To: Ira Magaziner
Date: 4/20/98 11:09am
Subject: Notes: meeting on Global Electronic Commerce, March 10, Tokyo
Dear Mr. Magaziner,
Notes of our meeting, March 10, Tokyo, follow. Again, thank you for
sparing time from your busy schedule.
Meeting with Mr. Ira Magaziner, March 10, 1997. Imperial Hotel, Tokyo,
Organized by Center for Global Communications (GLOCOM).
Mr. Ira Magaziner, Senior Advisor to the President for Policy
Mr. Andrew (Drew) Quinn, Economic Section, US Embassy Tokyo.
Professor Shumpei Kumon, Executive Director, Center for Global
Mr. Izumi Aizu, Asia Network Research (ANR), Senior Research Fellow,
Professor Yasuhide Yamanouchi, Director Research and Education, GLOCOM
Mr. Adam Peake, Senior Research Fellow, GLOCOM.
Professor David Farber, Alfred Fitler Moore Professor of
Telecommunication Systems, University of Pennsylvania (GLOCOM Fellow).
Mr. Toru Takahashi, Internet Association of Japan (IAJ), JP-NIC, Tokyo
Mr. Masanobu Suzuki, NTT, Executive Vice President, Global Business
Professor Jiro Kokuryo, Graduate School of Business Administration,
Keio University (GLOCOM Fellow).
Mr. Taketo Furuhata, IDC Inc., President and CEO (GLOCOM Fellow).
Mr. Michio Naruto, Fujitsu Ltd., Executive Vice President.
Izumi Aizu chaired the meeting.
Shumpei Kumon: introduction, comments on the development of
We have heard the view that it was the Administration's policy to regard
the Internet as a new living system and that government's role was to
provide favorable living conditions in which this system could develop
and survive. The Global Framework for Electronic Commerce and Green
Paper on IP numbers and domains are important in continuing to support
this policy of nurturing the Internet.
In a speech the last evening, Mr. Magaziner spoke about the nature of
the information revolution, that it was comparable with the industrial
revolution of 200 years ago. This raises the question what is this
information revolution, and how does it differ from the industrial
Is the information revolution just a 3rd industrial revolution, lead by
information technology and information communications industries? If we
consider this to be the case then we are now in the information
revolution's breakthrough stage, the first 50 years of its development.
The next stage, the maturation stage, will likely be a period of about
50 years which will be the equivalent of the period from the 1930s to
1970s, the maturation stage of the 2nd industrial revolution. There is
another important aspect to consider, the "third phase of
First phase of modernization - militarization or rise of modern
sovereign state in 15th and 16th centuries. During this period,
sovereign states (particularly European states) played the prestige game
of war, aggression and colonization in international society.
Second phase of modernization - industrialization and rise of a new
forms of social actors in the form of modern industrial enterprises.
These modern enterprises were engaged in the wealth game, in which the
concept of private ownership was sacred. This period lead us to the age
of affluence and mass consumption.
We are now entering the 3rd phase of modernization: empowerment through
intellectual affairs. With intellectual empowerment we see the rise of
a third form of modern organization, NGOs or NPOs, that are neither
government or business enterprises, and which we name "intelprise"
because their main objective is not to gain prestige or wealth but to
gain intellectual influence or wisdom. They are players of the wisdom
game. The Internet or "global intelplace" is the arena for this of new
kind of social competitive game that is based on the principles of
trust, collaboration, persuasion, and mutual understanding. Principles
markedly different from those of previous actors, sovereign states in
the face of militarization and industrial firms in the face of
industrialization. The age of the states and businesses is not over, so
there is need for all actors from these 3 phases to collaborate.
A key question is what principles should govern these new activities.
In the US there is too much emphasis on market exchange, on commodities,
price and competition. These factors are important, however, the essence
of Internet and Intelprise is in the new forms of social organizations
that are developing on it, and the behavior of people --the netizens--
using it. Internet and Intelprise will provide a platform for new forms
of business based on competition thorough collaboration. From this view
point the global framework is only important when we know for sure the
nature of the coming information society. So the US government's
activities to try find the best means of governance for cyberspace and
to organize business and government activities on that foundation are
Particularly in Japan it is strategically important today to develop
local or regional informatization. Informatization based on market
principles and competition is happening with the opening of the Japanese
communications markets. However what is lacking is some new universal
service covering individual communities, where everyone can have access
to this new information and communication network, with applications
easy to use and all kinds of social and business activities taking place
on that basis.
Just as the industrial revolution caused changes in the commercial,
social economic and legal paradigms, the information revolution is
causing change now. We don't think anyone understands how it should
develop, but we share the view that there should be new forms that are
more democratic, decentralized and more are fluid than what we saw in
the industrial age.
The Internet has grown up as various stakeholder groups formed to
accomplish specific purposes, rather than in a top down way that came
from government. As the Internet continues to evolve we are looking to
keep governments back (except from certain specific areas where
government involvement is required) and to encourage the evolution of
stakeholder based organizations that form for specific purposes, and are
fluid so able to change their form as the Internet develops. We need to
ensure that these new organizations have appropriate legal protection so
cannot be dragged down as they try to move to the new order.
For private sector codes of conduct in areas like privacy or creation of
children friendly environments, or Internet governance for domains,
numbers and addresses, we see different organizations forming from the
stakeholders who are involved in those issues. The authorities of
governance may be delegated to these new private organizations. No
central global charter or global organization is required, rather a
decentralized system of issue or function specific organizations can
work. These new organizations should not overreach or outlast the
specific purposes for which they formed.
The nature of communities in the information age:
They needn't be geographically bounded, they will be more democratic in
that people can enter and leave more easily, and different communities
will have different structures, some will be dominated by an individual
or group, some more democratic and open. But we can't tell what form
they will take so the best government can do is not interfere with their
We are seeing some successful businesses emerge from communities. They
have different operating principles from traditional businesses, even if
they are interested in profit they have a different organization and
ethic. An example is Parent Soup, which began as a chat group for new
parents. Out of the group grew the idea that new parents had a set of
common concerns and needs, and commercial activities --consulting and
advice groups, product sales-- formed to meet those concerns and needs.
Advertisers are willing to pay to come onto the site to try and sell
their products and services to the targeted usergroup. Parent Soup is
now a (5 or 10) million dollar business 18 months after launch, with
about 50,000 members, half outside the US.
Interesting to note that the fastest growing businesses are often those
that represent the consumer in purchasing, instead of representing the
US government is cautious with this new medium because it does not know
what's happening. We don't fully understand the relationships that are
forming, so it is important that government stays out of the way and
allows freedom for these new forms of commercial relationship to form.
Government has a tendency when faced with something new, especially when
there is concern among the population as there is with the Internet, to
act, to regulate or to stop it. We recognize there are problems with
pornography and privacy that must be addressed, but they should be
solved while taking account of the nature of the medium and the
communities that are developing.
The rights of citizens must be protected, and we should worry about the
simple statements of democracy and what that means as we go across
multiple cultures. Many issues must be internationally addressed, the
network gives us a richness by allowing us to live in and experience
different cultures, but it also raises issues that must be addressed
We have situation where organizations and initiatives based on totally
different principles are interfacing with each other and we have
conflicts. There is a sector of the economy that desires more structure
and governance, while on the other hand we don't want to suffocate the
chaotic energy of the Internet. The issue is whether there is a way to
enable co-existence on the same infrastructure.
One of the great challenges of culture is integration. We meet with
100s of different groups while developing the domain name policy and
identified very strong cultural differences between the different
parties. The traditional Internet communities, large corporations,
entrepreneurs, governments from US and overseas are each quite
different. Trying to create the predictability that allows businesses
to act, but maintains the creative chaos that has been the strength of
the Internet is very difficult. Then there is a political order that is
used to exerting control over situations and has a finer sense than the
other communities of how to do that. The Internet community, and even
the business community, tends to be quite naive to the way in which
political processes work.
The fear that the other side is going to dominate was also apparent
during our discussions. One reason the Green Paper has received a
reasonably favorable response is that people are more fearful of other
groups than they are of the US government. But people are also fearful
that the US will dominate. America has led in the Internet so people
should accept America's lead at this time, but it also places a
responsibility on the US to act responsibly and by necessity to create
The carriers at last woke up to the importance of the Internet about
three years ago, and they are positioning themselves to enter this
growth area. Generally speaking the carriers are resourceful, they have
money and staff, but in comparison with Internet companies
entrepreneurship is lacking. There may be some battle between the
Internet companies and carriers. Should we be concerned over issues of
dominance, monopoly, anti-trust etc., and other issues for the economy
that this situation may create?
Without getting into any specific cases, in markets that are growing
quickly, where technology is changing rapidly and there is competition
among technologies, the mere existence of high market share is not
necessarily a problem. Only if market share is used for predatory
behavior in a related areas so that it stifles competition is it a
problem. 15 years ago the US Department of Justice was worried that
Wang had 90% of the office market. 8 years ago they were concerned
over IBM's introduction of OS2 and how it would dominate in the
operating system market. Illustrates that high market share in a fast
moving markets may not be bad in itself. But if a company displays
predatory behavior in other markets and stifles innovation then that
kind of behavior should be stopped.
There is potential for a shift of power between the traditional carrier
and Internet company, how that plays out will be interesting. The RBOCs
have a lot of capital investment in increasingly obsolete plant that's
being replaced by Internet, cable, DSL, wireless, etc. How that plays
out in the economy will be very complicated.
The WorldCom/MCI takeover is an interesting example. In the space of a
couple of months we move from hearing concerns about the takeover
creating an Internet backbone monopoly, to hearing about the rise of new
companies such as Qwest that have more bandwidth than any other
combined, and now we see even more firms entering the market.
WorldCom/MCI is also in some ways symbolic in that a much smaller
company is able to takeover a much larger one, it illustrates a shift in
power between the Internet and traditional telco.
Will the system of governance that is evolving to handle the domain name
issue be appropriate for other related network and infrastructure
issues, or will other new systems be required.
I don't think we know. But, if there's a problem with the Internet and
if one of the existing organizations --IETF, IAB or the new non-profit
organization-- can comfortably address the problem, then they will do
so. If they can't handle it, then we'll probably see a new group form
to address that problem. That's healthy, a group forming when an issue
needs addressing. Then there are some issues, such as taxation or
intellectual property, which for the foreseeable future will fall into
the traditional realms of government.
In the industrial age we set up international intergovernmental
organizations to help coordinate and make international agreements work.
One of the paradigm shifts of the digital age is that this system will
probably not work, it's too bureaucrat, too slow, and too centralized,
so we need to find something else such as NGO type stakeholder
organizations that can be international. When the Administration talks
of creating codes of conduct for privacy issues, we are looking for
Japanese, European and US industry and other private sector groups to
get together and form a common framework of codes of conduct which can
be coordinated as private organizations, not by less flexible
intergovernmental type organizations. The other shift is that in the
past private sector would come to government and lobby government. In
the digital age we increasingly expect government to go to the private
sector and lobby them. When citizens are concerned over issues such as
privacy or objectionable content, government as their democratically
elected representatives, will ask or lobby industry to create tools to
do something about the problem.
Knowledge is becoming dispersed, the independence of actors is becoming
dispersed, rapid change is taking place, so central control as before is
not possible even if you wanted it. In the privacy area where the
Europeans and others are looking to government solutions, we think even
if we pass legislation we couldn't effectively enforce it, but it might
be achieved using a mix of private organizations and market incentives.
This is a new way of addressing problems, basically instead of
government setting itself up to protect people, as was done in the
industrial age, in this new age we should ensure that people have the
tools necessary to protect themselves.
US Government's attitude towards the Internet is changing and improving.
18 months ago the government was doing a number of damaging things:
supporting the censorship act, the Communications Decency Act, it was
opposing measures to take taxation away from the Internet, it had an
extreme view of intellectual property and copyright protection, and
supported encryption controls. Encryption is the only area where work
still needs to be done, on all the other issues the Administration has
taken a much more Internet friendly attitude. The changing attitudes of
the Japanese government are impressive, there many people within
government trying to think in new, future oriented ways.
Regarding the Green Paper, what is the future role for the US government
after the new system is established.
In the domain name issue the government has no future role, it should be
just another user of the Internet and should completely exit turning all
authority over to the new non-profit organization. Care must be taken
to ensure that the new organization is well established, has legitimacy,
is predictable and is working well before the government exits. The new
organization will be up and running by the end of September 1998, and as
soon people are satisfied that it works then the government will turn
over all authorities to the new organization, but in no event will this
handover be later than 2 years from September 1998.
One reason for basing the new organization in the US is that there is
good existing law for the formation of non-profit corporations, and for
those corporations to be well protected against anti-trust laws suits,
etc. US law also allows for such non-profit organizations to have a
fully international board. A second issue was that the individuals
currently running things are US based, so there is a cultural transition
that is easier if it stays in the US. Third, while the majority of
users are US based then Congress would quickly condemn any move to base
the new organization outside the US. The key thing is to ensure that
the organization's board is international.
There is no reference in the Green Paper to the CORE or ISOC, etc. IAJ
and all the others who signed the MOU wonder why there is no reference.
The Green Paper draws on many ideas from the IHAC, POC/CORE processes
and those processes made significant contribution to advancing the
thinking on these issues. But there is difficulty under US law in that
the POC/CORE process combined the non-profit function of coordination
with the commercial interests of 88 companies. While POC and CORE are
separate organizations they are clearly linked. Other commercial
organizations have commercial interests, NSI, AlterNic, etc., and if the
government or some individual as a contractor of the government is seen
to favor one commercial interest over another, then you risk civil
lawsuits that attack the process and the individuals involved may face
personal criminal prosecution. If there had been mention of the CORE
processes it would have been necessary to mention the processes of all
the other commercial interests. Not having dome so could have been very
damaging to what they were trying to achieve so explicit mention of
POC/CORE was not included.
Those involved with the IAHC and CORE processes should look back to
their original goals: to end the NSI monopoly; to create a competitive
marketplace for registrars; to set up some private international non-
profit system for coordinating these functions; to find a safer more
accountable home for the IANA. All of these things are being achieved
by the Green Paper.
To ensure commercial fairness, an interim solution was devised which is
not ideal but is as good as it gets when balancing the commercial needs
of new registrar companies who need to get into business quickly and the
longer term process of creating the new international non-profit
organization. The only thing CORE is not getting is the specific
management structure it wanted for the management of new generic TLDs,
and even there comments are being taken on whether it should be profit
The Japan CALS project has just come to an end after 4 years, it has
been a great success in bringing different parties together. For
example, in the automobile industry Toyota and Nissan had never worked
together before they joined the CALS project and they have just
completed some useful collaborative work. Electronic Commerce and the
Internet are very important, they will totally change business
structures. To help meet these great changes we must harmonize,
exchange views and create real guidelines with the US and EU private
Mr Naruto's work is very important. These efforts to try and coordinate
Japanese industry and then enter into dialogue through the US-Japan
business council and other fora for US and European private sectors,
will help set the conditions for the kind of structures that are going
to have to evolve. The reality we see, and this something those who
have been involved with the Internet for along time have to really
understand, is that the economic impact of the Internet is dramatic. It
is already driving our economy and will be the driver for the world
economy for the next few decades. As more and more governments and
people around the world understand this then the economic imperative of
the Internet will become bigger and bigger. Having private sector
groups coordinate better, work together better, and be responsive to
concerns of people on issues like privacy, etc., is going to be the
essential ingredient to the success of the information age.
The US government will soon publish a report that describes the impact
of the Internet and global electronic commerce on the US economy. It
will describe what's happening in the economy in different sectors and
how the information technology industry is effecting the economy. The
impact is already very significant and growing very rapidly.
Other areas the US government is working on:
- The Internet 2 research project is ongoing and an education and
library program was begun recently to ensure that all schools and
libraries will be hooked to the Internet by the year 2000.
- The budget contains funds for the training of teachers, and to
encourage companies, like CISCO, to set up academies in poorer cities to
promote the effective use of computers and Internet. That Japan expects
that only 5 to 6% of schools will be hooked up to the Internet in the
next few years is a surprise and concern. That there are regulations
that prevent schools' connection charges from being discounted is a
problem, getting schools connected and training young people and
teachers is very important for the future.
- Privacy conference in May to push privacy codes of conduct.
- Domain name issues and privatization of that area will move forward in
- Working on the recognition of digital signatures and authentication,
and have mutual recognition across countries.
- Moratorium on taxation on state and federal government level. And
working with OECD on international issues about taxation.
- WTO to create an Internet duty free zone, free of customs duties from