The American Future Final

The American Future
Exploring Ideas to Shape our Nation
Spring 2010

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Associate Professor of Finance Pace University
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In his later work, Jacques Derrida often spoke of a politics of
hospitality, justice over law, an ethical concern for the other, and of a
ǲdemocracy to come.ǳ Indeed, the thread running throughout Derridaǯs
entire corpus is a welcoming of ,and it could be said that his oft-
quoted and misunderstood

could be defined as ǲa way of
making room for the other, and so fundamentally a kind of hospitality and
welcomeǳ (Smith 15).1 And as he stated himself, ǲ[D]econstruction
justice,ǳ and also, ǲethics hospitalityǳ (Smith 65).2
But such value on hospitality begs the question: What is
hospitality? This term is often used haphazardly and without
contemplation. Oftentimes, we say someone is hospitable if they put on
extravagant parties, make good food for large groups, or if they regularly

1
Smith, James K.A. Jacques Derrida: Live Theory. New York: Continuum, 2005.
2
Originally stated in: Derrida, Jacques. µ³Force of Law´: The Mystical Foundation of Authority,¶ 15; and
Derrida, Jacques. On Cosmopolitanism and Forgivenessm 17.


open up their home for events with family and friends. A deeper, more
philosophical, more politically relevant, understanding of this term is
necessary.
In this paper, I intend to articulate the etymological meaning of
ǲhospitalityǳ so far as it relates to Derridaǯs work of deconstruction and
concern for justice. I will then turn my regard to the current state of the
American psyche, where xenophobia reigns, as witnessed in the rhetoric
regarding our war on terrorism, immigration policy, and most recently in
Barack Obamaǯs campaign for President. In conclusion, in this context, I
will consider how unconditional hospitality might possibly be utilized in
the political sphere. These issues, and especially hospitalityǯs role in the
political sphere, are particularly pertinent in light of our current economic
crisis, as economic woes are more likely to increase fear of the other and
heighten the sense of protectionism already at large in American culture.
$
I begin with the etymological nuances of the word ǲhospitality.ǳ Then, I
will explain how Derrida makes use of the term, and finally, I will draw
parallels with Derrida and the most unlikely of figures, Jesus.
Ã


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The English word, ǲhospitality,ǳ comes directly from the Latin,

or
. The Greek word in the Bible translated as
hospitality is , literally ǲthe love of strangersǳȄor perhaps more
accurately, ǲstrange love,ǳ which connotes the fact that many perceive
offering kindness to a stranger as extremelystrange!
This nuance is carried over into the Latin word which can
mean either ǲhospitableǳ but also ǲstrange, foreign.ǳ This double-meaning
is better understood by tracing the wordǯs history. is a combination
of two Latin words:

and
.
,from which we derive the word
ǲhost,ǳ which, typically describes one that welcomes and entertains
visitors or guests, originally meant ǲstranger.ǳ It then took on the
connotation of ǲenemy,ǳ ǲsince any stranger in early times was a possible
enemyǳ (Wheelock 121).3 Hence, our words ǲhostileǳ and ǲhostility.ǳ From
meaning ǲenemy,ǳ
went on to mean ǲarmy,ǳ as so well represented
in the classic King James Version which speaks of the ǲLord of

ǳ (1
Sam 1:11; 2 Sam 6:18; 2 Kings 19:31, etc.). Finally,

took on the
meaning as we understand it today, meaning ǲguestǳ or ǲhost.ǳ

Wheelock, Frederic M. Wheelock¶s Latin Sixth Edition. New York: Harper Collins, 2005.


V
, means ǲhaving power over, lord of.ǳ From
we get our
words ǲpotent,ǳ and ǲpotency.ǳ A ǲ ital,ǳ then, is a place that
the sick has the power both (conceivably) to heal them authority
to tell them when to leave. As host of a party, I am the lord of the house in
which the guests have gathered and have the authority to let them know
when the party is over.
Inviting friends over to oneǯs house, then, is not but
more akin to (ǲbrotherly loveǳ), or fraternity, or perhaps even
cronyism at times. For when we invite our friends over, we expect
reciprocity. If I have a friend over at my place, I expect him to do the same.
But hospitality is supposed to be a giftȄand gifts are freely given, no
strings attached.

Derrida was very critical of fraternity because of its reciprocal
nature. He was quite dissatisfied with the notion of tolerance as well,
because tolerance retains the power structures of host and guest.
Tolerance, to Derrida, is ǲa supplementary mark of sovereignty, the good
face of sovereignty which says to the other from its elevated position, I am
letting you beǥ I am leaving you a place in my home, but do not forget that
d


this is my home ǥ If I think I am being hospitable because I am tolerant, it
is because I wish to limit my welcomeǥand maintain control over the
limits of my Ǯhome,ǯ my sovereigntyǳ (Borradori 127-28).4 Under the guise
of tolerance, an attitude of assimilation still reigns, in which a ǲthreshold of
toleranceǳ is developed that draws up acceptable limits of hospitality in
order to retain sameness and sovereignty. In other words, we ǲoffer
hospitality only on the condition that the other follow our rules, our way of
life, even our language, our culture, our political system, and so onǥa
hospitalityǥ with certain conditionsǳ (128).
In contrast, Derrida called for a democracy that involves
unconditional hospitality. This hospitality involves a radical, risk-taking
welcoming of the strangerȄa nation without borders, that welcomes the
immigrant rather than drawing lines of superiority and inferiority based
on nationality. ǲPureǳ hospitality is ǲopen to someone who is neither
expected nor invited, to whomever arrives as an absolutely foreign %

,
as a new %,ǥwholly otherǳ (Borradori 129).Our understanding of
nations, or of a particular community, ought to involve a hospitality that
does not merely open itself to guests, but to strangers, (illegal)

Ã
Borradori, Giovanni. Philosophy in a Time of Terror: Dialogues with Jurgen Habermas and Jacques
Derrida. Chicago: University of Chicago Press, 200.
¯


immigrants, and asylum seekers, and allows the stranger to remain
different from us rather than be assimilated.
Thus, it should be observed that a certain paradox is at play in the
term ǲhospitality.ǳ For when I welcome someone into my home, I am
situating myself as the powerbroker, the owner of the house, the one who
is the master and sovereign of the place. She is a visitor to my abode, a
guest in my possession. In other words, the notion of hospitality is
supposed to be one of welcoming and of an appreciation of the Other, but
it is simultaneously annulled by the power structure at work that keeps
the guest at armǯs length, fearfully works to protect the possessions of the
owner, and even expects a certain level of reciprocity or assimilation by
the visitor. As John (aputo summarizes, ǲThere is an essential Ǯself-
limitationǯ built right into the idea of hospitality, which preserves the
distance between oneǯs own and the strangerǥ So there is always a little

ility in all
ing and hospitalityǳ ((aputo 110).5
In this sense, ǲpureǳ hospitality is an ǲimpossibility.ǳ (aputo
continues:

5
Caputo, John D. Deconstruction in a Nutshell. New York: Fordham University Press, 1997.


[H]ow can I graciously welcome the other while still retaining my
sovereignty, my master of the house? ǥ Hospitality really starts to
happen when I push against this limit, this threshold, this
paralysis, inviting hospitality to cross its own threshold and limit,
its own self-limitation, to become a gift ÷

ǥ That
requires that the host must, in a moment of madness, tear up the
understanding between him and the guest, act with ǲexcess,ǳ make
an absolute gift of his property, which is of course impossible.
(111)
Hospitality really gets going when the lines between host and
guest become blurred, when my welcoming of the other involves a level of

ity towards my power and sovereignty. Unconditional
hospitality is a recognition of my own self being

age to an infinite
responsibility for the other. Hospitality is the very ǲcondition for the
possibility for ethicsǳ (Smith 70). Here, Derridaǯs dependence on Levinas is
evidenced. To be, for Levinas, is always being-for-the-other, having my
own existence called into question, and always infinitely welcoming the
Other. To be a subject, is to be a ǲhost,ǳ to be ǲhostageǳ (Levinas1 299).6
A closely related word, ǲcommunity,ǳ might bring some clarity to
Derrida thoughts. In Latin, means both ǲmutual participationǳ
and also ǲto fortify on all sides, to secure.ǳ In other words, inherent in this

d
Levinas, Emmanuel. Totality and Infinity, Trans. Alphonso Lingis. Pittsburgh: Duquesne University Press,
19d9. See also Levinas.Otherwise Than Being or Beyond Essencem Trans. Alphonso Lingis. Pittsburgh:
Duquesne University Press, 1998, p. 112. Derrida references these phrases in his essay, ³Adieu to Emmanuel
Levinas.´
~


word is a sense of protecting, of using tions. Thus, when we speak of
ǲcommunityǳ we are often saying, ǲ(ome and join us, ÷

you have to
become just like us if you want to and weǯre committed to keeping out
everyone who is different from us.ǳ Likewise, in Latin means
ǲcommon, united, or universal.ǳ Inherent in this word is a connotation of
assimilation, as represented by the fact that when people say, ǲWe need to
be united,ǳ they really mean, ǲWe all need to agree and believe the exact
same thing.ǳ
So then, if a radical spirit of community were icatedȄa
welcoming of the Other with full appreciation of their othernessȄcertain
nuances of the word ǲcommunityǳ must be eliminated. A ǲcommunity
without communityǳ is necessaryȄa conceptualization of the notion of
community without the linguistic implication of essential sameness, of
fortifying and securing, as well as the us/them notion that is inherent
within the word.

Interestingly enough, Derrida, who said he could ǲrightly pass for
an atheistǳ could have found support for his positions from Jesus. Jesus
was once invited to a party by a wealthy religious ruler. At the party, he
8


looked at the host and said, ǲWhen you give a dinner or a banquet, do not
invite your friends or your brothers or your relatives or rich neighbors,
lest they also invite you in return and you be repaid. But when you give a
feast, invite the poor, the crippled, the lame, the blind, and you will be
blessed, because they cannot repay youǳ (Luke 14:12-14). Jesus and
Derrida agree: Hospitality is not about reciprocity but is an invitation to
those who would never expect to be invited, a radical welcoming to those
who have no home to welcome you, and a reckless giving of your
possessions to those who have none.
(onsider again that ǲ italityǳ is tied to the word ǲ ital.ǳ In
another gospel account of Jesusǯ life, we are told that the religious leaders
were upset with Jesus for spending time with ǲsinners and asked his
disciples, ǲWhy does your teacher eat with tax collectors and sinners?ǳ But
when he heard it, he said, ǲThose who are well have no need of a physician,
but those who are sickǳ (Matt. 9:10-12). The itality of the ital is
not for the rich and wealthy that need itality but the needy. It is the
foreigner that needs a host and the homeless that needs a place to stay.
And when we love the stranger, Scripture tells us, it may well be
we are unknowingly offering our home to an angel (Heb. 13:2) or perhaps

88


even to Jesus himself (Matt. 25:31-40)! God does not afford us the
certainty to distinguish when we are serving man or God, nor does he offer
this option. For any man who does not love the stranger, orphan, and
widow is clueless about the definition of religion (James 1:27). There is no
distinguishing between the holy and secular, the divine and material, the
glorious and the mundane. Or, to put it in the philosophical language of
Emmanuel Levinas, oneǯs encounter with God only occurs through the
enactment of my ethical responsibility for the Other. God is approached
only ǲby way of the detour of the other personǳ (Purcell 62).7 When you
see the face of the stranger, you see a trace of the face of God (Levinas2
123, 147).8
C+5+6 (
(onsequently, however, we are not a nation of people who know how to
practice , despite how much we claim to give to non-profit
organizations or to foreign aid. Instead, we have opted for a culture of
phobia instead. Fear drives the installation of security systems,
fenced-in homes, and our ever-increasingly private lives. Fear is what sells
our newspapers, drives our political policies, and often ultimately

7
Purcell, Michael. Levinas and Theology. Cambridge: Cambridge University Press, 200d.
8
Levinas, Emmanuel. Otherwise than Being or Beyond Essence. Pittsburgh: Duquesne University Press,
1998.
8


influences our vote. Rather than a culture of welcoming the stranger, we
have witnessed a cultivation of fear.
Insidious in our thinking is a belief that anything foreign is
dangerous and ought to be feared. As a result, much of the inflammatory
rhetoric in the public square is aimed at spreading distrust and a complete
dismissal of the other rather than willingness for open dialogue. Such
rhetoric can be clearly seen in the speech revolving around terrorism and
American foreign policy with the Middle East, the issue of immigration and
undocumented immigrants in the United States, and most recently in the
2008 presidential campaign. A common view pervades our culture, for
instance, that all Muslims support terrorism, and that the Middle East is in
desperate need of American democracy. Such views have led to the
mistreatment of Muslim and Arab-native people in our country, and in the
blacklisting and deportation of some of them. It can be observed in the
way ǲbeing Arabǳ has become a kind of racial slur in our society. And this
÷ is evidenced in the up-to-date tally of U.S. military deaths in
Iraq and Afghanistan while there is virtually no report of the possibly 1.3
8


million Iraqis who have died since the American occupation in 2003 and
millions of others who have fled from their homes.9
÷ can be seen in the way many people have responded to
the problem of undocumented workers, particularly in those who are
convinced ǲthose MexicansǳȄas if every one of them is from MexicoȄare
going to steal our jobs and force us to all learn Spanish, and that the only
proper response is to round them up and ship them home. (onvinced that
to be ǲall-Americanǳ is to be White and English-speaking, there exists a
large portion of our population who are wary of the foreign tongues and
faces of immigrants. This white supremacist thinking is exhibited in the
comments of Pat Buchanan, for instance, who said that the diverse
immigration population that is eradicating a white majority in the U.S. will
bring about a ǲThird World America.ǳ Such convictions have not only led
to the subhuman treatment of undocumented workers but have also made
it more difficult for refugees, individuals seeking asylum, and immigrants
to obtain U.S. citizenship.
This culture of ÷ seems no more vivid in our imagination
currently than in how it has been portrayed in the finally over 2008

9
For Derrida¶s thoughts on Islam, see Cherif, Mustapha. Islam & the West: A Conversation with Jacques
Derrida. University of Chicago: Chicago, 2008.
8Ã


presidential campaign. Numerous Republicans utilized countless fear
tactics to try to deter people from voting for our new President, Barack
Obama. They chanted his middle name ǲHusseinǳ in order to incite distrust
and fear into Americans. They fabricated lies that Obama is a MuslimȄ
which, again, would having a Muslim as President really be such a bad
thing? In fact, Rush Limbaugh went so far as to say that Obama was not
American but was an Arab (codeword for ǲMuslim,ǳ which is then a
codeword for ǲterroristǳ) and came from an Arab part of Africa. His
comment not only encourages the breeding of a culture of fear, but it is
simply not trueȄKenya (even though Obama is not ǲfromǳ Kenya) is in
sub-Saharan Africa, where, ironically enough, the national language is
English and 90% of its population identify themselves as (hristian.
Obama has been said to ǲpal around with terrorists,ǳ has been
called a socialist, a Marxist, and a communistȄas if all of these terms were
synonymous and were somehow evil in themselves. He has been called
unpatriotic and un-American (i.e., not White), and even the anti-(hrist.
This billowing racist neo-Mc(arthyism is expounded with the view in mind
that Obama, because of his blackness, is somehow not one of us, is
mysterious and strangeȄis the enemyȄand we ought to do everything to
8


shore up our defenses against those who may take away what we hold to
be ǲAmerican.ǳ Indeed, one article which noted the many hate crimes
which occurred after Obama won the electionȄfrom campaign signs
vandalized to schoolchildren chanting ǲAssassinate ObamaǳȄcited how
there is ǲa large subset of white peopleǥwho feel that they are losing
everything they know, that the country their forefathers built has
somehow been stolen from themǳ because of the results of this election.
One man went so far as to say, ǲIf you had real change it would involve all
the members of (Obama's) church being deportedǳ (Washington).10
C5% 6
What then can be said about the state of our nation and its need for
hospitality? Derrida himself made it extremely clear he did not think it
possible to legislate unconditional hospitality. Nations, governments, &
communities have multiple ethical obligations constantly interfering with
and overriding each other. Nations are just as equally obligated to create
asylums for the stranger, the orphan, and the widow as they are to protect
against the threat of terrorism, for example. In other words, Derrida

10
These quotations were taken from Washington, Jesse. ³Obama election spurs race crimes around country,´
ª . Nov. 1d, 2008. Accessed from http://www.usatoday.com/news/nation/2008-11-15-
29d000088_x.htm.
8d


writes, ǲHospitality is doomed to be conditional and limitedȄand
therefore %
ǳ (Smith 70).
But even if unconditional hospitality cannot be legislatedȄwhich
is undesirable in many waysȄit nonetheless is the very thought which
allows us to think of the idea of alterity and is, therefore, ǲthe condition of
the politicalǳ (Borradori 129). In other words, all of our limited kinds of
hospitality, no matter how fractured or discriminating they are, can only
be conceptualized in light of unconditional hospitality. As Derrida states,
ǲIf we want to understand what hospitality means, we have to think of
unconditional hospitality, that is, openness to whomever, to any
newcomerǳ (Derrida, (aputo, & Kearney 304).11
Furthermore, unconditional hospitality is like a specter haunting
us from the future, reminding us that we have yet to arrive at ǲrealǳ
democracy, that democracy is always ǲto come.ǳ Unconditional hospitality,
then, haunts us as a healthy reminder that, for Derrida, the ǲ(essential)
opposition between the unconditional ideal and the conditions of reality,
does not issue in either complacency or despair; rather, [it] finds in this
disparity a call and a challenge: to make laws more hospitableǳ (Smith 70).

11
Derrida, Jacques, John Caputo, & Richard Kearney. ³Desire of God: An Exchange.´ After God: Richard
Kearney and the Religious Turn in Continental Philosophy. New York: Fordham University Press, 200d.
8¯


It is an ideal that should permeate our life and political practice in such a
way that it breaks forth as justice through the cracks of the law.
What then are some ways in which unconditional hospitality can
challenge our laws and stretch our current thresholds of hospitality? A
formidable response to the complex matter of the proliferate racism in
America would require far more than this paper can offer, but it is safe to
say that such acts and attitudes should be roundly condemned. And the
notion that there exists an essential, unified ǲAmerican identityǳ that ought
to be preservedȄwhether that consists of being White, (hristian, English-
speaking, pro-war, or pro-capitalistȄought to be seriously questioned.
At the very least, the work of unconditional hospitality in the
political sphere begins by recognizing that laws can be unjust. Laws are
often subjectively created and motivated by prejudices or ill will or by the
personal, economical, and political interests of those who make them.
Unjust laws abound in our nationǯs history including the establishment of
slavery, the three-fifths compromise, and the laws that prevented African-
Americans from voting until 1965, all which led to the treatment of Blacks
as subhuman. Even laws developed out of good intentions can have
disastrous side-effects and must be reconsidered.

8


Here is where unconditional hospitality can begin to do its work.
Take, for instance, the process of naturalization our country currently
adopts. Individuals must participate in a process that takes almost three
years and involves tests on speaking English and American historyȄ
which most Americans could not even pass if it were a requirement. We
should be calling these laws into question, asking if itǯs just to make
refugees and immigrants wait for three years to experience the benefits of
U.S. citizenship, asking if speaking EnglishȄwhich, consequently is

a
monolithic language in this countryȄshould be a necessary requirement,
and asking if knowing the number of Supreme (ourt justices there are or
the number of amendments in the (onstitution is really essential to being
an American.
To say it otherwise, perhaps our laws on immigration should more
properly reflect the unconditional hospitality described in the famous
words emblazoned at the base of the Statue of Liberty from the poem ǲThe
New (olossusǳ by Emma Lazarus:
Mother of Exiles. From her beacon-hand
Glows world-wide welcome ǥ
Give me your tired, your poor,
8~


Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tossed, to meǥ
(learly this picture of unconditional hospitality which sits at the seat of
our symbol of democracy is a vision of that we have yet to achieve. We
have forgotten too quickly that we all were once immigrants to this land.
In the same way, we must question our current laws on
undocumented workers. Some will reply, ǲThese immigrants have broken
the law! They ought to be deported and sent back where they belong!ǳ But
unconditional hospitality asks: ǲ(ould it be that it is not the people that
need changing but the law itself?ǳ We must recognize, for instance, that
those who come to America without documentation do so not in an effort
to break laws but to escape a politically harsh regime or pursue economic
opportunityȄboth which lie at the heart of the so-called ǲAmerican
Dream.ǳ Thus, any response must not resort to treating these individuals
inhumanely, but rather, ought to recognize not only their humanity but
their evident contribution to our society. Those cities which have officially


taken on a ǲsanctuary cityǳ status12 have been motivated by these facts and
the reality that many of their businesses would cease to function without
the aid of undocumented workers.13
This is just the beginning of a long conversation that needs to be
had in our nation. The need to talk about issues of hospitality,
immigration, and our political relation to the other (i.e., foreign policy)
ought not become less significant during a time of economic decline. The
troubles on Wall Street must not allow us to forget who we are as a nation,
forget that these issues are the proper implications of the founding
principles of American democracy, which announces that people are
created equal and extends ǲliberty and justice .ǳ
Perhaps, with the election of a new President, a President for unity
in the midst of true diversity and respect for difference, such a
conversation can be entertained. Perhaps, such a dialogue can occur with a
President who believes that the ǲimprobable experimentǳ called
democracy is still a long way from being perfected, that America is still in

12
Derrida advocated for something quite similar. ³In 199d, Derrida delivered an important address to the
International Parliament of Writers²an organization that seeks to be an advocate for writers who are
considered dissidents by their home nations and thus silenced. The Charter of the IPW focuses on creating a
network of µCities of Asylum¶²drawing on the biblical notion of µcities of refuge¶ (Num. 5:9-2)²where
writers could escape oppressive regimes and be welcomed into democratic spaces that would give them
voice´ (Smith d8-d9).
1
Cf. Faiola, Anthony. ³Looking the Other Way on Immigrants.´ M
. April 10, 2007, A01.
8


pursuit of ǲa more perfect unionǳ (Obama).14 For, as Derrida notes, ǲTo
exist in a democracy is to agree to challenge, to be challenged, to challenge
the status quo, which is called democratic, in the name of a democracy to
comeǳ ((herif 42). But of these things, we can only wait and see.

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3%+
Governor Schwarzeneggerǯs attempts to close (aliforniaǯs historic
budget deficit, which the Legislative Analyst Office recently pegged at $40
billion by the end of fiscal year 2009-10, 1 have thus far consistently met
with failure. Amongst his proposals is an expansion of the sales tax based
to include services. The Federation of Tax Administrators reports that
(alifornia currently taxes 23 services;2 the Governorǯs plan would increase
that number to approximately 29 services including appliance and
furniture repair, vehicle repair, golf, veterinarian services, and admission
to amusement parks and sporting events.

1
Legislative Analyst Office. ³2009-10 Budget Analysis Series: Overview of the Governor¶s Budget´.
Sacramento, LAO: 2009. Retrieved January 2, 2009 from <http://lao.ca.gov/2009/budget_overview/09-
10_budget_ov.aspx>.
2
Federation of Tax Administrators. ³By the Numbers´. July 2008. Retrieved December 0, 2008 from
<http://www.taxadmin.org/fta/pub/services/btn/0708.html>.


(alifornia is not the first state to pursue this type of sales tax
reform, and it most certainly will not be the last. In some cases states have
been successful in integrating an expanded tax base with established
political and consumer habits; other states have not been as successful.
New Mexico and South Dakota are instances of the former whereas Florida
and Michigan are instances of the latter. Determining if the Governorǯs
pursuit will end in failure or success is obviously a matter of debate to
which I aim to contribute.
More often than not, sales tax base expansion is justified and
enacted on economic grounds, yet the expansion has consistently failed
multiple times in multiple states for political, administrative, and
taxpayer-driven reasons. This suggests that the opportunity cost of
expansion is fluid. The state of affairs in the pre-tax climate where
legislatures openly advocate taxing services suggests a low opportunity
cost, but many times states repeal the tax rather quickly after enactment,
which suggests a realization that the cost is much greater than initially
estimated. This also seems to intimate that those states that repealed their
tax on service prior to the effective date, such as Michigan in 2007, are
Ã


rather fortunate to not have endured this potentially destabilizing
ambivalence.
The goal of this paper is to highlight some of the more pressing
(alifornia related political, administrative, and taxpayer-driven reasons
that can eventually overshadow economic incentives advocated by a tax
on services. To meet this end, I provide a brief background on the
problems facing (aliforniaǯs revenue stream in the following section.
Section 3 offers a brief history of (aliforniaǯs attempts to tax services while
Section 4 details the economic incentives for doing so. Sections 5 and 6
present the political and administrative consequences of taxing services in
(alifornia. The paper closes in Section 6 with a review and thoughts on
further research.
3 "+
Since the introduction of the sales and use tax in 1933, the revenue
has shared the burden of buttressing (aliforniaǯs general fund jointly with


income tax. However, in recent decades sales and use tax receipts have
continuously declined. This has led policymakers to embrace the income
tax as the primary revenue source for the general fund. In fiscal year 1989-
90 the income tax constituted 45.4%; nine years later in fiscal year 1998-
99 it constituted 52.7%.3 Sales and use tax revenue for these years was
37.4% and 35.8%, respectively. The current state budget indicates that
fiscal year 2006-07 income tax composed 55% -- roughly $51 billion --
while sales and use tax composed 29%. This trend is problematic because
$14 billion of the $51 billion was generated from taxes levied on stock
options and capital gains in (see Figure 2); in 2002-03 these taxes only
accounted for $5.2 billion. Thus, the fiscal health of (alifornia and its
economy is at the mercy of the ebb and flow of the market.
The over-dependence on income tax revenue is a recurring
problem. Figure 24 shows the rise in collected income tax during the dot-
com market boom. The subsequent market contraction in 2001
constituted a significant cut in the general fund instigated by a precipitous

Fitz, Joe. ³Economic Perspective: Summary of Recent Economic Developments.´ July 2000. Retrieved
September 19, 2008 from <http://www.boe.ca.gov/news/pdf/ep7-00.pdf>.
Ã
Center for Continuing Study of the California Economy. ³Is California A High Tax State?´ October 2007.
Retrieved September 17, 2009 from <http://www.ccsce.com/pdf/Numbers-oct07-HighTaxState.pdf>.
d


decline in income tax revenue. Not unlike the current deficit, budget
forecasts
É

assumed the stream of revenue from income would continue and was not
until
the market slowed that spending was eventually cut.5 The

5
Legislative Analyst Office. ³The 2002-0 Budget Bill: Perspectives and Issues´. Sacramento: LAO, 2002.
Retrieved September 22, 2009 from <http://www.lao.ca.gov/analysis_2002/2002_pandi/pi_part_1_an
l02.html>.
¯


combination of events resulted in a $12.5 billion deficit for the 2002-03
budget.
In order to help stabilize and offset the volatile nature of the stateǯs
revenue stream, (aliforniaǯs politicians and pundits have advocated
various types of tax reform including closing income tax loopholes,
abolishing inefficient corporate tax incentives, and reevaluating property
tax administration.6 Arguably, however, tax reform discussions tend to
focus less on property, income, and excise taxes and more on the sales and
use tax, and at least one observer provides an extremely convincing
insight as to why this is the case. Republican Board of Equalization
member Michelle Steel notes that any tax increase requires two-thirds of
the legislature approval, and in the absence of a super majority of tax-
friendly Democrats, such a condition would also require a number of tax-
wary Republicans to offer their support. 7 However, the Board of
Equalization has the vested power to interpret law and create regulations
for what is taxable and what is not taxable. Therefore, she notes, the Board

d
California Tax Reform Association. ³Recommendations on Tax Policy´. January 200. Retrieved January
15, 2009 from <http://www.ccrwf.org/working/TaxPolicyRecs200.pdf>.
7
Steel, Michelle. ³Sales Tax on Services Would Hurt the Desert´. The Desert Sun. 1Ã May 2008.


could exploit ambiguity in sales tax law and reinterpret the definition of
tangible personal property to include services at least at the regulatory
level. However, even though the five-member Board is majority Democrat,
she comments that certainly were such a reinterpretation advanced the
issue would ultimately be decided by the courts, which may be a reason
why using the Board in this manner has yet to be pursued.
3 C &)&
Debates concerning expanding the sales tax base are not new in
(alifornia. Legislation on the topic dates back to 1909 Ȃ more than two
decades before the sales tax on sold tangible property was enacted. Table
3 below highlights some of the legislation introduced throughout the last
roughly one hundred years intended to levy taxes on consumed services. It
is readily apparent from the table that discussions of taxing services have
not been met with much hospitality.
Arguably the most interesting target of past legislation has been
admission tickets to sporting events and amusement parks as they have
~


been the subject of tax debates multiple times. Indeed, having failed to levy
taxes on these items in the past, history has saw fit to repeat itself today.
Governor Schwarzeneggerǯs plan to close (aliforniaǯs current budget
deficit involves collecting taxes from admission tickets effective March 1,
2009.8 It is uncertain if legislators will abandon a hundred years of
skepticism and opt to side with the Governor on this issue.
History of tax base reform extends beyond debate in the state legislature.
The (alifornia (ommission on Tax Policy in the New Economy convened in
2002 to review the state's tax and revenue programs in light of changing
consumer behavior and the rapid changes in technology. Amongst the
(ommissionǯs recommendations was the broadening of the sales tax to
include services like vehicle repair, appliance/furniture repair, and
veterinarian services,9 three services which have again found their way
into the Governorǯs current tax reform proposal. Moreover, Governor
Schwarzenegger in 2008 announced the appointment of members to the
(ommission on the 21st (entury Economy whose charged mission is

8
Lin, Judy. ³Schwarzenegger: $Ã.ÃB in Tax Hikes to End Deficit´. Long Beach Press-Telegram. d
November 2008.
9
California Commission on Tax Policy in the New Economy. Final Report. Sacramento: 200. 12-15.
Retrieved January 2, 2009 from <http://www.library.ca.gov/crb/catax/Docs/200-12_FinalReport.pdf>.


strikingly similar to the previous Governor Davis-era (ommission:
establish a 21st century tax structure that fits with (aliforniaǯs 21st century
economy.10

10
Office of the Governor. Executive Order: S-12-08. Sacramento: 2008. Retrieved December 28, 2008 from
<http://gov.ca.gov/executive-order/10928>.
8


C
. C & 7
Year Bill Service to be Taxed Status
AB Died in (ommittee on Revenue and

1931 1920 admissions to sports games Taxation

1933 1991 amusements and club dues/fees Taxation
AB winnings from auto and motorcycle Died in (ommittee on Revenue and

2276 races Taxation

2451 advertising Taxation

1937 2572 exhibition of motion pictures Taxation

1939 1613 admissions to amusement parks Taxation

2074 personal services Taxation

2230 event admissions Taxation

2231 amusements and club dues/fees Taxation
SB Died in (ommittee on Revenue and

1121 personal services Taxation
AB motion pictures for television

1963 2693 transmission Died on file in Senate


Year Bill Service to be Taxed Status
SB Died in (ommittee on Revenue and

1967 1213 consumable services Taxation

1969 1884 gas and electrical services Taxation
AB Died in (ommittee on Weights and

2046 repair services Measures

2233 admission to sporting events Taxation
SB
1985 1343 motion picture production (ancelled on author's request
SB professional sporting event

1993 Died in Senate
611 organizers/pay-per-view broadcasts
exemption of research and

SB
development services from sales and Died in Senate
148
use tax laws
AB exemption from taxation for internet

1997 (haptered
1614 access or online computer services
SB
adult entertainment services Died in Senate
1013
SB
specialized services (ancelled on author's request
2003 400
2005 AB 9 specified services* Died in Assembly
Ș This is not presented as a complete history of (alifornia legislation on service taxation..
* including private club membership, use of (900) and (976) telephone prefixes, marina services,
specified computer programs, aircraft or limousine transportation, accounting or bookkeeping, legal
services, security and detective services, engineering, architectural, or surveying services, and
management, scientific, or technical consulting services.


While it is unknown at this time what recommendations this more
recent commission will develop, it is not unreasonable to conclude that its
suggestions will not differ dramatically from the Davis-era commission
considering that (aliforniaǯs 2008 economic and budget conditions are
eerily similar to the 2002-2003 conditions. Indeed, Board of Equalization
Member Bill Leonard surmises that the commission may be a wolf in
sheepǯs clothing for tax increases:
The Governor and the Legislature made their

appointments to the stateǯs new tax commission last week.
I hoped the body would seriously dissect the stateǯs
complex tax system, speak to reforms, and enhance justice
for taxpayers. Unfortunately, my review of the appointees
dashes my hopes. What I see looking down the list of
commission is 2/3rds of them who are already disposed to
tax increases. If it is not a set up, it is very close.1
Even though Governor Schwarzenegger has hailed the (ommission on the
21st (entury Economy as a bipartisan endeavor, this has not alleviated the

1
Leonard, Bill. ³New Tax Commission=New Taxes?´ The Leonard Letter. 15 December 2008. Retrieved
January 7, 2008 from <http://billleonard.org/>.

Ã


concerns and skepticism of tax watchdog organizations.2 At least on the
surface, it appears as though Governor Schwarzeneggerǯs tax base
expansion proposal may obtain quasi-independent support and history
may once again repeat itself.
Ã3) % C &
Fox and Murray3 and Murray4 argue that revenue growth from a
successfully efficient service taxation program will consider two
dimensions: revenue adequacy and revenue stability. Revenue adequacy is
characterized by the ability of increased revenues to satisfy a growing
need of increasing long-term public service demands. Stability meanwhile
seeks to ensure a sufficiently funded short-term revenue growth pattern

2
Frank, Stephen. ³Tax Commission Appointed, Legislative GOP Not Allowed Seat at Table´. California
Political News and Views. 12 December 2008 Retrieved January Ã, 2009 from
<http://capoliticalnews.com/s/spip.php?breved892>.

Fox, William & Murray, Matthew. ³Economic Aspects of Taxing Services´. National Tax Journal Ã1.1
(1988): 22.
Ã
Murray, Matthew. ³Moving the Retail Sales Tax to a Retail Tax: Optimal Tax Considerations´. In Sales
Tax in the 21st Century. Eds Matthew N. Murray and William F. Fox. Washington, D.C.: Greenwood
Publishing Group, 1997. 201.


to consistently compensate for revolving business cycles. The economics
of both dimensions are considered in turn.
4.1 Revenue Adequacy
An adequate tax system will have long-run total income elasticity
of revenue equal to long-run total income elasticity of expenditures.5
Elasticity is a measure of how a tax system fares against changes in the
economy. That is, it measures the sensitivity of a tax structure in good
economic times, bad economic times, and over the long run by comparing
the percentage change of two values over some period of time. For the
present purposes, the two values are sales tax revenue and income, the
latter of which is used to determine the overall health of the economy;
growing economies will exhibit growth in median incomes and vice-versa.
An elasticity equal to or close to 1 indicates that sales tax revenues
vary directly proportional with income. Moreover, an elasticity greater
than 1 indicates that sales tax revenue has outpaced growth in income
over the long run while an elasticity less than 1 indicates that sales tax

5
1
d


revenue has not kept pace with growth in income; the former is called an
elastic tax system, and the latter is called an inelastic tax system (Fox,
2003). Meeting (aliforniaǯs long-run expenditure goals requires an elastic
tax system that produces revenue increasingly proportional to any desired
increase in supplied public services.
On revenue adequacy grounds, in order to justify an increase in the
sales tax base it must be shown that the proposed structure is more elastic
than the current structure. The calculations of sales and use tax revenue
without a service inclusive base vis-à-vis disposable income from 1991 to
2007 can be found in Appendix A. I first determined the elasticity of the
current sales tax base to be 0.558, which indicates an extremely volatile
revenue source. I then added to the tax base estimated revenue that could
be generated from taxing all services save for medical and housing. There
certainly would be many more exemptions than medical and housing;
however, the point is to observe how the elasticity would change given the
extreme circumstance. The calculations reveal that including services in
the base improves the elasticity to 0.849, which indicates the expanded
base is a much better revenue producer than its predecessor.
¯


As (alifornia does not track receipts from services rendered, in
order to estimate revenue from a broadly expanded sales tax base, I used
Economic Bureau of Analysis data of national consumption of services for
a given year and then divided the figure by (aliforniaǯs population as a
percentage of national population. The figure was then added to the
known sales and use tax receipts for the corresponding year.
(alculating the elasticity of the expanded tax base in this way
makes certain assumptions that certainly force the insightful to question
the resulting value. For instance, it is assumed that consumption of
services corresponds linearly with population. That is, that a 1% increase
in population will result in a 1% increase in consumption of services.
Moreover, the method assumes that only those individuals occurring in
the population count consume services. Also, the revenue figures change
demonstrably were (alifornia to implement a gross tax receipt system, a
value-added system, a sales tax system, or some combination thereof, for
instance. So, it is entirely reasonable to conclude that a service-inclusive
tax base would actually be less elastic than 0.849; though, it certainly
would not be more elastic.


Proponents of sales tax base expansion, such as (hu,6 often
calculate estimated revenue by using a sample base from another state
and then apply (aliforniaǯs rate to it. This fails to provide a credible
predictor of revenue as the estimates ignore the unique administrative
and structural differences between states. No two state tax structures are
the same, and certainly no two states administer or collect revenue the
same. It is misleading to assume otherwise. Given this obstacle, deriving
(aliforniaǯs revenue estimate from national data appears safer than
assuming cross-state administrative similarities.
4.2 Revenue Stability
A stable revenue source is one in which the rate of revenue growth
is relatively constant across the business cycle,7 and constancy of growth
is contingent upon the composition of the tax base. For instance, a base
dominated percentage-wise by a fluctuating source such as income, which
is a function of the market, often results in fluctuating revenue. In the case

d
Chu, Judy. ³Letter to California State Legislators´. 21 April 2008.
7
1, p. 28.
~


of (aliforniaǯs current sales tax system, however, the base is composed of
mainly retail purchases, and therefore the degree of revenue growth
necessarily depends on the breadth and depth of the retail items included
in the base.
Like revenue adequacy, revenue stability is often measured in
terms of revenue elasticity.8 However, whereas revenue adequacy only
uses comparative measurements of long-run elasticity, stability requires
comparisons of long- and short-run elasticities. The calculations by Bruce,
Fox, & Tuttle in Table 1.3.1 reflect these elasticities for (alifornia using
1967 to 2000 revenue data. 9 A stable revenue source will maintain a
consistent elasticity, and clearly (aliforniaǯs sales tax, like the income tax,
is not stable. And while there is literature to suggest that an inelastic
revenue system can nonetheless yield

8
Dye, Richard and Merriman, David. ³State Revenue Stability: Alternative Conceptualizations´. Presented at
the National Tax Association Annual Conference, November 200Ã: .
9
Bruce, Donald, Fox, William, & Tuttle, M. ³Tax Base Elasticities: A Multi-State Analysis of Long-Run and
Short-Run Dynamics´. Southern Economic Journal 7.2 (200d).
Ã


cyclically stable revenue,10 the revenue figures in Table 1.3.1 indicate that
this exception does not apply to (alifornia present sales and use tax
program.
C 3 3 (alifornia Tax Elasticities
Short-Run Elasticities
When (urrent
When (urrent
Long- Revenue Value
Revenue Value is
Run is above Long-
below Long-Run
Elasticity Run
Equilibrium
Equilibrium
Sales
0.833 -1.408 1.146
Tax
Personal
Income 1.749 -1.536 3.223
Tax
Granting the above calculations and the previous work done by
noted authors, inclusion of services in the sales tax base does indeed
produce a less volatile revenue stream, yet it must be considered at what

!*
++ , -
, %./ 0$#
$1
'2 0 "3"4!3356787 7)
Ã8


economic cost. Floridaǯs 1987 broad-based tax on services such as
advertising, accountants, and attorneys resulted in a mass exodus of
businesses relocating conventions and headquarters elsewhere.11 Texas
was forced to continuously increase its sales tax rate because its tax on
services revenue was falling far below the estimates.12 More recently in
2007 Michiganǯs tax on services would have introduced inequities into the
economy such as tax pyramiding and a higher degree of the tax burden on
the poor.13 A consistent and aggressive onslaught of taxpayer and business
lobbying, however, forced legislators to repeal the law before it was
enacted, which is unarguably a sign that those outside of the capitol
understood the dramatic ramifications the tax would have on their
economy or individual pocketbooks.14

11
Hill, John. ³Hotels Cope with Convention Losses´. The Orlando Sentinel. 2d July 1987: D-1.
12
Hamilton, Billy. ³Comments on the Taxation of Services Under State Sales Taxes´. National Tax Journal
Ã1. (1988): Ã11-1.
1
Watson, Steve. ³Governor Granholm¶s Proposed 2% Excise Tax on Services´. Michigan, House Fiscal
Agency: 2009.
1Ã
See Tuerck, David, Glassman, Ssrah, & Bachman, Paul. ³Tax Changes in Michigan: Measuring the Effects
of Expanding the Sales Tax to Services´. (2007). Boston, MA: The Beacon Hill Institute.
Ã


,3 8+ C &
(alifornia has found itself in massive budget deficits several times
since the turn of the millennium. Expansion of the sales tax base has often
been argued by state political leaders to be the best means of closing
budget gaps without major cuts to social programs and services. The
attempts to implement such tax reform by Sen. Florez (D) in 2003 and AB
9 sponsored by Rep. (oto (D) in 2005 were the most ambitious legislation
pursued to these ends. Recently, however, state Board of Equalization
(hairwoman Judy (hu has championed the reform as the only means of
quickly saving the state government from insolvency since large amounts
of spending (to the degree necessary to avoid insolvency) cannot be scaled
back in a single fiscal year.15 Republicans and fiscal conservative tax
watchdog groups, however, have quickly responded to such proposals that
any tax base increase should be coupled with a cut in the tax rate, a
suggestion not being well-received by the Democratic-controlled
legislature.16

15
1d.
1d
Lin, Judy. ³Wider, Not Higher, Sales Tax Seen As Budget Fix´. Sacramento Bee. 27 April 2008. Retrieved
October 1, 2008 from <http://www.sacbee.com/111/story/892911.html>.
Ã


A recurring challenge for politicians supporting base expansion is
enumerating exactly which services should be taxed. For politicians this
dilemma is at heart an issue of equity. Taxing some services while
exempting others generally will disproportionately impact interested
parties, and though it may yield a set of more Pareto-optimal efficient
conditions, it does so at the cost of fairness in some cases to the poor. In
2003, for instance, Senator (edillo, (hairman of the Senate Revenue and
Taxation (ommittee, proposed a tax on services to help eat up some of the
projected $35 billion deficit by the end of fiscal year 2003-2004.17 Though
a proposal was never drafted by Sen. (edillo,18 the tax itself, were it to be
implemented, was argued to be against the well-being of the poor as it
would disproportionately impact them most compared to other economic
classes The tax status of medical services was an issue as was the status of
services consumed by businesses such as consulting and advertising
services. It is generally argued that medical services generally should be
exempt from taxation as it would impose too high a burden on low-income

17
Chorneau, Thomas. ³Place For Sales Tax on Services Gets Mixed Reviews at Hearing´. San Diego Union-
Tribune. 10 April 200.
18
Legislation to this end was sponsored by Senator Florez in 200, SB Ã00.
ÃÃ


wage earners.19 As for the latter types of services, (alifornia still
sporadically flirts with the notion of taping these as sustainable revenue
sources despite warnings that doing so will introduce potentially
economic destabilizing inequities like tax pyramiding.20
There are at least two major political hurdles which have not
received sufficient attention in scholarly literature were the tax base
indeed expanded: the impact to local financing and the impact to land use
development.21 The former problem arises from the current Bradley-
Burns sales tax system in which 1% of the base state sales tax rate of
7.25% is reallocated to local jurisdictions where the sale occurred.
Because current Board of Equalization regulations allow for retail
corporations to establish a single place of business where no physical
goods are delivered to the consumer, but rather only where the
negotiating and final sale take place, the region that serves as the single
point of sale receives revenue for sales occurring throughout the state.

19
See Nellen, Annette. (June 29, 2008b). ³Taxing Some Services Could If It¶s Fair and Simple´. San Jose
Mercury News. 29 June 2008.
20
California Chamber of Commerce. Letter to Assemembly Member Coto. 22 April 2005. Retrieved from
<http://ct2k2.capitoltrack.com/05/viewdoc.asp?docid=9772>.; 2d.
21
See a nice discussion of the latter problem in Lewis, Paul and Barbour, Elisa. ³California Cities and the
Local Sales Tax´. Sacramento: Public Policy Institute of California, 1999.
Ã


Actual delivery of goods may occur in other jurisdictions, yet revenue
allocation is only directed to those localities where the sale is agreed
upon.22
This state of affairs creates a strong incentive for local
governments to lure businesses away from other cities and counties. And,
indeed, (alifornia cities have used sales tax rebates as the primary
incentive to attract businesses. For example, the (ity of Fillmore recently
established a relationship with a consultation firm where the city
promises to pay the firm 85% of the 1% Bradley-Burns rebated dollars
from business they brought into the city that generated revenue. The (ity
of Livermore filed suit against Fillmore for using this practice for luring
business from the former jurisdiction to the latter.23 Other (alifornia cities
with established revenue sharing policies include (orona, Huntington
Beach, Los Angeles, Manteca, Oakland, Sacramento, San Francisco, and
Tracy. The (ity of Modesto recently created revenue sharing deals with
multiple petroleum corporations including General Petroleum, Maxum
Petroleum, Boyett Petroleum, and Breshears Petroleum. Under the deal

22
The sale of jet fuel is an exception to this rule. Monies from the sale of jet fuel are allocated to the
jurisdictions where the fuel is delivered.
2
Schifanelli, Joyce. ³Sales Tax Revenue Sharing´. The Fillmore Gazette. 2Ã September 2008. Retrieved
from <http://www.fillmoregazette.com/front-page/sales-tax-revenue-sharing>.
Ãd


with General, the company will receive 65% of its sales tax back if its
revenues exceed $25 million a quarter.24
Though revenue sharing has allowed jurisdictions to increase
budget allocation for education and human services programs,
unproductive competition between cities is often the result. The
Legislative Analyst Office describes the problem aptly:
The main result of the various incentives offered to the

business is simply a relocation of the retail activity from
one community to anotherȄwith no net gain in economic
output or efficiency to the region or state as a whole. In
addition, the cost of the economic incentives drain local
government resources that otherwise would be available
for public purposes.25
Given widespread budget deficits across the state, it should not be
surprising if revenue sharing deals become an established norm of local
financing in the future. However, recent state legislation has ensured that
revenue sharing is severely limited if not eliminated completed. Assembly

2Ã
Ashton, Adam. (September 10, 2008). ³Tax rebate for General Petroleum OK¶d´. Modesto Bee. 10
September 2008. Retrieved December 2 from <http://www.modbee.com/local/story/Ã2Ãd11.html>.
25
Legislative Analyst Office. ³Allocating Local Sales Taxes´. Sacramento, LAO: 2008. Retrieved October 8,
2008 from <http://www.lao.ca.gov/2007/sales_tax/sales_tax_012Ã07.pdf>.
Ã¯


Bill 697 signed into law effective October 1, 2008 precludes cities and
corporations from consolidating sales offices into a single jurisdiction for
the sole purpose of receiving rebated sales tax. Indeed, the point has been
made that Modesto rushed through the approval process of its revenue
sharing deal with the petroleum companies in order to beat the effective
date of AB 697.26 Yet, the language is sufficiently vague in the law where
interpretations are possible to ensure that revenue sharing continues
albeit to a much lesser degree.
The second political hurdle arises as a corollary of the first. In
order to attract the retail businesses, cities and counties must plan land
use accordingly. The desire to attract sales tax generating businesses leads
to inefficient land use policy as priority of the best land is given to retail
development rather than housing, schools, parks, state-use, or federal-use
projects (Legislative Analyst Office, 2008). Moreover, this reduction in
supply increases the cost of land, a consequence which presents itself as a
negative externality affecting the state and taxpayers.
These issues have only applied to retail businesses selling tangible
goods since mostly tangible goods heretofore are taxable; however, the

2d
Modesto Bee. ³Sweet sales tax deal could turn sour for city´. 8 September 2008. Retrieved from
<http://www.modbee.com/opinion/story/Ã2109.html>.
Ã


expansion of the sales tax base to include services will only exacerbate
these problems. Moreover, AB 697 applies only to retailers, yet it is
uncertain if this refers to retailers of tangible goods as well as retailers of
services. Since most of the service transactions taking place in (alifornia
are business-to-business services and not retailed services, presumably
any service provider falling into this category could easily consolidate a
sales office into a single jurisdiction for benefit of rebated sales tax (this
assumes that at least some business-to-business services are taxable).
(ollaboration between state and local governments is necessary to ensure
these issues are mitigated. Failure to do so will undoubtedly result in local
governments continuing to participate in unproductive competition at the
expense of taxpayers.
-3 + 8+ C &
Any economically and politically motivated decision to expand the
tax base invariably affects consumer shopping behavior. Levying a sales
tax or gross receipt tax increases augment the final price of a consumed
good or service. Therefore, price-sensitive consumers will seek the most
Ã~


cost-minimizing alternative in order to maximize their utility subject to
their budget constraints. The result is a substitution effect of purchases:
shoppers will prefer to purchase their goods and services from
jurisdictions with lower or no sales tax. The advent of the internet as a
medium of commerce only improves the efficiency with which consumers
can substitute goods and services in order to evade paying higher costs
because of additional taxing.27 Moreover, the sheer volume of consumers
that use the internet to consume goods and services prevents the Board of
Equalization from pursuing any legally owed use tax, which significantly
contributes to the $2bn sales and use tax gap Ȃ the difference between
what is owed and what is paid.28
It is uncertain how a tax on services will change consumption
patterns. Business services such as attorneys, accountants, and
consultants can easily be conducted via the internet, yet services such as
gym memberships, veterinarian services, auto repair, and sporting and
amusement park admissions certainly do not appear to be susceptible to

27
Lenard, Thomas. & McGonegal, Stephen. ³The Streamlined Sales Tax Project: An Initiative Whose Time
Has Not Come´. Washington, DC: The Milken Institute Review, 2005: 18-2d. Retrieved October 20, 2008
from <http://www.pff.org/issues-pubs/articles/050502lenardmilken.pdf>.
28
California State Board of Equalization. ³Addressing the Tax Gap´. Sacramento, 2007: . Retrieved
December 2, 2008 from <http://www.boe.ca.gov/news/pdf/gapdoc.pdf>.


substitution effects to the same degree. Fisher argues that the resulting
equal tax on commodities and services could leave the relative prices of all
goods and services unchanged, in which case a substitution effect never
occurs.29 However, this argument ignores the fact that businesses such as
gyms pay sales tax on their equipment. (onsequently, membership fees
include the tax the business paid for equipment on top of which the
customer will pay the service tax. Therefore, it is ensured that gym
memberships will always be comparatively more expensive than their
tangible goods counterparts sold in brick-and-mortar locations. A
substitution effect is guaranteed, and lawmakers thus have a moral
obligation to ensure that administrative regulations which complicate
taxpayer spending decisions are kept simple and to a minimum.30
Yet these matters beg the question: what constitutes a service?
After all, a fundamental rule of law stipulates that the law must be clear
and publicly accessible.31 If I ask a veterinarian what might be wrong with

29
Fisher, Ronald. State and Local Public Finance. Mason, Ohio: Thomson South-Western, 2007: 88.
0
American Institute of Certified Public Accountants. ³Guiding Principles of Good Tax Policy: A
Framework for Evaluating Tax Proposals´. Retrieved February 1, 2009 from <http://ftp.aicpa.org/public/
download/members/div/tax/-01.pdf>.
1
Raz, Joseph. The Authority of Law. Oxford: Clarendon Press, 1977: 21Ã.

8


my dog, does that constitute a consultation or a taxable service?32 Would
the answer change if I see my vet taking a jog, or if I see him inside a
grocery store and stop to ask him? Or if I ask a financial advisor to make
certain changes to my portfolio, is the state going to tax me for only the
specific instance she performed a service, or levy the tax on the value
added to the portfolio because of her performed service, or both? It also is
extremely plausible to argue that the very act of providing tangible goods
to consume is itself a service. Does that therefore mean I may pay a tax to
the retailer for the privilege of retailing as well as a tax on the tangible
good?
Some of these questions are easily answered and are
unproblematic, yet the inability to isolate the necessary and sufficient
conditions that define a taxable service and those individuals liable to
perform them remains a challenge to any proposed reform. The issue
plagued Texas in the 1980ǯs, for example. Hamilton notes that debt
collection services if performed by a collection firm were taxable, yet the
same service performed by a lawyer was not taxable.33 Similarly,

2
As of the time of writing, Governor Schwarzenegger¶s tax proposal does not include consultation services.

Hamilton, Billy. ³Comments on the Taxation of Services Under State Sales Taxes´. National Tax Journal
Ã1. (1988): Ã11.


insurance adjustments performed by an insurance company are taxable,
yet those performed by an in-house adjuster are not. The stateǯs
(omptrollerǯs office faced enormous problems in implementing the tax
because of this uncertainty.34 Massachusettsǯs 1990 tax on services
suffered from similar administrative complications because of an inability
to define terms such as ǲlegal servicesǳ, ǲengineering servicesǳ, and
ǲbusinessǳ.35 The tax was repealed two days after it was implemented.
Similarly, Marylandǯs 2007 tax on computer services was repealed the
following year because of ǲnumerous challenges related to [its]
implementation.ǳ36 (alifornia is threatened to suffer a similar fate if clarity
is not pursued as an end itself. The more difficult it is to decipher when a
service is or is not taxable then the more difficult it will be for lawmakers
and tax administrators to meet their moral obligations to taxpayers of fair
tax policy.

Ã
` : Ã12.
5
Aldridge, Vincent. (2007). ³Letter to Ann Gordon´. 2 November 2007. Retrieved January 22, 2009 from
<http://www.floridatbrc.org/pdf/11_5_07DORHandout.pdf>.
d
Comptroller of Maryland. ³Franchot Pulls Draft ³Tech Tax´ Regulations from Website; Applauds Efforts
that led to Repeal.´ 8 April 2008. Retrieved January 1Ã, 2009 from <http://www.marylandtaxes.com/
publications/nr/current/pr18.asp>.


¯3+
With rare exception debate concerning expansion of the sales tax
to include services only surface during times of economic downturns when
state revenues are the leanest. Indeed, despite Floridaǯs attempts to tax
services in the wake of massive budget deficits in 1987 and then again
following the collapsing of the dot-com market in 2002, it also exists as the
only exception to the general rule known to the author. In 1997-98 Florida
was enjoying a strong economy and the legislature was given a chance to
stabilize its revenue sources by voting on a then revenue-neutral reform
package including lifting tax exemptions of many services.37 The reform
was voted down. This almost chronic inability to tax services during weak
and strong economic times begs for further research.
(ertainly, how (alifornia lawmakers deal with the difficulties
detailed herein will influence greatly whether the state engages in a
seemingly futile effort like Florida, or whether it can eventually muster the
leverage and momentum to overcome political and lobbying dissent like
New Mexico. This is not to suggest that New Mexico is not faced with

7
Nabors, Robert. (200). ³An Opportunity Lost: Tax Reform and the 1997-1998 Constitution Revision
Commission.´ Florida State University Law Review 0.Ã77: Ã77-Ã8d.
Ã


criticisms regarding its consumption-based taxes. In fact, complaints
leveled against their gross receipt tax structure are often harsher and
more constant.38 Yet despite the criticism two facts make the case of New
Mexico standout. First, it is the only Western state that has successfully
implemented a broad-based tax on services. Second, by doing so it creates
a considerably more stable source of revenue compared to (aliforniaǯs
system.39 It is unlikely that New Mexicoǯs system could be adopted in
(alifornia given the dramatic socio-economic, political, and population
differences that serve as catalysts for equity debates. New Mexico
nonetheless provides a glimpse at the benefits (aliforniaǯs lawmakers
could reap if a sales tax on services were enacted. However, overcoming
the political, administrative, and taxpayer equity obstacles, as they say, is a
horse of a different color.

8
See Gessing, Paul. and Messenheimer, Harry. ³New Mexico¶s Harmful Gross Receipts Tax: A Warning to
Other States´. Rio Grande Foundation Policy Brief. (2007).
9
19, Table


() ) *+
%

! (
( 2 #

This paper is an attempt to model an economy that retains the most
important features of the capitalist, competitive model, while providing a
rationale for and a description of the regulatory framework needed in the
21st century. Let us begin by separating what government is from what it
does. Its very existence requires funding, and thus the taxation of its
citizens and the substitution of public preferences for private ones. Even
the liberties we most value as a free society require a legislative, police
and judicial establishment that also abridges liberties through law-making
and enforcement. Being a government of the people, public actions are
sometimes viewed as unpopular. Wars that cost trillions, (generally
borrowed money, given the expediency of policy, and thus paid for by
generations that had no say in that policy), and that were fought for
dubious reasons, are the obvious example of this problem. However,
depending on oneǯs point of view, regulations and laws concerning such
d


disparate areas like immigration, alcohol and drug abuse, energy policy,
political expression, and many others can also be discussed in this context.
The point is that when government acts, some citizens are favored while
others are hurt, and the latter group will blame government for what it is,
as well as what it does. How do we create a government that is nimble
enough to address problems as they arise, intelligent enough to formulate
the appropriate legislation, and cohesive enough to administer those
policies in an optimal fashion?
As we contemplate the new administrationǯs challenges and plans to
remedy the current economic disaster, citizens of all stripes are weighing
in on the short term monetary and fiscal policy fix appropriate at such
times. This paper concentrates its focus on economics, and looks to the
long term and asks whether there is a framework of governmental action
that would preserve the best features of competitive capitalism while
avoiding its worst. The first step in this process is to establish guidelines
that provide a sounding board for appropriate action, viz.
'+ !
¯


1-Globilization is a reality and nocountry-based regulatory scheme can
hope to be effective. Nations must begin to cede economic power to
supranational governors, much in the way the Europeans have done with
their monetary and labor environments. Americans are not alone in their
reluctance to participate in these schemes. Great Britainǯs reluctance to
join the European (ommunity and to adopt the Euro point out the
difficulties inherent in creating any global body that will substitute the
international communityǯs voice for that of the nation.
2-Realism should be a word constantly watched. We will always confront
scarcity. Neither good government nor efficient markets can eliminate the
excess of human wants over the means to satisfy them. Therefore public
action should be described as ameliorative, not a means to an end of all
our problems. In American politics this prescription is especially
important. We are so accustomed to the hyperbole of advertisers that
realism is mistaken for a lack of urgency, and thus problems and their
remedies are described using superlatives, which in turn breeds
disappointment and suspicion.
C)& (
"+


The S.E.(. was created by the Securities Exchange Act of 1934.
ǲWith this Act, (ongress created the Securities and Exchange (ommission.
The Act empowers the SE( with broad authority over all aspects of the
securities industry. This includes the power to register, regulate, and
oversee brokerage firms, transfer agents, and clearing agencies as well as
the nation's securities self regulatory organizations (SROs). The various
stock exchanges, such as the New York Stock Exchange, and American
Stock Exchange are SROs. The National Association of Securities Dealers,
which operates the NASDAQ system, is also an SRO. The Act also identifies
and prohibits certain types of conduct in the markets and provides the
(ommission with disciplinary powers over regulated entities and persons
associated with them.
The Act also empowers the SE( to require periodic reporting of
information by companies with publicly traded securities.ǳ These
paragraphs are taken from the S.E.(. website. The problem is that the SE(
does NOT have ǲauthority over all aspects of the securities industry.ǳ
Absent from its purview are entire industries, (such as hedge funds), and
products which have amazing powers to create and destroy wealth, (such
as derivative securities). Nor is this a new issue. The portfolio insurance
~


discussions of the 1990ǯs, and the triple-witching hour phenomena of the
1980ǯs were explicit recognitions of the ǲtail wagging the dog.ǳ Today we
have credit default swaps and mortgage backed securities as well as other
securitized loan products whose size apparently dwarfs that of the equity
markets and whose supervision is either non-existent or housed
somewhere other that at the S.E.(. I suspect that the coming decades will
see more innovation in finance and that a framework seeking to regulate
the marketplace needs to anticipate these innovations and take an
appropriate oversight role and develop behavioral rules which allow these
innovations to deliver economic benefit without creating the seeds of the
next disaster.
So what additional factors can be identified to create the maximum
benefit from a flexible, global and realistic system of financial market
regulations?

The (ongress must pass legislation that addresses the economic
realities of the present and future. To do that these legislators must
understand economics. Unfortunately they do not. This is not an
d


American problem, but rather an international reality. ô
in the
2/21/2009
bemoans the lack of economic literacy in
contemporary British politics. Furthermore, no framework will achieve its
goals if the bureaucrats charged with its execution are incompetent or
unmotivated. Why is it that regulators are intimidated by those whom they
regulate? Do they feel intellectually inferior to their private sector
colleagues? Arthur Levittǯs recent admission that during his time as S.E.(.
(hairman he often called Bernard Madoff to get the latterǯs wisdom and
advice on the workings of financial markets would be hysterically funny
were it not so tragically illustrative of this problem. Are they given work
loads that make proper understanding impossible? Do they envision a
future in which they become employed by those private firms armed with
government experience and contacts?
We must cultivate a culture of national service. For too long the
term bureaucrat has had negative connotations attached to it. This is a
product of prejudice, and not necessarily an accurate description of the
function and efficiency of those government employees. To the extent that
this description is prevalent, a disincentive exists for capable workers to
enter those fields. This in turn could produce exactly the result we desire
d8


least - agencies staffed by poorly motivated individuals, drawn from the
bottom of their graduating classes. Moreover, the increasing
sophistication of the fields these bureaucrats oversee requires a staff of
lifetime learners who keep up with the technical and scientific innovations
relevant to their workloads.
We must reward public service with incentives based on
achievement. This means salaries and benefits akin to those in the private
sector. It also means creating intangible rewards that confer higher status
on these individuals.
Establish ǲPublic Service Academiesǳ like those that train military
officers. Why not create colleges overseen by and financed through
cabinet secretaries who will eventually hire these graduates? We seem
justly proud of the officers and enlisted personnel who defend our
country. Surely they too are bureaucrats. Why the absence of invective
and denigration. One reason is the universal realization that their function
is crucial and their service ǲpublicǳ.
+
d


As mentioned above, hedge funds are currently beyond the scope
of federal securities regulators, as apparently is mortgage origination. The
idea that these trillion dollar marketplaces should exist without oversight
is ridiculous. Not only does the current situation give them an unfair
performance advantage over their regulated competitors, say mutual
funds, but it also creates an environment in which unregulated financial
institutions can exploit market flaws and create imbalances that threaten
the safety and soundness of the system at large.

While a free and vibrant privately owned media is an essential part
of our society, their anti government bias is unmistakable. Some of this
stems from their relationship with government as regulator, some from
corporate sponsorship and thus their anti-government message, and the
rest from a truthful accounting of governmentǯs follies. Iǯm sure that it
would be hard to make compelling programming out of annual awards for
outstanding public service, (after all, the red carpet, the glamorous
nominees, and the riveting victory speeches from Oscar Night would all be
missing), but I believe an attempt is worthwhile.
d


.
If that government governs best which governs least, (apparently
handed down to us from Thoreau, Emerson, and C

!"
% #part of our discussion should center on
the determination of where government action is necessary and effective.
Moreover, some sort of ǲsunset provisionǳ should accompany enabling
legislation to avoid having a bureau assigned to an obsolete function.
(learly, the function of government is NOT to prevent all business failures,
plant closings, and personal bankruptcies. Neither is it to allocate capital
among competing industries and firms.
%
Perhaps the thorniest issue here is the need to protect the public
interest while ensuring that the fruits of entrepreneurial innovation are
not lost. Agencies like the Food and Drug Administration, the (onsumer
Products Safety (ommission, OSHA, and the Securities and Exchange
(ommission all struggle with this challenge. Recent disasters in financial
services illustrate this point vividly. (ommercial banking has been
regulated by the central government for all but a 30 year period from 1837
dÃ


Ȃ 1863. The rationale is that these banks create the national currency and
that their ability to honor deposit liabilities must be ensured. How to do
this is unclear, but frequent audits, cash reserve requirements, deposit
insurance, and emergency lending facilities seem to be important. Non-
bank members of the community, (insurance companies, investment
banks, pension funds, mutual and hedge funds), have also become too big
and too important to leave without oversight, but the appropriate
oversight and policy directives are still evolving. Today, the US Treasury
and Federal Reserve are acting in unprecedented fashion to prevent a
complete collapse of the system. I find the idea of the Treasury acting as a
buyer of assets for which markets have ceased to function a particularly
attractive remedy. It addresses the problem of illiquidity in the financial
system by substituting cash for securities on private balance sheets, and
should ultimately be less costly than nationalization schemes since those
assets should appreciate as the system returns to normalcy. Should they
succeed the congress will then decide how to prevent a similar
catastrophe from reoccurring.
d


'

!C+.
29

%+
The purpose of this paper is to provide a discussion of new forms
of governance and the affects leading up to it. The interconnectedness of
the world has led to changes in governance to effectively manage the
social, economic, and political changes. If left unimpeded, there will be a
natural strive towards efficiency, just like the efficiency of the free market.
This new form of governance is pluralistic and democratic in nature.
I will begin my paper by giving a preliminary discussion of
governance Ȃ what it is and how we arrived from a state-centered form of
governance to a decentralized one that involves multiple actors, both
private and public. I will then discuss the factors that have led and will
continue to lead to new forms of governance. I will then explore the new
dd


forms of governance and the problems that it faces in the existing
literature.
"+%
What first needs to be addressed is the notion of governance. The
term itself is considered to be persuasive and has different meanings.
Some of the different types of governance are corporate governance, good
governance, collaborate governance, risk governance, and global
governance. I choose to define governance as the rules, regulations, and
management style of a given entity to fulfill a certain goal. The best form of
governance is one that achieves the end goal in the most efficient manner,
but also in a way that takes human values into consideration such as
working together to achieve equality, rights, and justice. Democracy is
achieved based on the pluralistic nature of governance Ȃ often having
multiple actors working together to achieve a common goal and these
multiple actors acts as a check and balance on each other through the
deliberation and collaboration process.
It would be helpful to understand the theory behind what used to
be a popular form of governance Ȃ state-centered or centralized
d¯


governance. The theory that led up to this is that society will fall apart
unless there is a strong, centralized authority managing the day-to-day
aspects of society. People are too selfish to work together to achieve a
common end, and for this reason, there has to be a higher authority to take
care of the publicǯs needs and to act as an overseer. It turns out that too
much centralized control often leads to inefficiency. A good example is the
command economy. Many now favor a less centralized form of market
system Ȃ that of the free market, because it is the most efficient form of
system that results in the best prices for consumers due to competition
and innovation. This process is natural because these are the end goals
that we want to achieve in the market system. The same argument can be
applied in other areas such as the management of society. There has been
a trend towards a less decentralized form of governance, undertaken by
multiple actors, both private and public, to achieve a more efficient way of
arriving at the end goal. I argue that this is a natural process because it is
better to achieve the same goal with the least amount of resources
possible while maintaining accountability and transparency. A multitude
of private actors have emerged to take over many of the functions of the
public actor. The state now takes on a

rather than a
function. That is, the government these days has only enough power to stir
d


or help guide public policy rather than dictate policy because other
agencies, both government and non-government agencies, also undertake
this task as well Ȃ no one single institution as ultimate authority.
Nonetheless, the state continues to grow to keep up with the growth and
complexity of the world, and for this reason, it still has a very important
function to play.
( . :( '
The most apparent factor leading to a change in governance is the
trend towards achieving efficiency. This includes cutting back unnecessary
resources such as time and cost. There has been a trend from rule-based to
results-based because in the end, itǯs about achieving the desired outcome.
A common structural problem that leads to inefficiency is the nature of
traditional style management, particularly top-down or hierarchical
management. A detailed discussion on this issue will be provided later on.
Another leading factor of the new style of governance is due to
globalization. David Held describes globalization as the ǲstretching of
intensification of social, economic and political relations across regions
d~


and continents.ǳ1 The world is becoming more and more interconnected.
New information technology has enabled us to send vast amounts of
information, such as news, across the entire globe. A remote part of Asia
can see and hear what is going on in the United States and vice versa. We
are thus influenced by other people in other cultures through
communications technology such as the television, the telephone, and the
Internet. Another sign of the interconnectedness of the world is that of the
financial market. The financial market is linked through information
technology. (urrency can be transferred and traded globally in a matter of
seconds. Goods, services, and investments can also be purchased in the
same manner. This, however, has led to market interdependence. If there
is a financial crisis in one region of the world, such as Southeast Asia, it can
have a profound effect on the entire global financial market. Another way
our world is boundless is on certain important issues such as global
warming. The massive amounts of carbon dioxide and other green house
gases will affect the global and not just the regional climate. For this
reason, the industrialized countries must collaborate with one another to
keep global warming under control. An important common interest is at

1
David Held, ³Regulating Globalization? The Reinvention of Politics,´ `
, 1Ã (2)
(2002): 95.
¯


stake. There is also a need for regulation to manage neomercantilism.
Things such as strategic trade and intellectual property rights must be
protected, and this must be done on an international scale, which leads to
the necessity of having international regulating agencies. Regulation also
helps to legitimize markets and helps to facilitates transactions by
enhancing trust among multiple actors.
Global interdependence leads to a non-traditional, non-unilateral
ways of solving problems. Both public and private actors must work
together to arrive at an efficient way of achieving goals, which can be too
difficult to achieve unilaterally. Globalization also effects democracy. It
leads to multilateral sources of power, a larger scale of society and of
government, a diffusion of power, and it leads to the new boundary
problem. A new system of governance emerges to cope with these issues.
C:*'
$
÷

Before discussing in detail about the different forms of governance
that has shown up in the existing literature, I would like to discuss about
the important attributes of the new form of decentralized governance. It is
¯8


decentralized because there are more actors involved, which may or may
not include public actors. Multiple actors often work together to share
resources such as information. Together, these actors form a network. To
help achieve accountability, these agencies ought to be transparent Ȃ the
day-to-day activities including its accounting practices ought to be made
available to the public. The issue of accountability in the new form of
governance is problematic as we will see later on. It is common for
management to be bottom-up instead of top-down because ordinary
people have a greater say in the operations and in the policy making
process. It is also a horizontal style of management because multiple
actors are involved, working together and sharing resources and
information to achieve a goal. This newer form of governance also usually
involves the local community, and it is also problem centered. There is a
clear and practical problem that needs to be addressed, and the goal is to
achieve it in the most efficient way possible. There is also a shift from the
traditional rule-based style of management to a results-based style of
management. Once again, the emphasis is on whether or not the goal is
being achieved in the best possible manner. Let us now explore the various
aspects of this new form of governance.
¯


%
Governance, since it often involves multiple actors, can be
described as a network. Mark Schneider states that networks form the
core of governing structures.2 It is a more horizontal form of organization
with each actor playing an important role. Networks can also be
characterized as having high levels of interdependence and multiple levels
of organization. As a result, the formal lines of authority are blurred. What
was commonly centralized control is now dispersed.
Networks stimulate collaboration and cooperation in several ways.
First, it promotes deliberation. Since there are multiple actors, they must
learn how to work together to achieve a common goal. Private actors will
have a say while working with public actors. It also encourages the people
who are affected by regulation to be involved. What was traditionally a
hierarchical command and control style of management now becomes a
bottom-up and horizontal style of management. The entire process
becomes a cooperative process, rather than an adversarial one. It is more
democratic and less authoritative.

2
Mark Schneider et al., ³Building Consensual Institutions: Networks and the National Estuary Program,´
ª , Ã7 (1) (200): 1Ã ± 158.
¯


There are several key factors that lead to the success of networks.
The first comes from individuals making ǲmutually beneficial exchanges
and agreements that otherwise would not take place.ǳ3 The second comes
from the sharing of resources, such as the sharing of information. The
third is the increase of commitments to fulfill the agreements, which
results in higher creditability for these actors. The main constraints of
these networks are the costs associated with development and
maintaining contacts.
V÷ !
!&V!#
Now that we have examined the basic underlying structure of this
newer interdependent, networked, and decentralized form of governance,
we can focus on more specific models of governance. A new style of
management to reflect the new world of governance is called New Public
Management (NPM). NPM has several goals in mind. The first is to apply
the corporate model to increase efficiency. The second is to take existing
groups and make them more efficient. The third is to create autonomous
agencies to respond to market forces. The overall goal of NPM is to make
the state more efficient.

Ibid. 1ÃÃ.
¯Ã


The primary reason for NPM is due to the inefficiency of the public
sector. The public sector does not respond to market forces like the
private sector does. It is also not responsive to the public. For these
reasons, there is very little incentive for the public sector to change in
order to be more efficient. NPM creates market-like conditions such as
contracting out services, productively is measured by the outcome, more
control is given to managers and accountability falls on them, reward and
punishment is based on performance, and agencies are freed up so that
they can hire and fire as they please. A major shift is the focus on outputs
rather than inputs. The output is the thing that is done to achieve the goal,
or the outcome, and this is what is being measured. The emphasis is
therefore whether or not the end goal is achieved and how successful it
has been achieved.
NPM faces a serious problem. Measuring the outcome is
problematic because it is a difficult task and it could lead to unintended
consequences. An example would be the standardized tests in secondary
school. These tests are administered with the intention of measuring the
teaching effectiveness of each school, and ultimately of each teacher.
These tests can cause the teacher to change his or her teaching style in
¯


order in order to achieve higher standardized test scores, which can
undermine a more valuable kind of education that is being given to the
students.
V

'%&V'#
Another form of governance that has emerged is called
empowered participatory governance (EPG). In this case, ordinary people
in a local community have control over governance, and this is a form of
decentralized governance. One case study is the governance structure of
several public schools in (hicago.4 These schools were some of poorest
performing schools in the nation. The state decided to try something new
by giving each local community control over the management of the
schools. (oncerned parents and teachers came together to figure out what
was effective and what needed to be changed. The end effect was a large
improvement over the quality of these schools. The basic criticism of top-
down management or centralized control, especially in this case, is that
management is too disassociated from what they are managing. Since they

Ã
See Archon Fung and Erik Olin Wright, ³Thinking about Empowered Participatory Governance,´ in
9
9 ` ` (San Francisco:
Analytical Psychology Club of San Francisco, 200), pp. ± Ã2.
¯d


do not have firsthand experience of the situation, they end up making bad
management decisions.
There are three principles in EPG: practical orientation, bottom-up
participation, and deliberative solution generation. All are effective for
obvious reasons, but the source leading to its effectiveness also leads to
problems. This form of participatory governance is ǲvulnerable to [a]
serious problem of power and domination inside deliberative arenas by
powerful factions or elites.ǳ5 This is a good criticism, but one that should
not be taken too seriously. Anytime a group of people get together to
achieve a common goal, there is bound to be difference of opinions and
power struggles among the contenders, which are the natural results of
democracy. The greater the diversity of people and their opinions, the less
likely there will be a concentration of power. And even if there is
domination by one group, it will be open to scrutiny by other members.
Let us now explore some of the challenges facing the new world of
governance.

5
Ibid. .
¯¯


( :*'
The first issue I would like to talk about relates to the last criticism
about the domination of elite forces. Jo Beall raises this criticism while
writing on the issue of decentralization and international development.6
Beall argues that decentralization is a core component of international
development. The positive benefit of decentralization is that it improves
accountably, transparency, and state-society relations. The negative
consequence of decentralization is that it can lead to elite capture, toward
pork-barrel politics, and local governments can be deprived of human and
financial resources to cope with the demands of centralization, as was the
case with South Africa. Beall also states that deregulation does not work
well in rural areas because they are more traditionalists and because rural
areas are poorer, therefore they provide less revenue for the government.
More general problems about regulation include the fact that
regulations adds to the cost for industries, and the consumers will likely
pick up these costs if the industries want to retain more profits.
(onsumers, however, are willing to pay only so much for a product before

d
Jo Beall, ³Decentralizing Government and Decentralizing Gender: Lessons from Local Government
Reform in South Africa,´ , (2) (200): 25-27d.
¯


they decide to purchase the same or similar product from another
manufacturer at a more affordable price. As markets continue to expand,
more regulation will be required to keep these markets operating
efficiently.
Another key issue is that of legitimization. States need to legitimate
their actions through science, which leads to ǲrisk analysisǳ. The problem
with risk analysis is that it can become politicized, such as the example
with the FDA. This also raises the question as to whether or not all forms
of regulatory agencies can operate without the coercion and influence of
outside forces such as businesses or political parties. In the case of the
FDA, the answer is no. The same people who they were watching over also
provided them with funding. They are also subject to a social and ethical
dilemma Ȃ the side effects and effectiveness of new drugs cannot truly be
determined until it has been given to the general public. In a scientific
study, the greater the number of participants involved in the study, the
more reliable the study will become. The pharmaceutical companies only
conduct a study based on several thousands of people. Nevertheless, there
is pressure to get these drugs onto the open market because they have the
potential of creating greater utility, such has helping people with harmful
¯~


conditions, than resulting in negative ones, such as death. The dilemma the
FDA faces is whether they should hold ethical standards above maximizing
utility or the other way around.
+
Anne-Marie Slaughter states that it is paradoxical that we want and
need more government on a regional and global scale, but at the same time
we want less centralized control and coercive authority that takes power
away from the people that are being governed.7 Institutions are beneficial,
but they can also be oppressive. It is further complicated by the concern of
accountability. The solution that she offers is having government networks
because it is a pluralist form of governance that will increase
transparency, accountability, the sharing of resources, and most
importantly, it will promote democratic principles such as deliberation
and cooperation to achieve a common goal. It is also important that the
people affected by regulation are involved in the regulation process. The
end goal of the state is to provide services for its citizens in the most
efficient manner as possible without undermining the quality of service.
Private actors are often able to perform this function better than public

7
Anne-Marie Slaughter, ª M (New Jersey: Princeton University Press, 2005).


ones. For this reason, the private sector is becoming more involved and
has a greater say in public policy. They are the rowers and the states are
now the stirrers. Just like the market system, there will be a natural strive
towards greater efficiency, because to do so is to achieve the function of
management in a more excellent manner. What is better is more desirable,
and in this case, it is the desire to have a more efficient form of local,
regional, and global governance. This is the reason why a new form of
governance has replaced the old one. In the Darwinian sense, the fit as
outlived the unfit.
8


++ !
" !
9

Brock Bahler is a graduate student in philosophy at Duquesne University.
He specializes in continental philosophy of religion.

'!
<

Geoffrey Propheter is a current graduate student in the Public Policy and
Administration Department at Sacramento State University. He earned his
M.A. in philosophy from San Jose State University and his B.A. in
philosophy from Sacramento State University. His research interests
include tax policy, moral foundations of taxation, political philosophy,
philosophy of economics, logic, and philosophy of science.
( !

! "
Dr. Ronald Filante, an expert on ) 2: 2
, is an associate professor of finance and economics at
the Lubin School of Business. He serves as a consultant to numerous
organizations and individuals and is an independent director of the TIP
family of mutual funds.
C+.!
#
Mr. Le currently holds a Bachelor's degree in Psychology and a Master's
degree in Philosophy from San Jose State University. He has taught courses
in philosophy including Introduction to Philosophy, Introduction to the
Philosophy of Religion, Logic and (ritical Thinking, (ritical Thinking and
Writing, and Moral and Political Philosophy at San Jose State University,
De Anza (ollege, Diablo (ollege, and San Jose (ity (ollege, all located in the
San Francisco Bay Area, (A. Mr. Le is the co-founder of The American
Future.


We are now accepting papers for the Fall 2010 edition of The American
Future. All papers will be considered.
C
( 00)

Our country is divided, seemingly more than at any time in our history,
along party lines. This division has brought a harshness to the political
rhetoric that seems to remove all hope for bi-partisan solutions to any of
the more urgent problems we face.
Perhaps only academia can raise the intellectual level of the discussions.
In the next volume of the American Future we would like to publish papers
which address major issues facing the United States with a truly bi-
partisan approach. We expect each paper to define the problem being
addressed, describe the philosophical issues presented by the problem for
both major political parties, and proposed a solution which is sensitive to
these philosophical issues.
In addition, papers on American culture, government, economy, military

strategy and political thought are welcome.
Submission Deadline: August 1, 2010

Submit at: www.American-Future.com/Submit


+ '+ !

1. Papers should be the original, unpublished work of degree candidates or
the faculty in the disciplines of philosophy, political science, and/or
economics.
2. Papers should be between 3,000 and 6,000 words, and should not be
merely descriptive. It should be an attempt to provide a solution for a
particular problem or offer a new interpretation of an existing one.
3. All references should be listed in MLA style. Use footnotes to cite your
sources.
4. All papers will be reviewed anonymously. The author's name should not
appear in the paper itself.
5. Include a cover page, that, states your name, affiliation, address, e-mail,
and telephone. Please provide a short biography of the author, and a 200-
500 word abstract of the piece being submitted.
6. Submit the final copy to The American Future online at

www.American-Future.com/submit.html or e-mail to
submissions@american-future.com
7.Acceptable file formats are MS Word and ETEX.

!
!

Ã

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

© 2010 by The American Future

All Rights Reserved

Printed in the United States of America

Jacket Design by Tony Lee with thanks to Thomas Midanek

Book design by Thomas Midanek

The American Future provides a forum for consideration of critical

In this context, an immediate objective of the Journal is to provide a

The Journal will initially have a multidisciplinary orientation, and

)&+ ) 

)&+  

 ( 233

In his later work, Jacques Derrida often spoke of a politics of

ǲdemocracy to come.ǳ Indeed, the thread running throughout Derridaǯs

entire corpus is a welcoming of  ,and it could be said that his oft-

quoted and misunderstood 

welcomeǳ (Smith 15).1 And as he stated himself, ǲ[D]econstruction

justice,ǳ and also, ǲethics hospitalityǳ (Smith 65).2

But such value on hospitality begs the question: What is

hospitality? This term is often used haphazardly and without

contemplation. Oftentimes, we say someone is hospitable if they put on

philosophical, more politically relevant, understanding of this term is

In this paper, I intend to articulate the etymological meaning of

ǲhospitalityǳ so far as it relates to Derridaǯs work of deconstruction and

American psyche, where xenophobia reigns, as witnessed in the rhetoric

regarding our war on terrorism, immigration policy, and most recently in

Barack Obamaǯs campaign for President. In conclusion, in this context, I

will consider how unconditional hospitality might possibly be utilized in

political sphere, are particularly pertinent in light of our current economic

heighten the sense of protectionism already at large in American culture.

I begin with the etymological nuances of the word ǲhospitality.ǳ Then, I

parallels with Derrida and the most unlikely of figures, Jesus.

hospitality is   , literally ǲthe love of strangersǳȄor perhaps more

offering kindness to a stranger as extremelystrange!

mean either ǲhospitableǳ but also ǲstrange, foreign.ǳ This double-meaning

is better understood by tracing the wordǯs history.   is a combination

of two Latin words: 

ǲhost,ǳ which, typically describes one that welcomes and entertains

visitors or guests, originally meant ǲstranger.ǳ It then took on the

connotation of ǲenemy,ǳ ǲsince any stranger in early times was a possible

in the classic King James Version which speaks of the ǲLord of 

Sam 1:11; 2 Sam 6:18; 2 Kings 19:31, etc.). Finally, 

meaning as we understand it today, meaning ǲguestǳ or ǲhost.ǳ

words ǲpotent,ǳ and ǲpotency.ǳ A ǲ  ital,ǳ then, is a place that 

when the party is over.

Inviting friends over to oneǯs house, then, is not   but

more akin to   (ǲbrotherly loveǳ), or fraternity, or perhaps even

cronyism at times. For when we invite our friends over, we expect

reciprocity. If I have a friend over at my place, I expect him to do the same.

But hospitality is supposed to be a giftȄand gifts are freely given, no

nature. He was quite dissatisfied with the notion of tolerance as well,

because tolerance retains the power structures of host and guest.

Tolerance, to Derrida, is ǲa supplementary mark of sovereignty, the good

is because I wish to limit my welcomeǥand maintain control over the

limits of my Ǯhome,ǯ my sovereigntyǳ (Borradori 127-28).4 Under the guise

of tolerance, an attitude of assimilation still reigns, in which a ǲthreshold of

toleranceǳ is developed that draws up acceptable limits of hospitality in

order to retain sameness and sovereignty. In other words, we ǲoffer

hospitalityǥ with certain conditionsǳ (128).

In contrast, Derrida called for a democracy that involves

unconditional hospitality. This hospitality involves a radical, risk-taking

welcoming of the strangerȄa nation without borders, that welcomes the

immigrant rather than drawing lines of superiority and inferiority based

)&+)

)&+

( 233

entire corpus is a welcoming of ,and it could be said that his oft-

quoted and misunderstood

hospitality is , literally ǲthe love of strangersǳȄor perhaps more

offering kindness to a stranger as extremelystrange!

is better understood by tracing the wordǯs history. is a combination

of two Latin words:

in the classic King James Version which speaks of the ǲLord of

Sam 1:11; 2 Sam 6:18; 2 Kings 19:31, etc.). Finally,

words ǲpotent,ǳ and ǲpotency.ǳ A ǲ ital,ǳ then, is a place that

Inviting friends over to oneǯs house, then, is not but

more akin to (ǲbrotherly loveǳ), or fraternity, or perhaps even

as a new %,ǥwholly otherǳ (Borradori 129).Our understanding of

hospitality is a recognition of my own self being

Derrida thoughts. In Latin, means both ǲmutual participationǳ

everyone who is different from us.ǳ Likewise, in Latin means

So then, if a radical spirit of community were icatedȄa

(onsider again that ǲ italityǳ is tied to the word ǲ ital.ǳ In

practice , despite how much we claim to give to non-profit

phobia instead. Fear drives the installation of security systems,

÷ is evidenced in the up-to-date tally of U.S. military deaths in

÷ can be seen in the way many people have responded to

This culture of ÷ seems no more vivid in our imagination