January 2005

ICT challenges: the Scandinavian governance model

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Introduction

The use of technology is an important factor in the organisation of our society. When we speak of a model for the future society we often use the term ‘information society’ or the ‘networked society’. Information society and network society are not new concepts but have existed for many years (Machlup, 1962 and Nora & Minc, 1980). The reason that these are on the agenda today is the dramatic development in information technology and telecommunications technology – the two technologies that are decisive for dealing with information and its dissemination in networks.

This article deals with the kind of challenges ICT poses in the present form to societal governance and democratic control. ICT penetrates all parts of political decision-making. Political parties and movements have their own websites. The public sector uses the Internet to inform citizens and will in the longer run also use ICT to strengthen the direct communication with the individual citizen. ICT’s direct application as a tool in the political decision-making process has been subject to detailed studies (e.g. Hoff, Horrocks & Tops, 2000 and Dutton, 1999). But this article will concentrate on the more indirect effect: How will application of ICT in other areas affect the democratic governing process? It will not focus on ICT as a tool in the democratic process but on how use of ICT in society in general affects the way societal groups could exercise the possibility for influence in the information society. This broad problem area would be explained by examining specific problem areas where the development of ICT has posed new demands to societal regulation in Europe.

The regulatory challenges connected with ICT are at two levels:

–         Firstly, the use of ICT creates new products and services (such as digital information) that have not been taken into account by the present regulation.

–         Secondly, ICT influences the overall framework for regulation of existing products and services. One example is the regulation of financial markets. Here the use of ICT implies that international financial transactions could be made faster than ever before, which makes it much more difficult to control national monetary markets.

The latter point is closely connected to the ongoing globalisation phenomenon in which use of ICT-technology plays an important part. This article would not involve all the regulatory problems that are connected to globalisation in general, but would focus on those with a direct relation to the use of ICT, and those that influence the individual citizen most directly.  The idea is to look into the consequences that emerge when ICT is used by private citizens in their interplay with the surrounding world, and not only in organising production.

Impact of ICT on governance 

Digitisation has meant that the technological platform can be used within many different application areas, and there has been a gradual merger of the sectors IT, telecommunication and broadcasting. This has led to the development of a succession of services that are in the borderland of these three sectors. The Internet is the most prominent example of such a hybrid service.

This development challenges the present regulation on two fronts: Firstly, there is a merger of three separate sectors (IT, telecommunications and broadcast) that have until now been regulated in very different ways. Secondly, new services have appeared and have caused the emergence of new problems that have not been taken into account by the present regulatory models.

Within the telecom sector, regulation has concentrated on the infrastructure. This infrastructure has been provided from the outset by public-controlled national monopolies. These monopolies are now being privatised and competition is enforced through a complicated set of sector specific competition rules administered by national telecom agencies.

Broadcasting of radio/TV was formerly primarily a public activity. In most European countries broadcasting has been dominated by government-controlled national broadcasting companies who were responsible for universal delivery of public services. Regulation of this semi-public broadcasting sector has primarily focussed on content rather than on the infrastructure itself.

Confronting these two sectors, where the state has played an extremely active role both through direct ownership and as regulator, the IT-sector finds itself in an area where public regulation has been much more limited and where, at the same time, it has been much more internationally oriented. In particular, the development of the Internet has been centred on the US, and regulation of content as well as infrastructure has largely been left to the market.

The merger of these three sectors places completely new demands on the future regulation. This not only concerns the technical design, but the use of ICT services will shape the role of private citizens in governance within different areas. The following areas would illustrate now ICT has a decisive role in the choice of governance models.

  • access to electronic services (infrastructure)
  • access to electronic information
  • consumer protection with regards to electronic trade

The regulatory needs within each of these fields would be discussed, however the design of the specific rules will not be part of the discussion. The purpose is to discuss the applicability of different types of governance and modes of democratic influence. At the same time different models for regulating these fields would be presented (national legislation, indirect regulation, self regulation, etc.), and the democratic implications thereof would be discussed.

Infrastructure

Infrastructure has traditionally been an area with a considerable degree of public regulation. In most European countries companies with complete or partly public ownership have run both the telecom sector and radio/TV. This has changed distinctively in the past decade, and a whole new still-developing regime has appeared. The general trend is however clear. In the telecom sector it is foreseen that regulation of the universal service obligation will play a diminishing role while more emphasis would be placed on letting the market ensure access to the net. Consequently, the main emphasis would be to ensure a competitive market.

During the liberalisation process that started at the beginning of the 1990s the character of public control with the telecom sector changed from control via ownership to control through legislation and direct regulation. Today there is very detailed regulation of telecom infrastructure. The purpose of this regulation is to further competition in a situation where a company, as starting position, has 100 percent of the market. The intent is that this regulation could gradually be ‘normalised’, and partly substituted by the general competition legislation that is in force in other sectors.

The creation of a market with more competing suppliers means that it has been necessary, in part, to expand regulation to new areas, in part, to ensure that regulation is in accordance with the rules, and to make it more transparent. The model used within the EU separates operation from regulation, e.g. by privatisation of telecom companies, and separates the legislative power (the Parliament and the minister/ministry) from the judging power (the National Telecom Agency). According to this model, the minister has only limited possibilities to intervene in announcements issued by the National Telecom Agency and to change their decisions.

The regulation of the radio spectrum is a clear example of how the market has been given a larger role in social regulation. Where formerly the incumbent telecom operator joined a monopoly and could ask the national telecom agency for a new frequency resource (e.g. to establish a network for mobile telephony), invitation for tenders for frequency resources for new services where all can bid is now the rule. The suppliers must then account for how and to what use they would apply the offered licences. It has been proposed to introduce further liberalisation where it would be permitted to re-sell the allocated licences to other operators (Valetti, 2001). If this materialises, it would be the market and not the national telecom agency that will ensure that licences are given to operators who could make the best use of the radio spectrum for the common benefit.

The privatisation of the telecom sector has reduced direct control. Previously, the influence of the users appeared through partly public ownership, which was seen in politically appointed board members. In Denmark, consumers were also represented in different ‘subscriber committees’. In return the consumers had no choice between more suppliers as ‘Tele Danmark’, and before 1992 regional telecom companies, had exclusive rights on delivery of telecom services. Today however, public governance is directed towards ensuring the consumers a choice between several competing suppliers than to command the operations of the incumbent operator directly.

Developments in technology would eventually remove the justification for the current model for regulation of radio and TV broadcasting with licensing and a strong element of public ownership

Content

Electronic information now plays an increasing role due to technological development that has enabled the emergence of a succession of new possibilities that both quantitatively and qualitatively makes use of electronic information, among others. Regulation of the broadcasting field still bears evidence that there have been substantial limitations on the volume of information that the individual user has had access to. It has therefore been an essential criterion to ensure versatility in the limited choice of programs that there is place for (public service).

The present European model for provision of public broadcasting services is being undermined by technological developments. Regulation is justified by limitations in the number of channels available for public broadcasting. These channels were provided to public-controlled TV stations financed partly or in full by public funds. Development of broadcasting via satellite enabled transmission of a much larger number of channels. Moreover, transmission could be made without use of national infrastructure, and was therefore much more difficult to control. Introduction of digital radio and TV broadcasting further increased the number of channels that could be made available, and finally the Internet completely changed the concept of a TV channel with continuous transmission of information beyond the control of the user.

Developments in technology would eventually remove the justification for the current model for regulation of radio and TV broadcasting with licensing and a strong element of public ownership. It would be even more difficult to refuse access to commercial or other private broadcasters as technical limitations are removed. Furthermore, content regulation is complicated by the fact that broadcasters can access their customers without being physically present in the local market. Moving to a country with a more liberal regulation can therefore easily circumvent national regulation.

Up to now it has been possible for public-owned public service channels to maintain a considerable market share in most European countries. But this has only been possible through commercialisation and by watering down the public service concept. If public service channels develop in a way that the content can hardly be distinguished from that of the private-owned commercial channels, it becomes difficult to justify a continuation of a model based on public service and ownership.

The development within the ICT sector has given the individual user more freedom of choice, as there is more content to choose between. In return it becomes increasingly difficult to ensure adequate quality and versatility. This is largely left to the market.

Consumer Protection

In many countries consumers enjoy better protection in e-commerce than in traditional markets (Falch a.o., 1999). But this protection is not guarantied for international transactions. Even a limited international market for Internet trade, if totally unregulated,  may have severe implications for consumer protection in both national e-commerce and traditional national markets. In the American debate it has been proposed to define different rules for trade on the Internet than for other types of trade. For instance, it has been claimed that Internet trade transactions should be exempted from value added tax. David Johnson and David Post have even suggested to define the Internet as a new “borderless law space”, where regulation is based on certification (Johnson & Post, 98).

If such an alternative regulatory framework is recognised for certain types of transactions it can be questioned whether it will be possible to maintain a national legislation with rules that differ substantially from international regulation on the Internet. If the e-commerce environment were unregulated, problems would arise in the offline world. Lack of consumer protection online would undermine protection in the traditional consumer environments.

There is thus an international dimension to the question of consumer protection in relation to e-commerce – a dimension that has existed for a long time in principle – as consumers have had the possibility to buy goods and services from abroad before e-commerce was invented. However, direct relationships between foreign suppliers abroad and consumers have been the exception.

Access to an electronic market place for consumer goods and services gives the consumer a range of new facilities, which in many respects increases the consumer’s power through better access and a more transparent market. The Internet will improve the possibilities to ‘shop around’ and compare offers from different suppliers. This would enable the creation of a more transparent market for consumers. In particular, in periphery regions the Internet may improve market access and thereby enhance competition.

Electronic trade does, however, create new problems related to consumer protection. The Internet has properties that facilitate fraud and complicate prosecution. These properties are related both directly to trade transactions and to the flow of information surrounding the transactions. Consumers may not be able verify the true identity of the supplier, and it may therefore be impossible to know how the transaction is regulated.

 

Norms for quality and safety of products differ from country to country. Consumers cannot be sure that products meet national standards if bought from another country on the Internet. This problem is augmented by the fact that the Internet does not allow physical inspection of goods before delivery. In some countries consumers enjoy the same protection with Internet trade as with door-to-door selling. Also the legal value of digital signatures varies from country to country. EU has chosen a model for digital signatures, which builds on a high degree of self-regulation. Digital signatures are to be offered by private key-centres, and not directly by governmental institutions.

 

Payments in the future would, to a large extent be made by the use of electronic money – money without a physical appearance – and money without any backing from a national bank. This type of money is very difficult to regulate. This has implications not only on the ability of national authorities to enforce monetary policies, but also on consumer protection as this type of money may loose its value if the ‘issuer’ becomes insolvent. Electronic money has been used within the financial sector for decades, but the Internet has made this facility available for private citizens as well.

 

Most countries regulate the use of personal information, and in some countries there are stricter rules protecting consumers in e-commerce than in ordinary commerce. But the Internet is international and personal data can end up in many different countries, with very different regulations on handling of personal data.

The EU regulation of personal data is however very different from that of the United States. Here restrictions are mainly put on usage of personal data by the public sector, while it is up to the private sector to regulate their own use through voluntary agreements. Due to these differences it is difficult to maintain the level of consumer protection in Europe without restrictions on cross-border delivery of personal data. Today it is not allowed to transfer personal data from the EU to a country with a more liberal legislation on data protection. However, this ban is difficult to enforce in an electronic world and only complicates electronic trade across the Atlantic.

Another problem, which is related to the privacy issue, is the use of spam (the costs of distributing marketing information are drastically reduced). There is a risk of ‘information pollution’ i.e. that consumers are overwhelmed with enormous amounts of information that they have no interest in or have ever asked for.

Electronic commerce creates many new regulatory challenges, consumer protection being one of them. One of the most important challenges is related to the need for international harmonisation, due to the difficulties in making a clear distinction between national and international transactions. Regulation of electronic commerce is to a certain extent subject to a sort of international competition. Electronic commerce is an area that has received much attention in the industrial policy debate where being in the forefront seems to be a major concern, and the development of optimum conditions in the form of a competitive telecommunications infrastructure, availability of qualified manpower, etc. is a priority in most countries. This implies that adaptation of the national legal framework is taking place not only for the sake of the consumers, but also in order to facilitate electronic trade. No country wants to create an environment that encourages relocation of domestic Internet activities to other countries with more liberal regulation. Therefore, it is a risk that national regulation without international co-ordination would tend to focus more on the interest of the suppliers than the welfare of consumers. By all means it will be much more difficult for national consumer organisations to ensure protection of the consumers.

Market based regulation may in this case be the outcome as a rule-based model for international governance is very difficult to implement. Firstly, the institutional set-up for adoption of new legislation at the international level is far more complicated and less efficient than at the national level. Secondly, some countries – in particular the US – have a very weak tradition for rule-based governance in these areas and tend to prefer a type of governance based on self-regulation by the industry.
Conclusion

An examination of different areas where ICT impacts the overall framework for governance shows a clear trend towards a more international and a more market-based type of governance. The same trend can be observed in many other parts of the society and it is obvious that technological developments within ICT are not the only reason for this development. Economic, organisational and political/cultural factors have all played a role in this process. Castells has identified three independent factors that have contributed to this process: the information technology revolution; the economic crisis and the subsequent restructuring; and the blooming cultural movements such as libertarianism, human rights, feminism and environmentalism (Castells, 1998 p. 356). Creation of the internal market within EU and the establishment of the WTO have both contributed to the weakening of the decision-making power of national governments, and the wave of privatisations which in Europe began in the UK in the 1980s under Margaret Thatcher are also an important factor explaining the trend away from public rule-based regulation towards a more market-based approach.

On the other hand, the development towards more market and less intervention from national governments has been particularly strong within the ICT sectors, and it is quite clear that the former types of governance have been challenged by technological developments that have accentuated the need for regulatory reforms. These reforms have, under specific environmental conditions dominant since the 1980s, resulted in a more market based and international-oriented regime of regulation.

References

  • Castells, Manual: End of Millennium, The Information Age: Economy, Society and Culture. Vol. III. Blackwell Publishers. Oxford, UK.
  • Dutton, William H.(1999): Society on the line – Information Politics in the Digital Age. Oxford University Press.
  • M. Falch & A. Henten: Consumer Protection in the Electronic Market Place – Regulation in a global environment. Communications and Strategies, no. 34, 2nd quarter 1999, pp. 319-350.
  • Hardt, Michael & Antonio Negri: Globalization and Democracy. In Enwezor, Okwui et al.: Democracy unrealized. Documenta 11_Platform 1. Kassel: Hatje Cantz Publishers. 2002.
  • Hirst, Paul: Why the national still matters. Renewal 2(4), pp.12-20.
  • Hoff, Jens, Ivan Horrocks & Pieter Tops (eds); 2000: Democratic Governance and New Technology – Technologically mediated innovations in political practise in Western Europe. Routledge
  • Johnson, David R. and David Post: Law and Borders – The Rise of Law in Cyberspace, First Monday issue 1, 1998
  • Machlup, Fritz (1962): The production and Distribution of Knowledge in the United States. Princeton.
  • Nora, Simon Alain Minc (1980): The computerization of Society: A report to the president of France, Cambridge, MA MIT Press.
  • Porsdam, Helle (1999): Legally Speaking: Contemporary American Culture and the Law. Amherst: University of Massachusetts Press.
  • Samarajiva, Rohan. (1997). Interactivity as though privacy mattered, in P. E. Agre & M. Rotenberg (eds), Technology and privacy: The new landscape, pp. 277-309. Cambridge MA: MIT Press.
  • Valetti, T.M. (2001): Spectrum Trading. Telecommunications Policy. Vol. 25 no. 10/11 Nov./Dec. ’01.

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