September 2000 – The Internet and the rise of globalization are creating new pressure to develop a commercial code that’s recognized worldwide.
More than 700 years ago, Britain enjoyed a huge boom in commerce thanks to the era’s great technological innovation–passable roads. But this revolutionary development also created unforeseen new problems. Among them: It became easy to skip debts simply by moving from town to town.
So in 1283, Parliament took the radical step of trying to set common rules for then strongly independent cities. Authorities in one town were given power to collect debts incurred in another. The Statuta de Mercatoribus, or Statute of Merchants, was one of the West’s first attempts to set uniform rules for burgeoning cross-border commerce.
We don’t know if anybody was talking about a New Economy back in the Middle Ages. But today, the Internet and the rise of globalization are creating new pressure for a common system of commercial rules of the road. Just as those improved cart paths made a strong central government possible in the 13th century, the rise of global electronic commerce will diminish the importance of political borders in the 21st century and lead to unprecedented levels of international legal cooperation. And it will, in fundamental ways, change how we govern ourselves.
Think for a moment about a world that now faces New Economy giants such as America Online Inc. (AOL), Amazon.com Inc. (AMZN), and Yahoo! Inc. (YHOO). As they sell products and services to an increasingly global marketplace, these companies face a patchwork of conflicting local regulations. Europe’s privacy rules are much tougher than those in the U.S. A digital signature that seals a deal in Dallas may be invalid in Bombay. Thousands of differing sales taxes are levied around the world.
CRAZY QUILT. This crazy quilt of rules increases the cost of doing business and prevents the Internet from fully realizing its potential as a frictionless global marketplace. That’s why the business community is already pressuring politicians to harmonize conflicting commercial regulation. And it’s why, in the 21st century, government will become increasingly global. Countries will sign more cooperative treaties, and ever-increasing power will be delegated to international rulemaking bodies. ”Standardization has really been the driving force of the tech industry,” says Intel Corp. Vice-President Michael Maibach. ”Now it’s going to be the driving force of government as well.”
Of course, this doesn’t mean the end of government as we know it. Despite the wishes of the one-worlders, the United Nations won’t be writing commercial regulations in Esperanto any time soon. ”There will be no global government, but there will be global cooperation,” says Treasury Secretary Lawrence H. Summers.
Nonetheless, the rise of the Internet and the global economy does mean that government could look quite different in the future. New hybrids will emerge–organizations that are partially public, partially private, and often will have no permanent home. The Internet itself will serve as their Town Hall. ”We’re not talking about less governance,” says David Agnew, executive director of a study project called Governance in the Digital Economy. ”But we are talking about differing governance.”
What will these new forms of government look like? Here are three potential models, each of which is likely to thrive under different circumstances in the 21st century:
GOVERNMENT, INC.: For one vision of the future, take a look at the Internet Corporation for Assigned Names & Numbers (ICANN). It’s the new international group that has taken on the role of managing Internet domain names–a task that includes deciding whether there should be new Web domains (say, for example, .shop) and refereeing disputes over existing names.
A non-profit corporation, the group is privately funded and run by a 19-member board of directors that includes a Spanish law professor, the leader of the Japan Network Information Center, and a senior vice-president from WorldCom Inc. (WCOM). Later this year, the temporary board will be replaced by one elected by Net users themselves. So far, more than 140,000 people worldwide have registered to obtain voting rights.
In its famous 1998 ”White Paper” on Internet governance, the Clinton Administration expressed the hope that this private model could be used for a wide range of legal issues. But it has some innate flaws. For example, ICANN has no police power to enforce its rulings. ”People see it as government,” says ICANN chairman Esther Dyson. ”But it is not.”
QUASI-GOVERNMENT: To help provide the clout that groups like ICANN do not have, a second model is also likely to emerge. This one will be built on cooperative ventures among politicians, the business community, and consumers. Such groups will combine the enforcement clout of government with the savvy of those working in the Internet trenches.
Initial steps toward this model have already been taken. For example, in mid-July, a private group called the Global Business Dialogue on Electronic Commerce presented the leaders of the world’s biggest industrialized nations–the G-8–with a broad framework for economic and social policy in the digital age. Its white paper addressed everything from regulation to bridging the digital divide. And it will serve as the foundation for the G-8’s technology initiatives in the coming years.
Watch for these kinds of partnerships to flourish in the 21st century. As cross-border mergers become increasingly common, for example, nations are working closely with business to establish standard rules for antitrust reviews. Says AOL senior vice-president George Vradenburg: ”You will see private sector organizations [have] much greater influence on world government.”
UNGOVERNMENT: While public/private partnerships do a good job at building broad consensus, they’re slow. Consequently, there is yet a third model for 21st-century governance. It is called the marketplace. In this paradigm, businesses are free to develop standard practices on their own, and these become the generally accepted rules of the road. No committee meetings. No draft reports. No political dealmaking.
That’s what’s happening already in the efforts to develop international standards for protecting intellectual property. The world has had formal international agreements protecting intellectual property for about a hundred years, but governments often ignore them. So in countries such as China, it is becoming increasingly common for Western companies to write copyright protections into their contracts with local firms. These agreements are enforceable not by local laws but through international arbitration. As more businesses agree to protect intellectual property in individual relationships, such protections will become the de facto world-wide standard.
How long will this process take? Many decades–if history is any guide. But make no mistake: As business seeks simplification and predictability, the rules of 21st-century commerce will look increasingly familiar–whether you are doing business in Kuala Lumpur or in Kansas City.