ALTERED states

IN THE LAST PART OF OUR SERIES ON DIGITAL CIVILISATION, PAUL RODGERS LOOKS INTO A HI-TECH FUTURE IN WHICH CORPORATIONS RULE OUR LIVES

Britain's last prime minister gazed out from Westminster Palace at the fires burning on the South Bank. Mobs ruled a quarter of London, Birmingham, Manchester, Liverpool and Glasgow. He sighed. It wasn't his problem any more. That morning he had driven into the City and signed the final papers. At midnight Securicor would take over the police franchise for the United Kingdom.

It was the final piece of the puzzle. Executive Solutions had already won the armed forces contract, in return for control of the offshore Cornwall oil fields. Social Services was run by Microsoft. Chase Manhattan was in charge of the economy. Bupa cared for the NHS. And News Corp had the Education department franchise, for the paltry price of a pounds 20 laptop in front of every pupil in the ever-dwindling state classrooms. Even the Houses of Parliament, no longer needed now that elected representatives had ceased to have any meaningful duties, belonged to Virgin. Tomorrow the estate agents were coming to look at Number 10 and he would slip into retirement as easily as power had slipped into the hands of the corporations.

There was a book of old press clippings on the desk beside him. The first was a report of his maiden speech in the Commons in 1992, attacking the loss of sovereignty to the European Union. He smiled at his own naivete. He had talked about immigration, demanding greater controls. It was irrelevant now. Getting into the country, any country, was easy - just buy an airline ticket. But entering a corporate enclave - like Islington or Belgravia - required a pass and retinal scans.

It wasn't that he'd wanted to cede power to the corporations. There had been no choice. The warning signs were there when Britain was forced out of the ERM. Then, at the turn of the century, came France. The last president had raised taxes to pay for essential services. Capital fled overnight. The wealthy, even the moderately well-off, migrated to tax havens. The multinationals took a few months to wind up operations and follow. Even before that, in 1996, Glen Peters, Director of the Future at the accountants Price Waterhouse, had called them Nomads. "They take what they can while it's in abundance then close up shop and move on."

After that, countries competed with each other to cut their budgets to the bone. The last items to go, of course, were subsidies for foreign direct investment. But even they had fallen to laissez-faire. All over the world, the state withered away. The driving force behind the change was the digital revolution. Computers, telephones, television and the Internet had converged into what people were calling the Cybersphere, where knowledge flowed like droplets of water in an ocean. He blamed it all on Bill Gates, founder of Microsoft, now revered by digital revolutionaries as a new Karl Marx or George Washington, leading us like sheep into the Corporate Millennium.

Government attempts to control the flow of data had failed miserably. It wasn't just computer and media companies that benefited: multinationals of all kinds had done so. The biggest input into any new product was knowledge. Look at the super jumbo. Airbus spent $12bn developing it, and a mere $100m or so of labour and materials in each plane. Knowledge, power and money, always closely linked, were now interchangeable. And governments no longer controlled any of them.

They should have seen it coming. Films like Bladerunner and John Carpenter's Escape from LA had been predicting something like it for decades. As long ago as the 1990s, the director general of the Institute of Directors, Tim Melville-Ross, had said that the possibility of the Third Millennium being ruled by the corporations was "a legitimate concern". Price Waterhouse's Glen Peters had said that "all evidence is that probably the tide is unstoppable." Not everyone had thought it would be so dramatic; some had believed the state would return to its traditional roles of setting rules and fighting wars. But all agreed the digital revolution would be as world-shaking as the Industrial Revolution, and look what that had done to the old landed aristocracy. And the peasants.

The PM remembered reading that in 1996 General Electric, the world's largest company according to Business Week, had a bigger market capitalisation than the GDP of all but 24 of the 133 countries in the World Bank's annual development report. A host of business gurus had been warning of the changes that would be wrought by the digital revolution and the globalisation of the world economy. Even then the prospect rang alarm bells. As Charles Handy, author of The Empty Raincoat, put it: "Companies are still run as totalitarian states."

The prime minister wiped dust off the window ledge. No one came there any more. The Commons had held its debates on the Internet for almost a decade. It allowed the MPs to spend more time in their constituencies. Even then public interest steadily declined. City and business reports replaced politics on the news wires, turnout at elections fell to under five per cent. The government had less legitimacy than a tinpot dictatorship. When he had tried to push through a law ordering the de-merger of News Corp and the BBC, people had laughed. The only option was to wind the whole thing up.

You couldn't blame moving to the Internet for the collapse of the Commons. Other institutions - charities, museums and universities - had all done very well out of the switch. Even the Garrick Club had an exclusive Web site where its members could meet. Most workers operated from home, or somewhere more pleasant than the office. London had been shrinking for almost a century, and the rise of telecommuting had hastened the exodus. The streets these days were filled with tourists. The Palace of Westminster was a grand old building, though. At least it would still be useful once it had been refitted as an indoor theme park.

Yes, the buildings would be all right, but what about the people? It wasn't that the mega-corporations treated them badly. In a lot of ways being a citizen of Goldman Sachs was better than being British. Corporations competed hard for the best people, showering them with perks like medical and cosmetic surgery plans. He remembered something he'd once heard from Hamish McRae, a journalist who'd written a book called The World in 2020 back in the 1990s. "With modern communications, star employees can distribute their product around the world, which makes them much more valuable than a century ago, when they could only market to people they could physically meet."

Even in those days, when McRae was writing for the Independent, certain kinds of employee had been thriving on globalisation. The City was paying out massive salaries. When Barings went bust and ING rescued it, the high- fliers threatened to quit if they didn't get their fat bonuses. The Dutch bank capitulated, and ended up paying 10 of its London traders more than its own chief executive earned.

The problem was persuading the giants of industry to behave in a socially responsible manner. In the last century, lots of companies had tried to bend the rules. Now there were no rules. "You have to ask whether big business and representative organisations like ours are likely to handle power in a benign way," Tim Melville-Ross had said back in the 1990s. "And it's by no means certain they will." He had thought disclosure and public scrutiny would be enough to ensure corporate good behaviour. Glen Peters, too, had argued that the consumer was more powerful than the biggest company. But while the public had certainly taken with a vengeance to boycotting businesses it didn't like, the situation was hardly ideal. Sometimes the public got it wrong, as with Shell and Brent Spar.

And sometimes they didn't notice. The flood of data that had become publicly available was too much to swallow. You could find out almost anything on the Internet, but most people only looked for the items in which they were interested. Or they relied on others to filter and package information. The media barons had their tentacles everywhere now. Lachlan Murdoch, the heir to Rupert's media empire, was so powerful he could swing public opinion like an old-fashioned pocket watch on a fob chain. The Sun Online didn't carry many stories about public education being a mess any more.

On the other hand, the PM reflected, people were wealthier than they used to be. Certainly his wife had done well. In 20 years she had held 10 personal service contracts with various companies, including her current post as chief executive of Orange, which she ran mostly from their yacht in the Bahamas. Wasn't it John Birt who first popularised the personal service contract? You wouldn't have expected the boss of the pre-privatisation BBC to set a trend for the new Corporate World Order.

But his wife's days in the boardroom would be ending soon. She was 42, and no one lasted much past 40 these days. It was those 16-hour days. If you didn't put in lots of unpaid overtime it showed a lack of commitment and your contract would be terminated. If you did, you burnt out early and your contract would be terminated. But like most A, B, C1 people, she had made enough during her career to finance a life of ease for the next 60 years. The trick was to start saving when you were young.

His daughter was doing well too. She had set up her own virtual bio-tech company two years ago. The knowledge work was performed by freelancers and the actual manufacturing was done in factories full of robots. What had Hamish McRae said back in the 1990s? That people, especially women, would become more entrepreneurial? That's what government had wanted. Now it had it in spades. Most of the workers were on their own, although many were effectively working for big multinationals - without the security of a staff contract.

It was his son he was worried about. He hadn't done very well scholastically. Didn't get a degree and was hopeless at getting information out of the Cybersphere. He couldn't even handle an old-style keyboard. Not much of a market for someone with poor qualifications now. Part of him yearned for the days when a prime minister's son would be guaranteed a place at a merchant bank - or an arms dealership - if nowhere else. Perhaps he could be apprenticed to a craftsman; the wealthy would pay a lot for handmade goods and there were more small potteries and carpentry shops around than at any time since the Industrial Revolution. You didn't make as much as in the corporate world, but it was a pleasant enough life. His son would hate it.

Again he glanced across the river and shuddered. There were people on the far bank with burning torches. What if his son ended up over there? That was the real problem. The underclass had been falling behind for decades. Even when he was a boy there were men living rough on the streets. Then came the kids. Now it was whole families. Professor Handy had estimated that 20 per cent of the population would be unemployable; he'd been right. They had no chance of breaking into the real economy. They didn't even have physical addresses, let alone e-mail ones.

He remembered the days when dole was for people between jobs, or the shiftless who didn't want to work. Anyone healthy and willing could find something, even if it was only sweeping streets for the council. Now sub- contractors had automatic machines for that. Even shop assistants had disappeared from Tesco and Sainsbury's. The underclass was filled with ordinary people who simply didn't have marketable skills for the 21st century.

Caring for them was impossible. The state couldn't afford dole any more; charities were too small to cope. The multinationals occasionally chipped in for a project, but being associated with the underclass didn't have the same cachet as backing the Royal Opera. And their shareholders - in Bombay, Cape Town and Singapore - didn't care about poor people in Britain unless they were in the news. No wonder the poor were angry. Professor Handy had said that what was needed was a change in attitude. Corporations would have to treat employees more like citizens; people who finished their careers early would have time to help in the community. If they chose to. "Societies are changed by the elites," Handy had said. But the modern elite, it turned out, had little sense of noblesse oblige.

The last prime minister of the United Kingdom closed his book of clippings, put it in his red box and left the Houses of Parliament for the last time. As he walked out he glanced up. The glowing Seiko sign on Big Ben was backlit by the glow from the fires. He felt a deep sense of failure.

TIMETABLE OF REVOLUTION

1997: the first Britons get Internet access via TV sets.

2001: volume of e-mail exceeds conventional post. Personal phone numbers issued to everyone.

2006: Microsoft's sales exceed UK tax revenues.

2016: more people work from home than in offices and factories.

2021: to keep tax-slashing promises, a new government begins to privatise essential services. 2026: Microsoft issues its own global currency; other electronic "paracurrencies" soon follow