I D É E S   F O R T E S    Issue 3.01 - January 1997

The Free Market Ain't Free

By Mike Holderness



Imagine a world in which all multinationals save two are dead and gone. The ones left are AT&T and UPS (a terrifying idea, I know, but this is a thought experiment; substitute the Chinese phone company and a reformed Indian Postal Service if you prefer) who between them provide the worldwide infrastructure for moving bits and atoms respectively. In this world, you want a case of mangoes, and you want them tomorrow. You live waaay out beyond the 'burbs.

You go to the nearest media appliance. You tell your grocery agent you want mangoes, very good ones for a party, and price is not your main concern. It comes back with an offer from a farmers' cooperative in Kerala for an unusual variety with a description that has you salivating. You order. The following morning, they arrive. Cost: milli-pennies to AT&T for international communications and pennies to local bandwidth providers for moving the bits which constitute your market research, exchange of contracts and payment; maybe £30 to UPS for moving the atoms you are about to eat; and £5 direct to the farmers' co-op for those atoms. Total: £35.10.

Total cost of going to market downtown for the mangoes: £20 for the mangoes themselves; £5 actual cost of a 20-mile drive or train trip; and an hour or two of your time at ... what, £25 an hour, I hope? (We're talking yuppie niche-markets here.) And out of that £40 to £70, only pennies go to the farmers.

Of course, it won't happen quite like this. Apart from anything else, "The movement of pathogenic organisms and diseases are a very real threat in trans-boundary movement of goods," according to my mate Ranil Senanayake, a founder of Internet access in Kenya who had a very similar scheme for improving the lot of African farmers. But the point is that if the Internet can be even vaguely mirrored by a decent atom-shifting network, there is little reason for international corporations to continue to exist, except in order to service transactions.

And once you've got such a network you can come up with ideas like the one Jeffrey K. MacKie-Mason and Hal Varian at Carnegie Mellon University had way back when the Web was young (January 1994). They proposed an automated, real-time auction as a way of pricing reliable bandwidth for videoconferencing and the like. The sooner you want that packet, the more you bid. It's still the nicest Net-economics idea I know of. This principle will be much easier to apply to physical goods, from ball bearings to underpants, since daily transactions worldwide are in the hundreds of millions, not the peta-transactions threatened by the Information Super-Hype Way.

If the principle of trade in bits - that everyone is in the same place - is extended to the trade in atoms, exchange rates will be driven towards Purchasing Parity Power. It will no longer be possible for Eurotrash to wander around India living like lesser Rajas on £10 a day. Eventually, a chapati will have the same cash price everywhere. Obviously, there are some fairly horrendous transitional effects lying in store for us if this should happen. Farmers' cooperatives going heavily into export might get a fair deal for themselves, but in the process they would put the price of food beyond the earnings of people who can't export, such as street-sweepers. On the plus side, conventional development economics always recommends cutting out the middle-folk. The shift of economic power from traders to producers would make a lot of cash available to local economies.

It's not so much a question of "Is this a good idea?", as of "How can we cope with it?" For how many years can the multinationals delay their demise? Unless someone comes up with an alternative to international oligarchic capitalism that looks better than free markets and free trade, sooner or later people will start trading freely and directly. So we'd better get down to devising a humane transition to a real free market, now.

Mike Holderness is a freelance writer on science, technology and "this Internet thang - what does it <I>mean</I>?" His dreams are currently marked up in strict HTML, and he expects to dream in Perl early next year.