Good morning. I'd like to like to thank the organizers and sponsors
of this conference for the invitation to be here today.
I've been asked to speak on the relative roles of government and the
private sector in the area of electronic commerce (or e-commerce). This
is, in my mind, as big a task as summarizing the impact of the of the Industrial
Revolution in a few minutes. And, in fact, the rise of Internet and e-commerce
may have as profound an effect. It has enabled us to take part in a global
economy and accelerated, beyond all previous dreams, the way we do business
and communicate.
Before I discuss the government's role in this process, let me quickly
describe the rapid development of this new commercial medium. Take, for
example, the growth in Internet use, which has exceeded all expectations.
Five years ago, Vint Cerf, widely known as the "father of Internet," projected
that 100 million people would use Internet by 2003. We have already surpassed
that projection: today, there are 120 million people estimated to be on-line.
That's three times as many as were on-line two years ago.
As Internet use increases, both consumers and businesses are turning
to the Internet to conduct commercial transactions. According to one expert,
nearly one-third of all on-line households made an on-line purchase in
the last six months. By the end of the year, U.S. and European consumers
are expected to make $5.1 billion in on-line purchases, according to Forrester
Research Inc. That's twice the amount consumers purchased last year.
The impact of e-commerce on business-to-business transactions is even
more significant. Forrester expects that businesses will exchange about
$17 billion in goods and services this year, more than double last year's
figures. And by 2002, business-to-business transactions are expected to
reach nearly $350 billion. Internet commerce, by some estimates, may account
for 6% of our gross domestic product by 2005. This growth has caused Columbus,
GA, traditionally a manufacturing town, to shift its focus to development
in Internet technology and electronic commerce.
Why is the Internet such an appealing medium for conducting commerce?
Well, for one thing, it can provide significant cost efficiencies. The
costs of conducting a bank transaction, for example, drop significantly
when they are conducted on-line. A simple transaction would cost $1.08
if it were conducted at the bank, $.54 if conducted over the telephone,
$.26 using PC software, and only $.13 over the Internet. GTE reported that
it was able to save 20% last year on materials costs by finding the lowest
cost suppliers on-line.
Think about how Amazon.com operates: because it orders only the books a customer requests, it can keep a very low inventory. Its inventory last year turned over 42 times, while Barnes & Noble (before it went on-line) turned its inventory over only twice. And Amazon.com gets paid by the consumer 46 days before it pays the supplier - a profitable reversal of traditional retail marketing.
The flexibility of Internet is also enticing for consumers. Certainly,
most of us would rather search for a new car in the comfort of our own
home than travel from car-dealer to car-dealer. Last year, according to
J.P. Powers, 21% of U.S. car buyers researched their car purchases on-line.
One expert estimates that half the country will be doing so by year 2000.
The Internet also provides small and niche businesses with significant
opportunities. It has made it possible for small, family-owned, basket-weaving
companies in Ohio to attract buyers world-wide or for women in Ghana to
sell their weavings without losing profits to middle men. With several
clicks of the mouse, we can now view pictures of that hide-away hotel in
the Bahamas that we'd love to visit. In fact, a colleague of mine asked
the other 20 guests in a remote lodge in Costa Rica how they'd happened
to find the place. All of them responded that they had found it on-line.
Given the tremendous growth of electronic commerce, what is the government's
role in its continued development? We believe that the success of e-commerce
to date is largely attributable to private sector efforts. Innovation,
better services, and lower prices are more likely to arise in a market-driven
environment than in a regulated environment.
The U.S. government has therefore adopted an approach intended to allow
such private efforts to continue, unimpeded by government regulation. In
July 1997, the Clinton Administration set forth principles in its Framework
for Global Electronic Commerce intended
to guide this market-driven approach. These principles include the following:
In other areas, we believe we can play
a crucial role in generating or creating a climate for future growth and
development of the Internet. Government is now playing a key role, for
example, in promoting greater bandwidth to homes and offices and in working
with the private sector to protect the nation's infrastructure.
I'd like to touch on each of these topics
separately.
Privacy. First, privacy, an area that has received significant attention this year. The U.S. government has become increasingly concerned about privacy issues because of the potential for misuse of personal information on-line. Recent polls have shown that current and potential Internet users also have such concerns. A March 1998 poll in Business Week indicated, for example, that 61% of those who don't go on-line would be more likely to start using Internet if they thought their personal information would be protected. Of those who already use Internet, 52% won't make purchases for fear that their personal information would be used for other purposes.
We need to put these fears to rest. The Internet should be as safe a place to conduct transactions or share information as any other secure marketplace. The Clinton Administration is hoping, however, that the private sector will take the lead in creating privacy safeguards.
We have been working closely with private
industry and privacy advocacy groups to develop and adopt effective codes
of conduct, industry developed rules, and technological solutions to protect
privacy on Internet.
In the past few months, the private sector
has made some promising steps. A consortium of companies called the Online
Privacy Alliance, composed of 50 companies including AOL and Disney, has
proposed a set of guidelines that include the following. A company's Web
site must notify the on-line user of the company's privacy policy and describe
what information will be collected and how it will be used. The coalition
has also proposed a voluntary enforcement program to certify that the sites
comply with these guidelines.
The proof, of course, will be in the pudding.
Self-regulation will work if the companies do, in fact, put these plans
in place. If they don't, we will need to reconsider whether self-regulation
is the best option. Consumers will demand an effective solution, as will
our trading partners, particularly those in Europe.
Domain Names. Domain name
registration is another area that we hope will be managed by the private
sector. As most of you know, domain names are the names that are directly
linked to a unique Internet site, such as "www.ecommerce.gov." Currently,
the registration of domain names is conducted through contract with a U.S.
agency. This is an area, however, that we believe should be governed by
the private stakeholders with a significant interest in the Internet. As
part of the Framework for Global Electronic Commerce,
the President directed the Secretary of Commerce to privatize, increase
competition in, and promote international participation in the registration
process.
NTIA has taken the lead in this area and
is working towards turning the domain name system into a private, international
system. This past June, we released a White Paper inviting the international
community of private sector Internet stakeholders to work together to form
a new non-profit corporation to manage domain name functions. We are hopeful
that the private sector can establish the new corporation by October 1998.
At such time as the entity is operationally sound and stable, the Department
of Commerce will transfer management of the functions over to the new entity.
We expect that by October 1, 2000, the private sector will assume full
responsibility for domain name management.
Taxes/Tariffs.
The U.S. government has also tried to limit government regulation in the
area of taxes and tariffs. Again, the theory is that an unfettered marketplace
is most likely to promote growth and innovation in Internet use and e-commerce.
With respect to taxes, the Clinton Administration endorsed a position of
"no new taxes" in its Framework for Global Electronic Commerce.
The Administration subsequently supported legislation that would impose
a temporary ban on a state's authority to impose new Internet access or
service taxes.
The Administration has also supported a
position of tax neutrality. That is, we should tax items on-line the same
way we do off-line. Taxes should not affect, in other words, whether a
consumer or business chooses to use the Internet to buy a product.
Finally, the U.S. government has also declared
that the Internet should be a customs duty-free environment. That is, all
governments would be prohibited from imposing tariffs on products or services
when they are delivered by Internet to foreign markets. We have made significant
progress in reaching agreement in this area. On May 20, 1998, all 132 members
of the World Trade Organization (WTO) endorsed a declaration agreeing to
extend the current prohibition against such tariffs. The declaration also
called for a comprehensive program to examine all trade-related issues
relating to global economic commerce.
Broadband Initiatives. In
certain areas, such as increasing broadband capacity, the U.S. government
has taken a more active partnership role with private industry. Providing
greater bandwidth to homes and offices is a primary goal for the U.S. government.
According to a Department of Commerce report issued in April 1998, the
number of Internet users is doubling every 100 days. We need to create
the infrastructure to handle this rapid rise in data service use.
Examples of the U.S. government's efforts
in this area are the Next Generation Internet and Internet 2 projects.
These projects will partner hundreds of millions of dollars in private
investments with federal investments to promote a faster and more reliable
network. Internet 2, for example, is expected to transmit the entire Encyclopedia
Britannica in under a second and the entire Library of Commerce in under
a minute. Congress is now considering federal
funding for technological standards to ensure the success of these projects.
We want to be sure
that all American citizens can obtain the telecommunications services they
want - whether cable, telephone, Internet, or wireless - and that will
require extending bandwidth to homes and offices.
Critical Infrastructure and Year
2000 Initiatives. Finally, the last area I'd like to highlight
is the Administration's initiatives in addressing the Year 2000 problem
and critical infrastructure protection. The Year 2000 problem, otherwise
known as the "millennium bug," refers to potential disruptions in our computer
systems when the clock strikes January 1, 2000. The Administration is encouraging
private companies, trade associations, foreign governments and other organizations
to take specific actions to guard against disruptions of services. A Gallup
survey reported, for example, that 5 million small businesses are at risk
of a computer meltdown come Year 2000. Of those surveyed, 80% of these
businesses were aware of the problem, but only half of them intend to do
something about it. We need to reverse these trends. I encourage you to
talk to your vendors, your sellers, your partners, and your collaborators
about this issue.
The work we are doing to prevent crises
in year 2000 can also be applied to the Administration's broader challenge
of protecting our critical infrastructures. In May 1998, the President
issued a directive requiring that various agencies take steps to protect
the nation's critical infrastructures against potential outside attacks.
Such attacks could wreak havoc, not only on our information systems, but
also on our economy and defense capabilities.
NTIA has been designated as the lead agency
for information and communication infrastructure protection. Our success
in developing a plan to protect these systems depends, however, on our
ability to collaborate with the private sector. We need the help of companies,
such as yours, to identify critical information systems and gauge their
vulnerabilities before we can determine how to defend these systems. I
hope to work with many of you as we begin this collaborative process.
Conclusion
There are numerous other initiatives relating
to e-commerce and Internet that I could touch on if we had more time. Nevertheless,
the emphasis at this point should not be on government's role in the process,
but on how you, as private industries, can take advantage of the new opportunities
of e-commerce.
This new medium has, indeed, revolutionized the way we conduct commerce and share ideas. And, as Peter Drucker, the preeminent management theorist stated, "[t]he greatest danger in times of turbulence is not the turbulence. It is to act with yesterday's logic." I encourage you all to look at how e-commerce can benefit your businesses so that you will become participants in, rather than witnesses to, this revolution.