The government goes offline

By Neil Munro and National Journal

November 22, 1999

The sovereign power of nation-states and national governments rose in lockstep with artillery and the Industrial Revolution-and will probably shrink as the age of mass production is supplanted by the information-powered age of catalogued, customized, cross-border consumerism.

For decades, nation-states have been losing autonomy on the big issues of war and wealth because democracy, international trade, global financial markets, and the spread of conventional and nuclear weapons have all eroded their power. Over the next few years, the Internet will restrict their sovereignty in the not-so-big things-taxes, regulation, and public expectations. This will happen, say technologists, because the Internet gives consumers the power to trade directly with suppliers of goods and services located in foreign jurisdictions.

This power allows border-jumping consumers to bypass Chinese censors, German anti-Nazi laws, and French culture-protection rules. And it allows U.S. consumers to evade federal, state, and local rules-even those rules the consumer-citizens have voted for in elections. With the Internet, they can buy U.S. medicines without domestic prescriptions, trade multinational stocks without oversight by the Securities and Exchange Commission, purchase goods without paying sales tax, view obscene images or gamble online, and hire foreign-licensed lawyers, doctors, accountants, bankers, and real estate agents.

Because AOL is allowing consumers to trade freely with people in other jurisdictions, "we are going to question the whole concept of sovereignty," said George Vradenburg, public policy chief for America Online, which provides Internet service for 20 million customers. Governments also sometimes find their laws nullified by new technologies developed by companies and by voluntary groups such as the Internet Engineering Task Force, a group of individuals and company employees who cooperatively update the basic software of the Internet. Companies develop technologies such as desktop computers, for example, which can be used to design sophisticated weapons, so bypassing export-control laws. Encryption software can be used to hide funds from tax inspectors, pay foreign clients, frustrate court-approved searches for evidence, and create digital money beyond the control of Treasury departments. In many cases, this "West Coast Code" of software and technology trumps the traditional "East Coast Code" of regulations and laws, says Lawrence Lessig, a law professor at Harvard University. For example, on Nov. 10, the Internet task force voted overwhelmingly against a change that would help telephone calls made via the Internet to be tapped by police armed with a judge's approval, just as ordinary telephone calls are tapped.

But the Internet and the World Wide Web of sales and services are just the most obvious elements of the trend away from the sovereignty of nations and toward the sovereignty of the individual. The new technology is intertwined with a broader alliance of commercial and intellectual forces that oppose national sovereignty for reasons of free trade and personal freedom in social and economic matters. Generally, the U.S. government welcomes these changes because they boost the economy. Sometimes the government resists, most notably in the ongoing antitrust case against Microsoft Corp., in which the company argued that the supposedly unique nature of the very competitive and constantly changing high-tech industry has rendered traditional antitrust rules obsolete.

Most often, important sectors of society bolster the trends fostered by the Internet. These include the judges who, in the name of personal freedom, demand government neutrality on issues such as pornography; politicians who favor deregulation, privacy, and low taxes; political advocates who work assiduously to protect all speech or to maximize personal autonomy; voters who oppose or mistrust government mandates; and companies that are eager for free trade. For example, White House Press Secretary Joe Lockhart recently urged Congress to drop a proposed law regulating the use of Internet addresses such as Whitehouse.com.

Instead, said Lockhart, Congress should leave the task to a new nongovernment panel, the international Internet Corporation for Assigned Names and Numbers. The high-tech industry is confident that the trend is toward deregulation. Thus, Thomas P. Vartanian, chairman of the American Bar Association's panel on cyberbusiness law, predicts that within several years, the U.S. federal and state governments will abandon their monopoly over consumer protection laws. This they will do, he says, by giving Internet-using consumers the freedom to choose which law governs each online purchase, just as they are now free to choose the make, color, and warranty of the car they buy on Main Street.

For example, an online buyer could choose to buy a product from a vendor in a jurisdiction that has tough consumer protection laws, or choose instead to buy the product at lower cost from a jurisdiction that has no consumer protection laws. This "choice of law" vision is eagerly embraced by companies such as AOL, who would rather not have to comply with a myriad of laws in the many countries where their customers are based. "The faster that business acts [to promote choice of law], . . . the more likely it will be adopted, and government will accede," said Vradenburg.

This "choice of law" question, said one government official, "is amazing, it's enormous." But so far, he said, the Administration has neither embraced nor rejected the idea.

Overall, predicts Lessig, this combination of technological, business, and intellectual trends will soon produce a psychological change among U.S. citizens. Because they increasingly find their personal and financial interests affected by global-rather than national-issues, many U.S. citizens will come to see themselves as citizens of the world, he predicts. Such a change would mirror that seen in the 1850s and 1860s, when struggles between the states over slavery caused citizens of the states to recast themselves as citizens of the United States, sharply reducing the states' role in governing them, he argues.

That's a perspective echoed by U.S. technology companies, many of whom earn half of their revenue overseas. According to Vradenburg, the Internet "will slowly change the relationship between consumers, citizens, and the government" over the next five to 10 years. This rollback will still leave government with many important functions, he said, such as managing traffic, ensuring public safety, setting transportation policy, overseeing education, providing an economic safety net, and enforcing contracts "no matter where the seller resides and where the buyer resides."

Many Internet industry officials share these expectations, and industry publications reflect them. "I expect to see the overthrow of the U.S. government in my lifetime," wrote Richard L. Brandt, the senior contributing editor of Upside, last July. Because of the Internet, he continued, "local laws are unenforceable globally, [and] the lowest common denominator-in other words, the weakest laws-will win." Upside is a business magazine based in San Francisco.

But this libertarian, deregulatory trend toward sovereignty for each consumer is running into several counterforces. Even if governments don't get new powers from technology, they will still preserve their own sovereignty because of their power to trace cash, extradite suspects, and jail lawbreakers, said Solveig Singleton, a technology analyst at the libertarian Cato Institute.

Also, technology will take new and unexpected directions that could enhance government power. IBM did not predict its own displacement by the once-subservient Microsoft, and Microsoft did not foresee the rise of the Internet, the spread of free, public software, or even the antitrust lawsuit that has lately preoccupied it. So privacy advocates worry that information technology could create a surveillance state, in which little would be hidden from government officials or marketing vice presidents. For example, companies are eager to identify online consumers, mostly so they can enforce contracts and tailor services for each consumer. Consumers often welcome that identification technology, but multiple governments could use it to cooperatively apply their various laws to cyberspace. Thus, the U.S. Medicaid program could refuse to reimburse U.S. citizens when they bought medicines from online vendors based in other countries, and U.S. law could attack online casinos by allowing U.S. citizens to repudiate betting debts.

Governments could also use the technology to implement each other's laws-to keep German citizens from buying Adolf Hitler's Mein Kampf from U.S. booksellers, and to prevent Danish kids from viewing online advertisements by Disney, said Lessig. Although many rich or educated people could bypass these laws and technical curbs, most citizens and most companies would comply most of the time, predicted Lessig. They would comply because the costs of noncompliance-fines, lawyers' fees, embarrassment-would outweigh the benefits, he said.

Despite all this technology, consumers could simply decide en masse to act as citizens-so reviving national sovereignty-and demand that government fix some marketplace problem, regardless of what contracts consumers had signed. Some of these eruptions have already occurred. In San Francisco, voters recently outlawed the extra fees many banks charged the users of automatic teller machines, and in Washington, federal legislators are trying to remove the liability protection en-joyed by health maintenance organizations. (The HMO industry should be counted as a high-tech sector because it relies on sophisticated computers to control the cost and supply of medical services to customers around the nation.) More narrowly, entrepreneurial trial lawyers in Texas won a $1 billion judgment against Toshiba Corp., a Japanese computer-maker, for a modest fault found within its computers. Little or no actual damage was reported, but the company accepted the settlement, partly to avoid the risk that a jury of citizens would impose a multibillion-dollar punitive damage award.

A broader backlash could hit the online industry if it fails to win customers' trust, warned Vradenburg. To head off the danger, he urges government support for alternative dispute resolution procedures similar to those created by the credit card companies to settle disputes between card users and vendors. For example, AOL could referee a dispute between one of its subscribers and a foreign online vendor, and could eject a recalcitrant vendor from AOL's cyberspace mall, he said. Still, "the legal systems won't catch up with this" technology trend, he said.

Jonathan Weber, editor in chief of The Industry Standard, a San Francisco-based business magazine, similarly agrees that the answer resides not with law but with business. When the Internet renders state and local governments largely powerless, he says, what's needed to offset the voters' "loss of local control and [the] depersonalization that comes along with it" is better customer service. Of course, excellent consumer service is often dependent on technologies that identify consumers and track transactions-both of which many privacy advocates firmly oppose.

Even if companies' customer service partly supplants politicians' constituent service, however, government and citizens still ought to reorder the marketplace when necessary, argues Lessig. For example, music, media, and movie companies can prevent the copying of copyrighted music, online vendors can monitor every step consumers take in cyberspace, and firms can display pornography to children despite parents' desires. In all these cases, technology supersedes political decisions formerly decided by voters and legislators, he argues.

In the case of copyright protection, anti-piracy technology can eviscerate a right that citizens enjoy under the long-standing "fair use" provisions of copyright law-the right to freely quote, display, record, or caricature snippets of articles, movies, and songs. Companies could use this anti-piracy technology to automatically demand payment whenever a consumer copied, borrowed, snipped, or replayed their words, images, or tunes. Indeed, people acting as citizens can sometimes create more liberating conditions than those that result when people act as consumers in the marketplace, Lessig argues.

For example, parents' dislike of widespread Internet pornography has spurred the development of software to filter out the pornography. Parents can use such filters at home, but companies are also likely to use them to shelter their customers from unpleasant information about poverty, crime, or corporate malfeasance, said Lessig. But citizens in a democracy should know about these unpleasant things, he argues. So governments should curb the spread of such filters by legislating against Internet porn, he said.

Numerous nongovernment organizations are trying to sway these outcomes, usually in opposition to industry. For example, unions in the United States and consumer groups in Europe oppose many free-trade proposals urged by industry. Also, the John and Mary R. Markle Foundation has declared it will spend $100 million over the next five years to "help ensure that public needs are served by emerging communications media and information technologies." As a first step, the foundation has donated funds to help citizens vote in upcoming elections for nine officers of the international Internet Corporation for Assigned Names and Numbers. Other U.S. groups are promoting Internet legislation that promotes privacy, curbs pornography, or boosts consumer protections. But Lessig doubts that government can reassert its role, partly because so few academics and political advocates are willing to accept government restriction on personal autonomy for the benefit of society.

In Congress, the reaction to the changing role of government is muted, partly because legislators are more concerned with boosting the growth of the high-tech industries, winning elections, and resolving other controversies. Longer-term issues tend to fall by the wayside in the day-to-day rush, especially if a legislator sees immediate advantages coming from the advance of technology.

For example, Rep. Bob Goodlatte, R-Va., is a social conservative who supports economic deregulation and the easy sale of encryption technology, but who also wants to curb online gambling and Internet obscenity. "Those people who want more-liberalized standards," said Goodlatte, "are aided by the fact that it is increasingly difficult to police the Internet.

. . . [But] I am someone who believes in limited government, reducing taxes, supporting free enterprise, and individual responsibility. All of those things are major opportunities-and challenges-of the Internet."

However, "people will demand to be protected and [want] a facility to deal with cross-territory problems," such as a recession or privacy violations, said Sen. John F. Kerry, D-Mass., who sees a continued role for government. Moreover, the Internet has broadened the opportunities for citizens to act through local governments and community organizations, he said.

Still, most observers in Congress and industry agree that whatever happens to national sovereignty in the next decade, today's policy decisions-or nondecisions-are going to have major consequences. As Vradenburg's boss, AOL Chairman and CEO Steve Case, says repeatedly, "the Internet is big enough to matter, but small enough to be shaped."


By Neil Munro and National Journal

November 22, 1999

http://www.govexec.com/federal-news/1999/11/the-government-goes-offline/5125/