If all international trade was done through eBay, the world would be 30 per cent richer

Frictionless trade is closer than ever before online, according to a new paper.

If all trade was as frictionless as it is on eBay, the world's real income could be almost 30 per cent higher, according to a new research paper from the European Trade Study Group, in a phenomenon known as the "death of distance".

The study looks at a dataset of cross-border transactions performed over eBay, modified to only include sales from businesses which were concluded with a fixed price; in other words, no auctions, and no customer-to-customer sales. While this removes the majority of transactions from their dataset, the modification is necessary to make eBay sales more accurately represent offline trade.

They find that, unsurprisingly, the effect of distance on trade volume is lessened online. Controlling for standard trade costs "such as the absence of a common language, a common legal system, a border, a colonial history, or a free-trade agreement", the distance effect is 65 per cent smaller online than offline.

That effect may be due to a mixture of three different frictions on trade: shipping costs, information frictions (you can, after all, only export to a country if you know someone there who wants to buy from you), or trust frictions.

Shipping costs appear to have little to do with the death of distance online – partially, it appears, because they have little correlation with distance. For instance, the average shipping cost, as a proportion of the cost of the item, is less from the USA to Iceland than it is for shipping from the USA to Canada or Mexico:

Instead, the real reduction in friction comes from the provision of both trust and information; as a result, "the distance-effect reduction is largest for exporting countries with high levels of corruption and which are relatively unknown to consumers, as measured by Google search results."

Worldwide, the increase in real income achieved by the reductions in distance effects is equal to 29 per cent, but that increase is spread very unevenly. At one end of the extreme, Brazil would see an increase in real income of 80 per cent, if only it could conduct all its trade with the rest of the world as efficiently as it does when that trade is on eBay.

At the other end, Belgium would actually lose out. It currently gains from information frictions, and would lose 0.9 per cent of its real income from trade if those frictions were abolished. It is the only country in the dataset which would lose out in such a way, though, and Britain would be up by over 40 per cent.

Of course, the study doesn't address every aspect of the online world. One of the reasons why eBay is so frictionless is that the company takes a (rather large) cut of the transaction in order to keep that infrastructure maintained. If all the world's trade was carried out on eBay, its annual revenue from international transactions alone would be in the order of $400bn, a significant increase on the $12bn it's earned in the last year. And let's not even talk about the Paypal fees.

Still, the paper strikes a blow in favour of those of us who think there are still significant gains to be made from the online economy.

eBay. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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