A web of riches beyond our wildest dreams

AFTER the bubble, the Jeremiahs. As dotcom mania subsides and internet start-ups go to the wall, the air is rent with the platitudes of retrospective wisdom. Analysts in suits who 12 months ago were advising clients to grab a slice of the high-tech action are now busily explaining that they knew all along that the boom was unsustainable, that "fundamental valuations" would reassert themselves, etc.

Chief among the retrospective wiseacres are the practitioners of Adam Smith's "dismal science" - the economists.

They have never much liked the internet because it challenges more or less everything they hold most dear. They like to think, for example, that the more valuable something is the scarcer it is, whereas on the internet precisely the opposite holds.

In the world of conventional economic theory, if you sell something you have less of it afterwards. Yet you can sell information all day and still have as much left at the end as when you started.

Economists inhabit a world of diminishing marginal returns whereas many things in cyberspace appear to demonstrate precisely the opposite effect.

Some economists appear to be in denial over the net.

Many of the remainder are busily trying to prove that it has little economic significance. A leading practitioner of the latter school is Robert Gordon, a flamboyant professor at Northwest-ern University who likes to be photographed draped over his private plane.

Last week he was regaling readers of the Financial Times with his view that the internet does not represent a new industrial revolution and indeed is considerably less important than inventions like electricity, the telegraph, the automobile, petrochemicals and modern plumbing.

THE main justification for this view seems to be the discovery that although US industry invested prodigiously in computer technology between 1973 to 1993, this massive investment yielded no corresponding surge in productivity growth. Quite the reverse, in fact: productivity growth actually slowed over the period. Professor Gordon and his friends have all kinds of ingenious explanations for this, but they all add up to the same thing -yah, boo, sucks to the computer industry. The economists' comfortable sense of intellectual superiority is, however, now being threatened by their (tentative) realisation that productivity growth may have been rising since 1993.

The reason this is unsettling is that 1993 is the year the first big web browser (Mosaic) was released, thereby making the internet suitable for business and triggering the explosion which made the web the fastest-growing communications medium in history.

Now, there are lies, damn lies and productivity growth statistics. Life is too short to worry whether what is happening in the economy conforms to Professor Gordon's definition of an industrial revolution - ie, "any great acceleration of output and

productivity growth that is pervasive and economy wide". But in seeking to measure the impact of the net in terms recognised in their textbooks, economists are behaving like the legendary drunk who searches for his car keys under a lamppost, not because he dropped them in its vicinity, but simply because that is the only place where he can see what he is doing.

In those terms, economists enquiring whether the internet heralds a new industrial revolution are looking in the wrong place and asking the wrong question.

The most significant thing about the net is not that it is a new way of doing business (though it is) but that it is a radical transformation of mankind's communications environment. In that sense it's the most important development since the invention of printing by movable type in the early 1450s by an obscure Mainz printer called Johann Gutenberg.

Given that, it's worth remembering that we stand in the same relation to the future as did the good citizens of Mainz around 1459 seven years after Guten-berg's first Bible was printed. His contemporaries could not have foreseen how his invention would transform the world. But it assuredly did: among other things, print fatally undermined the authority of the Catholic Church, spurred the Reformation, enabled the rise of modern science and the Romantic movement, enabled the spread of bureaucracies and learned professions - even, according to one authority, extended the duration of "childhood" from the seven-year span of the Middle Ages to the 16 or more years that are still commonplace today.

IT would have been absurd to have asked in 1459 whether printing represented an industrial "revolution" because it was much, much more important than that. It turned out to be an enabling technology that made all kinds of revolutionary things possible.

The same may be true of the internet. It has already changed things out of all recognition by providing the

first totally uncensored communications medium in history. It constitutes the kind of free publication system of which Thomas Paine dreamed. One day it will make the contents of the Library of Congress available to anyone on earth.

Who can foresee the long-term consequences of such a thing?

Everywhere we look, the internet is challenging established institutions and old ways of doing things. It undermines the sovereignty of nations and tax authorities alike. It increases the wealth of some nations and diminishes that of others which (like the UK) have administrations hostile to e-commerce. It makes it much more difficult for governments to keep secrets from their citizens - imagine the Spycatcher case today.

Email has revived the art of what Samuel Johnson would have called epistolary intercourse - but on a global scale and with 300 million participants. And so on.

Faced with this astonishing sea change, all economists can do is ask whether the net is increasing productivity. They are like men conducting market research during an earthquake.

And they deserve to be taken no more seriously.

P A Brief History of the Future, John Naughton's book on the history and significance of the internet, is published by Weidenfeld and Nicolson. For details, see www.briefhistory.com

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