A New Start

FT: Children of the credit revolution

Children of the credit revolution

By Samantha Pearson

Published: July 8 2009 22:43 | Last updated: July 8 2009 22:43

Andy Slater, a 22-year-old delivery driver in London, appears oblivious to the fact that the UK is suffering its worst recession since the second world war.

“You gotta have new trainers ain’t you? Nike, Adidas, Lacoste – whatever looks good,” he says, eyeing up the latest models in the Westfield shopping mall in west London.

He is not alone in his opinion. In a survey conducted by the US-based Westfield group in May, 70 per cent of its shoppers aged between 18 and 35 said they were spending the same or more on clothes and eating out.

Slaves to fashion and free of most financial commitments, young people have kept spending in economic downturns when others have cut back. But today’s younger generation is particularly flush with cash and, after growing up during the credit boom, spending is deeply ingrained.  

As a result, retailers geared towards the youth market – particularly clothing chains – have been basking in their good fortune.

Fashion retailers JD Sports, New Look and Primark all reported double-digit sales growth this year and the internet-based Asos doubled its profits to £14.1m ($22.6m, €16.3m) in the year to March. In the US, Hot Topic, which sells music merchandise to teenagers, reported a 19 per cent increase in fourth-quarter profits and Buckle, another youth-focused fashion chain, has recorded double-digit monthly sales growth over the past year.

TNS, the consumer research group, says that while under-35s spend 30 per cent of their total clothing budget on discounted items, all other age categories spend 35 per cent.

Why young Brits love spending on fashion

It’s official: young adults in Britain are among the most fashion-obsessed in the world. JWT, the US-based advertising agency, asked 18- to 29-year-olds in the UK, the US, Brazil, Canada and Australia which items they would never cut back on, no matter how bad their finances were. Brits ranked “buying new clothes” as fourth on the list – higher than any other country in the poll. Above that, they prioritised the internet, mobile phones and satellite television. While young people in the US also said they could not do without home entertainment, they ranked alcohol consumption as the fifth most cherished area of spending. Brits put boozing at only 16 on their list.

The Canadians and Australians favoured going out to see movies and sports events while half of Brazilians said paying for college was their most important outgoing.

All nationalities agreed they could probably do without magazine subscriptions, taxis and paying to download music.

In an effort to ingratiate itself with its most lucrative customers, Westfield’s London shopping centre is planning an indoor summer festival, including indie punk bands and Nintendo Wiis. Even Liberty – more often known as purveyor of paisley patterns to the middle-aged – is having a go. The luxury department store has teamed up with Nike to create a range of vintage floral basketball shoes and roped in Kate Moss and Topshop to design dresses.

“We had to refresh and bring in a new crowd,” says Geoffroy de La Bourdonnaye, Liberty’s chief executive. “The youth don’t like arrogance or stiffness.”

One explanation for young people’s increased spending power may be that they are living with their parents for longer or choosing to rent rather than buy.

“If you don’t have a mortgage, you’re not going to be so worried about losing your job,” says Andrew Wade, a retail analyst at Numis investment bank. It is fear of unemployment, rather than unemployment itself, that stops people spending and encourages them to save more, he says.

For the British, growing up during 16 years of uninterrupted economic growth has also had an effect, by giving the young an “innate sense of entitlement”, according to JWT, the US-based advertising agency.

“If you see something that you like, then you’re going to get it, yeah?” says student Sattar Mozafari as he walks out of the Westfield outlet of HMV, the entertainment chain, computer game in hand.

You no longer need to be born with a silver spoon in your mouth to get what you want: a credit card in the back pocket will do.

This generation has grown up watching back-to-back adverts for unsecured loans, learnt the art of financial leverage before tea-time thanks to television programmes such as Property Ladder, and is used to being offered store cards every time they get to the check-out.

The credit-boom babies are programmed to buy, buy, buy and it seems the credit crunch may not be enough to break the habit. In fact, credit card spending has risen every month since the start of this year, according to figures from the UK Card Association, and is down less than 3 per cent from 2008.

But, above all, young people’s determination to keep spending comes down to the simple fact that consumerism is cool.

In 2003, “bling-bling” earned a place in the Oxford English Dictionary, defining an era of popular culture based on unashamed materialism.

While past youth movements – from hippies to ravers – rejected capitalist consumerism, the urban music scene made ostentatious signs of wealth not only acceptable but highly desirable.

Cash is for flashing, gold is for hanging around your neck and, in the words of New York rapper 50 Cent, life is there to “get rich or die tryin’”.

However, just as retailers are trying to court this market by learning how to get down with the kids, there are some signs that young shoppers are beginning to change their ways.

Last week, Nick Robertson, Asos’s chief executive, was surprisingly gloomy for a man who had just seen his company’s profits double.

“Young people are going to come under pressure too and, if you ask me what my health-check on retail over the next 12 months is, well, I’m saying it’s not good. I don’t see any green shoots at all.”

Certainly, the dire outlook for youth unemployment will test the resolve of the most blasé of spenders and young people may soon be forced at last to tighten their belts – even if does mean covering up those Calvin Klein boxer shorts.

Employment agency Reed says: “For students looking for summer work this year, it’s almost impossible for them to find anything. They’re competing against people who have been made redundant who are already quite experienced.”

The “bling culture” may also be losing its sparkle as anti-globalist sentiment gains momentum in the recession. The G20 protests in March and the bubbling resentment over bankers suggest brazen affluence is already something to be coy about or even ashamed of and the “green” movement may soon put a damper on “consumer chic”.

Rupa Huq, a lecturer on cultural studies at London’s Kingston University, says: “Youth culture today is crucially plural. While there is the bling generation present, who attach importance to labels culture and conspicuous consumption, the past 10-15 years has also seen the development of an anti-consumerist movement which has the potential to be huge in recessionary times.”

Copyright The Financial Times Limited 2009

FT: Our banks are beyond the control of mere mortals

Our banks are beyond the control of mere mortals

By John Kay

Published: July 7 2009 18:22 | Last updated: July 7 2009 18:22

At Oxford university, I often hear people say there is nothing wrong with the system: the problem is the vice-chancellor/master/bursar/ university officials. And, in a sense, they are right. If the vice-chancellor had the wisdom of Socrates, the political skills of Machiavelli and the leadership qualities of Winston Churchill, not to mention the patience of Job, he or she would be very likely to be able to fulfil the conflicting demands of the post. But such paragons are few and far between. In the meantime we must try to find structures that can be operated by ordinary mortals.

In the same way, the claim that the fault with the banking system lies not with the structure of banks but with the boards and executives that claimed to run them is both correct and absurd. In one sense, the claim is correct: boards and executives did not successfully perform the tasks assigned to them – tasks that not only did they claim to be discharging, but for which they frequently paid themselves very large sums of money.

But, in another sense, the claim is absurd: if the failures are both as widespread and as persistent as it appears, the problem is in the job specification rather than with the incumbent. If you employ an alchemist who fails to turn base metal into gold, the alchemist is certainly a fool and a fraud but the greater fool is the patron.

The bank executives pilloried by the UK’s Treasury select committee of MPs were all exceptional people. The vilified Sir Fred Goodwin was an effective manager who had slashed through the National Westminster bureaucracy and revived a failing institution – a task that had defeated many able men before him. His chairman, Sir Tom McKillop, offered experience and ability that met every possible specification for such a role in a big international corporation. As chairman of HBOS, Lord Stevenson was Britain’s supreme networker. This skill is a particularly valuable attribute in an environment where the essence of banking is to extract very large sums of taxpayers’ money while giving as little as possible in return. His chief executive, Andy Hornby, was criticised for being a retailer. But Halifax, half of HBOS, needed retail expertise. The only thing it needed to know about complex securitised products was that there was no good reason to buy them.

Like Sir Fred, Sir Tom, Lord Stevenson and Mr Hornby, most of the people who sat on the boards of failed banks were individuals whose services other companies would have been delighted to attract. If there was a problem of board composition, it is not an issue just for financial services companies but for the UK corporate sector as a whole. Perhaps there is such a problem, but the restructuring of financial services will not wait for its identification and solution.

The hapless four were criticised for their lack of banking expertise but it is, in fact, not clear what modern banking expertise is. The world of modern banking requires all the skills of these gentlemen, plus some others, and no one can expect to have all these attributes.

It has been said of Jamie Dimon (who does not have a banking qualification) that his dominance exists because at every meeting all the participants know that he could do each of their jobs better than they could. But the business world cannot operate at all if it can operate only with individuals of the calibre of Mr Dimon. Better, as so often, to follow an aphorism of Warren Buffett’s: invest only in businesses that an idiot can run, because sooner or later an idiot will.

Our banks were not run by idiots. They were run by able men who were out of their depth. If their aspirations were beyond their capacity it is because they were probably beyond anyone’s capacity. We could continue the search for Superman or Superwoman. But we would be wiser to look for a simpler world, more resilient to human error and the inevitable misjudgments. Great and enduringly successful organisations are not stages on which geniuses can strut. They are structures that make the most of the ordinary talents of ordinary people.

johnkay@johnkay.com

Post and read comments at www.ft.com/kay

Copyright The Financial Times Limited 2009

FT: DIY fanatics find a cyber showcase

DIY fanatics find a cyber showcase

By David Gelles

Published: June 29 2009 22:40 | Last updated: June 29 2009 22:40

Eric Wilhelm was studying for his PhD in mechanical engineering at the Massachusetts Institute of Technology in 2000 when he decided that he needed an athletic pursuit. So he took up kite surfing, a sport that was then in its infancy.

Because kite surfing was so new, there were no established manufacturers producing reliable equipment. So Mr Wilhelm decided to make his own. He began sewing kites from rip-stop nylon and crafting boards from plywood. “It’s a perfect sport for an engineer,” he says. “You can build all your own gear.”

Mr Wilhelm posted instructions and pictures of his craftsmanship on his personal web page. It soon gained a following, and readers e-mailed to ask where they could find documentation of similar projects.

The website evolved into Instructables, a San Francisco-based portal, and Mr Wilhelm is its chief executive. The business employs 10 and registers 5m unique visitors a month. The site, Mr Wilhelm explains, serves as a sort of collective repository for creative types who want to show off their wares.

More broadly, Instructables is a symbol of the latest evolution of a do-it-yourself culture of invention that has been the lifeblood of California’s Silicon Valley high-technology industry. Apple, Google and Hewlett-Packard are just three global companies that began with a couple of creative tinkerers experimenting in a garage.

From the garage to the
multi-national boardroom

Silicon Valley gave birth to some of the world's biggest brands

● In 1938, Bill Hewlett and Dave Packard rented a garage in Palo Alto. With $538 in working capital, they began work on an audio oscillator. The gadget would become Hewlett-Packard's first product. Today, HP is the world's largest maker of personal computers and the garage where it all began is a museum.

● Thirty-eight years after HP was born, another pair of aspiring technologists got to work down the road. Steve Jobs (above) and Steve Wozniak started work on the original Apple computer in the Palo Alto garage of Mr Jobs's parents in 1976. They soon moved out, but today Apple's sprawling campus remains nearby.

● As the dotcom bubble was swelling in 1998, Larry Page and Sergey Brin, both just 25 years old, rented a garage in Menlo Park from Susan Wojcicki. There they founded Google, which in 10 years grew to become one of the world's largest technology companies. Ms Wojcicki became Google's vice-president of product management and Mr Brin eventually married her sister Anne.

The new DIY tech culture is made up of a loose-knit group of computer geeks, arts-and-crafts fans and whimsical sculptors and is enjoying a mainstream renaissance, thanks in part to television programmes, magazines and festivals that celebrate the quirky culture of making.

It has also been enabled by the connectivity of the web, with sites such as Instructables acting as online hubs for adherents to find each other and exchange ideas.

“When you build something at home, you put it on the coffee table so people who come over can see it,” says Mr Wilhelm. “We’ve put that coffee table on the web.”

The decentralised nature of the DIY tech culture makes it hard to value it, and there are no estimates of how much it is worth. Yet with hundreds of thousands of enthusiasts around the globe, it is a potentially lucrative market for those who can tap it.

Indeed, scattered among the creative spirits are would-be entrepreneurs who are trying to open up the manufacturing process to encourage innovation and lower the costs of the research and development.

The biggest annual festival for the community is the Maker Faire, held at the San Mateo County Expo Center in the heart of Silicon Valley.

At this year’s Faire, held one weekend last month, more than 65,000 people showed up to admire interactive sound sculptures, handmade carnival rides and fountains made from Diet Coke and Mentos.

In one aircraft-hangar-sized hall, attendees took turns building their own alarm clocks and reliving their childhoods in a giant pen filled with Lego.

Nearby, petrolheads admired a finished version of the all-electric Tesla Roadster and a stripped-down version of the car exposing its battery and chassis.

Bre Pettis is the founder of MakerBot Industries, which sells affordable 3D printers. While most 3D printers cost anywhere between $25,000 and $250,000 Mr Pettis sells his, which can create nearly any three-dimensional form of 4sq in or smaller, for a mere $750.

Users of MakerBots simply create or download a 3D computer file using one of several prog­rams, then set the machine to work. The MakerBot takes spools of spaghetti-like plastic, heats it to 2000C and squirts it out in the desired shape. Already the MakerBot has been used to make missing parts for electronics and the casing for new flashlights.  

“It changes the way you live,” says Mr Pettis, “from being a mindless consumer to being a creative participant in the marketplace.”

After just two months Mr Pettis (pictured) has sold 60 printers, half of them to clients outside the US. “We originally had the idea that we were going to revolutionise American manufacturing, but it’s global,” he says.

Maker Faire

The biggest annual festival for the community is the Maker Faire, held at the San Mateo County Expo Center in the heart of Silicon Valley. At this year’s Faire, held one weekend last month, more than 65,000 people admired interactive sound sculptures, handmade carnival rides and fountains made from Diet Coke and Mentos.

Indeed, in March the UK held its first Maker Faire in Newcastle, in the UK. According to the organiser, Ian Simmons, science communications director at the Newcastle Centre for Life, about 5,000 people attended the event. “It’s really coming up in the UK,” he says.

At the Maker Faire in San Mateo, Mr Pettis was set up in a warehouse mostly occupied by the crew from TechShop, a well-appointed community workshop founded two years ago by Jim Newton in nearby Menlo Park.

For $100 a month, tinkerers are given access to plasma cutters, welding tools and industrial lathes.

Members have created everything from homemade electrical scooters inspired by the Segway to remote-controlled video-conferencing robots.

Mr Newton says TechShop is a second home for aspiring inventors in need of a community. “They come to TechShop because they have the drive to be a maker but they can’t afford the tools themselves,” he says. “You always can find people to talk to about your project.”

TechShop is also a growing business. Mr Newton is finalising a $2.5m round of investment in the private company, and has opened franchises in North Carolina and in Oregon. The company declined to discuss its revenues.

The DIY community even has its own method of commerce. While most of the wares produced by makers never see the inside of retail stores – small volumes make wide distribution impractical – there are ways to consume a bit of the culture.

Etsy, an online marketplace for handmade goods, based in New York, has become the community’s Ebay. Makers and non-makers alike can buy anything from a handmade rechargeable light-seeking robot ($55) to a hand-carved footstool in the shape of an elephant’s foot ($280).

Most often it is the maker doing the selling, and buyers are encouraged to get to know the craftsman.

“It’s a different way of shopping,” says Adam Brown of Etsy. “You meet the people and hear the stories behind the items.” Etsy is not yet profitable but he says it is on the path to making money soon.

But isn’t there something incongruous in a profit-seeking marketplace for specialised goods that are supposed to be the antidote to big box shopping? Herein lies the paradox of the DIY tech ethos: much as it would like to escape the confines of the throwaway economy, it cannot exist too far outside consumer culture.

Mr Wilhelm of Instructables does not see a conflict. The DIY movement, he says, “is not anti-capitalist...It’s a backlash against mass market. It’s not like everyone who does DIY is a communist.”

Copyright The Financial Times Limited 2009

FT; Man in the News: Arnold Schwarzenegger

Man in the News: Arnold Schwarzenegger

By Matthew Garrahan

Published: July 3 2009 19:01 | Last updated: July 3 2009 19:01

When Arnold Schwarzenegger sat down at his desk in Sacramento this week the California governor displayed a steeliness that even the Terminator, his most famous film character, would have admired.

Mr Schwarzenegger’s state this week started its new fiscal year amid its worst financial crisis, as its deficit ballooned to $26bn. Yet, rather than sign a bill that California’s Democrats were pushing as a short-term answer to the state’s woes, he vetoed the proposal as soon it arrived in his office. As a result, the home of Hollywood, Silicon Valley and America’s biggest agricultural crop has edged closer to fiscal meltdown.

EDITOR’S CHOICE

Editorial: The tarnished state - Jul-03

Lex: Cashless California - Jun-29

Deficit forces California to issue IOUs - Jun-29

Schwarzenegger puts case for IOUs - Jul-02

Editorial: The Golden State - Jun-26

Editorial: California dreamin’ - May-20

Funding is about to be slashed for key public services, while IOUs worth $3bn are being issued to people and companies owed money by California. Public employees were this week told to take three days of unpaid holiday each month and state-funded programmes that help the elderly, disabled and jobless are under threat.

Yet the cigar-loving Republican has not wavered. Fed up with California’s unwillingness to live within its means, he is insisting that cuts in wasteful spending and a broad streamlining of government form the basis of any budget agreement.

In rejecting recent proposals from the California legislature as mere “partial solutions”, the former movie star has set the scene for the most tumultuous period of his political life.

Friends do not doubt his ability to pull California out of the mire. “There has been no challenge in his life that he hasn’t been able to overcome,” says Robert Earl, who founded the Planet Hollywood restaurant chain with Mr Schwarzenegger and fellow action stars Sylvester Stallone and Bruce Willis.

Colleagues express similar faith in Mr Schwarzenegger, whose poll ratings have tumbled as the crisis has intensified. “The thing that makes him so effective is that he’s not afraid to fail,” says Susan Kennedy, his chief of staff.

She points to his overwhelming 2005 defeat in a series of special ballots on his plans to reform pensions for state workers. “He went for broke and he failed spectacularly,” she says. “But the day after he picked himself up and told voters: ‘I heard you’. My jaw dropped – I had never seen a politician do that.” She cites his success in bringing in tough new car emissions standards, copied by the Obama administration, as a sign of his ambition.

She has Mr Schwarzenegger to thank for her love of cigars, with the pair often lighting up in the smoking tent outside his Sacramento office, where they chew over the issues of the day. “He got me hooked,” she says.

Like many of the governor’s closest confidants, Ms Kennedy is a Democrat. In a sign that Mr Schwarzenegger is not cut from the same political cloth as neocon Republicans, she is also openly gay.

Maria Shriver, Mr Schwarzenegger’s wife, and a member of the Kennedy dynasty, and David Crane, his chief economic adviser, are also Democrats. Mr Crane became a friend 30 years ago, when Mr Schwarzenegger, once dubbed “the Austrian Oak”, was known for his bodybuilding rather than his acting or political careers.

“The governor and I had these vigorous discussions about economic policy ... even though I was a Democrat we basically agreed on everything.”

It was the turn of the 1980s and Mr Schwarzenegger was embarking on a movie career, starring in muscle-bound action films such as Conan the Barbarian and Commando. According to Mr Crane, he was also a keen student of Milton Friedman during this period.

In the intervening time, Mr Schwarzenegger “fleshed out his political views”, says Mr Crane. But even 30 years ago his political ambition was striking. “I could have told you then that he would run for office one day.”

Away from politics, Mr Schwarzenegger likes to paint. He used to own a restaurant near Venice Beach, and loves food. “At lunch today he remarked that the chef had made something that he dreamed up,” says Mr Crane.

Mr Schwarzenegger always sets aside time to “relax and think and talk”, Mr Crane says. But he shies away from the glitzy Hollywood party set and has the same circle of close friends he had 30 years ago. He and Ms Shriver have four children – their eldest daughter just started at the University of Southern California – and the family is a fixture in the Los Angeles community.

Mr Schwarzenegger says he fell in love with politics in 1968. He had arrived in the US from his native Austria to pursue a bodybuilding career, when he heard Richard Nixon speak. “He sounded like a breath of fresh air,” he told the Republican convention in 2004.

He is unafraid to stir up controversy – he once called political opponents “girly men” – but this seems to be simply a fondness for speaking his mind, rather than a deliberate attempt to shock. Two years ago he told an interviewer that he had never taken drugs, despite having been filmed smoking marijuana in a 1970s bodybuilding documentary. “That’s not a drug,” he told GQ magazine. “That’s a leaf.”

He often jokes about his willingness to work with opponents. In the twilight of George W. Bush’s presidency he was one of a handful of Republicans saying the party had to find common ground with Democrats. “It can’t be that hard,” he said in one speech. “I sleep with a Democrat every night.”

Despite his past willingness to work with Democrats, in recent days he has refused to budge.

This is Mr Schwarzenegger’s sixth year as California governor, so at the end of 2010 he will have to leave office under term limits. With 18 months left, some critics have dubbed him a lame duck, following the rejection by voters in May of a string of proposals he had hoped would restore the state to fiscal health. That defeat seems to have hardened his approach to the crisis.

“The first priority is fixing the budget but it seems as though the governor’s priority is fixing his legacy,” says Karen Bass, speaker of California’s state assembly. “I understand his concern, but for God’s sake, we need to deal with what we have right now.”

Mr Schwarzenegger disagrees. “The state and its people have to make major sacrifices,” he told the FT recently. “There are no two ways about it.”

Copyright The Financial Times Limited 2009

FT: Free does not live up to its billing

Free does not live up to its billing

By John Gapper

Published: July 2 2009 03:00 | Last updated: July 2 2009 03:00

Chris Anderson has built a career out of making bold pronouncements that the economics of Silicon Valley - the way in which software and digital technology are built and distributed - are likely to spread to, and ultimately conquer, the rest of the economy.

His first claim, in The Long Tail: Why the Future of Business is Selling More of Less , was that consumption patterns were being fundamentally altered by the plentiful and cheap shelf space provided by digital technology. Instead of most dollars being spent on hits, consumption would instead skew towards thousands of niche products.

Now Mr Anderson, editor-in-chief of Wired magazine, has followed that up with Free: The Future of a Radical Price , a manifesto for giving away products to consumers rather than charging for them. He writes: "There really is a free lunch. Sometimes you get more than you pay for."

The obvious criticism of Mr Anderson's work is that, as Mandy Rice-Davies said of Lord Astor's denial of an affair with her: "Well, he would say that, wouldn't he?"

Wired is a West Coast magazine, grounded in Silicon Valley's software culture, where companies such as Apple profit from the free availability of "content" that runs on their far-from-free hardware.

Silicon Valley, and particularly Google, has a brutal variation of King Gillette's razors-and-blades business model. According to this theory, the razor is sold cheaply in order to get consumers hooked and then be inclined to buy pricey disposable blades. And in the case of the biggest company of the internet age, it gets newspapers, music, television and film companies to take the losses while it accumulates the gains.

Furthermore, the book is being published at a time when many US newspapers that followed the urging of internet seers and published everything free on the internet are going bust.

Mr Anderson has already been treated to a sceptical review by Malcom Gladwell, the New Yorker writer.

But it is not fair to dismiss Mr Anderson as a digital utopian who is in intellectual and financial hock to Silicon Valley companies: Free is more than propaganda for the West Coast clan. It is largely an insightful, steady and scrupulous analysis of the past and present of free products and services, and how digital technology encourages fresh experiments.

If it was not conceived so smartly and written with such verve, it would be in danger of being worthy but dull. Mr Anderson knows better than to allow his work to read like an economics textbook, however, and brightens up the text with clever historical examples and eye-catching assertions.

The problem is that he veers between sweeping statements and balancing paragraphs in a manner that leaves the reader unsure of what he is actually saying. It is an intellectual version of a ride in a New York taxi whose driver alternately pumps the accelerator and stamps on the brakes.

Early on, we learn: "The new form of Free is not a gimmick, a trick to shift money from one pocket to another [like razors and blades]. Instead, it's driven by an extraordinary new ability to lower the costs of goods and services close to zero. While the last century's Free was a powerful marketing method, this century's Free is an entirely new economic model."

That is a big claim and it never really gets substantiated, at least not at the scale of Mr Anderson's rhetoric. Actually, quite a bit of what he claims to be new appears really to be the virtual equivalent of "buy one, get one free" or the cheap subscriptions long offered by US magazines.

The internet does, of course, change things. The biggest shift, which formed the basis of The Long Tail , is that it allows anyone to send out a digital product, from a document to a song, to everywhere on earth at such a low cost that it might as well be free.

Mr Anderson believes that this allows the vision of the French economist Joseph Bertrand to be fulfilled. As companies compete vigorously, prices fall to just above the marginal cost of production. Since the marginal cost of making a piece of software is zero, and the cost of digital distribution is zero, prices ought to fall to free.

His vision has two flaws. First, as Hal Varian, Google's chief economist, has pointed out, network effects unleashed by digital technology tend not to spawn free competition among equals but a "winner takes all" effect in which a single company emerges with all the spoils. In the software era, that company was Microsoft; in the internet era, it is Google.

The second flaw is that, even if the cost of digital distribution is lower than that of physical distribution, the marginal cost of production is not cut to zero. Companies have many costs, from marketing to employing people to make things. Offering things free on the internet is loss-leading just as surely as handing Jell-O recipe books to American housewives was in 1904.

The most plausible contender for an "entirely new economic model" made possible by the internet is what Fred Wilson, the New York venture capitalist, has dubbed "freemium".

This refers to companies that allow anyone to use their products for free but offer a premium version for which a few users are persuaded to pay.

Many internet companies employ freemium, from Skype, which charges customers to make computer-to-phone calls, to companies that charge for more versatile versions of software, and media companies, including the Financial Times, which offers a tiered subscription model on its website.

Many companies, however, are still experimenting to see what, if anything, works.

By far the most effective ways to raise money from customers are either to charge them directly or to charge advertisers to reach them. Nothing else is half as effective in producing revenues and profits.

Mr Anderson does not really dispute this. Revenues from online and traditional advertising comprise at least half of what he dubs the global "free economy", which he estimates at $300bn (€213bn).

There is no question that the internet encourages companies to offer their products free but it has also encouraged a lot of them to burn through their capital and collapse. That is a new economic model of sorts but it is hardly salutary.

How much is the 'free economy' actually worth?

Chris Anderson makes a rough estimate of the "free economy" - the value of goods and services for which customers are not directly charged but companies are rewarded in related ways.

The first category is radio and television advertising in the US, which was $45bn in 2006. Add in online advertising-supported media, which he estimates at $21bn to $25bn annually, and you get to about $80bn.

He puts the value of "freemium" internet and software products at about $1bn, and open-source software and consulting services at $30bn. Together with $4bn from casual gaming, the "freemium" total is $36bn.

Mr Anderson believes the free total should include the "gift economy", such as all the songs on iPods downloaded illegally or from friends' collections. But he thinks this is too hard to quantify in financial terms.

Extrapolating from the US figures for advertising-supported media and freemium, he concludes that the global figure (not including non-monetary benefits) for the free economy is about $300bn.

"It does give a sense of scale: there's a lot of free out there and a lot of money to be made from it . . Free is a country-sized economy, and not a little one, either," he writes.

Copyright The Financial Times Limited 2009

FT: Burma starts to acquire veneer of wealth as elite enjoy times of plenty

Burma starts to acquire veneer of wealth as elite enjoy times of plenty

By Amy Kazmin

Published: July 4 2009 03:00 | Last updated: July 4 2009 03:00

It's nearly midnight on Saturday and the dance floor of DJ's Bar in Rangoon is packed with Burmese youth, grooving to throbbing house music as red, green and yellow light beams flash and slice across the room.

The revellers - young men with hair gelled into modish styles and young women wearing mini-skirts and clutching mobile phones - have each paid a $10 cover charge to enter, a steep price in a land where university lecturers earn just $80 (£50, €57) a month.

Yet the hefty charges are no barrier for these affluent, well-connected members of an emergent Burmese elite with money to burn. "People are spending money - and it's not just a half a dozen of the regime cronies," says one foreign diplomat in Rangoon.

Burma's resource-rich economy, a treasure trove of natural gas, precious gems and valuable hardwood, has long been squeezed by the twin pressures of western sanctions and a military junta with a weak grasp of economics and little faith in civilian technocrats. That no-win combination has left most of Burma's 52m people struggling to get by, with their frustration boiling over into mass protests in 2007.

Yet amid the widespread hardship, Rangoon, the dilapidated former colonial capital, is acquiring a veneer of wealth, as a privileged elite enjoys unprecedented times of plenty, two decades after the military abandoned its autarkic "Burmese way to socialism".

Today, Burmese with the right military connections are profiting from access to natural resources, government construction contracts and privileges including the right to engage in international trade, still tightly controlled by the regime.

In the commodity boom, Burma's agricultural exports soared to $2bn, up from $300m a few years earlier, doing little for farmers, but enriching urban traders. "There is economic activity going on," the foreign diplomat said. "The vast majority of trade is with Burma's immediate neighbours, and there is a lot of investment and a lot of exports."

Growth in tourism and other forms of commerce has created a small cadre of professionals. "More people are getting management roles and seeing salaries rise," said the diplomat.

Meanwhile, signs of affluence are everywhere. Stylish-looking new condominiums are sprouting near the city's lakes, and prime real estate prices have tripled over the past five years. Colonial-era wooden bungalows are being replaced by ostentatious mansions with Greco-Roman columns.

Young men drive souped-up Jeeps painted lemon yellow or ultra-violet while their elders display their wealth in expensive imported Land Cruisers and Pajeros. Swanky boutiques proliferate, with names such as the Sky Princess beauty salon, We and We interior design, and She Shines jewellery.

Yet some savvy Burmese business people say Rangoon's spurt of highly conspicuous consumption reflects the economy's deep malaise - including its dysfunctional banking system and rampant inflation - rather than its fundamental health.

Although Burma has about a dozen private banks, they are hampered by regime rules that cap their deposit-taking at just 10 per cent of their paid-in capital, preventing them from channelling surplus household cash into productive investment. According to the IMF, the ratio of bank deposits, and credit to the private sector, to gross domestic product has fallen sharply over the past eight years.

With inflation running at about 30 per cent, many Burmese are pouring their surplus cash into hard assets that they feel will at least hold their value - if not appreciate. "You can't put it in the bank so you put your money in cars or a nice new house to keep the value of the money," said one business person.

But Burma's asset bubble may be about to burst. Many of the Rangoon condos have been developed by companies that received prime urban land as part of their payment for helping to construct the junta's new capital city far to the north and its $3.5bn new airport. Many of the units are unsold, leaving the companies struggling to recover costs.

Senior General Than Shwe, the junta's head, has apparently ordered the government to balance its budget, which has been in deficit for years, ahead of the regime's planned elections next year, which could create a squeeze on liquidity and bring the spending spree to a halt.

"No one is getting any more money," said one economist. "Businessmen are also quite fed up. They want change."

Copyright The Financial Times Limited 2009

FT: Book touring in Beijing

Book touring in Beijing

By Simon Winchester

Published: June 20 2009 02:12 | Last updated: June 20 2009 02:12

Reading Room of the National Library of China in Beijing

It was when the elderly Chinese lady clambered up on to the stage as I was doing a reading and began a curious, undulating dance to music playing out of her cellphone, that I first started to think: book touring in China is very different from elsewhere and, in many ways, totally weird.

It all began with the sale of my most recent book to a Chinese publisher. I had written about the eccentric Cambridge biochemist Joseph Needham, whose adulterous love affair with a Chinese student in 1937 led to him writing what turned out be the longest English book on China ever written – 25 volumes and more than 4m words. In Britain, Needham is almost entirely forgotten beyond the confines of academia. But in China he is widely known and universally revered.

Before Needham, China was disdainfully regarded as quite peripheral. But since Needham, who catalogued China’s vast and bewildering array of achievements that proved without doubt how central the country was to the world, the view steadily changed to today’s mixture of awe, admiration and respect.

In addition to his having unintentionally engineered the sea-change, Needham was for all of his long life (he died in 1995, aged 94) a committed Marxist. So small wonder, perhaps, that when a Shanghai publishing company decided his story might sell in China, they were given immediate government permission to publish it. Last spring, they wrote to me: “Would I like to come over on tour?”

When I said yes, there came a blizzard of grateful and charmingly imperfect e-mails: “We are honoured and feel pleasure that you save one week for visiting China.” “We really appreciated the deep passion you deliver in the book.” And when I arranged to arrive in April: “We look forward to see you in China then, a month which we describe as paradise on earth in Chinese.”

These nice people in China seemed bent on making a fuss. They had booked me on the Air China non-stop service from Kennedy to Beijing – in business class. When I landed at Norman Foster’s staggering Beijing Terminal Three, there was Daisy, small, shy, bespectacled and unimaginably obliging, with a Mercedes, a driver, cold towels and bottles of iced jasmine tea.

It was a far cry from when I first landed in what was then Peking in 1979, a city of dust, strange silence and countless blue-uniformed workers grimly riding on a black cloud of bicycles. Here I was speeding in air-conditioned comfort down freeways, with BMWs and Buicks and Volvos on all sides, until I arrived at the very old Friendship Hotel.

This legendary place is a collection of a dozen old Chinese buildings where China has put up visiting dignitaries for the past half century. Back in the old days of Mao and Deng Xiaoping I remember it as grim, all smoke and spittoons: today it is languid luxury, aside from the importunate “masseuses” ringing to know when they might offer in-room services.

It was in the ballroom of Beijing’s St Regis hotel that, two days later, the book was officially launched. Comparisons pale. In Britain you might be thrown a lunch in the Mirabelle or a cocktail party at the Travellers Club; in America the kick-off will most likely be a speech at the big Barnes & Noble on Broadway and 84th Street, followed by dinner at the publisher’s penthouse. But in Beijing it was much more serious: a formal banquet for 300 people – no fewer than 50 of them being vice-ministers in the Chinese government.

A flurry of young women (all of whom spoke English) had come up from the publishing house in Shanghai, together with their bosses (all of whom did not). They came with gifts for me: a bright yellow silk tie with the Chinese character for “book” woven into the pattern; a series of jade chops with my Chinese name, “Wen Si-miao”; a calligraphy set with brushes and an ink-stone.

The following day they were keen to show me the sights – not so much the tourist sights that they knew I had been to before but the literary and cultural hotspots of their capital. There is a new National Library, for example – it was completed last autumn, a gleaming confection of steel and glass and pale oak, which manages to be both bustling and hushed at the same time. It is open to anyone 365 days a year from dawn until late at night, and has at its centre what looks like a vast opencast mine, hundreds of feet deep, with scholars and readers at rows of desks on every level, hemmed in by walls of volumes. I am an abiding fan of the new British Library, and have nostalgic longings for the old reading-room in Bloomsbury; but this new pit of learning, in the heart of Beijing, has now to be counted alongside the Library of Congress and the New York Public Library.

It was here they had staged the first of the seminars – a series of unexpected, full-dress grillings by academics. I was introduced to an unsmiling young woman who was to be my interpreter – and then a pair of doors was flung open.

I was in a crammed lecture theatre, the audience standing and turning to applaud. They led me down, lamb-to-slaughter-like, to join three eminent Needham scholars at a table on the stage. I sat behind my name-card, the unsmiling lady took a seat behind me – and for the next two hours I was subjected to an interrogation on the human history of Chinese science. It was respectful, polite – and very intense.

And, on occasion, bizarre. For it was here that the dancer appeared. We were having a discussion about the human body – Needham wrote much about early Chinese anatomical charts – and I was reading a passage about the relative flexibility of Asian musculature, when the old woman climbed up, switched on her mobile phone and turned it to speaker-mode, cranked up some frightful tinny local opera and began to dance – to display the uniquely flexible nature of her body.

There were signings – held in one of the immense Xinhua bookstores found in city centres across the country. The store we visited near the old French Concession in Shanghai was eight storeys high. Each floor was beehive-busy, and the table where I was due to sit was full before I got there. Everyone had a book open at the title page, everyone had practised a little speech in English, each nervously and smilingly blurted it out: “Li Yue-se [the Chinese name for Needham] was a great hero – thank you for writing about him.”

And there was the interview, on CCTV-9 – held in China’s central broadcasting HQ, a building beside the Beijing military museum that had more security than Fort Knox. The young woman who interrogated me for 30 minutes for her programme, Dialogue, had evidently read every line of my book, and asked questions in perfect English with a formidable intelligence.

But perhaps the most memorable moment of the tour came on the evening in Shanghai, when I quoted a signboard I had seen in western China. It was outside the national space launch centre and it proclaimed: “Without Haste, Without Fear. We Will Conquer the World.”

There was a brief silence as the interpreter translated. Then she smiled broadly, and first the three professors beside me, and then the entire audience, stood up and began cheering. After a few seconds I realised it wasn’t me that they were cheering. It was China, and the future they all want for her, which all believe she is now on the verge of attaining and which a line from my book had happily confirmed.

‘Bomb, Book and Compass: Joseph Needham and the Great Secrets of China’ by Simon Winchester is published by Penguin

Copyright The Financial Times Limited 2009

FT: Why size is now everything in China

Why size is now everything in China

By Patti Waldmeir in Shanghai with additional reporting,by Yan Jin

Published: June 23 2009 03:00 | Last updated: June 23 2009 03:00

Big eyes, big noses, big breasts and now humungous Hummers - China seems to be indulging an obsession with size, just when the rest of the world is learning the virtues of moderation.

In Shanghai, for example, business is booming on eyelifts, noselifts, chestlifts and other surgery aimed at enlarging classically Asian narrow eyes, flat noses and unobtrusive mammary glands. At the Shanghai Time Plastic Surgery Hospital, Dr Liao Yuhua says business is up 40 per cent since the end of last year - not despite the global economic crisis, but because of it.

Half her business is job-related: "Many of our customers are white-collar workers, many have lost their jobs, so they have time to execute their plastic surgery dreams," says the retired paediatrician, whose genially wrinkled face and ankle socks that bag around her feet hardly seem like anyone's clichéd view of a plastic surgeon.

"They want to be more competitive when they go for the next interview," she says, adding that famously pushy Chinese parents are very "supportive" of this trend.

Several brought in their children to make appointments straight after China's strongly competitive national university entrance examinations earlier this month. "Parents hope that their kids can be more competitive in job hunting," she says, admitting that as an employer, she would "recruit a prettier nurse with the same qualities as one who wasn't so pretty".

Graduates leaving college this year are facing one of the toughest job markets in years, and women - who make up three-quarters of Dr Liao's patients - find it particularly hard to land a job. According to a study recently by the Centre for Women's Law and Legal Services of Peking University, published in the Chinese press, one in four women surveyed said they had failed to get a job because of gender, a fifth said salaries were cut if they became pregnant and 11 per cent lost jobs when they had a family.

Dr Liao says plastic surgeries have grown by 15 per cent a year since the fad really took off in China about five years ago. But China is hardly alone in using disposable income on facelifts - and even justifying the cost as a career development expense. In the US last year, according to the American Society of Plastic Surgeons, cosmetic procedures rose among all groups except Caucasians; procedures among Hispanics were up 18 per cent. But the age profile of consumers of plastic procedures - and the parts of their bodies they want fixed - differs greatly from the US to Asia.

At Dr Liao's hospital, the top two procedures are so-called double-eyelid surgery - which inserts an extra crease in the eyelid to make the eyes appear larger - and inserting a bridge in the nose, using a part of the rib. "Oriental people prefer bigger eyes and bigger noses - everything they don't have," she says, chuckling at the irony that, in Chinese slang, westerners are called "big noses" (and it is not necessarily a compliment). Her clients are mostly aged 25 to 35 - whereas half of all plastic surgeries in the US are for patients aged 40 to 55.

Bigger eyes are relatively cheap: from RMB2,400 ($350, €252, £213). Bigger breasts cost RMB60,000 (and clients must sacrifice a piece of thigh).

Zhou Jin Feng is one of the clinic's satisfied past clients (blackhead removal). This time the 31- year-old nurse - clean-cut yet hardly a wanna-be movie star - wants a double eyelid and more pointed chin. "Young people these days want to be pretty, it's important for their self-esteem, mainly for job hunting," she says. Dr Liao says many of her patients are doctors, nurses or teachers: "Beauty is very important for communication in such professions," she says.

Dr Liao can remember when plastic surgery would have been seen as bourgeois decadence of the first order. Now she thinks it is just a natural consequence of the wealth effect. "When the basic needs are met - a car, a house, food - what shall we do with our extra money? Spend it on beautification." Additional reporting by Yan Jin

Copyright The Financial Times Limited 2009

FT: Brands left to ponder price of loyalty

Brands left to ponder price of loyalty

By Andrew Edgecliffe-Johnson in New York

Published: June 21 2009 22:31 | Last updated: June 21 2009 22:31

Big brands’ best customers have been defecting in droves since the beginning of the US recession, according to a study. By this year, more than half of a typical US brand’s most loyal shoppers in 2007 had switched to rival products.

A two-year analysis of 685 grocery and pharmacy-stocked brands, using data from 32m consumers’ supermarket loyalty cards, found that in 2008 the average brand lost a third of its formerly highly loyal customers.

The study will alarm packaged goods groups, as the most loyal customers – those choosing one brand for more than 70 per cent of their purchases in a category – should also be their most lucrative.

“Defection is top of mind for brand managers now because they’re the most profitable customers,” said Eric Anderson, associate professor of marketing at Kellogg School of Management, Northwestern University.

“Price and promotion have become so salient at retail, that what we thought was the loyal customer can be moved with discounts,” he added.

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Past recessions have seen similar defections from top-tier national brands to stores’ private-label goods, Mr Anderson said. Academic research showed that customers could be quickly persuaded to switch by a cheaper price but took far longer to switch back.

The study was conducted by the CMO Council, which represents chief marketing officers, and Catalina Marketing’s Pointer Media Network, which has equipment in 25,000 stores analysing buying behaviour. Catalina can provide a two-year anonymous purchasing history on individual customers. Brand managers and retailers who had seen the data had been startled by it, said Todd Morris, senior vice-president at Catalina.

“They’ve always known there was churn but could never put their finger on how big the issue is.”

The study comes as marketers are leaning more heavily on research and on targeted advertising, as they seek to improve on the “spray and pray” approach of mass media marketing formats, such as 30-second television advertisements.

Copyright The Financial Times Limited 2009

FT: Control, halt, delete

Control, halt, delete

By Joseph Menn, Richard Waters and Kathrin Hille

Published: June 26 2009 19:30 | Last updated: June 26 2009 19:30

User ID: a police officer checks registrations at an internet café in Xuchang, central China. From next month, Beijing wants new computers to be installed with extra controls

This week, an open letter appeared on Chinese blogs and online bulletin boards. “Hello, internet censorship institutions of the Chinese government,” it said. “We are the anonymous netizens. We hereby decide that from July 1 2009, we will start a full-scale global attack on all censorship systems you control.”

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Beijing’s attempts to manipulate the internet would, the message predicted, “soon be swept on to the rubbish pile of history”.

Chinese internet users, although skilled at dodging the censors, are angrier than they have ever been. The anonymous declaration of war is just one sign of the strains emerging as the global spread of internet access, and its embrace by activists of all stripes, triggers an unprecedented crackdown by national governments that threatens to transform the way hundreds of millions of people communicate.

China is trying to force censorship software on to every new personal computer, while Iran succeeded this week in virtually eliminating the spread over the internet of first-hand accounts from protests in the streets at the handling of its presidential election.

That stifling of web freedoms that many people around the world take for granted are being accompanied by more novel means of combating cyber opponents. Those methods range from directing stealthy technological attacks that shut down dissident websites to unleashing swarms of paid commentators to argue the government position on supposedly independent blogs.

Both carry the added attraction of deniability: many regimes are employing advanced repressive techniques that are hard to identify in action, let alone circumvent. At a time when new communication technologies, from text messaging to Twitter, promise to put greater power in the hands of the individual, these techniques are having a chilling effect. Internet experts from more open societies fear that this will lead to greater self-censorship by organisations and individuals, which they see as the most effective tool of all.

Even the optimists warn of setbacks. “In the end, the winners of the race are most likely to be citizens and activists who use these technologies for democratic purposes,” says John Palfrey of Harvard University, an authority on internet filtering. But he adds: “With respect to individual battles, the states that practise censorship and surveillance are winning some of them.”

The number of such states is in the dozens, researchers say. In Burma and Moldova, governments recently resorted to pulling the plug on mobile phone networks amid unrest magnified by text messages; in Uzbekistan, there is widespread suspicion of internet monitoring but few ways to prove it. That is despite the fact that a lot of the surveillance and security software in the hands of governments across the world comes from western suppliers. In what is by its nature among the most globalised of industries, technology companies are seeing a revenue boost from governmental interest in data mining, search and storage products, though they periodically draw fire from activists for assisting repressive states.

The most gripping evidence of the change at hand has come from Iran. The theocratic regime has been in a protracted struggle over the free flow of information and communication with many of its largely young urban populace since the day after this month’s disputed election.

STRONG-ARM TECHNIQUES

How curbs on net users work:

Internet filters
Method: Set up on the main conduits of the internet, known as backbones, these software filters block traffic from websites on a proscribed list.
Example: “Great Firewall of China”.

Deep packet inspection
Method: A layer of software that looks to identify the content of individual pieces of information, or “packets”. This can be used to read, store or block individual messages and connections to websites.
Example: Commercial providers including Phorm and NebuAd.

Denial of service attacks
Method: Large numbers of PCs bombard a website with requests, making it inaccessible to other users.
Example:Sites in Estonia and Georgia during conflicts with Russia.

Toeing the party line
Method: Some regimes recruit people to present their case online, sometimes paying them.
Example: “50-cent bloggers” in China.

Self-censorship
Method: Governments bring pressure on companies to restrict access to content. Bloggers must register.
Example:MSN Spaces, Microsoft’s blogging service in China, bans phrases including “human rights”.

Edge-of-network restrictions
Method: Censors push control to a more local level. Internet providers’ terms of service make them act as agents of the state. Restrictions at the edges of the network can reach all the way to curbs installed in PCs.
Example: China’s Green Dam/Youth Escort software.

Tehran has a decided advantage in that it runs the country’s leading internet service provider. Called DCI, it throttled back the amount of bandwidth available to its citizens so that web video traffic dropped by as much as 90 per cent and e-mail leaving the country fell by nearly as much.

Data assembled by Arbor Networks, a US internet security company, show the Iranian government was picking and choosing what types of traffic to let through and which parts of the net to leave unimpeded. Just as the security forces adjusted their response to counter the changing nature of the protests on the ground, Iran’s internet police changed which sites could be reached.

Facebook and other social networks were easy to block and fell quickly. Twitter, a web-accessible broadcasting service that can process messages from mobile phones, proved harder to take down without killing off all text messaging.

Activists proved agile at hopping from one medium to another. For more than a week, outsiders would send people in Iran the addresses of “open proxies”, computers outside the country set up to relay traffic. That way, Iranians could still reach sites they were blocked from accessing directly. But the authorities hunted down most of those proxies and cut off access. Finally, on Thursday, they killed most outgoing traffic, including Twitter blasts.

“It’s a big problem when a government is just willing to shut down communications,” says John Perry Barlow of the Electronic Frontier Foundation, a non-profit organisation based in San Francisco, who was helping dissidents get the word out. “If they do that, you’re down to smoke signals.”

Iran’s response evolved rapidly, aided by filtering technology in place long before the election. No country, though, has been as thoroughly policed through as many means as China, which has long been on the cutting edge of censorship.

Now, Beijing is trying to cement its control with a decree that from July 1, all computers sold in the country must come with a program called Green Dam/Youth Escort, which the government says will be used to block access to pornography sites. Dell, Hewlett-Packard and other computer makers are protesting and have won the support of US trade officials, who are threatening to bring the matter to the World Trade Organisation.

“Green Dam will be a game-changer, if in fact it goes into effect,” says Harvard’s Mr Palfrey. “The desktop is the last bastion of personal freedom. It would change the way people use these devices in extraordinary ways.”

Beijing has for years blocked many sites by setting up filters on the country’s largest internet backbones, using a method nicknamed the Great Firewall of China. The central government has more recently heaped additional blocking and monitoring responsibilities on to internet service providers, web companies and local censors, all of which have been upgrading the technology they use.

TRS, a Chinese supplier of internet security products, says growing numbers of police departments are replacing their traditional search engine-based efforts with state-of-the-art data mining applications, which are capable of analysing large bodies of information.

All this has its limits. “Controlling public networks is very, very difficult,” says Tony Yuan, chief executive of Netentsec, another Chinese security provider. “Bandwidth and traffic are huge, so normally you don’t have the computing power.”

But the latest effort by China’s central authorities takes them further still, to the PCs that stand at the edge of the network. It is not clear they will succeed. The computer makers and US government are being joined in their opposition by security researchers who have identified flaws in Green Dam that could allow third parties to take control of PCs.

Even if the blanket order is delayed, circumvented or quietly forgotten, the Chinese government has already gained access to many PCs. Earlier this year, Beijing made the bundling of Green Dam a precondition for eligibility of PCs in its subsidy programme for PC sales to rural residents. In May, it ordered all schools to install the program. “I would estimate that we’re already looking at more than 10m computers in China with Green Dam installed,” says an executive at a Beijing internet portal company.

An estimated 300m Chinese have online access. Though the more determined among them are likely to find ways around Green Dam, many may not even try to defy the message of disapproval being sent by Beijing.

Some of the surveillance and censorship technology in Iran and China is home-grown but much of it is western. Nokia Siemens Networks, a joint venture between the two European companies, says, for example, that it was required to sell Iran equipment for monitoring phone calls as part of a contract for a communications network. Cisco has periodically come under fire for selling its routers to China but says the same equipment is used in both open and closed internet systems.

Under laws in the US and elsewhere, telecommunications companies must make it easy for law enforcement agencies to conduct authorised wiretaps – and equipment providers say they cannot shut that capability off depending on the customer.

Collection, in fact, is no longer so much the problem: analysing the masses of data is a bigger issue, as is massaging search technology to look for more than simple keywords that alarm officials, such as “Tibet” and “democracy”. That technology is becoming much better – spurred in part by the increasing global attention to cyber security. Notably, the US defence department this week approved a new military cyber command that will answer to the National Security Agency, which in recent years has been exposed for mining Americans’ e-mail without warrants.

Concerns about pernicious criminal software and “denial of service” attacks, which have shut government websites in Estonia and elsewhere with bombardments of useless data, have prompted further efforts to scrutinise internet traffic. But according to some researchers, technologies developed to counter insidious attacks such as these will only serve to advance the techniques of information control – to the eventual detriment of future mass revolts against oppressive political forces.

“If security starts becoming job one, then a lot of things being used by repressive states will become commercialised and normalised,” says Rafal Rohozinski, a founder of the OpenNet Initiative, which tracks filtering. “We’ll be doing the same thing as Iran, or using the same technologies. And that’s what I worry about.”

Copyright The Financial Times Limited 2009