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ENODE: to loose, untie a knot; to solve a riddle.

JUNE 5, 1996 Vol 1, No. 1

VIRTUAL SUNSHINE MAY RAIN
ON LOCAL ECONOMIC DEVELOPMENT

--by Nathan Newman, newman@garnet.berkeley.edu

The Internet promises to bring electronic "sunshine" to local
government, creating more open government. If anyone knows about
something happening in government, everyone will know. For contractors
doing business with the government, this promises to radically change how
government business is done with the private sector. And for local
government, virtual "sunshine" may permanently undermine traditional
strategies for local economic development and job creation.

Government contracts are the classic example where government
corruption and government activism for local economic development have
gone hand in hand. By steering contracts towards local firms, government
officials both nailed down political support but could also, informally,
help out local businesses that needed a leg up. Governments might be
targeting up-and-coming firms that are key to a neighborhood's development
or the officials might just be lazy and call the same two or three firms
and re mind them a contract was about to be available by the city.

The Internet and other on-line channels are beginning to change
that. Many governments are beginning to list contracts on-line, opening
up the bidding process to a much wider range of businesses. One of the
innovators in on-line contracting has been the Los Angeles Metropolitan
Transit Authority which established an electronic bulletin board in 1993
for listing all contracts by that agency put up for bid.

With hundreds of millions of dollars in bids, the MTA has seen a 7%
overall reduction in costs due to increased competition since the bulletin
board was established. Cary Paul Peck, Vendor Relations for LA Metro
Transit Authority notes that the bulletin board started around procurement
and expanded quickly around that. "As people saw how it worked in one
area, they saw how it could work in other areas. Two years ago people saw
it as a toy of the MTA but now they take it seriously."

With the new system, a whole new group of contractors had a chance
to bid. MTA is the largest single procurement system in the nation, and
one of the largest in the world, so the MTA board wanted to emphasize
outreach to let people know bids were coming up. They had previously
mailed monthly updates, "but as a monthly," Peck argues, "it is only good
for construction contracts which are well spaced out. The real problem is
in personnel services, those move up and down from the Board. It can only
have ten days for bidding and a monthly misses it." With the information
on-line, however, people can know what's coming up instantly. On hard
copy, 30% of bids had been worthless because dates were outdated by the
time people received it.

Most users are on line for as little as fifteen seconds. "The system
has five guys from Bechtel who dial in every Tuesday. Some of the more
sophisticated companies dial in more often." For smaller procurement
items, often under $500, the on-line system contrasts with the past when
"you'd make three calls and that's it." Many small businesses get a
chance to bid who never would have in the past.

So far this seems all to the good: lower prices for government, more
access for a wider range of businesses. The rub is that a wider range of
businesses also can include businesses with no local connection to the
local economy. The positive side is that a small earth moving company in
one economically depressed part of a state may get to bid in another part
to drum up business. However, it also makes it easier for giant Bechtel to
scout out the largest and the smallest contracts in the state, tracking
down contracts and displacing smaller local businesses where it would have
previously been too expensive to spend the time keeping track of all the
contract possibilities.

Any attempt by local government to build up local businesses may be
undercut by global businesses scooping up government bids off the Internet
and underbidding local contractors based on volume sales. Where the
upside of Internet access had been more businesses trying to bid, the
downside may end up being the narrowing of actual successful bids to a few
global companies. Visit any local government convention right now and it
is inevitably dominated by tables of new global companies seeking to
supply everything from trash collection to food service for local jails.
The Internet may be the tool that those global companies need to reach
those governments and replace traditional firms that once had a "local
advantage" in getting information at the town hall.

The other potential issue is the downsizing of government in favor
of private global information "brokers." Where the Los Angeles MTA has
moved forward on full public access to procurement information, California
state government has been reluctant to move from an all-paper state
bidding system which costs $42 million just for its printing bill each
year. Instead of moving directly to on-line access, the state has been
looking to sell its information to a private company who would repackage
the information electronically and sell it back to anyone interested in
getting information on available government contracts. In effect, this
would transfer jobs out of state government procurement offices into the
hands of private companies who would then profit from reselling public
information back to the public.

If selling government information for profit becomes a model for
more local government, not only will local businesses lose employment
opportunities but local government workers may lose out to information
brokers located far from their cities.

In all these trends, local governments will find their fates more
and more controlled by companies located far from their region. With
local services provided by far off companies and government information
increasingly controlled by private companies, the public may find
themselves losing political control of many economic development decisions
they had previously taken for granted.

Nathan Newman is co-founder of Progressive Communications,
a research and Internet consulting firm.

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ENODE: to loose, untie a knot; to solve a riddle.

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