The internet is a precious achievement. But as its reach extends into more of our lives, so does the fear that it is undermining national standards in everything from crime prevention to taxation. If politicians around the world cannot agree on some basic rules, a backlash will force them to act.by / June 20, 1999 / Leave a comment
Published in June 1999 issue of Prospect Magazine
As recently as the early 1990s, the internet connected no more than 200,000 people (mainly academics) around the world. Today it reaches over 163m people and is set to double its reach within 18 months. Even the most die-hard sceptic must now accept that the internet is a very big deal indeed: Goldman Sachs predicts that by 2007, more than 70 per cent of all households in the richer OECD countries will have internet access; the number of people in Britain who are on-line at home or in the office is now estimated at 7m, with 10,000 joining every day.
But the internet does not merely generate impressive statistics. It has become a commonplace that it will change our lives in several important respects. Education and our information storage and display systems, from publishing to libraries, are in the front guard. Business (especially retailing and financial services) is catching up. E-commerce revenue around the world is estimated to rise to $623 billion in 2002, from about $41 billion in 1998.
The internet is both a cause and an effect of globalisation. It is a quintessentially modern phenomenon, which throws up large questions about the feasibility of specifically national customs and laws-from censorship and privacy to taxation. So far these have been mainly addressed by the internet’s own American-dominated, laissez-faire, “techie” culture, and by the few people in business and government who understand the issues. Most of the baby boomers who now run the western world are comfortable enough using the internet, but hitherto they have left what happens behind the screen to the experts. This is the new “two cultures” divide: between those who understand some of the technical and political issues involved, and those who are content just to enjoy the new services provided.
My own experience with an earlier generation of technology illuminates some of the problems with this divide. I first became interested in computers in 1981, the year I was elected to the Greater London Council, of blessed memory. To my surprise, I found myself running the committee overseeing computer services. Before I had taken up my new position, I was called at home by a union official who organised within ICL, then a threatened remnant of Britain’s computer industry (now a successful subsidiary of Fujitsu). My caller told me that a huge contract was about to be let by the GLC for a new mainframe. I was told it was important that ICL got a chance to pitch. I asked: “What’s a mainframe?” There was a long sigh from the other end of the line.
When I finally got to my office, I was approached by Ron Sims, head of central computing services at the GLC, who said: “We have a large contract for a new mainframe and it has to be decided soon. Lots of people will want to speak to you about it and I am here to help you make the right decision.” I later learnt that we were already an IBM house, and while ICL did submit a tender, there was really no contest. I was clearly advised that a decision to go with anyone other than IBM was a decision to scrap everything we had already installed and start again. IBM got it. I was not making a real choice. I was not even familiar with the vocabulary being used.
Over the next five years I spent about ?30m on computers. My officers would come to see me with their neat blue folders and draft reports, to outline why we needed a new triple-reversed multiplexed quadrilateral hyper-dongle, or a node-based vertically integrated neural network with triple redundancy safety features built-in. I was shocked by how little support I had over these issues. My officials had been committed to their own technical agenda for years, and there were strict limits on whom I could speak to outside. This was partly because of commercial sensitivities, but also because most people were already aligned with one or another set of interests.
I tried to solve my dilemma by getting in touch with the anorak within. I read widely, went on courses and found that I had an aptitude for technology. It should not have been like that, but, 18 years later, not enough has changed. In Britain, the government has just announced its intention to appoint an “e-tsar,” to lead a campaign to get more British businesses and individuals on to the internet. But outside techie culture, most of the issues remain undiscussed.
in the internet’s own organisation, and in the values and assumptions which underpin it, one thing stands out: the net is American. The internet was invented by the US (although adapted for popular use by the Englishman Tim Berners-Lee) and more than half of internet users today are in the US.
Sputnik is the father of the internet. In 1957 the American political and military elite was shocked to hear that the Soviets had launched the first satellite to orbit the earth. The US government announced the formation of the Advanced Research Projects Agency (DARPA) within the Department of Defence, with the task of establishing a US lead in science and technology with military uses. In 1969 DARPA founded ARPANET, a communications network based on telephone lines, which linked together several universities and was a forerunner of the internet.
The internet, as the name suggests, is a network of inter-connected networks all using the same technical protocol, TCP/IP. E-mail is the most widely used application on the internet; the world wide web (with its 700m pages of information) is the best known. But the internet’s chat rooms and newsgroups also rely on TCP/IP. The Internet Society oversees the working groups responsible for agreeing the internet’s technical specifications. At the heart of this cooperative venture are three bodies: the World Wide Web Consortium (W3C), the Internet Engineering Task Force (IETF) and now, responsible for internet addresses, the Internet Corporation for Assigned Names and Numbers (ICANN). ICANN recently replaced a monopoly first awarded by the US government to the company Network Solutions, Inc. Last month, ICANN named five new companies which will take over responsibility for maintaining a single directory for the whole world.
The Internet Society, with headquarters in Virginia, has 16 trustees on its managing board, nine from the US, five from Europe, one from Japan and one from Australia. W3C, headquartered at MIT and with a British director, is a little more cosmopolitan. But in all parts of the internet it is the enormous technical sophistication and purchasing power of US companies which is helping to sustain US hegemony. The resources at the disposal of firms such as Microsoft, Sun, Oracle, IBM and Cisco mean that any new piece of technology with relevance for the internet is bought up immediately by a US company.
US dominance of the various bodies which run the internet is a mirror image of its dominance of the computer software and hardware industries. If you are surfing the internet your computer will almost certainly be running on a Unix, Windows or Mac-based machine, using either Netscape Navigator or Internet Explorer to interact with the web. And if you have not got an Intel chip inside, it will probably have come from one of the other US manufacturers.
The absence of a single point of authority is often considered one of the internet’s great strengths. This may have been the case when the focus was on negotiating new technical protocols. But-especially with the advance of e-commerce-far larger policy questions are emerging, which in many cases touch on sensitive areas of national interest, such as crime, terrorism and tax. The lack of established mechanisms for resolving political disputes means that the status quo prevails-and that is nearly always American.
Consider this problem in relation to two big policy “clusters”: first, “Home Office” questions associated with crime, pornography, privacy, national security and encryption; second, “Treasury” questions surrounding e-commerce, tax and economic regulation.
Nobody knows exactly how much crime is carried out on the internet. But, given the size and reach of the internet, and its capacity for allowing undetected action, it is hardly surprising that crime appears to be growing fast. The first acknowledged internet bank robber was Vladimir Levin of St Petersburg who, between June and August 1994, diverted several millions of dollars from Citibank accounts. Such hackers are still a problem, particularly for financial institutions, but this sort of crime seems to be becoming rarer as protective firewalls are improved. The bigger problem may be financial scams and get-rich-quick schemes, promoted through unsolicited e-mail (hitherto made too expensive by the cost of printing and mailing the literature).
At any one moment there are about 20,000 “chat rooms” operating on the internet. A few of these are used by paedophiles to trade between themselves in child pornography and even to entice children into meetings. They are also used to make contacts or exchange information about a range of other criminal activities, particularly drug related. The ease with which people can fake an identity on the internet adds to its attraction for criminal networking.
Moreover, the internet is a huge source of hard-core pornography. In 1996 President Clinton tried to introduce a Communications Decency Act (CDA) which would have restricted the operation of US porn sites. But Congress made the draft legislation even more restrictive, and the Supreme Court struck it down as an infringement of the right to free speech. So the US’s First Amendment and the opinions of US judges have become a de facto internet standard. The internet is now awash with hard-core pornography which could not legally be displayed in Britain. One response to this has been to take action against the Internet Service Providers (ISPs), such as Compuserve, which carry such material. In Germany, in 1996, a manager of Compuserve was given a two-year suspended jail sentence for abetting the publication of Nazi propaganda, and Australia is introducing legislation which will require ISPs to block illegal or offensive material. In Britain, at present, things function more informally. The Internet Watch Foundation (which works closely with the police) informs ISPs when they are carrying, for example, illegal child pornography, and they then remove it. But this only works with British-based ISPs. Another response, with which I am closely involved, is to devise a new global system for classifying material published on the internet, which will allow people greater control over the material on their screen. But a persistent difficulty has been the need to accommodate American legal and political sensitivities.
Privacy is another area where American practice conflicts with other countries, especially in Europe. One way of thinking about the internet is as a giant information collection and retrieval exercise, much of which leaves your footprint behind. The EU has a very tight law governing the collection and use of personal data. Under this law, any information collected about an individual can only be used for the purpose for which it was given; it cannot be used for any other purpose without the individual concerned providing consent each time. The US has a more lax approach. If you buy a sausage on the internet, you are likely to receive a sprinkling of e-mails and promotions from other companies trying to sell you meat products. EU law is being broken thousands of times every day by US companies. And while discussions are taking place between Brussels and Washington, US practice is prevailing. European law is being undermined, and law-abiding European companies are put at a disadvantage.
The American approach to privacy also dominates the debate about encryption. There are a great many potential points at which e-mails can be intercepted. If you were suspected of a criminal or terrorist act, the police could obtain a warrant which would allow them to read your communications. But the arrival of widely available strong encryption software has changed that. This software enables an internet user to convert data into a code which is uncrackable by anyone without the right key to unlock it. For the first time, criminals, spies and terrorists will be able to set part of their activities beyond surveillance. Such software might also encourage more opportunist crimes by people emboldened by the knowledge that the authorities cannot reach their data.
The US government fought for years to stop the export of strong encryption software from the US, and wanted its sale to become conditional on a buyer being required to lodge keys with a trusted third party. In the event that the authorities needed to access the data, the key would be available. This policy, known as “key escrow,” found little support within the OECD, but until recently it was supported by the British government. In the face of near universal opposition, especially from banks and other business interests, and bearing in mind that strong encryption could be bought on the internet or over the shop counter in several countries, Britain has changed its position. The e-commerce bill which is just going before parliament supports a voluntary key escrow system. Nobody expects criminals, spies and terrorists to lodge their keys, but such a system might at least inhibit opportunist crimes. Tony Blair recently said that it is now up to the software industry to come up with solutions which will help maintain the status quo ante for the law enforcement agencies. The public will find it hard to forgive an industry which has handed criminals the ability to put themselves beyond reach.
The US is sharply divided over these issues-between, crudely, the FBI lobby and the libertarian lobby, and because there is no majority in Congress for legislation, the libertarians win by default. Both business and “techie” interests in the US have an aversion to big government (which often means any government). This is exemplified by Phil Zimmermann, the inventor of PrettyGoodPrivacy (PGP), the internet’s most popular strong-encryption programme. I asked Zimmermann how he justified making his technology available to criminals. He said that he invented PGP as a means of helping the citizen “to maintain the status quo ante.” Inverting Blair’s logic, Zimmermann argues that as the electronic age advances, so the ability of the state to intrude into our lives advances, too. “And I could think of no way of making PGP available to the public without also making it available to criminals.” Then he added: “Let’s not forget, governments have killed far more people than criminals.” This may sound odd to most Europeans, but for American libertarians it is a commonplace. The internet, for them, is like the Wild West; they are fighting the coming of the railroads. At the heart of the engine which drives the internet is the potential for a huge clash of political cultures.
e-commerce represents a tiny percentage of world trade, but there is a universal conviction that this is on a steeply rising curve. The market is still dominated by business-to-business trade, but business-to-consumer trade is starting to take off, particularly in retailing and financial services. No doubt many types of recreational shopping will continue to take place in the high street, but shopping on the internet, which combines the convenience of telephone shopping with the product visibility of mail order shopping, could shake up the retail sector throughout the developed world. Consumer confidence in on-line financial services is also growing, including equity trading on the internet (about which the US authorities are becoming increasingly alarmed).
In 1998, western Europe generated only 14.5 per cent of all e-commerce revenues ($6 billion), compared to about 75 per cent ($31 billion) in the US. By 2002 the gap is supposed to start narrowing, but many predictions about the internet have been wrong, and there are grounds for believing that, far from being caught up by the rest of the world, the US will pull further away.
One reason for this is the attitude of the US government. Last time I was in Washington I met Ira Magaziner, then the senior official dealing with e-commerce. He was disarmingly frank. He identified the internet as the force which will drive the world economy in the coming period and said that this gave US commerce a huge advantage: “We’re going to use our head start to get a bigger share of world trade.” The US government wants its businesses to prosper; European countries want their businesses to prosper. This should not be a zero-sum game. But unless the EU wakes up to the extent of US domination, it will find its own businesses severely handicapped.
Speaking recently at an EU seminar, Martin Bangemann, the commissioner with responsibility for e-commerce, told a story about the pharmacy business in his own country, Germany. The sector is mainly based on local shops which rely on price-fixing to stay in business. “Pretty soon a German housewife will sit at her computer and go to the web site of a US company, legally based in Belize, with warehouses in north Africa, which will not only sell items to her which she could otherwise only get by going to her doctor for a prescription, but she will pay less than she would in Germany, and they will still arrive by air mail the next day.” Most German consumers would probably regard that as a benefit. But they may not be aware of its potential to undermine their national systems of consumer protection, tax policy and even medical ethics.
Responding to the internet is difficult for the EU. Levels of internet use vary significantly across member states, and there is the problem of 11 different languages (not to mention France’s former commitment to Minitel, a completely separate French network). Also, decision-making within the EU can be painfully slow; 18 months is a lifetime on the internet, but it can take that long to get an item listed on a Brussels agenda. But the questions are urgent. How are taxes to be collected from internet transactions? How can we resolve commercial disputes over international transactions taking place on the internet? Should regulation apply in the country of production or consumption? How will consumers be protected?
These questions also beg the larger question: do we want a global minimum standard for the internet-with the risk that the lowest common denominator will be too low; or do countries want to insist on their own standards, as far as technically possible, with the risk of losing the internet’s global interconnectedness? The growth of e-commerce will bring some of these questions to a head. With the trend away from taxes on income, e-commerce could remove another large slice of government revenue. British tax and customs authorities are still relatively sanguine about the problem, but they say that there are potential dangers ahead with taxpayers using the internet to conceal their identity and transactions. The VAT authorities also seem relaxed about trade involving physical goods-such as buying a book from Amazon.com-as these can in principle continue to be accommodated by the rules which apply to mail order business. Where they do admit there is a problem is when people buy certain types of goods-software or videos-by downloading them directly from the internet and paying with a credit card number.
In all such discussions, the importance of greater international cooperation is repeated like a mantra. And some things are happening. Last year the OECD organised a large conference on e-commerce in Ottawa, and sections of both the OECD and the World Trade Organisation work persistently on these issues. Moreover, useful cooperation has taken place between the national police forces of the G8 members and Interpol. But internet politics also provides a case study in the difficulty of global governance-especially in the absence of US leadership and any sort of global institution.
In the absence of rules, those who are already strong get stronger. This is true of companies as well as countries. In the early days of the internet, people used to talk about the small Australian surfboard-maker selling his wares directly to enthusiasts in California and Cornwall. In theory, everyone still has the same opportunity to reach anyone anywhere in the world, but with the funds needed for large-scale marketing, and with the power of brands continuing to grow, the internet could actually lead to greater homogeneity. If grocery shopping on the internet does take off in Britain, it is not likely to bring back the virtual corner shop. Tesco already offers internet shopping in 11 shops in London.
The high stock market valuations of some of the newer internet companies have allowed them to issue new shares to make expensive acquisitions of competitors. Amazon.com, which started as an internet book shop, has now diversified into CDs and videos and has recently acquired a 46 per cent share in the internet pharmacy, Drugstore.com. It may not yet make money, and its share price may fluctuate rather wildly, but it is building a potentially unassailable position in its field.
The stock market love affair with these stocks showed some signs of fading after Netscape-at one point valued at almost $10 billion-was bought by AOL for $4.2 billion earlier this year. But, just before Easter, Priceline.com, an internet shopping and travel service, was valued soon after its flotation at $11 billion. Priceline had been trading for less than a year, with losses of $114m on revenues of only $35m, but, as John Cassidy of the New Yorker wrote: “It had achieved a stock valuation almost as large as American Airlines. American Airlines owns valuable route franchises and reservations systems, to say nothing of airplanes. Priceline.com owns some high-powered computers and an easy-to-remember internet address, and that’s about it.”
more and more bandwidth capacity is becoming available on the internet, which means that download speeds are increasing, and it is becoming increasingly easy to use. As the quality of video available over the internet begins to approach the standards of domestic television-indeed, as the internet begins to be integrated into our televisions-it will become ever more ubiquitous. With these increased possibilities will come new dangers, especially to children. The internet has the capacity, at two clicks of a mouse, to bring criminals into your living-room, and to bring material into children’s bedrooms which would turn your stomach. There have been abductions and even murders in which the internet has been a key link in the chain of events.
The questions of pornography, encryption, taxation and so on, are not technical matters. They cannot be resolved quietly by committees of experts. They touch cultural nerve endings and in some cases uncover large cultural divides-especially between the US and the rest of the world. If we do nothing about them, we may find that we have sleepwalked into some unwelcome changes to our lives.
The internet is a huge and precious human achievement. It opens up possibilities which could not have been dreamed about only 20 years ago. But if it comes to be seen as pulling us in a direction most of us do not want to go in, it will provoke a backlash, probably as part of a larger wave of cultural protectionism. In the US the backlash seems to be getting under way already. In a poll conducted after the recent school shootings in Colorado, 34 per cent blamed the internet for the death of the children. An internet link has also been made with the recent London nail bombs. The internet, which promises to bring so many together, can also tear apart.