David Cleevely is the founder of Analysys, and Managing Director of Analysys Group. He is a leading authority on the digital economy, regularly commenting on industry trends and prospects at international conferences and in the media.

He has also worked with governments at a national and supra-national level to create the policy frameworks which encourage innovation and growth. He advised the UK government on its ecommerce@its.best.uk report, and, most recently, contributed to government thinking on convergence and the Internet.

David was a prime mover behind the development of the Cambridge Network, which promotes the high-tech activities of the Cambridge region, primarily via an Analysys-designed Web site. He is also Chairman of Abcam (the world's first totally Internet-based antibody company) and VBN, an Analysys spin-off which provides hosted Web sites for organisations wishing to develop online communities.

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Let's start with a couple of observations:

• world trade is increasing. According to the World Bank, in 1990 world trade was around 22% of world GDP. By 1999 this had risen to 28%, an increase of almost one-third.
• open economies grow faster than closed economies. A recent World Bank study showed that economies which were open to trade and investment grew 1-2% per annum faster than those which were closed.

Why are trade and investment important? Traditional economics say that if a country is good at producing something, then it should trade this for something where it is not so efficient. The result of this trade is a gain for everyone - especially if the unit costs fall if more is produced. But many people feel slightly uncomfortable with the idea that open economies and trade are the answer to everything.

This kind of reaction puzzles economists. The economically rational thing to do is to exchange goods - trade the things you are good at producing for the goods someone else can make better than you. Why should it matter how this happens? It matters because if I open myself up to foreign competition, this compromises the control I have over my own destiny. I may find myself just buying goods from competitors who are getting better and better and never be able to transform my own economy.

So we know we have to trade, because the World Bank statistics demonstrate this leads to growth and prosperity, but we also know that trade by itself is not enough. Perhaps by looking at some world trends in the communications sector - a sector which will have huge effect on all our futures - we can find a way through this conundrum.

Firstly, the basic costs of technology are falling all the time. Moore's law states that the cost-performance of electronics doubles every 18 months. But this huge rate of change applies not only to electronics but also to optical technologies. The result is that information processing and communications are rapidly getting cheaper and more plentiful, goods and services can be produced more cheaply, and people buy more.

Then the really interesting effects cut in. Information and communication technologies (ICTs) are subject to huge economies of scale. Everyone knows that if you produce one copy of some software, it's cheap to supply extra copies, especially if you can distribute them over the Internet. So the more you sell, the cheaper the software becomes. The same applies to integrated circuits (once a fabrication plant is built, producing extra chips is relatively cheap) and to telecoms networks (especially once you start to deploy optical fibre technologies).

The implications of this are profound. For example, the Ford motor company has re-engineered all of its global production into specialised centres instead of having 'mini Fords' in different regions of the world. If distance is no longer a constraint, and operations can be run in different locations which take advantage of the comparative advantages of a particular location, then they will be operated at a global level. The only reason many companies did not operate globally before was that it was too difficult and costly to co-ordinate. By operating globally, a company has much larger markets which it can address. It's no wonder that world trade is rising so fast.

However, all of this comes at a price. There is strong evidence of a concentration of power, as global producers and global brands become increasingly common. Potentially the outcome is less and less variety. It could be that the price we pay for efficient global markets is dull uniformity.

This should worry us. Variety tells you that a system is healthy, just as you can tell the health of an ecosystem like a rainforest from the number of species it can support. Damaged habitats support fewer species. The same is happening to the global economy. Many companies are becoming extinct as they find they cannot cope with the sudden influx of competition. Many economies suddenly find they have new species in their midst, like MacDonalds or Amazon. The advent of ICTs - especially the Internet - have dramatically accelerated a process which has been going on for more than 200 years.

There was once a hypothesis that the Internet would allow many more, smaller companies to compete and prosper, but this seems to be disproved by the evidence. Over the past five years, the top 5% of Web sites have attracted an increasing share of the global Internet traffic - up from 50% in 1990 to perhaps 85% today. That's a huge increase in concentration and a huge drop in variety. And what if we apply this logic to our sector - communications? Conventional wisdom dictates that gradually the smaller players in this market will find that they do not have the necessary economies of scale (since they are not big enough) or scope (since they cannot sustain enough variety in the offerings) to compete. One by one they will be picked off by the larger players until only a few giants remain.

However, in this case conventional wisdom is only mostly true. I say mostly, because there is another force at work which could give us cause for optimism - innovation. Globalisation is inevitable, but reduction in variety is not, since it depends on how fast companies which are disappearing are being replaced with new ones. Unlike ecosystems, where the creation of new species is a slow process, you can foster the development of innovation - new companies and new ideas - which more than make up for the erosion of variety resulting from globalisation.

ICTs have the power to transform our lives and to lead to great prosperity. But we must be aware that globalisation - which is now being driven largely by the use of ICT - has the potential to reduce variety and choice. The response to this should not be to turn away from globalisation. Instead, it is more important than ever to foster innovation, participate with those countries and companies which are leaders in the field, and so contribute to an increase in the variety of the world economy.