Innovation Versus Privacy

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Intel is now under fire for designing unique identifier codes into its new Pentium III chips, and Microsoft is taking heat for its document codes. Sun's Jini software would let any digital device talk to any other, and some critics are apoplectic. What about privacy? Why are computer companies building identification devices and codes into chips, programs and networks?

It's called innovation – you know, that Information Age thing. And itsbenefits will prove enormous. But innovation is now bumping up against abarrage of criticism from self-styled privacy advocates. Sun CEO ScottMcNealy's ruffled a few feathers when he suggested that worrying aboutJini'sprivacy implications was something we should get over. But he was right ontrack.

The barriers to the free flow of information that privacy regulation wouldcreate are pointless. We are moving to a world of electronic commerce wherestrangers do business with strangers, separated by vast distances andcomplexnetworks. Our machines and intelligent agents will want to talk to oneanother and trade the information they need for trust to develop. Why stopthem?

The concern for privacy begins with the Fourth Amendment to the UnitedStatesConstitution. It limits the unique and terrifying powers of government toconduct searches and seizures, to arrest citizens, to try them, and to seizetheir assets.

But computer companies don't wield that kind of government power. What canthey do with information they gather about their customers? Use it to sendthem information. To develop new products. To improve their service. Tocutcosts. To bring us faster connections. There's no need to protectconsumersfrom this normal commercial activity.

Privacy advocates are urging the FTC to create a world where every newnetworktechnology conforms to the bizarre idea that trade in information thatsimplyreports facts about real people and real transactions is wrong. If thisrulehad been in place 100 years ago, regulators might have effectively madecreditreporting too expensive to operate as a business, and we'd still be stuck inaworld where poor people couldn't buy goods on credit. Telephone books,Internet Protocols, e-mail addresses and Ethernet cards might have beenregulated out of existence.

This is not an exaggeration. European privacy bureaucrats recently reportedthat “Presently it is almost impossible to use the Internet without beingconfronted with privacy-invading features which carry out all kinds ofprocessing operations of personal data in a way that is invisible to thedatasubjects.” And Dutch regulator Diana Alonso warned that “We just want tolet(companies) know when they are making new software and hardware, they shouldpay attention to [privacy] principles.”

This nonsense should raise red flags for business and consumers alike. TheInternet works as an affordable communications medium because it is designedto facilitate cost-effective, fast, and seamless communications. Period.Itis not and should not be designed to ameliorate groundless technophobia.

Human beings always have been and always will be eager to learn about oneanother. One of the hardest problems any economic system must solve is thequestion of “who needs what, when, and where, and how much will they pay forit?” This is a problem of how to get information from one place to another,from business to business and from buyer to seller.

Regulatory barriers to the flow of information impedes finding answers tothisquestion, and makes everyone poorer. The free flow of information will makeus all richer – but not if misdirected privacy concerns get in the way ofdesigning new information-age gadgets.

What does the future hold for privacy? Privacy remains important as a checkon the unique powers of government. And some businesses will learn thatprotecting confidentiality will win the loyalty of certain groups ofcustomers. But others will be eager to trade information about theirecommerce habits for goods and services; most will not care much eitherway.Entirely new business models will spring into existence--and some willrequirethe processing of massive amounts of information about consumers, whileotherswill offer anonymity. Privacy preferences may vary widely from year to yearor from minute to minute. Privacy is a vastly complicated question ofbusinessethics, not a simple problem answered by the refrain "Privacy good, networktechnology bad."

We have much to learn about how the Information Age economy will work. Itisvital that businesses remain free to experiment in an endless, bottom-uplearning process--the essence of a free market. The top-down,regulators-know-best approach to privacy is a disaster.