The Business World: The home is once again becoming a factory

THE CELEBRATION of Easter, aside from being the biggest holiday weekend of the year, is also the celebration of the home - the time of the biggest burst of spending on DIY and at garden centres, and in many places the busiest time for the estate agents too. At first sight this seems like a burst of consumption and in many ways it is. But it is also a burst of investment, and that investment is greatly increasing the productive capacity of the country. For the home is itself changing; or rather the way many of us use our homes is changing, for instead of it being solely a place to live it is becoming also a place to work. The home is becoming a factory again.

Again? Yes, in the sense that many of the economic activities now carried out in factories used to be carried out in the home. Think back to early Victorian times. A much higher amount of food processing was done in the home - the idea of buying a sandwichwould have seemed ridiculousClothes were made at home. Entertainment was made at home, instead of being bought in from factories in Hollywood.

Then came the factory revolution. Over a period of 150 years a greater and greater proportion of output was manufactured in places specifically designed for that purpose. It was cheaper to make something in a factory than to make it at home, for the factory could deliver economies of scale, and a level of investment that no home could match. But now all is changing. This is to some extent because economies of scale have become less significant in manufacturing but mostly because of two developments, the invention of the personal computer and the development of the Internet.

This has had an immediate impact on employees. Many of us now work on better computers at home than we have in the office, so that any task that needs to be done on screen can be done just as easily at home. E- mail makes communication between the home and the workplace seamless, and the Internet is starting to bring into the home as good a quality of information as could be obtained from the research department at work.

The two new technologies are also having an impact on company structure in many ways - for example, better information within the business has enabled management to become much leaner but it has also transferred power from senior management down the line. But as far as the home is concerned, the main impact is that they reduce the entry barriers toeconomic activity. As a result it is much easier to start a business, or be self-employed. Almost invariably, that means starting businesses in the home. The home is not just becoming a factory; it is also a nursery for new businesses.

The broad forces noted above are now becoming pretty widely accepted: there is nothing revolutionary about these ideas. What people have hardly begun to think about are the implications for the shape of the economy. These are enormous. For a start, many of the figures we work on are becoming irrelevant. Take investment. The statisticians are trying to distinguish whether a PC bought for the home should be counted as investment or consumption, but how do you count a loft conversion which is used partly as an office and partly as a spare bedroom? Nor do we know how much of the output of the country is generated at home. My guess would be between 5 and 10 per cent, but I have seen no figures on this.

What is clear, though, is that if the trend continues, homes will have to become different places. They will, most obviously, need to become larger, primarily to take the kit and create a workspace clearly separated from the living space. In addition they will need to create an environment in which people can spend a larger proportion of their time. If you are only at home for four or five waking hours you need less space than if you are there for 15.

US homes generally are built on a scale that enables them to function effectively as factories. British homes, by contrast, are usually too small to do so. It is an enormous challenge for architects to think of ways in which space can be added, and existing space can be used more effectively. The change in the role of the home will also affect the environment about it, and the services it needs. Electronic communications self-evidently become more important - in particular, getting high-speed access to the Internet - but that is becoming relatively easy to fix. The problem is getting the cost to an acceptable level. But some other services may become less important. For example physical communications in the sense of cheap commuting services may become less important, as the proportion of workers who have a regular commute will decline. People will still need to travel, but to different places and on a less regular schedule.

The array of small services that home businesses need will take care of themselves: one of the reliable features of the capitalist system is that if there is a demand for a service it will be met. There are bigger potential problems with large enterprises, for example with landlords, particularly in the public sector, and with financial services. Public- sector owners of stock need to learn to welcome their property being used as a business, not something that they are accustomed to do.

Insurance companies tend to split their commercial and home divisions. As the distinction between the two blurs, they need to adjust not just policies but the way they service their clients. The home-worker is a great source of additional business, but do financial service companies see it that way?

There is a practical limit to the size of a business that can be run from a home. So do not expect the present physical structure of the commercial world to disappear. Even if 1890s warehouses and Sixties office blocks are being converted into dwellings, many people will still commute to an office, even if they do not need to do so every day.

But if the growth of home working continues, as I believe it will, the process will utterly transform the way many of us live our lives.

We will witness the gradual retreat of a system of production - the factory, be it a conventional one manufacturing things, or a white-collar one producing services - that has lasted for 200 years. And because new businesses tend to be started at home, the more we can recognise and smooth the path of this transition, the more likely we are to get the pay-off in terms of more rapid job creation and faster economic growth.