Marketplace Will Bridge Digital Divide

Copley News Service, 06/16/2000

Desktop and hand-held computers and Internet technology, wired or wireless, have reached American households and businesses faster than any other technology in the past century, reaching 50 million people in just a few years, according to the Pacific Research Institute.

The debate about the so-called “digital divide” between high-tech haves and have-nots ignores the real issue, however: the lack of wealth-creating opportunities and access to capital in our inner cities and depressed rural areas. I call this the “access-to-capital divide.”

The spread of technology is shaped by invention, supply, demand and opportunity. Many folks in government are looking for a digital-divide problem to solve when they should be reforming taxes, lowering interest rates, and removing regulatory barriers that stifle economic activity in poor urban communities all over America.

Vice President Al Gore asserts, “We will never make the most of the Information Age when the average black household is only two-fifths as likely to have home Internet access as a white household.”

Yet most people get on the Internet at work or at school, where there is little disparity in access. The growing availability of free and bargain-priced PCs, including online computing appliances at only $99, further demonstrates that manufacturers and Internet service providers have a strong incentive to target lower-income households. In fact, Scott Mills of Black Entertainment Television’s says that African-Americans are expected to increase their Internet usage faster than any other group of Americans this year.

So why do we need a lot of government programs designed to do what private enterprise, including folks like Larry Ellison, Bill Gates and Steve Case, are doing? The more the private sector closes the digital divide, the more government feels compelled to get involved.

A multitude of proposals from the administration and Congress seek to subsidize Internet growth that is happening already. The government’s subsidy checkbook will soon be followed by the government’s regulatory hand in matters such as online privacy, taxes and access fees, content controls, and antitrust regulations as with Microsoft, Visa and MasterCard.

Government rules, orders and regulations won’t speed the delivery of Internet services to less-affluent Americans, they’ll slow down the natural evolution of e-commerce and reduce the quality and range of services everyone has a right to expect. New government intrusions will widen the capital divide while doing nothing to close the digital divide.

We can’t let that happen. As Internet service becomes a fundamental of daily life, so it will become a basic feature of every household, without new government interventions. The Heritage Foundation’s Adam Thierer points out in “How Free Computers Are Filling the Digital Divide” that the market for Internet services is changing so fast that the divide will be paved over with so many new options that we’ll wonder what all the fuss was about.

This isn’t just a matter of lower PC prices, but of new ways of delivering more broadband capacity at lower prices, online services offered as a workplace benefit, the spread of cheap “Internet appliances” geared to Web use only and much more than we can imagine.

This is what happens when market forces take command. Entrepreneurial initiative will flourish in the inner cities and every job-deprived community if the government restores the rewards for working, saving, investing and starting businesses. High tax rates, tax compliance costs, work rules, zoning, regulatory burdens and poor education impose barriers to entry on anyone trying to start a business or create a new productive enterprise. High interest rates create a kind of government-induced redlining that blocks entrepreneurs and prevents capital from working its magic for the people who need it the most. We must end redlining and begin green-lining urban ghettos and barrios from East Harlem to South Central Los Angeles.

I agree with AOL’s Steve Case, who wrote recently, “There has always been a gap between the ‘haves’ and the ‘have-nots’ in our society. The question is whether the powerful forces of the Internet revolution and the global economy are going to widen that gap or close it.”

We need a true empowerment agenda so capital flows from the pinnacle of the economy down to every worker and potential small business in America. We need tax reform that eliminates the penalty on capital that results from taxing it two, three, four and five times, letting more seed capital flow to promising start-ups in our urban areas. We need to let workers build their own assets and create their own wealth by placing a significant portion of their Social Security taxes into personal retirement accounts.

The Internet is a new way of doing business, communicating, socializing, educating and spreading ideas faster than ever before in history. The Internet is becoming the new public square, and it must be accessible to everyone. We can only hope it will also open doors to opportunity by reducing economic friction, even as government adds so much friction of its own.

Jack Kemp is co-director of Empower America and Distinguished Fellow of the Competitive Enterprise Institute.