Monday, June 11, 2012

E-Commerce Challenges Businesses, Governments, Taxpayers

June 11, 2012, 6:40 a.m. p.m.

Brief Intro:

Businesses, governments and taxpayers across Iowa's 99 counties and hundreds of cities and towns (indeed throughout America) are confronting three challenges from e-commerce in a global economy.

(1) Iowa's nationally and locally owned retail outlets, newspapers, and bookstores are struggling to find business models that will carry them from small town virtual monopoly storefronts into the highly competitive global marketplace of Web pages and social media.

(2) State, county and local governments are trying to figure out what they can best do to help the economies and communities of constituents for which they feel some responsibility.

(3) Taxpayers are questioning the wisdom of a "solution" that involves transferring their tax dollars from legitimate government projects to the bottom line of a handful of politically favored for-profit enterprises. Especially do they question the transfers when the money is used for business plans that appear to be pretty unimaginative responses to "e-commerce."

These issues were recently explored in depth here in "Big Boxes, Little Bookstores and Taxpayers; We'll Leave the Prairie Lights on For You," June 6, 2012.

That blog entry provided the research and source material, with links, for what ultimately became a column in this morning's Press-Citizen, below. If this is a subject that interests you that earlier blog entry is worth your exploration. Otherwise, this lighthearted 644-word column will provide a quick-read, summary view of these deadly serious issues.

Maybe Taxpayers Should Buy Wal-Mart a Gift Shop
Nicholas Johnson
Iowa City Press-Citizen
June 11, 2012, p. A7

The Iowa City Council, at least three members, recently leapfrogged over their colleagues to rule that local taxpayers should pay for a local business’s “museum quality gift shop” and café.

To “speed things up a little bit” they delegated the matter to the discretion of the city manager.

The grant is not even a TIF. It’s a $27,500 gift, plus a possible $15,000 1 percent loan.

Why do it? They want to “educate the public about eCommerce.”

The lucky beneficiary of this largesse? Iowa City’s Prairie Lights — widely beloved, and by no one more than me. But our love is not the issue.

The issue? Whether taxpayers really support the council handing over taxpayers’ money, without their approval, to favored for-profit businesses.

Clearly, the council is not interested in the answer.

Confronted with a petition to put public review of one of its latest controversial TIFs on the ballot, the council’s response is to suggest using a legal technicality to make the payment anyway, using a bond that citizens’ petitions can’t challenge.

This council switch would cost taxpayers an additional $300,000. The council thinks it’s worth the money to keep citizens at bay.

If it’s legally required we vote on the bonds to fund legitimate governmental projects, like the proposed county justice center, isn’t it even more appropriate the public be involved in taxpayer funding of private, for-profit businesses?

Capitalism means owners provide the capital, sometimes profit handsomely, but also bear all risks.

Socialism means governments own and provide traditional governmental services like police, fire, parks, schools, roads, libraries — and smoldering landfills.

What we’re doing — in Washington, Des Moines and Iowa City — is corporatism, the intertwining of business power and government largesse.

During World War II, in Benito Mussolini’s Italy, we called it fascism. Owners take the profits; taxpayers take the risks.

If that’s what local taxpayers truly want, there’s probably a way it can be provided constitutionally. But is that really what we want?

E-commerce? Aside from the café and gift shop, the city says this is the store’s “attempt to adapt to the ever-changing traditional and electronic market.”

That raises some issues.

According to the store’s website, it’s already in that business. Moreover, the owner concedes, “there’s no overhead.”

Every business confronts the “ever-changing traditional and electronic market,” including this newspaper.

Change can put a business out of business. However, this is the capitalist’s challenge, not the taxpayer’s responsibility.

Swiss watchmakers respond to digital watches, slide rule firms to calculators, mainframe computers to desktops, cellphones to smartphones — the examples are endless.

Bookstores are challenged with online sales, e-books, online self-publishing, Wal-Mart (40 percent of all best-seller sales), the cornucopia of Internet resources, the decline in discretionary time for reading.

Convenience, as well as savings, motivates e-book readers. If they can download a book to their Kindle while in bed and get advice from the Internet, why would they get out of bed and come to Prairie Lights for “a staff member to assist customers in e-book sales”?

Moreover, the city’s solution, adding a gift shop, is a way of getting out of the book business, it’s not a creative 21st-century e-commerce business model for staying in it. It’s like a pharmacist — also online and Wal-Mart challenged — adding groceries to the drug store merchandise.

In the greater Iowa City-Coralville area, every retail outlet must respond to the opportunities as well as the challenges offered by change.

Does the council intend to give our tax money to all of them? If not, why Prairie Lights?

Want to know which stores are suffering the greatest e-commerce impact? The Big Box stores, like Best Buy, Sears and Wal-Mart. Shoppers come to look, then order online from elsewhere. The companies are closing stores; their common stocks have declined.

Want to save those jobs, council?

Maybe local taxpayers should buy Wal-Mart a “museum quality gift shop.”
Nicholas Johnson, another satisfied Prairie Lights customer, teaches at the University of Iowa College of Law and maintains

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Anonymous said...

Without taxpayer subsidy, you wouldn't have a teaching gig.

Nick said...


Are police officers, fire fighters, military personnel, and other public employees (including Iowa's state universities' faculty and staff) paid from a budget, a percentage of which comes from a legislative appropriation funded by taxpayers? Of course, absolutely -- though certainly a very much smaller percentage than what the founders of those universities originally intended over 100 years ago.

There is no way traditional governmental functions can be carried out without tax support. You may or may not believe all of those functions are a good idea. They include what this op ed column refers to as "socialist" programs such as roads, parks, libraries and schools. But they are traditional governmental functions.

What the column is about is the use of taxpayers' money to increase the profits of for-profit private enterprise -- contrary to the basic tenets of "capitalism" -- creating what is called fascism, or corporatism.

You may be among those -- and there certainly are a great many -- who see no problem with giving taxpayers' money to private individuals, firms, and corporations.

My point is simply that there are major, basic analytical distinctions -- social, political, economic -- between socialist and corporatist governmental organizations and programs.

That doesn't make either you or me "right" or "wrong," but I would hope we could agree that's a distinction worth making.

-- Nick

Nick said...

Here, and in the next "comment," are some comments prompted by the column that have been entered on the Iowa City Press-Citizen's Web site. Insofar as the authors made their names and comments public in that way, I believe it is helpful, rather than inappropriate to make them available here.

Chuck Schmidt · Top Commenter · Works at Law Office of Charles L. Schmidt
Well said, Mr. Johnson. This column and your blog should be required reading for city council members everywhere.

Sam Osborne · Top Commenter
There is a question much larger than the well-made point of issue of Nick Johnson’s guest opinion regarding the government subsidization of private enterprise such as a “museum quality gift shop” in Prairie Lights or Wal-Mart or anything anyplace else.

Our current means by which people provide food, clothing, shelter and some leisure for themselves land those they car for it not working and there is no reason to think that in a world in which time and distance is increasingly being made obsolescent at the speed of light. Not only is yesterday gone before you know it, but so is the future.

The masses of our people can feel this in their gut and are unable and a bit unwilling to express it coherently, but they know that we are neither going to be pushed back to some better order of times by conservatives that makes their confused intent by claiming to purse great and immutable values, or by liberals like President Obama that have no vision---thought he appears to be more of a middle of the roader. Nor are we going to avoid getting run over by the past and future by a Mitt Romney who will say and claim anything to get elected to an office where he will sit at heights beyond those he achieved as he did when he saved the Olympus by not competing in a single event on or off the field of contest--or when he pulled the rug out from under working people in the companies he scrapped out for his gain.

To survive as a culture that is worth living in and contributing to, our challenge will be better focused when we recognized that our consumer-driven free market in which junk is run through box stores to be hauled off to landfills, (smoldering or not) is cancerous. And the faster and longer we can keep it growing enables it to eat up more of us and our planet. Things are heating up folks---our planet is warming up and our brains are being fried---further along and when you are in the midst of hell it is hard to remember where you never put the fire extinguisher in the first place.

There is an answer to this and we had better put the nation to work and people to work building the infrastructure for a new age that ends the rationing of opportunity by the moneychangers and the nation’s indenture to the world’s oil cartel and domestic power monopolies---we need to unplug ourselves from these hoarders of our nation's wealth.

It is time to build an advanced energy grid that harness the same energy that over the eons turned an accumulating biomass into fossil deposits (that are too valuable and destructive to incinerate) and take the nation totally electric with so much power that it can be licensed for free individual use and power low-cost fare and laden high-speed and light rail. This will bring to pass the Libertarian dream of living as free from the governance of anyone else as is possible for communal mankind to be.

The technology exists right now to do this via harnessing the unlimited power of the wind, sun, sea and gravity and we can do this in as short of a period of time as it took for the Greatest Generation to turn America into the World War II winning Arsenal of Democracy, build two things common folks had never even thought that there could be, atomic bombs, and emerge from the short four years it took to do it all as the most prosperous nation for the most people in history. Now is our time for greatness as a people.

Nick said...

Here's a second set of comments from the Press-Citizen Web site:

Bruce Wheaton · University of Iowa
nick wrote, "The lucky beneficiary of this largesse? Iowa City’s Prairie Lights — widely beloved, and by no one more than me. But our love is not the issue."

contrarily, i think our love is precisely the issue. whether or not community love can justify a municipal financial award to a retailer is a different question--but to assess the dynamics here we probably shouldn't dismiss the emotional or subjective aspects of the decision at the outset. over the years, prairie lights has become a visible symbol of downtown retail--it is independent, it has national status, it delivers good service, and it is precisely in tune with the way iowa citians want to think of themselves. plus, it occupies a pretty nice piece of real estate on dubuque street. most locals probably can't name a business they'd rather see at that address. who knows what the operations of the free market would install in place of prairie lights. a bar? a restaurant? nothing? i expect there's a broad consensus that downtown is better off with prairie lights than without it. better off financially and better off as a civic core.

in this context, i don't have a big problem--in principle--with a public award. i don't know all the details so i can't vouch for the fiscal prudence of the award. that is, i can't handicap the chances that it will sustain the store. surely, there are some real economic challenges for traditional bookstores.

i think the issue here is the prospective efficacy of the award, not its theoretical appropriateness. public officials have the right, perhaps the obligation, to hustle on behalf of the city's center. in this pursuit they needn't be bound by rigid adherence to free market doctrines. use of subjectivity in community affairs isn't wrong--as long as sentiment doesn't lead to being stupid.

Brian Kinser · Top Commenter · Dental Tech at University of Iowa College of Dentistry
As I look around downtown I see very few music stores. Where was the council and their money when illegal downloading and IPods completely decimated music retail stores? Granted, we still have Real and The Record Collector, but those are niche stores (and while these stores are awesome in what they do and have a great selection, you wont find much top 40 or pop in there (not that I would want it but someone might)). This is an example of the council picking and choosing what kind of business THEY find acceptable and worth keeping. Maybe if we didn't have to circle the block 4 times for a parking spot or park a 1/4 of a mile away more people would visit Prairie Lights. Don't see the council discussing this option.

Nick said...

And a third:

Tracy Sampica · Iowa City, Iowa
Thank you for such a great article Mr. Johnson. Does anyone know how many private businesses have gotten the money from the city and are no longer open? The Juice Box was one I believe. What about the new businesses the city is giving "free" money to that become competition to businesses that have made it on their own? I have read of at least two places downtown that will be getting city money to open places that serve frozen treats. How do you think Whitey's and Coldstone feel about that? Yes, I like to have options when I am downtown, I just feel if someone is going to profit from their business they should go to their bank and get the money and work a little more hours like the rest of us who have loans that will never be forgiven do.

Sam Osborne · Top Commenter

If such actions are to be judged on possible failure alone, maybe the Iowa City Council should subsidize British Petroleum, Wall Street, Wal-Mart, and all of the companies that produce stuff for the Pentagon. Further, they might also make campaign contributions to Mitt Romney and the Republican Party.

David Johnsen · Top Commenter
The city invested heavily in a rib place in the center where Best Buy once was.
It closed soon after opening.

David Johnsen · Top Commenter
I concur with everyone's previous statements.
I would like to see anyone with an opposing viewpoint address these opinions.

Nick said...

Here is Part I of my response to the above comments on the Press-Citizen Website -- primarily that of Bruce Wheaton:

Thank you everyone for these thoughtful comments. The purpose of the op ed is to generate community dialogue about what I think -- and apparently you agree -- are important issues.

Bruce Wheaton's disagreement is expressed with great skill, clarity and civility. My guess is that it might well end up being the majority or plurality view of many Iowa City residents who have an opinion one way or the other.

I will make but two points by way of response.

(1) Let's just think about what we're doing. As I noted in the column, "If that's what local taxpayers truly want ["corporatism;" transfer of taxpayers' money to for-profit enterprise], there's probably a way it can be provided constitutionally. But is that really what we want?"

Within the constitutional protections of individuals' civil rights, and restraints on government, I am prepared to accept (as of course I must) whatever a self-governing democratic population decides it wants to do. That includes multi-million-dollar TIFs, and "museum quality gift shops" for bookstores.

Bruce would go along with that only so long as "sentiment doesn't lead to being stupid." But I would go even further: "even if sentiment does lead to being stupid." As my mentor Justice Hugo Black often explained (in a view that sometimes seems to have gone out of favor with today's Court), the Constitution compels the Court to uphold state laws and municipal ordinances with which the justices disagree -- so long as they have not violated any constitutional prohibition. And the Constitution does not prohibit public officials "being stupid."

So long as the people vote, or otherwise agree, to a corporatist state of earmarks, tax breaks, TIFs, and subsidies, from Washington, Des Moines, and Iowa City, I accept their decision as a price of democracy.

My point is that I don't think we have yet even had that discussion, let alone vote.

Beyond that, I will confess to thinking it is a little disingenuous for those who believe "the government is not the solution, the government is the problem," "the only regulation we need is what's provided by marketplace forces," "capitalism and free private enterprise are the source of America's great strength" to then show up, tin cup in hand, asking governments to turn over taxpayers' money to them to increase their profits (and competitive advantages over those not so blessed by largesse).

Nick said...

And here is Part II:

(2) Having decided that we're going to give away the money, let's figure out how we're going to go about it. There's little likelihood public officials are going to slow up anytime soon in dispensing public money to for-profit businesses. Bruce -- and undoubtedly a large number of others -- don't even think they should slow up. That being the case, the reality, we then progress to the second question: How should we go about doing this, decide who gets these benefits and who doesn't, the standards to be used, the process to be followed, the protections against massive taxpayer losses?

I've addressed these questions in the context of TIFs, proposing something modeled on (a) what's called "the Powell doctrine," the questions to be asked, and answered, before going to war, and (b) environmental impact statements. Clearly, it's not the only answer, the only approach. But I do think we need something. Bruce says, "I think our love is precisely the issue." I'm not as confident that is enough. I'd like to see some regularized process of investigation and analysis.

Here's what I proposed for TIFs: "TIF Impact Statements; The Questions We Should Insist Officials Ask First," November 29, 2011 (which includes the embedded Press-Citizen column, "Making a 'Prudent TIF' More Than an Oxymoron"),

Anonymous said...

Without the smart use of economic development tools, all downtown would be dominated by crappy bars and cheaply built (but expensive) student rentals. IC works to support the art and culture that make it unique and attractive as a livable community. Prairie Lights is an important part of that. As for TIF projects, if they're successful, their period ends and the project will have added more to the tax roll than existed before. It's an investment. Done right, it works. Iowa City has done it right. Plaza Towers has been a great addition to downtown. Without TIF, we'd have another ugly Clark (Apts Downtown) building on that site.

Nick said...

Anonymous [5:08 PM]:

TIF's a tool, you're right. But it's only one. There's also zoning, building codes, and an array of regulatory tools and potential ordinances available to government -- federal, state, county and city. Why not at least try them first, if not exclusively?

If "all downtown would be dominated by crappy bars and cheaply built (but expensive) student rentals," to quote you, that would only be because the City was not very imaginative about (or interested in) preventing that from happening. TIFs are not the only preventative.

"If done right" is a very, very big IF. For 13 categories of reasons why TIFs are problematical see "The True Price of TIFs," October 1, 2011,

Are there some TIFs that don't raise one or two of these categories of problems? Of course. But even they still raise the rest.

The harms represented by any one of the categories is a reason not to use TIFs. And I have yet to find a TIF advocate who can go down the list and explain why every one of these categories of problems is invalid.

Anonymous said...

Show me a progressive, forward-thinking development that's happened in IC without some public involvement?

Nothing the UI does counts because it's subsidized itself and goes off the tax roll for good.

All those tools you mention don't always work so well.

We just had an excellent example with the destruction of Washington Street. 100-year old homes were demolished and a big apartment building is going up on their place. Established and cherished local businesses and history lost. Despite that a petition with 5000+ signatures protesting, it all happened anyway. And all was legal and within the law of zoning, ordinances, etc.

Developers take the easiest path -- the one with least risk and highest reward. Especially in a college town.

You're averse to any risk associated with TIF. That's fine, but it's not very imaginative on your part. Development and business involve risk. That's just reality. It's perfect okay for the City to get involved by using a tool/funding source like TIF. The "but for" analysis ensures an outside entity does look at each project and run the numbers. No money is just being given away, especially without scrutiny.

Nick said...

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Notice Regarding Advertising: This blog runs an open comments section. All comments related to blog entries have (so far) remained posted, regardless of how critical. Although I would prefer that those posting comments identify themselves, anonymous comments are also accepted.

The only limitation is that advertising posing as comments will be removed. That is why one or more of the comments posted on this blog entry, containing links to unrelated matter, have been deleted.
-- Nick

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