Internet Is Ripe for Government Intervention
A prediction for the new century: The information technology industry will be regulated. It’s no longer a question of whether, but rather of what kind of regulation.
Surprised? After all, who would want to kill the golden e-goose? The explosive growth of computer hardware and software and Internet and e-commerce companies has fueled this country’s longest economic expansion. Indeed, even Federal Reserve Chairman Alan Greenspan attributes one-third of our economic growth to increased productivity resulting from the infusion of new technology. Employment in these industries grew at roughly three times the national average in the 1990s. Prices for computer hardware and software continue to fall. Market capitalization of Internet companies soars.
Yet government regulation is inevitable, no matter which party occupies the White House or controls Congress. Here’s why:
* The growth and success of these “new” companies is now taken for granted. In the ‘90s, infotech was thought of as an “infant industry” that should be treated with kid gloves. It escaped regulation under the Telecommunications Act of 1996, and Congress even passed a moratorium on Internet taxation.
Yet now the headlines scream about AOL acquiring Time Warner Inc. in the largest merger in history. Jeff Bezos, head of Amazon.com, is Time magazine’s Man of the Year. In the face of all this media hoopla, there is less constraint on a politician’s professional inclination to want to “do something.”
* People are raising questions about the content of the stores on this new Main Street (how to control or “regulate” sex, gambling, tobacco, liquor, pharmaceuticals). There also is rising public concern about the privacy of electronic information, such as medical and financial records. And some people are beginning to assert a right to computer technology and Internet services. For a politician, “public” translates into constituents and votes--so they listen and respond.
* The past three years have seen a dramatic increase in intra-industry fights evocative of the local versus long-distance phone company wars. Sun, Oracle and Netscape versus Microsoft. Intergraph versus Intel. AOL versus AT&T; and Excite@Home. In each, companies attack a competitor and call for government “assistance” (read regulation). And politicians are good at playing companies against one another.
* It used to be that industry was united on its public policy agenda, such as protecting intellectual property rights against foreign piracy. This unity remains today on such issues as encryption reform and making permanent the research and development tax credit. Yet industry is intensely divided on such issues as intellectual property protection for databases, compulsory licensing of content and software patents. These divisions make it easier for politicians to characterize any government action as “pro-technology.”
* Governments--federal and state--feel threatened by the new technologies that challenge their jurisdiction. Thus the controversy over Internet taxation. Or about which law should govern e-commerce. Politicians are adept at playing off public concern about unconstrained private power to justify government action.
Historically, when the public complaints and requests for intervention by competitors coincide, then regulations result. Recall the re-regulation of cable television in 1988. People had become convinced that they had a right to cable television at reasonable rates. At the same time, broadcast and satellite television companies complained of an unfair playing field.
So the question really is, what kind of regulation will occur? It does not seem likely that a federal internet commission will begin licensing entry and regulating user rates. Yet there are troubling signs that the government could mandate nondiscriminatory access to patented technology and high-speed Internet service; insist that access must be on “fair and reasonable” terms (inserting itself as the arbiter of what is fair and reasonable); impose content control by forcing adoption of private codes of conduct; limit what can be done with certain information, in the name of privacy; and tax e-commerce and subsidize certain services.
Perhaps the best indicator that regulation is coming is the number of companies that already have opened Washington offices, hired lobbyists and established political action committees to make campaign contributions. And those that haven’t are running to catch up.
American information technology companies are inventing the future. In the meantime, they must deal with the political present.
