Outlook: Sixty ways to cause overinvestment in the Net

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WHEN IT comes to the Internet and e-commerce, nobody can fault the Prime Minister and his Government for lack of commitment. Mr Blair and his ministers are positively overflowing with boyish enthusiasm for the new technologies. They want to do all they can to encourage them, so much so that Mr Blair has declared his intention of - er - signing up for a computer course.

Overenthusiasm is one thing, but to set a target of making Britain the e-commerce centre of the world by the year 2002, with the highest proportion of electronic business to business and business to consumer transactions anywhere in the G7, seems more than a touch naive.

To begin with, the target is so absurdly ambitious as to be almost certainly unachievable. We are already so far behind the US that the chances of us catching up any time soon are nil. The premise on which this initiative is launched is also misplaced. Like all dynamic business revolutions, the Net has taken on a momentum all of its own and there is little public- policy makers can or ought to do to force the pace of development. The best we can hope for is that they simply stay out of the way. Since growth in e-commerce is going to play havoc with the tax system, causing it leak like a sieve, this seems rather unlikely.

That said, few of the 60 recommendations contained in yesterday's report, E-commerce@its best, are likely to do much harm, and some of them may even be mildly beneficial. The Government does seem genuinely interested in dismantling the barriers to the unfettered growth of e-commerce that exist in law, regulation and the public sector infrastructure. For ministers to make a lot of noise about the Net might, if nothing else, galvanise sleepier businesses into doing something about it.

The report is also right to identify telecommunications charges as presently configured as a big constraint on growth. BT has quite shamelessly exploited its near monopoly of domestic telephone users to raise its profits at the expense of the Internet user. But things are starting to change for the better. Under pressure from the market, both BT and the cable companies are planning from next year to introduce unlimited, flat fee Internet access.

However, there is, perhaps, a more worrying note to be sounded about the gathering Internet fever, of which the Government now seems as much a part as business and investors. Governments tend to believe that you can never have too much investment, but actually the consequences of overinvestment can be almost as bad as that of underinvestment.

There are no reliable figures to be had on this yet, but anecdotal evidence of a very substantial misallocation of capital in the new industries, particularly in the US, mounts daily. Rarely before in history have apparently sane businessmen and investors been prepared to sink so much money into something of such uncertain return.

It has become almost a prerequisite of a successful Internet business to boast that it eats capital, doesn't make any money, nor is likely to for many years into the future. We are not talking here about "routine", cost-cutting infrastructure spending of the type that allows companies to undertake previously mechanical transactions and distribution electronically.

It is rather in the area of start-up spending, both by established companies and venture capitalists, where the danger lies. Only some of these new enterprises can succeed; the vast bulk will fail. When this becomes obvious, companies, investors and bankers will hit the brakes with a vengeance, and the economy will grind to a halt. It is an accident waiting to happen. As ever, it is a mug's game predicting when. For the time being, the Internet boom continues apace, egged on now by cheer leader Blair, but happen it will.