Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 581 - 599)

WEDNESDAY 29 MARCH 2000

MR JAMES WILSDON, MR ALEX MACGILLIVRAY AND MR JON TUTCHER

Chairman

  581. Good afternoon, gentlemen. It is very kind of you to give us your time and thank you also for the paper which you submitted in advance of this afternoon's session which the Committee has had an opportunity of reading and found very enlightening, putting some flesh on the bones of your activities. It is a wide range of activities that you are, indeed, undertaking from the programme before us and we wonder if you would like to start off by saying something about the scope of the research and how far you have managed to get. It is a relatively short period since you have got off the ground but I am sure developments are already taking place.

  (Mr Wilsdon) Certainly, my Lord Chairman. If I speak first, I work for an organisation called Forum for the Future which, for those of you who have not come across us, is a sustainable development think tank and charity set up by Jonathon Porritt and others to promote positive solutions to today's social and environmental challenges. We work a lot with business on these issues and obviously, as e-commerce has risen up the business agenda, so we from the perspective of a think tank have been looking with interest at what issues this raises for policy more widely, particular for the opportunities that it presents to promote environmental and social gains. We therefore set up this project in partnership with a group of other think tanks and NGOs and a group of companies really to try and attempt a comprehensive analysis of what is going on and what the policy opportunities are. The project was launched in February by Patricia Hewitt at a conference on environmental modernisation, and our aim is to look quite far ahead, first at 2010 and then to 2020, and to assess what the likely impacts of e-commerce and the digital economy would be on wider social and environmental trends. The way the project is structured means that there are eight themes; they are listed and I will not go through them in detail now but they cover things like social exclusion, planning, transport, energy use, regional issues and we are really just trying to look, in partnership with our corporate and government partners, at what is likely to happen and try and chart a way through these challenges.

  582. I was wondering if I could ask Mr Tutcher if he could say a few words about his organisation, both at world and UK level.
  (Mr Tutcher) As you may already know, I work for an organisation called Sun Microsystems. We are a global company with revenue somewhere approaching $15 billion a year and a market capitalisation of about $170 billion, so we are a large company with about 30,000 employees worldwide. Most of our business is being generated through power on the internet so we are an organisation that supplies the technology that drives the internet and is fuelling this new economy, and one of the reasons that we are involved and were a corporate founder of Forum for the Future and a member for the last eighteen months is that we started to see that e-commerce will revolutionise everything we do from the way we play, work and interact with each other. It will have a profound effect and we are just at the very start of that revolution, for want of a better word. We see ourselves as being a pioneer and a driver of that revolution and there is, therefore, some responsibility on us to look at what are the implications from a social wealth, economic wealth and environmental wealth perspective as to that revolution that we are driving.

  583. What is the scale of the operation in the States, primarily?
  (Mr Tutcher) Something like 52 per cent of our revenues comes from the US. We have two manufacturing plants in the US. The only other manufacturing plant we have is in Scotland, in Linlithgow, which generates about 38 per cent of our worldwide output. The UK is the second largest part of Sun's organisation from a revenue perspective and from an employee perspective. As I have indicated, it is the only other place outside the US that actually does manufacturing and assembly. The UK is seen, therefore, as being a very core part of Sun's empire, for want of a better word, but the US is where most of our business is driven and is where, of course, most of the internet is going on today. We are in a relatively privileged position to see and to be able to compare what is going on in the US compared to the rest of the world. We do sometimes get a rather skewed view of that given we are Californian company so most of us when we visit actually see what some would arguably call the richest part of the US. We do not tend to go that much to Chicago and places where clearly that feeds into our network.

Baroness O'Cathain

  584. I am very interested in what you say because just before you started our session this afternoon I told members of the Committee that in the latest Monetary Policy Committee minutes from the Bank of England there was a statement about e-commerce saying that in the States only 0.6 per cent of total retail sales are actually carried out over the net, yet you have just said that the internet and use of the Net is much more a feature of US life, even though you did qualify that by saying it is California and not necessarily Arkansas where they all have flat trucks and do not use the internet. But do you really think that the huge use of the internet in the States is more of a cult—that is a bad word to use at the moment—or of interest for people just going into their studies, who fool around and play on the Net, talk to each other on the Net? Do you really think it is going to transform the whole way we do economic business?

  (Mr Tutcher) Simply, yes, we do, because the retail part of it which we would call business-to-consumer is the smallest part. We see the business-to-business side of e-commerce being somewhere between 10 and 20 times the size of the actual business-to-consumer part and it is really the business-to-business end that fuels the economy much more than people buying books and CDs straight over the Net. As an example of how things are changing, there is an organisation called freemarket.com who have a very simple concept. They will fix your procurement for you, so they will go to an organisation buying commodity products and they will actually assess the quality and the volume requirements you have, and then go and search the rest of the world for suppliers of those products. The example they have used with us is simple PCBs—printed circuit boards—and in this instance they found 13 suppliers around the world who could match the volume required at the right quality in the right kind of ballpark. They then conduct a live auction on the web where the organisation who is actually going to do the buying commits to buy at a certain point in time, and those 13 suppliers bid live from a different parts of the world for that annual supply of product. Freemarket.com then plot a graph and you can see in the first half an hour there is very little movement on price but, as you get closer to the deadline, the price plummets through the floor and on this particular instance they drove a 43 per cent discount on the purchase price the organisation was paying. That has a pretty fundamental impact on how you as an organisation selling product can sell because you have to strip out all costs, you have to dematerialise the product you are selling because you cannot afford to have that many components on board, and you have to find other ways of doing it, so there are very positive aspects from an environmental point of view to some of those things that are happening.

  585. That is fine for the people buying the PCBs but what about the people producing them? Surely you then get to the stage where a lot of people are going to be put out of business?

  (Mr Tutcher) Absolutely. There is a logical conclusion and what you have to do is add value in some way and perhaps in a commodity environment it is difficult to add value. What it clearly does is it decimates the supply chain. It gets rid of "Am I playing golf with the managing director tomorrow because great, if we are, we can talk about the business and that is fine". It gets rid of that because relationships do not play a part any more. It is purely quality and price and those sorts of issues.

Chairman

  586. Mr MacGillivray?
  (Mr MacGillivray) That is very interesting. I am from the New Economics Foundation and we were set up 15 years ago, before "new economy" came to mean the digital economy. We had something else in mind when we named ourselves but we have reacted to the challenge that everyone else sees it as being the digital economy. One aspect we will be looking at in this study is some of the less expected social rebound effects, the second order effects, of the revolution in e-commerce—particularly at the impact on UK communities but, with your prompting, it is interesting to start thinking about suppliers in the distant past as well. There will be quite a lot to look at just in the UK because one of the effects that you can predict in terms of business-to-consumer e-commerce is that people who have connections will be able to get the best prices and therefore, by implication, people who do not have a connection will get the worst prices. If that follows the current pattern then you can assume that affluent people will be getting better prices by searching around and organising buyer's clubs on the internet. That is one of the things we will look at and the government's report yesterday from the policy action team of the social exclusion unit talking about closing the digital divide is a welcome contribution. There is no known prescription there about how to make sure that e-commerce does not increase social exclusion. There is a lot of sentiment there. We will also look at how you can take concrete steps to make sure that low income people benefit from this as much as, if not more than, more affluent people.

  587. One of the omissions as I saw it, following Lady O'Cathain's point, is the topic of jobs. Looking at the eight subjects, I see you have social inclusion/exclusion. Maybe jobs figure there, or do they not? We have heard after Lisbon that all these jobs are going to be created and we are certain that there will be many new ones created, but the downside is never mentioned. Are you doing any work in this area?
  (Mr Wilsdon) Yes, we are. You are right in that there is not a theme that takes jobs as its headline, if you like, but certainly it will be featuring as an important part of New Economics Foundation's work.

  588. Is there any reason why it did not figure in its own right?
  (Mr Wilsdon) No. It is more of a cross-cutting issue really that features in several of the themes. I think it is always hard with a subject as vast as this and so many areas that one could look at to know how to cut the cake. The theme that will look at jobs in some detail is the work being done by the Local Futures Group under the title e-regions. The Local Futures Group has done some very interesting work already and is doing more in an on-going way for the DTI looking at the economic geography of the knowledge economy, looking at the different patterns of job creation and job loss that will arise out of the knowledge economy over the next 5/10 years so it will be doing some work for us there and picking up on many of the RDA economic strategies and the focus there is in those strategies on e-commerce and the knowledge economy as a driver and generator of new jobs.

  589. Are we going to get a comprehensive view of the future for jobs on the negative side? I am not asking you to do it but, if you are not doing it, are other parts of the public community endeavouring to do it? Are you confident it is being fully examined?
  (Mr MacGillivray) I think it would be a good idea to go back to the e-Europe Information Society project, and flicking through their document here it is pretty weak on working out what the impact on jobs is. It mentions a figure for the US of Internet-related jobs but no figure for Internet-related loss of jobs and no figures at all for Europe so someone at the European level ought to look at this.

  590. You are having a bit of a stab at it but not necessarily covering the whole aspect?
  (Mr Wilsdon) It is so hard, there are so many variables in this debate that are, as yet, almost impossible to pin down that we certainly would not pretend to be providing a full overview of this. What we want to do is point to some of the potential pitfalls and some of the opportunities. Just picking up on another point raised about jobs further afield, particularly in the developing world, that is something we will be looking at in what we call sustainable e-business. We there want to look at how companies that have an existing commitment to corporate social responsibility can carry that over to this new world of on-line commerce and we want to look at issues around labour conditions in the developing world, supply chain issues, codes of conduct, and try and again look at ways from a voluntary perspective as opposed to from a government regulatory perspective. Companies can proactively implement strategies and policies that will protect and enhance the livelihoods of workers overseas rather than pushing more of them into poverty.

Lord Bradshaw

  591. I would like to take you to a totally different area. We have heard for a long time about the impact of e-commerce on jobs and business. I work in the area basically of providing transport infrastructure and there is nothing the Treasury like better than lots of uncertainty because that allows them to postpone any decisions on investment for ever and ever. Now we are looking at several river crossings in east London and at the refranchising of the rail passenger services and we have to work on predictions of levels of commuting, levels of movement between regions—the whole issue of regeneration of Thames gateway. I really want to ask you what firm evidence there is of the likely effects of e-commerce on employment; to confine it we will take the London commuting region but the effects are obvious elsewhere. What evidence is there which would lead you to suggest that e-commerce will have an effect either way?
  (Mr MacGillivray) You have to pick the types of impact and, in terms of an aggregate, I am not aware of any evidence that would come up with a number saying "Therefore the total is plus X thousand new jobs or minus X thousand loss of existing jobs", but I think in terms of the transport side of the question there is emerging evidence that there will be increased transit and increased freight and therefore, by implication, an increased number of jobs in delivery industries. There is a reduction in transport because of increased possibilities of telecommuting and those may or may not be roughly about the same and balance out, so you would look at a shift in transport from personal travel to freight, perhaps. British Telecom, who are one of the partners, have started to look at some of these impacts and have done quite a lot of study on telecommuting and certainly there is evidence from the US that shows that increased e-commerce can generate reduction in individual commuting. It seems, anecdotally at least, that the white van culture means there is going to be evidence of an increase in small transit movements.

Chairman

  592. It is not substantial though, is it?
  (Mr MacGillivray) It is not substantial yet and we hope to be generating some more concrete evidence in this area. Also, we are trying to examine and pioneer some schemes where socially excluded and deprived neighbourhoods are wired up with certain schemes such as time banking, which the Economics Foundation has been promoting in the UK following from the US, and these types of networks do increase the skills of low-skilled unemployed people. There is evidence from the US that that enables people to get into the job market for the first time so while you can imagine there will be some loss from, for example, the Pringles factory in Scotland being bought by Fane Brothers, correspondingly you can expect to have people coming in as a result of getting increased skills and confidence from excluded areas. So, again, I am not sure what the net balance would be but there will be a lot of significant movement in subsectors and we will wait and see what the overall effect looks as though it has been.

Lord Bradshaw

  593. It is difficult to understand. You get areas of deprivation cheek by jowl with areas of considerable affluence so you get a lot of people in east London almost looking out on areas of very great affluence and certainly in Oxford there are two wards in the county with extreme deprivation surrounded by areas where there is a lot of affluence and where the overall unemployment level is 1.6 per cent. Why do you believe that e-commerce is going to be of any benefit to what I almost call the hard to employ, the hard core unemployed? Why is it going to get them back into work?
  (Mr MacGillivray) I think that our project, without being too modest about it, aims to explode some of the myths—and that may be one of them—and to try and assemble all of the evidence from where it currently is and have a really good hard look at it.

Chairman

  594. You were saying earlier that there are some examples in the States. Which part of the States do they come from?
  (Mr MacGillivray) There are about 200 initiatives in the US at the moment. They have been particularly prevalent in the Washington DC area because the Time Dollars Institute is located there but they are quite widely spread out.

  595. Could you give us, as a supplementary after the meeting, some further information about that because we are going to Washington?
  (Mr MacGillivray) I would be delighted to.

Lord Cavendish of Furness

  596. Lord Bradshaw had a myth which you were about to explode. What was the myth?
  (Mr MacGillivray) The myth, I think, is that e-commerce will necessarily include socially excluded people and generate jobs for them.

Lord Bradshaw

  597. Yes.
  (Mr MacGillivray) There is evidence that that happens in small quantities even from LETs schemes which are quite prevalent in the UK. They do generate employment but of a small order and it is quite incremental compared to substantial job losses from factories.

  598. My experience of local economic trading schemes is that it is the middle classes who simply swap macrame lessons for baby-sitting, not the hard core unemployed.
  (Mr MacGillivray) One of the things we are really trying to do with this study is, if you like, to move the debate beyond questions around access to the internet. Government is doing some great things in this area. In the report yesterday, the Prime Minister's target for 2005, there is some great activity going on but social exclusion in e-commerce is not just about making sure everyone has a PC in their local library. We are interested in looking at how e-commerce affects quality of life in a more general sense, the opportunities that this technology provides to change the planning system, to create new forms of settlement, new types of cities, to cut congestion, to cut childhood asthma—these second order effects that are not actually directly to do with the technology. The technology, if you like, is a means to an end but it is not an end in itself and currently, certainly in terms of the strategy from Europe and a lot of the material coming out of the UK government, there is an understandable focus on the immediate horizon which is to maximise the number of people in our society who can use this material and who can get the immediate consumer benefits, if you like, from logging on. We want to look five/ten years beyond that at what the rebound knock-on effects are for society.

Lord Skelmersdale

  599. Can I try and marry up the two questions and ask all three of you, given that business-to-business e-commerce has grown exponentially over the last five to seven years and that business-to-consumer has failed by comparison, what should either the British government or the European Community itself do to facilitate that? In other words, what are the inhibitions and how should we deal with them?
  (Mr Tutcher) It is our belief that government has a very pivotal role to play in what is going on. I think those people involved in e-commerce to some degree, particularly the entrepreneurial community, consider government to be almost an irrelevance; they are going to just go and do whatever they do, but it has a much wider impact for all those people who are not true entrepreneurs at this moment, in areas like skills and education. The government has laid down or is starting to lay down some targets in terms of what each school child should come out with in terms of literacy and numeracy and in relation to IT as well. I am not sure whether those targets accurately or truly reflect what an employer wants when somebody comes out. I do not think those targets are quite as explicit as saying, "This child can create a web site, can create something that could facilitate e-commerce", for example, and there may need to be explicit targets along those lines that are easily measured and have direct relevance to the areas we are talking about. A classic example is India. India today is becoming a real software powerhouse and it has effectively come from nowhere to do that. There is a huge amount of investment—and Sun is one company—because (a) they are very good at doing what they are doing and they are very highly educated and (b) the cost of the work force today is not that high, although it is growing pretty rapidly, so we will get to the point where some of those trade-off decisions are being made about where investments are going, but the primary one is the quality of the education and the quality of that person coming out.


 
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