By Justin Pritchard
WASHINGTON (April 15) Commerce Secretary William Daley hailed the information technology industry that now generates a quarter of national economic growth but he warned Wednesday that looming issues like data privacy threaten U.S. dominance in an expanding global market.
In releasing his agency's report, "The Emerging Digital Economy," Daley cast technological advances as an economic panacea: falling technology prices lowered inflation by one percentage point in 1997 and further technological advances will generate 1.3 million well-paying jobs in the next decade, he said.
But he also issued stern warnings about potential regulation if private industry does not monitor itself in both the disbursement of consumers' personal information and agree to give law enforcement some access to digitally safe-guarded communications.
"This is a work in progress," Daley said of the document in a speech to telecommunications industry officials. "It will help us make better policy decisions and you in business make better business decisions."
But it appears from the report that business is already using information technology quite wisely.
Daley said computing and telecommunications account for 8.2 percent of economic activity nearly double the 1977 total.
Daley ticked off several paragons of electronic commerce, like General Electric, which he said "plans to buy $5 billion of goods over the Internet, and expects to save $500 million." Those efficiencies trickle down to businesses of more modest means, too, he said, with Internet- based commerce saving smaller firms the expense of overseas offices.
"In a nutshell, information technology is truly driving the U.S. economy -- more than previous estimates had revealed," said Rhett Dawson, the president of the Information Technology Industry Council who introduced Daley's remarks.
But Daley tempered his glowing economic assessments by pointing to encryption and data privacy as areas where U.S. business lags.
Data privacy guards against the collection and distribution of personal information about consumers via information technology. Daley said the administration prefers the industry to create its own reasonable boundaries but added that the government will act if business does not.
"The truth is, industry as been slow to put these protections in place," Daley said, noting that on July 1 he will advise President Clinton on the state of this issue. "I very much want this to be a positive report. And I would like to use this opportunity to encourage industry to meet this challenge. I hope you move quickly to establish an overarching, self-regulatory effort that includes consumer representation."
Encryption ensures that private information is not accessed by anyone other than an intended recipient. Some law enforcement agencies want "backdoors" included in the technology so that, with proper authority, they can gain access to encoded data. Industry and privacy rights advocates bristle at that idea and complain that U.S. products suffer in overseas markets because of federal limits on export of the strongest encryption technology.
"The president is trying to pursue a policy that balances law enforcement, national security, privacy and commercial interests," Daley said. "The truth is that while out policy goal balance is the right one, our implementation has been a failure. We have not been able to agree, amongst ourselves or with the business community, on how to reach that balance.
"I fear our search has thus far been more symbolic than sincere," Daley said.
He conceded that current U.S. policy "ironically encourages the growth of foreign producers at the same time it retards growth here" by requiring complex export licenses for the most desirable encryption technology. Meanwhile, countries like Germany, Israel and Canada take competitive advantage of the U.S. rules.
Unless U.S. industry and law enforcement agencies agree on a compromise solution, he said, there could be "foreign dominance of the market."
Still, Daley sounded a hopeful note to an industry wary of government intervention.
"As you know, our approach to e-commerce is that the private sector should lead. Government's role is to establish a climate where electronic commerce can flourish," he said, and even "where we need to act, the private sector should be part of that dialogue."
But it seemed Daley and industry representatives talked past each other when they separately addressed reporters after the report's unveiling.
Daley stuck to the spirit of his remarks and said both sides could compromise on encryption legislation now before Congress, but he quipped, "I think we've held too many meetings and had too much dialogue."
Information Technology Association of America president Harris Miller was equally adamant that the industry clings to a fundamental position. "What they define as compromise is giving up the right to compete in the global market," Miller said, adding that he believed law enforcement agencies armed with more powerful computers was the best answer.
"I have confidence," he said, "that technology can overcome this problem."