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e-Commerce: its effect on business and government

ANote by the Director (Ditchley 2000/12) Conferences

In association with Andersen Consulting Future Programme

1-3 December 2000 Typical Timetable

Past Programme
Over the first weekend of December we looked at the effect of e-commerce on business and
Government and whether and how it might be regulated. We asked whether we were living 2010 - 2019
through a real revolution or just another technological development. We concluded that never 2000 - 2009
had any technology been diffused so rapidly on a global scale with such profound effects and
with relatively modest capital costs. It was a real revolution – akin to the industrial revolution – 2009
whose ultimate effects we could only guess at. 2008
In looking at the influence of e-commerce on business we thought that the main winners so far 2007
had been the high-tech companies which had provided its infrastructure, and the main benefit an
2006
extraordinary reduction in the cost of electronic data transmission. It was, however, much harder
to identify the effects of all this at a macro level in the economy. B2B exchanges were expected to 2005
rise in five years to some 6 trillion dollars. But, it was pointed out, the cost of the goods involved
formed a major part of the exchange. Perhaps a stock market was a better analogy where 2004
enormous volumes of transactions took place with only modest profit for the enablers. 2003
Nevertheless it was claimed that, between 1994 and 1998, the information and communications
industries had lowered US and UK inflation by 0.5% a year and would increase sustainable 2002
growth by 0.5% a year over the next decade. 2001

In looking at the relative weight of B2B exchanges over B2C, we found that B2B’s lead was 2000
unsurprising. Business transactions had traditionally been characterised by the need to Kosovo
exchange large volumes of data for which the internet and IT systems were ideally suited. Its
transparency offered competitive advantages to many suppliers and allowed for buyers to Fisheries
aggregate their purchasing power. This was, however, a basic approach. As buyers and
Devolution
suppliers, particularly of sophisticated products, became more integrated and interdependent so
open market bidding would decline. In contrast B2C was a complex area where local cultural Illegal drugs
factors played a greater part, as did confidence and trust in the system – two themes which ran
through the conference. Accountability of
NGOs
Would e-commerce prove a globalising influence? We noted its characteristics of speed, not just Multicultural
for businesses but also for Governments whose failure, for example, to cut red-tape could societies
materially affect advances in e-business in their countries. The cost was modest and the
technology was easy to operate, factors which had assisted the spread of e-technology and Restorative justice
commerce. But we also noted, on the downside, that speed brought with it the possibility of rapid Ditchley Lecture
global contagion as the “Love-Bug” had demonstrated. It raised problems of exclusion both XXXVII
between developed and developing countries as well as within developed countries and it greatly
facilitated certain sorts of crime. Defence industrial
base
The other key issues were payments, security and language. The latter seemed to pose the The new Luddites?
least difficulty in that English was already well established as the language of most common
use. And for those who wished, automatic translation would soon be available. Payments and EU's CFSDP
security were currently much greater problems. In both these areas the potential gains were so
Euro and other
great that we felt the market would produce better solutions than Government intervention.
currencies
We looked at the role of Governments and the desirability or otherwise of national strategies. We e-Commerce
identified education as perhaps the single most important issue in ensuring that society
generally was able to benefit from the e-revolution and that some sectors of society were not 1990 - 1999
excluded (children would in future be e-literate or illiterate). Sweden was quoted as an example 1980 - 1989
of a country which had, as a matter of Government policy, decided to make Pcs available widely to
its citizens of all ages. We attached, however, equal importance to the training of teachers and 1970 - 1979
the provision of good soft-ware programmes which would allow the hardware to be used 1962 - 1969
effectively. We saw a role for business in helping schools where children were capable of
learning quickly – net skills appeared to be intuitive. At the other end of the spectrum we were Annual Lectures
told that certain cities were already in fierce competition for elite talent, and that Government
policies on taxation and emigration could determine the outcome.

Some of us suggested that Governments should regard themselves as businesses. The

provision of government services on the net could produce major benefits for the public in terms
provision of government services on the net could produce major benefits for the public in terms
of convenience and cost. Savings could be passed back to the tax-payers. It was urged that
Governments should adopt private sector benchmarks for the provision of services. We should
not accept two-tier public/private standards. More broadly, we suggested that Government would
never fully realise the potential of the net until it had absorbed the e-culture into its internal
workings and developed new ways of relating to its citizens.

Afinal comment on the role of Government came from a US participant. Perhaps the greatest
contribution Government leaders might make at this stage of the e-revolution was to highlight its
historic potential in their speeches and by their public attitude, thus creating a generally
hospitable environment for the technology to develop and spread.

Against this background we looked at the role of regulation and legislation. Avariety of problems
were identified together with different approaches on how to resolve them. We were advised by a
participant with long experience that consistency was not a good idea. The medium was free and
flexible. Heavy handed attempts to impose uniformity would probably be counterproductive and
almost certainly overtaken by technology.

There was a strong school of argument that self regulation and, where necessary, co-regulation
was preferable to Government regulation – “Market mediated regulation rather than politically
mediated regulation”. The threat of Government regulation could, however, sometimes be a spur
to self-regulation. One participant encouraged the major US companies to think global in terms
of the regulatory regime and involve themselves in the debates in the EU and Japan to try to
ensure the compatibility and interoperability of the systems and regimes being put in place.

We looked in detail at the questions of privacy, jurisdiction, confidence, tax and crime. Privacy
was a fundamental issue whose definition had caused great difficulty. In the USAfinancial
information was regarded as almost as sensitive as medical information. For example the
amount of access the Finnish authorities had to information on individuals’ finances would never
be accepted in the USA. The privacy issue needed to be addressed as a priority, since without
agreement on privacy there would be no trust and without trust market efficiencies would not be
achieved. The problem was compounded by the fact that a number of countries and regions
claimed to have achieved acceptable levels of privacy protection without there being any
confidence that they were in practice capable of fulfilling their claims.

Jurisdiction was another problem area, highlighted by the recent decision in the French courts
against Yahoo for permitting access by French citizens to Mein Kampf. It was argued that the
French Government was entitled to apply its own law in France but not to impose its legislation
and values on the US and other citizens whose laws did not prohibit access to this work. The
hope was expressed that technology might provide an answer to this problem but given the
nature of the internet it was hard to see how any technological solution would be proof against
people determined to gain access to a website in another country. We considered the
compromise of “safe-harbours” reached after difficult negotiation between the EU and US where
mutual recognition of each others regimes had been agreed. It was pointed out, however, that
such solutions depended on a high level of confidence in the social and legal norms of all the
parties involved. To help with the jurisdiction and other difficulties the EU had supported
Alternative Dispute Mechanisms. However, commented one participant, voluntary codes were all
very well but at the end of the day they remained voluntary. Regulation was usually introduced in
an attempt to get markets to function more efficiently. It was doubtful if it could be avoided entirely.

Tax and consumer protection were also discussed. The EU’s approach that there should be no
discrimination between on line and off line sales and that tax should be paid by the consumer
raised difficulties for some US participants who pointed to the differing sales tax regimes in
individual US states. The fact that the US had in place a moratorium on taxing e-commerce
transactions, could, suggested one participant, become a major trade dispute between the EU
and the USA. More generally where e-commerce led to a transfer of goods, tax appeared to be
less of a problem but it was difficult to envisage a wholly effective way of collecting tax on
electronic transfers of services. Consumer protection through industry wide guarantees and
insurance, on the model of package holiday sales in the UK, was considered as a possible way
of increasing confidence in B2C sales.

In an examination of cyber crime we worried about a highly undesirable and unintended

consequence of e-technology, in that it gave criminals enormous new opportunities to commit
fraud and attempt perversion of young children. On closer examination the problem became
even more complex. Reconciling different legal codes and cultures might provide enhanced
opportunities for international lawyers but was likely to diminish greatly the advantages offered by
e-commerce. On the specific issue of child pornography we believed that a sufficient consensus
existed and might be articulated by UNESCO or some other multilateral body into a binding
instrument outlawing those who sought to make use of the net to indulge their perversions. A
final speculative thought was the suggestion that hackers might be employed to identify and
disrupt those sites, chat-rooms etc where child abusers might be active.

We concluded that our debate had identified a number of complex issues which posed
challenges for companies, regulators and society generally which future Ditchley conferences
might examine in greater depth. One such issue was anti-trust which we touched on briefly at
times during the weekend. The Director duly took note and would like to express his thanks to
Andersen Consulting for their help and support for this conference.

This report reflects the Director’s personal impressions of the conference. No participant is in
any way committed to its content or expression.

PARTICIPANTS

Chairman : Ms Mary ATolan

Managing Partner for Growth and Strategy, Andersen Consulting.

CANADA
Dr Charles Freedman
Deputy Governor, Bank of Canada.
Mr Martin J Lippert
Vice-Chairman, Royal Bank of Canada.
Dr Peter J Nicholson
Chief Strategy Officer, BCE Inc.

EUROPEAN COMMUNITY
Mr Michael Niebel
Adviser on e-commerce issues, DG INFSO Directorate C, European Commission.

FRANCE
M Francis Lorentz
Director General LaSer, Galeries Lafayette.
M Christian Menanteau
Director General and Editor, La Tribune.
M Jean-Marc Noël
Managing Director, Trusted Shops GmbH.

GERMANY
Dr Karl Wilhelm Pohl
Founder and partner, Pohl & Merrem Solicitors.
Mr Patrik Zeigherman
Member of the Executive Board, net.IPO AG.

IRISH REPUBLIC
Ms Vivienne Jupp
Partner Government Market Unit, Andersen Consulting.
Mr Brendan Tuohy
Secretary General, Department of Public Enterprise.

UNITED KINGDOM
Mr Robert Ayling
Senior International Adviser, Dorsey & Whitney LLP.
Mr Alastair Ballantyne
Executive Director, Morgan Stanley Dean Witter.
Mr Ian Blair QPM
Deputy Commissioner, Metropolitan Police.
Mr Jonathan Cornthwaite
Partner and Head of e-commerce law, Wedlake Bell, Solicitors.
Dr Amelia Fletcher
Frontier Economics.
Mr Mike Gannaway
Director of Marketing & Communications, Andersen Consulting.
Dr DeAnne Julius
Member, Monetary Policy Committee, Bank of England.
Dr Raymond Knott
Market Infrastructure Division, Bank of England.
Mr William Macintyre CB
Director, Communications & Industries Directorate, Department of Trade and Industry.
Miss Judith Mayhew
Special Adviser to the Chairman, Clifford Chance, Limited Liability Partnership.
Mr Hugh Morris
Partner Communications & High Tech, Andersen Consulting.
Mr Rommel Pereira
Head of Chasedotcom, EAME.
Dr David H Sambar
Chairman, British American Capital Inc.
Mr Peter Settle
Client Director, Strategic Partnerships, I-Solutions, Electronic Data Systems.
Mr John Spencer
Head of E-Business Strategy, HM Customs & Excise.
 Mr Ian Taylor MBE MP
Member of Parliament (Conservative), Esher and Walton.
Mr Chris Yapp
ICL; Director, Internet Society of England.

UNITED STATES OFAMERICA

Ambassador David L Aaron
Senior International Advisor, Dorsey & Whitney LLP.
Mr Gary Bengier
Chief Financial Officer, eBay Inc.
Dr Michael S Greve
Director, Federation Project, American Enterprise Institute for Public Policy Research.
Ms Candace Johnson
Founder and President of Board of Directors, Europe Online Networks SA.
Mr Sarwar AKashmeri
Co-founder, Publisher and CEO, EbizChronicle.com, Inc.
Mr George M Newcombe
Head, Palo Alto, Californian Office, Simpson Thacher & Bartlett.
Mr Paul S Raines
Vice President – Internet Security, New York Federal Reserve Bank.
Mr Randall Rothenberg
Editor-in-Chief, Strategy & Business, New York.
Mr Fred L Smith Jr
President and Chief Executive Officer, Competitive Enterprise Institute.

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