New Types of Capital and New Measurement Techniques
This suggests that businesses need a significant change in accounting that reflects the true value of corporate assets. For much of the twentieth century the physical elements of land and labor dominated accounting values. Today we must acknowledge the value of new types of capital and develop tools to measure them if we are going to understand the role of electronic business in the New Economy.
E-BUSINESS POLICY ISSUES
U.S. Department of Commerce
Mr. Maxwell discussed policy issues that are being raised by e-business, with special attention to the dislocations it causes and the effort to make e-business policies that reflect societal values. The rapidity of change brought about by e-business has drawn attention to these needs, especially since policy evolves more slowly than technology, and much more slowly than business itself, which has strong incentives (“let’s call them fear and greed”) that inspire rapid development.
The Debate over Internet Policy
Internet policies began as a set of debates between two widely separated positions. One was the libertarian notion that if you just leave Silicon Valley alone, everything will be all right. At the other extreme were some people in government who said we understand this best and we can make sure it does not have negative impacts on our society or our economy. He suggested that both viewpoints are wrong. He suggested that the question could be recast as follows: How can we find new ways of thinking about policy that will let e-business develop locally and globally in ways consistent with the values of our society?
The first major issue, Mr. Maxwell said, was to construct an essentially legal framework for e-business. The concept of electronic commerce must be accompanied by a concept of electronic contracts and contract law in the United States. This is a state-based activity, and every state has laws requiring a physical contract and a physical signature. The question became how to have a contractual environment for electronic commerce, including authentication. What does it mean to have a signature in cyberspace?
So the first national engagement in policy making for electronic commerce ran up against a whole set of inhibitions. One of them was whether to have a national framework or to stay at the state level. There was a Republican Congress essentially committed to devolution of power to the states, and they were besieged by people from the world of e-commerce who said we could not have different rules in every state and argued for a resolution at the national level.
The Difficult Issue of Taxing Internet Commerce
With issues of taxation there is again tension between the cyberworld and the world of states and localities, some of which rely on sales and use taxes for up to 50 percent of their revenues. The Supreme Court has ruled that the traditional remote sellers, such as the major catalog companies, are not required to collect taxes for states in which they do not have a significant physical presence.
This situation virtually mirrors that of the Internet. How will the sales and use tax tensions be resolved? Is there a technical means of collecting taxes that does not place a great burden on the merchant? How can Internet companies satisfy the 6,000+ distinct localities that have jurisdiction to impose different kinds and rates of taxes? In New York State, for example, there is a different tax level for “big marshmallows” than for “small marshmallows.”
Nor is the tax problem confined to the United States. The European Union (EU) works on a value-added-tax (VAT) system, and it has proposed to levy VAT taxes on digitally delivered goods from outside the EU. Their argument is that when a German firm sells digitally delivered goods to the Netherlands, it has to pay the VAT; if a firm sells the same goods to the Netherlands from Utah, it pays no VAT and receives a competitive advantage.
Interoperability Among Systems of Different Jurisdictions
Instances of discrimination are common in the physical world; for example, books and newspapers have different tax rates. However, a broader tension is how to find a process that looks at these questions in a global context and at least allows, in the telephone metaphor, “interoperability” among different systems. It does not seem likely, he said, that different jurisdictions will ever have the same policies. Each has different legal systems, different histories, and different customs.
Digital signature laws present a troubling precedent: Utah has a different rule from Michigan, which has a different rule from New York, which has a different rule from California. How can we do electronic contracts? Tariffs raise the same questions. Imagine trying to define an Internet consumer space: I have a company in California, I have a server in France, I sell a digitally delivered good to someone ordering from Hungary who wants to take delivery in Bangalore—and then it doesn’t work. Who makes the rules about that transaction? Who interprets the rules and enforces them? Countries have never had to examine such questions. There are many “choice of laws” and “conflict of laws” precedents, but they usually concern admiralty cases involving large physical ships.
He cited the example of restrictions at the state level on sales of automobiles over the Web. Local auto dealers argue to state governments that they are customers and constituents of the state and it would be unfair to let them fall prey to larger national companies. There are now state rules that prohibit national com-
panies from selling automobiles or financing auto purchases over the Internet. If all politics is local, he asked, how will we have national markets—both for business-to-consumer companies and business-to-business companies? National markets will be difficult without agreements on jurisdictions and mechanisms to resolve disputes.
Standards for Infrastructure and Spectrum
A second set of questions, Mr. Maxwell said, concerns the infrastructure itself. Among these, the first question is whether the infrastructure on which e-commerce rides will be robust enough. The answer depends in part on telecommunications policy and how it evolves. Will there be open access? Will the same rules apply for transmission of high-speed data to telephone companies, to cable, and especially to wireless? He noted that in the wireless world there is essentially one Internet service provider (ISP) serving one wireless provider. In the case of Japan, DoKoMo made NTT the largest ISP in the country when it brought 12 million customers onto its wireless Web. There is a question of how to ensure competition at every layer of the stack.
The second question is how governments will set policy on the control of the electromagnetic spectrum. New technologies can only develop quickly if spectrum is available, and many people believe that countries must agree to use the same portions of the spectrum around the world—something that has not happened with respect to the United States, Europe, and Japan. Issues of standards must also be resolved, but spectrum is a far more difficult situation. Various portions are already occupied—in many cases, by the U.S. government in general and by its Department of Defense in particular. To decide how to use that spectrum for the “highest and best” functions will be a difficult challenge for governments and may largely determine how quickly we move to a wireless Web environment. There is a very strong need to ensure that standards facilitate rather than inhibit competition.
Technical Management Issues
We have to resolve a set of policy questions that determine technical management of the Internet. For example, we have to learn to resolve disputes in the domain-name system. How this system is opened to more competition will have an important effect on branding, trademarking, and decision making in a global context. The United States has been able to move a good deal of decision making into a group called ICANN,36 that is now holding elections. Organization of ICANN has been delayed longer than anticipated because setting up elections in
For more information on the Internet Corporation for Names and Numbers, see <http://www.icann.com>.
cyberspace is difficult to conceptualize and implement. As a result, said Mr. Maxwell, we still confront “a bucket of legal framework issues, a bucket of infrastructure issues, and a third bucket that might be called the trust bucket.” In other words, only with the assurance of a legal framework and a robust infrastructure will people be willing to use the Web for business transactions at increasing rates.
The Need to Resolve Privacy Issues
Obviously one of those issues is privacy, and privacy is more than just the protection of personal information. It tends to include related issues such as credit card security and authentication: Is the person with whom I am transacting business really who I think the person is? Is this communication secure? Will the transaction be resolved? Unless we can find satisfactory mechanisms for protecting privacy and enhancing trust, said Mr. Maxwell, e-business will not grow as fast as we wish.
He referred to the earlier discussion of pervasive computing and called attention to the privacy implications of people wearing medical sensors in their shirts. The privacy implications of distributed computing are very different from those of centralized communications. The government will not be organizing or controlling this new world and individuals will face the issue of reliability before they decide to commit critical functions to this environment. Such questions will affect the development of both the Internet technology and electronic markets.
The flip side of the privacy issue is the question of anonymity and encryption of communications to provide anonymity. The policy implications of anonymity are very large. Humans have never had the kind of opportunity for anonymous speech that is now available on the Internet. How do we respond, Mr. Maxwell asked, when people can do things anonymously that are unattractive to society? What should the policy framework be for thinking about questions of anonymity?
Threats to Internet Openness
A related question concerns the enforcement of national laws on an international Internet. The first law applied in the United States to content on the Web was against obscenity and pornography. The first content law in China was applied against sedition. France wanted laws to preserve the French language. Germany worried about Nazi paraphernalia. Every country has an impulse to protect its citizenry from certain content. These impulses could potentially balkanize the content of the Web and reduce dramatically the notion of openness—the ability of any individual to reach any other individual or source of information.