The Framework for Global Electronic Commerce: A Policy Perspective.

• Author: Magaziner, Ira C.
• Position: Interview with presidential adviser Ira C. Magaziner - Interview

Interviewed on 24 November 1997 by Ann Grier Cutter and Len A. Costa for the Journal of International Affairs

On 1 July 1997, President Bill Clinton and Vice President Al Gore released the Framework for Global Electronic Commerce, the administration's policy document setting forth principles designed to facilitate the Internet's development as a vibrant vehicle for international commerce by the year 2000. In the interview that follows, Mr. Magaziner discusses the Framework and its implications.

JOURNAL: What was the conceptual approach used to develop the Framework for Global Electronic Commerce? What was your guiding principle in trying to regulate a medium that is constantly changing?

MAGAZINER: I think the approach we took was a pragmatic one. We did not start with any ideological position. We accepted in the beginning that nobody, including ourselves, was going to fully understand where this medium was headed because it was too new, too complex and too fast changing. So what we wanted to do was reach out and consult with as many people as possible to try to get a wide series of views. For that reason, we actually put drafts of our paper up on the Internet and treated it as a virtual document. We went through 18 drafts revising it. I think conceptually that also led us to want to be cautious about government action. We thought the risks of governments intervening in ways that would impede the development opportunity were greater than our actions that might encourage it. I think the government has legitimate roles to play in the economy. But in an area like this, I think caution is best. As we studied it more, we came to believe that Internet commerce offered the opportunity for extremely good market conditions. When you have good market conditions, they are by far the most efficient way to allocate resources. In some cases--I would argue in health care--the impediments to market forces are significant. But with something like Internet commerce, it's almost ideal for market conditions. We felt that maximizing the use of the marketplace was the appropriate policy here.

There are two different models we could have considered for how this industry would develop. The first is the telecommunications and broadcast model, where governments around the world either own or operate the industries and, as in the United States, heavily regulate them. The other model is where buyers and sellers come together freely and do business, and the role of government is simply to set a predictable legal environment for commerce.

We've opted for the latter model rather than the traditional telecommunications and broadcast model. The reason is because, in the telecommunications and broadcast industries, governments regulated for specific reasons that do not exist with Internet commerce. In broadcast, there is a limited amount of spectrum to be allocated. In the case of telephony, when the initial infrastructure was built, the size of the investment required relative to the size of companies was huge. So governments licensed monopolies and set up regulations around those monopolies.

With the Internet, there is almost unlimited bandwidth and massive competition. There is almost unlimited consumer choice. There are companies from computer industries, software industries, telecommunications industries, broadcast, satellite, publishing, consumer electronics and utilities all competing to build the infrastructure, so we don't need government regulation. For all of those reasons, we went to a market-driven system.

JOURNAL: What are the incentives for the private sector to act collectively in their dealings with the various competing interests? Do you believe collective action is possible?

MAGAZINER: Industry self-regulation works best when there are two conditions: first, where industry has the same motivation as the public interest--for example, in the protection of privacy. People are not going to do business on the Internet unless they feel comfortable that their privacy is being protected. So companies that want to do business there are going to have to set up effective means to convince people that their privacy is protected. Therefore, industry has the same incentive that government would have. Second, on content questions, many parents are not going to let the Internet into their homes if they cannot effectively filter out content that they do not want. Again, the industry motivation is the same as ours.

We don't favor industry self-regulation just as a cop out; we favor it as a matter of practicality Any regulatory environment is going to have to be flexible, it's going to have to be technology-neutral and it's going to have to be decentralized in its enforcement. We could pass legislation and regulations at the federal level that anticipate every way in which somebody's privacy can be violated, but I don't know how we would enforce them because there are tens of thousands of websites forming every week around the world. We could not have thousands of government regulators screening every one and bringing prosecutions. On the other hand, using the interactive and decentralized nature of the medium, effective industry self-regulation for buyers' protection could be established.

There could be seals of approval for websites that are following codes of conduct developed by industry groups. These codes of conduct could say that a seller must notify a buyer on what will be done with information collected in a transaction. The buyer makes the choice to allow or not allow information to be used as the seller wishes. The buyer could also have the right to update and check accuracy on any personal information held by a seller. The industry groups could award a seal only to websites that conform to the code and would audit websites for compliance. The government can provide education campaigns for consumers, warning them to beware of buying at sites without privacy guarantees. Enforcement is thereby more decentralized. The companies that are forming websites want to do a maximum amount of business, so they are going to have to go and seek the seals of approval from relevant organizations. This system is also more flexible because the business...