Speech by Commerce Secretary William Daley.
Re: Digital Economy / Encryption.
Date: April 15, 1998.
Source: U.S. Dept. of Commerce.
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Go straight to section about encryption policy.

U.S. Department of Commerce
Wednesday, April 15, 1998
Contact: Mary F. Hanley 202-482-4883

Remarks by U.S. Secretary of Commerce William M. Daley
"The Emerging Digital Economy"

Good morning. And welcome. I am delighted all of you could be here. And I especially want to thank the Information Technology Policy Council for helping to organize this.

For several months, we have looked at the economic impact of information technologies. And I told my staff on this day,April 15th -- of all days -- I want to release the study.

As you know, this year when American taxpayers pay up, we will spend less than they send in. The last time that happened, IBM was not yet a member of the Dow; and there were no Microsofts, or Worldcoms, or Yahoos. In fact, as I look around, I think half of your companies weren't around 30 years ago.

Obviously, we arrived at this day because President Clinton and Congress took the hard medicine of downsizing and cutting programs. But the President would be the first to say that the natural strength of America -- our entrepreneurs, all of you --also brought us here.

So, the symbolism is clear: American technologies have strengthened our economy to the point that this tax day, we are in the black.

Let me say one more thing, before I go through the numbers. This is about more than e-commerce, or e-mail, or e-trades, or e-files. It is about the "e" in economic opportunity. It is about the "e" in empowering businesses, workers, and consumers in ways that have never been done. It is about making sure this works to the benefit of all our businesses -- large and small, old andnew, service or manufacturing.

This is about whether we can give workers the skills to be apart of this. And whether this is what American consumers want, because in the end, they have all the votes. You can hook them up, but consumers have to like it, or the technology loses this election!

When I read papers, I see articles about the Internet focused on negative issues. Things like pornography, identity theft, or electronic pirating. You and I know these are only by-products of something much larger, and with a much more positive impact on people's lives.

The report I am releasing today, called the Emerging Digital Economy, documents the importance of information technologies to our economy, to our businesses, and to our consumers. This is a work in progress. It will help us make better policy decisions; and you in business make better business decisions. And, the American people need to hear this side of the Internet, too.

So, with this in mind, look at some charts.

I am pleased to announce that in the last five years, information technologies have been responsible for more than one-quarter of real economic growth.

During a time when 15 million new jobs have been created, unemployment is the lowest in 24 years, inflation is the lowest in 30 years -- let me say this again: more than one-quarter of the growth comes from information technologies.

You have demonstrated this is the best time in America to be in business, and I, personally, thank you for that.

Next, as you can see, this industry now makes up more than 8 percent of our economy. And in our review, we found computer and communications industries growing at more than double the rate of the economy.

Next, these investments in information technologies account for over 45 percent of all business equipment investment -- up from 3 percent in the 1960s.

Our report shows companies are investing in these technologies to boost productivity and efficiency. Already, inindustries like communications, insurance, and brokerage houses, they constitute over three-quarters of all equipment investments.

Next, you can see that declining prices of information technology products have lowered overall inflation by one full percentage point.

Finally, and this is important, these jobs pay well -- very well. There are 7.4 million people working in this field. They earn close to $46,000 annually -- 64 percent more than the private sector average.

And even with the big paychecks, there are more jobs than people with the skills to fill them. We will require 1.3 million new information technology workers over 10 years. That is more people than build cars and trucks at the Big Three.

The President asked me to see what we can do to expand the pool. But, to be honest, in this economy, where new industries emerge overnight, and new talents are needed, I feel businesses have to take on new responsibilities.

We want you to work with us to help people make the shift into changing jobs. We need you to retrain workers, whose skills may be obsolete. And we need you to work more closely with schools.

I see it happening. When CEOs are faced with turning away business because they cannot find the right people, they are serious about changing. Let me give you a few more numbers. Last year, 100 million people logged onto the Internet, up from 40 million the year before. That is faster than the phone, TV, and radio were adopted.

When President Clinton took office there were only 50 -- 50-- web sites. Now, 65,000 are being added -- every hour.

Those are impressive numbers, no doubt. But the question we have to ask is: are businesses truly reshaping themselves? Or are they just dancing around here?

The answer is a big yes to true re-invention.

General Electric went on line to find suppliers -- and cutcosts tremendously. In two years, GE plans to buy $5 billion of goods over the Internet, and expects to save $500 million.

Dell Computers saw 1997 Internet sales increase from less than $1 million per day in January -- to daily sales of $6million several times in December.

Cisco Systems closed 1996 with $100 million in sales on the Internet. By the end of 1997, sales topped $1 billion.

It is small businesses, too. When I was in Michigan last week, I heard an amazing number: 750 computer-related firms in the state export. This is Michigan, smoke stack America -- not Silicon Valley.

E-commerce gives small and medium-sized firms immediate access to worldwide markets without the need for overseas trips or overseas reps.

On the retail front, we see two types of distinct activity. First, direct access -- as when music is downloaded directly from a company to a customer's computer.

And second, orders for goods to be delivered physically. For example, Auto-by-Tel is a web-based automotive marketplace. Last year, it generated $500 million in sales and processed100,000 purchase requests -- each month.

So, what is the report telling us?

That the digital economy is alive and well and growing; that some businesses and workers are reaping the benefits; that businesses of all sizes should prepare for the digital economy; and that, given the new role of electronic commerce, government should re-think the way it looks at the economy.

To that end, at Commerce, I want to improve our surveys that measure GDP, in order to better capture the value of these technologies. I have asked Congress for the funds to do so.

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. We prefer private contracts over government regulation. And, where we need to act, the private sector should be part of the dialogue.

I am obviously focusing on adequate protection of intellectual property on-line. It is staggering to think that one day people with a computer may get every song ever sung, every movie ever made, every creative work ever created.

My children would tell me: this is big. It is also big for the entertainment industry, and clearly you can see their concerns.

The Administration negotiated two treaties in 1996: theWorld Intellectual Property Organization Copyright Treaty, and the Performances and Phonogram Treaty. These set international standards for protecting copyrighted works, musical performances,and sound recording.

I am pleased to say that Rep. Hyde recently moved the implementing legislation through his Committee. Senator Hatch is also working to move it through his Committee, soon after Congress returns. I am also pleased to say that industry has reached an agreement in principle on how to address the potential copyright liability of on-line service providers.

I call on Congress to move quickly to finish the work, so we can give a gift to consumers, while protecting the artists. Itis important that industry support these measures. We lead the world in creating copyrightable works. We need to lead the world in protecting those works.

Another key issue is privacy. To me, this is the make or break issue. Look -- you can offer the best products, the best selection, the best distribution. But consumers need to feel a certain level of privacy.

They know companies can collect vast amounts of information and instantly analyze it. And if they feel when they order a plane ticket or buy a stock, that their personal transactions are being shared with others, then I say it will be the last time they do business on the Internet.

Last month, in an editorial, Business Week told businesses and I quote: "Time is running out. The public does not trust its promises for self-regulation to ensure privacy. The polls show that people don't believe that these voluntary standards are working. It's no wonder that the public wants the government to step in immediately."

Now is the time for industry to act. President Clinton has called for a self-regulatory approach to privacy. This would stand on four pillars:

One, awareness. Consumers need to know who is collecting personal information, how it will be used, and how they may limit disclosure.

Two, choice. Consumers should have an option as to if and how their personal information is used.

Three, data security. Companies with personal information must take reasonable measures to assure reliability and protection from loss, misuse, alteration, or destruction.

And, four, access. Consumers should have reasonable access to personal records held by companies and be able to correct or amend them.

The truth is, industry has been slow to put these protections in place. While the pace has picked up recently, the July 1st deadline when I report the progress to the Presidentis looming. I very much want this to be a positive report. AndI would like to use this opportunity to encourage industry tomeet this challenge.

I hope you move quickly to establish an overarching, self-regulatory effort that includes consumer representation.

Let me say, I am also working quickly to end federal involvement in Internet addressing. We have put forward a plan. We are reviewing the comments. And we will move ahead to put this into private hands.

We are also working to develop a uniform commercial legal framework for electronic transactions worldwide. A key element of this is recognition and enforcement of electronic signatures.

We have recently proposed an international convention that supports two goals: recognition of signatures for legal and commercial purposes; and expressly allowing a full range of authentication technologies and business applications.

[Discussion of Encryption]

And one last issue I want to address is security, in particular, encryption. Good security is essential. If you don't have confidence your message or transaction will go only to its intended destination and will not be intercepted, and read, or changed by someone else e-commerce will never fulfill its potential.

The President is trying to pursue a policy that balances law enforcement, national security, privacy and commercial interests. At the same time, that policy must be pursued in light of the realities of a global economy. This issue cannot be considered in a vacuum any more than any other economic issue.

The reality is that encryption products are rapidly multiplying in the global market. At the end of 1997, we estimate there were 656 encryption products in 29 countries outside the United States. There are major producers in Germany, Ireland, Canada, Israel and Great Britain. They are competitive with anything U.S. producers can make. And they can supply almost all the needs of computer networks.

And most of these producers do not need an export license if they want to ship encryption software -- a tremendous market advantage. Our policy, ironically, encourages the growth of foreign producers at the same time it retards growth here.

The truth is that while our 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.

We have not been able to agree on what products can be exported, on how to implement the policies that we have announced, such as that concerning financial institutions. And we have not been able to agree on what we want to encourage companies to do or on what we want Congress to do.

In turn, our own paralysis has made it difficult to persuade other nations to pursue policies similar to ours. Without the cooperation of other nations, the global market is rendering our policy obsolete. And I fear that will soon make our products obsolete as well.

The lack of agreement is caused by the unwillingness to compromise. There are solutions out there. Solutions that would meet some of law enforcement's needs without compromising the concerns of the privacy and business communities. But I fear our search has thus far been more symbolic than sincere.

The cost of our failure will be high. Law enforcement is foregoing the opportunity to have some problems addressed, while effectively forcing our producers to go overseas or fall off the cutting edge of the market.

The ultimate result will be foreign dominance of the market. This means a loss of jobs here, and products that do not meet either our law enforcement or national security needs. We are headed down a lose-lose path. And we have to get back to win-win.

We've talked a lot about this for several years. We can talk some more. But without a commitment on all sides to settle for less than 100 percent, we are no closer to resolution than we were when we began.

So, I say to you today that I intend to make a renewed effort to achieve that willingness to compromise inside the government. And I hope all of you will do the same among your colleagues.

Let me close on this. Tonight, I travel with President Clinton to South America, as we work to bring free trade to the hemisphere. Seventy years ago, Herbert Hoover -- one of my predecessors -- was our first president to ever visit South America. Ironically, he went there to inaugurate air mail service. Knowing President Clinton, he will head straight to a school, to check our e-mail service. He knows, better than anyone, that in the information age, no matter where you live, we can widen the circle of opportunity, so more people can make more out of their lives.

That is what this report is all about. It shows -- clearly-- that technology is re-shaping this economy and transforming businesses and consumers.

We have made gigabytes of progress. And, yes, there are more challenges ahead. So, I look forward to working, together, to forever change the face of commerce, to provide more economic opportunities, and to empower consumers as never before.

Thank you very much.