Emerging Technologies

How to think local about the global tech companies

A man peers into a closed down shop, next door to another shop holding a closing down sale, in central London February 27, 2013. Britain's economy contracted by 0.3 percent in the last quarter of 2012 as first thought, keeping alive the danger of a third recession since 2008, although yearly growth was revised up, data showed on Wednesday. REUTERS/Andrew Winning (BRITAIN - Tags: POLITICS BUSINESS) - LM1E92R1CFH01

Online retailers are often blamed for the rise in boarded-up shop fronts in cities. Image: REUTERS/Andrew Winning

John B. Horrigan
PhD, Technology Policy Institute
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Technological Transformation

Remember when futurists told us that the internet would result in the “death of distance”? Why fly to a meeting or a drive to downtown office when cheap, high quality connectivity removes the need to travel? Geography would matter less as digital connectivity advanced.

That prophecy has fallen short, as cities remain hubs for commerce and community. Highways and mass transit continue to be crowded in metropolitan areas throughout the world. Not only does geography continue to be relevant, but recent policy developments show that geography’s importance is growing.

Two contemporary issues illustrate this. The first is the digital services tax, something several European Union states are considering and one that the UK has proposed. By specifying revenue and profit thresholds, as well as business lines, the tax is designed to make tech companies bear its burden.

The tax places a levy on the revenue of services provided in a particular location because, advocates say, of a “value creation mismatch”. Users of digital services contribute to their value (when, for example, user data helps sell targeted advertising) while the profits from those services accrue to companies whose operations are elsewhere.

Advocates of the digital tax argue that the imbalance can be corrected by taxing revenues of digital services in the places where tech companies provide them. The tax puts geography into the tax code for tech companies in a new way.

For one, the tax steadies a local tax base that may be eroded if tech companies supplant local service providers. Why shouldn’t tech companies, like local service providers, support the municipal services that enable customers to be productive and communities to thrive? After all, many people blame the rise in boarded-up shop fronts in cities, which reduces a government’s tax base, on competition from online vendors.

The second example where location comes into play is deployment of infrastructure for 5G wireless services. These services require a dense network of antennas for transmission, as well as extensive fibre-optic networks for data transport.

Network buildout requires access to public rights-of-way in cities, and cities and carriers have traditionally negotiated the terms for access to these public assets. However, in the US, the Federal Communications Commission has passed rules that set national standards for the deployment of 5G, removing cities from the negotiating process with carriers.

Cities aren’t happy about this. They want a place at the negotiating table as stewards of public assets in their communities and as a means to fund programmes for city residents that address the impacts of broadband connectivity.

There are other examples of location-specific impacts of broadband on local communities. Ten years ago, few city officials would be asked to take meetings on the need to make their cities smart. Today, “smart cities” is a policy issue that crops all the time for mayors.

The quality of broadband infrastructure is another relatively new thing for local officials to contemplate. Some 75% of US local officials said in a 2016 survey that broadband infrastructure is a high or very high priority for them. Little wonder that many municipalities are building their own city-wide networks, notwithstanding debates over whether that is the right use of public funds.

The growing reliance on digital tools has also brought issues of equality to the forefront in many cities. That’s because poverty is often concentrated geographically. City officials have a growing awareness of neighborhoods with large numbers of people lacking online access. This has made “digital inclusion” a policy priority.

In the US, a number of cities, such as Seattle, Austin, Philadelphia, and Chicago have established ‘digital inclusion funds’ to close access gaps and help low-income populations improve levels of education and workforce readiness.

In the UK, the government has created a Digital Skills Innovation Fund to help low-income people and disabled individuals acquire training to obtain jobs that require tech skills.

Building capacity for better decisions

The growing geographic consequences of digital technologies puts new demands on decision makers at all levels of government. Bolstering their levels of expertise on these issues is clearly needed and each of the local policy issues raised above would benefit from additional analytical scrutiny.

The digital services tax, with its incidence on one sector, raises efficiency concerns. Additionally, it is not hard to imagine resourceful tax experts employed at tech companies finding ways to use an already complex tax code to skirt a new one.

Smart cities promise better service delivery, happier citizens, and more equitable communities. Do they deliver on those promises? Digital inclusion is a laudable goal, but it would be nice to know if models for inclusion that have emerged are effective and replicable.

A greater capacity for analysis of tech initiatives would be helpful but, in the US at least, there is not much reason for optimism on this front. Recent congressional hearings on Facebook and how the social platform is impacting elections and civic discourse demonstrated the limits of many Members’ understanding of digital technologies.

The result had observers calling for Congress to upgrade its technology knowledge-base. A proposal that resurfaces periodically – that Congress bring back the Office of Technology Assessment – is a step in the right direction.

The outlook at the state and local level is no better. Most large cities have offices that address cable television franchising issues, but cities’ discretion on this issue has shrunk. Cities also have officials that handle city government technology needs, but these officials do not always look at broader policy issues.

Advocacy groups, associations, think-tanks, and industry often do good work to fill these gaps, but that is not the same as cities having the internal capacity to wade through policy choices. US states had broadband planning capacity that the Obama Administration funded, but those dollars have long since run out.

Improving government’s capacity to understand technology is a long-term undertaking and it is in the interest of the tech industry for this capacity to improve. Want better decisions on the growing list of tech policies at all levels of government? Then support building expertise within government to understand the nuances of policy choices.

Such an effort should be expansive in its scope. Policymakers have to know something, not just about technology’s impacts, but also its interactions with adjacent policy fields, such as taxation, healthcare, and social services.

For tech companies, the “death of distance” has arrived, but in an ironic way. Powerful digital technologies mean that policy challenges filter down to the community level and follow tech companies everywhere.

Improving the capability of decision-makers at all levels of government to meet these challenges should be a priority for all stakeholders.

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