Cyberspace: The Global Opportunities, December 1997

Review of ActivMedia Report
ã Henderson, November 1997

“Economic Earthquakes”
ActivMedia Conference
Willard Intercontinental Hotel
Washington, DC
December 3, 1997

Let me begin by saying that I live on an island off the Florida coast and have operated out of my house as a global knowledge worker for 25 years. It has been quite feasible—not to mention profitable and enjoyable—to function as a niche consultant in the global economy—with phones and faxes—long before e-mail and the Internet.

Before we succumb to the hype—let’s be aware that consumers are rapidly becoming more sophisticated about their choice of electronic connectivity. Preferences for staying off-line are not to be confused with Luddite tendencies—but rather a growing discernment and selectivity that marketers must learn to serve. If you live by your wits—as do independent futurists like me—you must guard your privacy and solitude. Your “attention budget” is carefully managed and time, not money, is your most valuable resource.

We in OECD countries are well into a new era of the “Information Age.” We are transiting to the Age of Knowledge. If we survive and overcome our past mistakes—we may enter the Age of Wisdom, where scarce human time and attention are recognized as more valuable than money. At the same time, we live in “Mediocracies” where a few media moguls now control the attention of billions of people—for better or worse—which has changed politics forever.

As I describe in my Building a Win-Win World (1996, 1997), Chapter 5, we are already living in the new Attention Economy. Attention deficit is not a disorder. We now live in Attention Deficit societies where each of us is bombarded with information overload from advertisers, media, politicians, teachers, health providers, not to mention junk e-mail. The good news is that this is forcing us to “go inside ourselves” and ask some pretty basic questions: What do I want to pay attention to? Who am I and what do I want written on my tombstone? Such basic defensive reactions will define the growing sectors of our Attention Economies and their inexorable shift from material goods, (measured by traditional GNP/GDP per capita) to services and more intangible factors in living standards, measured by new scorecards such as my Country Futures Indicators (CFI) and the Calvert-Henderson Quality of Life Indicators, a joint venture with the Calvert Group of mutual funds here in Washington, DC. As our economies dematerialize, naturally it will be harder than ever for governments to hype goods-based GDP-growth in the global economy without also measuring toxic wastes, resource-depletion, dirtier, shrinking water supplies, polluted air, unsafe streets, drugs, money-laundering, poverty and global epidemics.

The ActivMedia study has already picked up the flight to “quality-of-life” where 80 percent of their respondents dream of living in rural areas and spending more time with family and friends—less time commuting to or living in urban areas. As the new “quality-of-life indicators” become more ubiquitous (as in hundreds of cities around the world, e.g. in the USA, Jacksonville, Florida, since 1983), the services-based Attention Economies will come into focus. Already the USA economy is 70 percent services (not yet fully reflected in GDP).

Let’s look at the dimensions of this Attention Economy in the USA: For example, tourism is now the largest industry worldwide, representing 10 percent of global GDP. To this we can add entertainment (movies, videos, music, performance, software, multi-media, including online Internet games, etc.); education (headstart, kindergarten through 12, high school, colleges, corporate and government training); health and urban services (the US healthcare sector which is some 15 percent of GDP, drug remediation, daycare, psychological counseling and other needs are growing); politics, federal state and local government services (while the federal government is shrinking most funds are simply re-allocated to state and local levels). Overall government expenditure percentage of GDP remains at some 33 percent while US campaigning for elected office is ever more costly. Lastly, we can include advertising, marketing and information-management, as well as the growing personal human development and spiritual/religious activities, and the unpaid volunteer economy (some 89 million Americans volunteer at least 5 hours per week), tracked by the Washington-based think-tank, the Independent Sector. When the US economy is re-classified to fully reflect the growth of such attention-based services we can see the growth of the electronic “attention sector” as part of this new pattern (see WIRED, December, 1997). Of course, this new Attention Economy still is based on energy and raw materials—but their use has been subject to continual improvements in efficiency and minimization of material components over the past 15 years—with no end in sight. As more citizens and businesses move into cyberspace—with the speed that ActivMedia has documented—what are some key and broader implications?

Let’s start with electronic commerce. Most companies assume that money-based transactions will be the “holy grail” through better security, encryption systems, credit card handling, and e-cash systems. However, electronic commerce does not require money-based transactions, but could lead to pure information-based transactions, i.e. high-tech barter. The implications of this are clear: money and information are now equivalent—we are already off the money and gold standard and on the info-currency standard worldwide.

Of course, banks are terrified of all this, because they thrive on money-based scarcity. Banks understandably are trying to reintroduce scarcity into cyberspace transactions via their debit and credit cards. Yet today, billions of dollars of services and goods are bartered each year in the USA by corporations and individuals on pc-based electronic trading networks—while between 15 and 25 percent of all world trade is in barter.

The implications for the world’s central bankers are clear: if they don’t improve their currency issuance and monetary management and control operations—through overhauling the Bretton Woods institutions and making credit widely available, not just to their cronies in governments and corporations—then they will be bypassed by pure info-based transactions. Today’s state-of-the-art computer-based markets in cyberspace can make such info-based, high-tech bartering efficient with minimal transaction costs.

Developing countries will no longer need to earn foreign exchange but can trade all their commodities among themselves–doing three, four, five and six-way trades with the computers keeping the audit-trails as to settlement agreements (which is what money is and does). I have spelled out the implications of all this in Chapter 9 of my book, Building a Win-Win World entitled “Information: the World’s New Currency Isn’t Scarce” and my “Introducing Competition into Global Currency Markets” with co-author, Alan F. Kay, founder of Autex Inc., the first computerized system for securities traders (FUTURES, May, 1996, Elsevier, UK; Contents Direct:   [email protected]).

Another major implication of global electronic markets is the continuing growth of currency trading (now at $1.5 trillion daily—with some 90 percent unrelated to the trade of goods and services in the real economy). Politicians in all countries bemoan their resulting “loss of national sovereignty,” as well as loss of control of domestic fiscal and monetary policy, eroding budgets, and tax-evasion. Yet most governments voluntarily ceded this national sovereignty in the 1980s when they deregulated banks and financial sectors and later in January, 1995, set up the World Trade Organization (WTO).

Thus, to regain some of this lost national sovereignty will now require international agreements to set up new “Bretton Woods-type” global mechanisms to protect investors in financial cyberspace. A new “global Securities and Exchange Commission (SEC)” is needed to harmonize securities markets and their regulations—full disclosure, accounting protocols, safeguards against money-laundering, insider-trading, bear raids, and the kind of speculations that helped bring down even the Hong Kong dollar and still threatens even well-managed currencies like Brazil’s real. And although Thailand, Malaysia, and Indonesia were rife with cronyism, corruption, unsound banking, real estate bubbles—as were Korea and Japan—the World Bank and the International Monetary Fund (IMF) had known about all this for decades and turned a blind eye in all the heady GDP growth. Indeed, civic society groups had pointed out all these problems for decades—as well as those of child labor, sweatshop wages, and conditions and reckless despoiling of the environment and natural resources.

Today, the IMF will use some $100 billion of the world’s citizens tax monies to bail out these corrupt old regimes. This raises a clear issue of what economists call “moral hazard.” This is similar to the moral hazard created on Wall Street after the 1987 crash when the US Federal Reserve obligingly bailed out traders and investors with a flood of liquidity provided—as with the S & L bailout—by taxpayers. Such taxpayer bailouts of investors and imprudent bankers are creating increasing public anger in many OECD countries, including Japan, still reeling from their bailout of their jusen (i.e., Japanese Savings and Loans).As the ineptitude of central bankers and the corruptions of “crony capitalism” are revealed, I expect a shift to “safe haven,” high-tech barter transactions both locally and globally. Local currencies and p-c-based trading systems are flourishing in the USA, Canada, Europe, Australia, and New Zealand. Indeed, I have used them as leading indicators of the incompetence of central banks and macro-economic management authorities in many countries.

Let us now look at the taxation issue more closely. At the global level, tax-evaders are catered to by increasing numbers of “financial brothels”—usually small, island countries and regimes deliberately offering anonymity, dummy corporations, money-laundering, and tax-havens. Internet-based commerce and intranet-based trading make all of this easier. Nation-states, now with chronic budget deficits due to tax-losses from deregulation, are breaking up. Some futurists, like my friend John Naisbitt, predict that there will be about 1,300 countries in a few years. The continued growth of electronic commerce into today’s autonomous global casino will continue to erode the power of governments while also denying them the tax revenues they formerly received from domestic bricks and mortar commerce. On the national and micro-level, the tax issue will involve a fight for equitable tax treatment between traditional bricks and mortar businesses and those in cyberspace. There are already two kinds of Web-based businesses: those which link and empower existing bricks and mortar retailers (such as those in the jewelry business linked on the Colorado-based, worldwide POLYGON Network)—and those which bypass bricks and mortar retail businesses (such as bookseller, When the Clinton administration, prematurely pandering to the “digerati sector,” announced that it would not tax transactions on the Internet—it must have heard an instant chorus of complaints from state governments and the bricks and mortar businesses across the USA, which might thus be condemned to penury.

As global financial markets are now in a new domain of volatility due to real-time electronic currency trading, I expect that the roiling of equity and band markets will also continue. Taking down all the “firewalls” between the world’s economies was bound to create these real-time interactions—rendering IMF bailouts less effective in any case. Traders thrive on all the new volatility. Alan Greenspan’s “jaw-boning” is no longer enough to prevent the new roller-coaster rides in the global casino–since he too has pointed to the preponderance of market players who now benefit from the volatility.

I expect an acceleration of the efforts of G-7 and G-8 leaders to cobble together a rudimentary “global SEC” and adopt new Bretton Woods-type institutions like the International Bank for Environmental Settlements that may emerge from the United Nations Conference of the parties to the Climate Convention of 160 nations now taking place in Kyoto, Japan. This new Bank would securitize carbon credits and debits between nations and create an electronic derivatives exchange for environmental commodities, including water and biodiversity.

I also expect central bankers to wise up and stop sitting around the same table in the global casino with profit-maximizing currency traders speculating on large margins. The central banks may decide that their role as protectors of their nations’ currency demands that they set up their own FXE with the United Nations (UN) and the Bretton Woods institutions as a “public utility”—with specifically designed state-of-the-art electronic trading systems and audit trails. These could be designed to capture information on money-laundering and speculative movements while offering systems for user-fees and circuit-breakers—instead of reliance on now ineffective open-market buying operations and the domestic recessions they engender. There is no reason central banks cannot manage their currencies and financial markets as closely as they manage their sovereign bonds. Chile has shown how some restrictions on “hot money” work well—and many now point to China’s limited convertibility of the yuan has provided some insulation from Asia’s woes.

Lastly, new global systems of political risk-management are now possible, which can reduce the world’s military budgets—by employing insurance instead of weapons. For example, the Global Commission to Fund the United Nations, of which I am a Commissioner, has proposed the United Nations Security Insurance Agency (UNSIA), a public-private-civic partnership between the UN Security Council, the insurance industry and the hundreds of civic, humanitarian organizations worldwide which engage in conflict-resolution and peace-building. Any nation wanting to cut its military budget and redeploy its investments into its civilian sectors could apply to UNSIA for a peace-keeping “insurance policy.” The insurance industry would supply the political-risk assessors and write the policies. The “premiums” would be pooled to fund both properly-trained peace-keepers and a rapid-deployment, on-line network of civic, humanitarian organizations “on the ground” to build trust and confidence. The UNSIA proposal is now backed by several Nobel Prize winners, including Dr. Oscar Arias and other leaders, is taught at the London School of Economics and other major institutions. UNSIA was debated in the UN Security Council in April, 1996, the first time that body had considered the need to bring civic humanitarian organizations into peace-keeping operations.

Finally, I expect that global public access TV will become a reality. Citizens in Mediocracies and Attention Economies are already sick of much of the content of online and broadcast media. They demand more useful content and coverage of community problem-solving, higher quality entertainment, education, and children’s programming. For example, WETV, a Canadian-based public-private-civic network with a state-of-the-art multi-media backbone is now in over 30 countries with such “Global C-Span” programming and growing through program-bartering and partnering with similar media. Funded by the humanitarian aid programs of seven countries, it is now opening some ownership to private investors and will endow participating civic groups with stock options to incentivize their audience-building outreach. Such creative hybrids are typical of electronic and Internet-based companies and can open up new grassroots, multi-cultural communications far beyond the reach of the Internet alone (still unavailable to most people in the world).

I found the ActivMedia results fascinating and useful. In spite of the dangers of the global casino and today’s Internet users’ myopic preoccupations with traditional marketing and the naiveté of cyberlibertarians (who have forgotten that they are free-riders on a taxpayer supported public resource), I am, on balance, bullish on the global promise of cyberspace.