Enterprise Issues: GEM of an idea for the modern market-place

ONE OF the many intriguing aspects of new information and telecommunications technologies is their scope for creating entirely new types of work. An example is the growth of telephone counselling: busy and stressed-out professionals can call a sympathetic listener, who will give them advice about how to get through difficult meeting or deal with career problems.

Another possibility would be the development of professional takers-in of parcels to serve the growth of online shopping. Each neighbourhood needs a reliable pensioner or stay-at-home carer who can take in deliveries for people near by who go out to work.

It is easy to see how demand for a huge variety of new services might grow, and easy to envisage people who want to provide them. The question is how the market will evolve. In any market there is an innate problem of matching demand to supply - not only must the price adjust to the market- clearing level, but the buyer has to have enough information to want to make the purchase from any given supplier. This matching problem, which depends on access to information, is why we have advertising. But it grows more difficult the more personal the scale. Parcel-watching grannies are unlikely to list their services in the Yellow Pages, any more than babysitters.

But there is a model for creating small-scale markets in Local Exchange Trading Schemes, which involve exchanges of services for a notional currency - ironing for dog-walking, transacted via cowrie shells. Often these schemes are monitored and conducted on a single desktop computer.

This bottom-up growth is unlikely ever to reach a significant scale, however, precisely because all the schemes are so local. A recent book proposes an ambitious scheme to create a national online network of linked markets for everything everywhere. Called "guaranteed electronic markets" or GEMs, they would run alongside conventional e-commerce but could in theory offer much more attractive prices because they embody the key advantage of Internet trading: disintermediation.

The book, Net Benefit by Wingham Rowan (Macmillan Business Books), spells out detailed proposals for the Government to create a legal framework and technological infrastructure for GEMs. Important elements would include secure encryption, regulations for the protection of privacy and a system for licensing or guaranteeing standards.

If these basics could be provided, the system - built and run by a private- sector consortium or franchisees - would electronically do the job of matching buyers and sellers of any good or service you can think of. If a customer ordered clothes from a retailer, she would be linked to another GEM to order delivery and another to find the stay-at-home gran to take in the parcel. Big retailers could participate but would have no advantage over small ones. All would meet minimum quality and reliability standards, or be kicked off the system.

It could in theory be the ideal, perfectly competitive market described by Adam Smith in action for the first time in any real economy. The big business stranglehold over the consumer could be circumvented, Mr Rowan suggests. He outlines extensions from economic to political democracy, through the use of GEMs to implement popular environmental schemes, for instance.

As with any utopian vision, the plan for ubiquitous GEMs contains a vital insight taken to extremes. The extremism lies in the argument that there has to be one universal system. This simply isn't necessary; the beauty of the Internet is that it does not need central planning. It also implies the existence of a store of information about individuals that would raise serious concerns about civil liberties no matter how well it was supposed to be safeguarded.

The insight, however, is that the Government needs to be involved now in the creation of an electronic infrastructure - not just the technical standards and cabling, but also the legal and regulatory framework for online transactions. All markets depend for their success and economic efficiency on their context; electronic markets are no exception.

Mr Rowan draws parallels with other big steps in the creation of infrastructure, such as the public water supply, the rail and road system or indeed the Internet itself. All have depended on government input, whether it was direct funding or regulatory protections such as an exclusive franchise for a certain period. But, of course, the patterns of governmental involvement have been varied. One example, France's Minitel, certainly created a popular and widely used electronic market, but at the expense of putting the country behind in its embrace of the Internet some years later.

Some of the advantages the GEMs would offer are already on their way - secure encryption of financial details, for example. There are also already private auctions and markets - not just high-profile ones such as eBay but also Loot's online version.

Certainly, it is up to the Government to ensure that the law applying to Internet transactions (including copyright) is clear and enforceable, and to encourage the use of electronic transactions by allowing people to file their tax returns or claim benefits online. It promises this will be possible by 2006. Ensuring fair access to the online world is also crucial, and must be part of every aspect of policy from education to town planning. Electronic trading also offers exciting possibilities for, say, the NHS or education "market", for making public services more responsive and efficient.

But does the Government really need to enforce or hurry along the disintermediation and increase in competition likely to be caused anyway by the Internet by creating an entire replacement distribution system?

The answer depends on whether you believe buyers are at an insurmountable disadvantage in getting information about sellers and their products - and on how paranoid you are about big business. Personally, I'd rather the authorities concentrated on having a tough competition policy than installing a public-sector electronic marketplace - I have more confidence in the efficiency of a supermarket chain than in Whitehall to organise my electronic transactions.

Still, we need a bit of vision about the electronic future. An egalitarian, democratic vision is the right utopia to be aiming for. And so is one that opens our eyes to all those potential new markets we had never thought of before.

How long before some entrepreneur brings grannies.com to the stock market?