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Information technology and innovation policy in the Bush era Thomas A. Hemphill PhD candidate in strategic management and public policy, School of Business and Public Management, George Washington University, Washington, DC The Bush Administration’s technology policy includes a broad range of issues germane to the information technology sector of the economy, including eliminating the barriers to innovation, making the Internet a duty and tariff-free zone, and removing nontariff trade barriers. While the US Senate recently reverted to Democrat control, strong bipartisan support remains in Congress for much of rrhe Bush agenda. Moreover, there is growing Wpwtis~ congressional and industry support for “base-tine” federal legislation to ensure the disclosure of Web site privacy policies and a choice of consumer “opt- in” or “opt-out,” with a strong likelihood of passage in the 107th Congress. S ince the late 197Os, when the term “industrial poli- cy” first surfaced in public debates on improving national competitiveness, the American definition of competitiveness policy has remained an elusive con- struct. In the 198Os, industrial policy came under serious criticism as a form of direct intervention by the federal government; picking “winners and losers” among indus- tries, said critics, was a policy largely followed by Euro- pean and Japanese governments and generally inappro- priate for the United States (with the exception of “Big Science” national security projects). The market system was deemed superior in allocating capital resources-and deciding on which industries would emerge successfully- over that of the public bureaucracy. Nevertheless, out of this vigorous debate among econo- mists, policymakers, and business leaders came a national “science and technology” policy whereby the federal gov- ernment indirectly assisted American industry through a variety of tax, regulatory, and financial incentives, as well as basic R&D technology transfer initiatives. During this period, information technology (IT), materials, and bio- technology were emerging as the new “infrastructure” industries of America’s future. By the beginning of the 199Os, the emphasis on “science” policy had waned, result- ing in a renewed emphasis on “technology” and, as the decade wore on, the emergence of “innovation” policy. The role of the federal government is now focused on providing an American business environment conducive to rapid adoption of organizational innovations and accelerating commercialization of product and process technologies for the global economy. Nowhere is this more important than in the IT sector of the economy, which has become the primary infrastructure industry for ensuring the future competitiveness of the American economy as a whole. According to a 2000 report by the US Department of Commerce, research conducted by the Council of Eco- nomic Advisors, the Congressional Budget Office, the Fed- eral Reserve, and prominent economists has consistently verified that IT industries account for at least half the 29

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Page 1: Information technology and innovation policy in the Bush era

Information technology and innovation policy in the Bush era

Thomas A. Hemphill PhD candidate in strategic management and public policy, School of Business and Public Management, George Washington University, Washington, DC

The Bush Administration’s technology policy includes a broad range of issues germane to the information technology sector of the economy, including eliminating the barriers to innovation, making the Internet a duty and tariff-free zone, and removing

nontariff trade barriers. While the US Senate recently reverted to Democrat control,

strong bipartisan support remains in Congress

for much of rrhe Bush agenda. Moreover, there is growing Wpwtis~ congressional and industry support for “base-tine” federal

legislation to ensure the disclosure of Web site

privacy policies and a choice of consumer “opt-

in” or “opt-out,” with a strong likelihood of

passage in the 107th Congress.

S ince the late 197Os, when the term “industrial poli- cy” first surfaced in public debates on improving national competitiveness, the American definition

of competitiveness policy has remained an elusive con- struct. In the 198Os, industrial policy came under serious criticism as a form of direct intervention by the federal government; picking “winners and losers” among indus- tries, said critics, was a policy largely followed by Euro- pean and Japanese governments and generally inappro- priate for the United States (with the exception of “Big Science” national security projects). The market system was deemed superior in allocating capital resources-and deciding on which industries would emerge successfully- over that of the public bureaucracy.

Nevertheless, out of this vigorous debate among econo- mists, policymakers, and business leaders came a national “science and technology” policy whereby the federal gov- ernment indirectly assisted American industry through a variety of tax, regulatory, and financial incentives, as well as basic R&D technology transfer initiatives. During this period, information technology (IT), materials, and bio- technology were emerging as the new “infrastructure” industries of America’s future. By the beginning of the 199Os, the emphasis on “science” policy had waned, result- ing in a renewed emphasis on “technology” and, as the decade wore on, the emergence of “innovation” policy. The role of the federal government is now focused on providing an American business environment conducive to rapid adoption of organizational innovations and accelerating commercialization of product and process technologies for the global economy. Nowhere is this more important than in the IT sector of the economy, which has become the primary infrastructure industry for ensuring the future competitiveness of the American economy as a whole.

According to a 2000 report by the US Department of Commerce, research conducted by the Council of Eco- nomic Advisors, the Congressional Budget Office, the Fed- eral Reserve, and prominent economists has consistently verified that IT industries account for at least half the

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recent increase in US productivity growth-from 1.4 per- cent annually between 1973 and 1995, to 2.8 percent since 1995. Although the IT sector makes up only 8.3 percent of the US economy, it is responsible for 30 percent of US eco- nomic growth since 1995. Moreover, the commercializa- tion of the Internet in recent years has brought the com- petitive advantages of e-commerce and business practices to small and medium-sized firms. Thus, fueled by the con- tinuing innovations of the IT sector, involving improved computer technology, artificial intelligence, virtual reality, cybernetics, and nanotechnology, the US economy (and American society) has prospered since the mid-1990s.

The Bush high technology plan and budget

W hat lasting impact will the new Bush Admini- stration have on technology and innovation policy? Because specific technological and

organizational innovations are generated in the private sec- tor, the impact will be in broad, competitiveness-enhancing legislation and policies. The “High Tech Plan” Bush put forward as a presidential candidate emphasizes a number of innovation-oriented proposals affecting technology- based industries. From an international trade perspective, the Administration is poised to aggressively eliminate bar- riers to innovation and resist any new proposals to erect new trade barriers. Not surprisingly, the IT industry is receiving special attention-the Bush agenda will include: making the Internet a duty- and tariff-free zone worldwide; extending the moratorium on Internet taxes by five years; removing nontariff barriers to trade in IT; combatting the piracy of American ideas and intellectual property; and promoting the development of globally compatible stan- dards for e-commerce. Moreover, the industry has received Administration support for an increase in the current limit on “H-lB” visas for temporary, highly skilled computer engineers, software programmers, and technicians. And Bush will request that Congress make the R&D tax credit, which has been reauthorized for five-year periods since 1980, a permanent part of the federal tax code.

Education, an area of continuing concern to high-tech industries, is a high priority on the Bush agenda. Perfor- mance-based evaluations in the primary grades will be coupled with expanded education savings accounts. This will allow families or individuals with incomes of up to $150,000 to contribute up to $5,000 per child, which they can withdraw tax-free for educational purposes. Moreover, the President will seek to replace the “e-rate” tax with a new, flexible $3 billion fund for integrating IT in schools and libraries, and $400 million in new money to help ensure that technology is boosting student achieve- ment. He also wants to invest $400 million to create and

maintain more than 2,000 community technology centers each year to provide such services as free Internet access, computer literacy training and the development of pro- fessional skills.

The Administration’s recently proposed $1.96 trillion fed- eral budget for 2002 addresses many of the high technol- ogy issues in the Bush presidential platform. The science

-and technology portion of the budget (with an overall 1 percent increase over the 2001 budget) establishes an e- government plan, which will begin with $10 million allo- cated in the first year and a total of $100 million over three years. This proposal will help streamline the processes of government through electronic procurement, the use of digital signatures, and other technological means. Bush is also setting aside $200 billion from the National Science Foundation’s (NSF) budget for a “Math and Science Part- nership” initiative in the elementary and secondary schools. To encourage industrial research and develop- ment, he is proposing that Congress make the R&D tax credit permanent; but the proposed budget would also suspend the Department of Commerce’s $190 million Advanced Technology Program, which funds cooperative efforts between universities and federal agencies, compa- nies, and nonprofit groups in a broad range of fields, including IT. Though not mentioned in the 2002 proposed budget, the e-rate program was under review by the Office of Management and Budget. Any significant changes to this program would require legislation from Congress.

The NSF will receive a 1.3 percent budget increase for 2002, to $4.47 billion. IT research, which is the NSF’s largest spending priority, will increase by 5 percent (to $273.5 million) from the 2001 budget. A specific area of emphasis in the 2002 budget is the interface of IT and biological research to evoke new cyber-information infra- structure. Nanoscale science and engineering research funding, however, will rise to $173.7 million, a 16.1 per- cent increase from 2001. In IT research, the NSF has been a major financial supporter of terascale computing-com- puters capable of 1 trillion calculations per second. Nano- technology, which involves the manipulation of material at the molecular level, covers a range of issues, from the development of superhard and lightweight materials to computers that use chemical processes to operate.

E-commerce, consumer privacy, and regulation

T he Internet, especially e-commerce, is facing the contentious issue of protecting consumer privacy. President Bush is on record as a “hawk” on con-

sumer privacy. According to Walczak (2000), he believes American citizens should have absolute control over their personal information, including the Internet.

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At the retail level, there appears to be a serious issue clouding the commercial potential of the Net-namely, that e-commerce will not attain its full potential in the US economy unless consumers feel confident that the privacy, security, and confidentiality of their transactions are pro- tected. At a Senate hearing held in the fall of 2000, offr- cials from Hewlett-Packard, America Online, and Walt Disney offered their support for the online privacy legisla-

E-commerce will not attain its full potential in the US economy unless consumers feel confident that the privaq security, and confidentiality of their transactions are protected.

tion proposed by Senators John McCain (R-Arii) and John Kerry (D-Mass)-the Consumer Internet Privacy Enhancement Act (S2928)-emphasizing privacy “notice” requirements and federal and state enforcement require- ments. Based on early policy decisions, the Bush Adminis- tration could be favorably inclined to support such “base- line” data privacy legislation. There are three mutually supportive approaches to ensuring protection of con- sumer data privacy in e-commerce: public regulation, industry self-regulation, and technology.

Public regulation Under Section 5 of the Federal Trade Commission Act of 1914, the FTC is given a mandate to pursue “unfair or deceptive acts or practices in commerce.” Thus, it may investigate and invoke sanctions against a commercial Web site that has posted consumer privacy policies but does not appear to be following them.

With the support of industry, children’s, and consumer groups, President Clinton signed into law the Children’s Online Privacy Protection Act of 1998 (COPPA) in October 1998. COPPA applies to commercial Web sites and online services collecting information from children under the age of 13. These sites are required to provide notice about their policies and, with certain statutory exceptions, obtain “veri- fiable parental consent” before collecting, using or disclos- ing personal information from children. The statute author- izes the FTC to bring enforcement actions and impose civil penalties for violations of the rule under Section 5 of the FTC Act, although a Web site operator’s compliance with

FTC-approved self-regulatory guidelines will serve as a “safe harbor” in any enforcement action. COPPA’s provisions went into effect on April 21, 2000.

The Gramm-Leach-Bliley Act, signed into law by President Clinton in November 1999, was enacted with the purpose of enhancing competition in the financial service industry by providing a prudential framework for the affiliation of banks, securities firms, and other financial service providers. With the continued growth in consumer online financial services, the privacy aspects of this law are significant. With certain statutory exceptions, the Act makes it a viola- tion to obtain, disclose, or provide documents under false pretenses pertaining to customer information of a finan- cial institution. The FTC is granted enforcement powers to criminally and civilly prosecute violations of the Act’s pri- vacy provisions. The FTC’s privacy regulation covering the financial services industry took effect on November 13,

2000, and full compliance was required by July 1, 2001.

On December 20, 2000, as called for in the Health Insur- ance Portability and Accountability Act of 1996, President Clinton announced sweeping new federal rules enacted by the Department of Health and Human Services to protect the privacy of patients. The Bush Administration has announced it will implement these new rules, although there may be modifications. The new regulations, to be in place by December 2002, will require health care plans and providers to inform patients about how their infor- mation is being used and to whom it is being disclosed. However, both life insurers and work compensation pro- grams are not covered under the new rules. Physicians and hospitals will be required to obtain written consent before using a patient’s health information, even for routine pur- poses. Patients will also have the right to access their own medical files, as well as the right to request amendments or corrections. Under the rules, protection will be extended to personal medical records and will guard against unau- thorized use by companies in hiring new employees. The regulations also create new criminal and civil penalties, including a fine of up to $50,000 and one year in prison for intentional disclosure. Disclosure with intent to sell the data is punishable by a fine of up to $250,000 and up to 10 years in prison.

At the state level, more than 20 states moved to enact some form of online privacy legislation throughout 2000. The National Association of Attorneys General empaneled an online privacy task force that published its recommen- dations for new online privacy laws in December 2000. If the 107th Congress has not moved forward on new online privacy legislation in its first session, state governments may move to fill the regulatory void.

Industry self-regulation The Online Privacy Alliance (OPA) of 2001, a business group consisting of more than 50 computer software and

Information technology and innovation policy in the Bush era 31

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hardware firms, media and marketing companies, and industry associations, is a leading proponent of industry self-regulatory initiatives supporting the protection of consumer privacy online and in e-commerce. To this end, it has created “Guidelines for Online Privacy Policies” that include the following elements:

Adopting and implementing a privacy policy. A firm engaged in online activities or e-commerce has a respon- sibility to adopt and implement a policy for protecting the privacy of individually identifiable information.

Notice and disclosure. A company’s privacy policy must be easy to find, read, and understand. It must be avail- able prior to or at the time individually identifiable information is collected or requested.

Choice/consent. People must be given the opportunity to choose how individually identifiable information collected from them online may be used when such use is unrelated to the purpose for which the information was collected. At a minimum, they should be given the opportunity to “opt outl of such use.

Data security. Organizations creating, maintaining, using, or disseminating individually identifiable infor- mation should take appropriate measures to ensure its reliability and reasonable precautions to protect it from loss, misuse, or alterations (including by third parties to whom such information is transferred).

Data quality and access. Organizations creating main- taining, using or disseminating individually identifiable information should take reasonable steps to ensure that the data are accurate, complete, and timely for the pur- poses for which they are to be used, and to create mech- anisms to correct inaccuracies in such information.

Over the last few years, online privacy seal programs have emerged to assist the e-commerce industry in its efforts at self-regulation. In general, these seal programs require the company operating the Web site to abide by a code of “fair information practice principles” (such as offered by OPA) and to submit to a regime of compliance monitor- ing in order to display the privacy seal on its Web site. The privacy seal offers consumers a conspicuous way to identi- fy Web sites following fair information practice principles and for the e-commerce business to demonstrate compli- ance with the principles. There are presently five online privacy seal programs available to Web site operators: BBBOnLine, CPA Web Trust On-Line Privacy, the Direct Marketing Association’s Privacy Promise, Secure Assure, and TRUSTe (although it should be noted that not all of these privacy seals incorporate the full set of OPA-recom- mended principles in their programs).

Technology The World Wide Web Consortium, an international body of more than 500 member organizations representing

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industry, research, government, and citizen groups from 34 countries, develops interoperable technologies (specifica- tions, guidelines, software, and tools) to fully wield the potential of the Net. The Platform for Privacy Preferences Project (P3P), an initiative of the WWW Consortium, is an emerging industry standard that enables Web sites to express their privacy practices in a standardized format that can be automatically retrieved and interpreted by user agents. The ultimate goal is to help users become informed about Web site practices by simplifying the process of read- ing privacy policies. The present P3P 1 .O standard is in a final technical review stage and should be recommended as a proposed standard by 2002.

Microsoft announced in March 2001 that it is incorporating the P3P standard in the next version of its Internet Explorer 6. The privacy tools in Explorer G will allow people to set their own level of privacy, protecting the flow of personal information over the Net. Users can choose from five priva- cy level settings or import settings from a trusted source, according to their privacy preferences.

To be covered under the safe harbor accord, a firm must comply with seven principles: notice, choice, on ward transfer, access, security, data integrity, and enforcement.

Safe harbor provisions The issue of consumer data privacy protection challenged President Bush early on, and a public policy direction emerged within the first 100 days of his administration. In March 2001, officials from the Departments of Commerce and Treasury rejected the EU proposal to have financial service firms sign contractual agreements guaranteeing pri- vacy protection for personal data exported from Europe as “unworkable. n According to Bush Administration officials, reports Thibodeau (2001b), the model contract would “impose unduly burdensome requirements that are incom- patible with real-world operations.” The Administration described the model contract as “flawed” and accused the EU of “trying to impose laws beyond its own frontier” (Nott 2001). In May 2001, the EU rejected the US demand to delay the implementation of its privacy directive con- cerning personal data flow from financial services.

With the EU Directive on the Protection of Personal Data in force as of July 2001, global concerns now need to be

Business Horizons / January-February 2002

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factored into the US online privacy equation. A privacy accord was reached with EU negotiators in early 2000; the European Commission recognized the adequacy of the regime on July 27, 2000, and the accords provisions went into effect for US businesses operating in the EU as of November 1,200O. Many EU member nations had disput- ed whether the Directive applies to businesses outside the EU that collect information online from European con- sumers. The compromise agreement requires US compa- nies to adhere to strict privacy requirements, although the agreement stops short of recognizing the US as a “safe harbor” for data on EU citizens, and any company not endorsing the agreed standards could be open to lawsuits from the EU. The FTC and other US regulatory agencies for certain industries (Department of Transportation for air- lines, Federal Reserve System for banks, and so on) will be responsible for enforcing the rules on behalf of the EU.

Under the agreement, a firm will have four options to comply with the EU Directive:

sign a model contract with one of the EU’s 15 national data protection authorities and subject itself to its authority

prove that it is subject to equivalent regulations under US legislation such as that governing cable television subscriptions or videocassette rentals

subscribe to a recognized self-regulatory framework that provides an adequate level of privacy protection

if not active online, agree to commit to abide by the decisions of a panel of European regulators

To be covered under the safe harbor accord, a firm must comply with seven principles: notice, choice, onward transfer, access, security, data integrity, and enforcement. As of January 1,2001, the US Department of Commerce maintains a safe harbor Web site containing information on the program’s requirements, a form for online registra- tion, and a list of US firms that adhere to the safe harbor framework. As of July 2001, some 70 companies were list- ed. While nearly all are small to medium-sized firms, Microsoft, Hewlett-Packard, and Dun &I Bradstreet are included on the list. Larger firms “are investigating their options or taking a ‘wait-and-see approach:” said Jeff Rohlmeier, a trade official at the Department of Com- merce (Thibodeau 2001 a).

In April 2001, President Bush agreed to move ahead with the first federal protections to safeguard the confidentiality of patients’ medical records, although he left open the pos- sibility that the regulations (developed by the Clinton Administration) could be adjusted before taking effect. Bush has also decided not to appoint a “chief counselor for privacy, I a position created by his predecessor and filled by Peter Swire from March 1999 to January 2001. The Administration is placing responsibility for privacy

Information technology and innovation policy in the Bush era

issues in the hands of White House Office of Management and Budget Director Mitchell Daniels, who will appoint a deputy director to act as Chief Information Officer for the federal government with a “significant focus on privacy protection and Web site security” (Perine 2001a). Likewise, Secretary of Commerce Donald Evans announced his intention to hire a senior adviser for privacy matters who will be responsible for the Department’s Internet system and privacy policies.

Also in April 2001, the House Subcommittee on Com- merce, Trade, and Consumer Protection held a hearing that examined the adequacy of the 30 federal privacy laws and myriad state laws. In general, US privacy laws are focused on such regulated industries as health care, finance, and telecommunications, and are typically devel- oped in response to industry problems. The Congress- ional panel, hearing from experts and members, was not convinced that businesses and consumers would be better off with one comprehensive law. Michael Lamb, chief pri- vacy officer at AT&T Corporation and a witness before the Subcommittee, acknowledged that a uniform law covering all industries would be difficult to develop, except for some “high-level principles,” such as disclosing to con- sumers how their data would be used. Committee chair- man Billy Tauzin (R-La) characterized the comprehensive data privacy regime developed by the EU-an alternative to the present patchwork of US privacy laws-as overly burdensome on American businesses. Nevertheless, as stated earlier, a basic federal response to protecting con- sumer data privacy is warranted to replace this patchwork regulatory environment. More important, it is needed to gain converts in the US business community.

In July 2001, the US Senate Commerce Committee held its first Internet privacy hearing under the chairmanship of Senator Ernest Hollings (D-SC). “It is past time for action on this issue,” Hollings said. “This year, let’s finish the job” (Perine 2001~). Senator McCain, the committee’s ranking minority member, said he remained convinced that federal law was needed. A key question raised in the hearing was what level of consumer consent to require in legislation, and whether types of consent should vary according to the sensitivity of the data involved. There appeared to be support for a bill that would preempt new state Internet privacy laws, a focus of industry lobbying.

The enforcers and regulators The Bush Administration’s impact on technology and innovation policy will be greatly affected by its appoint- ments to lead the Department of Justice’s Antitrust Sec- tion, the FTC, and the Federal Communications Commis- sion (FCC). Charles James, a Washington attorney, has been tapped to head the Antitrust Section. Previously Act- ing Assistant Attorney General of the Antitrust Section in the first Bush Administration and deputy director of the

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IX’s Bureau of Competition under Reagan, James updat- ed the Justice Department’s merger guidelines in 1992, which includes a more detailed economic analysis. He is viewed by antitrust experts as less likely to bring suit against dominant IT firms like Microsoft. In fact, the James approach, focusing on an out-of-court solution with the software giant, resulted in the Department of Jus- tice and Microsoft announcing in November 2001 that a settlement of their case had been reached.

At the FTC, Timothy A. Muris, a George Mason University law professor and former director of the FTC’s Bureau of Competition under Reagan, has been sworn in as chair- man. Charles James had been Mm-is’s deputy director at the FTC in the early 1980s. This personal connection and ideological symmetry between the two key antitrust enforcement authorities will provide a unified front on antitrust policy concerning high technology, with a renewed emphasis on initiating investigations involving per se violations of the law and “rule of reason” analysis of business practices harmful to competition and con- sumers. In addition, the FTC will take a more flexible approach to remedy antitrust problems raised by mergers.

Michael Powell, the new chairman of the FCC, has already announced his ideological departure from the pre- vious Clinton chairmen, Reed Hundt and William Ken- nard. An FCC commissioner since 1997 and former chief of staff at the Justice Department’s Antitrust Section, Pow- ell has declared his preference for deregulation in the communication sector of the economy. Given that the anticipated competition among the various sectors of the telecommunications industry is not materializing, the impact of the 1996 Telecommunications Competition Act has been disappointing. Powell has previously supported FCC rules designed to open the monopolistic local telecommunication markets (formerly the “Baby Bells”) to long-distance, cable, and wireless competitors. He has also dissented from FCC-imposed conditions on commu- nication industry mergers, most recently in the case of AOL Time Warner. Nevertheless, Powell will be confront- ed with the reality that rapid and broad-based deploy- ment of new technologies and infrastructure (especially broadband services) is essential to the growth of the US technology-driven economy. The recent ascension of Sena- tor Ernest Hollings (D-SC) to the chairmanship of the Senate Commerce Committee could be problematic for Powell’s deregulatory agenda, since Hollings has little sympathy for the Baby Bell telephone companies (Bell- South, Qwest, SBC, and Verizon) and their efforts (Inter- net Freedom and Broadband Deployment Act of 2001) to offer high-speed Net access without first opening their markets to local competition.

In April 2001, the IT industry received a major boost when Floyd Kvamme, a Silicon Valley executive formerly with National Semiconductor, National Advanced Sys-

terns, and Apple Computer, was appointed to co-chair the White House’s Advisory Committee on Science and Tech- nology. Kvamme, who is now a partner at the Menlo Park, California-based venture capital firm Kleiner Perkins Cau- field & Byers, has also chaired the pro-business think tank Empower America and is viewed in Silicon Valley as hav- ing a winning combination of business pragmatism and technology knowledge. No doubt Kvamme will be an effective advocate for the IT industry with President Bush.

T he Bush technology and innovation agenda should generate sufficient bipartisan support in the 107th Congress. Outside the antitrust and consumer pri-

vacy protection arenas, there is cross-aisle consensus on the importance of free trade, the protection of intellectual prop- erty rights, a permanent R&D tax credit, full funding for the e-rate program, and raising the current limit on H- 1 B tem- porary visas for temporary, highly skilled workers. Last spring Democratic congressional leaders announced their high-tech legislative agenda: making the R&D tax credit per- manent; hooking up every American home to broadband Internet access within the decade; fully funding the e-rate program; and doubling civilian R&D funding. With the Senate now controlled by Democrats, this bipartisan con- gressional climate of agreement still generally bodes well for the Bush technology agenda. “The impact on our indus- try will be minimal,” says Harris Miller, president of the Information Technology Association of America, whose members include AOL Time Warner and Microsoft. “We have studiously worked to maintain a relationship with both sides of the aisle” (Perine 2001~).

However, the President’s e-commerce policy on consumer data privacy protection will likely be focused on base-line legislation requiring companies’ disclosure of their privacy policies on the use of personal data. The Administration will likely recommend an explicit consumer choice (opt-in or opt-out) on whether to allow companies to use the data. It may also be in favor of preempting state privacy laws. This regulatory approach has the strongest bipartisan sup- port in the US Congress-even though Senator Hollings, the new chairman of the Commerce Committee, is a strong critic of industry self-regulation. Mr. Muris, the FTC chair- man, has already signaled his intention to back away from the position the FTC advocated last year. Under Pitofsky’s chairmanship (due to Web sites slowly adopting industry self-regulation regimes), the FI’C called for the passage of more comprehensive data privacy legislation by Congress. Muris will be supporting rigorous enforcement of existing law, additional rule-making and continued consumer and business education, as well as allowing the marketpIace to negotiate whether consumers desire further data privacy protection from companies. Additional protection, if so demanded by consumers, would thus become a form of competitive advantage for those firms voluntarily embrac-

34 Business Horizons / January-February 2002

Page 7: Information technology and innovation policy in the Bush era

ing a more comprehensive self-regulation regime, such as

the one presented by the Online Privacy Alliance. Already,

American Express, Geico, and Eartblink have consumer marketing campaigns extolling their consumer data privacy policies. Moreover, while the safe harbor provisions are in effect between US companies and the EU, the sign-up rate for companies (approximately 130 as of November 2001)

does not bode well for American acceptance of this Clinton Administration-brokered arrangement. As indicated by Bush’s rejection of the EU’s demands for financial service

industries to comply with present EU consumer data priva- cy mandates, this situation could quickly evolve into a major issue of discord between the US and its European trading partners.

There is also little question of President Bush’s support

of the high-tech industry as an engine of US economic growth. In early March 2001, Secretary of Commerce Evans disclosed that the Administration is considering creating a new position with responsibility for representing the views

of IT companies. While such symbolism has importance (and Floyd Kvamme will now have the President’s ear), the measure of IT and innovation policy performance will be judged on this Administration’s enacted legislation,

enforcement and regulatory policies, and most important, its ability to share Bush’s vision and enlist the American people’s support for a strong, IT-based economy. 0

References and selected bibliography High Tech Plan. 2000. Issues: Technology and the new economy.

@ georgewbush.com (18 April). Microsoft Corporation. 2001. @ www.microsoft.Com/MSCorp/

presspass/Press/2001/MarOl/0321PrvacyToolsEpr.Asp (19 April).

NSF 2001. National Science Foundation FY02 budget request. Fact Sheet, Office of Legislative and Public Affairs (April).

Nott, T. 2001. EU rejects opposition to privacy directive. The industry Standard @ www.the standard.com/article/ 0,19024338,00.html (9 May).

Online Privacy Alliance. 2001. @ www.privacyalliance.org (19 April).

Perine, K. 2001(a). Bush asked to appoint privacy czar. The Industry Standard @ www.the standard.com/article/ 0,190223751,00.htmI (17 April).

-. 2001 (b). Commerce Department seeks privacy adviser. The industry Standard @I www.the standard.com/article/ 0,19024123,OO.html (1 May).

-. 2001 (c). Vermont senator switch seen as no shock to tech policy. The Industry Standard @ www.the standard.com/ articIe/0,19026668,00.htm1 (24 May).

-. 2001 (d). Senate committee knuckIes down on net priva- cy. The Industry Standard @ www.the standard.com/article/ 0,19027832,00.html (11 July).

Thibodeau, P. 2001 (a). Big companies shy away from safe harbor accord. Computer-world @ www.computerworld.com/cwi/ Printer_Friend1y_Version/0,1212,NAV47_ST057829-,00.htm (19 February).

-. 2001(b). Bush rejects EU privacy plan; says financial firms would be burdened. Computenuorld Q www.computer- world.com/cwi/Printer_Friendly_Version/O, 1212,NAV47_STO5 9146,OO.htm (2 April).

US Department of Commerce. 2000. Digital Economy 2000 (June). US Department of Commerce. 2001. @I www.export.gov/safehar-

bar/ (17 April). Walczak, L. 2000. Surprise! Bush is emerging as a fighter for pri-

vacy on the Net. Business Week (5 June): 63. World Wide Web Consortium. 2001. @ www.w3org (19 April).

Information technology and innovation policy in the Bush era 35