A couple of months ago, I wrote a post posing the question of whether or not more government regulation is required in order to secure the Internet. On the one hand, anonymity is viewed in the west as a forum for freedom of speech. The anonymity of the Internet allows dissidents to speak up against unpopular governments. However, the anonymity afforded by the Internet is not so much by design as it is byproduct of its original designers not seeing how widespread it would eventually become.

The subject line of my post poses the question of whether or not we need more government regulation of the Internet, and what that regulation would actually entail. The libertarian position is essentially one that says less government interference (or action) in our lives is the optimal solution. While there is a proper role for government—such as military, police and courts (protection of private property and personal rights), when it overstretches that boundary it invariably leads to bad things: clamp down on the rights of its own citizenry, and inefficient bureaucracy that drives up the costs for everyone. If left to itself, private enterprise will step in and fix the problem by coming up with innovative solutions because of the profit motive. By providing something of value both sides win: private enterprise makes money, and citizens have a problem solved; all of this without government intervention.

In the United States, and some other countries, capitalism is seen as the solution to many of society’s problems and government interference/regulation is seen as a barrier. But capitalism is also viewed as not being enough to deal with the reality of every day life. Even today, with BP’s oil spill in the Gulf of Mexico in Louisiana, there are politicians on both side of the aisle claiming opposite things: more government regulation is needed to prevent future disasters vs current government regulation caused this disaster (since beachgoers don’t want to see oil derricks, legislation has been passed to force companies to drill in deeper water which is a far more risky endeavor).

The market solution has merit if there are market driven opportunities. On his blog The Gates Notes, former Microsoft Chairman Bill Gates has a few FAQ’s about what his foundation is doing to combat the problems of world health issues. One question he received is the following:

Question: You say that you want to help all people to live healthy, productive lives, but you don’t seem to be doing anything about global warming, which clearly threatens our very existence. How come you don’t care about this issue?

Answer: (snipped, read the whole thing if you like by clicking on the above link): Understanding how we’re going to change things so it will help the people who are the worst off is extremely important and it is a very interesting and difficult challenge.

I’m a believer that whenever markets can work, that’s where you will find the best answers because you’ll get entrepreneurs from all over the world who can pursue thousands and thousands of ideas in parallel. Depending on how you measure it, energy is probably the biggest market in the world. That means somebody can make a risky bet and try it, and you have clear metrics of success. So if you have a promising idea about sequestering carbon, or a cheap nuclear plant, or solar photovoltaic, you can get the capital to build plants, to hire people, and to demonstrate whether it works at scale.

This is perfect for the marketplace. But it’s not something any foundation should try to do. In the areas that the Bill & Melinda Gates Foundation focuses on, it’s where you have diseases that don’t exist in the rich world and so the research dollars aren’t there because there’s no market-driven opportunity.

In other words, according to Gates, market solutions work when there is potential for profit. His foundation focuses on things where the profit potential isn’t there and that’s how they allocate resources. It truly is a charitable foundation that picks and chooses its causes carefully. Thus, while the libertarians do have a point that private enterprise can deliver solutions in a more timely, productive and efficient manner than government, the flip side is that private enterprise won’t step up where no such profit motive/potential exists… nor should they. But if they don’t and there is still a need, who steps in? Clearly, private charity can fill that void. The question that divides some people is whether government can step up and fill the rest, or even part of the rest, of it.

In the world of cyber security, there are those that believe that the Internet is too wide open to secure and that unless we start to clamp down by tracking identity, we will forever be vulnerable to cyber attacks and at the mercy of hackers. This inherent vulnerability in DNS needs to be reworked. Because only government has the authority and resources to enforce standards of security protocol, government needs to step up and take the lead action in this. Private enterprise can only take things so far when it comes to Internet security (which is true). We will never achieve the amount of security we need while the current infrastructure is as it is—and for that we need stronger regulation. It is only a matter of time before we are hit with a series of cyber attacks so strong that the nation is paralyzed (or functionality strongly impeded) and so we must take preventative action now. The free market is not good enough in this case handle the problem.

The libertarian position puts the above argument in context. The cyber threat, while real, is exaggerated. There is nobody actually out there in real life who is trying to steal our secrets. Yes, hackers are going after the Department of Defense’s secrets, but they are being repelled with firewalls and counter threats. Howard Schmidt, the new cyber czar for the Obama administration, admits “there is no cyber war.” The real problem is online crime and espionage. For that, we need to enforce our existing laws and provide better monitoring tools, but we don’t need to re-engineer the Internet to track identity. The real reason that people claim we need to do something like this is the financial motive: if the government believes that we are in trouble, they will pay a lot of money to private enterprise to help fix the problem. Since fear is a good motivator, they need to exaggerate the nature of the claims in order to convince government to take action. Not only that, tracking identity gives those in power a good way of maintaining that power.

So who’s right? Are we only a few ticks away from a cyber time bomb going off? Or does the emperor really have no clothes?