Electronic Commerce and the Information Highway

Luc Soete, Professor of International Economics, Maastricht University

Abstract

The policy discussion on the Information Society has been dominated so far by the economic impact of the new information highways (and Internet in particular) on new forms of digital, interactive production and consumption and the potential for new forms of commercial exchange. In doing so the focus has been on the various impediments and barriers preventing the rapid diffusion of such "electronic commerce". These barriers can be of a technical (e.g. encryption), legal (regulations), economic (costs) or simply user-friendly nature (access through PC or TV and mobile phone). The essential assumption from the policy perspective is that governments can help private industry in overcoming many of these barriers. Furthermore, overcoming those barriers is likely to involve finding international solutions, the real growth potential of electronic commerce involving in the first instance "global" access of firms and individuals to suppliers of goods and services of all kinds.

Hence, and not surprisingly, this has been to some extent the bread and butter of most recent policy reports on the subject, whether from the European Commission, the OECD or other international organisations (see amongst others the contributions from WTO and WIPO).

In my talk, I will not enter these relatively common policy issues. They have been at the core of the Ministerial Conference organised by the OECD which took place in Ottawa early October. They are by now relatively well known and evolve rather quickly because of new technical solutions. They also tend to reduce the debate to such technical issues: to finding appropriate technology push solutions to the many security, privacy or consumer protection problems involved in such new forms of virtual trading. In doing so, the basic premise is that the current legal framework regulating "meatspace" can be adapted to "cyberspace". While this will be the case for a number of products and consumers, whether business or individuals, there will also be many cases where such technical solutions will not really provide conditions of trust and transparency typical of physical, human interactions.

In the "pure" case of economic interactions such as in business-to-business trading, the new phenomenon of information highways is likely (to continue) to allow for lower costs through international access to cheaper and more efficient suppliers, further opening up and enlarging market opportunities particularly with respect to small and medium-sized firms, and better use of available capital. In short, it will change the business fundamentals of exchange both internally and externally with suppliers and customers. From this perspective, there is little doubt that electronic commerce represents to some extent a flood of new market opportunities. However, in making these at first sight rather reasonable assumptions, one seems to underestimate the relatively broad extent of electronic interchange already existing between various supply chains from raw materials production down to retail sale businesses in most highly developed economies such as the US, Japan or Europe. From this perspective, electronic commerce appears more like an evolutionary transformation, a further, undoubtedly more ubiquitous, efficiency-improving factor in a long series of improvements in logistics and wholesale and retail trade activities, from bar coding, EDI to e-commerce. As a consequence, the economic effects of e-commerce appear to be more of the incremental type. They will be small in sectors with already large sophisticated multinational companies operating, as in the food or motor car sector, in a logistically sophisticated way; but probably large in sectors with many SMEs and a more outspoken domestic focus.

In the case of business-to-consumers commerce, the long-term growth impact of information highways and electronic commerce is likely to be more significant given the greater opportunities for substitution of physical commerce for electronic commerce, the possibilities for greater market transparency allowing consumers to identify products at lowest price and the new opportunities for suppliers to "version" goods more directly to consumers’ needs. The balance between these consumer-economic advantages versus possible social and cultural needs for shopping is likely to differ across different product categories. Hence the diffusion path of such new forms of electronic commerce is likely to be very differentiated, with some goods, such as software, computer games and other content programmes, CDs, books becoming rapidly traded on-line on the Internet, whereas many others continuing to rely on physical commerce. While the likely growth in such electronically traded product categories might well be very high, the overall growth impact does again not really fit the overall growth expectations of electronic commerce.

The line taken in my talk is that the policy discussion on the information society and electronic commerce has been too much dominated, as is often the case, by the search for technological and legal solutions to cyberspace, assuming rather quickly that physical and electronic commerce are perfect substitutes. In doing so, one is likely not only to be confronted with overestimation of the substitution possibilities of physical commerce with electronic commerce, one is also likely to underestimate the new growth possibilities of electronic commerce outside of traditional commerce fields. It is in this sense that the word "electronic commerce" seems particularly badly chosen and very reminiscent of previous technological transformations such as "the wireless" (Rosenberg, 1998) expected in their impact just to substitute for by now old, nearly forgone human activities. More than in such previously, primarily technologically driven cases, the discussion of electronic commerce will have to acknowledge to a much greater extent the particular features and relative merits of physical versus electronic communication and exchange including money exchange.

To limit the debate on e-commerce to the distribution of goods and services only would seem to miss the essence of what the information society is all about. From this perspective, the real growth of electronic commerce does not seem to lie in the simple substitution of physical commerce with electronic commerce. Rather, it seems to lie in what could be called "e-exchange", i.e., the opportunities offered by electronic networks for new forms of exchange and communication across businesses, between businesses and consumers, and between consumers more generally refered to as citizens.

There is indeed general agreement that the emergence of an "information society" has led to an explosion of new activities involving the search for information and ease of communication. Of information in the form of data, facts, news items in all forms, available at ones fingertips and stored in millions of books, articles, databases, libraries, websites, etc. Such new possibilities for data-mining and more information are not just leading to better informed judgements in commercial buying and selling but in all kind of activities. Some of these are essential for ones work, others are purely of the hobby type, and still others simply contribute to one’s personal general knowledge, or interest in democratic control and so on. On the other hand, the new opportunities for communication are not just limited to business or private family communication as in one-to-one ‘commercial’ telephone conversations, but in all kind of forms of one-to-many communications such as virtual video conferences, debating clubs, chat rooms, and so on, identifying people somewhere on the globe with similar work, leisure, hobby, personal and political convictions. Such forms of exchange do not appear to have any more commercial ‘value’ than is being paid for in terms of Internet access charge and telephone costs. Nevertheless, it is obvious that such electronic communication activities represent a large part of the increased welfare associated with information highways and that they indirectly contribute to economic performance and feelings of wellbeing.

It is from this perspective that limiting the discussion to e-commerce — the commercial exchange of the selling and buying of goods and services — appears so minimalist. It reduces the relevant growth and welfare parameters to only economically directly measurable concepts such as lower costs and larger markets. The new information and communication technologies provide a vast array of new access opportunities. The largest part of those contribute only indirectly to increased efficiency in economic production and distribution, but involve in the first instance increased consumer satisfaction, increased welfare and freedom of communication and exchange. It is in this sense that the notion of an Information Society emerging takes on its true value. A society in which the ease of communication and access to information and data are not just essential ingredients of economic activity — in the production, distribution and consumption, increasingly of digital goods and services — but also of leisure, of household and other so-called "non-work" activities, of social interaction and democratic expression. I would argue that the easy access to this variety of new "immaterial" goods and services, the largest part of which are not commercially traded, represent to some extent the new wealth of the 21st century.

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