loka on Mon, 3 Apr 2000 17:58:37 +0200 (CEST)

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             by Richard E. Sclove <Sclove@Loka.org>

     [NOTE: The following essay is reprinted with permission from the _The
Christian Science Monitor_, 28 March 2000, p. 11 --

     [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

     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.  That dynamic, foreclosing
your option of choosing a locally oriented way of life or remaining
offline, represents an entirely involuntary imposition. 

     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

     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_

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

     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

     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 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. 

                    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: 

     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

     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,
LIFE.  To identify and contact your senators go to
<http://www.senate.com/stindex.html>.  To identify and contact your
congressman, go to <http://www.house.gov/writerep/>. 



     The Loka Institute has openings for volunteers, graduate and
undergraduate student interns, and work-study students for June 2000 and

     Interns' responsibilities include updating our Web page;  managing
email lists and listservs; conducting background research on issues
concerning science, technology, and society;  and helping with
administrative work.  Interns committing to a semester or more will have
the opportunity to integrate independent research into their internship

     Candidates should be self-motivated and able to work as part of a
team as well as independently.  A general knowledge and comfort with
computers is needed.  Experience in Web page maintenance is preferable. 
Undergraduate students, graduate students, and recent graduates are
welcome to apply.  Loka is able to provide interns with an expense stipend
of $35 per day for volunteering (or $700 per month full--time-equivalent). 

     If you are interested in working with us to promote a democratic
politics of science and technology, please send a resume and a succinct
cover letter explaining your interest and dates of availability to: The
Loka Institute, P.O. Box 355, Amherst, MA 01004, USA.  We also are accept
applications by e-mail to <Loka@Loka.org> or by fax to +1-413-559-5811. 



    The Loka Institute is a nonprofit organization dedicated to making
research, science and technology responsive to democratically decided
social and environmental concerns. Current Loka projects include:

   o The Community Research Network

   o Deliberative Citizens' Panels on Science & Technology

   o Identifying Democratic Technologies

   o Building a Constituency for Democratizing Research,
          Science & Technology

    TO FIND OUT MORE ABOUT THE LOKA INSTITUTE, to participate in our
on-line discussion groups, to download or order publications, or to help
please visit our Web page: <http://www.Loka.org>.  Or contact us via
E-mail at <Loka@Loka.org>. 


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