As the fat lady sings for HMV, the internet is helping build a better future

It has been a week of crushing victories for the internet. It continues to claim victims among retail firms blindsided by the web’s 24/7 stores, with their limitless inventories and weightless products. With thousands of jobs on the line, and hundreds of shops at risk of closure, it would be easy to see the change as a bad thing.

But this process of creative destruction, while cruel for those caught up in it, works to enlarge opportunities while better satisfying human needs. In 1900, America employed 109,000 carriage and harness makers. The rise of the automobile relegated buggy whips and related paraphernalia to a niche industry, but the fresh entrepreneurial energies released expanded the US economy sixfold and job opportunities fourfold between the 1890s and the 1940s.

I was reminded on Tuesday of another way in which modern information and communication technologies are changing our world for the better. I attended a performance of La Boheme, not at the Royal Opera House but at the Empire Leicester Square.

The arts have long been viewed as a model case of Baumol’s cost disease – the hypothesis that certain sectors are unable to increase their productivity at the same rate as the rest of the economy, resulting in either relative wage declines or the need to push up the cost of their products to consumers at far more than the rate of inflation. Healthcare and education are often cited as other sectors plagued by the disease.

As a diagnosis, Baumol’s cost disease can be questionable. It risks being used as a cover for inefficiency. For example, the cost of medical care in the US has grown by 250 per cent since the 1980s, while university fees have risen by 440 per cent. But perverse incentives in the structure of the markets, and a proliferation of highly-paid administrators, have also had a role to play in both cases.

Yet the productivity challenge is real. Just as it is impossible to perform a Bach cantata significantly faster than it was in the eighteenth century, school days, class sizes and doctor visits all have natural limits.

At least until now. I was delighted to see Bank of America Merrill Lynch supporting this week’s cinema screening of La Boheme. But opera’s bottom line is also boosted simply by its newfound ability to sell one performance simultaneously across 800 extra venues worldwide. In the same way, disruptive technological projects now in progress could radically reduce medical and educational costs. These include the $10m (£6.3m) Qualcomm tricorder X Prize – a competition for a device that can diagnose diseases without a doctor – or the Khan Academy and the Minerva Project, respectively reinventing school and university education for the internet age.

My own profession faces almost as many challenges from the web as retail. But the only way to deal with such shattering change is to accept its consequences and embrace its potential: cheaper medicine and education, wider access to great art, and retail products at cheaper prices from virtual stores that never close.

First published: City A.M., 18/1/13

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Filed under Art, Business, Economics, Film, History, Innovation, Technology

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