The case for junk mail: Dear Alan and Will, Sorry. You'll have to try h arder

On Monday, my spouse received a letter from a couple of friends, Alan and Will, urging her to give up her subscription to this newspaper and take The Guardian and The Observer instead.

I suppose it was understandable that our friends should take that view since Alan happens to be editor of the former and Will of the latter. But the tone of their letter was odd. It addressed Frances as Mrs McRae instead of using her Christian name. It failed to note that I happened to write a column in both the daily and the Sunday Independents. It ignored the fact that she, as Frances Cairncross, had written for The Guardian for 10 years and for The Observer before that. Or that I had been financial editor of The Guardian for 14 years before coming here. It even managed to misspell the surname of the editor of The Guardian below the (correctly spelt but fuzzy) imprint of his signature.

Odd? Well, not really because of course the letter had not been sent by Alan or Will at all. It had been sent by a computer.

It was just one example of the extraordinary deluge of junk mail which now arrives through the letter-box every day - I guess like most people half of the stuff we receive is not sent by someone we know but simply because we are on some mailing list. At some stage in the past we must have done something which indicated that we read The Independent and the list was bought by the Guardian group. The development of cheap computing power has enabled databases to be built which tell producers of goods and services a lot about us. Our banks of course know an enormous amount about our spending patterns, our phone companies know about our communications patterns, our supermarkets (if you have a loyalty card) know our weekly purchases, and so on.

This aggregation of data is common throughout the developed world but in Britain there is a further twist. Our postcode system, which enables an address to be identified to within a few houses, has had the side-effect of enabling British homes to be classified in a more precise and detailed way than any others in the world.

But at the moment, despite the plethora of loyalty cards, specialised lists, and post-code classification, it is all very crude. The typical response rate on a standard mailing is 0.75 per cent; anything over 1 per cent is considered to be excellent. So more than 99 per cent of the junk mail is just that. Add in the irritation factor and the waste is enormous. We suffer the invasion of our privacy - being on crude mailing lists where our details may well be wrong - without any of the advantages of better and more targeted services.

This is now starting to change very fast for the whole system is becoming much more intelligent. At last communications are reaching a stage where producers of goods and services can know enough about their customers to be able to help them. Used ethically, the potential benefits to humankind are magnificent.

Three examples, one from the present and two from the near future. The present one concerns the way books are distributed on the Internet. Go onto the net and search for a book. You will find not only how to buy it through Amazon.com or the various other on-line ordering systems. You also get details, reviews, comments, maybe a link to the author's home page if he or she has one, the ability to add in your own comments, suggestions of other books of a similar vein, and so on. I found my own book on the future cross-referenced to Frances's new one on the future of telecommunications. In short, the net is already making precisely the connections which the junk-mailing computers fail to do.

Now throw this forward a few years. Your car signals to the dealer (though the mobile phone) when it needs a service, telling the dealer what has been happening to its fuel consumption or whatever other information the dealer needs. It also tells the dealer how many miles the car is being used in town, what routes are being used and so on. The dealer can contact you and explain that if you switched to a new model, there would be a saving of x pounds a year on fuel. And, if you change route to and from your workplace that would save y pounds. In short, the service provider would be using the information intelligently not just to sell something, but to enable the customer to have either a higher standard of living or a better quality of life for the same input of money.

Now take this a stage further. Suppose all the information about your income, spending, borrowing and saving could be classified centrally and analysed, perhaps by your bank. It would be possible to see whether you were spending too much for safety, borrowing at an unnecessarily high rate of interest, putting too much or too little into a pension, or paying an unnecessarily high rate of tax. The bank could then comb its customers' accounts, and genuinely help them manage things better. It might suggest small adjustments in the way the customers managed their finances that would enable them to have a generally higher standard of living; the bank might on the other hand be able to improve its own services, tailoring them more precisely to what their customer needed. At the moment these services are available to the very rich, who can afford the personal attention of highly paid people. What the information revolution does is to democratise this process, making available to ordinary people the quality of service previously only available to the very rich.

Of course there are dangers. Obviously there is the privacy issue. There are also dangers of social and economic exclusion. We are in danger of creating a system that works for all but the minority who do not have sufficient purchasing power to be worth trying to woo. For the most of us, however, anything that enables producers to connect more closely to the desires and needs of customers must improve the efficiency of the economic system. That is what better information about people can do. The developed world is going to have to rely increasingly on improved quality of information about the way people live their lives to drive living standards higher. We have already extracted most of the cost advantages that can be gained from increased efficiency in manufacturing; the next stage has to be increased efficiency in services and in distribution. Junk mail won't do that; intelligent analysis of what people really want will.