The government spends money like most of us now, with online banking. The difference is, they don’t really have to “balance their checkbook.” That doesn’t mean they can spend indiscriminately and without consequence, as will be discussed below. But economic theory has largely ignored the dynamics of money and the crucial role of government spending in kickstarting the economy. The quote above does hint at a solution or a strategy to address some significant economic policy issues and environmental problems facing contemporary society.

I remember babysitting my car one January morning in 2003 (it’s a New York City alternative parking thing) and reading the Wall Street Journal. The article was disparaging the government spending surpluses that had been built up during the Clinton administration. This wasn’t a total surprise, as I was teaching economics down the street at New York University at the time, but we hadn’t had many surpluses to critique in the last several decades and the article challenged many reigning economic myths. The crux of the argument as I remember it was that debt is a significant player in global finance.

This post examines that contention and its implications for government fiscal policy. It looks at the role of federal spending and the implications of both debt and deficits for infrastructure spending and action against climate change and global pollution. We also need to confront unemployment due to automation and new technical innovations such as artificial intelligence and the Internet of Things (IoT). It examines the historical spending and tax practices of both Democrat and Republican parties and the implications of a relatively new theoretical focus called Modern Monetary Theory (MMT).

So, the Bush administration proceeded to navigate the return to deficits and reverse the surplus with a variety of spending measures, including expanding Medicare to pay for drugs and wars in Afghanistan and Iraq. As US Vice-President Dick Cheney used to say, “Reagan proved deficits don’t matter.” The former Secretary of Defense and CEO of Halliburton, a major defense logistics contractor, did know that they matter to the private sector.

President Ronald Reagan faced a tough economy when he was elected, much like President Obama would inherit 28 years later. Reagan drastically cut taxes and increased government spending, primarily on defense. As a result, he nearly tripled the federal debt during his two presidential terms. Consequently, by policy or default, he followed the “Two Santa Claus Theory.”

This perspective was set forward in “Taxes and the Two Santa Claus Theory” by Wall Street Journal editorial writer Jude Wanniski. He argued that the Democrats should be the spending “Santa Claus” and redistribute wealth while the Republicans should be the tax reduction “Santa Claus” and help spur income growth.

The theory gained traction in Republican circles as Watergate came to a head and the country struggled with vestiges of the Vietnam War. Wanniski had a meeting in 1974 with Dick Cheney, Donald Rumsfeld, and Arthur Laffer, the creator of infamous “Laffer Curve” that hypothesized that lower tax rates would increase government revenues. A consensus was forming that would be known as “trickle-down economics” and even nicknamed “Voodoo economics” by the first President Bush. The official face of the theory was known as “supply-side economics” as it was meant to reward “suppliers” of goods and services with lower taxes and decreased regulation.

It also became conflated with a new type of market fundamentalism promoted by Chicago school Nobel Prize winners Frederick Hayek and Milton Friedman. Hayek wrote The Road to Serfdom at the end of World War II that was a popular critique of the role of government in the economy. Friedman was also known for his anti-government stance. He championed markets and the price mechanism as more efficient forms of economic activity. His major contribution was in establishing a direct relationship between the quantity of money in the economy and price levels.

As the economy went into the deep “stagflation” recession of the late 1970s due to the two oil crises and the subsequent growth of Eurodollar markets, Hayek and Friedman found their ideas to be very popular, immortalized by Ronald Reagan’s classic inaugural line in 1981, “In this present crisis, government is not the solution to our problem, government IS the problem.”

The Federal Reserve increased interest rates to 20% by June 1981 and the prime interest rate, an important economic measure, exceeded 21% by the summer of 1982. It squashed the inflation but created a an even worse recession. In response, Reagan embraced both Santa Claus strategies: lower taxes and increase spending. The nation loved him for it.

It was politically expedient for Reagan to combine the two strategies. While criticizing “liberals” for their “tax and spend policies” Reagan did little to cut overall spending. He did shame “welfare mothers” – code for unmarried black women and in 1981, and cut Aid to Families with Dependent Children (AFDC) and other programs that targeted the poor. But the move was largely symbolic and more of a political message to his base, including Reagan Democrats, who resented the black migration to the North and the employment competition they faced as the automobile and other industries suffered competition from Germany and Japan.

Reagan also spent heavily on the military as he proceeded to create a post-détente Cold War II. He championed the MX nuclear missile and “Star Wars” that funded artificial intelligence and eventually the Internet (NSFNET) in an attempt to create a space-based defensive shield around the USA. The new deficit spending helped the economy recover and also create a global financial superstructure with US treasury bonds as a major hedge for the protection for traders’ positions.[1]

Reagan also pushed two of the most extensive tax cuts in American history. Following Kennedy’s cut of top marginal tax rate from 90% to 70%, Reagan cut them to 50% in his early years; in 1986, he further reduced the rate to 28%.

That latter point may not be that much of a positive, as Reaganomics set the conditions for massive wealth inequalities and the transfer of public wealth to private hands. Starting with the striking air controllers, Reagan aggressively shut down union activities. Still, Reaganomics did create a new set of economic conditions that rewarded entrepreneurship and “suppliers,” as well as stimulate technological development.

The 1980s economy was ripe to commercialize the technological developments of the Cold War and Space Race. Intercontinental ballistic missiles and NASA’s Apollo Moon program helped launch communications satellites and refined the transistor for their guidance systems into the microprocessor “chip.” By the 1980s, CNN and MTV were using satellites to equip cable TV with new 24/7 content. Apple was started by kids from Silicon Valley because it was initially a community or “industrial cluster” built on military spending and they grew up with electronics as part of their culture. Bill Gates quit Harvard as soon as he saw that the first Intel microprocessors were being used to create the Altair microcomputer.

Fiscal policy (tax adjustments and government spending) has a significant impact on the economy. John Maynard Keynes largely laid out the theories on fiscal and macroeconomic policy in the years between the great wars. The British economist and financial trader had been very concerned about the austerity measures imposed on Germany after World War I. He had been on the British Treasury team that went to the Versailles Peace Treaty but soon resigned in disgust, fearing the results of the austerity measures placed on Germany.

The Allies imposed crushing reparations on Germany that drove the country into a frenzy of inflation, starvation, and disillusion. His book Economic Consequences of the Peace (1919) was an extraordinary economic policy analysis and warned of major problems if the German economy was not stabilized. Keynes all but predicted the rise of Nazi Germany.

Keynes followed policy analysis with economic theory in his crowning achievement, The General Theory of Employment, Interest, and Money, published in 1936 during the height of the Great Depression. This classic book provided the rationale for government intervention in the economy. President Franklin Delano Roosevelt (FDR) was already deeply committed to the set of interventionist policies that would become known as the “New Deal,” but Keynes legitimized that intervention and provided a set of conceptual tools for analysis and policy formulation. Subsequent industrial mobilization for World War II solidified the importance of government spending, and in its successful wake solidified Keynes’ role as the dominant voice in economics. Keynesianism became the guiding star for managing the economy.

A variant “Santa Claus” policy perspective has circulated in Democratic circles for the last few years called Modern Monetary Theory (MMT). It argues that governments have a monopoly on the production of their money, and with it, the responsibility to use it effectively for policy purposes, even if it leads to larger deficits. Barring excess inflation in the economy, governments that can produce their own money should be willing to spend generously to ensure high levels of employment and a growing economy.

MMT was envisioned early in the 1990s by financial trader Warren Mosler and championed politically more recently by Stephanie Kelton, a Public Policy and Economics professor at Stony Brook University in New York. Unlike most economists who tend to marginalize money and central bank operations, Mossler’s and other traders’ financial viability depended on understanding the Fed’s monetary policy. Kelton, a former Bernie Sanders policy advisor, recognized the implications of Modern Monetary Theory for progressive objectives.

Everyone who played the board game Monopoly knows that the game starts with money handed out to each player. Likewise, the MMT argument is that government has consistently led economic development by spending money into the economy, which then can be used for various economic activities. Government spending creates money and expands the economy and rarely “crowds out” additional investment, as is one of the usual criticisms of MMT.

Mosler argues that the economy starts with a nation-state that “wants to provision itself.” It wants to pay for education, healthcare, infrastructure, military spending, etc., depending on the political consensus. So it creates a “tax liability,” which has to be paid in a specified currency. The government then creates that currency, and people look for opportunities and work to pay the tax, as well as build some savings and wealth.

This process creates “unemployment,” what MMT calls people looking for paid work in the currency they can use to pay the tax. Many people don’t work in modern society; they could be jail, or managing a family, or retired. These are not unemployed people because they are not looking for sources to pay their taxes.

The government’s ability to ensure a currency’s acceptance as a viable form of payment, and primarily through their taxability, makes spending US currency a likely mechanism for economic growth and guidance. The dollar is accepted as currency because it is the only tender that can be used to pay US taxes, but it is also desirable because it has ingrained itself in the market dynamics of society.

This charges government with a significant responsibility to survey the economy and the money supply effectively and responsibly. It means that the government has to spend and monitor the economy. It is not a household that has to live within its means, the same limitations do not constrain it. Just like the Monopoly game, it has to put some currency on the table to keep the game going.

MMT is not a license to spend indiscriminately as inflation is a significant concern. Inflation occurs when too much economic demand or too little supply of a good or service causes an increase in prices. But inflation coming from too much money is relatively easy to manage. Most hyperinflation cases come from disruptions in supply, such as the loss of manufacturing in the Weimar Republic after WWI or the decline of agriculture in Zimbabwe. Increases in taxes and regulations on business and finance can counter most inflation cases if spending deficits trigger price increases.

Other concerns about government spending involve exchange rates and debts to other countries. Dealing with the first means ensuring that the currency can float in regards to other currencies. The Nixon shock of the 1970s meant going off the gold standard and transiting to what Walter Wriston, the former CEO of Citibank, called the “Information Standard,” a global surveillance system based on international news and virtual financial markets. These systems allowed exchange rates to float and enable a currency to make certain adjustments by letting its value change in relation to other currencies.

Countries should also avoid going heavily in debt to other countries, and especially avoid borrowing money that requires repayment in a foreign currency. Walter Wriston used to say the “countries never go bankrupt.” Maybe not, but it creates a set of other critical dynamics. These include the temptation of creditor nations to continually extend credit to avoid economic declines. The absence of a bankruptcy mechanism also means they exert pressure on debtor countries to “structurally adjust” their economies to adjust to the concerns of creditor nations.

An example is the “Third World Debt Crisis” that recycled OPEC petrodollars into developing countries in the 1980s. Debt resulted in pressure to privatize public assets into securities that could be listed on global financial markets. Curiously, this led to the transition of government telecommunications agencies into private or semi-state corporations and facilitated the adoption of Internet Protocols that led to the World Wide Web. However, it also led to the privatization of water and other public resources and pressure to increase taxes and reduce social services.

As Kelton points out, MMT challenges our contemporary conceptions of money, deficits, and debt. One of the most dangerous metaphors we use to conduct our public policy is the notion of a “fiscal house.” This metaphor is based on the conflation of government finances with household finances and the idea of “living within our means.” And primarily, this means recognizing government is not a household that has to reconcile its checkbook. Governments should not live within their “means” but expand the realm of economic possibility.

MMT is not a socialist or utopian panacea for the economy; it is essentially an understanding of central bank operations and the role of money in the economy. However, it provides an opportunity to examine whether the Green New Deal or other Post-Covid-19 plans to address climate change’s challenges will be a drain on economic growth or an opportunity to create thriving sustainable economies.

Carbon-based combustible fuels are no longer the most efficient energy sources, but they require new smart grids and other infrastructure to be readily available. To mitigate climate change and pollution while ensuring low unemployment in an age of automation and artificial intelligence, it will be important to understand government spending. Engaging with MMT can provide insights into the fiscal spending process and challenge public policy to develop plans for sustainable economic growth and prosperity, while avoiding inflation and other negative effects of government spending.

Citation APA (7th Edition)

Pennings, A.J. (2020, Jan 27). The Two Santa Claus Theory of US Economic Growth and the Prospects of Modern Monetary Theory (MMT). apennings.com https://apennings.com/dystopian-economies/the-two-santa-claus-theory-of-economic-growth-and-the-prospects-of-modern-monetary-theory-mmt/

Notes

[1] Remember that Alexander Hamilton traded New York City’s status as the nation’s capital for the opportunity to assume the state’s Revolutionary War debt as the basis for a Bank of the United States. As a result, the government moved to a swamp in Virginia that would become Washington DC and New York City became the nation’s financial center. Likewise, in a digital financial environment that trades globally everywhere and all the time, Treasury bonds play a crucial role in coordinating wealth and as a hedge against risk in volatile markets.

Ⓒ ALL RIGHTS RESERVED

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Anthony J. Pennings, PhD is Professor at the Department of Technology and Society, State University of New York, Korea. He started his academic career Victoria University in Wellington, New Zealand before returning to New York to teach at Marist College and New York University teaching comparative political economy and digital economics. When not in the Republic of Korea, he lives in Austin, Texas.

Category: democratic political economies, digital monetarism, dystopian economies, smart new deal, telegraphic political economy
Tags: Altair > Federal deficits > government debt > Green New Deal > Information Standard > John Maynard Keynes > Jude Wanniski > Keynesian economics > MMT > Modern Monetary Theory (MMT) > New Deal > Two Santa Claus Theory > Versailles Peace Treaty

Korea in a Post-Covid-19 World, Part 1: The Korean New Deal

Posted on | December 6, 2020 | No Comments

In early November 2020, I attended the World Bank IDA – Korea Workshop on Innovation and Digital Technology in a Post-Covid World. Sponsored by the World Bank’s International Development Agency (IDA) and the Korean Ministry of Economy and Finance, it was held at The World Bank Group Korea office here in Songdo, Korea. I was too busy to go across town to attend in person, but found the virtual proceedings to be quite interesting. (Best to “fast-forward” to 30 minutes).

The conference covered many relevant issues dealing with technology in a post-Covid-19 world. For this series of posts, I am primarily interested in the vision of the future for the Republic of Korea that draws on the American “New Deal” and its intersection with technology and sustainable development. Below, I discuss the New Deal and its rhetorical reincarnation as the “Green New Deal” in the US and Korea in the wake of the financial crises of 2008 and the Covid-19 pandemic of 2020-21. I am also intrigued by Korea’s merging of the Green New Deal with a “Digital New Deal,“ which I will cover in a future post.

The New Deal was the name given to President Franklin D. Roosevelt’s (FDR) strategies in the 1930s to recover from the Great Depression and its influence that continued well into the latter half of the 20th century. It unabashedly used the power of government to reform the economy for industrialization and World War II mobilization, and later the containment strategies for global finance and Communism after WWII.

The World Bank is not a United Nations agency but instead came out of the New Deal’s Bretton Woods Agreements at the end of World War II that designed the new global finance and international trade regime. The World Bank’s IDA is managed by its 173 shareholder countries that guide its investment portfolio from more than 50 donor countries to promote economic growth and reduce poverty. So, the introduction of Korea’s New Deal at the jointly sponsored conference seemed appropriate.

The New Deal term has circulated extensively in the wake of concerns about climate change and, more recently, in thinking about the COVID-19 epidemic and its repercussions. Its (re)emergence has been traced to “A Green New Deal” report by the New Economics Foundation released in the United Kingdom in July 2008 and intended to initiate a comprehensive national plan to revive the economy and combat climate change. Written by the Green New Deal Group, it outlined a series of policy proposals to tackle the financial crash, global climate change, and the limits of an oil-based economy. But the Tories won in the UK in 2009, and the ideas were largely marginalized.

Likewise, in the US, the Obama administration focused on a general stimulus and healthcare in 2009. The American Clean Energy and Security Act died in the Senate before the Republicans swept the 2010 midterms. The idea of the Green New Deal died as well, except among progressive left politicians such as the Green Party’s Jill Stein and independent Bernie Sanders. Both waged 2016 presidential campaigns that included a GND. It became an issue in the 2018 midterm campaigns and helped propel Alexandria Ocasio-Cortez (AOC) into a Congressional seat (D-NY).

AOC then joined with Sen. Ed Markey (D-MA) in early 2019 to introduce the H.R. 109 resolution on February 7 in the 116th Congress. It recognized climate warnings due to greenhouse gas effects and called on the US to use its technological expertise to reduce harmful emissions. It also recognized that the New Deal and World War II mobilization created the biggest middle class in US history and that the Green New Deal should strive to create economic security, especially for vulnerable groups. Among the remedies for these problems, it suggested meeting “100 percent of the power demand in the United States through clean, renewable, and zero-emission energy sources” and distributing electricity through “smart grids.” This chart on the Green New Deal by the Data for Progress shows the uptick in interest in the term.

I was particularly struck by presentations on the Korean New Deal by the Ministry of Economy and Finance, introduced first by Deputy Minister for International Affairs Taesik Yoon and in more detail in the Keynote Speech by Dae Joong Lee. In “Linking the Korean New Deal with Innovation and Technology in the Post Covid-19 Era”, the ministry’s Director of Development Finance first reviewed the Republic of Korea’s response to the COVID-19 pandemic.

Korea was hit hard and early but effectively reduced the adverse health effects and by September had restored a good amount of its economic growth. This was due mainly because of its effective “test, trace, and treat” strategy to the virus.

But given the lingering effects of the pandemic around the world, Director Lee laid out the general plan for a Post-Covid Korean New Deal. It stresses a Digital New Deal and a related Green New Deal – within the context of a national “safety net” and an emphasis on employment and concern for the training of human resources.

Now, it’s one thing to put together some fancy PowerPoint slides and another to enact a nation-wide transformation of the political economy. But Korea tended to “walk the walk” recently and not just “talk the talk,” so I think its worth keeping an eye on Korea’s strategy for digital and sustainable development. The Korean digital strategy, as researched by my colleague James Larson, has paid off handsomely so far for the small peninsula nation.

In the next post I continue the discussion of Korea’s New Deal and its inclusion of a Digital New Deal and a Green New Deal.

Ⓒ ALL RIGHTS RESERVED

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Anthony J. Pennings, PhD is Professor at the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught at Hannam University in South Korea and from 2002-2012 was on the faculty of New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

Category: automatrix, smart new deal, sustainable development
Tags: digital development > Digital New Deal > GND > Green New Deal > Korea > New Deal > post COVID-19 > World Bank IDA

Starlink and the Return of Satellite Internet Service

Posted on | December 2, 2020 | No Comments

Arthur C. Clarke’s extraordinary vision and engineering analysis of “rocket stations” circling the Earth and providing global radio service has been challenged and surpassed over the years. It was an extraordinary vision, but technological innovations have continued to offer new designs and solutions. The current Starlink satellite system is a radical departure from Clarke’s original vision to put satellites into geosynchronous orbits along the equator. This post looks at a new satellite system being put into place by Elon Musk and his SpaceX operations and how it can reach remote locations traditionally underserved by traditional Internet Service Providers (ISPs).

Musk’s new company hopes to eventually launch as many as 42,000 satellites providing data services throughout the world from orbits as low as 400 km. In 2018 Space X received approval from the FCC for 7518 Ka-band and V-band (40 to 75 gigahertz-GHz) satellites at 335-kilometer orbits in addition to the 4425 satellites initially approved.

Clarke’s vision was achieved in the mid-1960s as part of the Apollo Space Program when three Intelsat satellites were put into geosynchronous orbit. It provided a telecommunications footprint over most of the world that could facilitate many telephone calls or a television broadcast. Many satellites followed, and global services such as CNN became available. The Iridium satellite system was designed and rolled out in the 1990s to provide mobile services. Its business model had difficulty competing with wireless companies and went into bankruptcy by 2000. It uses 66 active satellites in LEO (781 kilometers) for service to mobile phones and special antennas and has found its niche with government and international organizations.

Starlink connects its smaller, low earth orbit (LEO) satellites with laser communications. Light moves faster in the vacuum of space than through the glass conduits of fiber optic cables. Undersea cables transmitting light signals have largely replaced satellites for global communications, so connecting these smaller spacecraft provides a significant threat to the status quo.

Speed is very attractive for financial companies and other industries that need to move data with little latency. Transmitting across continents and oceans is much faster by light, and the lower altitudes make radio communications with earth-based antennas quicker. Significant customers are expected to be banks, hedge funds, and other financial operations that engage in high-frequency trading. eSports game competition is one area that I expect will take off globally as the diminished latency will literally create a “level playing field” between gamers around the world.

One of the benefits of satellite communications has been its ability to bypass borders of geography and nationality. It holds new promise for people in rural areas that have trouble accessing internet service providers. The man in this video, Brett Batie in Idaho, installs a Starlink antenna on his home and shows the process of “unboxing” and setting up the satellite connection.

The Starlink antenna is part of the beta testing of the satellite service, and the data is still being collected about the quality of the service. In this case, the service allows him to download data at 40 to nearly 100 Mbps and uplink at 10-25 Mbps. Quite a difference from the 2Mbps that he struggled to get previously from his ISP.

Musk announced the satellite program on Jan 18, 2015, with the launch of SpaceX. He had to file plans and get approval from the International Telecommunications Union (ITU) and the Federal Communications Commission in the USA. The plan was to initially serve Northern US and Canada. Those testing the Starlink service report that their antennas end up pointing north, so I expect that a string of satellites have been placed in in along a northern latitude. Geosynchronous satellites are placed exclusively along the equator.

Musk also announced that the Starlink program is designed to produce cash for SpaceX’s missions to Mars.

© ALL RIGHTS RESERVED

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Anthony J. Pennings, PhD is Professor at the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he was on the on the faculty of New York University. Previously, he taught at Hannam University in Korea and Marist College in New York. He started his career at Victoria University in New Zealand. He spent a decade as a Fellow at the East-West Center in Honolulu, Hawaii researching ICT4D. Originally from Goshen, New York, he now keeps a home in Austin, Texas.

Category: mobile technologies, space systems, visual literacy and rhetoric
Tags: Elon Musk > FCC > ITU > phased array antenna > SpaceX > Starlink

The International Politics of Domain Name Governance, Part Two: ICANN and the Clinton-Gore Administration

Posted on | November 12, 2020 | No Comments

This post is the second in a series about the global politics of domain name registration and management. Domain names are critical identifiers of web resources that facilitate easy access for users. Part One about Jon Postel discussed the heroic but ad hoc process of managing addresses in the earliest days of the Internet.

This post describes the Clinton-Gore administration’s endeavors to internationalize the Internet through the Global Information Infrastructure (GII) and the WTO while maintaining control of the DNS through the Internet Corporation for Assigned Names and Numbers (ICANN). This stance was in the face of calls that an international organization like the International Telecommunications Union would better manage control of the Internet. By 1997, ICANN agreed to coordinate the Internet domain name system (DNS) and set up a network of computer databases/servers worldwide to keep track of IP addresses and help users make quick connections to requested sites.

As the World Wide Web (WWW) emerged with the invention of the hypertext transfer protocol (HTTP), management of the domain name system became crucial for e-commerce and other uses of the Internet. It also became a controversial issue for international politics. The Clinton-Gore administration saw the Internet as a major opportunity for the US, but also a historically tricky infrastructure to manage, including complications with other countries.

The monopoly for the domain name registry system was turned over to InterNIC (Internet Network Information Center) in 1995. InterNIC was a subsidiary of Scientific Applications International Corporation (SAIC), a private company heavily engaged in activities for the Pentagon and the National Security Agency (NSA). Led by a board of ex-NSA, CIA, and DoD officials, the company made money from issuing customized Internet addresses.

These domain names became very valuable as the WWW and its “dot.com” economy started to expand rapidly in the mid-1990s. The commercialization of the NSFNet in 1992 and the introduction of the Mosaic browser in 1994 spread the hope of a “new economy.” The following year, the highly successful Netscape IPO, based on another successful browser, unleashed new investment in high technology and Internet stocks.

The Clinton-Gore administration became particularly aggressive in creating the Internet’s policy framework for domestic and international expansion and commerce. Branded initially in 1993 as the National Information Infrastructure (NII) and later the Global Information Infrastructure (GII) in 1994, the new vernacular by Vice-President Gore allowed for a government interventionist approach. The GII was a conceptual framework to challenge telecommunications companies worldwide to pave the way for data communications and all the related services promised by ISDN.

At home, they pushed an enabling framework for the NII that encouraged private investment; promoted and protected competition; and provided open access to the Internet by consumers and service providers. This approach also emphasized advancing universal service to avoid the digital divide – a society of information “haves” and “have nots.”

Internationally, their work to set up the World Trade Organization (WTO) facilitated the modernization of telecom networks worldwide and broke down the tariff barriers to global IP. In his speeches to the ITU and the GATT (General Agreement on Tariffs and Trade) in 1994, Gore set up the conditions for the World Wide Web we know today. Gore traveled to Marrakesh, Morocco, and at the closing meeting of the Uruguay Round of the GATT negotiations and called for creating a World Trade Organization (WTO).

The WTO was one of the original objectives of the New Deal’s Bretton Woods agreements at the end of World War II but never received US Congressional approval. However, on November 29, 1994, a bi-partisan vote in Congress allowed the bill to move to the Senate that year and the WTO was approved 76-24 on December 1. The WTO would quickly conclude two historical agreements that liberalized global trade in information technology (1996) and telecommunications trade (1997).

In 1996, Ira Magaziner had set up an interagency group to study domain names as part of his responsibility in the Clinton-Gore administration for international trade. Magaziner’s position paper was released as “A Framework for Global Electronic Commerce” announced by President Clinton and Vice President Al Gore at a public event on July 1, 1997 and became the basis for the Administration’s policy of managed liberalization for e-commerce and the management of the domain name system.

The Clinton-Gore administration wanted to hold off efforts by the United Nations and its International Telecommunications Union (ITU) to manage the Internet. They valued the international organizations but felt the Internet required a more dynamic organizational structure to facilitate its complex growth. Other nations, particularly the BRICs (Brazil, Russia, India, China), questioned the efficacy of US management of the World Wide Web. The US stood its ground however, and staked its claim for control over the Internet.

Magaziner reflected on the problems facing a growing Internet at the time. Governments wanted to tax transmission bits, place tariffs on electronic commerce, and censor the Internet. Debates on digital signatures, regulating prices, and intellectual property (IP) issues such as domain name trademarks were also coming to the fore.

“For this potential to be realized fully,” the draft report stated, “governments must adopt a nonregulatory, market-oriented approach to electronic commerce, one that facilitates the emergence of a transparent and predictable legal environment to support global business and commerce. Official decision makers must respect the unique nature of the medium and recognize that widespread competition and increased consumer choice should be the defining features of the new digital marketplace.”

The ITU had been an essential “club” for the world’s telecommunications agencies to coordinate technical standards for telephony and electromagnetic spectrum allocations. But as a one country, one vote organization, the U.S. was vulnerable to ITU decisions. And that meant its businesses were vulnerable too. On May 1, 1997, eighty organizations supported a Memorandum of Understanding (MoU) addressing the way generic Top Level Domains (gTLDs) were allocated and managed. An International Ad Hoc Committee (IAHC) was established to address perceived problems with the current method of registering generic top level domains on the Internet.

In July 1997, President Clinton issued an executive order to privatize domain name management and in September 1997, Network Solutions (NASDAQ: NSOL) had an initial public offering (IPO) and became a public company. In the first five months of 1998, Network Solutions Inc. (NSI) registered more than 340,000 domain names, an increase of 73 percent from the same period in 1997.

But the company was overwhelmed by the extraordinary growth of the Internet. Registration systems and billing lacked the ability to keep up with volume of domain name requests. NSI was losing its near-monopoly over the domain name business and the company began preparing for a new competitive environment. Still at issue was whether Internet oversight was going to eventually move from U.S. control to an international body.

In late 1998, The U.S. Clinton-Gore administration introduced a new domain name system to encourage competition and effectively manage the DNS. The U.S. Department of Commerce took ownership of the process. Ira Magaziner and others helped design a new organization called ICANN, the Internet Corporation for Assigned Names and Numbers (ICANN). ICANN was created as a not-for-profit company to administer and help set policy from the bottom-up for the Internet name and address system.

ICANN received preliminary approval from the Commerce Department to manage the Internet domain name system (DNS) in November 1998. The two organizations signed a Memorandum of Understanding (MOU) that provided for the DNS management’s gradual privatization. This involved deploying a network of computer database/servers worldwide to keep track of IP addresses and facilitate the quick connection of domain names to requested sites. Also, a dispute resolution system to resolve issues regarding the ownership of a domain name was set up.

In the next post, I explore ICANN’s transition to a global multistakeholder community management and the end of the Commerce Department’s National Telecommunications and Information Administration (NTIA) management of DNS.

Citation APA (7th Edition)

Pennings, A.J. (2012, Nov 12). The International Politics of Domain Name Governance, Part Two: ICANN and the Clinton-Gore Administration. apennings.com https://apennings.com/global-e-commerce/the-international-politics-of-domain-name-governance-part-two-icann-and-the-clinton-gore-administration/

Notes

[1] Drezner, D. (2004). The Global Governance of the Internet: Bringing the State Back In. Political Science Quarterly, 119(3), 477-498. doi:10.2307/20202392
[2] Drezner, Daniel W. All Politics Is Global: Explaining International Regulatory Regimes. Princeton, N.J.: Princeton U, 2008. Print. Chapter on “Global Governance of the Internet.” http://press.princeton.edu/titles/8422.html

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Anthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught at Hannam University in South Korea and from 2002-2012 was on the faculty of New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

Category: digital geography, global communications, global e-commerce, telecom policy and net neutrality
Tags: Clinton-Gore Administration > DNS > Domain Name System > ICANN > Ira Magaziner > Jon Postel > WTO agreement on basic telecommunication services

Russia, the Fall of the USSR, and the Era of Pan-Capitalism

Posted on | October 9, 2020 | No Comments

The fall of the Berlin Wall and the disintegration of the Communist Union of Soviet Socialist Republics (USSR) bloc meant the world was no longer significantly divided by Cold War antagonisms. Communist China had already embraced market dynamics and global trade. This post briefly discusses the breakup of the USSR and the globalization of carbon-based digital capitalism leading to a new Russia headed by Vladimir Putin and the oligarchs.[1]

Although a Communist bloc, the USSR had become deeply indebted to the global banking system, exerting additional pressure on a system already addicted to military spending. Especially after oil was discovered in the Samotlor Field in 1969, the USSR had wanted to take advantage of the 1970s oil crises and invest in exploiting the vast gas and oil in Siberia and even the Artic. Imports of oil and gas equipment from 1970 to 1983 increased eighty times in terms of value.
But it needed US dollars and other strong currencies to invest in its petro industries and procure the needed expertise and technology.[2]

The term “Eurodollar” reportedly gets its name from a Russian bank in France that was laundering dollars after the Communist Revolution in 1949. The cable address of the bank happened to be “Eurobank.” The Russians also placed their dollars in the Paris-based Russian Banque Commerciale pour l’ Europe du Nord and the Moscow Narodny Bank in London. It was soon traded by other European banks and purportedly took the name “Eurodollar” from the cable address in Paris.

As mentioned in my earlier work on digital monetarism, Eurodollars were the prime credit vehicle for recycling OPEC’s petrodollars worldwide during the 1970s. Through syndicated lending, banks lent Eurodollars excessively to many nation-states, including those in the USSR.

The result of petrodollar recycling was the “Third World Debt Crisis,” that created havoc throughout the 1970s and into the 1980s. Debt put pressure on public resources that were often transformed into state-owned enterprises (SOEs) and eventually sold off to investors. Excessive debt led to an era of imposed deregulation, liberalization, and privatization. Although painful, it opened up the telecommunications world to the Internet and its World Wide Web applications.

The “official” start of the world debt crisis can be traced to the March 1981 announcement by Poland that it could not meet its payment commitments. Previously, banks found it easy to reschedule old debt and lend them new Eurodollars. An “umbrella theory” circulated which held that the Soviet Union would guarantee the debts of the countries in its sphere. But the USSR was having economic problems that went unnoticed by the banks. They still retained a high credit rating and the banks continued to pour money into it.

By 1984, the Communist bloc was gathering significant debt and the economy was faltering, largely due to the drop in oil prices. Defecting spies were reporting that the USSR was a mess. Workers were unmotivated because the store shelves were empty. Lines to purchase scarce goods were everywhere. Nearly half the Russian economy was devoted to military spending and the other half producing shoddy and scarce consumer goods, determined and designed by Communist committees.

With Reagan’s “Star Wars,” Premier and Communist Secretary-General Mikhail Gorbachev knew that the USSR could not keep up with the capitalist world’s innovation and spending. He pleaded with Ronald Reagan at a Reykjavík Summit of 1986 to give up the militarization of space and instead work to reduce nuclear weapons. But Reagan refused. So Gorbachev instead began a public relations campaign to encourage more debate about the USSR, and it’s political and economic future.

In June of 1989, Gorbachev made the call to Poland to tell their Communist party leaders to accept the results of their democratic election. The decision started the processes of glasnost and perestroika throughout the Soviet system. The first term meant political openness – media freedom, democratization of power, and the release of political prisoners. The second meant gradually allowing entrepreneurial activities, reforming state-owned industries, and privatizing government assets.

Deng Xiaoping had already started to reform Communism in China during the 1980s with his “socialism with Chinese characteristics.” Deng and other post-Mao Communist leaders argued that “China had mistakenly entered into Communism during its feudal stage instead of waiting until advanced capitalism, as Marx had theorized. Private ownership and a market economy were suddenly embraced as solutions, not problems. This allowed the Chinese Communist Party to legitimize both its turn to market capitalism and the continuance of its political control over the country through Marxist ideology.”[3]

The fall of the Berlin Wall in 1989 began the process of dismantling the Warsaw Pact and, with it, the USSR Communist bloc. Started in 1955, the Warsaw Pact was initially a defense treaty among Albania, East Germany, Poland, Hungary, Romania, Bulgaria, Czechoslovakia, and Russia. But after East Germany left, the other countries clamored to leave as well.

Czechoslovakia and the Baltic states (Estonia, Lithuania, and Latvia) soon declared their independence from the USSR along with the Republic of Belarus and the Ukraine. Some joined Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, Tajikistan, and Uzbekistan to create the Commonwealth of Independent States (CIS).

President George H. Bush met with Gorbachev in early December 1989, just a month after Europe’s “9/11” dissolving of the barriers between East and West Germany. Meeting in Malta, they resumed START negotiations on nuclear arms control as well as came to agreement on how conventional forces would dismantled in Europe. Gorbachev’s decision to allow a multi-party system and presidential elections in Russia also began to destabilize Communist control and contributed to the collapse of the Soviet Union.

A coup was engineered by Communist hardliners in August of 1991 and although it failed, Gorbachev resigned by Christmas. But not before dissolving the Central Committee of the Communist Party of the Soviet Union and resigning as its Secretary General. Also in 1991, the Soviet military relinquished control over the other militaries. Russia also agreed to take on USSR debt held by the USSR, in excess of US$70 billion.

By promising glasnost and perestroika, Gorbachev changed the political dynamic of a dying system. It was the promise of a political and legal infrastructure for a democratic and market political economy integrated into the world system. The process accelerated in Russia with the election of Boris Yeltsin in 1991 as the first President of the new country. Yegor Gaidar, an economist known for pushing free markets, became the Prime Minister. Yeltsin worked with a group of opportunistic Russians to outmaneuver the Communist directors of the USSR economy to take control of major industries, many going on to become billionaires, the so-called “oligarchs.”

In the first few months of 1992, the new government freed prices and legalized entrepreneurial activity in a process called “shock therapy” – rapid liberalization of the economy. By 1994, Yeltsin worked with Russian banks to raise cash to help privatize major companies. The Russian “loans for shares” program lent the government money in exchange for temporary shares in state-owned companies. When the government defaulted in 1995, they auctioned off major stakes in companies involved in aluminum, oil, nickel, and other important resources as well as food production, telecommunications, and media.

The end of the Warsaw Pact signaled a new liberalization by Moscow and the satellite countries of the USSR. However, it was displaced by economic “shock therapy” – severe austerity and privatization that crippled economic recovery. The resultant chaos led to the return of the Russian “strong man.” Vladimir Putin became the President of Russia in 1999.

Notes

[1] I use the term digital capitalism here as many parameters operate to shape types of capitalism.
[2] The USSR went heavily in debt to buy equipment for its nascent oil industry.
[3] Pennings, A. (2014, April 22). E-Commerce with Chinese Characteristics. Retrieved from https://apennings.com/global-e-commerce/china-e-commerce-ipo/

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Anthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught at Hannam University in South Korea and from 2002-2012 was on the faculty of New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

Category: democratic political economies, global e-commerce, how IT came to rule the world, the cold war
Tags: Boris Yeltsin > Deng Xiaoping > eurodollars > shock therapy > state-owned enterprises (SOEs) > USSR > Warsaw Pact > Yegor Gaidar

The International Politics of Domain Name Governance, Part One: The Czar

Posted on | October 1, 2020 | No Comments

An ongoing global concern deals with the control and management of the World Wide Web’s Domain Name System (DNS). The basic issue is whether the address you put into your browser connects to the right computer and retrieves the right information. When you type in apennings.com, for example, how does it get to my blog, and how can you be sure you are getting the right site? What if you typed in google.com, and it was directed to yahoo.com? (just an example) Or if you typed in Amazon.com and it was directed to a site for Barnes and Noble or some other bookseller? These scenarios are possible if the domain name system is not managed correctly.

The Domain Name System (DNS) is a server service that matches website addresses to the right computer. As the Internet has grown exponentially and globally, governance and management issues continue to be complicated and contentious. What is at stake? In this post I look at the beginning of the DNS and the influence of Jon Postel.

It was recognized early on that managing Internet addresses would be a global concern. Internet traffic was increasing domestically and across borders. Decentralization provided the technical and operational strategy to globalize the Internet and its World Wide Web (WWW). It would provide quicker responses and decrease network traffic congestion. Maintenance issues, including redundancy and backing up systems, were easier to manage. Globalization of the Internet, however, raised other issues.

Daniel Drezner identified three reasons to be concerned about the governance of the Internet. The first was that an “actor” such as a government, corporation, or NGO could take over the Internet. Any actor that could benefit from controlling the connections between users and the sites they want to visit should would certainly undergo scrutiny on the matter. Second, it was important for a legal system to be created to ensure that trademarked names were not captured and monopolized by “cybersquatters,” who could withhold or use important trademarked names such as “mcdonalds.com” or “toyota.com.” Also, a lot of money was at stake in the creation of domain names. Little cost is involved in the production of domain names. Providing domain names is like printing money in some respects.[1]

So when you type in the address of the website you want to access, DNS makes sure you make the connection and find the right file. ARPANET, the original Internet that came to life in September 1969, first addressed the issue in the early 1970s. Jon Postel of the University of Southern California (USC) in Los Angeles took up the challenge and was eventually given the nickname “God” because of his power over the early Internet’s addressing system. Postel started with writing addresses on scraps of paper and would continue until a global network was established.

Postel’s influence ranged from its inception to his death in 1998. On March 26, 1972, Postel started collating a catalog of numerical addresses like 123.47.17.49. He asked network administrators to submit information on socket numbers and network service activities at each host computer. He worked with the Stanford Research Institute (now SRI International) to develop a simple text file called HOSTS.txt that tracked hostnames and their numerical addresses. Published as RFC 433 in December 1972, it proposed a registry of port number assignments to network services. He also called himself the “czar” of socket numbers as he pledged to keep a list of all addresses. SRI would distribute the list to all Internet hosts.

The Domain Name System (DNS) was primarily designed by Paul Mockapetris of the Information Sciences Institute at the USC. It was adopted by ARPANET in 1984. The ARPA DNS originally consisted of six different Top Level Domain (TLDs) types: .com (commercial), .edu (education), .gov (government), .mil (military), .net (network provider), and .org (organization). The designation of domain names below them, like hawaii.edu or ecommerce.gov, were left to the discretion of the administrators of the various networks. As the Internet expanded globally, a two-letter suffix such as .nl for the Netherlands, or .nz for New Zealand and .kr for South Korea was allowed individual countries. The first domain name was reportedly symbolics.com, registered through the DNS on March 15, 1985.

In 1988, the U.S. gave the DNS contract to USC’s Information Sciences Institute (ISI). This gave Mockapetris and Postel the opportunity to continue to work together and with SRI International. They continued the functions of address management in what became known as The Internet Assigned Numbers Authority (IANA) that continues to this day. IANA was funded by the U.S. government under a contract with the Defense Advanced Research Projects Agency (DARPA). At this time, the Internet started to expand rapidly in the U.S., and abroad.

The next post on DNS will discuss how the Clinton administration played a significant role in shaping the development and governance of the Domain Name System (DNS) during the 1990s.

Notes

[1] Drezner, D. (2004). The Global Governance of the Internet: Bringing the State Back In. Political Science Quarterly, 119(3), 477-498. doi:10.2307/20202392

Citation APA (7th Edition)

Pennings, A.J. (2020, Oct 1). The International Politics of Domain Name Governance, Part One: The Czar. apennings.com https://apennings.com/global-e-commerce/the-international-politics-of-domain-name-governance-part-one-the-czar/

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Anthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea. He teaches digital economics, broadband policy, networked robotics, as well as ICT and Sustainable Development. Before joining SUNY Korea, he spent most of his career on the faculty of New York University. Previously, he also taught at Marist College in New York, and Victoria University in New Zealand.

Category: global communications, global e-commerce, mobile technologies, telecom policy and net neutrality
Tags: DNS > Domain Name System > Paul Mockapetris > Postel > Top Level Domain (TLDs)

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