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Antonio Pasquali
Multimedia conglomerates have hyped new communication technologies in order to create a grossly overinflated global stock market ‘bubble’ for the profit of the few and ruination of the many. What lessons can be learnt by the ‘information society’ and how can the ‘new economy’ be regulated to prevent recurrences in the future? The following article proposes setting up an international tribunal for information and communication with the power to judge and sanction such cynical manipulation of the global economy.
The ‘information society’ – outcome of that maze of bits, chips, frequencies, cables, satellites, programmes and networks that have electronically unified all human codes and allowed the exponential growth of the message delivery service of the ‘infosphere’ in which we bathe – will be given the honour of a World Summit in December 2003 organised by the UN itself, with the International Telecommunications Union (ITU) as its main host.
By then, with three preparatory conferences and the makers of equipment, programmes and channels licking their lips, a deluge of panegyrics, hymns, hosannas, apologies and other eulogies to the so-called information society will have fallen on our heads, even more copiously than in 1998 when they tried to make us believe that the Internet would rapidly bring to an end underdevelopment, poverty and hunger in the world. All this recalls the golden legend of what was christened, not so long ago, the network age; eulogies that, if one looks at things objectively, are to a large extent deserved. For it is on the back of the underlying technological revolution that standards of production, conservation and distribution of knowledge have been radically expanded and, to a certain extent, democratised.
As with all history worthy of the name, these images of the ‘information society’ conceal on their reverse side a dark inscription that their protagonists would like to make vanish, but which will have to be brought to light at the time of the Summit. This dark inscription has to do with economics and it has to be told here, not with the Manichean intention of blackening or destroying the golden legend, but rather to weigh the pros and cons with full knowledge of the facts, what in this ‘information society’ is good and should be kept and what should be exposed and thrown out. Concretely, it’s a matter of two gigantic economic speculations, to a large extent fraudulent, promoted by those who have already bought into the so-called ‘information society’, which have ruined its natural development, impoverished millions of investors, mortgaged the future cost of services and unleashed a global economic crisis that, according to certain analysts, could be worse than the one of 1929. For one thing is certain: as with the case of the ‘global village’, the ‘information society’ is already owned by a few, and there is the very real risk that the Summit will only serve to strengthen – behind a façade of democratic discussion – adapting the whole universe of consumers to the will of the huge multinationals, who this time have been officially invited to take part. (The verb ‘adapt’ figures in ITU official documents.)
The free and self-regulated market is, we are told, perfectly virtuous. It is the supreme expression of what the 19th century called ‘the economic harmonies’ …except when it loses its head because of overheating or when it takes on the syndrome of speculative priapism. Its prolonged crisis – which began in 2000 in the hi-tech sector of information/communication, astutely promoted to the status of ‘new economy’ and ‘e-business’ in order to swell the speculative bubble more quickly – today continues to threaten the previous economy which was behaving relatively well. This crisis broke out, it is important to remember, well before 11 September 2001. Nothing very new wrote Le Monde in an editorial: the development of railways in 1840 and universal electrification in 1920 engendered similar speculations. Except that, in that more unassuming epoch, the huge majority of human beings were born and died without knowing what a Stock Exchange was. (At the time of the 1929 crash just 1% of North Americans owned shares, as opposed to 50% today.)
Most technological innovations in the information/communication sector, from which we benefit every day of our lives, were born in military laboratories before being commercialised by civil enterprises after their ‘declassification’. This was the case with Arpanet used by the Pentagon and later to become the Internet, with one of the Reagan programmes from Star Wars which became the Iridium Motorola project for mobile telephony via satellite, and the US army’s Global Positioning System, today, among other applications, trivialised into a finder of stolen cars. The commercial transformation of inventions and discoveries often constitutes the only means of placing within everyone’s reach innovations that otherwise would remain untapped. But this time, the auri sacra fames (terrible hunger for money) excited by the new information and communication technologies went beyond all bounds. It only ended after incalculable economic losses (the largest in the history of the world’s economy and with the disappointment of many unkept promises: telephony everywhere and practically free for everyone, high definition television on cinerama screens, Internet business growing exponentially and genuine multimedia interactivity.
The 21st century has started and the picture is quite different. Mobile telephony has supplanted cable telephony, but this growth has largely taken place by saturating areas that were already connected, peopled by financially solvent consumers, leaving the world’s poorer parts and marginalised zones in a situation unchanged for decades. Tariffs have remained scandalously in the hands of cartels and very high in the countries of the South, which continue to finance a huge part of the growth of multinationals that have available an astonishing cash-flow that allows them to buy each other out. Iridium went bankrupt in 474 days, $5 billion1 in debt and 55,000 subscribers instead of the 1.6 million that had been estimated. The US Defence Department refloated it. Globalstar followed suit several months later. Mobile telephony has been the object of such scandalous speculation that I shall devote the last part of this text to it.
High definition television (HDTV) and digitalisation of images have for now remained in limbo, officially because of drawbacks in image compression technology, with a good number of European operators on the verge of bankruptcy owing to disproportionate investment. The enormous interests in play decided, by all accounts, to place the much publicised ‘multimediality’ on hold; PCs incorporating voice telephony mysteriously disappeared from the market; and some ‘authority’ continues to delay the marriage of TV and PC. Thanks to its usefulness, the Internet survived the voracity of those who had to tried to turn it into the mother of all speculations, even though the net is compromised up to the hilt by the present crisis in ‘technological indices’ on the stock market. Twelve hundred of its largest firms collapsed in the USA alone between 2000 and 2001, and analysts have predicted for 2002 ‘a catastrophic year’.
The diagnosis is unanimous: the current malaise of the global economy originated in a colossal speculative bubble – supported by various governments – inflated on two huge technological advances sequestered by the market: the Internet and mobile telephony.
Internet speculation
Internet speculation was a mix of never-before-seen stock market delirium and a good dose of political Machiavellianism. Its origin, the USA, de facto owner of the network. (Thirteen major providers; the quasi-monopoly of Cisco over switchboards or ‘routers’; the largest portion of the almost 2,000 million sites; 70% of all electronic addresses reserved in advance and available under the IP4 code; the global assignment of addresses and identification tags; the Échelon, Carnivore, Fluent and Oasis systems that spy on practically all content: and, it is hard to believe, at one time the platforms for 95% of the intra-European and intra-Asiatic links are North American.) The industrial, Governmental, stock market and media conglomerate, with President Clinton at its head, launched a huge offensive aimed at making humanity believe that the future was called Internet, that greater part of investments would take place over the network and that only e-business would take off exponentially.
Simultaneously, more good news was spread by the UNDP and the World Bank: even the safety of poor people was no longer a question of water, health and protein, but of a good connection to the network. It was the beginning of an era of gigantism without precedent in the history of the global economy. Between 1998 and 1999 six of the 12 largest business mergers, totalling $465.3 billion, took place among firms linked to the Internet. Microsoft capitalised 471 billion in 1999, Intel 285, Lucent 211, Yahoo 188, AOL 164, MCI 162, Oracle 85… In March 1999 Cisco’s capital reached the monstrous sum (is there any other epithet?) of $555 billion, almost half the annual GDP of France. In the face of this the largest enterprises in the old economy – of whom it used to be said that every time they sneezed they gave the country a cold – appear derisory. The tycoons of the new economy bragged of having multiplied by four the world rate of stock exchange movements. One of the great American myths reappeared, that of a Far West, with new freedoms to conquer. It was supported by a political-economic attempt to turn the global economy for all time into a satellite of Wall Street.
This gigantism only lasted a few months. In January 2001 Walt Disney Co. – quite a symbol – shut down Go.com, which amalgamated all the company’s activities, after having declared a loss $1 billion. On 24 April, in order to sweeten the bitter pill of 12,000 redundancies created by the loss of 400 out of the 555 billion dollars capitalised the previous year, John Chambers, manager of Cisco, reduced his annual salary of $157,000,000 to one symbolic dollar. Shares in Lucent went up in smoke; 210 American dot com companies collapsed in just a few weeks; speculative enterprises of the ‘hit and run’ kind robbed millions of savers of their savings. A veritable e-crash said Le Monde in one of its editorials in January 2001.
The catastrophe did not end there and got worse. In January 2001 Teligent, 360 Network, PSInet, Covas, Exodus and Excite@Home had to submit to chapter 11 of the American bankruptcy law and 2002 began with a similar trend for Qwest, Carrier 1, Level 3, Viatel and Globalstar. Simultaneously, Alcatel announced losses of 4.96 billion Euros (the largest in the history of the French economy), Vivendi Universal (the new French-American Pantagruel) cumulative debts of 10 billion Euros at the end of April 2002, and AOL-Time – the biggest media group in the world – losses for the first quarter of 2002 of 54.2 billion dollars (the highest deficit in US history). In June 2002 optimists were estimating 1,000 billion dollars lost in Nasdaq speculations. The pessimists, like Scientific American (in its May issue) carried this already astronomical sum to 4,000 billion.
These extraordinary figures give some credence to the hypothesis that the WSIS might even represent an attempt by the UN (now imbued with an eagerness to privatise) to help refloat its once lucrative businesses.
Enron and Global Crossing
All of this would seem to have its greatest symbol in the Enron affair, the energetic superstar of the new economy that fronted the largest case of fraudulent bankruptcy in US history. The scandal resounded so widely that it eclipsed that of Global Crossing, the fibre optics giant, with 165,000 kilometres of fibre optics in 200 cities in 27 countries. Until Enron, it had been the biggest single failure in the US telecom sector and the fourth largest in the US economy. This speculative meteor (I have to say so), only created in 1997, capitalised 50 billion dollars in 2000 and came to be considered one of the most respected players in the new economy. On 28 January 2002, after declaring losses of 4.6 billion dollars and debts of 12.4 billion dollars for the first nine months of 2001, its shares fell from $65 to thirty cents.
Every rescue scenario – a lesson to be learnt by the ‘information society’ – anticipates that shareholders lose the whole of their investment. In the Enron case, worse still. The upper echelons of management, many accused of insider trading, encouraged their employees to buy shares in the company while they themselves were selling. In the same way, at Global Crossing appeared the figure of General Manager Gary Winnick, who sold his shares just before declaring bankruptcy. Here too the auditing firm of Arthur Andersen popped up, whose passion for insider trading, tax evasion and massive destruction of compromising documents had made page one of the newspapers a few weeks before during the Enron case.
William Cohen, former Secretary of State, was a member of the board of directors of Global Crossing, while its vice-president, Joseph Perrone, had been chief auditor of telecommunications businesses for… Arthur Andersen. Moreover, most of the big banks that risk not coming out unscathed, were simultaneously creditors, share-holders and consultants of the firms that went bankrupt.
These financial mega-scandals and complicities between auditors and those audited have ended up drawing the whole world’s attention to three huge and very respected economic-financial groups:
(a) Investment banks. Merril Lynch, the premier US investment bank, lent 400 million dollars to Enron when they knew it was collapsing. In his internal memos Henry Blodget, one of the stars of the bank, labelled Excite@Home shares ‘pieces of crap’ while telling his faithful clients to buy them. (Merril recently tried to recoup even a bit of its prestige by recruiting the former mayor of New York, Rudolph Giuliani, as a consultant. And in May 2002 – by one of those legal transactions at which the Americans are past masters –succeeded in whitewashing itself by paying a penalty of 100 million dollars.)
(b) The great and very influential financial analysts. Sixteen of the 17 leading bureaux in the USA were recommending buying Enron shares in September 2001: Goldman Sachs, Lehman Brothers and others persisted in doing so even after the firm had announced a first loss of 600 million dollars.
(c) The no less famous American audit and financial advice firms. The five giants, until then considered above all suspicion: Pricewaterhouse Cooper (22.3 billion turnover in 2000): KMPG (13.5); Deloitte Touche Tohmatsu (12.4); Ernst&Young (9.9) and Arthur Andersen (9.3) had all been found guilty in recent years of felonious collusion.
A former head of accounting at the Security Exchange Commission (which supervises the US stock exchange) recently said that this was a matter of a veritable armed attack and that one could estimate stock exchange losses occasioned by irregularities and fraud by the large audit firms at 200 thousand million dollars.
The Enron bankruptcy, in particular, threatens to set a gigantic financial tsunami with terrifying consequences. This enterprise charged 100 billion dollars a year to provide energy and, one now knows, acted in a loathsome way. It created artificial shortages and blockages in the electricity networks in order to manipulate prices, exported energy from California that it then re-imported in order to charge transport costs, and closed generating stations to simulate lack of funds. It collapsed in six weeks with the scandalous complicity of bankers, auditors and even the Security Exchange Commission (to say nothing of the political parties it had financed or even the White House itself).
To complete this aberrant picture of cross-linked complicities, 212 of the 248 Congressmen who were members of the eight commissions of enquiry about Enron, had received from that same company (while its business was still flourishing) financial support for their electoral campaigns, including Justice Secretary Ascroft, who declared having pocketed 57,000 dollars.
Without an international tribunal capable of judging those responsible for the mega-speculations that have impacted on new technologies, the former have given rise to plentiful literature with remarkable works such as Boo-hoo, a dot.com history from conception to catastrophe by Ernst Malmsten, Millionaires for a day by Gregoire Biseau, and How my start-up misfired by Nicolas Roui.
Two indisputable facts remain: (1) the ‘information society’ has engendered the greatest stock exchange speculation in all economic history, ruining millions of people, and (2) Internet users, among others, will have to pay for these speculative frenzies out of their own pockets, the providers of services that were previously free will be obliged, one after the other, to charge for them and prices will not go down for several years. Once again the poor will have to be patient, at least for a generation, before gaining better access to the net.
Telephony speculation
If Internet speculation was an American cocktail of mythomania and hegemonism, its twin was born of the worst European greed.
The Internet as we know it would obviously not have existed without the telecommunications boom. In 1990 there were 530 million telephones (fixed and mobile) in the world; in 2000 the number had increased by 325% to 1,720 million and today we are getting close to 2,000 million. In ten years more submarine cables have been laid than in the previous century, and hundreds of millions of kilometres of fibre optic cable and hundreds of satellites set up, each more powerful than the last. The UNDP, in its Human Development Report 2001, said that the latest generation of fibre optic cable can carry in just one second all the information circulating on the Internet in one month in 1997.
But let’s not forget that, in the same period, some of the world’s countries that were already communication-poor became, paradoxically, even poorer: while Switzerland reached a telephone density of 99/100 inhabitants, the people of Cambodia dropped to 0.07/100 inhabitants – one in 1,400!
This time, the ‘Ciscos’ for fixed and, above all, mobile telephony were European, a chance for the old continent to impose its own rules of the game on one of the most important and profitable areas of the new economy. Europe, with its GSM digital standard, superior to the American standards, granted itself the wireless markets of Asia, Australia and Latin America. Sales of shares in Nokia, Ericsson, Alcatel and Siemens took off and the exchanges in London, Paris, Frankfurt and Milan created their own Nasdaq for technological stock. Like the self-made men of Saxon mythology, a modest Sardinian employee created the giant Tiscali out of nothing, which is on the point of becoming the second largest European provider of mobile telephones and Internet services. Sure of its telephone superiority, and with Silicon Valley sleeping on the laurels of its fixed Internet, Europe is planning further long-term conquests. The euphoria of its stock exchanges goes hand in hand with that of Wall Street.
In 1997 the telephone hardware industry, European in the main, which at that time produced a mere bagatelle of 550 million pieces of equipment a year (Nokia alone controlled 40% of global sales) found itself facing saturation point in the market, leaving only replacements. So it became a matter of urgency to come up with a new technology capable of waking the market. The next step, therefore, was to integrate Internet capability into mobile telephones, one already taken by the Japanese DoMoCo NTT with its I-mode technology with disappointing results. Europe followed the same path by adopting two intermediary technologies, WAP and GPRS, which would leave it time to put the finishing touches to a Universal Mobile Telecommunications System (UMTS), capable of assuring it unfailing superiority for several years in the field of nomadic multimedia (a technological superiority today partially threatened, even before birth, by the WLAN standard of wireless access to the Internet).
Having failed in its first attempt to get the European Union to adopt the Japanese standard, the Nokia/Ericsson lobby got Brussels to agree that the 15 EU nations would auction national UMTS concessions as if its marketing were imminent. Two gracious governments, Sweden and Finland, gave them away freely. The governments of the other countries, greedier and scenting good business, took advantage by conceding licences to use UMTS at breathtakingly high prices. The dizzying sum of 340 billion dollars was placed on the table in order to obtain so-called third generation licences and this in countries among the most telephony saturated in the world. The cost per inhabitant paid by franchise holders reached $625 in the United Kingdom, $620 in Germany, $361 in Spain, $270 in France, $242 in Italy… (by way of comparison, the price paid for the whole of fixed telephony, plus a mobile network, plus a guaranteed monopoly for nine years in a country of 22 million inhabitants, avid for telephones – as was the case in Venezuela – was just $75 per inhabitant.)
A few months later, Europe was copying the American crisis, adding to its setbacks in ‘new technologies’ those of WMTS. Hundred of companies facing bankruptcy, Nokia undercapitalised by 60%, France Telecom by 72%, Deutsche Telekom by 75%, Ericsson declaring losses of nearly 2 billion dollars… a scandal and bankruptcy over which an embarrassed silence quickly fell. On 16 March 2002 Deutsche Telekom announced the redundancy of 30,000 of its 260,000 workers. Its shares, in March 2000 worth more than 100 Euros, sank to 13.1 Euros and its losses increased in the first quarter of 2002 to the Croesus-like sum of 67.2 billion Euros. It thus beat the world record held until then by AOL-Time for the largest deficit in economic history, only to be caught up with and passed by France Telecom, which announced in June 2002 losses close to 70 billion Euros. At the end of May, the English Vodaphone, the most powerful mobile telephone operator in the world, also announced a deficit of 19.7 billion dollars in the course of the last fiscal year. As if by chance, these were the three countries that paid most dearly for UMTS licences and now found their telephony the most in debt in the world.
What really happened in the European section of the ‘information society’? An International Economic Tribunal – today hypothetical but much needed – with the power to punish the great economic crimes against humanity, would surely have condemned this fraudulent ‘escape in advance’. Indeed, what the Scandinavians sold to the European Community in 1999, the Community to its fifteen member-States and finally the member-States to its operators, was nothing but smoke – a purely theoretical UMTS technology, perhaps half-operational in 2004, more probably in 2008, and moreover without a guaranteed market. Commonsense suggests that the true Internet, where we can consult complete pages of the Encyclopaedia Britannica or Le Monde, will never fit onto the micro-screen of a portable phone.) Only two French companies suspected trickery and withdrew in time.
Just a few years ago it was being said that one hour of telephone conversation between Europe and the USA would not cost more than one dollar, and that the use of submarine cables by the bog operators would fall to a ten-thousandth of a dollar per hour. Useless to dream, like their Internet colleagues. Telephony companies are now trying to recover at whatever cost the hundreds of thousands lost. Farewell, then, cheap telephones! We and our children will have to make good the losses of two of the most gigantic speculations in economic history, and if we are from the Third World and, above all, Latin American, at a higher price than the countries of the North, which we always end up financing. (According to a joint study by the Economist Intelligence Unit and Eurodata, Venezuela, Argentina and Mexico have the most expensive international telephony in the world, surpluses that go from now on into the pockets of the multinational owners of local networks.)
If only in its economic dimensions, the ‘information society’ has started off very badly. Marshall McLuhan dreamed of a global village woven of reciprocities, without local bosses or speculators. Things turned out differently. Giant speculative bubbles of the Internet kind; frankly dishonest schemes of the UMTS kind; fraudulent and hyper-corrupt bankruptcies along Enron and Global Crossing lines; serious conflicts of competition of the Berlusconi kind, with flagrant abuse of a dominant position in private and public communication; colossal and antipluralist concentrations in the domains of production, sending and spying on messages, etc. raise many legitimate doubts about the chances the ‘information society’ will have to become a genuine society that is democratic and plural.
All of this impels us to think seriously (and the World Summit on the Information Society may be the place for this) about the need for a kind of International Tribunal for Information and Communication capable of judging the economic crimes and attacks on pluralism and private life that will surely happen again and again in this domain in future. This is an idea that may only come about in ten or twenty years’ time. Too many tribunals, you might say. Plato said that justice might well be an invention of the poor to defend themselves against the rich. Who knows? We must expect of globalisation that it also globalises judicial powers, so that no one can again commit injustices at the global level and that the administration of justice comes to be universal and democratic.
Presentation given at the Latin American encounter on ‘And why not a communication society?’, Quito, Ecuador, 10-12 June 2002. Part of the Communication Rights in the Information Society (CRIS) campaign supported by WACC. The encounter was co-organised by UNESCO, WACC-Latin America and the Friedrich Ebert Stiftung.
Note
1. Throughout the article one billion refers to 1,000 million, not one million million.
Antonio Pasquali was former Assistant Director General of UNESCO for Communication.
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