Digital trading - a gem of an idea?

Imagine buying or selling anything you want via the Internet. It is a vision of the future which worries some.

I am writing this in Silicon Valley, where I am on a mission to convince the gurus of electronic commerce that new trading technology promises benefits to society far exceeding any of their projections. It is the industry's current mindset that limits the technology's usefulness, I am telling people at the top of Xerox Parc (where so much of modern computing was invented) and CommerceNet (the industry body for online trade).

My first visit to Silicon Valley is the culmination of a long-running project that takes a very British view of how an emerging technology can be made to deliver its maximum social benefit.

I'm a television producer. Ten years ago, I was invited to dream up a new daytime programme for BBC1. The show would have revolved around a computer that matched viewers looking for love, or peer support or fellow campaigners. These matchings would have created a fund of ongoing human- interest stories that were to be filmed to make the programme's core content.

That show was never commissioned, but it made me think about how computers can instantly match people with exactly what they're looking for. When the prospect of a mass online economy emerged in the mid-Nineties, I assumed that would be its key point: each buyer matched instantly with the best seller for their needs with some sort of system monitoring the deals to ensure each was completed satisfactorily.

As we now know, this isn't how online trade has evolved. Instead of one big, efficient market-place in which all can trade equally, we have the inefficiencies of the high street replicated in cyberspace, with multiple sales sites clamouring for attention. Where we could have had anyone selling anything, leading to diversified, ever-changing supply, we are witnessing the continued concentration of Internet trade among a few large sellers.

Certainly, some of them are start-ups - Amazon.com, for instance. But, increasingly, these new players either become big very fast or pass into history. Those of us determined to sell occasional items online must resort to auction sites such as eBay, which, although more convenient than small ad listings, are still cumbersome, prone to fraud, expensive to use and diluted in their usefulness by the number of online forums.

I began mulling over an alternative path for the digital economy. Working alongside the think-tank Demos, I developed the notion of Guaranteed Electronic Markets (GEMs). These would be online markets in which anyone could sell anything with all the benefits of online trade on their side and each transaction underpinned by government in the country of operation - a national, rather than global, facility.

Assume, for instance, that you wished to sell your services as a babysitter. That GEM, accessible on the Net or via an interactive television set, would demand an individual PIN code issued by a local police station attesting to a lack of criminal convictions, then maybe a further PIN from the education authority to say that it had interviewed you, as it would a potential teacher, and had found you suitable for work with youngsters.

Once you were cleared for market entry, GEMs would invite you to input a pricing formula and define the area and times within which you were willing to accept assignments. Parents would tell the system when they required a childminder and the best-value trader available would get the job, with a contract automatically drawn up for the two parties. Each trader would have money in bond with which any customer on whom they defaulted could be compensated; any disputes about the quality of work would be forwarded to the courts which, again, would have to be willing to take cases from GEMs and input judgment so that compensation could be automatically arranged.

Each sector would offer its users overviews of patterns of demand, supply and prices so they could seek out new opportunities. The system would allow users to sell or hire physical goods just as effortlessly. The likely result has been labelled "atomised capitalism": an economy dominated by countless low-value trades between individuals and small enterprises, an alternative to the institution-led, we-sell-you-buy market-place that we take for granted today.

How might a GEMs system become reality? The question elicits blank incomprehension whenever I raise it in California but there are some deeply useful facilities that the free market alone cannot build. Government has to be involved to kick-start the service. Consortia of companies would bid to build and run the nation's GEMs system, making their return on a fractional percentage deducted from each transaction on the system. The companies involved would build the core computer driving the markets but each sector would be run by a franchisee: one individual overseeing the market for child care, another running the clothing market-place and so on.

I can usually bank on having lost the average Silicon Valley executive by this point. Governments as a force in electronic trade? One national market-place alongside the thousands of small ones run by Californian Internet start-up companies? No way. But all the infrastructure we take for granted today has gone through this process. Consider water supply. In the 1840s, dozens of water companies battled to save well-off households the drudgery of daily visits to a public well or delivery cart. The average company pumped to its customers for two hours a day, with their output needing filtration and boiling before consumption. It was government that proposed the unthinkable: a 24-hour supply of drinkable water to anyone wishing to connect to a new, municipal supply. Not only did politicians propose such a scheme - quickly rubbished by the companies who claimed such centralisation was dangerous because it would enable government to poison the population at will - they went on to ensure that it happened, with the 1848 Public Health Act. Mass postage, the railway system, a coherent road network and national broadcasting all emerged through similar processes.

Electronic trade offers social benefits comparable to water supply if it is neutral and available for no market entry cost. Problems of social exclusion, economic inefficiency and national determination may diminish in a country with GEMs much in the way that sanitation-related epidemics faded with widely available water.

I have just had published Net Benefit. Guaranteed Electronic Markets: the ultimate potential of online trade. It's not a book to reassure boardroom strategists at big corporations. By opening up all sectors to new players and ensuring that they deliver on their promises, GEMs would undermine many major institutions.

Take car hire as an example. GEMs would allow anyone to let their car out, specifying, if they wished, that it not be rented to anyone with fewer than 50 complaint-free vehicle hirings behind them. For the buyer looking for a car for tomorrow, there would still be Hertz.com or Avis.com as an option, but their cars are clustered in far-off depots. By contrast, the GEMs car-hire market would display a map showing the vehicles available locally.

Hertz and Avis would obviously be free to trade in GEMs but their overheads and centralised functions could make them uncompetitive against countless ordinary users who were trading on their own terms. A similar fate would await banks, bookmakers, breakdown organisations, hotel chains, tour operators. All could find a vibrant, ultra-fluid market emerging, to eclipse many of the advantages they can currently offer to consumers.

Because of this likely opposition to universally available, underpinned electronic markets, I don't see GEMs emerging initially in the US or even the UK. Look instead to economies that have nothing to lose. Might Indonesia, Brazil or Russia one day invite multinational companies to build a comprehensive open electronic market-place, and install the kiosks on which citizens would access the new trading opportunities? If the consortium had a monopoly on state underpinning for 20 years, it might find that the later part of its concession more than returned the launch costs. The prospect that electronic markets as a public utility could be introduced into far-away countries such as Russia - even if it takes a little government intervention - is a prospect about which even Silicon Valley is beginning to show a glimmer of enthusiasm.

`Net Benefit. Guaranteed Electronic Markets: the ultimate potential of online trade' is published by Macmillan Business, price pounds 25. The Guaranteed Electronic Markets website is at www.gems.org.uk