The Internet and Business

By Dan Schiller

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Given the historical significance of business as a social and political force, one might assume that there would exist ample and incisive scholarship into how business has shaped today’s Internet—implementing systems and services and advocating policies for what has become an essential infrastructure. Such an assumption would be incorrect.

With some notable exceptions (including Aspray and Ceruzzi 2008; Cortada 2004–08), academic analysts have elevated individual Internet users and foregrounded their network links and online behaviors. Nearly forty years after the Internet Protocol was conceived, the structure and policy of the Internet remain secondary topics.

Journalism offers a partial corrective. In the trade and financial press we find ongoing documentation of leading indices: share prices, quarterly profits, executive reshufflings. Market forays on the supply side also generate welcome coverage. Is Facebook up to the competition with Google for mobile advertising? When will Apple introduce a television set? Might investors abandon Microsoft?

But this still is not sufficient for clarifying basic issues of structure and function and policymaking power. How did the Internet become entrenched as a business infrastructure? How has business shaped the Internet’s wider social function? What are the primary features of the Internet’s own institutional coordination and control? Is this mechanism for Internet governance broadly accepted by the international community? What have been the macroeconomic consequences of business’s take-up of Internet systems and services?

These are among the questions for which we possess, at best, incomplete answers. In this essay I will only begin to scrutinize some of them.

Corporate outlays make up most of the investment in Internet systems and services (Schiller 2001). This is true also for the overall market for information processing and communications where, in one estimate, the consumer share accounts for barely one-third of what is perhaps a $4.5 trillion global market (WITSA 2010, 15, fig. 5). Business users’ dominance of network investment has given them an important and little-studied role—both political and market-based—in shaping the history of network system development: the reach, the pricing, and the character of service options.

During the 1960s and 1970s U.S. policymakers authorized specialized new data communications carriers on terms that afforded them—and their customers—preferential access to the public telecommunications infrastructure (Schiller 1982). What would be called the Internet took shape in this policy environment. However, for some decades after it was devised in 1975, Internet systems continued to denominate just one of several rival approaches to data communications. Internetworking could boast of important advantages: it was dominated by U.S. corporate and university military contractors and by U.S. government agencies, which enabled it to be expanded internationally as a research network supporting U.S. military alliances led by NATO.

Throughout the late 1980s, and above all after the rollout of the World Wide Web early in the 1990s, the Internet became the predominant mode of data transfer. Businesses harbored a seemingly insatiable appetite for Internet systems and services (though many also continued to rely on networks that were not part of the Internet). Connecting to the Internet was relatively easy, and it enabled companies to mesh what often had been multiple incompatible networks. An additional attraction came with the innovation of intranets, software shields to conceal proprietary systems from unauthorized users. Internet use widened dramatically, making it an increasingly ubiquitous channel for business-to-business (B2B) and business-to-consumer (B2C) exchanges. As points of network access multiplied to include not only desktop computers during the 1980s but notebooks during the 1990s and 2000s and smartphones and tablets during the 2010s, services and applications proliferated. Internet data traffic seemed prospectively boundless, and network modernization projects mushroomed globally—even, after 2008, amid a depressed economy.

The profile of business use remained uneven; financial services generated heavy expenditures and extractive industries proportionally lighter ones. However, Internet functionality continued to be absorbed across the entire length and breadth of the business system, from mines and utilities to banks, from wholesalers and retailers to agribusinesses, and from durable and nondurable goods manufacturers to communications media (USDOC 2013, table 2a).1

All sectors made ever-increasing use of the Internet, so that information processing and communications outlays by U.S. companies comprised the greatest single portion of corporate capital investment overall.

A brief historical sketch of network innovation within three different business sectors will be sufficient to point out the contradictory patterns of assimilation.

Finance

Big banks, pivots of the capitalist political economy, have transformed throughout the past few decades, to constitute a concentrated and diversified industry possessing a multifaceted global reach. Large international banks offer diverse means of payment and credit; grease the wheels of corporate mergers and acquisitions; devise fee-based speculative instruments both for their customers and on their own account; and operate as outsourcers for large non-financial companies, for whom they have increasingly taken over payroll deposits, taxes, foreign exchange hedges, trade finance, and other financial functions (Nolan 2012, 111–12).

Massive bank investments in information technology interlace through all of this, as James W. Cortada (2006, 37–112) details. In 1966, the financial sector as a whole—inclusive of finance, insurance, and real estate—operated an estimated 17 percent share of the nation’s computer installations, less than half the total then in use in U.S. manufacturing (Schiller 1982, 24, table 4). Computer systems had been introduced initially to process ever-growing volumes of checks, and to coordinate and control savings and lending (Cortada 2006, 60–73). But their range grew dramatically as the circuits of finance lengthened and diversified, and as debt was pushed on every social institution.

Credit and debit cards, ATMs and Electronic Funds Transfer systems, stock-exchange trading, point-of-sale systems used by retail chains, e-commerce, and mobile payment systems each built upon existing network capabilities and in turn stimulated additional innovation around bank and interbank networks. Beginning in the 1970s and 1980s, big banks devoted an ever-increasing share of their operating expenses to data processing and telecommunications; in turn, the largest banks accounted for a disproportionate share of the industry’s ICT expenditures. These investments grew alongside bank deregulation, which ushered in gigantic diversified financial intermediaries possessing both motive and means to pump up consumer, corporate, and government debt.

By 2006, JP Morgan boasted an IT staff of 20,000 and a $7 billion annual IT budget; recent investments had focused “on building sophisticated trading platforms for institutional investors and hedge fund clients,” and “[a] clutch of quants with PhDs have been hired to create algorithmic models that speed up trading” (Der Hovanesian 2006).2 Its peers did the same. At about $50 billion, overall investment in ICTs by U.S. financial institutions including insurance companies was the second largest of any sector, and accounted for some 17 percent of total U.S. corporate ICT investment in 2011 (DOC 2013, table 2a). Internet channels took over an increasing range of services within more complex financial network architectures.

The reciprocal hold exercised by finance over network development was vital. Not only were banks and other lenders needed to supply funding guarantees for networking projects in the now-privatized environment of global telecommunications. They also garnered a major role in determining the social functions performed by these network systems. Peter Nolan notes how, in a general way, “intense pressure from the banks has helped to stimulate enormous structural change and technical progress in the IT industry” (Nolan 2012, 113). A company called Hibernia supplied a salient illustration. Hibernia announced in Fall 2010 its plan to construct a new transatlantic submarine cable. This seemed audacious, even enigmatic: the transatlantic market had been heavily overbuilt between 1998 and 2001, when seven additional cables had been laid; the severe price competition that followed, as the Internet bubble popped, bankrupted some operators. It led also to spectacular price drops by surviving networks, so that even in 2010 bandwidth prices remained among the lowest in the world. Hibernia’s was the first cable project for a decade in this seemingly still-inauspicious market. What was its rationale?

Hibernia anticipated that by using a more direct physical route across the ocean floor, its “Project Express” cable would cut five milliseconds off what is calledreturn-path latency—the time required by a message to transit back and forth, in this case between New York and London. Once completed, it promised to be the fastest available path between these two cities.

For ordinary users such a marginal gain made no difference. For one group, however, it brought an irresistible advantage. “Financial institutions engaged in high-velocity trading are speed demons,” explained an analyst: “They claim that shaving off just a few milliseconds of connectivity between two trading locations can earn them tens of millions of dollars a year—so they’re willing to pay extra for the fastest path” (TeleGeography 2010, quoting TeleGeography vice president of research Tim Stronge).

This was decisive. By 2011 high-frequency trading by hedge funds, exchanges, and megabanks made up as much as 70 percent of U.S. equity trading (Patterson 2012, 8), and about one-third of Europe’s (Lex Column 2011, 14). Playing the market no longer revolved merely around more or less shrewd estimates of different companies’ earning potential, but also on exploiting innovations in the network infrastructure to get ahead of other traders. Goldman Sachs, Barclays, Credit Suisse, and Morgan Stanley had instituted trading systems built around algorithms for capturing profits by tracing microsecond stock-price movements. “They scan the different exchanges, trying to anticipate which direction individual stocks are likely to move in the next fraction of a second based on current market conditions and statistical analysis of past performance” (Kroft 2010). Then they issue buy and sell orders of their own. For these mostly unregulated high-speed networks, one analyst observes, “location is critical; the servers are placed as close as possible to those of the exchange” (Lex Column 2011, 14; Grant and Demos 2011, 21). Hibernia planned to reroute network plumbing so as to build in advantages for a tiny group of preferred customers.3 Similar ultra-fast links were being constructed elsewhere, such as between New York and the great commodity exchanges in Chicago (Miller 2011).

Such projects accounted for a colossal financial investment in network technology. Though this investment was not the underlying cause of the 2008 crisis, it did help spread the panic through innumerable channels, as far-flung as they were also opaque. The assimilation of networks by manufacturers, to which we turn now, generated different pathways toward this same crisis.

Manufacturing

It is still sometimes thought that manufacturing industry constitutes a stage of economic growth that was, in its turn, supplanted by a new epoch of information and communications during the late twentieth century. Such a conception may be faulted on at least two counts. First, it abstracts particular national economies—typically, that of the U.S.—from the transnational political-economic relationships in which they are enmeshed. Second, it misrepresents the history of network innovation.

Big industrial manufacturers actually constituted a leading site of computer network development. “In general,” writes James W. Cortada (2004, 120), “manufacturing industries were early adopters of computers, spending nearly half of what all American industries did on this technology in the 1950s and, even two decades later, nearly a quarter.” Numerical control, computer-aided design and manufacturing, manufacturing information systems, robotics, and plant-wide data networks were expressions of this impulse; transportation equipment manufacturers, in automotive, trucking, and aerospace were especially prominent early innovators (Cortada 2004, 99–113, 120–21). As in other sectors, therefore, networking followed an evolutionary trajectory; when it developed, the Internet was assimilated into what was already a network-intensive industry. In 2011, U.S. manufacturers’ investments in information processing and communications equipment were the third largest of any sector: $34.7 billion, or around 12 percent of the total (DOC 2013, table 2a).

Manufacturing applications of networks were grouped along two axes. One pertained to the reorganization of the labor processes on which manufacturing depended, including not only fabrication and assembly, but also design and engineering and management. Along this axis, the role of digital networks was to enable the automation of a continuing succession of tasks, and to enlarge the range of collaborative communication for production across the technical division of labor. The second pertained to enabling the dispersion of manufacturing operations: network links are among the “permissive technologies,” as Bluestone and Harrison (1982) called them 30 years ago, that enabled surging foreign direct investment by U.S. and European manufacturers throughout the final decades of the twentieth century.

Under different names, export processing zones characterized by low wages, loose environmental restrictions, and lax oversight of occupational safety and health became sites of surging growth (for an early study, see Shaiken 1990). The countries that hosted this movement of capital often saw few substantial contributions to their domestic economic well-being; the same movement of capital also ravaged working-class communities at its source. Even as it shuttered high-wage plants in its U.S. home market, for example, in 1998 General Motors began to open auto-making plants in China. Already selling more cars in China than in the U.S. by 2010 (Meiners 2010), GM brought in two new plants there in 2012, and in 2013 announced a further multibillion-dollar investment with its Chinese joint-venture partners to launch four more Chinese plants. Some of this augmented manufacturing capacity ultimately might be used, GM forecast, to export automobiles back to the United States (Woodall 2013).

These two sets of changes radically reconfigured the manufacturing production systems. Country-of-origin thinking (and the statistics used to validate it) has been steadily supplanted: complex consumer commodities, from automobiles to smartphones, today are the final outcome of administratively coordinated production systems aiming at the world market and binding together suppliers and sub-suppliers in multiple countries. The iPhone was in this way, as in others, emblematic, as was shown by a well-publicized report for the Asian Development Bank (Xing and Detert 2011). Just-in-time inventories and co-located plants, characteristic forms of contemporary manufacturing, are utterly reliant on advanced digital networks. This becomes starkly evident when a natural or human-induced calamity—an earthquake, a flood, or a nuclear accident—interrupts the ordinary sequence.

We should be wary of attributing to manufacturers’ assimilation of networks any transcendent rationality. General Motors has spent monumental sums—tens of billions of dollars—on information and communications technology since the 1970s, even for a time trying to integrate forward by becoming a supplier of data processing services through acquisitions of EDS and Hughes Aircraft. This did not prevent GM from plunging into bankruptcy and government receivership in 2009. Networks helped GM, akin to major manufacturers generally, to reorganize production; but this network investment paradoxically contributed to two destabilizing trends. First, overcapacity deepened throughout most of the world automotive market, as network-enabled production resulted in a chronic surfeit. Second, what David Harvey (2012) calls “wage repression” lowered the standard of living in working-class communities throughout the United States and Western Europe—which hit economic demand, in turn helping to induce today’s depressed conditions.

Communications and Information

The information industry accounts for the largest single share of overall U.S. investment in ICTs—$80 billion in 2011, or about 28 percent of the total. The Internet here again became the pivot of a far-reaching process of market recomposition.

Transnational providers of Internet services consolidated down into three primary segments. Giant network operators, such as Telefónica, Verizon, Deutsche Telekom, China Mobile, and América Móvil, made up one such group. Comcast, Time-Warner, Disney, and a few other multimedia conglomerates possessing troves of programming and tens of thousands of copyrights presided over a second. A third segment encompassed a handful of large, dynamic Internet intermediaries, from Google and Apple to Alibaba (McChesney 2013).

Relations across and within these three segments were volatile. As this was written, proliferating over-the-top services for voice, video, and other communications were enabling the big Internet intermediaries to pounce on conventional media offerings, rearranging what had been long-engraved distribution channels. Apple, Intel, Netflix, and Google, the latter already much the largest Internet video company through its ownership of YouTube, were each moving to introduce over-the-top video channels (Stelter 2013a, B1, B6; 2013b, B1, B6). Because, however—akin to cable, satellite, and broadcast distributors—online video distributors turned out to require professionally produced content, they also needed to cut deals with the seven media conglomerates that still control around 95 percent of U.S. TV viewing hours (GOA 2013, 6–7).

Voice-over-Internet (VoI) applications proved even more disruptive. Cross-border traffic routed by Skype (purchased by Microsoft in 2011) grew by 45 billion minutes in 2010, 47 billion in 2011, and 51 billion in 2012: that is more than twice the volume added during this interval by all of the world’s phone companies combined (TeleGeography 2011, 2012, 2013a). In just five years, Skype became the world’s largest supplier of cross-border voice communications, with more than one-third of all international telephone traffic (TeleGeography 2013a). This cut to the bone of the market for conventional telephone service, jeopardizing gigantic infrastructure investments and impelling network operators to find means of integrating with—or charging more to carry—these and other Internet applications.

The recomposition of communications around Internet technology, however, spanned beyond disruptions to existing markets. The continuing dynamism of Internet systems, services, and applications signified that leading Internet intermediaries were trying to coordinate not a one-off shift, but an ongoing transition whose character and limits remain substantially open-ended. In close relation with corporate and organizational users, as well as with consumers, suppliers advanced three interrelated programs of development.

Cloud computing—distribution of content and of software as a service from centralized data centers—was the first. With precursors going back to 1960s-era plans for a computer utility, cloud computing is a model for distributing data, software applications, and automated labor services to users wherever they are located. Much of this innovation was occurring within major businesses, which adopted private cloud services in search of added efficiencies. A second initiative cohered around the so-called Internet of Things: arrays of sensors are being embedded in roads, industrial plants and equipment, and consumer goods—and all of these appliances are being assigned unique Internet addresses to enable machine-to-machine communication. (Devices connected to the Internet are expected to outnumber human users by 10 to 1 within just a few years [Cortada 2011, 10].) Surging market growth for smartphones and other handheld computing devices likewise continued, alongside a prospective take-up of smartwear such as wristbands, glasses, and watches (Nuttall 2013, 7).

The volume of data produced as an adjunct of these different types of machine-to-machine and human-machine interaction increased, and became omnipresent. To capture and manipulate it, a third initiative took shape: Big Data, which centered on the analysis and feedback of data into products and services. Predictive models received intensive cultivation (Cain Miller 2013b, A1, A3); and companies from Amazon to IBM invested billions in data analytics (Lohr 2013, B9).

The Internet industry’s “colossal public relations machine,” as one journalist called it (Glanz 2013, 5), was set in overdrive to popularize these initiatives. Prospectively more important, however, were the online product lines that were being readied for Internet distribution: in education, cultural heritage, biotechnology, and medicine. The Internet’s function as a critical business infrastructure was thus matched or even surpassed by its importance as a site of commodification, that is, as a site of new industries capable of generating profit growth.

And, across the entire landscape of Internet systems and services, U.S. companies built up such a comparative advantage that what I call digital capitalism (Schiller 1999) itself became a lopsided construction.

Aggregate figures tell the story. U.S. expenditures on ICTs in 2010, at $1.2 trillion, exceeded those of China, Japan, the UK, and Russia combined. This skew was likely to persist, because the U.S. accounted for more than half of global ICT research and development spending. A high-level 2013 U.S. report underlined, finally, that “The United States captures more than 30 percent of global Internet revenues and more than 40 percent of net income” (Negroponte and Palmisano 2013, 9).

This did not mean that digital capitalism was uncontested; sometimes, though, even the competition was U.S.-based. Unquestionably, search engines were dominated by Google, but with the extension of navigational services to mobile devices and with search functions becoming embedded in e-commerce, competition from Apple, Amazon, and others was escalating (Cain Miller 2013a, A1, A4). Google’s lead in digital advertising met competition from marketing super-groups, as well as from Facebook and Twitter; Google’s Android mobile operating system won a firmer hold after it was taken up by Samsung—which also began to match Apple in its take of the global profits generated by smartphones and tablets (Bulard 2013, 1–3; Garside 2013; Dilger 2013). Microsoft reaped disproportionate earnings from PC operating systems, but as PCs gave way to other computing platforms, Google and Apple bulked larger here, too. The same transition to mobile devices saw Qualcomm supplant Intel as the leading chipmaker (Nuttall 2013, 14). Throughout much of the world, consumer e-commerce was channeled through Amazon (which also led in cloud services); however, China’s Alibaba was poised to be a competitive threat going forward. Transnational supply of corporate routing equipment was led by Cisco, but China’s Huawei was snapping at its heels. Facebook’s billion users friended one another in 70 languages (Facebooknol 2009). Oracle competed with SAP for business software, while IBM morphed into a top purveyor of computer services and data analytics. U.S. multimedia companies, typically active in publishing, film, recording, and television, continued to straddle the world market. U.S.-headquartered companies were not only leaders in supply, finally, but also in demand and application: from Wal-Mart to General Electric, U.S. corporations had built transnational network-based systems and applications that aspiring rivals found difficult to surpass (Nolan and Zhang 2010).

As battles over Internet markets continued to unfold, however, the movement of the transnational political economy was shaped not only by corporations but also by states.

In a trend that heightened as a result of the economic depression that began in 2008, Internet systems and services constituted a rare and much-coveted pole of economic dynamism. This fact conferred on the Internet a profound political importance.

States vied with one another to set the ground rules for the development of Internet industries. Businesses turned to political intervention, hoping to accomplish what they had not able to via private market interaction.

I turn now to consider some of the resulting patterns of political engagement.

Despite years of rhetoric about the virtues of market freedom, historically the U.S. Government had been the most important structuring force behind the Internet. Not only did U.S. military contracts underwrite the research and development on which the Internet’s underlying technology is based; not only did the Government supply an unrivaled market for Internet equipment and services; not only did the U.S. contrive policy through which to privatize the Internet’s backbone networks (Abbate 1999). The U.S. Government also played a crucial role in the migration of the sales effort—advertising, marketing, and e-commerce—to the Internet during the 1990s. Close coordination between the upper echelons of the Clinton Administration and U.S. business, as Matthew Crain (2013) shows, enabled the World Wide Web’s assimilation into the commercial media-marketing system. The installation of lax privacy strictures allowed technical innovations—cookies—to be introduced and widely deployed, empowering marketers to track consumers as they surfed online. The Internet thus morphed into a “surveillance engine,” as Wikileaks’ Julian Assange later called it (2012), as a consequence of deliberate policy. Only the U.S. Government’s active support enabled business to incorporate the Internet so fully into its sales effort.

The U.S. also established the Internet as an extraterritorial system with the United States itself as its hub. By brokering, or at least facilitating, agreements to exchange data traffic between organizations sited in different countries, and by ensuring that the agencies charged with managing critical Internet resources (unique identifiers, including autonomous system numbers, generic domain names, and Internet addresses) were accountable to its own Executive Branch, the U.S. Government helped establish a U.S.-centric Internet.

U.S. power over the Internet is not comprehensive; it is also opaque. Formally, this power is expressed through legal contracts that bind a nonprofit contractor—a California corporation called ICANN (as well as a shadowy for-profit U.S. company called VeriSign, which not only manages the dotcom franchise but also manages crucial Internet address system functions) to the Commerce Department. A key part of its attempt to downplay its structured relationship with U.S. state power has been ICANN’s much-heralded “multi-stakeholder model”: multi-stakeholderism confers formal representation on corporations and civil society groups as well as governments, but absents Internet governance from the sphere of multilateral institutions. A comparable veneer obscures the activities of the Internet Engineering Task Force (IETF), an independent organization charged with developing Internet architecture and system engineering and possessing no formal obligations to U.S. authorities. IETF operations are sheltered behind an ideological cloak of neutral technocratic expertise, supposedly cut free of corporate or state interests. The organization, however, is disproportionately staffed by employees of U.S. companies and U.S. state agencies. Can it be inconsequential that (data from 2007) 71 percent of the 120 specialized working groups whose remit is to improve Internet technology were chaired by individuals from the United States, while developing country representatives counted for 6 percent of this total? Or that nearly four-fifths of these experts were employed by private companies such as Cisco Systems (Mathiason 2008, 36)?4 As Milton Mueller (2010, 240) sums it up, the coordination and control of today’s extraterritorial Internet add up to “unilateral globalism” exercised by a single superstate: the U.S.

Even as it became institutionalized during the 1990s, this skew gave rise to political contention. Foreign states—Brazil and China were prominent—pushed to alter existing arrangements. Some asserted that the cost structure, the technical features, and the management of the Internet prevented them from exercising their own jurisdictional authority over national political-economic and cultural space. Some recognized that the U.S. preemption of the extraterritorial Internet hindered, even foreclosed, profitable participation by non-U.S. interests along what had become a decisive frontier of economic growth. The appearance of unilateral U.S. power seemed to signify an absence of comity with respect to global Internet governance. The conflict simmered, and periodically boiled up. At the World Summit on the Information Society between 2003 and 2005, unhappiness was transmuted into concrete initiatives; but these efforts stumbled in the face of U.S. recalcitrance.

The U.S. Government continued to make a privileged U.S. role in cyberspace a cornerstone of its economic diplomacy. Resisting attempts to place oversight and management of the Internet in multilateral organizations, the U.S. instead tolerated merely cosmetic changes to the existing U.S.-centric system. Concurrently, U.S. authorities campaigned to defend and, if possible, to extend U.S. businesses’ already massive exploitation of transborder data flows (TDF).

The U.S. had engaged TDF controversies concertedly throughout the 1970s and early 1980s, in response to threats made by Western European and Third Worldcountries to restrict the uses made by big companies of transnational computer networks (Schiller 1982, 1984). By the time the Internet exploded on the scene in the 1990s, effective limits on international data flows had been mostly repulsed or, where this proved necessary, finessed. (Some U.S. trading partners, notably the EU, instituted data protection policies that needed to be—and were—worked around.) Heightened dependence by transnational companies on a technologically dynamic Internet, however, portended further conflicts over TDF.

The U.S. sought to outflank prospective resistance to this technological transition. Again, a covering shield was used, as the Executive Branch resurrected the “free flow of information” rhetoric that had stood service for decades in draping hard-edged U.S. economic and strategic interests in an appealing language of universal human rights (Schiller 1976). A proceeding launched by the U.S. Department of Commerce in 2010 provided clues to this application of the policy, and also revealed an overarching corporate consensus behind it. In announcing its inquiry, the Commerce Department underlined how the ongoing movement toward centralized data centers would be essentially contingent on unrestricted flows of proprietary data: “The rise of globally-accessible cloud computing services—everything from Web-based mail and office productivity suites, to more general purpose computing, storage and communications services available through the cloud—raises a new set of questions regarding local restrictions that countries may impose on services accessible, though not physically located, in their country” (DOC 2010, 60071).

Respondents included the membership of the United States Council for International Business (USCIB): “top U.S.-based global companies and professional services firms from every sector of our economy, with operations in every region of the globe.” USCIB expressed an avowed “user orientation.” It sought to elicit U.S. Government aid in helping to counter “restrictions on collecting, using or transferring personal information, encryption regulations, restrictions on location or sensor-based information, quotas on digital content among others.” It specifically aimed to repel foreign government polices that might “preclude companies from gaining the economies and efficiencies of global platforms.” Service providers must not be compelled to store or process data in any and every country, “effectively requiring local investment and placing data under local jurisdictions” (USCIB 2010). Another big trade association, TechAmerica (2010, 1–2), this time representing ICT suppliers, expressly singled out a need to safeguard emerging cloud services. “As cloud computing continues to grow, so, too, will the amount of data crossing national borders. If divergent claims to jurisdiction over user content remain then it becomes quite difficult for providers to manage their legal obligations and their global technology operations while at the same time protect their customers” (TechAmerica 2010, 7).

This policy demand for unrestricted proprietary data flows garnered support from a great array of corporations. “As the software industry moves increasingly to a cloud computing model, where software and IT functionality is delivered to customers over the Internet,” stated the Business Software Alliance, “the imperative to reduce barriers to cross-border data flows becomes clear. A key element of the economics of cloud computing is the unrestrained ability to move data and workloads wherever the computing resources to service them are available” (Holleyman 2010, 6–7). Global harmonization was needed to support unrestricted data flows and, as the Entertainment Software Association disclosed in its submission, implementing free trade agreements could contribute to this goal (ESA 2010, 3, 7). The Computer & Communications Industry Association underlined that, “When we discuss the global free flow of information over the Internet, there are potentially trillions of dollars of U.S. economic activity at stake.” To elevate the status of digital goods and services into “a central feature of our trade policy,” the multilateral framework of the World Trade Organization and bilateral free-trade agreements alike would be needed (CCIA 2010, 2, 22–23). In their individual submissions, vendors including Microsoft (2010, 1), eBay (2010), and Google concurred. Google (2010, 15) expressly rejected any assumption of jurisdiction over the Internet by other states, such as through multilateral intergovernmental agencies like the UN-affiliated International Telecommunication Union. Declaring that it had invested “tens of billions of dollars” to supply global IP services covering 159 countries to 98 percent of Fortune 1000 businesses, Verizon (2010, 1, 2) went on to agree that “the U.S. government’s international advocacy should continue to promote a single, global, interoperable Internet that is free of government restrictions that interfere with the ability of informed consumers to drive continued development of services and content.” However, “different policies and national operating requirements” threatened Verizon with “country-specific” fragmentation. This jeopardized not only Verizon’s profit strategy but also those of its transnational enterprise customers, who “demand a uniform set of integrated services from a single supplier.”

Policies to ensure unrestricted proprietary data flows thus constituted a fundamental general demand by transnational businesses, including both users and suppliers of the Internet. This, however, did not guarantee that U.S. “unilateral globalism” over the Internet would persist.

The structure and policy of the Internet instead became sites of wrenching political conflict, as inter-state opposition to the status quo widened. The demand to make global Internet governance a formal multilateral undertaking turned into a majority position at a meeting of the International Telecommunication Union in December 2012—a meeting from which the U.S. delegation walked out (Schiller 2013, 6). Midway through 2013, a task force report to the U.S. Council on Foreign Relations affirmed that “A global Internet increasingly fragmented into national Internets is not in the interest of the United States,” and suggested that “by building a cyber alliance, making the free flow of information a part of all future trade agreements, and articulating an inclusive and robust vision of Internet governance, Washington can limit the effects of a fragmenting Internet.” However, the report conceded that “The trends do not look good” (Negroponte and Palmisano 2013, 13, 67 [emphasis in the original]). U.S. policies had begun to seem brittle—even stale. In a blog post review of the Council on Foreign Relations report, a U.S. expert asked: “Has the U.S. run out of ideas about Internet governance?” (Mueller 2013) A U.S. academic conference in June 2013 accorded serious attention to the idea that a “federated Internet” in which different national Internets were somehow linked might soon supplant the existing U.S.-centric extraterritorial system (CITI 2013).

It was in this context that Edward J. Snowden’s disclosures about NSA spying on the world’s peoples made their sensational appearance. News stories in London’sGuardian newspaper in June 2013 reverberated through the world’s press, and cascaded into public opinion. As awareness of the U.S.’s singular power over the Internet finally burst into widespread view, it also crashed into international politics and diplomacy (Kelley 2013).

Within days, France found new footing for its longstanding “cultural exception” policy—which aimed to protect music and film from U.S. transnational media conglomerates—as it insisted that the EU should reserve the domain of audiovisual culture from Trans-Atlantic Trade pact negotiations (Fontanella-Khan and Politi 2013, 2). Within weeks, Snowden’s revelations were figuring in German electoral politics (Eddy 2013, A5). Across the Atlantic, a Washington, D.C. policy group convened a meeting to discuss “digital trade policy,” on the assumption that the U.S.’s “widespread, clandestine surveillance of digital communications … will likely have an impact on the ability of the U.S. government and tech sector to fight back against anti-competitive policies, such as server localization, that impede the global free flow of information while potentially legitimizing countries who wish to engage in such practices” (ITIF 2013). Might states place restrictions on transborder data flows? Might data protection policies be strengthened, to compel network services offered within a national jurisdiction to be stored on local servers? In early August, the president of Argentina, allied with representatives of Mercosur countries, denounced U.S. espionage at the United Nations, and issued calls to reinstate multilateral accountability (Stea 2013). The U.S. Obama Administration reverted to crisis management (Savage and Shear 2013, A1, A11).

The furor erupted over U.S. Government surveillance programs, but the underlying issue was actually U.S. corporate and state power over the extraterritorial Internet. The long-standing international conflict over the Internet’s skewed structure in turn became freighted with new contingency. In an insurrectionary world, the question of how the Internet might be restructured—and with what ramifications for business—was not only increasingly palpable but also vital.

Notes

This article includes material drawn from my forthcoming book, Digital Depression: The Crisis of Digital Capitalism.

1. The most recent year for which official statistics are available is 2011.

2. Thanks to Shinjoung Yeo for this reference.

3. Set up as a unit in Hibernia’s so-called Global Financial Network, Project Express was supported by $250 million in financing from a three-year-old joint venture between Chinese network vendor Huawei and Britain’s Global Marine Systems—long the largest global operator of cable ships (Business Wire 2011). However, as U.S.-China tension mounted over cyber security issues in 2012 and 2013, the U.S. Government used its large, lucrative contracts with key U.S. carriers as leverage to force Hibernia to suspend work on the cable (TeleGeography 2013b).

4. Thanks to Hong Shen for this reference.

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This article includes material drawn from my forthcoming book, Digital Depression: The Crisis of Digital Capitalism.

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