November 1997

Why the Internet will be regulated

As electronic transactions over the Internet become important the question arises whether they will be controlled on the national and international levels. Many Internet enthusiasts dismiss this question as irrelevant. They believe in the myth that “you cannot regulate the Internet.” There is a related platitude, that “a bit is a bit,” meaning no bit can be treated differently from any other, and attempts at control are therefore doomed to fail. Both claims originate with technological determinists. But both myths are wrong even as a matter of technology: a bit is a bit with a certain probability, which can be made to vary. A bit is a bit with a certain priority, which can be-- indeed, must be--made to vary. In most computer communication, a bit does not travel naked but in an envelope, a packet. A packet is identified by its destination and sender. And once one can differentiate, one can control. Of course, there can be ways to electronically defeat such identification. Which leads us to the second fallacy.

The second fallacy is to believe that the Internet is only electronic, which indeed is hard to control. But communications are not just a matter of signals but of people and institutions. Senders, recipients, and intermediaries are living, breathing people, who live somewhere in real space, or they are legally organized institutions with physical domiciles and physical hardware. The arm of the law can reach them. It may be possible to evade such law, but the same is true when it comes to tax regulations. Just because a law cannot fully stop an activity does not prove that such law is ineffective or undesirable.

This most emphatically, does not mean that we should regulate the Internet. But that is a normative question of values, not one of technological determinism. We should choose freedom because we want to, not because we have to. And that choice will not be materially different from those which societies generally apply to the panoply of activities. Why should computer communications be different? As the Internet moves from being in the main a nerd-preserve, and becomes an office park, shopping mall and community center, it is sheer fantasy to expect that its uses and users will be beyond the law. This would seem obvious. Just consider what will happen when the cooperative spirit of the Internet is broken by software programs deliberately set to lie, cheat, and harm others. Yet, many deny the obvious, that the Internet will be dealt with like the rest of the society.

Today, for better or worse, each society will apply its own accumulated wisdom, prejudices, self-interests and misconceptions to the rules governing the Internet.

This is not to say that such rules, or similar ones, are desirable. But they are unavoidable. China is building an Internet backbone that is connected to the world through only set control points. Arab nations are not allowing their citizens full Internet access and are censoring the WWW. Singapore has laws against “improper” usage of the net, and controls all ISPs.

In communications, one should take cognizance of a simple but basic principle: every time one makes a communications flow relatively more convenient, powerful, and cheap, one also makes a traditional communications flow relatively less convenient, less powerful, and more expensive. If one develops new routes of communication, old ones atrophy. When Columbus and Vasco de Gama opened up new trade routes, Venice became a museum. When highways were built, cities emptied. When airplanes speeded up intercontinental travel, professional sports teams could relocate, and Brooklyn lost the Dodgers.

The Counter-Revolution

Similar changes will affect every single one of society’s institutions, just as the industrial revolution changed every one of the feudal structures. But for every revolution there is a counter-revolution. And just as the industrial revolution of the Nineteenth Century led to the romantic movement as a reaction, so does the information age lead to a neo-romantic longing for the lost golden age. Because the revolution is farthest along in America, the counter-revolution is likely to first emerge here, too. This reaction is now marshaling forces in America. Today, a Cassandra industry is in full force, and an avalanche of anti-technology and neo‑luddite literature is rolling in. The leading edge, as always, is the protection of children. Today's fears are the usual suspects in new garb: Impressionable children. Sex. Violence. Crime. Alienation. Extremist potential. Isolation. Information poverty. Cultural Deficits.

Where once lowest common denominator programming was decried for TV, we now mourn the loss of the national dialogue and of the common hearth. Where once youngsters were said not to communicate enough with each other and the world, they now are said to communicate excessively, obsessively, and sloppily.

The Computer Decency Act was adapted as part of 1996 Telecommunications Reform Act. There are similar laws in several states in the U.S.. Such laws will be overturned because the U.S. has a very strong free speech protection in its Constitution. But for other of conduct, and transactions where less Constitutional protections exist, the restrictions will be more enduring.

Contrasting Perspectives on Reaching the Information Age.

In Germany, to paraphrase Professor Henry Higgens in My Iron Lady, Bavaria is at the forefront of pornography protection on the Internet. France, on the other hand, does not seem to care about such things, as long as they are conducted in the French language. Internet servers located in France must be in French. This is the French preoccupation, just as the American one, leading to U.S. controls of encryption technology, is based on its own fears of terrorism, communism, and drugs.

In France, President Jacques Chirac, who saw his first computer mouse only in December of 1996, dismissed the Internet as “an Anglo-Saxon network.” End of argument.

Can National Regulation be Effective?

As countries try to set their national rules on Internet usage, they encounter the problems that their rules can be undercut. I information flows rapidly and cheaply and can be routed to less restricted jurisdictions.

Therefore, countries will attempt international regulatory arrangements to support national restrictions.

International agreements will be unstable

But, in any cartel situation, there are incentives to break it. There are reasons for a country to be a nonuniform “haven.”

Similarly, content-based regulation is near impossible. Content rules depend on values which differ in different societies. Major examples are sexual and political expressions. If an international agreement is a compromise, neither country will be happy. If countries recognize and enforce each other’s rules, there would be many problems. Imagine the United States cracking down, on behalf of the Chinese government, on Chinese dissidents in San Francisco.

For this and many other reasons, if international will be are unstable, the primary regulatory action will have to be taken by a country, not by international arrangements. What tools will a country then use? The answer is: the ones that affect these factors that are less mobile than electronic bits -- people and physical assets. This means that country will regulate static and physical elements rather than mobile or intangible ones, such as content, information, and transactions. If one cannot grab the bits, grab the user or their non-mobile assets.

For example, instead of trying to collect a sales tax (ie, a tax on a transaction, conducted over the Internet), governments may, for example, try to tax the transport of the sold merchandise (a “UPS tax”). Similarly, telephone carriers can be regulated because their infrastructure can be controlled then throwback to an earlier system of taxation. So if these telco folks think that they are home free and clear after ‘96 Act, they are deluding themselves. They will become the enforcment organizations of the state to keep order.

To conclude:

The traditional key levers of the traditional nation-state in the realm of the economy were monetary, fiscal, and regulatory policies. Each one of these will be subject to erosion due to the Internet. Conventional taxation will become difficult; money will be supplied by multi-national firms; and regulation will be undercut. But the traditional state is not powerless. After unsuccessful trying to deal with new issues in the old ways, they will eventually deal with the issues in new ways. That some of these new ways are really quite old will be one of the central ironies of the information age.