By Paul Starr
The American Prospect, July-August 1997
In politics and the public imagination, computers have gone from symbolizing our vulnerability to embodying our possibilities. In their early days during the 1950s and 1960s, computers seemed destined to increase the power of government and big corporations, and the great worry was how to protect privacy and individual freedom. Then the advent of the personal computer and other low-cost electronics suggested that information technology might be the ultimate tool of decentralization and individual empowerment, and the rise of global telecommunications and the Internet promised to annihilate national borders. Now many of us sit at keyboards easily connecting to computers all over the world, and to some people the thought suggests itself: "Why do we need national government at all?" Things have swung around so completely that influential analysts, especially on the right, see the information revolution as a great historical reversal of power, ushering in a new age of individualism on the digital frontier.
This high-tech libertarianism can be found in Wired magazine, the writings of George Gilder, the publications of Newt Gingrich's Progress and Freedom Foundation, and countless sites on the Net itself. Optimistic and forward-looking, high-tech libertarianism is more appealing than the older variety that looked back to the devil-take-the-hindmost individualism of the nineteenth century. But the new version shares the same old misunderstanding of the bases of freedom--that liberty will prosper the more government is diminished. To this it adds a new illusion--that technology is now freedom's reliable shield.
Advanced communications networks offer "the ultimate shopping experience: shopping for better government," writes one exponent of these ideas, the communications lawyer Peter Huber, in an article on "cyberpower" in Forbes last December. By "better" government, he chiefly means lower taxes and less stringent regulation. Now it's not just corporations that can shop around and buy, say, a legal home in Delaware; "ordinary investors," Huber observes, can shop on the Net for the tax environment, monetary policy, or regulations of their choice. If you think that your government's economic policies are wrong, you too can put your money into another currency. If the Food and Drug Administration (FDA) bars sale of a drug, you can buy it from an online pharmacy in another country and have it delivered by Federal Express. The American consumer who buys shoes made abroad will soon "shop for life insurance in London and health insurance in Geneva, and the offshore actuaries will discriminate fiercely in favor of the healthy."
To Huber, this is all to the good. Here is his happy vision: "As managers, workers and consumers," he writes, "we buy government in much the same way we buy shoes" and when one government is too costly or inconvenient, we can just switch to another. In thinking about the relations of people and governments, he has thus nicely dispensed with the old-fashioned concept of a citizen encumbered with obligations and loyalties, along with the idea of a people collectively addressing their problems through democratic institutions--all this was just a "political carnival" that is thankfully over. Governments in the new global market will be disciplined by money moving offshore, not by voters and public deliberation, and public policies will be improved because politicians will be impotent to do anything except what markets allow them to do.
Huber conceives of this system as a superior version of democracy, as if we all had equal "votes" in the global government market. But, of course, not all of us "buy government" with equal facility or effect. Managers can move plants abroad, and consumers can buy tradable foreign goods; but except for the limited class of professionals who can sell their services to foreign clients, workers need to uproot themselves to make use of foreign labor markets. As savers and investors, we also have unequal offshore opportunities since the principal asset of most families is their home. In other words, inasmuch as we are limited by our physical existence, social connections, and political loyalties, we cannot simply search and switch among global markets. The issue here is not simply income inequality, but also an imbalance of human interests. Why feel any obligation to people or places, community or nation, if you're just shopping?
Membership in a democratic state has historically implied a "bundle" of relationships. We enjoy the security and other services a state provides us and, if we fulfill our part of the bargain, we obey its rules, pay its taxes, and have our say in elections. Huber is saying technology makes it easier and cheaper to unbundle that package. The difficulty is that many people would like to enjoy the services of effective government but not pay the costs. They might like to live under one government, do business under another, and park their assets under a third. But in a world of unlimited opportunism, the government would lack the effective authority and resources to provide collective benefits that the majority of us want from it--including, as Stephen Holmes explains in this issue (What Russia Teaches Us Now: How Weak States Threaten Freedom), the very rights we prize.
There is no denying that the combined force of advanced technology and global markets has undermined the regulatory capacity of government. But it is important to distinguish what technology has changed and what it hasn't. Corporations can now more easily organize production on a global basis, and investors can more readily move financial assets across national borders. Where products and services consist of bits rather than atoms, the Net may make their origins, literally, immaterial. But economic activities that require local knowledge and trust as well as physical presence are not so easily moved. And governments still have effective means of enforcing laws and regulations even when one of the parties to a transaction is offshore.
Consider two of the examples mentioned by Huber: pharmaceuticals and health insurance. His offshore alternatives confront a minor difficulty--they're illegal and for good reason. Anyone in the United States ordering drugs banned by the FDA from an offshore pharmacy would be importing them in violation of federal law. No matter where domiciled, any insurer doing business with people residing in a state needs to be licensed to do so and must comply with federal requirements under the recent Kennedy-Kassebaum legislation--technology doesn't change that. If there is any justification for pharmaceutical regulation (some minimum standard of safety) or insurance regulation (some minimum standard of solvency), the laws cannot simply be nullified by the ruse of an offshore location. As a practical matter, few people are likely to use online pharmacies located abroad because of delivery costs; and if the drugs have not received FDA approval, insurers won't reimburse them. Foreign health insurers, lacking contracts with providers, would be in a poor position to compete with domestic insurers in the age of managed care. If a market in the U.S. for offshore pharmacies and insurers existed, they could long ago have done business by snail mail and telephone, but they haven't, and the new technology doesn't affect the sources of hesitation among both sellers and buyers--the illegality of the transactions and lack of detailed knowledge about the other party and relevant market conditions.
Huber assumes that people can evaluate regulatory protections in other countries and that they will knowingly opt for more lax regulations. In some cases, that may be so. But here he underestimates the importance of trust in economic as well as social relationships and the role of government in promoting trust by assuring common ground rules and effective recourse in the event of fraud and negligence. Without a state strong enough to enforce rules and assure confidence, people are reluctant to come into the market and do business with strangers.
And so it is with global electronic commerce. The economic development of cyberspace is lagging because governments have not yet established laws and regulations that promote trust and confidence. Consumers continue to be "wary" of the Internet, a recent White House paper on the Internet and global commerce points out, "because of the lack of a predictable legal environment governing transactions. . .. . This is particularly true for international commercial activity where concerns about enforcement of contracts, liability, intellectual property protection, privacy, security, taxation and other matters have caused businesses and consumers to be cautious."
In other words, what we have today on the Net is not so much individuals shopping for governments as both individuals and firms fearing to do business globally for lack of consistent laws and regulations that their governments need to agree upon. The libertarians see government as always restricting markets; they miss the positive role government plays in creating the foundations of social trust that markets (and nonmarket institutions) require.
Far from taking trust for granted in the information age, we are going to face especially serious problems sustaining it because of the growing use of the new technology for deception. I am not only referring to the difficulty of authenticating electronic exchanges--for example, determining whether e-mail is actually from the ostensible sender, whether a Web site originates from the group or person listed as responsible for it, or whether e-cash is genuine. New technology is also undermining the integrity of older forms of communication and exchange by generating improved techniques and lower costs for altering photographs, counterfeiting documents, and stealing identities (reproducing forms of identification, often for credit card fraud). Recently a company was reported to have figured out how to recombine an individual's recorded speech into new sentences that sound exactly as if the original person spoke them--a kind of audio counterfeiting that may soon, in effect, make us say anything. Information technology alone cannot provide us an absolute shield against its evil twin--disinformation technology. Our only protection is law, and that protection is available to us only if legitimate governments have the power to govern.
Another problem with high-tech libertarianism is the belief that the development of information technology and electronic markets on their own will promote maximum choice. In its current form, the Internet clearly does expand the ability of people with minimal resources to originate communication as well as to receive it. In this sense, the Web is the best rejoinder to A.J. Liebling's old complaint that "freedom of the press belongs to the man who owns one." More generally, the new era of digital communications has the potential to end the old scarcity of bandwidth in the radio spectrum that limited the number of broadcast channels. But there are also powerful forces favoring concentrated power in the new era of communications, and it would be a mistake just to rely on technology and the marketplace to curb abuses of that power.
One source of concentrated power is developing around control of the "interface"--the menu of alternatives that first pops up on the screen. Interfaces like the current browsers for navigating the Web are relatively open (they connect to nearly all sites), but more closed interfaces, like the menu of options on television sets in hotel rooms, suggest how a more closed regime might be reestablished. An interface is a choke point and potentially of enormous economic value. Why should choke points emerge? Because under the current, open regime on the Web, hardly anyone providing "content" is making money; and because of the demand for simplicity of use as the Web (or some alternative) turns into a more universal system of communication and entertainment. Companies are already creating more limited interfaces to sort out options for consumers, deliver audiences to advertisers, and assure originators of content a dependable stream of income. "Webcasting" and "push" media--which simplify the complexity of the Web by automatically downloading preselected information to the user--exemplify this shift. But to simplify is to exclude. Think of such a system not as censorship but rather as control of the means of marginalization.
The information revolution also tends to concentrate power in the firms that control dominant "architectures," such as IBM in the mainframe era and Microsoft and Intel today. Architectural dominance is endemic in industries that have rapidly evolving proprietary technical standards vital to every firm. As Charles H. Ferguson and Charles R. Morris write in their book Computer Wars, struggles over architectural control are a powerful stimulus to technological progress. But as Microsoft's victims can testify, the firm in control of the dominant architecture has extraordinary leverage over any potential competitor in its core or related businesses. Without government restraint in the form of antitrust, markets of these kinds easily end in monopoly.
The rapid improvement in price-performance ratios of computers, software, and other technology today seems to validate the faith in free markets. But to say that the information revolution proves the inevitable superiority of markets requires a monumental failure of short-term historical memory. After all, not just the Internet, but the computer sciences and computer industry represent a spectacular success of public investment. As late as the 1970s and early 1980s, according to Kenneth Flamm's 1987 study Targeting the Computer, the federal government was paying for 40 percent of all computer-related research and probably 60 to 75 percent of basic research. The motivation was national security, but the result has been the creation of comparative advantage in information technology for the United States that private firms have happily exploited and extended. When the returns were uncertain and difficult to capture, private firms were unwilling to invest, and government played the decisive role. But when the market expanded and the returns were more definite, the government receded, which is exactly the path it should have followed.
The view of government favored by the high-tech libertarians would make it impossible for us ever to repeat the success of the United States with the computers and the Net (or more generally to respond to many other examples of market failure). One of the ironies of the information revolution is that government's hand has apparently become the invisible one. There we sit at our computers, and we feel like Masters of the Universe. We press the keys and command distant computers, and we think everyone else should be able to manage their affairs as we do. But, of all spaces, cyberspace is most singularly the product of political invention and social agreement, and only law will give us the security to use it freely.