How are National Markets initiated?

After proving the concept with pilots, step one is to accept that the potential of state-backed e-markets can only be released if they are recognised as a natural monopoly. Why is this so? Why couldn’t government bestow its favours on multiple competing marketplace systems?

	Government’s parcel of benefits (listed below) can’t be given out indiscriminately. That would encourage rogue operators who dump their responsibilities on the state.
	In every market sector buyers want to be where there are most sellers. Sellers want to list where there are most buyers. Consolidation is inevitable. Why try to force fragmented markets in the digital age?
	Leverage. Initiating one coherent system creates a huge commercial opportunity for operators. This enables the legislation to mandate expensive obligations while pushing transaction charges down.

The "monopoly" being offered does not include any restrictions on other marketplaces. There will still be many types of online exchange, but only one system will have state backing. It adds to the choice available for buyers and sellers.


The tender process:

The legislation to initiate National Markets allows a winning consortium to run such a system for perhaps 15 years, retaining all the profits of their cut on transactions. In that time they alone will have a package of government granted facilities including:

Benefits offered to the consortium by Government
Automated relationship with the courts	Disputes between users are referred into the courts by the system. Courts input judgements in ways the system can enforce: eg downgrading a seller.
State bodies issue compatible PINs	From driving licences to fire certificates for premises to exam results. Any authorisation by the state comes with a code the recipient can use to prove his status to National Markets.
No-counterparty status	National Markets are not legally a party to any contracts they enable.
Pump priming	All applicable public spending goes through the new system unless better value is clearly available elsewhere.
Taxation policy	Without overly favouring the system, fiscal policy will be altered to encourage workers currently in the black economy into National Markets trading.
De-regulation	Markets as diverse as Insurance, Coach Travel and Land Use need new laws that will allow even the smallest seller into the market for even the shortest length of time.
Banking status	The system can hold (digital) cash for its users and link directly to other bank accounts.
System fully independent of the state	Tax authorities, welfare investigators and so on can only access system data through an open court order. Users need not fear surveillance.
Registration through post offices etc.	There can be no facetious identities in the system. Registration is based on sight of official documents. That can happen immediately at any post office.

Government should not be giving this out free, there are accompanying obligations on the winning consortium:

Obligations imposed on the consortium
Public access kiosks	Everyone in the country has to have access to the new system from day one. In deprived areas where Internet penetration is low the winning consortium has to fund a specified number of public kiosks.
Interfacing with public bodies	All the costs of connecting the new system to the entire public sector are to be met by the consortium.
No manipulation of markets	System programming must be such that there can be no favoured sellers. It just creates the best match based on the buyer’s stated needs.
No use of data	There is no exploitation of data about users for marketing or segmentation purposes. The system does not analyse individual users.
Transparency of operation	The system’s core code is published openly, to be checked by anyone who believes it is not behaving as it should. If published code does not match actual code, sanctions are triggered.
Tax automation	The system will calculate the tax due on every individual transaction and deduct it at source if the seller wishes.
Government can re-allocate in case of failure	If there is serious infraction of the above, or the system does not meet specified performance levels, the whole operation can be re-tendered.
No-charge facilities	In time the system might run no-charge facilities (voting for instance). The extent of this needs to be made clear to the bidding consortia.

This package of unique benefits with accompanying obligations is put out to tender. Each consortium is asked to specify the one flat rate percentage mark-up they would need to put on transactions across all markets in the system for their 15 year concession if they were to operate the system. The qualified consortium committing to the lowest percentage mark-up wins the tender.

It’s worth doing the sums: fractions of 1% as the transaction charge could still create astonishingly profitable businesses over 15 years. Once the tender is awarded government gets out of the way and - within its mandate - the consortium are free to make purely commercial decisions while the clock is ticking on their period of concession.


Ensuring national control:

Even with all the controls embedded in the obligations a winning consortium, likely to be international, could quickly acquire a pivotal position in the national economy. This would be politically unacceptable.

The tender document needs to additionally insist on a split between the consortium who own the central servers powering the system and individual franchisees who run the actual front end marketplaces. One person will operate the market for car mechanics for instance, another drives the manufacturing facilities sector while an unrelated franchisee has every incentive to push the gardening services market. All franchisees are nationals who have agreed a split in the system’s flat rate mark up with the consortium.

The system grows through new franchisees coming forward either to launch new sectors or sub-divide existing ones as turnover expands. There is no controlling powerbase at the heart of the system. It’s a federal network with checks and balances.


Value added services.

Once functioning, National Markets will be a basic, regulated, utility. Anyone can repackage any part of the service, applying additional rules on top. A web-market for Catholic babysitters? A “personal services” exchange that masks real names during a transaction? A supermarket branded market for local shopping deliveries?

Anyone can set such services up on top of the National Markets service so all deals flow through the system, racking up users’ reliability records and ensuring all the protection unique to the main system. Each value added service has its own identity, adds whatever charges it chooses and compiles its own policy on user data. If any of these services go bust there’s minimal inconvenience, the user still has their relationship with the underlying system.


Why can't this get going without government ?





© Guaranteed Markets Ltd (UK) 2005. Some of the technology disclosed is patent pending. "NEMs" and the chained faces logo are trademarks used with permission. All rights reserved.