Loka Alert 7:1 (29 March 2000)
From: "The Loka Institute" <Loka@loka.org>
Please Repost Widely Where Appropriate
COUNTER THE CYBERNETIC WAL-MART EFFECT
(Loka Institute Article in The Christian Science Monitor, March 28th 2000)
"This little piggy went to market,
Another piggy shopped online from home,
The second piggy paid no sales tax,
So why do both feel disempowered and alone?"
Friends & Colleagues:
A vigorous debate has emerged in the USA on whether purchases made via the Internet should be exempt from sales tax. The debate encompasses the concerns of businesses, consumers, and public servants -- just about every perspective except that of citizens. In this Loka Alert (adapted from an op-ed in The Christian Science Monitor), Richard Sclove explores the implications of tax-free e-commerce for democracy and civic life.
This is one in an occasional series on the democratic politics of research, science, and technology issued free of charge by the nonprofit Loka Institute. TO BE ADDED to the Loka Alert E-mail list, or to reply to this post, please send a message to <Loka@loka.org>. If you send us a substantive reply, let us know if we may repost your note to one of Loka's online discussion forums. IF YOU ENJOY LOKA ALERTS, PLEASE INVITE INTERESTED FRIENDS & COLLEAGUES TO SUBSCRIBE TOO. Thank you!
(I) "COUNTER THE CYBERNETIC WAL-MART EFFECT" (from The Christian Science Monitor) .............................(2-1/2 pages)
(II) A NOTE ON TAXING E-COMMERCE..............(1-1/2 pages)
(III) FURTHER READING & ACTION STEPS..............(1/2 page)
(IV) INTERNSHIPS AT THE LOKA INSTITUTE...........(1/3 page)
(V) ABOUT THE LOKA INSTITUTE.................(1 paragraph)
by Richard E. Sclove <Sclove@loka.org>
[NOTE: The following essay is adapted and reprinted with permission from The Christian Science Monitor, 28 March 2000, p. 11 -- available online at: http://www.csmonitor.com/durable/2000/03/28/fp11s1-csm.shtml
[The essay is excerpted from a longer forthcoming study by Richard Sclove entitled "CYBERSOBRIETY: How a
Commercially Driven Internet Threatens the Foundations of Democratic Self-governance, Some Ways Sound Public Policies Could Help, Why They Won't Be Adopted, and What To Do Instead." A future Loka Alert will announce the availability of the complete Cybersobriety study.]
This little piggy went to market,
With annual online sales projected to soar above $1.4 trillion in the United States by 2003, Congress is debating whether to limit taxes on purchases made via the Internet. Last fall the House resolved -- 423 to 1 -- that there should be a worldwide ban against levying special or discriminatory taxes on electronic commerce. Senator John McCain and house majority leader Dick Armey propose permanently exempting e-commerce from existing sales taxes. Critics charge that the loss of revenue to state and local governments would endanger schools, roads and other essential public functions. The debate encompasses the perspectives of public servants, businesses, and consumers. But how about that of citizens? What would tax-free e-commerce mean for democracy and civic life?
Very possibly it could mean the same thing the proliferation of Wal-Marts and megamalls has meant for Main Streets: demise, though no one intended it. Suppose a Wal-Mart store locates on the outskirts of a town, and half the residents start to do one-third of their shopping there. That means they do two-thirds of their shopping downtown, while the other half of the population continues to do all its shopping downtown. Although all the residents still patronize Main Street for the bulk of their shopping, downtown retail revenue drops about 16.7 percent -- enough to start killing off the shops. This is a perverse market dynamic -- a loss to the entire community that not a single person wanted. It is self-reinforcing and eventually coercive; once the downtown starts to shut down, people who preferred shopping there have no choice but to switch to Wal-Mart. Systems theorists explain this kind of unwelcome, coercive and extreme outcome as the result of a "positive feedback loop." That is, the output of a process (some residents opting to shop Wal-Mart on occasion) circles back into the original process as input (a smaller, less- diversified local economy), generating more output (more people compelled to patronize Wal-Mart more and more often).
A little generates more, more generates a _lot_ more. Systems with positive feedback loops can easily burst limits and grow cancerously.
To social scientists this is a "collective action problem": an example of reasonable individual actions that together add up to a socially irrational outcome.
An emerging Cybernetic Wal-Mart Effect -- as more commerce goes online -- threatens to aggravate this dynamic. It works just like the regular Wal-Mart Effect, except more powerfully and pervasively. Increasingly, local businesses are not just competing with a mall on the outskirts of town. They are now up against the entire global marketplace.
Brick-and-mortar Wal-Marts mainly threaten mom-and-pop retail shops. But online commerce is spreading into every sector of the economy, including local manufacturers, business suppliers, and service providers such as travel agents, lawyers, stockbrokers, and accountants. A few of them may thrive by going online themselves, but they are the exceptions. In general, the economies of scale involved in enticing a viable customer base to a Web site will overwhelmingly favor a few deep-pocketed, very un-local enterprises.
If we think of ourselves solely as consumers, this isn't necessarily a problem. While local economies wither, the Internet should enable consumers to enjoy access to a wider range of goods and services, in some cases at lower cost.
But the catch is that we're not simply consumers. We're also family members, friends, local community members, and workers. From the standpoint of democratic society, above all we are citizens.
As consumers, we always ask, "Is this the best deal for me?" But as citizens we must ask, "Does a Cybernetic Wal- Mart Effect serve the common good? Does it further our fundamental interest in preserving and improving the character of our democracy?"
These are criteria overlooked by most analysis of online commerce, which considers Internet tax issues from business and consumer perspectives, but never from a citizen or civil society perspective.
From a democratic citizen's perspective, e-commerce with its coercive Cybernetic Wal-Mart Effect is problematic. My online shopping contributes to shrinking the local economy, forcing you to go online when local business alternatives are no longer available.
Eviscerating a local economy weakens local cultural and community vibrancy. That's bad in its own right, but worse for democracy. As social bonds weaken, people relinquish mutual understanding and the capacity for collective action. Those are essential conditions for a workable democracy.
At the same time, undercutting local economies increases local dependence on national and global market forces and on decisions made in faraway corporate headquarters -- powers over which communities have little or no control. As the locus of political intervention shifts to distant centers, the influence of everyday citizens declines.
A refusal to tax e-commerce amounts to a public sanction of this anti-democratic shift. But there's a simple way to maintain a healthy balance between e-commerce and local business, between sometimes perverse market forces and the social good:
Tax online and mail-order catalog sales. But grant some of the revenue back to municipalities to invest in their local economies and community life (e.g., sidewalk benches and trees, parks, playgrounds, public toilets, public theater, musical performances, local meeting halls, museums, and so on.) If necessary, another portion of the revenue could be rebated to low-income citizens, to offset any danger that such a sales tax would have a regressive socioeconomic effect. [See Supplementary Note, below.]
Our judgments as citizens need to consider but also transcend our narrower interests as consumers. When it comes to public policy and the common good, our citizen-selves ought to be sovereign over our consumer-selves.
If our consumer-selves say "yes" to sheltering e-commerce from taxes and shrug at the Cybernetic Wal-Mart Effect that will assuredly follow, are our citizen-selves prepared to live with the civic consequences?
ABOUT THE AUTHOR: Richard Sclove, research director of the Loka Institute <http://www.Loka.org>, is the author of the award winning book Democracy and Technology (New York and London: Guilford Press) http://www.Loka.org/pubs/book.htm and also the senior author of Community-Based Research in the United States, http://www.Loka.org/CRN/case_study.htm.
Colleen Cordes and Steve Kent contributed helpful comments on earlier drafts of this essay.
(II) Supplementary Note: ON TAXING E-COMMERCE (by Richard Sclove)
The public policy rationale for imposing a sales tax on e-commerce is simple and compelling: as detailed above, commerce that is highly delocalized entails some fundamental social and political harms ("negative externalities" in the economists' lingo) that are not reflected in market prices.
A tax on e-commerce and mail-order catalog sales would offset this market failure, resulting in a more culturally and democratically vibrant society and in the preservation of a wider range of lifestyle options (inasmuch as the tax would preserve the options of cybershopping _and_ of participating in a complementary face-to-face social and economic life.)
In contrast, current U.S. public policy irrationally encourages a Cybernetic Wal-Mart Effect by exempting many out-of-state purchases from state and local sales tax.
Imposing a sales tax on e-commerce would, of course, go against the prevailing U.S. anti-tax ethos. For instance, critic Sara Baase has charged that such taxes would involve "a huge degree of coercion, restricting the freedom of both businesses and consumers." (See her article "Impacts on Communities: Comments on Sclove and Scheuer," in _Computers and Society_, Dec. 1997, pp. 15-17, available online at http://www-rohan.sdsu.edu/faculty/giftfire/community.html
There's a small kernel of truth in Baase's assertion: none of us love paying taxes. But it seems a bit overwrought once one recalls that the famous rallying cry of the American Revolution was "no taxation without representation," not "all taxation, even if established by our elected representatives, is tyranny." Taxes, after all, make it somewhat more expensive to engage in certain activities, but don't prohibit them.
More importantly, Baase considers impacts of e-commerce on "businesses and consumers," but not on citizens -- that is, not on democratic values, practices, and institutions. This is a common but nonetheless astonishing omission in contemporary public policy analysis. Democracy, after all, is not just another, ordinary consumer good (like corn chips or underarm deodorant) and it is not an arbitrary lifestyle option. Democracy is a first-order social value -- a necessary condition for being able to decide fairly what other considerations, besides democracy itself, to take into account in determining public policy.
Potential impacts on democracy warrant a central place in any public policy analysis. When policy analysis omits impacts on democracy, it's like a restaurant review detailing the menu, price range, location, ambience, and service without ever mentioning that people have been known to contract fatal diseases from eating food served there.
The tax that I propose differs from conventional income, property, or sales taxes in being targeted specifically to activities that will otherwise produce basic social and democratic harm. In that sense it is akin to "sin taxes" or "green taxes" -- taxes targeted to reduce harmful social or environmental effects.
Like green taxes -- and this too is a key point that Baase fails to grasp -- a tax on e-commerce can help preserve and expand treasured and essential social options. Green taxes do so by helping to preserve nonrenewable resources, clear air, clean water, parks and other green spaces, wilderness areas, fragile ecosystems, and endangered species.
In an analogous way, the taxes that I espouse would help preserve personal choice and freedom, local economies, community vibrancy, face-to-face conviviality, civil society, and the tradition of democratic self-governance.
(Indeed, if the revenue from these taxes were to grow appreciable, it might become practicable to offset them by reducing conventional income or property tax rates.)
Extending Baase's crimped logic into the domain of environmental politics, we would find ourselves arguing that green taxes -- by making it more expensive to pollute -- are "astonishing in their casual denial of freedom and choice." That's not a position I would choose to defend.
Baase poses a simple, no-brainer choice between (a) paying taxes -- an activity that she defines as coercive - versus (b) voluntarily using the Internet and accepting the personal consequences.
Unfortunately, that is not the actual choice we confront. The real choice is between (a) paying somewhat more when using the Internet for commercial purposes versus (b) gradually losing the option of participating in many customary and pleasurable offline activities -- including activities fundamental to democratic civic life.
(III) SUGGESTIONS FOR FURTHER READING + HOW TO TELL CONGRESS YOUR OPINION ABOUT TAXING E-COMMERCE
Several recent news stories about current U.S. politics regarding the taxation of e-commerce -- with links to additional information -- are provided at the bottom of the online Christian Science Monitor version of Richard Sclove's "Cybernetic Wal-Mart Effect" op-ed: http://www.csmonitor.com/durable/2000/03/28/fp11s1-csm.shtml
Taxing e-commerce is, of course, not merely a policy issue for the United States. In fact, Bill Clinton's presidential administration and the U.S. House of Representatives both favor a _worldwide_ ban on special or discriminatory taxes on e-commerce. Many U.S. government policy documents related to e-commerce are available online via http://www.ecommerce.gov.
The U.S. Congress will be debating and deciding the future of e-commerce taxation over the coming months. If you are a U.S. citizen, THIS IS A GOOD TIME TO LET YOUR SENATORS AND CONGRESSMAN KNOW YOUR OPINION ABOUT TAXES ON E- COMMERCE AND PRESERVING/REVITALIZING DEMOCRATIC CIVIC LIFE.
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