John Horvath on Sun, 18 Jan 1998 10:38:05 +0100 (MET)

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<nettime> Arthur Cordell: Deregulation, Universality and the Middle Class

Dear list,

I received a private mail in response to my posting on Nettime. I thought
it might interest the list so I'm sending it along (with full permission
of the author). By the way, I made a mistake in my posting: the person's
name wasn't Cornell but Cordell. At the end of the posting I also enclosed
a short precis about his book on the bit-tax, for those interested or

- John

   From: Arthur Cordell <>


      In the past 15 to 20 years, beginning with the airlines, we
have witnessed a profound move to deregulation just about
everywhere.  Pundits tell us that we achieve a more efficient
allocation of resources if prices are brought into line with
costs.  An added incentive to deregulate is that it will allow
business to be more competitive in the new global business arena.

      And the arguments for deregulation are correct, from an
economic point of view.  But there are other values involved, as
well as a view of community to be considered.  As we privatize
public functions, as we deregulate to cut costs and be
competitive we are undermining a way of life for many communities
as well as a way of life for many who consider themselves to be
middle class.

      Consider telephones for example. For a cluster of reasons,
pricing in telephones has been based on cross-subsidization. 
Prices were set in such a way that, subsidized by long distance,
most residential users could afford to have a telephone.  Not the
most efficient use of resources, agreed.  But in the old pricing
model, or most pricing models that strive for universality via
cross-subsidization, the outcome was one that leaves participants
feeling as though they are part of the same community.  A social
goal was met. Access was ensured.

      With deregulation and competition, cross-subsidization 
declines as a factor.  Rate structures change.  Some think the
change will be slight, others claim the change will be more
extreme, especially over time.  As residential rates climb there
will be those who can no longer afford to have telephone
connections.  Well, as the deregulators say '...get the basic
residential service rates right and take care of poor people with
direct subsidies, just as we do with food and medical care.'      
      The not-so-welcome twin of deregulation seems to the increasing use
of the means test.  People who have had access to the phone all their
lives can now either pay more for access or can do without or can do as
the deregulators suggest--apply for a direct subsidy.  Consider what this
does to our notion of community.  What happens when we create an A Team
(those who can pay) and a B Team (those who must be subsidized)?  Is it
that important to encourage market forces to such an extent that we create
a new group of people who must apply for a subsidy thereby admitting they
are part of the B Team, the growing underclass who can't pay their way? 
And what is the future for the B Team--a group that is growing in number
but losing in power.  A group that surely must be trembling when
governments in almost every jurisdiction threaten cuts here and there in
their fumbling comic/tragic attempts to balance the budget. 

        So even if, as the deregulators urge, '...we take care of poor
people with direct subsidies..,' a serious question is: Will those
subsidies continue. We all know that 'what the State giveth, the State can
taketh away.' So deregulation, besides stripping people of their dignity,
may not be a long term solution after all.

      And what about privatization and deregulation in other areas
of society?  What happens when we privatize garbage collection? 
Will those living furthest away from the land fill sites pay the
higher prices?  In a move for prices to reflect cost will a
privatized fire department (and maybe ambulance and police
service) charge more to go to certain areas of the city or
county. Or will we find that as with transportation deregulation
some areas are no longer served?  Small towns have lost air and
rail connections.  Sure, the bus and the private car can always
fill in--most times and for most people.  But what about that
sense of connectedness that binds and underpins nation and

      What about the future of a one price policy for posting a
letter within a jurisdiction?  Here too a deregulated postal
service will scream for changed postal rates since in this case
the subsidization is the opposite of the telephone system: the
local postal rates presumably subsidize long distance.  In a
Fedex world, where all postal service is privatized, what happens
to those in small communities, in remote areas?  Do we just say
sorry but it is no longer efficient to serve you any longer?  Or
if we do provide service it is at a rate that is not affordable
by most?  Or do we say, sure we can subsidize your postal service
but it must be on a case by case approach and first you have to
show that you can't afford to have postal service.

      Universality is another way of saying economic development. 
It means reasonable access to a host of services: potable water,
education K through 12, libraries--access to a social and
physical infrastructure.  Where payment for services has been
required, regulations were put in place to ensure that the high
cost areas (the small communities, the out of the way areas,
etc.) could still be served, could still be included--they were
subsidized by the payments from the low cost areas where prices
were substantially above costs.  

      Cross-subsidization underpins the transportation system in
North America.  Creation of a transportation infrastructure was a
nation-building exercise: canals, railroads, highways and an
airline system.  A way of denoting a jurisdiction, a way of
defining community.  Cross-subsidization and regulation were
harnessed to create a system where the strongest takes care of
the weakest; the wealthier subsidize the poorer.  With
deregulation we are moving away cross-subsidization.  We are
moving away from universality.  

      Our society is backing away from universality in a number of
areas.  The market agenda driven by the mantra of the need to 'be
competitive in a globalized world' is leading to an outcome that
takes us back in time.  To a time of class distinction.  To a
time of the rich and the poor.  To a time before the broad middle
class was created.  The middle class upon which so much of the
mythology of America and Democracy is based.  

      The net effect is more than damage and hardship to
communities and individuals.  We are also giving up many of the
hard-won gains of economic development.  If we are not careful,
we may find ourselves with many of the features we now ascribe to
the third world: a two-tier society, lack of universality, upward
mobility blocked, etc.

      When all is said and done.  When full deregulation has come
to pass.  When the market solution is used in all areas.  When
universality has been broken beyond repair.  What then?  We'll
have a host of people added to the underclass no longer able to
participate in everyday affairs; another group living on
subsidies of one sort or another at the whim of government budget
fiascoes; and another group--the top half or top third of the
population who will say: problems?  what problems?

      Society today is engaging in a series of small decisions. 
Step after step after step.  With each move we don't seem to
realize the consequences of our actions.  As we undo
universality, as we undo the elaborate cross-subsidization
schemes I fear we will discover that in our striving for
competitiveness and efficiency, we have undone those very 
pricing schemes that built communities and nations.  The very
pricing schemes that have helped to sustain a comfortable middle
class way of life in North America.

      Regulation and associated pricing schemes all too often seem
to be illogical.  But the intent is one where cross-subsidization
is created and endured because it serves a broader social
purpose: that of inclusion.  Deregulation and the quest for ever
more efficient market solutions poses, for me, the greater cost
(agreed one that cannot easily be measured): the risk of
exclusion.  If economics is about trade-offs, then I think we
should take a closer look at what we are trading off in the name
of economic rationality. 

      Many of the ideas and arguments of the deregulators can be
persuasive, but in our quest for efficiency, competitiveness and
preparing for globalization we should be cautious.  The gains of
deregulation may be illusory.  I suggest that when all costs and
benefits are brought together in society's balance sheet--the
social bottom line, we may find that the great privatization and
deregulation effort has been one that has created more losers
than winners and that the biggest loser of all has been the
public interest. 

Here's some info on Cordell and his idea of the bit-tax:

arthur cordell

     The New Wealth of Nations: Taxing Cyberspace.  
Between The Lines, Toronto, 1997. ISBN 1-89637-10-5
Arthur J. Cordell, T. Ran Ide, Luc Soete, Karin Kamp.

     The widening gap between rich and poor and the problems of
governments struggling to provide citizens with basic services
have been exacerbated by tax systems that haven't kept up with
globalization and the new economy.

     Managing the new economy using old tools threatens to lead
to an outcome of more losers than winners.  With the wealth from
new technology  flowing to the few, more and more people, in rich
and poor countries, worry about jobs and run faster and faster to
keep up. 

     The authors propose a "bit tax" on the trillions of bits of
information pulsing daily through digital networks.  Such a tax
would enable governments to redistribute some of the new wealth. 
Social programs can be maintained; the hard won gains of economic
development can be maintained.
     A "bit tax" can also aid tax collection in cyberspace.  With
electronic commerce, governments everywhere are concerned about
tax evasion and tax base erosion.  A "bit tax" offers a simple,
easy to administer way of collecting taxes in a global, networked
market economy.

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