The great power of Adam Smith's invisible mouse

THE internet has created textbook conditions for capitalism.

THE internet has created textbook conditions for capitalism.

In the depths of the global financial crisis, Kevin Rudd claimed we were living in a time of "truly seismic significance" when "unchecked market forces have brought capitalism to the precipice". The state had to regulate the private sector to save it from itself, Mr Rudd wrote. He got the first bit right -- the world economy is changing in a way unimaginable a generation back. But although humanity still suffers from financial folly and fraud, the free market has sprung from the precipice -- and soared. We live in an age where the internet provides a marketplace that is the nearest thing yet to a classical economist's utopia, the perfect market where individuals have perfect information and where there is perfect competition available with a click of a computer mouse. It is a time where new and nimble entrepreneurs can compete with, and beat, enormous organisations that have dominated markets for decades. It is an era where entrepreneurs create new uses for digital devices that their inventors did not envisage. Most important, we live in an epoch when capitalism is doing what Adam Smith understood in the 18th century it one day would: improving the lives of ordinary people by providing them with the power to buy the best products at the most competitive possible prices. One of the enduring criticisms of classical economics is that consumers have never had all the information they needed to make rational decisions -- they do now.

And Australians know it, demonstrated by the derision that has greeted big retailers' complaints that consumers buying online from overseas stores, which charge no GST, is unfair competition. In response, people point to prices that are much higher here than overseas and to poor service in Australian chain stores. Consumers have no sympathy for large retailers demanding the government do them a favour by levying GST on those of us who shop outside Australia from home. It is a response to gladden economists' hearts, showing Australians understand that pushing up the price of imports to help local manufacturers or resellers of everything from clothes to cars is a tax on everybody else. Above all, it demonstrates the power of the purse is now in the hands of ordinary people. For the moment, the retailers are over-estimating the danger of the cyber mall. Just 3 per cent of Australian retail sales are online and only 10 per cent or so of that figure are made overseas. But the ability to access information on products and prices anywhere in the world means retailers' monopoly on sales here is over. Digital distribution of books and music has already transformed both businesses (seen a retail music shop lately?) and seems certain to do the same to cinemas and TV stations -- as well as newspapers.

The internet is knocking on the head any claim big corporations will always crush small competitors. In the internet age, ideas, not capital, are the currency of success and competitors offering new services will emerge, just as social networking did in the past decade. And it does not take a vast marketing budget or sales network to build a global business anymore. The internet has supercharged the flow of information, creating markets and opportunities all over the world. Welcome to the golden age of capitalism, Mr Rudd.