Digital Rules Needed

From e-tail taxes to limits on MP3, government regulation of information technologies is not only justified-it’s necessary.

When is it time to say “no” to innovation? When are innovations so destabilizing that society must intervene? To raise this question isn’t to launch down the path toward Luddism. The idea that innovators work under limits isn’t new. The great military innovations of World War II spawned legal and practical prohibitions on what could be done with nuclear and biochemical weapons. Medical and pharmaceutical technologies are routinely regulated. So are cars, planes and other transport innovations.

Yet information technologies are often presumed to be in a different category altogether. And there are good reasons to think that’s true. Consider two examples. Britain’s Labour government has introduced legislation that would make it a crime to withhold a computer password from the country’s domestic spying agency. The government also wants its snoops to have the right to read any e-mail and monitor any Web site without even asking for a court order. The U.S. government, meanwhile, limits the quality of cryptographic products-software that encodes secret messages-that can be sold abroad by U.S. companies.

Such barriers are ultimately exposed as folly. Britain’s security law, if it takes effect, will soon drive talented people and businesses from the country. U.S. controls on cryptography are effectively rendered irrelevant by the willingness of foreign companies to create and spread “hard crypto,” codes too tough for government spies to crack quickly.

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The result is that regulators rarely succeed in harnessing IT innovation. But does this mean limits on IT are never desirable? No. Governments can and should draw lines, even in a field as dynamic as information technology. In certain cases the public has the right, indeed the duty, to declare some fields off-limits for further “improvements” because these innovations are just too costly. Innovators can keep on innovating in private if they wish, but the fruits of their labors aren’t fit for public consumption.

This sounds draconian, but consider the policy of exempting e-retail sales from taxation. Many innovators applaud this example of enlightened restraint by lawmakers. Taxes on sales via the Web would stifle innovation by discouraging customers and adding to the already high burdens on those building e-businesses.

But innovators shouldn’t count on a permanent tax holiday. The policy is discriminatory. It gives a benefit to e-businesses that bricks-and-mortar retailers lack. Someday, and probably someday soon, sales taxes will be imposed on e-retailers. While raising costs, this obligation will stimulate further innovations as e-commerce vendors scramble for ways to more efficiently satisfy the tax collector’s demands.

The taxation example shows that government demands on the IT world are neither unreasonable nor insurmountable in practice. Such demands, moreover, can actually quicken innovation because they create a common target for innovators. Think of how, in Europe, rapid innovations in wireless technologies followed the imposition by government of a single communications standard on industry.

Even when regulations don’t stimulate innovation, they are justifiable. Consider, for instance, how unbridled innovation in digital copying threatens to kill the proverbial golden goose of IT. Advances in digital copying are creating tools that make it fast and easy to copy songs and movies, downloaded from the Internet and then distributed by e-mail. First came MP3, software for downloading music free of charge from the Internet. An estimated 13 million Americans have already used the tool to copy music without paying for it. Recently, a new version of compression software, MP4, has been making the rounds. Hackers originally stripped MP4 from Microsoft’s Windows Media Player, a program designed to handle moving pictures sent over the Web. It can squeeze a movie down to 1 percent of its full size, making piracy and distribution far easier. Suddenly, movie piracy seems within reach of nearly everyone.

This situation can’t be tolerated for long. Tools such as MP3 and MP4 should be banned. Music and movies are only the tip of the iceberg. This isn’t a matter of protecting rich, highly concentrated industries. If pirated music and movies can be peddled with impunity, what’s next? Personal financial data and e-mails? Whole libraries? Photographic collections?

Banning MP3 and MP4 won’t be popular. It won’t be easy, either. Innovators often argue that any restriction will be mocked, ignored and ultimately discarded. They are often right. The history of nuclear weapons, writ large, proves that. Any ban on a software tool will spawn illegal traffic in that tool. And any ban will require revision.

But drawing a line isn’t futile. It creates a useful target for innovators, at least those who recognize that the purpose of technology is to serve people and that societies don’t remake themselves merely to satisfy a technological imperative. Drawing a line also sends a broader message to innovators: Rules still apply to their corner of life.

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