Select Committee on European Union Minutes of Evidence

Supplementary memorandum by Dr Michael I Shamos, submitted by e-mail


Are there still barriers that need to be removed?

  Yes.  The most critical are: telephone access charges that make Internet use prohibitive; lack of full consumer protection to guarantee safe use of the Internet for consumer e-commerce; lack of a comprehensive legal framework for electronic transactions; lack of compulsory licensing to allow distribution of copyrighted content on the Internet (with fair compensation to the copyright owners).

What are the "efforts to discriminate against e-commerce activities"?

  Attempts to levy discriminatory taxes (ie those that apply only to e-commerce); legislation to forbid certain goods from being sold over the Internet (eg Georgia forbade sales of automobiles to protect local car dealers—this backfired).

How can protectionism be reviewed critically?

  I hope that Internet transactions, particularly all-electronic ones, will hasten the death of protectionism. In my view, the way to prop up inefficient domestic businesses is not to penalize their efficient foreign competitors but to encourage domestic modernization through incentives.

Alongside "free hook-ups and inexpensive PCs", will technologies such as mobile telephony and digital television be important in moving towards universal access?

  There's no stopping mobile telephony. By 2002 the number of wireless Internet-enabled handsets will exceed the number of PCs connected to the Internet. Digital television will be important only as part of a fully converged solution—one in which the TV, computer and phone systems are effectively linked.

Europe is perceived to be ahead in mobile communications. Is this important? How is the US responding to this?

  I don't think it is important. Mobile use is increasing in the US at its natural pace, which is to say quickly. We're behind Europe and Asia, but we're ahead in other Internet structure. It is not perceived as a problem.


Is the role of government fundamental or peripheral?

  It's peripheral unless the role is to interfere! It's very tempting to see e-commerce as a source of new tax revenue. The role of government should be to ensure that the necessary infrastructure exists to provide the required connectivity and that existing laws are not used to hamper e-commerce growth.

The suggestion that government should, in some way, pay to improve the infrastructure sounds un-American: is that a real possibility?

  It certainly is. The US government pays for the interstate highway system—it might well pay for the digital superhighway system. It's not unusual for the US government to do things that are perceived as benefiting everyone.


What regulation has been of critical importance?

  A lot. The AntiCybersquatting statute has cleared up many domain name problems. The tax moratorium has kept local officials at bay. The Digital Millennium Copyright Act (1998) has clarified the rights of ISPs for carrying various kinds of content.

How important is the role of self-regulation? Where should the responsibility for consumer protection, for example credit card loss, reside?

  Self-regulation only works in the context of a realistic threat of government interference if self-regulation fails.

  In general, losses in all system should fall on the party most able to (1) prevent them; (2) bear them; or (3) insure against them. Most of the credit-card companies have figured out that they can't have the loss fall on the (innocent) consumer.

To what extent are current laws and regulations enforceable?

  The real question is where they are enforceable. The Internet has turned the concept of jurisdiction upside down. We are in serious need of international conventions on the issue. Unfortunately that will do little to deter rogue states that care to harbor e-commerce fugitives.


Have social issues been separated from economic ones?

  To some extent. Certain US statutes begin with "findings" of Congress that a particular problem is damaging to e-commerce and therefore the following legislation is needed. The social issues are very difficult to formulate and quantify.

There have been reports that the growth of e-commerce widens social divisions and increases social exclusion. We have also heard evidence that the opposite is true. What is your view?

  It increases social divisions if the poor or disadvantaged are further disadvantaged by being unable to obtain access. It surely narrows the differences if there is equality of access. In a world where information is power, then systems that reduce the cost of information are empowering to the poor. In a world where access to the Internet grants access to an entire world of consumers, low cost Internet access is empowering to the poor.

How should the Government, or others, ensure that appropriate e-commerce skills are developed in schools and elsewhere?

  Train young teachers (and students still studying education) NOW. Offer existing teachers incentives to become Internet-qualified (eg pass this test online and you will get a raise). Offer existing teachers incentives to create online courseware and to develop Internet education materials. When there are as many public Internet terminals as there are cigarette machines, there will be some chance of success.

How will E-Commerce affect national issues such as employment, transport and energy? What planning is carried to predict the impact?

  In employment, we will see a shift in the types of jobs performed by people. It is a fallacy that automation reduces jobs—it doesn't and never has. What it does is to make certain jobs obsolete, but at the same time improves the efficiency of workers. These workers spend a smaller fraction of their day working to meet daily needs (since they are more efficient) and therefore have more disposable income. The increase in consumption leads to demand for more workers, etc. The employees who suffer are the ones who are unable to retrain for the new jobs.

  Layoffs that are caused by declining profits due to inefficiency lead to recession. Such job positions, once lost, may never be replaced. Efficiency, however, only hurts the few who thrive on its opposite.

  E-Commerce clearly increases the need for transport:

    (1)  people order goods from farther away because of the Internet;

    (2)  the demand for rapid delivery of items generates a need for extensive logistical systems capable of meeting the need. There is a lot to discuss here, such as ways in which warehouse and transport space can be shared among manufacturers, cutting out immense duplication of facilities.

  E-Commerce leads to more efficient use of energy because the supply chain can be viewed as a whole and energy cost can be reduced through electronically mediated planning. For example, in the logistic example above, truck routes can be optimised by computer to save distance, time and driver costs. The tendency of E-commerce to force just-in-time manufacturing also increases energy efficiency. I cannot say whether this leads to an overall reduction in the use of energy since the global standard of living will rise and with it so may energy consumption.

18 April 2000

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