the lowy institute c r i t e r i o n e c o n o m i c s jeffrey a. eisenach, ph.d. chairman,...

The Lowy Institute

C R I T E R I O N E C O N O M I C S

Jeffrey A. Eisenach, Ph.D.Chairman, Criterion

Economics

Convergence or Divergence? Global Regulation and the Digital

Economy

Sydney, AustraliaApril 2, 2008

Three Points

• Internet use and online commerce continue to grow explosively – and there is no end in sight.

• As the Internet grows, its problems are growing with it.

• Global solutions are needed – but not “regulatory” ones.


• Over 1 Billion Internet Users Worldwide; growing by 10 million each month.

• In 1996, 1.5 million gigabytes traveled through major U.S. Internet connection lines per month. By 2006, the figure was 700 million gigabytes.*

• Daily email traffic is expected to grow from 90.4 billion emails in 2007 to 102 billion emails in 2009.** Half of all email contains image spam, which is five times the size of traditional text spam.***

• Backbone traffic is doubling every 12-15 months.

*the University of Minnesota Digital Technology Center**IDC***MSNBC

Internet Use Is Exploding

The Internet Is Part of Our Lives


• Eight in ten Australian households have Internet connections, and six in ten have broadband.

• Among families, nine in ten have Internet, and three out of four have broadband.

• Shopping, email and web page viewing are commonplace, but…

• Audio and video downloads, “social networking” sites, video games and “Synthetic Reality” sites now dominate Internet traffic.

84% of Australians Shop Online


90%96%

93%89%

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84%

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U.S. U.K. Australia Germany France Brazil China Japan

Norton Online Living Report, Feb. 2008

57% of AU Adults Download Music


57%

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51%

88%

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57%56%

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75% of AU Children Share Videos


76%

56%

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57%

91%89%

75%70%

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Nielsen, Aussie Internet Usage Overtakes TV Viewing For The First Time March 18, 2008

The Internet Has Even Overtaken TV!



The Challenges of Growth

• National challenges, e.g., infrastructure

• Global challenges, e.g., policing crime and enforcing standards


0

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Source: Bret Swanson, “The Coming ExaFlood”*TB = 1012 Bytes = 1 million MB = 1,000 GB; 1,000 TB = 1 Exa-Byte

U.S. Internet Traffic (TB*/Month)

A National Challenge: Infrastructure


Source: Bret Swanson, “The Coming ExaFlood”

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Investment Must Grow to Keep Pace

U.S. Internet Traffic (TB*/Month)


“Building this new infrastructure will be very expensive, likely requiring

some $137 billion in global new investment over the next two years

alone.”George Gilder and Bret Swanson

The Coming Exaflood (2008)

Other Challenges Are Global


• Identity Theft, “Spam” and “Phishing”

• Copyright Violations and “Piracy”• Online Pornography (Especially

Child Pornography)

Sources of Global Phishing Attacks

Source: Websense

Sources of Spam

Sources of Pornography

“File Sharing”

• One of the world’s most popular web sites.

• Specifically dedicated to copyright infringement.

• After multi-year legal battle in Sweden, it has now moved to Egypt.

http://en.wikipedia.org/wiki/Image:The_Pirate_Bay_logo.svg

No Easy Solutions, but…


• National efforts are costly and limited in what they can achieve.

• The basic problem is that national efforts are inherently defensive in nature…

• …like putting locks on doors and windows, but never going after the criminals themselves.

• A balanced approach requires global enforcement.

The Danger – Over-Regulation


• Out of frustration, governments move unilaterally to try to solve the problem through regulatory solutions.

• In an effort to keep out the criminals, we put so many locks and chains on our doors and windows that we can’t get in and out ourselves.

Example: Online Pornography


• Age verification and take-down regimes do not work unless they can be enforced abroad.

• Filtering has a role to play, but it is costly and has large negative side-effects, especially over-blocking.

• Allowing foreign countries to act as safe havens for pornography is a form of state-sponsored cultural terrorism.

A Framework for Global Electronic Commerce:Key Principles

1. The private sector should lead.2. Governments should avoid undue

restrictions on electronic commerce.3. Where governmental involvement is needed, its

aim should be to support and enforce a predictable, minimalist, consistent and simple legal environment for commerce.

4. Governments should recognize the unique qualities of the Internet.

5. Electronic Commerce over the Internet should be facilitated on a global basis.

“Regulation” is Not the Answer

Ira Magaziner A Framework for Global Electronic Commerce (1997)

“[G]overnments should establish a predictable and simple legal environment based on a decentralized, contractual model of law rather than one based on top-down regulation. … [The] goal should be to ensure competition, protect intellectual property and privacy, prevent fraud, foster transparency, support commercial transactions, and facilitate dispute resolution.”

Principles for a Global Framework

Ira Magaziner A Framework for Global Electronic Commerce (1997)

Models


• WIPO (World Intellectual Property Organization)

• INHOPE (International Association of Internet Hotlines)

• ICANN (Internet Corporation for Assigned Names and Numbers)

Conclusions


• As global e-commerce grows, the policy challenges grow with it – as does the importance of solving them.

• Nation-state solutions are inherently limited and have the potential to over-regulate.

• A much stronger international regime to protect property rights and enforce legitimate standards is needed.

• There is a leadership vacuum waiting to be filled.

The Lowy Institute

WWW.C R I T E R I O NE C O N O M I C S.COM

Jeffrey A. Eisenach, Ph.D.Chairman, Criterion

Economics

Convergence or Divergence? Global Regulation and the Digital

Economy

Sydney, AustraliaApril 2, 2008

the lowy institute c r i t e r i o n e c o n o m i c s jeffrey a. eisenach, ph.d. chairman,...

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