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Digital Dollars

July 1, 1997 at 12:00 AM EDT
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PAUL SOLMAN: For more on cyber business and the Clinton initiative we’re joined by Debra Spar, professor at the Harvard Business School, and Michael Dertouzos, a director of the MIT Laboratory for Computer Science and author of What Will Be: How the World of Information Will Change our Lives. Welcome to you both. So Professor Spar, what’s the point of the President’s report? I mean, what’s he trying to do?

DEBORA SPAR, Harvard University: Well, I think the most important thing that they did with the report is to set a signal to American industry that the administration is now moving closer to their side. The administration’s initiatives up to this point have largely been seen as constraints upon the development of the Internet market.

PAUL SOLMAN: For example.

DEBORA SPAR: For example, the clipper chip, which would have gone directly in the computers and would have put a major constraint on the sale of computers and the free flow of information potentially, the clipper chip was an idea that would put a small device inside each computer that would theoretically enable the government at some point to do the digital equivalent of wiretapping, and it was something that the industry, as you can imagine, really looked disfavorably upon.

This initiative is much more directed towards the open market. It’s a proposal that I think industry is going to embrace, signals that the government is willing to take a complete “hands off” approach to this new market space, and it’s a very powerful benchmark for where they want to go with this. The other piece that is a little troubling is what this actually means, especially when you move toward the international arena.

PAUL SOLMAN: Well, let’s ask Professor Dertouzos. What do you think the point is? Has Professor Spar got it basically right, or–

MICHAEL DERTOUZOS, MIT: I think so. I think the signaling is the important thing. The richest nation on earth is saying this is important; we are leading in this business. We are ahead of every other nation, notwithstanding rhetoric to the country, and we are making the moves, the right moves, but this is a very small beginning, in my mind, and they say so in their report. They have left out a lot of important stuff which we’ll have to get to later on.

PAUL SOLMAN: Well, no, no. Go ahead. I mean, what–

MICHAEL DERTOUZOS: Well, for example, there is nothing being discussed in the paper which I read and in the announcements about the delivery and the purchase of human work. And this, in my opinion, is 12 times bigger economically than traditional content, which they talk about, the content of text, images, videos, on which copyrights apply, porno movies, all that.

PAUL SOLMAN: I have no idea of what you’re talking about. A human work meaning what?

MICHAEL DERTOUZOS: Okay. You’re a doctor and you are helping diagnose and cure a patient who is perhaps 5,000 miles away.

PAUL SOLMAN: Okay.

MICHAEL DERTOUZOS: You could be in Srilanka–

PAUL SOLMAN: Right.

MICHAEL DERTOUZOS: –where you would only need $20 a day for your effort, and you could be administering your work to homeless people in San Francisco. So the ability to buy human labor at the distance, or you could be a team of Chinese financial people doing the numbers for a major Fortune 500 firm here.

PAUL SOLMAN: But, Professor Spar, isn’t it going to make it easier to do those things if he’s got this sort of global and this free trade zone or global free trade zone that he was talking about today?

DEBORA SPAR: Well, oddly enough, it’s almost taking an old concept, the notion of tariffs, and applying it to a medium where tariffs really don’t make any sense.

PAUL SOLMAN: Explain what you mean.

DEBORA SPAR: Well, tariffs are based on things crossing borders.

PAUL SOLMAN: Taxes at the border.

DEBORA SPAR: Absolutely. You make a car in Detroit. You ship it across the border to France, and it’s marked at both borders, and a fee is assessed on it.

PAUL SOLMAN: Okay.

DEBORA SPAR: What do you do now is precisely in Michael’s example, when you have a service crossing a border that doesn’t really cross any physical border at all, the whole notion of tariffs is based on borders, which don’t exist in cyberspace.

PAUL SOLMAN: So there’s nothing you can do. I mean, so then Clinton and Gore are just going along with the inevitable–

MICHAEL DERTOUZOS: I wouldn’t say that. Let me add one more thing. Suppose you use the Internet to order not a book, not software, not something that’s electronic, but something that’s tangible, like a car.

PAUL SOLMAN: Okay.

MICHAEL DERTOUZOS: And now this car crosses the boundaries. I mean, you know, the old laws that we have on tariffs about physical goods have to be obeyed, and I haven’t heard distinctions about electronic goods being shipped versus physical goods using electronic ordering, but back to human work, the reason that I am raising this is that this will permit work to flow across the world much like we did with Taiwan for manufacturing.

Now, we’re going to buy and sell labor all over the world, and we have to be prepared for that. And this doesn’t address it. I’m not criticizing it. I’m saying it’s too early; it hasn’t started yet; but we have to address it.

PAUL SOLMAN: The question I had was: if you have a global free trade zone, isn’t that at odds with this notion of protecting copyright, protecting privacy, protecting kids? He’s talking about–talked today about a V-chip for children, for example.

DEBORA SPAR: Right.

PAUL SOLMAN: A V-chip for the Internet.

DEBORA SPAR: Well, not necessarily. Theoretically, you could have a wonderful free trade zone where you had no tariffs, no taxes, free movement of goods and services, but you still had a copyright and the protection of intellectual property, which I think is critical to this marketplace taking off.

PAUL SOLMAN: I guess the question I have is how do you enforce that? Don’t you need global rules and regulations?

DEBORA SPAR: Well, you can either have global rules and regulations, or if those are not forthcoming, which I think they won’t be personally, there are also increasingly technological solutions to copyright. Now, these are just starting out, but potentially those could emerge.

PAUL SOLMAN: There isn’t a conflict here between sort of world–global rule, and freedom?

MICHAEL DERTOUZOS: Yes. You’re identifying something very important. First of all, the cultures of the world like Greece, where I come from, took 4,000 years to build up their culture. Just because we’re interconnected doesn’t give free license to anyone, America included.

PAUL SOLMAN: You mean the rules and laws and so forth.

MICHAEL DERTOUZOS: A lot of our culture–see, imposing on all the world an American cultural norm is not necessarily going to work. I think we have to respect the countries; let them choose their own laws for within their own enclaves and then strike international agreements among countries, as we have done for trade and crime, for the cross-border transgressions.

PAUL SOLMAN: But there’s all this talk about no new taxes today. I mean, it wasn’t quite a George Bush line, but my question was: Can the government prevent a state, for example, from–or a country from imposing taxes on the Internet?

DEBORA SPAR: You have, I mean, there’s the tension that you imply. There’s both the tension within the United States that Massachusetts or California may not want to give up their taxing power, and I certainly don’t imagine that states of the European Union or Singapore or China are going to necessarily sign onto this and say, okay, forevermore we’ll give up the right to tax transactions, especially if you start getting a significant amount transactions migrating cyberspace. You’re talking about governments potentially giving up huge amounts of revenues.

PAUL SOLMAN: And why wouldn’t–

DEBORA SPAR: Why would they?

PAUL SOLMAN: –my purchase go to the place where it’s a tax-free haven?

DEBORA SPAR: It would.

PAUL SOLMAN: Prof. Dertouzos.

MICHAEL DERTOUZOS: We are the same ancient human we’ve always been, with the same ancient human aspirations. This is a new tool. It’s not going to change human nature, so we’ve got to honor these things. I agree. If a person from a country like Greece orders a car via the Internet, is that electronic commerce? If you read this, it might be. Well, it can’t be tariff or tax free because now it’s taxed at 100 percent, so people have to take a more global and local and international agreement, understand, but as I say, it’s a beginning, and we should be patient.

PAUL SOLMAN: But do you worry when you think long-term about any fears that sort of this global network will allow people to escape any government’s control? I mean, that’s something that at least I’ve thought about. No?

MICHAEL DERTOUZOS: I’m not worried too much about that. I think people will escape government controls. We’re the same humans, and we’ll manage. Self-preservation has always been superior to other–

PAUL SOLMAN: You do not worry about the Internet in that regard?

DEBORA SPAR: I think the Internet reduces the realm of authority that has traditionally belonged to governments. I think somebody’s going to step in and right the rules because you need those rules, but I think it’s harder for governments.

PAUL SOLMAN: Okay. Well, thank you both very much. I appreciate it.

MICHAEL DERTOUZOS: Thank you.

DEBORA SPAR: Thanks.