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The Digital Dirty Dozen: The Most Destructive High-Tech Legislative Measures of the 107th Congress, Cato Policy Analysis No. 423

The Digital Dirty Dozen: The Most Destructive High-Tech Legislative Measures of the 107th Congress, Cato Policy Analysis No. 423

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Published by Cato Institute
Executive Summary

The past year was a difficult one for the high-technology

and telecommunications sectors of

the U.S. economy. Massive layoffs, plunging

stock prices, dismal earning reports, bankruptcies,

and a host of other problems plagued this

market. Market mania and the general economic

downturn were primary causes of the tech sector's

woes. Once bad times hit, overinflated tech

stocks experienced a meteoric fall.

It is worth considering whether some of the

tech sector's troubles can be linked to the uncertainty

caused by the threat of increasing regulation.

Whereas legislative attitudes in previous sessions

of Congress were hands-off in nature, the

year 2001 saw policymakers introduce hundreds

of bills that deal with tech policy matters.

Although very few of those bills were actually

passed, the tech sector finds itself at an important

crossroads: Will policymakers follow a hands-off

model that stresses humility and regulatory

restraint when dealing with cyberspace, leaving

most important decisions to market forces? Or

will they revert to the command-and-control

model that has long governed the telecom sector,

with regulators molding the industry through

endless intervention in order to satisfy a public

interest that they themselves define?

As shown in this review of our picks for the 12

most destructive pieces of technology legislation

introduced in the 107th Congress, there is good

evidence that policymakers--whether through

conscious design or not--are adopting the telecom

regulatory paradigm for the tech sector. It

appears that the tech sector may be pigeonholed

into that paradigm simply because it offers a

familiar set of rules and a bank of regulatory

agencies that can be activated on command.

If that happens, it will be a grave blow to the

Internet sector. Policymakers would be wise to

reject this paradigm and instead let the Internet

and cyberspace evolve with minimal federal

intrusion and regulatory interference.
Executive Summary

The past year was a difficult one for the high-technology

and telecommunications sectors of

the U.S. economy. Massive layoffs, plunging

stock prices, dismal earning reports, bankruptcies,

and a host of other problems plagued this

market. Market mania and the general economic

downturn were primary causes of the tech sector's

woes. Once bad times hit, overinflated tech

stocks experienced a meteoric fall.

It is worth considering whether some of the

tech sector's troubles can be linked to the uncertainty

caused by the threat of increasing regulation.

Whereas legislative attitudes in previous sessions

of Congress were hands-off in nature, the

year 2001 saw policymakers introduce hundreds

of bills that deal with tech policy matters.

Although very few of those bills were actually

passed, the tech sector finds itself at an important

crossroads: Will policymakers follow a hands-off

model that stresses humility and regulatory

restraint when dealing with cyberspace, leaving

most important decisions to market forces? Or

will they revert to the command-and-control

model that has long governed the telecom sector,

with regulators molding the industry through

endless intervention in order to satisfy a public

interest that they themselves define?

As shown in this review of our picks for the 12

most destructive pieces of technology legislation

introduced in the 107th Congress, there is good

evidence that policymakers--whether through

conscious design or not--are adopting the telecom

regulatory paradigm for the tech sector. It

appears that the tech sector may be pigeonholed

into that paradigm simply because it offers a

familiar set of rules and a bank of regulatory

agencies that can be activated on command.

If that happens, it will be a grave blow to the

Internet sector. Policymakers would be wise to

reject this paradigm and instead let the Internet

and cyberspace evolve with minimal federal

intrusion and regulatory interference.

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Published by: Cato Institute on Mar 26, 2009
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The past year was a difficult one for the high-technology and telecommunications sectors of the U.S. economy. Massive layoffs, plungingstock prices, dismal earning reports, bankrupt-cies, and a host of other problems plagued thismarket. Market mania and the general economicdownturn were primary causes of the tech sec-tor’s woes. Once bad times hit, overinflated techstocks experienced a meteoric fall.It is worth considering whether some of thetech sector’s troubles can be linked to the uncer-tainty caused by the threat of increasing regula-tion. Whereas legislative attitudes in previous ses-sions of Congress were hands-off in nature, theyear 2001 saw policymakers introduce hundredsof bills that deal with tech policy matters.Although very few of those bills were actuallypassed, the tech sector finds itself at an importantcrossroads: Will policymakers follow a hands-off model that stresses humility and regulatoryrestraint when dealing with cyberspace, leavingmost important decisions to market forces? Orwill they revert to the command-and-controlmodel that has long governed the telecom sector,with regulators molding the industry throughendless intervention in order to satisfy a publicinterest that they themselves define?As shown in this review of our picks for the 12most destructive pieces of technology legislationintroduced in the 107th Congress, there is goodevidence that policymakers—whether throughconscious design or notare adopting the tele-com regulatory paradigm for the tech sector. Itappears that the tech sector may be pigeonholedinto that paradigm simply because it offers afamiliar set of rules and a bank of regulatoryagencies that can be activated on command.If that happens, it will be a grave blow to theInternet sector. Policymakers would be wise toreject this paradigm and instead let the Internetand cyberspace evolve with minimal federalintrusion and regulatory interference.
The Digital Dirty Dozen
The Most Destructive High-Tech Legislative Measures of the 107th Congress
by Wayne Crews and Adam Thierer
_____________________________________________________________________________________________________
Wayne Crews (wcrews@cato.org) is director of technology policy and Adam Thierer (athierer@cato.org) is director of telecommunications studies at the Cato Institute.
Executive Summary
No. 423February 4, 2002
 
Introduction
To say that 2001 was a difficult year for thehigh-technology and telecommunications sec-tors of the U.S. economy would be a consider-able understatement. Following a technologystock spree that included briefly catapulting aprofitless Priceline.com to a value higher thatthat of United, Continental, and NorthwestAirlines combined,
1
severance packages andpink slips became commonplace in the techsector as the dot-com deathwatch kicked intofull gear. The survivors of this bloodletting triedto put the best spin on their plunging stock prices and dismal quarterly earnings reports.But there is no hiding the fact that the tech sec-tor is hurting.Meanwhile, consumers of high-tech prod-ucts and services are equally dispirited. Manycomplain that the competition and con-sumer choice they were promised has notmaterialized. Affordable high-speed broad-band also remains a dream for most smallcompanies and average households. Andmany other tech products or services (espe-cially of the dot-com variety) failed to live upto their much-hyped expectations. While vul-ture auction houses benefit from selling theoverindulgent wares of an industry gonesouth and employment websites see loads of traffic, the tech industry licks its wounds andwonders what happened.Nothing happens in a vacuum, of course,and the tech sector’s recent troubles are noexception. The overall macroeconomic picturefor the U.S. economy in 2001 was not a goodone. With the economy in a general downturn,demand for many tech products and servicesslacked off or never fully materialized, and newinvestment and innovation throughout the sec-tor was put on hold. We have since said good-bye to dot-com darlings Pets.com, Toys.com,WebVan, and Kozmo.com.Moreover, while the amazing stock returns and employment growth of previousyears were a blessing for millions of investorsand high-tech CEOs alike, the bubble wasbound to burst. The general economic down-turn merely facilitated this process, and didso with a vengeance, as tech sector stocksexperienced a meteoric fall and ended uptrading, quite literally, for pennies.The news is not all bad, of course; venturecapital investment and the number of compa-nies funded are still considerably higher thanthey were 10 years ago.
2
But although the irra-tional exuberance of investors in past yearsand overall economic malaise of the past yearcertainly contributed to the tech sector’sdeclining fortunes this year, it is worth consid-ering the impact of the political or regulatoryenvironment on this sector as well.It is not unreasonable to ask whether atleast some of the tech sector’s troubles can belinked to the threat of regulation or even thelegal uncertainty that continues to surroundthis sector. The past year saw a steady rise inthe overall level, of legislative and regulatoryactivity dealing with tech or telecom policymatters. Hundreds of bills were introduced atthe federal level, and thousands more wereentertained by state and local governments.An exact bill count is difficult, given the defin-itional disputes regarding what exactly quali-fies as technology-related legislation, but as of early December 2001,
 National Journal’s Techno-logy Daily
listed almost 350 technology-relatedbills for the 107th session of Congress.
3
Empower America’s annual technology legis-lation survey listed more than 220 federal billswhen it was released in the summer of 2001.
4
Regardless of the exact count, by any availablemeasure there has been a significant increasein the overall volume of legislative activitycompared with previous years.These bills dealt with a wide array of issues, including website privacy policies,Internet taxation, broadband deploymentand diffusion, antitrust and competition pol-icy, wireless spectrum issues, broadcast televi-sion and radio regulation, content controls,child protection, cyber-security, intellectualproperty, and Internet gambling. What isperhaps most remarkable about this legisla-tive activity is not simply how many moremeasures were introduced than in previousyears, or even the breadth of technical or legal
2
It is not unrea-sonable to ask whether at leastsome of the techsectors troublescan be linked tothe threat of regulation.
 
territory the bills attempt to cover, but justhow much more regulatory in charactermany, if not most, of these bills have become.Not only were there far fewer bills dealingwith technology policy matters in previoussessions of Congress, but the earlier legisla-tive atmosphere was far more hands-off innature; there seemed to be more humility onthe part of policymakers when they consid-ered technology policy or Internet sectormatters. Indeed, many leaders expressed gen-uine concern about the notion of regulatingthis exciting new sector and its many unfa-miliar and complicated technologies.But things changed markedly in 2001.Suddenly, it seemed, everything was on thetable and open for legislative consideration. Itwas as if Congress had imposed a regulatorymoratorium on itself that expired at the begin-ning of 2001, opening the door to legislate onanything under the high-tech sun. But whilemany more legislative measures were intro-duced and debated over the course of the pastyear, very few actually passed through Congressand were signed by the president.And so today the tech sector finds itself atthe important crossroads of two clear para-digms. The first is the earlier hands-off model espoused by many policymakers,which stressed humility and regulatoryrestraint. It was a vision guided by the notionthat the Internet sector was best left to devel-op outside the political sphere; that it shouldbe shaped mostly by market forces, not polit-ical edicts. In this vision, the voluntary inter-action of producers and consumers deter-mined what served the public interest.There is another possible paradigmembodied by the older portion of the techsector: that of the telecommunicationsindustry. The telecom sector’s history wasmolded at every turn by endless legislativeand regulatory meddling, from the very cre-ation of the AT&T monopoly to its breakupin the early 1980s and beyond. In this sce-nario, the unpredictable whims and dictatesof lawmakers and regulatory bureaucratsdetermine what serves the public interest.The danger today is that the old paradigmof the past will be imposed on the Internetand cyberspace. Indeed, the primary threatraised by increased legislative activism is thatpolicymakers are beginning to box theInternet sector into the same regulatory par-adigm that has governed the telecom sectorfor 100 years. It is important to stress thatthis may not be happening by rationaldesign. Rather, the Net sector may be pigeon-holed into the more command-and-control-oriented regulatory paradigm of the pastsimply because that paradigm offers a famil-iar set of rules and regulatory agencies.If that occurs, it will be an unmitigated dis-aster for the Internet sector, since the dangersassociated with such increased cyber-statismand centralized planning are numerous. Thecyber-statist vision rejects the rule of law bysubjecting the industry to whims of bureau-cratic elites and the regulatory community. Itrejects the fundamental importance of prop-erty rights in networks and technologies andinstead proposes to convert the Net into agiant commons. It requires constant regula-tory intervention by substituting politicalprocesses for market processes.Finally, and perhaps most troubling,increased federal meddling in this sector couldpoliticize this very dynamic industry. It wouldbe lamentable if the Net sector became thenext broadcast industry, looking toWashington for special favors and permissionto engage in new forms of business. Already,the past few years have seen an explosion inlobbying efforts by technology firms, whichare opening and rapidly expanding lobbyingoffices in Washington. In addition, these com-panies are significantly increasing the amountof money they dedicate to political campaignsas well as inside-the-Beltway advertising andpublic relations battles. In a nutshell, the high-tech sector is becoming more comfortable inWashington circles.Worse yet, there have already been calls byvarious parties (and sometimes the technolo-gy sector itself) to impose public interest reg-ulation on this industry, or to insure just andreasonable rates for new services, or to subsi-dize certain services or technologies to
3
The primarythreat raised byincreased legisla-tive activism isthat policymakersare beginning tobox the Internetsector into thesame regulatoryparadigm thathas governed thetelecom sector for100 years.

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