Wednesday, January 5, 2000

Increasingly, the Internet is inaugurating an economic transformation no less significant than the Industrial Revolution.

Until the Industrial Revolution of the late 18th century, economic progress was scarcely much greater than it was during the heyday of the Roman Empire. Although the application of steam power and mechanization to production were the hallmarks of the Industrial Revolution, what was really important was the change in industrial organization.

The Industrial Revolution blasted away the outmoded methods of production that had existed since the late Middle Ages. These methods, especially in the textile industry, had come to be severely regulated by government, primarily to protect the status quo. They governed who could produce textiles, their import and export, their type and quality, all in excruciating detail. As a consequence, there was very little innovation in textile production, either quantitatively or qualitatively, for hundreds of years.

The Industrial Revolution changed all that because its methods of production were so new and so different they fell outside existing regulations. As a consequence, mechanical production, at least for a time, was allowed to advance free of the medieval regulatory straightjacket that hobbled traditional manufacturing. The great economic historian Paul Mantoux explains:

“It was hard enough to maintain the old regulations, and it was becoming quite impossible to set up new ones. Thus, from its birth, the cotton industry was free of the heavy yoke which weighed on the older industries. No regulations prescribed the length, the breadth or the quality of materials, or imposed or forbade methods of manufacture. There was no control save that of individual interest and of competition. Because of this, machinery quickly came into general use, bold ventures were made and many kinds of goods were manufactured.”

A similar situation exists with regard to the Internet, which explains its amazing growth and vibrancy. It is hard to believe, but the first e-mail message was only sent in 1969, and the first commercial web browser hit the market in 1993. That year, just 1.3 million computers were linked to the Internet. Within four years that number increased more than 10 times to 16 million.

This vast expansion, with its profound impact on business and commerce, came about largely due to an almost complete lack of government regulation. In an excellent paper, Jason Oxman of the Federal Communications Commission has documented the government’s largely laissez-faire attitude toward the Internet dating back to the 1960s.

Mr. Oxman points out that the FCC first dealt with the issue of data transmission over telephone lines as long ago as 1966. The commission then adopted a policy of treating data transmission no differently than voice an extremely important decision that could easily have gone the other way. Had the FCC adopted the European approach, which has controlled data transmission as separate and distinct from voice, the Internet might have died inits crib. At best, we could have ended up with something like the French Minitel system, which was advanced for its day but could not grow due to government constraints. Now it appears antiquated compared to the Internet.

The key to success of the Internet, says Mr. Oxman, is its openness, which has allowed providers and users almost infinite access and freedom to develop. And this openness, Mr. Oxman argues, has fundamentally resulted from the FCC’s policies, which kept the telephone transmission lines free of government regulation and forced phone companies to maintain open access.

It is inevitable that Internet freedom is going to be restricted. History teaches governments never leave well enough alone. But that does not mean the Internet cannot continue to grow and stimulate economic growth for many years to come.

Bruce Bartlett is a fellow with the National Center for Policy Analysis and a nationally syndicated columnist.

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