Policy Implications of the Digital Economy


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Clyde Wayne Crews Jr., VP for Policy and Director of Technology Studies at the Competitive Enterprise Institute, wrote about the splinternets concept for Forbes in 2001, calling splinternets multiple Internets “where prespecified ground rules regarding privacy and other governance issues replace regulation and central planning.”

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Policy Implications of the Digital Economy

  1. 1. Cato Institute Benefactor Summit, February 2001 Technology Studies Wayne Crews [email_address] Policy Implications of the Digital Economy
  2. 2. Internet Privacy (1) Open Access vs. Competing Networks Intellectual Property Selected Issue Areas (2) Competing Internets as an Alternative to Regulation Governance Spam Trespass
  3. 3. <ul><li>Competition in the creation of networks is as important as competition in the goods, services and content sold over those networks. </li></ul><ul><li>Private ownership and control, even if the property is long and thin. </li></ul><ul><li>Access must be the invader’s problem. The irredeemable problem of mandatory open access. </li></ul>Principles : Open Access vs. Competing Networks Reject the notion of &quot;Natural Monopoly&quot; Size of the regulated component must shrink. Inefficiency of actual government monopolization outweigh potential abuses by private sector. Does Open Access Have It Wired -- Or Tangled?
  4. 4. Nonetheless, Battles For Mandatory Access Grow <ul><li>AOL/TW </li></ul><ul><li>Cable open access </li></ul><ul><li>Electric utilities </li></ul><ul><li>Visa/Mastercard </li></ul><ul><li>B2B exchanges </li></ul><ul><li>Undersea fiber </li></ul><ul><li>Microsoft OS </li></ul>Government’s apparent driving policy? First artificially create scarcity, then misallocate it! Would markets have created such entities?
  5. 5. If Not Open Access, Then What? <ul><li>Competing networks and new ownership models </li></ul><ul><li>--who is in the game? </li></ul><ul><li>Electric utilities – End to franchise </li></ul><ul><li>Long-distance and local phone companies </li></ul><ul><li>Cable companies </li></ul><ul><li>Water utilities </li></ul><ul><li>Gas companies </li></ul><ul><li>Railroads </li></ul><ul><li>Interstate highways and Amtrak corridors </li></ul><ul><li>Real estate developers </li></ul><ul><li>Deals with private landowners </li></ul>
  6. 6. Justification? There Is a Need for New Infrastructure <ul><li>Consider the Bandwidth Trickle </li></ul><ul><ul><li>Without breakthrough in satellite or wireless, must extend fiber to the home </li></ul></ul>
  7. 7. Downloading Titanic <ul><li>28,800 bps modem takes 16 days to download Titanic (4.7 gig) </li></ul><ul><li>ISDN line (128,000 bps would take over 3 ½ days) </li></ul><ul><li>Even cable modems would take an hour . And c opper DSL will always be just a few percent the bandwidth of fiber </li></ul><ul><li>cable often transmits data only one way </li></ul><ul><li>Satellites not workable for conferencing or gaming </li></ul>None of today’s options are fast enough for future digital needs! So private infrastructure is needed—very likely fiber to the home.
  8. 8. <ul><li>Electric restructuring crucial </li></ul><ul><li>Power companies getting into telecom and vice versa </li></ul><ul><li>Existing competing grids (Lubbock, TX, Alma, MI) </li></ul><ul><li>Water transportation infrastructure needs $138 billion </li></ul><ul><li>Advances in materials science improves control of power flows </li></ul><ul><li>Direct current distribution options </li></ul><ul><li>Sideways Directional Drilling </li></ul><ul><li>Railroad upgrades and rural “short-liner” spin-offs </li></ul><ul><li>Learn from the California crisis: Power “bandwidth” is needed too </li></ul>
  9. 9. <ul><li>Meanwhile, the “Photonics” Revolution is already creating pressures for the push to the home </li></ul><ul><li>Qwest 18,000 mile, largely underground network and empty conduits. (“rail plow” 120 miles per week.) </li></ul><ul><li>Level 3 (burying nine empty conduits) </li></ul><ul><li>Residential Communications Network (“gunning for homes”) </li></ul><ul><li>“ The House that Jacks Built” (Boston Optical) </li></ul><ul><li>Power lines as data and voice networks. </li></ul>                          
  10. 10. Natural Monopoly? Project Oxygen Satellite Networks Fiber-Optic Link Around the Globe
  11. 11. Examples built without eminent domain expropriation <ul><li>Koch Industries’ Corpus-to-Dallas 420-mile proprietary pipeline </li></ul><ul><li>TransCanada Power non-utility power line, and </li></ul><ul><li>Algonquin Power transmission line </li></ul><ul><li>Why important? Helps avoid common carrier, </li></ul><ul><li>open access regulations </li></ul>
  12. 12. And If All Options Fail, Still No Case for Universal Access... <ul><li>The likely effect of all the foregoing is -- open access without coercion . But if not... </li></ul><ul><li>Still a role for deal-making </li></ul><ul><ul><li>Offer access to one’s own system in exchange </li></ul></ul><ul><ul><li>Newcomers can fund labor costs, reinforcement, construction, tech. upgrades and maintenance in return for access </li></ul></ul><ul><ul><li>User ownership </li></ul></ul><ul><li>Retaliation, threats and rivalry can induce access </li></ul><ul><li>Finally, “rifle shot” access preferable to universal, managed access </li></ul>
  13. 13. Conclusion: Regulation Unable to Mimic Competition <ul><li>Open access assumes away the problem of ignorance. Proper market structure between polar extremes must be discovered </li></ul><ul><li>Government should not induce in voluntary trade—the essence of forced open access </li></ul><ul><li>Profit incentives to invest should be protected </li></ul><ul><li>Remember, the “network boom” is inter-industry </li></ul><ul><li>Regulation does not guarantee fair prices anyway </li></ul>
  14. 14. Success! <ul><ul><ul><li>(1) GENERAL RULE – [A] State, political subdivision of a State, or political authority of two or more States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any [Network] provider. </li></ul></ul></ul><ul><ul><ul><li>Adapted from: Title VI, Sec. 601 of the Federal Aviation Administration Authorization Act (1994), which preempted state regulation of intrastate trucking carriers. </li></ul></ul></ul>
  15. 15. The Bandwidth Issue Leads to… Competing Internets as an Alternative to Regulation
  16. 16. Main Question: <ul><li>Who owns what </li></ul><ul><li>in the online world? </li></ul><ul><li>No one has the right to have the Internet regulated on their behalf. However, </li></ul>
  17. 17. Despite Wild-West Reputation, Growing drive to Regulate <ul><li>Over 400 bills impacting the Internet in 2000. </li></ul><ul><li>Already dozens of bills introduced in 107 th Congress </li></ul><ul><li>Regulation from Vices to Devices </li></ul>from W. Post
  18. 18. Existing Rules Impacting the Net <ul><li>COPPA </li></ul><ul><li>Software Filters </li></ul><ul><li>Anticircumvention of copyright technologies </li></ul><ul><li>Worldwide </li></ul><ul><ul><li>China’s “Great Firewall” </li></ul></ul><ul><ul><li>Myanmar (Burma) Outlaws Internet Entirely </li></ul></ul>
  19. 19. <ul><li>Banning the Vices: Internet Gambling and Porn </li></ul><ul><li>Electronic Privacy </li></ul><ul><li>Internet Tax </li></ul><ul><li>Spam Legislation </li></ul><ul><li>Network Security </li></ul><ul><li>Trespass on the Net </li></ul><ul><li>Others </li></ul><ul><ul><li>French court ruling against Yahoo! </li></ul></ul><ul><ul><li>Council of Europe Cybercrime treaty </li></ul></ul><ul><ul><li>Italy’s investigation of Internet regulation </li></ul></ul>A Web of Regulation From vices to devices
  20. 20. Individualism and the Internet <ul><li>With common property, only have two options: </li></ul><ul><li>Regulate it, or privatize it. </li></ul><ul><li>Anarchy on the commons won’t last. And those who don’t want regulation won’t win every policy battle. </li></ul>
  21. 21. <ul><li>Internet freedom requires a foundation of private property </li></ul><ul><li>Hardware privatized, but not governance </li></ul><ul><li>New infrastructure inevitable, so starting with the right premise means fostering a range of owned as well as open networks with different ground rules instead of top down regulation. </li></ul><ul><li>The “Splinternet” alternative to Internet regulation provides a way out of cyberspace regulation. Internet technology is critical—not necessarily the Internet as it happens to exist today. </li></ul>So what does reform require? But can this really happen?
  22. 22. <ul><li>Made possible by fiber growth, cross-industry alliances, and explosion in “data centers” and Storage Area Networking </li></ul><ul><li>Bill Joy’s “Six Webs” </li></ul><ul><ul><li>desktop, entertainment, pocket PC, voice recognition, e-business, embedded systems </li></ul></ul><ul><li>Wireless Application Protocol </li></ul><ul><li>GeoVideo Net </li></ul><ul><li>eKIDS Internet </li></ul><ul><li>Plus SilverTech Inc.’s “Private Internet Engines” </li></ul>Emerging Splinters
  23. 23. Splintering Can Help Privacy Encryption, anonymizers and other software -Consumer responsibilities Encryption and Privacy Policies -Vendor responsibilities Excludability -The missing element on a public network
  24. 24. Network Security Issues <ul><li>If you don’t take care of and secure your network, it hurts me. </li></ul><ul><li>A National Security Council official argued the need for a second, secure Internet. </li></ul><ul><li>Need to be able to keep “Mafiaboy” off altogether </li></ul>
  25. 25. Other Issues <ul><li>General Infrastructure/Governance </li></ul><ul><li>“Trespass” and Web Robots </li></ul><ul><li>Spam </li></ul><ul><li>Domain names </li></ul><ul><ul><li>.aero? </li></ul></ul><ul><li>Anonymity </li></ul>
  26. 26. <ul><ul><ul><li>Internet Taxes </li></ul></ul></ul><ul><ul><ul><li>Encryption </li></ul></ul></ul><ul><ul><ul><li>Intellectual Property </li></ul></ul></ul><ul><ul><ul><li>At least worth noting how government helped create this problem. </li></ul></ul></ul>Splintering Can't Solve Everything
  27. 27. <ul><li>We are perched at an important point in business history in terms of the growth of network industries. Crucial to embrace property rights, including the right to deny access to rivals. </li></ul><ul><li>Meanwhile, the rollout of proprietary networks offers an opportunity to re-think Internet governance while the Net is still “young.” </li></ul>
  28. 28. Remember the Last Time We Saw “Man Controlling Trade”?
  29. 29. Well, if you want to try that in the digital economy… <ul><li>… just </li></ul><ul><li>remember </li></ul><ul><li>this </li></ul><ul><li>guy. </li></ul>