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All the president's man

BURLINGAME, California--Ask Ira Magaziner how he got the plum gig of drafting the President's policy on electronic commerce and he'll smile: "I guess I must've stepped on the cat."

CNET Newsmakers
March 4, 1997, Ira Magaziner
All the president's man
By Margie Wylie
Staff Writer, CNET NEWS.COM

BURLINGAME, California--Ask Ira Magaziner how he got the plum gig of drafting the President's policy on electronic commerce and he'll smile: "I guess I must've stepped on the cat."

Magaziner is only half joking. For most politicians, Internet boosterism is the modern political equivalent of baby kissing, but as Magaziner will be the first to tell you, he's not a politician.

A long-time supporter of President Bill Clinton, Magaziner traces their friendship back to their days as Rhodes scholars at Oxford University some 25 years ago. They later reconnected at a famous "Renaissance Weekend," a salon-like retreat for intellectuals, politicians, and businessmen. Since then, Magaziner has advised the president and worked with First Lady Hillary Rodham Clinton in several capacities, including his highest profile role of all: co-chair of the failed health care reform initiative in Clinton's first term.

Internet commerce is hardly as controversial as health care reform, but Magaziner's policy paper ventures beyond the safe political platitudes about education and wired libraries. Instead, it plows into the middle of clashes between consumers and sellers, and between citizens and nations on some of the toughest issues of the looming electronic economy, such as taxes, encryption, consumer privacy, digital money, and regulation.

The policy paper is a compromise, but it doesn't seem to satisfy anybody, even though it takes a hands-off tack to the Internet. Consumer privacy advocates say it leaves too much up to the free market, only punishing those who violate individual privacy rather than safeguarding their rights in the first place. Business is unhappy with the idea of banking the electronic keys that unlock all their communications in or even near the hands of the government. Law enforcement, of course, wants more access. About the only thing most groups agree on is the call for making the Internet a kind of tax-free trade zone, everyone, that is, but telephone companies, who want Internet service providers to pay access fees as they do.

Magaziner doesn't seem like the brawler he must be to put himself in the middle of this. A passable public speaker, he is so soft-spoken in conversation that people are forced to strain to catch his often refreshingly frank remarks. He keeps his watch set exactly 14 minutes early since his Oxford days, but admits it doesn't keep him on time, as his aide nods vigorously in silent assent. Still, it seems in some ways, Magaziner is ahead of the times. The policy paper proposes nothing less than a new social contract for the coming years. The first draft came out earlier this year, went through an extensive comment period, and is expected to be revised sometime in April.

NEWS.COM sat down with Magaziner before a speech at the Computers Freedom and Privacy 97 conference in Burlingame earlier this month to discuss the future of electronic commerce.

What makes Internet commerce sufficiently different from other types of commerce that it deserves special consideration by the president?
Magaziner: No. 1, is its enormous potential. We think if we allow the Internet to grow, and commerce on the Internet to grow, and create the right kind of environment for it, it will be the largest category of world trade in the next five or ten years. It has enormous potential.

We're thinking about products and services actually delivered across the Internet: things like software, entertainment products, professional consulting services, information, databases, and so on. Increasingly people will be trading and selling and buying those kinds of services and products and the Internet will be a very effective way to do that commerce.

Secondly, Internet commerce defies a lot of the normal conventions. It's truly borderless in terms of states or countries. And it can spawn a creativity that is greater than probably physical commerce. It's something which has the potential to bring education, better health care, better communications among people, more democracy, more freedom. So it's something that we see a tremendous potential in and that the president is very interested in.

NEXT: Net governance


Age: 49

Cyber claim to fame: White House e-commerce policy author

Claim to fame IRL: Co-chaired failed health care reform initiative with Hillary Rodham Clinton

Books penned: The Silent War: Inside the Global Business Battles Shaping America's Future, Japanese Industrial Policy, and Minding America's Business: The Decline and Rise of the American Economy

Money/mouth thing: Never made a Net purchase.

CNET Newsmakers
March 4, 1997, Ira Magaziner
Net governance

How do you encourage the development of the Internet, the adoption of policies like little or no taxation across the globe?
We have to work with other governments to try to help them understand the potential for their people as well as our people of freer trade and freer commerce on the Internet. [We have to] try to resist overregulating, constraining, and taxing this commerce because that will stifle it. In the long run it will be much better if free commerce flourishes on the Internet for everybody. So we expect to engage in a lot of negotiating with other countries and to try to bring them around to a nonregulatory, nontaxing point of view.

One thing I think that's very important as we look more at it is that getting agreement on what governments will not do and assurances of what they will not do is probably more important with the Internet than what they should do. One of the key aspects of our paper is to say there should be no duties on Internet transactions, there should be no new taxation on Internet transactions, that governments should agree that they're not going to regulate the Internet.

The U.S. National Science Foundation is today responsible for handing out what's basically spectrum on the Network: that's Internet domain names and the numbers that go behind them. Who should hand out those resources in a global economy?
Ultimately there needs to be competition introduced into that. The Internet community globally, as much as possible, ought to self-regulate things like that. And if you have competition and consumer choice, then I trust that in most cases that will work itself out and that government doesn't have to be in that position.

The Internet started out as a scientific endeavor and research endeavor and so on, so it was natural to begin that way. But I think it needs to evolve more into a competitive consumer choice kind of system and then what will evolve, I think, will be agreements about different standards that the market will choose.

This is an issue very similar to the issue of technical standards. Some governments, for example in Europe, have urged us to call an international conference of governments to try to agree on technical standards for the Internet, including questions of domain names. It's our view that that would be a big mistake; that basically technology is changing and moving so rapidly and that governments are not in a good position to choose which technologies are going to win or lose and not in a good position to choose what the market's going to want.

And so what we'd rather do is have governments through say the National Institute of Standards and Technology or through the National Science Foundation, support different test beds, but let the market decide how that gets done eventually.

But right now the two competing standards for domain name service, one that's completely independent and runs alternate route servers and another, which is part of the government, that runs the nine established route servers.
And I think that needs to change. I think that basically you need to evolve more towards a competitive situation. I think that was something which there was historical reason for, but I think the historical reason is disappearing as the market grows.

Does the White House pay much attention to the whole domain names problem?
Yes, absolutely. We've had three different administration meetings in the past three or four weeks that I'm aware of about it. We're looking to possibly hold some hearings on it because it is an important issue and as we move towards wanting more competition and choice, we think we want to evolve more towards a competitive system on domain names as well.

NEXT: Cultural and economic imperialism

CNET Newsmakers
March 4, 1997, Ira Magaziner
Cultural and economic imperialism

What about those countries that think that free trade also equals a lot of things that they think of as American cultural imports, such as free speech and free morals?
I think we've always felt that people should be able to decide for themselves what they want to do and that a government shouldn't be trying to protect people from themselves. In our view, if the citizens of a country want to buy American movies or want to listen to American music or whatever, they should have the right to do that, just as our citizens should have the right to listen to music or watch movies or whatever produced anywhere in the world. So it's our hope to try to encourage the promotion of those kinds of democratic values and respect for citizens everywhere. And the Internet makes that all the more possible.

Some say that the U.S. winds up dictating policy rather than listening to other people. Why is it in the interest of developing countries to join the big Internet community when it looks like a lot of treaties will be stacked against them?
Well I don't think the treaties are stacked against them. I think if I'm a developing country, I think integrating my people into the world information flow is very important for my economic and social development, the freedom of my citizens. And what the Internet gives me the opportunity to do is in a relatively inexpensive way to give access to my people to the world's information in a way that they could never have. Now you could argue well that's fine if you're talking about education and science and medical information and so on, but what about the latest Arnold Schwarzenegger movie?

But there are citizen activists, for example in India and in the Phillippines who say that it's a sort of imperialism for the U.S. because we have all the goods--we're going to lock it down.
No we're not. India makes movies and has a very good movie industry. In fact, I enjoy watching their movies, but I think that that has to be up to citizens. I don't think that you can force one culture or another on people I think, even if it's one that's indigenous. I think it's perfectly appropriate to [promote traditional culture] assuming you have support from your people, to spend money to invest in your local film industry, or your local opera, or dance, or whatever and try to ensure that you have a robust perpetuation of your local culture.

But I think you get on very dangerous ground if you start saying "No, you can't see what comes from someplace else." I just think that's antidemocratic and it's treating your citizens as if you know better than them. And I don't think you do.

But what about goods? We have Microsoft software in the United States.
But Microsoft software is in demand as other software that we develop in this country because people want it, they find it useful, they find that it empowers them.

In the early days of the United States we ignored British copyright and pirated books freely with the plea that we were, as a developing country, too poor to pay stiff British royalties. Developing countries today could make the same argument.
That's why the World Intellectual Property Organization formed was to stop that from happening. I think that if you want as a country to develop your own software industry, much as countries like India have done. I think you should do it the way you would develop any other industry in our country, which is that you start off generally with lower salary and wage rates than some of the developed countries. You work on investing to educate your people, including sending them to American universities, or European universities, or Japanese ones, or building your own universities. And then those people get into the industry themselves and eventually they want to own their own businesses (which they do), and they develop their industry. And that is happening all over East Asia now.

What makes the Internet flourish is the ability to spread information and ideas and spark creativity, but when you can do things like copyright facts, it's nearly impossible for people to enter that market.
Yes, but we have deep concerns about that. The administration has not endorsed the database treaty. What we are saying in our paper is that we're calling for a discussion over the next year to kind of get views out. What we advocate is a public hearing process and kind of an in-depth discussion process to figure out what to do.

I think that what was done in Geneva in December with respect to copyright, I think is important because you do invest a lot of money to create intellectual property and if you can't get some payback for that, you won't make the investment, and that intellectual property won't get created, and the world will be worse off for it. So I think you have to have the right balance.

The treaties also allow--and I think it's important--what we call the Fair Use Doctrine so that libraries and people involved with browsing and caching can have access to material without violating copyright laws. And that will be allowed for. We will have our fair use doctrine so that we don't slow down the flow of information.

NEXT: Trust me

CNET Newsmakers
March 4, 1997, Ira Magaziner
Trust me

In that sort of a borderless economy, you're going to have to have a certain amount of trust in order to do transactions. That means encryption in a lot of people's eyes.
Part of what we're trying to do is establish a uniform commercial code for contracts on the Internet. The way this would work is that if private buyers and sellers want to come together and do business, they can do it however they want to. That's their right in our view.

But if they want to be protected so that they know that a digital signature means the same thing in the United States or Malaysia or France and know that if they make a contract and they have a dispute, that they don't have to go into 150 different court systems and 150 different countries because there's a uniform code for a contract, if they want to be protected by the uniformity, we want to try to give a predictable legal environment. [That can be accomplished by] negotiating a uniform commercial code among countries. And that will give the major piece of protection that people need to do business. So that's one key thing.

Now the encryption--the security issue--is also crucial. People have to know that when they're sending a product across the Internet their transmissions are secure. Only the person they wish to receive it can receive it.

We've been trying to deal with two legitimate concerns that different parts of the government have about encryption: The people that are on the economic side of the house like I am within the government believe that encryption technology needs to be free and usable and that it can guarantee the security that people are going to look for.

People in the law enforcement side of the administration (the FBI and others) want the ability to fight international terrorism or international drug cartels. In order to do that effectively, they need--using the normal due process that they would use by our legal system--the ability to decode transmissions on the Internet or else terrorists can use that. So they want to be able to have access--with proper due process--to those codes.

We've been having that debate within the Administration for quite awhile and trying to evolve our policy. I don't think the debate is finished yet, but we have a policy now that is working by allowing encryption to be exported, but having some type of key-recovery system so that when there are legitimate court-ordered law enforcement needs, that law enforcement agencies can get access to the keys.

I know this is unpopular with most people that are involved with the Internet and I'm sympathetic to the concerns they have about it personally. But those on the law enforcement side will argue that all it takes is one terrorist act where hundreds of people die and it could have been prevented had they could have decoded something. The public outcry would be significant. So it's a very difficult issue.

Personally I think that our position now is better than it was a year ago and I think it will keep evolving and we'll hopefully come to some consensus.

Is consensus really possible on encryption? With encryption, either law enforcement has access or it doesn't.
I'm a company and I'm going to use encryption I'm probably going to want to have access to some key to that encryption myself. And today, even with our current laws, if a law enforcement agency gets court permission, they can go into that company and have access to all the information at the company if they can show cause that there's a crime in process or reason to believe there is. So they would have access to the key in that circumstance. I don't think most people would disagree with that--that's part of our system of justice right now, even aside from the Internet.

The problem is over where that key has to be deposited with a third party, which is what our policy is now. I, as a company, may not know if the FBI is having access to my key and if they are going to do surveillance of some sort. Now the FBI will argue, "Well, if you're a terrorist company you're not going to voluntarily give us your key, so we need to have some trusted third party." I think that people involved with the Internet would argue "Yea, but if I'm a terrorist, I'll find a way to get around you anyway and what you're doing is futile."

Are other governments requiring escrow?
Yes. There are discussions in the OECD (Organization for Economic Cooperation and Development) and various governments are forming their policies right now. But I think the third-party key escrow notion is probably the one that's being talked about in most countries within the OECD.

My own personal view is that there are legitimate concerns on both sides of this. I don't think we've yet found the right and best solution. I think there's going to have to be an evolution of the policy over time and I think that technology as it evolves is going to help guide what we do as well.

NEXT: Nunya' beeswax

CNET Newsmakers
March 4, 1997, Ira Magaziner
Nunya' beeswax

With global electronic commerce, you're going to eventually wind up with many databases of personal information. The European Parliament has passed the database directive that gives European Union citizen's certain specific rights about personal, identifiable information stored in databases. What about the administration's stand on that?
Well first of all, we think that the question of privacy is of crucial importance; that much as we value the increased ability to gather and share information that the Internet provides, it puts an even greater responsibility on us to make sure that people have the right to protect their privacy. And Americans care deeply about their privacy. It's been sort of a founding tenet in this country to promote privacy to a much greater extent than most other countries. So we think that's very important.

The question then is how do you do it. Do you sit a number of government bureaucrats in a room and write hundreds of pages of regulations about "you can do this, you can't do that"? We think that would be the wrong way to do it, because it would make it so complicated for people to know what they could or couldn't do. And then you'd have the privacy police coming out trying to check whether you did it right.

So what we would prefer instead is to have a simple but very powerful set of laws which say that if I'm going to sell you something I have to notify you--notify you in a very clear way and not in quarter inch print or something--if I'm going to use information, including the information that you made the purchase (or any other information). You have to have the ability to say no if you don't want to. You have to have the ability to not enter into the transaction with me and so on and so forth. For sensitive information--whether it be medical information or other kinds of sensitive information--I should have to get your explicit consent. You should have to say specifically, "Yes, I consent to this," in a noncoercive way before I can do it.

There should also be very strict laws which say that if I abuse that, I'm going to pay some very strict penalties. Once that notification requirement and those penalties are there, then we think this sort of market-based solution is the right way to go, rather than trying to anticipate every situation in which information could be used one way or another in writing hundreds of pages of regulations.

So that's what we're advocating, and what I suspect will happen, is that industry groups will step up and try to come up with Better Housekeeping-type seals of approval on certain procedures. Consumers will learn that there are certain seals or symbols that they look for that they can be sure will protect their privacy.

There's one exception to this approach and that has to do with children. [It is] one of the things that the initial draft of our paper is not good enough. We're improving it in the next draft because we got a lot of very valid comments and criticisms.

What I've just said is fine if you're dealing with adults. Adults can give consent but what happens if you have a ten-year-old child on the other end? You just can't say "Are you 21?" A ten year-old kid will say, "Sure why not?" And you can run into serious problems with information being gathered from children and even terrible problems about stalkers getting information from children and so on.

The concerns the Polly Klaas Foundation has expressed?
With respect to children, there may need to be a more prescriptive approach and a much more serious set of penalties. We're looking to explore ways with industry and consumer groups and children's advocacy groups to create that kind of protection.

So what if a buyer says no to information gathering or sharing and the Internet business just says shove off? Can you discriminate against people who don't want their information used for marketing purposes?
I think what may wind up happening is that sellers don't want to diminish their market and if their main business is to get information from people, if that's really what they're doing, then I think you can have guidelines that prevent that kind of thing from happening. If their main business is to sell their product, I don't think too many of them are going to say "I won't sell to you unless you give me this" because that cuts down on their market.

But you raise a good point. I think if we saw over time that there was discrimination developing of this sort and people were effectively being coerced, then I think you have to do something.

The difficulty when you're in government is that we have very, very clever lawyers in government. You could sit a number of them in a room and say, "OK, anticipate every possible way in which a consumer can get screwed and write a regulation about it." And you wind up with 10,000 pages of regulations and nobody will want to do business on the Internet because they'll be afraid of violating some regulation.

So what I'd rather do is try to allow things to develop in as free manner as possible with the kinds of protections on notification I talked about. I'd rather wait until there's a real problem and not act based on imagined problems or problems that may never develop, hypothetical problems.

NEXT: Free trade and the Net

CNET Newsmakers
March 4, 1997, Ira Magaziner
Free trade and the Net

Do you find that the whole idea of electronic free trade is a little bit frightening to people who feel the North American Free Trade Agreement took their jobs?
Free trade is something which is happening; it's something which I would say is inevitable. You can hold it back if you want for periods of time, but it's inevitable.

Just like in the late 1800s and early 1900s, national trade was going to happen and you weren't going to be able to keep up state barriers which prevented things from going from one state to another. What we need to do is just to make sure that it happens in a way that's fair to people, that helps them adjust, that makes sure that some groups of people don't suffer disproportionately as the evolution takes place.

But I think there's a conflict between the capitalist ideal of free trade and the fact that the income gap between rich and poor continues to grow. And people are questioning is this good for us? Is it right?
First of all, we have for the first time in about 15 years seen some progress in terms of the income distribution gap. People in the lower end of income distribution in the last couple of years have seen their incomes go up for the first time in about 15 years. But I think the point you just raised, I agree with wholeheartedly.

I think it's a very serious problem that we have in this country that our distribution of income has been diverging and that those who are in the bottom even 60 percent have not seen their incomes go up as much as one would expect in a growing economy like we've had. I don't think, though, that the reason for that is technology or that the reason for that ultimately is world trade.

I think what we need to do is invest more in education, more in training, more in technology and making sure that our people can work more productively. In a world where you're going to have people working at $1 or $2 or $3 an hour, to sustain wages of $15 or $20 an hour, you have to work more productively. And to do that you have to be better educated, better skilled. You have to invest more and you have to have better technology.

I think that's the way to solve that problem. I don't think you solve it by blocking off world trade because the first thing that would happen is the people that we're most concerned about in that 60 percent now would all of the sudden have to pay more money for some of the things they buy. And that wouldn't help their living standard either. So I agree, it's a problem that is crucial for us to deal with. But I don't think protectionism is the way to do it.

I think there's a tremendous understandable frustration from people who work hard and play by the rules, [who] do what they're supposed to do and can't get ahead. They find themselves drifting further and further back. And I think we have an obligation to deal with that.

Can the Internet help?
I think the Internet can help because it creates jobs, it creates economic opportunity, and because it allows people to work in rural settings or in inner city settings or whatever without having to face the transportation barriers that often exist. And a lot of our poverty in this country is in inner cities and in rural areas. So I think it can help in all those ways, but it will help only if people are educated well enough and trained well enough to be able to take part in that economic opportunity. And that's why we're putting so much emphasis on that question of education.