Byte ride to everywhere

The information revolution will lead to the death of distance, argues Frances Cairncross
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"If we hadn't used the Net, we could have had another dead baby." Thus Jurgen Schuttke, who lives in Dublin, explained earlier this week how he discovered that King's College Hospital is the best place in Europe for a baby that needs a liver transplant. His little daughter, Baebhen, owes her life to King's and to the Internet.

There will be many more Baebhens. The Internet is the most visible sign of the great technological revolution which will transform our lives in the coming century every bit as dramatically as the car has done in this century. Call it the death of distance: like the invention of the car, it is a revolution in the technology of transport. And transport revolutions have been arguably more important than any others (apart from the harnessing of power itself) in shaping the modern world.

Think, for instance, of the way the coming of the steamship confounded the gloomy predictions of Malthus and allowed Europe's population to continue to grow throughout the 19th century, fed with imported grain. Think of the way the car has reshaped cities. Think of how inexpensive air travel has made possible mass tourism and mass migration. But the communications revolution is different in two enormously important ways.

First, ships, cars and planes cost more the further you travel. With communications, that is not so. For electronic communications, extra distance will eventually be irrelevant to cost. Already, the cost and capacity of communications have fallen far more rapidly than would ever have occurred with physical transport. Take the price of a three-minute telephone call from London to New York, which in the 1920s was more than what it costs today to fly that distance. In 1986, BT charged pounds 3.30 for a three-minute call; today, it charges just under 63p (peak weekend rate plus VAT). The basic cost of carrying the call is far less: less than an American cent a minute and falling fast.

This collapse in price is partly the result of a vast and continuing rise in capacity, as refinements in techniques of compressing digital signals allow more to be carried across the same link, whether it be the telephone wire into your home or a television satellite.

The second difference is that electronic communications carry not goods or tourists but the most basic raw material of improvements in growth and welfare: information. This has implications for the pace at which the communications revolution itself will occur. In the past it often took many years for a techno- logical innovation to be refined, and for its best uses to emerge. A classic example is the invention of the steam engine, which was used in the 18th century for pumping out flooded coal mines. Only in the 19th century did it come to be refined first for transport and then for generating electricity. Now, not only has the process of invention been invented (everybody knows that the Internet will have many more uses, and thousands of people are scurrying to find them); in addition, the best ideas can spread at lightning speed around the world, and be test-marketed inexpensively on millions of potential users. This revolution will thus help to refine and diffuse itself.

The big question about the death of distance, though, is not the precise form it will take, but what its consequences will be for society and the economy. In a sense, we are at the point where we were with the car in 1910: the machinery exists, in a primitive and unreliable form; it is not widely owned, but it is enormously desirable. What was much harder to foresee in 1910 was the rise of the suburb, the out-of-town superstore, the school run and the myriad changes to society that have come in the wake of mass car ownership. The real challenge is spotting the equivalent of these changes in the coming century.

Here are five points that any forecast needs to bear in mind. First, borders will become less relevant. Already, the Internet allows you to search freely for information held on computers half a planet away. That is particularly important for government: companies can cross borders, governments effectively are restricted by them.

Governments will find it harder to control the dealings of their citizens with the rest of the world, whether it be to gamble illegally on-line, to look at rude pictures held on a foreign computer, to buy unapproved financial services or pharmaceuticals or to read news that the government would like to suppress. Governments will find it harder to tax companies and high-earning individuals: both will find it easier to work in the country that makes them the best offer. This new technology will therefore help to redefine government and reduce some of the powers of the state.

There will also be implications for companies. Any activity that can be carried out with a keyboard and a screen can now be located anywhere in the world, constrained mainly by time zone: for instance Caribbean Data Services, the largest employer in Barbados, processes claim forms for several big American insurance companies; and Bangalore in India has several companies that specialise in repairing software overnight for Californian firms. In addition, services that have rarely been exported in the past will become internationally traded: medicine, education and a host of professional services. A hint of the future may be the accountancy firm in Hampshire which provides the finance department of Windenergo, a Ukrainian manufacturer of wind turbines.

The networked computer also makes it possible to search for and classify people according to similar needs, interests and tastes, creating a world of infinite niches. In addition, as Adam Smith realised two centuries ago, specialisation is constrained by market size. A medieval town needed its own butcher, baker and candlestick maker; better physical transport allowed companies to sell to a regional or national market. In future many companies will be able to regard the whole world as their market.

Among the niches of the future will be not only new tiny companies. There will be support groups for people with rare illnesses; literary discussion groups for people speaking near-extinct languages (which may thereby be revived or at least preserved); and perhaps even niche countries: diminutive states which can survive economically because the combination of communications and free trade give them as much market access as a larger nation.

A further transformation: entry costs to many activities will fall. Wherever the barrier to entry has been the cost of finding or distributing information, it will come down. Sometimes, falling entry costs will create new kinds of company: think of, which boasts of being "Earth's largest bookstore", although it runs from a modest office in Seattle and has not a single physical retail branch. Sometimes, those entry costs have prevented ordinary people from having access to information available to experts.

The experience of the Schuttkes is a perfect example. One important effect may be to widen the pool of potential entrepreneurs: as was the case with Jyoti Mishra, an unemployed lad whose single "Your Woman", put together on an old computer in his bedroom, shot straight to the top of the charts last January.

Fourth, we will need new ways to deal with the volume of information that costless distribution will produce. We have seen extraordinary innovation in this area, with the creation of commercial Internet search engines such as Yahoo, to help people find what they want in the endless dross on the Internet. In future, there will be more sophisticated ways to locate information. But there will be more ways for companies to try to attract one, such as the personalised television advertisement that pops up on your screen half way through the News at Ten. Every company will want to have a sophisticated e-mailing list, a corporate worldwide brand and a global celebrity (try Fergie) to promote it.

Finally, a future in which ideas proliferate faster than ever before will be one of breathtaking innovation. Any new idea that works will be promptly copied: to keep ahead, companies will need to think up new products, services and sales pitches. At the same time, lots of countries where development has been held back by a lack of information will now suffer less of a handicap. For instance, farmers in developing countries will one day have the same access to information about commodity prices, new farming techniques and consumer tastes that rich-world farmers now enjoy.

Valuable information is something that rich countries have in large amounts. It is in the poor world that information is scarcest. In time, that inequality will go. When it does, it will be the most powerful force for economic development the world has ever seen. That is the greatest promise of the death of distance.

Frances Cairncross is on the staff of 'The Economist'. Her book, 'The Death of Distance: How the Communications Revolution will Change our Lives' is published in Britain by Orion Business Books. See