Culture is Just Another Word for "Arbitrage Opportunity"
9/23/1999
 
Britain's Tory party's use of ecommerce as an argument for retaining the pound is a 
new high-water mark in the internet's influence on politics. Britain has been sitting 
on the fence for years about whether to scrap the pound in favor of the euro, and there 
has always been a significant block of British "euro-skeptics" who fear that economic 
convergence equals loss of sovereignty and national character. The Tories would love 
to embrace these euro-skeptics (and their votes) by pandering to their sense that a 
strong pound stands for a self-sufficient Britain, but have been wary of doing so because 
rejecting the euro looks like a vote for economic weakness. With the rise of ecommerce, 
the Tories now think they can have it both ways -- by mixing "new economy" optimism 
with flag-waving they can embrace economic expansion while defending their cultural 
traditions against international dilution, a position likely to resonate well with the 
euro-skeptics. They are certainly right that a borderless economy could help preserve 
the pound, but if their aim is to defend Britain's cultural identity, they will rue 
the day they ever heard the word ecommerce.  
 
National character is driven by economic barriers. What a citizen eats, reads, drives, 
watches, and wears is shaped simply by what's available, and what's available is shaped 
by borders. Tariffs and customs sharply restrict the movement of both goods and services, 
so countries differ from one another in part because each population has different 
limits on their choices in the marketplace. Any cross-border commerce -- McDonald's, 
Louis Vuitton, Jackie Chan movies -- breaks down these cultural limits on choice to a 
degree, but ecommerce makes national borders so permeable that now it isn't even 
necessary to open a shop in another country to start doing business with its citizens.

In an age of falling geographic barriers, culture is just another word for "arbitrage 
opportunity." Until recently, geographic borders protected local businesses from serious 
international competition, but cross-border commerce is changing all that. Britain is 
currently seeing this in the form of a price war in consumer goods, precipitated by 
Wal-Mart's entry into a market that has never seen a low-cost retailer before. The euro-
skeptics have grasped that joining the euro will expose Britain to far more of Wal-Mart's 
style of ultra-efficient price-driven competition, but they have not grasped that 
keeping the pound and embracing ecommerce is no solution. Differing currencies are no 
longer much of a barrier -- with online currency converters, foreign ecommerce companies 
offering cheaper goods to British citizens can switch prices from euros to pounds 
instantaneously.

The Tories are relying on the pound's symbolism as a barrier to foreign competition. 
But what they don't mention is that embracing ecommerce and rejecting the euro will 
increase international competition faster than embracing the euro and fighting 
ecommerce. There are of course uniquely British products which are safe from competition 
-- blood pudding, bagpipes, marmite -- but these aren't much of a counterweight to those 
products where quality and price matter far more than national origin -- computers, 
books, cars, not to mention airline tickets and stock trades. By vastly increasing the 
width of choice offered to British consumers (and therefore the depth of competition 
faced by British producers), ecommerce will make the pound as a symbol of an aloof 
Britannia irrelevant through other means. No matter what currency their goods are priced 
in, a borderless economy will weave their island inextricably into the fabric of the 
world.