Support the New Tax Moratorium

The arrival of electronic commerce means that all the trappings of business-investment capital, shopping, bidding, buying and selling (in short, money)-are flowing more often over networks. Not just over big networks between established centers of trade but also smaller network capillaries that connect to your desktop computer, your phone and your local-area network.

And because payments as well as information are moving through these networks, the e-commerce economy is liable to be much more complicated, erratic, spontaneous and sensitive than before. It's likely to move fast and suddenly dry up, and just as suddenly return for a while and then whisk off someplace else again.

What does this mean for local elected officials? Well, last fall, when some of the world's financial markets started sinking, the word "contagion" was thrown around a lot. In a matter of hours, financial panic literally hopped from one Asian economy to another, all the way to Wall Street and then to Main Street. While this type of panic has swept through markets before, last fall it seemed a little different. At that time, it behaved more like a virus, transmitted instantaneously via the emerging global e-commerce network. Investors and capital abandoned the economies of Southeast Asia literally overnight.

I heard it remarked at the time that capital will go where it is well-treated. In the e-commerce environment, capital can determine quickly those markets, countries, industries and jurisdictions that treat it well and abandon just as quickly those areas that do not.

Consequently, the economic survival of individual communities will become more and more dependent on the development of local economies that support a free flow of capital via the e-commerce network.

We are now operating a kind of mainframe-based economy. Like old-fashioned computer architectures, the old-fashioned economy is very hierarchical and stovepiped. There are islands of automation or commerce, like Wall Street or the Chicago futures market, but capital moves between them only via very sophisticated protocols.

What is emerging today is an Internet-based economy that is very horizontal, protocol-independent and layered. Everybody pays; everybody plays. In the Internet-based economy, hierarchies exist, but access is universal. Any community, from Dodgeville, Wis., to Austin, Texas, can develop into a big commercial center.

In the Internet economy, local elected officials are like network administrators, making sure the economic local-area network issuing the most up-to-date technology is running open protocols and that all users-not just the sophisticated ones-have access. Local officials have influence over architecture, budgets and who gets on the network.

That's why I think it's important that local officials support the Internet tax moratorium until some rational system of assigning local tax revenues is agreed upon. The failure to do so will create an economy in which e-commerce-based investment--the foundation of your future tax base--is likely to run from your city just as fast as it ran out of Southeast Asia last fall.

Paul McCloskey

Editor

civic.com

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