[PEN-L:9744] NET LOSS- Ebook on the Web

["Nathan Newman" <nathan.newman@xxxxxxxx>]

Hi folks,

I've done a revision of my diss on the economics of the Internet and put it
up on the Web.  Here is the URL link, summary of argument and chapter
outline.

Any feedback would be greatly appreciated.

Please Repost

--Nathan Newman
======================================================================

NEW BOOK ON THE SOCIAL AND ECONOMIC IMPLICATIONS OF THE INTERNET,
                     PUBLISHED ON THE NET AT:

             http://socrates.berkeley.edu/~newman/

   +==============================================================
                       NET LOSS:
               GOVERNMENT, TECHNOLOGY AND THE
   POLITICAL ECONOMY OF COMMUNITY IN THE AGE OF THE INTERNET
   ===============================================================
                    By Nathan Newman, Ph.D.
       Contact at:   nathan.newman@xxxxxxxx


     Where does technology like the Internet come from? Why is it so
identified with specific regions like Silicon Valley?  Why does new
technology seem so associated in the public mind with both personal
empowerment for some people and economic insecurity and growing
powerlessness for others?  And what is the best government policy for
promoting technology and equal access in the new economy?

     What confuses all these questions is the dynamic interaction
between government, technology and the regions that are shaped
and in turn reshape both technology and economic policy alliances.
And nowhere has this dynamic been more confusing than in the case
of the Internet, a technology directly planned and funded for decades
by national government in Washington, DC, yet associated most in
the public mind with garage startups in Silicon Valley.  Even as
technology companies have digested billions of dollars in technology
subsidies from the government, we hear new words like
"cyberlibertarianism" coined by Internet enthusiasts.

     This book, NET LOSS: GOVERNMENT, TECHNOLOGY AND THE POLITICAL
ECONOMY OF COMMUNITY IN THE AGE OF INTERNET helps make sense of this
historical and ideological jumble.  It highlights the process by which
government guided the creation of the Internet and the regions most
associated with the technology, even as the forces unleashed by the
Internet have in turn reshaped and constricted government technology
policy to the detriment of the broader public.

OVERVIEW

The Internet has emerged as the focus for much of the strongest
hype and substance in debates on the new economy.  It has become
the defining economic event of the end of the 20th century - a fact
reflected by the obsessive media attention and to the raw economic
explosion of companies associated with it.

     The Internet is seen as the metaphor, even the embodiment, of
the new information age, of a post-industrial economy, and of a new
paradigm in workplace and company organization.  Information in this
view, rather than raw materials, have become the substance of commerce
and the Internet is the highway of the new era.

      Most strikingly, the Internet is seen as the herald of the
globalization of the economy and the triumph of a deregulated
marketplace.  In this vision, the economics of place have given way
to telecommuting, global production and just-in-time delivery of
goods and information from all points on the globe.  In such a world,
economic regions become an oxymoron as the economy becomes a matter
of bits and e-mail in cyberspace, not transit and meetings in local
space.  The "Third Wave" in this scenario leaves economic regions
as the archaic leftovers of the industrial age.  Governments, those
stalwart institutions tied to such geography, become impotent and
unimportant in this new global information society.  Yet on the face
of it, it's nonsensical to argue that new information technologies
like the Internet show the irrelevancy of national governments and
economies.

     The Internet is one of the crowning achievements of central
government in the last few decades--planned over decades, funded
by a series of federal agencies, and overseen by a national network
of experts.  And its success is not merely an exemplar of technical
achievement but is also an exemplar of the efficiency of government
planning over purely private economic development.  In the absence
of the open standards of the Internet developed and promoted by the
federal government, almost all analysts admit that the private vision
of toll road information services promoted by industry would not have
created the surge of explosive economic innovation we are currently
seeing around the Internet.  It is only with the success of the
Internet (and the profits to be made) that industry is now decrying
the interference of government in information access.

     The most striking counter to the vision of global placelessness
is the very existence of Silicon Valley, the region most associated
with the rise of the Internet.  If any region were to collapse on
the wave of cyber-communication, it would be Northern California's
"hotwired" Silicon Valley.  Contrary to what some might expect,
Silicon Valley not only survives but is thriving, expanding and
even consolidating its role as the geographic focus of a supposedly
geography-free revolution.  From network router companies like 3Com
to Web tool makers like Netscape to the multimedia upstarts of San
Francisco's "multimedia gulch", new companies in Northern California
seem to be refusing to let geography die its proper death.

     The simplest connection between government policy and regional
strength in places like Silicon Valley is that the government itself
designed its technology policy to favor small regional companies,
which in turn favored the emergence of regions like Silicon Valley
where small firms without bottomless corporate resources could
complement each other with services and products.

     The subtlety is in the range of policy tools used by the
government in promoting such small-firm innovation, including funding
university research that could easily spin-off new firms, requiring
second sources for defense contracts, promoting public technology
standards with which small firms could cheaply integrate new products,
and supporting aggressive public purchasing regimes to favor desired
technology.  Silicon Valley firms that would be at the heart of its
commercialization, such as Sun, Cisco and Oracle had all gotten their
start based largely on selling to government agencies.  Or, as in the
case of Netscape, such firms would raid the talent of the government
centers that built the Internet to commercialize government-created
software like the Mosaic web browser and servers.

     In evaluating the role of regional economies, then, it is
critical to see them not as initiators but respondents to national
and global economic policies.  All of these policies both encouraged
innovation and a technology regime favoring smaller firms in specific
geographic spaces.  But at a deeper level, the vibrancy of the Silicon
Valley regional economy is not in defiance of globalizing trends
due to the Internet but that regional strength was in many ways the
precondition for the triumph of the Internet.

     Fundamental technological change like the Internet requires
more than the introduction of new products; it requires fundamental
transformations in a whole array of mutually supporting institutions,
goods, services and standards that must all advance together.  While
this can happen between people and companies in different places,
the organic trust and interaction of those living in the same region
has always been a key factor in such broad-based technological
advancement, whether in the car industry in Detroit or in the
financial districts of Wall Street.

     But the end product of this kind of technology policy is not
just new technology but a reshaping of politics governing the economy,
first in shaping the local economic spaces directly targeted by
government policy, then, as technologies like the Internet take on
national significance, in reshaping national policies themselves.
Even as outside federal investment was the basis for regional
expansion, there have subsequently appeared internal economic dynamics
that are critical to how the economy functions in the context of the
new information-based technology, especially in its relationship to
regional politics and the more general global politics of control of
an industry.

     The very "lock-in" of regional dominance raises the issue of
what regions do to either hold onto that dominance or what they fail
to do that may let such an advantage fade away.  As critically, the
new dynamics of regional economics highlight who has power within
such regions and who loses out as regional economies change under
the impact of technology.  As Internet commerce took off, its business
leaders increasingly fought any government policy seeking expanded
access for the broader public for fear that would undercut business
opportunities.

     Even when sharing physical geography, companies have found
increasing need for new political and social relationships in the form
of business-to-business consortia in order to regularize technology
exchange and get political agreement on standards.  This in turn has
reshaped local politics in places like Northern California in ways
that link elite professionals together in a new kind of suburban
"gated community" of innovation.  Especially as the federal government
withdrew from coordination of Internet standards, innovation in places
like Silicon Valley was increasingly tied to global technological
needs.  However, this elite version of cooperation leaves little need
for serious concessions to the needs of non-elite workers in a region.

     Despite the ode to "small business" as the engine of jobs, such
globally-oriented startup companies are tied to global corporate
policies that end up promoting overall policies that increase
inequality within regions.  As wages rose in the Silicon Valley areas,
housing and other costs rose even faster for the average workers, just
as poverty rose rather than fell with the overall prosperity of the
region.  For most workers, the Silicon Valley boom has given little
sense of security but rather, with the rise of temporary agencies and
the rise of contingent employment for as much as 40% of workers, a
sense of the ephemerality of growth.  Even as elite engineers invest
the dividends of IPOs for their long-term security, other workers
watch continual outsourcing of lower-end jobs erode any sense of
stability.

     The Internet itself is much like the utility networks of the
past where great fortunes were made and political battles were fought
to assure the widest possible access.  Integrated public utility
networks and cross-class growth coalitions had defined the social
space in which Progressive reformers in the early part of this century
had built modern local government in line with regional economic
management goals.  However, as the Internet industry has built its
"gated community" and elite economic networks selectively connect rich
suburbs and professional urban enclaves across the globe with the most
advanced technology, poorer communities and urban sections have been
left with little more than virtual dirt roads.

     We are seeing new ideologies of privatization and corporate
servicing by local governments that end up doing little or nothing
for the general population.  Instead, cities and towns are pitted
against each other in an endless competition to spend what little
resources they have serving those with the most capital, while eroding
democracy to make government services one more set of amenities that
corporations choose from in conducting branch site selections.

     At the most basic level, the invisible regional geography of
communication serves to polarize already existing economic and racial
divides as cities rush to support business with public networking
goods.  Technology investments in schools end up overwhelmingly in the
hands of more privileged communities as business finds concentrated
support for schools in their suburban enclaves a more cost-efficient
approach than general revenues for all schools.

     And just as networking has eroding firm barriers separating
firm from firm, the Internet is helping to blur the lines between
government and business.  Global firms scoop government contract
bids off the Net as local services become merely part of the business
plan of multinational corporations.  Conversely, government services
respond ever more precisely to the demands of those businesses
operating in the region, whether in expediting construction permits
electronically or the wholesale marketing of government data for the
benefit of firms doing business in the area.  At best we see local
governments seeking to extract small economic concessions for the
wholesale benefits they deliver in their desperate recruitment of
business.

     In outlining the emergence of the Internet, my book illustrates
the way government shapes new technologies and regions while in
turn being itself reshaped by the new economic forces unleashed.
This has meant the rise of cyberbusinesses pushing for government
to cede control its management in favor of private profits, often
at the expense of both the needs of the technology and of equity
in local and national economies.  If there is a saving grace to this
grim trajectory, it is the hint of new organizing by community groups
in creating their own global alliances to begin to even up the global
power balance.  It is this new system of local community organizing
combined with global networking that is defining the ongoing politics
of the new global economy.

BACKGROUND OF THE AUTHOR

     My goal in writing this book was to address many broader social
and economic issues often ignored in the hype around discussions of
the Internet.  It is informed by many of the best economic analyses
of technology, combined with my own expertise as a policy advocate
around the new technology.  The goal is to present a sober, contrarian
analysis of the overlooked economic and sociological roots of the
Internet revolution and its grimmer implications for the economic
have-nots left out of its revolution.

     This ebook manuscript is based on a Ph.D. dissertation approved
by the Sociology department at the University of California at
Berkeley in 1998.  I was a Jacob Javits Fellow at Berkeley from 1990
to 1991 and a National Science Fellow from 1991 to 1994.  From 1992
to 1996, I was co-director of UC-Berkeley's Center for Community
Economic Research (CCER) where a major project was analysis and policy
work tied to the emerging Internet.  Part of our work was training
community non-profits and union members in use of the new technology
which contributed immensely to the books insights on the disparity in
technology resources emerging in the new economy.  This built on my
own personal history before graduate school as a union organizer and
policy advocate.

      I published a number of articles and working papers on these
technology issues at CCER, partially incorporated in the manuscript.
The working paper I produced back in 1995 on the rising threat of
Internet commerce to local sales taxes was the first major report
highlighting this danger and received national media coverage,
including republication in State Tax Notes and a revised version
published in the April 1996 Technology Review at MIT.  I was also
an invited speaker at the annual convention of the California
State Association of Counties and at the Association of Bay Area
Governments.

      From 1997 to 1999, I was Project Director at NetAction, a
non-profit technology policy organization where I wrote extensively
on the issue of technology and the threat Microsoft has posed for open
standards on the Internet.  In January 1998, I was asked to testify
at a special California state legislative hearing on the future of
technology networking in the state university system.  In my roles
at both CCER and NetAction, I have been interviewed by publications
including The New York Times, the Washington Post, USA Today, The
Nation, CNET's News.Com, WiredNews and have appeared on C-SPAN and on
CNet's The Web television show.

CHAPTER OUTLINE

CHAPTER 1: This chapter lays out the basic argument of the book while
placing it in the scholarly and public debate over the evolution of
technology.  This chapter outlines the many different facets of the
discussion around government, technology and regional development:
the role of public initiative in its formation, the rise of
Internet-related regional districts in places like Silicon Valley,
the Internet's use as a globalizing communication and production
tool, the need for physical infrastructure around its deployment and
the coinciding regulatory changes, its emergence as a new marketplace
for exchange that has the potential to undermine traditional
geography-based consumer (and taxing) markets, and the rise of the
counter-organizing by grassroots organizations using the Internet to
link up with other activists worldwide.

     CHAPTER 2: This chapter outlines how the Internet evolved as one
of the foremost examples in decades of how public initiative creates
the basis for the creation and expansion of industry.  Through funding
from national agencies ranging from the Defense Advanced Research
Projects Agency (DARPA) to the National Science Foundation (NSF),
the federal government in association with state universities and
research centers across the country created the original backbone of
the Internet and pioneered the networking technology to make it work.
As importantly, it created the standards and protocols that created
the trust extending far outside the original research community that
allowed for the exponential growth in the Internet.  It would leverage
public space and volunteer energy, a classic use of civic networks,
to create a stream of free, quickly shared innovation.  The success
of the government-created Internet over the proprietary standards of
corporate behemoths like Microsoft or IBM is in many ways a classic
illustration that open standards are the key to innovation and growth
in an industrial sector.

     But beyond the creation of the Internet as a public good, the
government's "embedded" relationship with the emerging networking
industry was a key factor in leveraging government innovation into
explosive economic activity.  Many of the founders of this new
industry, as in preceding generations of computing innovation, would
get their initial training on the government payroll or through
government contracts, expanding the pool of talent while inculcating
them in the values of open computing standards.  As well, a
substantial number of the initial networking companies started life as
government spin-offs or contractors.

     The Internet's existence would counteract proprietary networking
strategies, notably by Microsoft, and thereby open the possibility
for a wide range of companies to compete based on innovation around
these public standards.  The last part of the chapter examines the
privatization of much of the management of the Internet in the early
1990s and the dangers raised by allowing particular industry players,
again notably Microsoft, to attempt to subvert open networking in
favor of proprietary standards backed by market power.

     CHAPTER 3: If the Internet is a classic example of public
initiative and its embeddedness in economic development, its
relationship to the concentration of Silicon Valley economic firms
is paradigmatic of how public initiative works through regional
collaboration.  From its earliest days when railroad money from the
federal government flowed into the region, the area now known as
Silicon Valley has been shaped and reshaped by federal investments.
Research labs at both Stanford University and the University of
California at Berkeley, both increasingly supported with federal
funds throughout the 20th century, would play a key role in directing
funds, talent and coordination of innovation in the region.  World War
II and its aftermath would create a proliferation of defense contracts
that would build a computer industry literally in the fields and
orchards of the area.  As importantly, close relationships between
universities, federal research labs and industry leaders would
increasingly shape the collaborative and entrepreneurial network of
firms in the region.

     Out of this environment emerged many of the Internet visionaries,
notably Doug Engelbart whose Augmentation Research Center would be
one of the key labs in the 1960s from which would emerge many of
the key computing and Internet innovations.  Key to both the personal
computing and Internet revolutions of the 1970s was the bubbling civic
energy of the region derived from a unique combination of government
investments, entrepreneurial zeal and anti-war, counter-culture
civic networking.  In rather direct ways, that civic energy would be
channeled into economic networking that would build a commitment to
shared knowledge and open computing standards.

     In turn, the federal government would intervene in computing
markets to reinforce open standards around which Silicon Valley
firms would build their businesses. One notable example would be Sun
Microsystems, founded by Stanford and UC-Berkeley graduates trained
within the community of early Internet pioneers, which would promote
the government-backed open operating systems and Internet standards
in every computer they would sell throughout the 1980s.  Other Bay
Area companies, from the Internet router company Cisco Systems to
Netscape to database-maker Oracle would build their businesses tied
to government contracts and standards.  With that base of innovators
tied to these open standards supported by the government, a vibrant
collaborative network of Internet companies would explode and lock in
leadership for the region as the Internet itself expand exponentially.

     However, as the federal government has withdrawn from strong
intervention to assure open Internet standards, it has become a
more open question whether that collaborative model will survive
as companies merge to face off against the strength of vertically
integrated companies like Microsoft seeking to dominate through
proprietary approaches.  The withdrawal of strong government-backed
Internet standards may be hastening the erosion of the Silicon Valley
model.

     CHAPTER 4: With the configuration of new industries in Northern
California, from software engineers to networking companies to
multimedia content providers, the question then becomes whether the
character of these Internet-related firms will resemble a regional
industrial district model or more closely follow a corporate
"strategic alliance" model with weak regional roots.  The Internet
itself adds in a whole new factor to that question since it itself
enhances the globalizing trends that information technologies have
been accelerating.

     Contrary to what some might expect, Silicon Valley not only
survives but is thriving, expanding and even consolidating its role as
the geographic focus of a supposedly geography-free revolution.  What
makes the region worth examining in this context is the consciousness
of many firms of the fragility of their region's success.  Under
pressure of the California recession of the early 1990s, leading
local technology companies formed a consortium called Joint Venture:
Silicon Valley to address a wide-range of fears around technological
collaboration. With federal funding for a number of its initiatives,
the consortium would launch a whole range of civic initiatives
spanning the public-private divide.  A number of these initiatives
involved Internet company collaborations through consortiums with
such names as Smart Valley, CommerceNet and the Bay Area Multimedia
Technology Alliance (BAMTA).  The results of this endeavor are in many
ways a natural experiment for studying the relationship between civic
energy and the formation of industrial districts in the context of the
Internet.

     The success of these initiatives has been overwhelming in the
view of the participants, so much so that companies from around the
world, including Cable & Wireless, Olivetti, the European Union bank
and Toshiba have joined as members.  And this latter fact is the rub.
What started out as regional consortia rapidly shed their specifically
local orientation in favor of global networks.  Where CommerceNet
was formed initially as a way to electronically link suppliers
and contractors locally over the Internet, the primary interest of
participants rapidly became the use of the Internet for marketing
goods to global customers.  CommerceNet and BAMTA quickly evolved into
forums for creating strategic alliances and expanding the worldwide
market on the Internet, rather than a network for strengthening
regional ties around production. Northern California was increasingly
seen as a useful enough concentration of skilled workers and
innovative firms for corporations from around the world to seek to
establish relationships there.

     Yet these regional alliances in Silicon Valley are tied to a
form of civic networking and business-to-business consortia that go
far beyond traditional market relationships.  Looked at in the context
of other regional consortia, such as SEMATECH and MCC in Texas and
the hundreds of other multi-firm research-oriented consortia around
the country, the explosion of Internet companies in Silicon Valley is
recognizably the creation of the social capital highlighted by a range
of theorists.  Local regional collaboration becomes a key mechanism
for developing cooperation around industry-backed technology standards
that need the day-to-day interaction to sustain themselves versus the
proprietary strategies of global competitors outside the consortia.

     The Internet itself is an active force in shaping whether firms
deal more closely with local firms in Northern California or whether
it ties them more easily into global production systems.  While many
in Silicon Valley see the Internet as strengthening the informal
communication and exchange that has made the region such a powerhouse
in innovation, others see it making non-local intellectual and
commercial exchange easier between Reich's symbolic analysts.
Projects developed by CommerceNet are seeking to create standards
for computerized Internet databases that can substitute for the
informal specifications of local contractors in favor of seeking
the best global partner for supplies, which has obvious implications
for eroding the traditional advantages of regional collaboration.
The growth of the Internet also promises more development of software
in "virtual industrial districts" in cyberspace as tools are developed
to strengthen the illusion of proximity for collaborators at long
distances.  Already, simple coding of software is entering world
commerce with India leading in this function.  With the Indian
government building teleports in key cities, all that is needed
are systems for easily specifying design specifications for coding
and other support to become much more common using the Internet.
In the end, the collaboration achieved by the consortia is focused on
marketing strategies and knowledge exchange that may benefit the elite
engineers of the region (for whom electronic communication enhances
local collaboration) but has little to do with the overall health of
the region.

     Information technology opens the possibility of telecommuting
from home and expanding the effective physical radius for those who
need come to work only a few times a week, but in the end this emerges
more as a coping strategy for elite engineers who need not face
the inadequate physical infrastructure of gridlocked roads that the
"unwired" face due to an underfunded public sector.  The Internet
thereby becomes a further tool for the secession of the elite from
that decaying public sector.  Additionally, it makes affordable
housing less of an issue since engineers can comfortably live in
cheaper suburbs farther from the firm when they need only come into
work a few times per week.

     And this leads to the dark side of concentrated economic power
and its regional effects that Harrison documents from Italy to studies
of Silicon Valley: of dual labor markets, of peripheral inhabitants
bypassed by "flexible" conditions, and a general squalor of public
infrastructure.  This is reflected in the fact that while Joint
Venture: Silicon Valley started with broad goals around strengthening
the local infrastructure of the valley to the benefit of both industry
and local communities, by the end of the 1990s its focus revolved
around technical alliances, business incubation and making local
government more pliable to the needs of business.  Instead of
broad cross-class civic collaborations, you have a new politics
of business-government relations focused on collaboration between
elite engineers and corporate leaders as the new basis for regional
development with little regard for or involvement by less skilled
workers in the region.

     CHAPTER 5: Along with federal funding, a large source of
funds for Joint Venture and its associated consortia have been the
traditional regional anchors of economic development in Northern
California: California banks like Bank of America, the regional power
company Pacific Gas & Electric and the local telephone company Pacific
Bell.  Yet their participation has not had the effect of tying the
consortia efforts into broader economic development, a fact reflecting
that these "anchors" are increasingly global market players in hot
competition with competitors both within the region and outside it.

     Notably, all three companies are in network-based industries
whose functions are rapidly converging with the Internet itself and,
as noted earlier, have seen the regulatory regime under which they
operate radically changed.  Earlier banking, telecommunications
and power utility regulatory regimes were dedicated to the idea
of spatially-bounded markets where companies would be encouraged to
expand access to their networks with pricing models allowing them to
recover the fixed costs of those investments With the geographic scope
of their markets limited, it was in their self-interest to participate
in economic develop that maximized growth in every sector, rich and
poor, within that region.

     The new "reregulation" regime has created a constant tinkering
with market rules that undermine regionally defined markets in favor
of national and global competition where companies concentrate on
richer, high-profit customers while short-changing investment in the
broader public infrastructure on which lower-income families depend.
Bank of America and Wells Fargo, the largest California banks, have
become increasingly global in their aspirations and have seen Joint
Venture and its associated consortia as a way to help set standards
for dominating cyberbanking in the future. Power utilities are now
buying and selling energy wholesale in national spot markets over the
Internet and, more recently, within the state on Internet-based power
exchanges.  All of this is cutting power costs for business customers
while shifting costs onto residential customers and taxpayers.

     Most critically for the Internet itself, the breakup of AT&T
and market competition in telecommunications has ended the mandate
for equal access to telecommunication services as the variety of
business services available has exploded and the price for basic
residential access has climbed precipitously.  Despite the rhetoric
of "deregulation", a range of telecommunications rules mandate
competitive behavior in the field, most dramatically in the
requirements that mandate that local phone companies allow
interconnection to any other telecommunications business without
requirements that those businesses necessarily pay to support the
network as a whole.  The most dramatic example of this are Internet
Service Providers themselves who, due to early regulation in the
1980s, have had subsidized access to the telephone infrastructure
while paying almost nothing for its maintenance.  The result, as in
the banking and power industries, has been economic subsidies for
business and upper-income residents (the main users of such Internet
providers) as lower-income residents trapped in local geography have
had higher bills and a neglect of the basic infrastructure they depend
upon.

     Politically, the outcome has been a whole series of national and
local regulatory battles as to what constitutes an "ideal" market in
each networked industry. Instead of regional anchors whose private
interest is geographically bound to the public interest of regional
development, we have a whole set of arrangements that are jury-rigged
to police against predatory pricing, compensate for defunct
infrastructure, mandate interconnection between different services,
and provide sporadic measures for assuring that rural and the poorest
customers are not completely dumped out of the system.  Many market
evangelists have called for doing away with subsidies for the poor
altogether (while maintaining the regulatory regime that subsidizes
business) and dumping the responsibility for assuring universal access
on local governments' welfare budgets. Even as subsidies for business
interconnection to networks would remain implicit in public policy,
the subsidies for the poor would be laid out as a line item in budgets
ripe for political attack.

     CHAPTER 6: As economic allies of local government retreat into
global competition, the costs of assuring access for the "information
have-nots" are increasingly shifted from the networks directly onto
public budgets.  This is hard enough given almost two decades of
cuts in national government subsidies to local government and tax
restrictions such as Proposition 13, which themselves responded to
earlier waves of global speculation in housing markets.  All this has
weakened the fiscal strength of city governments.  However, Internet
commerce itself is threatening to itself further undermine local tax
revenues.

     Local government and economic development has always depended on
a virtuous cycle where income generated in a region tended to trickle
down through local retail purchases that in turn generated sales tax
revenue to continue public initiatives to support production.  Now,
as commerce increasingly moves onto the Internet, there is a large and
growing portion of that income spent on untaxed out-of-state purchases
which further incapacitates local government's power and stability.
Mail order sales have been a growing drain on local revenues for
decades but the Internet through computerized outreach, online
showrooms and growing online transactions have made it easier for
companies to dispense with the local stores or personnel that would,
under interstate commerce laws, trigger local sales tax payments.

     The result, especially in states like California where local
governments depend on sales tax, has been a desperate competition
for the remaining retail outlets.  This has introduced a terrible
distortion of economic development patterns as cities bid for
successive waves of retail, from suburban malls to "big box" discount
retailers to "call center" retailers marketing through mail order and
the Internet to the rest of the country.  Rather than targeting local
spending on infrastructure, education or research networks, most local
governments are desperately handing out tax subsidies in the desperate
competition to influence the location decisions of these outlets.
Instead of regional cooperation around development, regions end
up with a nasty zero-sum competition that fragments development,
especially as rich communities "opt-out" by retreating to separate
gated communities with their own services and no burden of paying
for services for the poor.  In an increasingly global consumer
market and systems of production tied to global decision-making, it
is increasingly clear that fractured local governments have neither
the revenue nor the political strength to negotiate real economic
development deals for their citizenry.

     CHAPTER 7: Despite the fiscal and political pressures on local
governments, many are heralding the Internet as the opportunity to
decentralize political decision-making and strengthen civic networks.
With the highest concentration of Internet access in the country, the
Bay Area has been talked about as a "beta site" for a new electronic
democracy.  The unfortunate reality has been that despite broad access
to the Internet, its public "Information Superhighway" can best be
described in John Kenneth Galbraith's phrase of "public squalor amidst
private affluence."

     Networked technology is driving a restructuring of the physical
infrastructure of regions that is not only heightening inequality
but is driving dramatic restructuring of the functions of local
government. The modern professional government was a child of
Progressive Era reform that itself was largely a product of the
need to coordinate and extend the new public water systems and
utility networks of their day.  As those networks fracture, so
too is coordination between local jurisdictions as they seek to use
competing telecommunications systems, from hardware to Web sites, as
a competitive advantage in attracting businesses from other locations.

     In an age of information, it is ironic that the budgets of
local, state and even federal agencies are so strapped that many are
discontinuing the collection of key areas of public information, even
as they could be distributed to the public most effectively.  This
leaves information control in the hands of private companies. In the
cases where information can't be collected effectively by private
companies, public leaders like Pete Wilson's Chief Information Officer
John Flynn have pushed to have agencies sell it rather than give it
to the public free.  In this way, private companies are able to rent
the coercive power of government to collect the information for its
own needs that it could not collect on its own.  In many cases where
governments are putting government economic information online, such
as government purchasing or contract information, this is threatening
to undermine the informal local economic development control cities
had through targeting local business who were the only one's who found
it worthwhile to track local bid information.  Many local governments
on the Internet see it mostly as a global advertisement to attract
business investment.  With Smart Valley's main focus on assisting
government's on-line presence in order to speed government permitting
of industry projects, this has meant that support for local government
from industry has focused on making communities in the region more
pliable to the needs of industry.  And this has usually meant
concentrating support on the richer communities where the companies
are based.

Many local and state government agencies are intensely interested
in using the Internet to assist job placement by the unemployed or
underemployed.  California actually has an extensive electronic system
connecting its many local and regional employment offices with use of
e-mail prevalent across the state. However, this does not translate
easily into simpler job placement of the unemployed, mostly due to
the fact that, while the unemployed register their availability for
work, employers are under no requirement (and show little inclination)
to list job openings for marginal workers electronically.  Whether
because of racism or convenience, employers resist efforts to make
their hiring practices more open to marginal communities seeking
employment for through such systems. Lacking either the union strength
or the legal ability or will, local governments end up not pursuing
the measures that could use the new technology more aggressively for
the unemployed.

     All this in turn highlights that local regional actors have
much less role in the development of their regions that the global
corporate giants and the nation-state governments that create the
underlying rules, implicit subsidies and public investments that
create opportunities for regions to prosper.  And given the dark side
of flexible production on peripheral employees and the unemployed
in the new economy, a stronger role for that nation-state level of
government is even more needed.  For many local governments and their
lobbying associations, the strongest power of the Internet is to more
effectively unite local municipalities to lobby for state and federal
legislation they see needed to maintain services in their communities.

     CHAPTER 8: This final concluding chapter examines the above
arguments in the context of the national debate over political
and economic decentralization in our society.  What is clear is
that the contradictions between elite regional business networking
and global production create a broad confusion over what level
of economic and political organization is most critical in the
new economy.  As nation-state mass production systems give way to
networked enterprises, a political opening was made for ideologies
of decentralization that, while espousing grassroots political
empowerment, end up strengthening the power of global corporations
versus local governments without the resources or power to negotiate
as equals.

      However, even as this rather bleak story unfolds, there is a
counter-trend of grassroots organizations using the new networked
technology, particularly the Internet, to strengthen their power at
national and international levels.  Even as the Bay Area has been a
center for promoting networked technology for global corporations, its
parallel history as a source of radical civic energy has manifested
itself in the regions support for global electronic networking. The
union of janitors in Silicon Valley firms like Apple and Oracle have
used electronic networking not only to tarnish the images of those
"model" employers but have used the technology of the Internet to
directly inform and influence the attitudes of the engineers whose
offices they cleaned each night.  Hotel unions have used the Internet
to distribute boycott information globally and even target the
stockholders of computer companies like Powersoft to pressure those
companies to keep corporate business out of anti-union hotels.  Unions
nationally are increasingly using the resources of the Internet to
build solidarity and strengthen their organizing drives. With local
power undercut by global corporations, more and more organizations
are using the new technology to build the global alliances that,
perversely, are seen as the only way to preserve local sovereignty.

     What this all promises is a growing struggle in the workplace and
in urban politics over both the positive and negative trends of the
information age.  As global companies create strategic alliances using
the human resources of a region, labor and community organizations are
beginning to marshal the tools of information technology to organize
contingent workers pushed to the fringes of economic and political
power.  The growth of the Internet embodies a broad change in the
urban space where control of time and communication, especially to
resources and people outside one's region, is becoming the ongoing
and critical issue in local power, making semi-permanent local growth
coalitions a thing of the past.  Instead, while internal regional
alliances will remain crucial, local power is inevitably flowing to
those who can use the new information technology to deploy global
power for local control of resources.

end