the cable companies in Britain are "cherry picking" the franchises by only cabling areas where there is a good financial return leaving others unwired. It need not be like this. Enlightened regulation of local or international monopolies can require them to redirect their short term monopoly profits into longer term projects with wider social appeal.
Obviously it is not possible to force people to take advantage of what is available. Motivation to learn can be encouraged but not imposed. But at least if access to information is available to all, no one can blame anyone else for lack of opportunity. At the moment if, say, you have reading difficulties you can blame your school for failing to deal with it. But if there is a programme on the internet which takes you step by step through those learning difficulties then-if there is universal access-the responsibility is yours to take advantage of it. Future historians might find it hard to forgive our generation if we had the ability to create a new kind of equality of opportunity and fluffed it, not because it cost too much, but because we worshipped too unthinkingly at the altar of market forces.
