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.

Photo: Getty Images
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The future of policing is still at risk even after George Osborne's U-Turn

The police have avoided the worst, but crime is changing and they cannot stand still. 

We will have to wait for the unofficial briefings and the ministerial memoirs to understand what role the tragic events in Paris had on the Chancellor’s decision to sustain the police budget in cash terms and increase it overall by the end of the parliament.  Higher projected tax revenues gave the Chancellor a surprising degree of fiscal flexibility, but the atrocities in Paris certainly pushed questions of policing and security to the top of the political agenda. For a police service expecting anything from a 20 to a 30 per cent cut in funding, fears reinforced by the apparent hard line the Chancellor took over the weekend, this reprieve is an almighty relief.  

So, what was announced?  The overall police budget will be protected in real terms (£900 million more in cash terms) up to 2019/20 with the following important caveats.  First, central government grant to forces will be reduced in cash terms by 2019/20, but forces will be able to bid into a new transformation fund designed to finance moves such as greater collaboration between forces.  In other words there is a cash frozen budget (given important assumptions about council tax) eaten away by inflation and therefore requiring further efficiencies and service redesign.

Second, the flat cash budget for forces assumes increases in the police element of the council tax. Here, there is an interesting new flexibility for Police and Crime Commissioners.  One interpretation is that instead of precept increases being capped at 2%, they will be capped at £12 million, although we need further detail to be certain.  This may mean that forces which currently raise relatively small cash amounts from their precept will be able to raise considerably more if Police and Crime Commissioners have the courage to put up taxes.  

With those caveats, however, this is clearly a much better deal for policing than most commentators (myself included) predicted.  There will be less pressure to reduce officer numbers. Neighbourhood policing, previously under real threat, is likely to remain an important component of the policing model in England and Wales.  This is good news.

However, the police service should not use this financial reprieve as an excuse to duck important reforms.  The reforms that the police have already planned should continue, with any savings reinvested in an improved and more effective service.

It would be a retrograde step for candidates in the 2016 PCC elections to start pledging (as I am certain many will) to ‘protect officer numbers’.  We still need to rebalance the police workforce.   We need more staff with the kind of digital skills required to tackle cybercrime.  We need more crime analysts to help deploy police resources more effectively.  Blanket commitments to maintain officer numbers will get in the way of important reforms.

The argument for inter-force collaboration and, indeed, force mergers does not go away. The new top sliced transformation fund is designed in part to facilitate collaboration, but the fact remains that a 43 force structure no longer makes sense in operational or financial terms.

The police still have to adapt to a changing world. Falling levels of traditional crime and the explosion in online crime, particularly fraud and hacking, means we need an entirely different kind of police service.  Many of the pressures the police experience from non-crime demand will not go away. Big cuts to local government funding and the wider criminal justice system mean we need to reorganise the public service frontline to deal with problems such as high reoffending rates, child safeguarding and rising levels of mental illness.

Before yesterday I thought policing faced an existential moment and I stand by that. While the service has now secured significant financial breathing space, it still needs to adapt to an increasingly complex world. 

Rick Muir is director of the Police Foundation