Key decisions made years ago still apply today
Economic growth stalls. Public debt is exploding. People quit looking for work faster than new jobs can be created. Around the world, voters turn to policymakers to solve these economic challenges and re-ignite growth. But how?
Solutions vary radically. Some see government bureaucracy and red tape as the problem, proposing budgetary discipline and deregulation to solve our woes. Others perceive government as the solution, urging greater Keynesian stimulus through public investment and more comprehensive regulation of “big business.” In nearly every nation, policymakers are experimenting with various remedies, from Japanese currency devaluation to European austerity to massive Chinese infrastructure investments.
Over the next 18 months, four newly named leaders in the Obama Administration have the opportunity to expand on proven successes and reignite growth. At the Federal Communications Commission (FCC), the Office of United States Trade Representative (USTR), the Treasury Department and the State Department, these new officials can advance policy solutions that we know can work, provided they have the vision and courage.
Across geographic and ideological spectrums, policymakers agree that the keys to future prosperity are productivity, innovation and entrepreneurship. And their most compelling proof point remains the Internet and its extraordinary contribution to American employment and efficiency. A huge amount of the Internet-enabled growth that has supercharged our economy over the past two decades resulted from four critical decisions made by U.S. policymakers in the mid-1990s on issues that have returned to the fore today.
First and most significantly, 17 years ago, bipartisan majorities in Congress passed the Telecommunications Act of 1996. Recognizing the enormous value of competition as a driver of progress, Congress rewrote a 1934 monopoly-era law to promote investment in new networks and competition across platforms. The act led regulators to drastically cut terminating-access charges imposed on emerging wireless services, spurring the mobile boom. New rules begat new investment, with more than $1.2 trillion in private capital expenditure; the broadband era was born.
Next, in December 1996, U.S. negotiators at the World Trade Organization got 75 nations to agree to the Information Technology Agreement (ITA) that eliminated customs duties on a wide array of information and communications technology products. Trade in these goods exploded from $1.2 trillion in 1996 to $4 trillion in 2008, vastly expanding markets for American exporters while lowering the cost to U.S. entrepreneurs of powering up, logging on and joining the networked world. U.S. productivity surged a massive 85%, from 1.4% per year (1980-1995) to 2.6% per year in the 15 years after.
In July 1997 the Administration released its “Framework for Global Economic Commerce,” recognizing the imperative of avoiding government control of core Internet governance functions. By investing Internet governance functions in a professional, private-sector led, bottom-up organization (ICANN), policymakers blazed an unprecedented trail that has minimized political interference in Internet growth and avoided a balkanization of this critical global medium. Internet usage grew from 16 million in December 1995 to 2.4 billion today.
Finally, in August 1997, Congress passed the Balanced Budget Act of 1997 (BBA), legislation that significantly boosted investor confidence by imposing fiscal discipline over Washington budgets. Of even greater impact, the BBA lowered capital-gains rates to 20%, encouraging a torrent of venture capital funding that gave rise to many of today’s leading tech employers.
For 15 years these policies and the Internet economy they fostered helped power economic growth during boom times and sustain job creation and productivity in the lean years. Yet each of these essential policies is now at risk.
Today some policymakers propose higher tax rates on capital gains and entrepreneurial activity, either to spare spending or “fix” income inequality. New Treasury Secretary Jack Lew should prioritize maintaining effective tax incentives for venture capital.
At the same time, trade in high-tech goods and services is increasingly limited by new protectionist barriers and the failure of the ITA to evolve with new innovations. USTR nominee Mike Froman should make expanding the ITA to new technologies and additional markets his top priority.
Regimes less committed to Internet freedom are this month pushing to move Internet governance functions away from the multi-stakeholder ICANN and to the government-run United Nations instead. New Secretary of State John Kerry must prevent UN takeover of Internet governance as a top priority.
And in domestic telecom markets, many are seeking re-regulation of advanced broadband networks with monopoly-era telecom laws… old rules for all wires. FCC nominee Tom Wheeler should champion efforts to deregulate all-IP broadband networks to re-ignite our innovation-led growth.
It is critical that the policymakers of 2013 learn from and apply the lessons of 1996-1997. The broadband-enabled Internet economy can continue to benefit American consumers and power renewed productivity, innovation and entrepreneurship, provided policymakers make the right decisions.
Originally published at Market Watch