The Internet and the Size of Government
Fritz Hollings, Senator of South Carolina, and Zhu Rongji, Premier of China, have the
same problem -- the internet has made their governments too small. In Mr. Hollings'
case, ecommerce is threatening to damage South Carolina's local tax base, while Mr.
Zhu is facing threats to the Chinese Communist Party from dissident web sites in other
countries. They have both decided to extend the reach of their governments past their
current geographical boundaries to attack these problems. The final thing the senator
and the Premier share is that their proposed solutions will accelerate the changes
they are meant to postpone -- you can't fight the effects of the internet without
embracing it, and you cannot embrace it without being changed by it.
Fritz Hollings' problem is simple -- states can collect taxes on local sales but not
on ecommerce, because ecommerce has no respect for locality. His proposed solution
is equally simple: a 5% national ecommerce tax (the "Sales Tax Safety Net and Teacher
Funding Act") to collect money at the Federal level and funnel it into state
"subsidies" for teachers salaries. Unfortunately for him, "No Taxation Without
Representation" cuts both ways -- education policy is one of a state's most important
functions, and a Federal education tax opens the door for a Federal education policy
as well. If Hollings is worried about loss of state power, extending the states' reach
to the level of national taxation is a good short-term solution, but in the long run
it will worsen the problem -- states who defend their autonomy will watch the internet
erode their revenue base, but states who defend their revenues will watch the internet
erode their autonomy.
Zhu Rongji's dilemma is more complicated, but no less stark -- China's communist party
is vulnerable to international dissent because political web sites have no respect for
national borders. Shortly after the Chinese government banned the Falun Gong sect for
"jeopardising social stability," China's Internet Monitoring Bureau attacked Falun
Gong web servers in the US and UK. The People's Liberation Army newspaper called this
action a "struggle in the realm of thought," indicating that China now respects no
national borders in its attacks on dissent. During the Kosovo crisis, China argued
loudly for non-intervention in the affairs of other countries, but these attacks on
foreign web servers tell a different story -- non-interference in a connected world is
incompatible with a determination to stifle dissent. The Falun Gong attacks will help
protect the Communist Party in the short term, but by demonstrating to future dissidents
how afraid the Party is of the web it makes them more vulnerable to the winds of change
in the long haul.
Governments, like companies, are being forced to respond to the increasingly borderless
movement of money and ideas, but unlike companies they have no graceful way of going out
of business when they are no longer viable. In place of mergers and bankruptcy,
governments have wars and violent overthrows -- governments will do anything to avoid
closing up shop, even if that would be better for the people they are meant to serve.
This makes governments more successful than businesses in fighting change in the short
term, but in the long run, governments are more brittle and therefore more at risk.
Zhu Rongji and Fritz Hollings have both adopted old men's strategies -- preserve the
present at all costs -- but postponing change will heighten its force when it does come.
In another five years, when the internet has become truly global, the damage it will do
to things like South Carolina's tax base and the Chinese Communist Party will make it
clear that Messr's Hollings and Zhu are trying to put out fire with gasoline.