Fergus Cassidy

Slow train coming

BUYING a secondhand car used to be one of the scariest and dangerous moments when it comes to parting with hard-earned cash. 'Buying a secondhand car is just buying someone else's problems', goes the friendly advice - usually proffered by those who drove a new one. Even getting a mechanic to look at the car wouldn't fully calm squeamish nerves. There's always the fear that sooner or later, usually at the worst possible moment, the car will duly reveal 'someone else's problems', which then become the new owner's.

The real problem with buying something like a used car is that the seller is at a big advantage. He/she knows what the car is like. How it was driven and cared for. The classic 'one elderly owner, only drove to the shops' might well be true, but there is no way of knowing that for sure. And if someone is volunteering information about a small problem well... are there more?

Economists (as they do) have developed theories on just such situations. And not just any old economists. Michael Spence shared the 2001 Nobel Prize in economics with Joseph Stiglitz, a former chief economist at the World Bank.

These guys are among the main brains behind asymmetrical information thinking. Bluntly, it's the used car analogy. The buyer has information about the car that the seller doesn't have. Insurance is another area where this crops up. The person or company looking for insurance knows the full extent of their potential liabilities but the insurer must figure those liabilities out using their own resources. Economists are looking at examples like these because they're beginning to take a deeper look at the role and importance of information.

Seeing as this is the 'information age', that might seem pretty obvious territory for economists, but it's not dotcom or internet business models that they're after. They're taking the used car analogy and expanding it further into the wider world of business and economics. Examining the consequences on markets when buyers and sellers do not share the same knowledge.

Information is the heartbeat of the stockmarkets. Shares can be bought or dumped and fortunes made or lost, for the price of phone call. But a lot of the information that these deals require is not bandied about on electronic networks. The internet is a great vehicle for reporting the information of what happened after the event.

Nothing much has changed over the first few years of the digital age and the new millennium. Well nothing remotely close to the visions and prophesies of the futurists. The portrait of a fast-approaching world of seamless communication and avatar-guided lifestyle remains very much in the realm of science fiction.

Things just don't move that fast. Human beings are not built that way. In a thousand years time maybe, but that's for those citizens, or whatever they are going to be called, to worry about. We are still very good at getting technology to adapt to us and not the other way around.

Mobile phones are a prime example. When the first ones were around they were symbols of status and importance for some but were ridiculed by the majority. Then they became accepted as an importance tool for doing business before finally winding up in poor Santa's overloaded sack. Mobile phone technology was shaped by people, not vice-versa. How else would text messaging have reached such dizzying heights in such a short time?

But that adaptability seemed to weaken over the last few years as the hype surrounding internet-related technologies added fuel to the fires of uncertainty. A brave new world was rapidly and unstoppably approaching. Once the hype reached the floors of the world's biggest stockmarkets, the floodgates were opened. Throw in a new millennium and maybe the information age was indeed going to carry us all off to god knows where.

For a while it worked. The hype sellers had information that buyers had not got. They were selling tickets on a digital Orient Express at a time when the tracks were still being laid. The new economy was based on using the money from those ticket sales to lay the track which would then carry the trains. The trains were the big money and anybody in from the start would be travelling first class. The buyers bought their tickets, stood on the platform and waited. Finally, the stockmarket bubble burst and all trains were cancelled.

Since then, some economists have predicted that it will take a decade or more for the stockmarkets to recover their value of six or seven years ago. In a post-dotcom depression it would take a brave economist to revisit the internet-based economy.

Michael Spence may be sticking his head above the parapet right now, but winning last year's Nobel Prize for economics does provide some protection from the slings and arrows. Spence is keen to re-focus attention on the internet. "The growth potential is staggering if your time horizon is 10 to 20 years, and it may take longer than that. I believe it will occur over several decades at an accelerating pace", he told the audience at the University of Toronto last week.

Views like this give a truer impression of how network-based technologies, such as the internet, will influence and shape society. Slowly. Spence highlighted the clues provided in hindsight by the birth of previous technologies like the telephone or the car, and said that "the mistake is to think that people will change their behaviour overnight in response to a new idea".

And measurement of the speed of that change can be brought back to that secondhand car. The seller might know that the car is a turkey and the buyer doesn't. But access to an evolving technology like the internet can begin to tilt the scales as people use it to communicate and pass on information in ways they never could before. Before heading out to the forecourt of foreboding, anyone looking for a secondhand car can be forearmed.

Comparisons can be made; reviews can be read posted by people who owned similar cars and have experienced the joys or otherwise; common faults can be checked out; dealerships can be examined, again by reference to other peoples' experiences.

When economists start to examine markets that work badly - or not at all - because of asymmetrical information, they place central importance on the fact that buyers and sellers do not share the same knowledge. And wondering what the consequences are when those relationships are changed.

That's when things move up a gear.