FC: Would the US Government regulate the Net? (by R. Solomon)

[Declan McCullagh <declan () well com>]

[Forwarded via Dave Farber]

I agree and disagree with the author, Richard Solomon. I agree, of course,
that
governments are trying to regulate the Net. The reasons are well-known:
Taxation, law enforcement demands, stability, "public interest," and so on.

But the author makes errors that make me question the analysis. For one thing,
he writes "the CDA may be unconstitutional," but everyone else, including the
Supreme Court, seems to know it is ever since 1997. (Perhaps this analysis is
three years old?) In another place he says "Republicans more often than
Democrats bring key anti-monopoly actions," when in fact peer reviewed
research
by antitrust scholars shows that Democratic administrations are twice as
likely
to bring antitrust suits as GOP ones. He says "federal influence over
infrastructure was anticipated right from the beginning," and gives
currency as
an example, but private and state currencies flourished, as the founders
apparently intended, until the feds gave themselves a monopoly with the
Federal
Reserve in the early 1900s. And to me, "public interest" can be best served by
keeping meddlesome bureaucrats out of our hair. Finally, it seems that we
should ask three questions instead of the sole one he poses: 1) Will the Feds
pass laws/regulations to control the Net? 2) Are such measures wise,
justified,
and Constitutional? 3) If not, what can be done to thwart them, such as
deploying anonymous remailers and other privacy-protecting technologies?

In any case, I invite and shall forward responses.

-Declan

---

[Richard J. Solomon is the Chief Scientist of the UPenn Center for
Communications Technology and Policy and the  co-author with Lee
McKnight and Russell Neuman of The Gordian Knot: Gridlock on the
Information Highway (MIT Press, 1997)

Would the U.S. Government regulate the Internet? And how will this come about?

"Richard J. Solomon" <rsolomon () dsl cis upenn edu>

I've answered the first question already: it is naïve to think that
the Federal Government (not to mention the other 191 world
governments) won't impose regulations on the Net, and it is naïve to
think that any such infrastructure with the threat to completely
influence society and change power relationships - as advertised by
the Net's own hypists and promoters - can possibly avoid
entanglements with the Government. To think that cyberspace doesn't
follow the rules of political power as demonstrated over centuries of
human civilization is to exhibit a complete ignorance of history and
social behavior. The rules are quite simple, though the execution is
always very complex:

1) as in nature, power abhors a vacuum;

2) all politics is local (sic, Tip O'Neil), especially democratic politics.

That stated, I first offer a disclaimer before addressing the second
question of how (& when): I do not necessarily think that government
regulation is always to the good, nor knowing how complex and
all-embracing web technology is (and will become even more so) do I
think that regulation will work to achieve either the goals of
government or the public interest. There will be many cases of
enacting Laws of Unintended Consequences - indeed with the Telecom
Act of 1996, we have some good instances of that already. The problem
as I read history is that you often get what you don't want if you
ignore the problems (whether you get what you need is moot).

What, then, is the historical evidence for regulatory inevitability?
And how may these parallels and precedents evolve for something
admittedly as unique as internetted digital processors? In the United
States federal influence over infrastructure was anticipated right
from the beginning, with the Commerce Clause in the Constitution
reserving certain powers to the central government which affect
interstate commerce. Control of the currency was one of them, with
the clear understanding that monetary devices can make or break a
union. Only the Federal government may coin value - e-currency
notwithstanding. My best guess is of all the things that can bring
Federal oversight of the Net, things that have to do with creating
and capturing intrinsic value will be the straw that breaks - either
e-money, or gambling, or stock market Ponzi schemes, or the right to
tax.

But there are more powerful historical scenarios. I will describe in
brief take four relevant cases, three leading to regulatory
intervention and one which delayed significant governmental
intervention, but finally succumbed. All exhibit the two basic
principles of filling a power vacuum and locality.

The railroads began as small-scale, quasi-governmental/private
businesses. As scale increased to meet demand these hybrid entities
ran into financing constraints. The general solution was to privatize
these nascent firms to raise capital, which as an unforeseen
consequence created new forms of private monopoly powers, new centers
for monopoly rents, and led to other more insidious practices. Yet
these new cartels, with unrestricted ability to hike rates and
control traffic, still would not risk capital for frontier
infrastructure - so they lobbied for land-grants and cash handouts
from the Federal and state governments, leading to further abuses of
the public purse, bribery, corruption, and a pretty awful
transportation mess by the late 19th Century. Countervailing powers
eventually enabled government to rein in the railroads, power
emanating from a complex "strange bedfellow" matrix of shippers,
suppliers, farmers (more than 80% of the electorate in the 1880's),
and even railroad magnates and financiers themselves. A few violent
railroad wars, with real guns, and real deaths, may have helped
convince more responsible railroad executives that stability and
business practice moderation might be a win-win. Yet, attempts at
self-regulation were an abysmal failure, so finally the national
government was invited to act, though at first with a very light hand.

But politics does not proceed in isolation -- before the Federal
Interstate Commerce Act was passed in 1887 (forming a commission that
initially had no real power except to collect data and publicize
abuses), something else happened to alter the polity's mindset. A
crisis was needed to change things. Its nature only indirectly
concerning transport carries an important historical lesson for the
evolution of infrastructure regulation, the Web included.

In the late 1870s there were periods of famine in the growing
metropoli of the Midwest, despite crop surpluses - a systemic
infrastructural problem. One powerful cartel, the Munn Company,
hoarded grain in their Chicago warehouses during a particularly bad
period, setting prices so high that the average city dweller couldn't
afford to pay. Up to then, the principles behind the Commerce Clause
allowing rules to regulate commerce for the public welfare had rarely
been tested in a broad sense. The nice words in the Constitution's
preamble had become distorted too, with key public rights
progressively transferred to private control, as in the use of
eminent domain by railroads to condemn property for rights of way.
Rate regulation was difficult to achieve; anti-monopoly regulation
was equally ineffective, save to inhibit state monopolies; and
service regulation took the form of transferring police powers to
railroad firms (conductors were - and are - policemen, and were even
armed in those days to maintain order, enforce fare collection, and
sometimes to break strikes).

The crisis brought by Munn set one of the major legal turning points
in our 200-year history: by withholding grain from the market the
firm brought on violent attacks by hungry citizens; the Governor of
Illinois called out the militia, and instead of protecting the grain
elevators, as had been expected from past experience, forced them
open to feed the populace. The U.S. Supreme Court (Munn vs. Illinois,
1877), ultimately established the right of government to protect the
public welfare through due process regulation of any form of commerce
which crosses state boundaries -- and almost anything (except, it
seems, local telephone service) affects interstate commerce,
especially starvation. Munn leads directly to the environmental laws
of today, to food and drug regulation, to radio and television
regulation, and indeed, to protect the public weal, to the
Communication Decency Act, and to just about whatever the Feds might
want to do with the Internet which is about as interstate as you can
get. The CDA may be unconstitutional for other reasons (we're all
awaiting the Court's decision on that), but we should remember that
even the First Amendment does not sanction false warnings of fire in
a crowded theater, fake stock manipulations, or practicing medicine
or law without a license.

Munn clearly fits the pattern of a local disturbance filling a power vacuum.

By 1910, the set of weak Federal commerce and antitrust laws began to
get real teeth. The politics behind the Mann-Elkins Act of that year
was again large shippers, small businessmen and bankers who still
yearned for stability, supported by a Republican President and a pro-
business Congress. But just when transport technology began its
inevitable shift to motor trucks and automobiles, instead of
stability railroads got a high level of meddling from bureaucrats -
severe regulation down to the shape of wheel profiles and coupling
devices, maximum speeds, signal design (for safety reasons, of
course, and eventually several billion (that's "b" as in giga)
tariffs filed for every conceivable product and variation thereof.
After some 70 years, and devastating technological and financial
straightjacketing, regulation was almost completely abandoned (except
for the safety aspects) because it simply didn't work.

By then, more than half of our railroad mileage was abandoned, and
employment dropped to a mere fraction of the prewar era. Two
nationalizations were attempted, first in World War I, and again at
the end of the regulatory era in the 1970s. There were numerous
bankruptcies of major firms that were once U.S. leaders.

The railroads have now somewhat recovered, with much
transcontinental, now intermodal, freight back on the tracks, but the
nation paid for wreaking vengeance on the ghost of 19th Century
monopolies. We have virtually no passenger service equivalent to the
highspeed trains of Europe or Japan, and the expensive Interstate
Highway netowrk would have been more useful and efficient as a
complementary rather than a substitute transport system. The
political process that began with simple, somewhat naive regulatory
reporting, and the best of motives, went out of control at just the
wrong time. How was the Congress in 1887 to know that some incipient,
weird device using Otto cycle technology being tested on German
streets would having any bearing on their well-lobbied efforts to
rein in the railroads? Localism called for regulation, and greed bred
a power vacuum.

The ICC seemed such a good idea to handle the extremes of capitalism,
that it set the pattern for other regulatory efforts, especially that
of radio which in the 1920s set a new standard for industry-led chaos
in their approach to spectrum use. A Republican Secretary of
Commerce, Herbert Hoover, pushed the Federal Radio Act of 1927 to
allocate the spectrum and reallocate a set of industrial cartels in
electronics, separating two-way wireline telephone carriage from
one-way radio broadcasting.

In the long run this well-meaning but anachronistic law served to
enforce network monopolies and restrict technological innovation. Yet
an earlier effort by the Federal Government to manage a different
radio technology was an immense success: the Navy got into radio
regulation in 1910 because of safety at sea (before the Titanic
disaster) and this precedent encouraged the Wilson Administration
after World War I to appropriate British and German radio assets and
form the Radio Corporation of America (RCA) as a patent cartel owned
in part by the U.S. Government, General Electric and United Fruit. A
complicated story that began before radio broadcasting as we know it
had even been envisaged (see The Gordian Knot for details). Again,
the Feds were invited by industry to fill a power vacuum, but
localism here took a back seat to national security - another lesson
we should not ignore.

The fourth example of creeping regulation is the exception that
surely proves the rule: AT&T had managed to use its political muscle,
and more important, political acumen, to prevent effective ICC
regulation as authorized by the 1910 Mann-Elkins Act. By making
critical compromises on their monopoly interests and taking a unique
tack towards localism - public service (and lots of effective public
relations) they kept the Feds at bay, but not forever. The vacuum leg
of their strategy (no pun intended) was constructed by filling
technological gaps quite effectively.

This strategy worked well for some 70 years, but eventually
anti-trust actions (which dated back more than 70 years) caught up
and divestiture came in 1984 (under a Republican president, funny how
those things are timed). AT&T's smarts had much to do with its
legendary leader, Theodore Vail, who started his career in the
railroad business and learned a few things about governments,
bureaucrats and regulation. He set a business philosophy that was
able to withstand pressures for nationalization (except for a brief
period at the end of WW I) and technological meddling, with minimal
financial scrutiny for decades, but the Federal and State governments
never let up, and reckoning eventually arrived. Had AT&T pretended
that the government would never get involved in their business and
had not adopted an effective defensive posture, the U.S. long ago
would have had a PTT like most of the world's sovereign states.
Indeed, AT&T could act like a government - funding risky
technological research under rate base regulation, enforcing
interconnection standards, and even representing the government in
international fora. Such a trick would be difficult to repeat today,
though there are some that would try.

Which brings us back to the Internet. The Net - or rather, the Web -
is pretty frightening to power brokers (and lots of other folks), as
it is fun to the rest of us. Communications, particularly realtime,
networked communications has this tendency to intrude everywhere in
civilized life. It is not for nothing that emperors, kings,
potentates, strongmen of all kinds, and representative governments,
to boot, are sensitive as to whom disseminates, invents, controls,
and uses information. We may think the U.S. is immune to such impure
and fascistic behavior, but we don't have a First Amendment because
the Founders and state assemblies were ostriches back in 1789. The
First Amendment exists because our government is very sensitive to
the uses and abuses of information. The Net is not just wired and
optical infrastructure; the battle for eyeballs is not whether hybrid
fiber-coax, copper or radio wins; with interactive hypermedia things
are already different.

When all this internetting started some two decades ago, some of us
said that TCP/IP is more than just bits, that this novel way of
storing-and-forwarding electronic pulses will destabilize not only
the conventional telecom industry, but virtually everything that
communicates, which is virtually everything. So I will add one more
political aphorism to vacuums and locality: "A revolution is not  a
dinner party (Mao Tse Tung)."

The dinner party is over. The Government has guns - the computer
firms (unlike the railroads) do not. We may not like it and I think
it will be a tragedy if not a travesty, but governments will
intervene when crises erupt - their constituents will demand it. And
as American history shows, constituencies can be quite strange and
come out of nowhere with little warning. Republicans more often than
Democrats bring key anti-monopoly actions; Democrats tend to finance
innovations (and revolutions); either way, strange events and
bedfellows are hard to predict, or avoid.

Right now, despite the hype and stratospheric IPOs, the Net really
has very little economic clout. Shopping is miniscule, porn is far
less visible than what we see on commercial television, it's hard to
determine what impact the Web will have on elections, and few
electrons are creating legal monetary tender - so far. So, so far,
there is a some noise (& bills) calling for regulation, but nothing
to push it over the edge. That can change, and change fast.

Here, then, is a list, in no particular order, of crises and events
that may alter the Net's power equation. With the past as our guide,
whatever happens, it will likely be messy, ineffective, disruptive,
and sometimes downright silly, but will surely come and we would be
ahead if we work the scenarios out in advance:

1) money: e-cash, e-shares, e-taxes, and variations thereof.
Governments must control the money flow. It's their essence.

2) scary content - use your imagination, there's lots to be scared
of. Take disinformation as a starter.

3) The inability for the chaotic Net to sustain basic operations - IP
addresses, hostnames, & things that make no sense but make a good
story to motivate politicians.

4) attempts by lesser entities than the state to move in and take
control, and then abuse privileges that come with monopoly rents -
money (again), offensive content (offending the monopoly, for
example), etc.

5) attempts by extraterritorial entities to gain control (we still
have strong anti-foreigner laws about content, more ignored than
enforced, but on the books).

6) something no one has thought of, and therefore most likely to
creep up on us, like Munn's hoarding of grain during a famine. What
essence may the Web hoard?



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