<nettime> fwd: r. j.solomon: remarks on net regulation

[t byfield <tbyfield@panix.com>]

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Date: Tue, 14 Sep 1999 18:47:31 -0400
To: ip-sub-1@admin.listbox.com
From: David Farber <farber@cis.upenn.edu>
Subject: IP: Would the U.S. Government regulate the
     Internet? And how will this come about?
     by Richard J. Solomon
Reply-To: farber@cis.upenn.edu

<x-flowed>[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?

</x-flowed>

---backwarded


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