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Top>Opinion>The Bright and Dark Sides of Internet Economics


Yoji Taniguchi

Yoji Taniguchi [Profile]

The Bright and Dark Sides of Internet Economics

Yoji Taniguchi
Professor, Faculty of Economics, Chuo University
Areas of Specialization:
Economic Policy, Public Economics, Internet Economics, and the Chinese Economy

ICT Innovation

Under the leadership of Vice President Gore, the Clinton Administration-which was formed in January 1993-promoted Science and Technology policies, such as creating a nationwide base for Information and Communications Technology (ICT), expanding the possession and use of ICT devices, and the like. From the mid-1990s onward, the use of the internet suddenly spread dramatically, with the establishment of this base for ICT. Innovation in ICT was an important part of the background to this development.

Considered as two elements, ICT can be divided into: IT (Information Technology) and CT (Communications Technology). Regarding the CT aspect, while on the one hand the prices and fees for communications services and communications devices fell due to market competition and technological progress, the speed of communications improved at an accelerating rate. In terms of IT, there were factors such as the expansion and spread of low priced PCs (personal computers), peripheral devices and browsers (browsing software), the advent of Windows 95 and its spread across the world, and the emergence of internet companies such as Yahoo, Amazon, eBay, and the like, as well as their rapid growth. In this way then, the internet first spread through America given its background of innovation in IT and CT, and then rapidly spread and expanded infectiously through Europe and Asia and to the rest of the world.

As a result, now, internet connections via mobile phones and PCs, and above all, permanent connections of PCs to the internet have become run-of-the-mill. The internet, which can now be used by anyone, anywhere, and at anytime, has permeated into society even more deeply than the automobile, and it has dramatically changed the ways in which business and communications are conducted.

The Spread of E-Commerce in the US

The purchase of products and services online has increased together with the spread and expansion of the internet. As represented by the typical example of downloading music data from the internet for a fee, many people are now using net shopping services. Moreover, since the shock caused by the bankruptcy of Lehman Brothers in the latter half of 2008, amid stagnant consumption and retail sales, e-commerce via networks has been showing relatively sound growth, and since the net fever generated in the latter half of the 1990s, it has recently been gaining considerable attention once again.

In America, since March 2000, the United States Census Bureau of the Department of Commerce has been publishing its formal statistics on e-commerce. According to these formal statistics, the percentage of total retail sales made up by e-commerce is showing a growth trend, and has grown from 0.6% in the 4th Quarter of 1999 to 4.1% in the 2nd Quarter of 2010 ( window). On a yearly basis, this means that e-commerce represents almost 0.2 trillion dollars, compared to total retails sales of 4 trillion dollars.

When you hear that e-commerce represents only around 4% of total retail sales and about 0.2 trillion dollars (equivalent to 17 trillion yen), you may think this shows that e-commerce has yet to become mainstream. But the figures collected for e-commerce by the United States Census Bureau are limited to those for the retail industry, and these figures do not include transactions made in terms of travel services, financial mediation, ticket sales, real estate trading, etc. Moreover, purchases of household appliances from mass merchandise outlets based upon information collected on the internet would not be included in the US statistics for e-commerce. In this way, then, depending on the definition applied, the actual scale of e-commerce could potentially be extremely large indeed.

The Spread of E-Commerce in Japan and China

E-commerce refers to transactions made on computer networks, centered mainly on the internet, and the parties to the transactions can be divided into the following classifications: transactions between companies and consumers (B2C); transactions between two different companies (B2B); transactions between companies and employees (B2E); transactions between two different consumers (C2C); transactions between the government and companies (G2B); transactions between the government and consumers (G2C), etc. The United States Census Bureau's statistics for e-commerce cover only a part of B2C.

In contrast, the "Survey on Actual Condition and Market Size of Electronic Commerce," which has been conducted in Japan by the Ministry of Economy, Trade and Industry since fiscal 1998, covers not only B2C but also B2B. Moreover, it also publishes its figures using both a narrow definition of e-commerce as transactions which use internet technology, as well as using a broader definition of e-commerce to include transactions which use a means other than the internet, such as VANs (Value Added Networks) or dedicated lines, etc. According to the data for 2009, published in July 2010, the broadly defined B2B represented 205 trillion yen, while the narrowly defined B2B represented 131 trillion yen, and B2C represented 6.7 trillion yen ( window).

E-commerce is likewise booming in China, and the scale of the B2B market in 2009 was 3.28 trillion yuan (over 40 trillion yen), while the combined market scale of B2C and C2C was 260 billion yuan (over 3 trillion yen), and it is estimated that in 2010 the total of these will reach 4.28 trillion yuan (over 50 trillion yen) ("2010 (I) Chinese e-commerce market data Monitoring Report," edited by China Electronic Commerce Research Center, published on August 5, 2010; " window). Along with the growth of e-commerce in China, powerful internet companies such as Alibaba (for B2B), Taobao (for B2C and C2C), Ctrip for travel services, and Tencent for games and messenger services (QQ Services), etc. have emerged.

The Increase in Convenience and Risk

With the spread of the internet and e-commerce, it has become possible to operate a terminal from your office or home or any location outside and purchase products and services on the spot, which has greatly improved the convenience of both business and everyday life.

In economic terms, e-commerce via the internet has significantly reduced the transaction costs involved, and it seems almost as if it has eroded brick-and-mortar business. However, it is still very rare to see cases where the business is being conducted solely on the internet, and the mainstream comprises click-and-mortar business, which blends both e-commerce (click) and a physically existing shop (mortar). In terms of consumers too, while many also use net shopping, they also make purchases on a daily basis at brick-and-mortar businesses.

It is not, however, just convenience which has been improved with the spread and expansion of the internet and e-commerce; risk (danger) has also been dramatically increased. This is not limited just to acts of fraud in internet auctions, but it also extends to the defamation and abuse of individuals and companies using message boards, illegal copying and downloading of intellectual property, phishing frauds which cleverly extract personal information from innocent users and inflict severe damage, and cracking, involving dishonest infiltration of networks and tampering with data, etc., all of which far exceed the breadth of methods used and extent of damage that can be caused by bank transfer scams. But in spite of all this, to what extent are we, and to what extent is the government, really taking measures to ensure safety and peace of mind?

Aren't most of us stingy about paying up a few thousand yen for anti-virus and firewall software (for network protection), lazy about conducting regular updates of this sort of software, careless about browsing dangerous websites, and cavalier about installing software that we know nothing about? In addition, when we use internet shopping, do we really make sure that we have obtained sufficient information to determine the credibility of the other party before making a transaction?

Responding to the Ubiquitous Society

The Ubiquitous Society-a society with network access for everyone, anyplace, anytime-is in fact certainly not the great idealistic dream world of the future that it might seem to be. The reality of the Ubiquitous Society is a society where a malicious act by a single criminal (for example in making a virus or perpetrating phishing fraud) can, with the single click of a single user who has no basic knowledge about the internet, spread across the world and potentially inflict an enormous amount of damage. Moreover, the Ubiquitous Society is a society in which your personal information is being used in places where you do not know that it is happening, and you are being talked of by others beyond your control, for better or for worse.

When asked about who the pioneering and leading edge users of networks are, most of us probably think of technology-based companies or financial institutions such as banks, securities companies, and insurance companies. But we must not forget that a great number of criminal groups must also be included among these pioneers. In order to avoid falling prey to such criminal groups, we must ensure that we protect ourselves with at least the minimum level of basic knowledge about networks. In addition, together with establishing common rules for using networks, it is also necessary to ensure that a proper legal system is established for the appropriate punishment of persons committing criminal acts. At any rate, the current level of response to this sort of risk, both in Japan and across the rest of the world, is far from being sufficient.

Furthermore, looking every day at the vast number of emails which are sent without specifying the addressee, name, or sender's name, one is reminded not only of the lack of concern about risk and the low levels of defense against this risk, but also of the declining standard of morals and manners. If ordinary postal mail was sent without specifying the addressee's name or the name of the sender, without a doubt, most people would be suspicious. But in the case of emails, do people really think that it is acceptable to rudely send messages without including recipients' names or even their nicknames? Do people not even consider the possibility of spoofing?

A Ubiquitous Society plagued by risk and immorality would actually be a highly stressful society to live in. We must give due consideration to the important theme of exactly the sort of Ubiquitous Society we would like to achieve.

Yoji Taniguchi
Professor, Faculty of Economics, Chuo University.
Areas of Specialization: Economic Policy, Public Economics, Internet Economics, and the Chinese Economy.
The Author was born in 1952 in Toyama Prefecture. He completed the course requirements of the PhD course in Economic Policy at the Waseda University Graduate School of Economics, and holds a PhD in Economics. He served as a Lecturer and Assistant Professor at the Tokyo Fuji University Junior College, and as an Assistant Professor and Professor at Reitaku University, before attaining his current position as Professor on the Faculty of Economics at Chuo University. From 2005 to 2007, he did research abroad at the Shanghai Jiao Tong University, China, and at University of California Center Sacramento (UCCS), USA
[Affiliation to Academic Societies]
The Japan Economic Policy Association (Standing Director); The Japan Association for Planning Administration (Standing Director); The Japan Public Choice Society (Director); The Transcultural Management Society (Director); CIRIEC Japan (Director); The Japanese Economic Association; and The Japan Association of Local Public Finance.
[Main Research Achievements (In Japanese)]
"Public Economics (Kokyo keizaigaku)," (Soseisha, 1993).
"America's E-Commerce Policy (Beikoku no denshi torihiki seisaku)," (Soseisha, 2000).
"Economics and Government in the IT Revolution Age, (IT kakumei jidai no keizai to seifu)," (Co-authored; Bunshin-do, 2002).
"Modern Economic Policy (Gendai keizai seisaku)," (Co-authored; Bunshin-do, 2007).
"A Dictionary of Modern Asia (Gendai ajia jiten)," (Co-authored; Bunshin-do, 2009).
"The Issue of the Disparity between the Rich and Poor in Modern China (Gendai chugoku no kakusa mondai)," (Co-authored; Doyukan, 2009).
"Asian Economic Development (Ajia keizai hatten ron)," (Co-authored; Bunshin-do, 2010).