Internetworkers: http://www.ibiblio.org/internetworkers/

["Ruby Sinreich" <rubyji AT metalab.unc.edu>]

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COUNTER THE CYBERNETIC WAL-MART EFFECT

by Richard E. Sclove sclov- AT loka.org
    
     [NOTE: The following essay is adapted and reprinted
with permission from the _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,
        Another piggy shopped online from home,
        The second piggy paid no sales tax,
        So why do both feel disempowered and alone?
    
     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.

                            ****

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.