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U.S. Department of State

Department Seal Alan Larson, Under Secretary of State
for Economic, Business, and Agricultural Affairs

Address to Net Diplomacy 2000: Conference on the Internet and Diplomacy
U.S. Department of State, Washington, DC, October 2, 2000
Blue Bar Introduction

Good morning and welcome to the Harry S. Truman Building. We in the State Department are proud that our building bears the name of a great and courageous President. One of the many difficult issues the Truman Administration tackled was the challenge of nuclear power. Nuclear weapons helped bring World War II to a close. Nuclear deterrence, the so-called "balance of terror", provided the central drama of the cold war. Nuclear technologies were largely a monopoly of the state and a principal tenet of U.S. policy was nonproliferation, keeping nuclear technology in the fewest possible hands.

Information technology may have as profound an effect on the diplomacy of the next 50 years as nuclear technology had on the diplomacy of the last 50 years. It appears that we stand at the beginning of a promising new era; one that is starting to dramatically reshape society. Unlike nuclear technology, information technology is not a monopoly of the state; in fact, development of the technology is being driven by the private sector. And the basic premise of the emerging American policy toward information technology is not nonproliferation but rather extending the reach of the technology to as many people as possible.

To be sure, a global information society will not by itself solve the world's many problems. Indeed, as we have seen with various computer "viruses," interconnectedness can bring vulnerabilities as well as opportunities. Information technology is a powerful tool -- in its subtle way perhaps more powerful than nuclear technology. If developed wisely, it can broadly advance prosperity, democracy, and the richness of our cultural fabric. But we are at the very beginning of a long journey.

As I look ahead, I am reminded of the maxim that information and commerce, like water, will flow where they are not obstructed. While government necessarily managed the development of nuclear technology, in information technology one important contribution of policymakers will be to judiciously remove barriers to private sector activity. At the same time, governments will have a crucial role in creating an "enabling environment" and in ensuring that the benefits of the information society are widely shared.

I'd like to focus on three points today. The first is that a networked world presents significant opportunities in the economic, political and cultural spheres. A digital world is one that is largely friendly to American interests and values. The second point is that the e-commerce and internet revolution are much further advanced in the US than elsewhere and that international e-commerce is relatively undeveloped. My third point is that we can and must bridge the international digital divide. A priority task for American diplomacy is to ensure that the opportunities of the global information economy are as broadly available as possible -- available to the poorest countries as well as the richest, to rural craftsmen as well as urban professionals.

I stress the commercial dimension in part because I am Under Secretary for Economics; more importantly, I suspect that developing countries are more likely to seize the social and political benefits of the internet if they can make the internet work for them economically. The economic benefits of participation in the New Economy are clearly impressive in the United States. The U.S. has, in recent years, achieved high growth and low inflation thanks in part to efficiencies achieved through the use of information technology.

Since 1995, productivity in the U.S. non-financial corporate sector has increased at an average annual rate of 3 and ½%, nearly double the average pace over the preceding quarter-century. While information technology still accounts directly for only 8% of total jobs in the U.S., it appears to have generated or contributed to nearly one-third of recent U.S. real economic growth. A sharp increase in business-to-business and business-to-consumer applications is providing more choices and better information, keeping prices down and quality high. Simply put, doing business electronically both lowers costs and creates whole new ways of organizing business relationships. Companies are gaining from faster production design and network collaboration. Efficiencies are being found through more effective ways of ordering, billing, delivering, and tracking products and services. Reducing costly inventories and lowering product cycle times are resulting in more efficient and effective customer service.

Numerous social benefits are created by the new global information society. The internet can help provide people in poor and remote areas with access to vast bodies of knowledge. For example, the internet offers access to a range of health information resources and facilitates the tracking of infectious diseases, the exchange of medical images, and consultation with medical specialists remotely. The internet also can give students at every age and academic level the opportunity to participate in distance learning and gain new skills. The internet offers a means to increase global cultural diversity and promote cultural preservation through the inexpensive worldwide dissemination of content that reflects a range of linguistic and cultural affinities. A robust civil society, transparent governance, and the universal values of human rights and democracy can also be facilitated by the internet.

Other countries are coming to see these benefits. Both developed and developing countries are coming to us and asking how they can get a piece of this thing called the internet. They are beginning to realize that the internet is here to stay and that if they don't find ways of opening up to it, they will get left behind.

The global information economy has been at the center of many of the most important international economic policy meetings of the year. It was a theme of the U.S.-European Union summit in Portugal at the end of May and was a central subject of the recent G-8 meeting in Okinawa, Japan. To this point, however, the e-commerce revolution has been slow to cross national borders. If you look at the websites of even some of the most major U.S. e-commerce merchants -- GAP.com, JCrew.com, Nike.com, Walmart.com, and others -- you will find that they are refusing to ship overseas. Shipping difficulties and the magnitude and unpredictability of taxes and tariffs are constraints on international e-commerce.

So we have an interesting confluence of events -- other countries asking how to access the internet and U.S. exporters looking for other countries to open up to the internet. At first glance, it is almost as if the Emperor of Japan had sent a message to Admiral Perry saying, "Please sail to Tokyo and help me open Japan to international trade." To put the point so crudely, of course, is to underscore how careful we must be to show that the internet can work for everyone. While many in other countries do want to benefit from the internet, many others see the global information society as an intrusive and dangerous force designed to advance American economic interests and to propagate American culture, at their expense.

Clearing a path for global electronic commerce need not just help U.S. e-tailers sell overseas. The greater economic impact could stem from a new ability of those in other countries, including even the poorest, to reach efficiently and effectively our markets and those of each other. An e-commerce website with global reach can be started by one person with a phone line or wireless access and a personal computer costing under $1,000. A software company can be started with a handful of programmers and several personal computers. You can assemble a commercially viable computer in your garage, and indeed small computer assemblers still custom build PCs in direct competition with the major computer manufacturers. Even a small company can make it in a digital world.

Realizing this potential will not be easy. Developing countries can help by establishing an environment that is friendly to the expansion of electronic commerce and information technology. A major international effort must be made to help developing countries assess their readiness for electronic commerce and to provide help to those who wish to improve policies that are deficient. A huge effort, involving partnerships between the public and private sectors, will be required to help developing countries establish the connectivity needed to bring the internet within reach of all of their citizens.

In the limited time left today, I would like to identify a few of the most important policy parameters that make up an environment friendly to electronic commerce. Participation in the global information society first and foremost requires widespread, reliable and affordable access to the internet. Competition in the telecommunications market brings lower prices, greater innovation and improved quality of services for consumers. A recent World Bank study found that telecommunications charges in African countries without liberalized telecommunications regimes were 700% higher than charges in African countries where liberalization had occurred. Lower rates stimulate greater usage of the network, including the internet.

One of the biggest challenges for the developing world is to build the national and international internet backbones that make low cost network access possible. Private investment can help. The rapid worldwide explosion in the growth and use of new technologies would not have occurred without private investment and competition. Literally thousands of service providers worldwide are investing tens of billions of dollars in new IT infrastructure. In addition, there is likely to be a significant role for development assistance in helping developing countries put this infrastructure in place. A host of new technologies may make the job easier for new entrants. New technologies like wireless and satellite can connect communities in remote or rural areas at a fraction of the cost of hard wired systems. Some economies may "leapfrog" over the wireline stage of development.

The Economist noted in its special recent "E-Commerce Survey" issue that the "fulfillment and distribution end of the internet revolution . . . has proved the most troublesome." Successful Internet-facilitated trade starts with the first mouse clicks and carries through to delivery to the consumer. Telecommunications networks are the fundamental starting point. But transportation, customs, payment and delivery service networks are the unheralded linchpins of global e-business. They are critical to ensuring that goods traded electronically can move fast physically. Just as the establishment of telephone lines and railroad infrastructure revolutionized the economy in the last century, the development and integration of telecommunications, transportation, customs, and delivery services in support of e-commerce can revolutionize the way we do business in the 21st century.

To fully prepare itself to share in the benefits of the global information economy, countries must:

  1. Make it easier and cheaper to get online and stay online.

  2. Examine the regulatory environment, and merchandising restrictions in particular, to ensure that unnecessary, costly and/or transnationally-inconsistent laws are not impeding digital commerce.

  3. Provide companies and financial institutions with swift and secure electronic payment options.

  4. Liberalize transportation regimes, through the negotiation of pro-competitive "open skies" civil aviation agreements and other reforms, to make it easier and cheaper to ship goods ordered electronically from one country to another.

  5. Enable goods to move efficiently through customs, at predictable tariff schedules to facilitate cost-saving "just-in-time deliveries," whether of consumer goods or industrial parts and components.

  6. Open postal and delivery service regimes to competition to permit goods to quickly and inexpensively traverse the "final mile" between the port of entry and the customer's doorstep.
The benefits of progress in any one sector will be multiplied if progress is made in the others. Advances in all six areas will help ensure that a country has optimized its "e-commerce networks" and is prepared to benefit fully from the global information economy. Underlying all these policies must be a commitment to openness and the free flow of information. It will not be possible to have a successful information economy if governments attempt to suppress or control the flow of information in their societies or between countries. This is an aspect of the information society that will be of particular importance to this audience as you consider the future of public diplomacy.

The new global information economy provides a great opportunity for sustainable growth and social development in all countries and economies, including developing and transition countries. Maximizing this opportunity and meeting this challenge will require the cooperation and coordination of national governments, the private sector, and international organizations. We are making progress towards that very goal. The Information Society Charter issued at the G-8 Summit in July included two major accomplishments in this regard:

First, a clear statement by the entire G-8 on the pro-competitive policies that are essential if countries are to be able to maximize their participation in the global information economy.

Second, a commitment to create a new digital opportunity task force -- known as the "dot.force" -- to help coordinate the digital divide bridging efforts and expertise of national governments, the World Bank, United Nations Development Programme (UNDP), U.S. and foreign firms, foundations, and NGOs.

The dot.force is still in a very early stage, but we are working on next steps with each of the planned participants and have had a strong response from the private sector. In conclusion, the United States is committed to working towards the goal of the full participation in the global information economy by all countries that seek it. You and your colleagues must be full partners in this task.

Thank you very much.

[end of document]

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