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The internet and capitalism (1)

Just over 30 years ago in October 1969 the first email was sent, and the world took no notice. Even in 1990, in Megatrends 2000, the authors Naisbitt and Aburdene failed to mention the Internet. After ten more years, the world is still largely unprepared for the scale of the communications revolution overtaking it. According to Andy Grove of Intel: "The Internet is like a 20-foot tidal wave coming, and we are in kayaks."

The Global Internet Project (GIP) (, a collective including AT&T, Sun, Visa, Fujitsu, BT, IBM and Deutsche Bank, believes that the Internet explosion will be good for capitalism, a "cause for unambiguous celebration" as they put it in a recent report. The figures they have supplied illustrate the explosive colonisation of cyberspace.

In 1980 there were just 100 Internet host computers. The World Wide Web did not exist in 1991. In 1992 there were just 100 web sites. In 1996 there were 10 million host computers. Today there are 120 million hosts, 250 million users in hundreds of countries, there are uncountable millions of web sites, and the Web is growing by 300,000 new pages every seven days. The amount of information on the Internet has reached a level almost beyond human comprehension, and it doubles every year.

Gold fever has been evident at the stock exchange, with Internet company values being grotesquely over-inflated and largely responsible for the share price bubble. Start-up companies with no assets and no profits have been valued at millions. Oddly, there exists an uncanny parallel with the overvaluation of RCA shares in the, then, new technology of radio prior to the Wall Street Crash in 1929 (Money Programme, BBC2, 24 October). As then, Internet company valuations are also likely to be wiped out, but this won't stop them in the long run. The speed of growth is breathtaking, and contributes to the speculative hysteria. The accountants just can't keep up. Mobile phone sales were not even included in GDP figures until 1998, while there is still no reliable estimate for Internet sales, although GIP puts it at about $6.6 billion for this year.

In October of last year, Tony Blair announced to a startled population that 100,000 computers would be made available to poor families, at just £5 a month. The significance of a move to put even the poorest online should not be underestimated. Meanwhile, huge pressure is being brought to bear on BT to make Internet calls free, as they are in the USA. If they don't, somebody else will. Callnet UK announced the first such, free and no strings, service in late October. A rash of similar services is expected to follow. The expense of being online is rapidly heading downwards, to almost zero, as capitalism anticipates a cyber-bonanza of sales that will make free calls, even free computers, more than worthwhile.

Developing memory products

Falling costs
Capitalism is rushing with orgiastic zeal headlong into cyberspace. The prospect of global reach for free is the Holy Grail of any business, and the "technology of the ether" can make transaction costs so small as to amount to their elimination. "What market can ignore transaction costs, when there is one that has none?" says Michael Vlahos of the Progress and Freedom Foundation. The potential savings are enormous in other areas too. The cyber-based company of the future may need far fewer staff, no premises, little capital expenditure, tiny running costs, no stock or warehousing, and have no distribution overheads. Yet they will be more efficient than any business has ever been before.

"By putting everyone on the Web accessing information in both directions internally and externally," says Barry Demak of Cadence, "we suddenly had a cohesive view of our markets, customers, and technologies—it all started coming into focus for us. And if you compare the cost and time to train the sales force, and factor in the difference in time to market, the returns are awesome" (Quoted in GIP).

There is a revolution in advertising and marketing theory too, as technology makes possible the placement of tailored advertising on the screens of specific customers. XTV, the new wave smart video, not only records the TV programmes it knows you'll like, it gives you bespoke personalised commercial breaks too (Observer Business, 7 November). Every user's every movement on the Internet is a piece of valuable marketing information. Now the talk is of "infinite stratification" of demand and "micro-niches", of industrial mass-based society being remoulded by an individualistic assortment of micro-demands and micro-viewpoints, with customised low-volume production replacing the conveyor belt. Already the biggest engine of growth in the US, so-called Mom and Pop stores, will proliferate in cyberspace, the one place they can really compete with the big players. Here they can use "knowledge robots" or "knowbots" to roam the Web, create customised reports and newspapers, find specific products at the best prices, and even negotiate on behalf of the trader and customer.

As the expense of being online plummets to near zero, the speed of connection is soaring. The slow modem is obsolete as fibre-optic lines no thicker than a human hair with a trillion bit per second transfer rate are being installed in the US at the rate of 4000 miles per day, while in Britain BT is promising nationwide permanent ADSL links (50 times faster than modems) within two years. Project Oxygen plans to lay ocean-floor optical cables across the Atlantic, while satellite data broadcasting offers wireless Internet connection. Bandwidth (the bottleneck of the data exchange process) doubles every year. Bill Gates in 1994 predicted "we'll have infinite bandwidth in a decade's time". Information will before long be able to travel at almost literally the speed of light.

In consequence of all this, there is an orgy of buyouts and alliances as capitalism races to reconfigure its entire business system, including everything from Hollywood to hard drives:

"The business of computing (hardware, software, and services), communications (telephony, cable, satellite), and content (publishing, entertainment, advertising) are . . . collapsing to create a new industry sector. This new media industry is the engine of the new economy and will be critical to leading a successful transition. The rise of this new sector and the transformation of corresponding markets is forcing every company to rethink its very existence . . ." (Don Tapscott, author and chair of Alliance for Converging Technologies).

One can easily envisage the telecommunications companies becoming the new giants, eclipsing all others as one box does everything and all bills are paid through one tele-account. Yet talk of "boxes" is itself an obsolescent concept, as Xerox have perfected "e-paper" (Observer, 22 August) and research continues towards wristwatch computers and even brain implants, giving rise to talk of "synthetic telepathy" in the more distant future. And as science revolutionises the Internet, so the Internet is revolutionising science. With the spatial decoupling of the scientist from the task, the so-called "collaboratory" is born, enabling multiple users to share a single physical resource, enhanced productivity with no travel time, and participation by experimenters in multiple, geographically-distributed projects. Remote science not only levels the playing field for researchers, it also offers more rigorous standards of specification, note-taking and reproducibility of results. Capitalism's R&D department is as excited as the Accounts department and the Board of Directors.

Yet despite all this breathless enthusiasm there may be serious problems for capitalism inherent in this revolution. That the marriage of the state and the capitalists is fraught with mutual suspicion is evident from their attempts to reach a solution to the problem of devising a code to keep details secret (see GIP report on House of Lords Encryption Summit, 1997). The capitalists want a system which is unbreakable, for customers will not expose their bank details in an unsafe medium, and corporate secrecy remains essential in a competitive market. However, the state cannot afford to allow it, citing terrorism as its pretext, and demands a master key for every code. The capitalists respond that they don't trust governments not to use these keys for their own unsavoury purposes, such as interfering in business, and back and forth it goes. At present it seems unlikely that the state will get its way. It could probably happily do without the Internet altogether, but conversely, capitalism needs the Internet, possibly as much as it needs the state, given that local lawmakers are anyway creating a global maze of parochial laws and regulations that offer nothing but obstructions and impediments to the progress of capital. The cry of "free the market" is heard everywhere from boardroom to newsgroup to government office, and legislators do not seem to be winning.

Information doubles every year

Price-less information
There is a worse problem. Information, as a buy and sell commodity, carries a curse unknown to any other type of commodity. In the words of an old computer hacker slogan, "information wants to be free". When one disgruntled ex-employee of a software firm recently posted the company's products on a free website, the site was closed down in two hours. Yet twenty minutes would have been enough to start mirror sites containing the free software, at a stroke wiping out the firm's profits. It is worth recalling what really makes a commodity—it is restriction of access. Air is just about the only use-value in existence which is not yet a commodity, in other words it has no exchange value. If access cannot be restricted to a good, money cannot be charged for it. The unique property of information is that you can make infinite exact copies, you can "steal" it without removing the original, or leaving any trace of the "theft". Just as the music industry had to learn to live with music piracy (which of us does not have pirate tapes on our shelves?) so the information industry must live, not only with piracy, but an extremely short shelf-life. The price of any information commodity will tend towards zero more rapidly than any other commodity. The traditional product-cycle will contract to a single, sharp peak and steep descent. Whereas capitalists now salivate over a presumed bonanza this short-term pay-out will give way to a cut-throat and dog-eat-dog business world characterised by a falling rate of profit and a desperate race to stand still.

Impossible though it seems, it gets worse for capitalism. The goose could be laying a golden bomb. Unlike any other sector of production, the knowledge-producing sector which produced the Internet has always incorporated a strong ethical tendency towards free distribution—the gift economy. In a far-sighted study of Internet sociology, Richard Barbrook's essay on Cyber-communism ( argues powerfully that a knowledge-rich society will increasingly tend to share rather than sell, just as socialist common ownership is a logical adaptation to material abundance. In an ethical reversal, it is selling, not piracy, which will be seen as antisocial. All in all, capitalism would appear to be staking its future on a commodity it can never control:

"The scarcity of copyright cannot compete against the abundance of gifts . . . At the cutting edge of modernity, the exchange of commodities now plays a secondary role to the circulation of gifts. The enclosure of intellectual labour is challenged by a more efficient method of working: disclosure."

Barbrook foresees the collapse of production and market relations in the same way as other business observers have been worrying for years about the "technology paradox" of "zero cost production" in industry (Business Week, 6 March 1995). As the computer world gapes at the meteoric rise of a new operating system called Linux, designed by a student as an antidote to the "bloatware" of Microsoft and, more to the point, given away free as "Open Source", there does indeed seem to be some basis for the optimism of the gift economists. The implications for the future of capitalist market relations are huge and contentious. There are no guarantees that capitalism will drown in its own Third Wave, but equally there are no guarantees that it won't. But as if this wasn't enough, there arises a new problem which has no precedent and for which no avoidance strategies have yet been devised. In the knowledge explosion, what happens when we know too much?


(In Part Two of this three-part series, Paddy Shannon explores the consequences of the information revolution for the ideological foundations of capitalism.)