The fourth wave--....
Robert J Posch Jr. Direct Marketing. Garden City: Apr 1998. Vol. 60, Iss. 12; pg. 61, 3 pgs Abstract (Summary)
 

Our future will increasingly be influenced by the cybercognizant who are creating a cyberculture with no real physical center and no government regulation. It will create the freest markets in ideas and commerce we have ever known. There will be no language barrier as software already exists to translate any length of written text from one language to another. The sales/use tax era will decline. The home will be the privacy base of netcitizenship.

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In recent columns' we have been reviewing that the Fourth Wave was no accident but, did not have to happen. The election of 1980, confirmed in 1994, altered the downward trajectory of economic malaise in the U.S. and re-engineered a nation faster than had ever been done before. The world followed.

The velocity of information compels decentralization everywhere - in every form of social unit. The decentralized state parallels the decentralized company. Desktop computers eliminate corporate hierarchies. Business was forced to reinvent itself - a process only begun. Add in flextime and telecommuting so that each corporate unit parallels each national unit - smaller and more creative people grouped around common homogeneity. As we speak, all of the former chaebols in Asia are imploding preparing these nations for Fourth Wave capital transfers, external equity investment, and eventual netcitizenship. Silly books like The Coming War With Japan can join any book by Lester Thurow, Jonathan Schell, or Paul Ehrlich as examples of the future that never has or would happen.2

America's unregulated, free flow of ideas promoting "individualism" has outmarketed, and outproduced the world, and has surpassed all other nations in the hi-tech global economy of the 1990s. America's lead will grow since few other nations are as comfortable with open access to data. Many have silly privacy laws. Some object to the U.S. commodification of culture. Others are part of imploding, artificial states.

A Dominant Cyberstate - That Exists Nowhere

Our future will increasingly be influenced by the cybercognizant who are creating a cyberculture with no real physical center and no government regulation. Yet no child will ever be born there. No buildings will be built. Few taxes will be levied, so selfserving politicians will not be elected. No borders will be drawn. It will create the freest markets in ideas and commerce we have ever known.

Don't bother looking for it on a map, because you'll never find it. Why? Because it's virtually anywhere you can find available computer memory, a modem, and a phone line.

Cyberspace Will Be A Concept -
Americans Are Comfortable With

There will be no language barriers (software already exists to translate anv length of written text from one language to another). No need for the Esperanto Movement. Esperanto was a planned language to supplement existing languages for purposes of international commerce and communication. English, the most universal language since Latin, will do nicely and it's already in place. As P.J. O'Rourke succinctly states, "English is the language of nations with prospects (and let us not forget also the language of nations with freedom)."3 The growth or fading vitality of a language is always a leading indicator vis a vis that nation's prospects.4

Consider David Rothkoff s recent argument in Foreign Polio, magazine (Summer 1997):

"It is in the economic and political interests of the United States to ensure that if the world is moving toward a common language, it be English; that if the world is moving toward common telecommunications, safety, and quality standards, they be American; that if the world is becoming linked by television, radio, and music, the programming be American; and that if common values are being developed, they be values with which Americans are comfortable."

There will be no customs imposed on these transactions so it will be a completely free market - free of tax, customs, or restrictions on speech.5 Rather than intruding on privacy, governments will be hard pressed to collect taxes from electronic cash transactions, carefully encrypted on untraceable electronic bits. If currency issues sound futuristic, then consider that when we were young no one could visualize a competitive phone company (statists argued that they were a "natural monopoly"). Since 1984, over 40 national phone companies were privatized. The shift from nation state to cyberstate will make privacy discussions seem quaint and about as relevant as the discussions held in the 1960's arguing that Marxism was an historical inevitability.6

The mediating institutions that our Founding Fathers argued for in the Federalist Papers, and enhanced in the Constitution, have long suffered abuse through legislative fiat by the Courts - a leading factor for the hyperideologized nation we witness in the late 1990s.

Justice Brennan held that a constitution is continually being ratified with each generation, and that it is up to court justices to rewrite the constitution according to their sense of the people's will today. The anarchy of egomoralist judges who misconstrue sovereignty and place their self-anointed pedestal above the very constitution that created their office are the reason for the decline of participatory democracy in the U.S. In the end, votes rarely matter.

The courts' lessening impact as national umpire due to little binding precedent in cybercommerce will see a rebirth of the mediating institution and participatory democracy in a manner to make de Tocqueville proud. Churches, clubs, neighborhoods will expand. Religious freedom is first both in order and in the logic of the liberties guaranteed by the Bill of Rights. This was partly to facilitate the varied churches, synagogues, mosques, et al provision of schools, hospitals, etc. and it was the norm during America's Second and Third Wave growth. This will be the norm again in the Fourth Wave. Andre Madraux argues directly "The 21 st Century will be religious or it will not be at all." Manuel Costell's says this obliquely, "In the 20th Century philosophers have been trying to change the world. In the 21st Century, it is time for them to interpret it differently."' This logic, coupled with the technological implications of downsizing, is an historical inevitability. Netcitizens will identify more with their freely chosen affinity group relics of the Third Wave than with statist concepts.

The Sales/Use Tax Era Will Decline

Many of us have spent years fighting off illegal attempts by the states to violate the Commerce Clause and force companies without nexus to collect taxes to finance services that these companies do not enjoy. The Internet will force a re-examination of these issues.

First, abstract reports by academics, such as that produced by the National Tax Association's Communication and Electronic Tax Project8, aren't merely inaccurate because they ask the wrong question, but also their thinking is of a bygone era. They are not focused on a world in which innovation is more important than production. Laws/tax regulations can't and won't catch up but will merely adapt or we'll have to make up new ones.

The first error by the academics is to merely assume the states need the money in the abstract. The second error of academics such as Walter Hellenstein is to assert "Any way you look at it, as a matter of principle, the tax rules for electronic commerce and non-electronic should be the same." This statement is contrary to logic and where the world is today, much less tomorrow.

Cyberspace differs from the linear world in many obvious respects that have legal significance - anonymity, equality and ease of access, greater freedom of speech due to enhanced access for all speakers, time (rather than content) is at a premium in value, lack of physical/international boundaries, as well as the sheer speed that common law is unaccustomed to.

Every second the bond markets create a continuous global plebiscite on every public institution - including government's management. Only academia could argue tax rules for a deregulated banking system could parallel the 1970s when governments could utilize inflation in controlled economics to loot the productive. To quote Walter Wriston, "Money goes where it is wanted and stays where it is well treated." In a world where time is the key, scarce commodity, states/governments that believe in extended audits/paperwork over cybertransactions are going to lose the captains of ecommerce to serious havens.

Taxing international transactions sets the stage for tariff wars that both parties have been increasingly defusing through open border treaties. At some point, too, the growing tax burden on the poor will have to be addressed to avoid social anarchy.

Sales(Use Taxes Are An Assault On The Poor

As government programs grow, they need indirect forms of taxation to recapture constituent "benefits" payments they can not pay for directly (politically unpopular) or ever cut (politically unpopular). As raids on the treasury grow, so do the tax rates and the states' desires to effectively increase the net of payors.

Sales taxes are "popular" with government because they require the retailer, not the state, to collect and remit the tax. It is no accident that such state taxes were relatively unknown prior to the New Deal.

The "services" provided are to capture voting groups by creating a dependency that is self financing through the sales and use taxes. Wealth that could be used for investment in local communities is drained to provide wealth for the administrative apparatchiks while the communities are sucked dry in the guise of compassion and the resulting problems are hidden beneath clinical euphemisms.

Consider:

1. In the last 4 years, states have lowered personal taxes by 9.9 billion.

2. Sales and use taxes were increased 12 billion (43 state hikes, not including localities).

3. Tobacco/liquor taxes (especially the former) were dramatically increased.

4. "Hidden" excise taxes on gas, phone, electric, corporate pass alongs, user fees, auto and drivers fees, tolls on roads/bridges all went up dramatically.

5. The income tax increases on social security - hitting lower income groups and start up business - again.

A pattern is clear.

Statist government pounds the poor and working class harder and harder. The burden is greater when one realizes that the poor don't have employers or side businesses of their own to shelter meals, travel, tolls, depreciation, etc. or use of office phones and other perks.

Since the cognitive elite will disappear further and further into cyberspace free tax zones, and Internet calls will greatly diminish telephone excise revenue, the states are going to downsize. This is the changing world Prof. Hellerstein et al may not want to believe is legally distinguishable, but the technology is taking away options too rapidly for any academic study commission to abstractly ponder. The Internet will challenge commerce and the taxation of commerce like few inventions before it. So will the general convergence of microelectronics, digital electronics, fiber optics, and wireless access methods.

Federal Database Marketing Sales Tax Legislation Is Dead The blurring national borders of commerce being celebrated in Foreign Policy magazine and elsewhere are a fact. Global transactions and non situs Internet transactions are an entire new epoch not conducive to parallels in the linear world in which groups like the National Tax Association are comfortable.

Yet, these groups won't overcome the traditional understandings of the Due Process and Commerce Clause which prohibits states from forcing an employer to collect sales taxes unless certain minimum standards of fairness and availment are met. The bright line test will hold and the Supreme Court's rejection of "slightest presence of constitutional nexus"9 will blur even more in global cyberspace. Cyberspace is different. The Internet is unique. An email message avails itself of no state services or resources."

The Internet is a radically decentralized medium which makes it difficult, if not impossible, to audit cyberspace transactions. Electronic commerce has dissolved the linkage between an income producing activity and geographic boundaries. The Treasury is currently favoring residence-based income taxation rather than source-based income taxation of Internet transactions and/or industry specific gross receipts taxes."

When the dust settles, the nation will evolve into consumer supported tax programs (defense, private retirement, vouchers for quality self-selected education, etc.). Statist fiat taxation through class envy or sales/excise taxes on the poor will diminish. Guilt statements such as pay your "fair share" beg the question as to what share and why it is fair? If a program is wanted, the free market will provide it. Merely using police power to confiscate earned wealth will not be a sustainable option for governments in the Fourth Wave.

For short term tax planning, the best case is the status quo. Keep doing what you're doing to avoid physical nexus. Then, carefully review your interactive contacts"2 including "click agreements" or webwraps whereby, through your mouse, you "agree" to enter a state for legal forum purposes. The technology is outrunning the ability to trace and track it. As it grows ever easier for the unscrupulous to deposit money offshore in a vast cyberspace underground economy, as well as disguise the receipt of income as a result of the electronic record fluidity, will it be due process fairness to increasingly burden the honest taxpayer?

Tax laws and underlying philosophy are rooted in geography and "physicality." Online business transcends both with no traditional "boundaries." In the worst case scenario, the in-home PC or other customer access device will be deemed equipment in the state necessary to do business. This is analogous, yet distinguishable, from Quill's de minimus software support that North Dakota thought to be nexus but the Supreme Court did not. Can a customer(s) be your agent in state? Would leasing access to an Internet Web even in another state pull you in? The money that is predicted to move to the Internet will make states desperate in their creativity.

In the interim, you can reduce your risk (but also sales) by avoiding direct solicitation to customers, interactivity, perhaps utilizing "click contract" agreements as to choice of forum, providing deliveries FOB your place of business, avoid licensing intangible property online, and utilizing forum selection clauses in contracts. Finally, digital transfer situations may be anticipated by software precedents, so review the cases and plan accordingly.

The Home Will Be The Privacy Base Of Netcitizenship

The Internet will have radical impact on the return to a home and hearth - centered lifestyle similar to what was the norm prior to the industrial revolution. The home economy is where exchanges occur through the altruistic blending of wealth and services among family members, usually independent of monetary calculation. The Third Wave industrial economy produced a cultural devaluation of the home over time since the home lost its productive significance. Telecommuting, home offices, and home schooling (consider that for much of history people were brought up by tutors, or that 1997's top U.S. speller was educated at home by her mother) are all by products of the revolutionary developments in telecommunications technology that will allow a larger percentage of today's workforce to work from home. Until recently, one did not "possess" a job - you were an artisan, farmer, laborer, homemaker, etc. With any radical shift in working relations, you are not only changing where, how, and when work is done, but our entire identity that is focused around work. This will positively improve family relations, expand opportunities for all people - especially those historically disadvantaged, and have great environmental impact as to cleaner air due to the lessening of rush hour smog creating traffic (more in a day than the vapid posturing in Kyoto would achieve in your lifetime).

This does not mean people won't leave the home for limited recreation and commerce as they always did at the guildhalls, church councils, fairs, bazaars, etc. Videoconferencing will cut back on physical attendees but greatly increase overall attendance/participation.

Information overload and the scarce time to handle it are the Fourth Wave strategic economic leverage areas. Time is the scarce resource of the Fourth Wave. If your business is meeting-intensive, you should cost out each attendee's time cost both directly and in diverted, lost opportunities of their talent. Meeting downtime will greatly decrease once this is done.

Away from home entertainment already has greatly downsized. Go to any movie theater today. It is a cramped box-sized mockery of the grandiose theaters of our youth (Radio City remains a museum of such an era) where a common filming was greeted by a large audience the way they once looked forward to the Fall seasons on the "Big Three" networks. Multiplexes and multichannels have replaced that era.

Looking Ahead

Next month we'll review Fourth Wave legal issues (electronic contracts, jurisdiction, intellectual property rights, the Bonn Declaration) and implications of the demise of states where geography/ethnicity set the parameters. Who will go to war and why? Will a virus assault on the communications infrastructure be of equal or greater weight than biological weapons are today? The U.S. Council of Competitiveness has been doing some interesting prognostications here.

The world of Fourth Wave will be radically different than the Third Wave in all cultural aspects (from culture flows law). This will develop gradually but perceptibly depending on the co-evolution of technology/public policies and corporate strategies. More rapidly will be sales growth. Enjoy them and get used to their growth.

[Reference]
Posch, Robert J. Jr., "Fourth Wave (Part I)", Direct Marketing, 2/98, p. 64 and "Fourth Wave (Part II)", Direct Marketing, 3/98. In contrast to any factually accurate, prophetic book by the late great Julian Simon.
All The Trouble in the World, Atlantic Monthly Press, 1997, p. 314. Kramer, Milton and Kimball, Roger, The Future of the European Past, 1997 (essay by late John Herrington). Reno v. ACLU, 117 S.Ct. 2329 (1997). Zaleski, Jeff, The Soul Of Cyberspace, Harper S.F. 1977. The Information Age: Economy, Society and Culture, Blackwell Publishers (1998).
See Direct's "Tag-We Could Be It", 2/98, p. 13. Ouill, 504 U.S. 312, 315 n. 8 (Thanks again Bob Levering). Hearst Corp. v. Goldberger, 1997 U.S. Dist. LEXIS 2065 at 26 37, 40-41 (S.D.N.Y. 2/26/97) and Edias Software International v. Basic International, 947 F.Supp. 413 (D. Az. 1996). For an excellent non academic real world analysis on point see Robbins, Jonathan, "Sales and Use Taxation Of Interstate Commerce", Cyberspace Lawyer, 12/99, Vol. 2 No. 9, p. 212 and Ballon, Ian, "Developing A Framework For Making New Law", same issue p. 12. As to gross receipts taxes on telecommunications providers, there are maybe 20 states left, down 10 from 1986. The issues can vary - see Hill v. Gateway 2000. Inc., 105 F.3d 1147 (7th Cir. 1997), Pro CD v. Zeidenberg, 86 F.3d 1447, 39 U.S.P.Q.2d 1161 (7th Cir. 1996). Step-Saver v. Wyse Technology, 939 F.2d 91 (3d Cir. 1991); Arizona Retail Sys., Inc. v. The Software Link. Inc., 831 F.Supp 759 (D. Ariz. 1993) (don't add material terms to a tele phone contract).

[Author Affiliation]
Robert J. Posch Jr., has a JD/MBA and is the author of two books published by McGraw-Hill and three by Prentice Hall, including his latest book, The Complete Guide to Marketina And The Liaw. He can be reached at 3151 Grand Boulevard, Baldwin Harbor, NY 11510, (516) 873-4628.

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