IMPORTS: HIT AND MYTH
If Guinness kept track of the scapegoat most frequently used by American politicians, foreign trade would be a very strong contender. In speech after speech, politicians from across the political spectrum repeatedly blame the problems of declining employment-and declining industry-on "unfair" foreign competition. The advantage of import-bashing is that foreigners don't vote here, so politicians risk nothing by saying nasty things about German and Japanese products. The disadvantage is that some central premises of the bashers' rhetoric are largely false, as a recent study from the Brookings Institution indicates.
After looking at employment changes in 52 manufacturing industries from 1973 to 1980, Brookings analyst Robert Z. Lawrence found 25 in which employment declined. But how important were foreign imports in causing the employment decline? Not very. According to Lawrence, a decline in domestic demand was a far more significant factor than imports. Indeed, Lawrence concluded that there were only 7 industries in which imports were a factor at all in the loss of jobs, and in 5 of those 7, declining domestic demand was a more important factor than imports in causing job loss. So when push came to shove, the figures showed that out of 52 industries studied, in only 2-footwear and miscellaneous manufacturing-could a loss of jobs be traced primarily to imports.
What of the auto industry? Detroit is, after all, a hotbed of protectionism these days. Corporate and union bosses there, along with their obedient servants in Washington, declaim against the evil Toyota, but Lawrence tells a different story. Employment in motor-vehicle manufacturing did decline 19.2 percent over the seven-year period Lawrence studied. But a mere 6.4 percentage points of decline could be laid at the feet of foreign trade, while the other 12.8 percentage points were associated with reduced domestic demand.
Import-bashing is not an idle exercise. Its political purpose is rationalizing protectionism. Yet it's very questionable how much good protectionism does even for those it's supposed to benefit. In the 1973-80 period that Lawrence studied, a number of industries with declining employment (including motor-vehicle manufacturing and radio and television manufacturing) were the beneficiaries of artfully labeled protectionist measures- "voluntary" trade restraints, "orderly marketing" agreements, and the like. But as Lawrence told Reason, "These measures were unable to prevent the declines in employment from occurring." And they cost consumers-in the case of small automobiles, for example, an estimated $1,000 per new car in 1983.
When Lee Iacocca of Chrysler, Owen Bieber of the United Auto Workers, and their compatriots travel to Washington to lobby for quotas, domestic-content legislation, and other goodies at consumers' expense, they will probably not be deterred by Lawrence's study. But its conclusions should be recognized for what they are-an important piece of evidence that the causes of declining employment are much closer to home than Iacocca and company might choose to believe.
LABOR SINGING A DIFFERENT TUNE
Can it really be? Business Week columnist John Hoerr reports that three union presidents-Richard Trumka of the United Mine Workers, William Wynn of the United Food & Commercial Workers, and William Bywater of the International Union of Electronic Workers-are proposing repeal of the 1935 National Labor Relations Act (NLRA), long regarded as organized labor's Bill of Rights. And Lane Kirkland, president of the AFL-CIO, has been calling for "deregulation" of labor and a return to the "law of the jungle," in preference to today's federal labor legislation.
The union bosses' immediate motivation for the about-face on labor law is the shift of the National Labor Relations Board, which enforces the 1935 law, away from its traditionally pro-union inclinations toward what the bosses view as a pro-management disposition. A case in point was the NLRB's June ruling that unions may not restrict the right of members to resign from the union during a strike to return to work for the struck employer. The board issued the ruling when a local of the International Association of Machinists and Aerospace Workers tried to fine a member who quit the union to go back to work during a strike against a California auto dealer.
Following the NLRB decision, William Wynn charged that "the ideologues appointed by the Reagan administration have accelerated a process that began years ago to gut the protections for workers contained in the labor laws of this country." The June ruling was only the latest in a long string of NLRB decisions, many of which have reversed longstanding NLRB practice.
Apparently, then, at least some union bosses would prefer to operate according to general legal principles rather than under a special set of laws subject to various interpreters of the day. Obviously for organized labor, it's a case of the shoe now being on the other foot. Government control of worker-employer relations sounded pretty good as long as union sympathizers dominated the NLRB-as they have for most of its history. But the realization that both sides can play the game seems to have concentrated the minds of a growing number of union officials. Deregulation of labor relations may be an idea whose time is coming.
SWITCHING TO FREE-MARKET TV
In June, the Federal Communications Commission chalked up one of its most impressive moves toward full deregulation of broadcasting. The five commissioners voted unanimously to do away with rules governing the amount of news, local programming, and commercials carried by TV stations.
Broadcasters will no longer be required to devote 5 percent of their broadcast time to locally originated programming, 5 percent to news and public-affairs programming, and 10 percent to "non-entertainment" programming. Nor will they be held to a maximum 16 minutes an hour of commercials. Hence, much of television programming is now deregulated.
FCC Chairman Mark Fowler, the guiding force behind broadcast deregulation, observed in a statement that the commission's action "removes an unnecessary layer of government involvement in the television program decisions of the American people." The Los Angeles Times quoted Fowler as saying, "What is really at issue here is whether the government trusts the common man to make up his own mind about what to watch or not to watch."
The change is significant for the right to carry on economic activity without government intervention, but few television viewers are expected to be noticing, as a result, any big difference in what they are watching. That's because, as the New York Times reported, most television stations had been exceeding the old FCC standards-for commercial, not regulatory, reasons.
"No, '60 Minutes' isn't about to be replaced by reruns of The Gong Show.' Nor are viewers likely to face a rash of more ads for frozen chicken patties and antacids," the New York Times editorialized. "Indeed, this deregulation will demonstrate how ineffectual regulation has been."
On the whole, the Times took a position somewhat sympathetic to free-market principles. "There is no good argument, therefore, for Government's staying in the business of dictating private television schedules," it said. "Programming constrained by popular taste may not please everyone, but regulation isn't likely to improve it." The Times even suggested that "free-enterprise logic" implies that broadcasters should pay for using the air waves (although seeing this as a quid pro quo for being "allowed" to make a profit, rather than a natural mechanism for allocating a scarce resource among competing users).
Others were not so sympathetic to the Fee's reforms as the Times was. "Totally unjustified," Rep. Timothy Wirth (D-Colo.) called the changes. "Fraudulent, disgraceful and dreadful policy," cried Henry Geller, formerly with the National Telecommunications and Information Administration and now with the Washington Center for Public Policy Research. "Outrageous," fumed Beverly Chain of the United Church of Christ's Office of Communications, which has challenged in court some of the FCC's major radio-deregulation measures and "almost certainly" will challenge the new reforms, as well.
It's easy to see why the United Church of Christ and its brethren in the "public interest" lobby are so irate: the sanctity of one of their most lucrative boondoggles is no more. As the Times observed, "Eliminating the 'public service' requirement may mean fewer hours of religious broadcasts." Sic transit gloria pork barrel. Meanwhile, earthly viewers can rejoice that a constellation of meddlesome regulations has come to an end, and broadcasting is much closer to a free market.
NASA'S SPACE STATION COMES UNDER FIRE
Although many space enthusiasts have cheered President Reagan's commitment to a permanent, manned space station, there is growing doubt about how such a goal should be achieved-and at what cost.
The National Aeronautics and Space Administration has proposed an $8-billion program to build such a station. But Eric Drexler of the Massachusetts Institute of Technology, in an article in last January's L-5 News, pointed out that to justify that huge expenditure, NASA is essentially proposing to reinvent the wheel. The agency's Marshall Space Flight Center has claimed that in order to build a station, major technological advances are needed across the board: in propulsion, materials, sensors, solar arrays, mass memories, energy storage, millimeter-wave systems, and even "trash management." Drexler, and a number of other non-NASA space technologists, counter that an effective space station could be built with essentially off-the-shelf hardware, for a fraction of NASA's gargantuan budget.
Lending support to this assertion is a 1975 McDonnell Douglas space-station design study, unearthed by Commercial Space Report editor Tom Brosz. That detailed study proposed building two space stations, each about three-quarters the size of NASA's proposed new station, for an equivalent cost in today's dollars of $2.5 billion-about one-third NASA's proposed budget.
Most recently, Congress's Office of Technology Assessment (OTA) completed a study of NASA's space-station plans and reached many of the same conclusions. NASA's approach is by far the most expensive way of producing a space station, says the OTA, because NASA insists on developing everything from scratch. But as the study notes, private firms are already developing systems that can carry out a number of the space station's functions, either independently or as possible space-station modules-for example, Fairchild's unmanned Lease-craft space platform; the low-cost, unmanned West German spas pallet satellite; and the Space Industries pressurized (but not permanently manned) space manufacturing facility. The OTA study suggests that NASA may be stuck in a sort of time warp, still trying to live out the glory days when only government invested money in space and therefore NASA was the be-all and end-all of space development.
MIT's Drexler takes more the view of a public-choice economist, pointing out that it is very much in NASA's interest to come up with an $8-billion gargantua, to keep all its laboratories and contractors employed as expenditures for developing the space shuttle wind down. What's interesting to observe in all of this is the growing recognition, even within the pro-space, high-tech community, that NASA's way is neither the only nor the best way anymore.
CLEARING THE RUNWAY FOR PRIVATE AIRPORTS
"A diminished federal role need not jeopardize the adequacy of airport service nationwide." So concludes a recent Congressional Budget Office study, "Financing U.S. Airports in the 1980s." The CBO study examined planned federal aid for airport construction-$6.4 billion through 1990 (in 1982 dollars)-and the consequences of various reductions in such aid, including total elimination.
The study noted three reasons why federal aid could be ended without imperiling the nation's airport system: (1) major commercial airports (71 of which handle about 90 percent of all commercial travel) are regarded as sound investments in the private capital markets; (2) of the 3,203 airports now qualifying for federal construction grants, only 708 are of national, rather than local, significance; and (3) if airports set user charges based on costs rather than by present, bureaucratically determined, criteria-as a withdrawal of aid would force many to do-airport congestion would be largely relieved, thus decreasing the need for airport expansion and construction.
That airports are basically commercial enterprises and can be so operated is evident in a recent study published by the London-based Adam Smith Institute, "Airports for Sale: The Case for Competition." Prepared by economist Sean Barrett of Trinity College in Dublin, the study shows how privatization of Britain's airports could increase competition among airports (thus putting downward pressure on airport charges and hence on fares), increase airport efficiency, widen consumer choices, reduce political interference in airport operations, and lead to better decisions about investment in construction and expansion of airports.
Most of Britain's major airports are owned and operated by the national government, and nearly all others by regional or local governmental units. Prime Minister Margaret Thatcher's Conservative administration, however, has proposed "to transfer as many as possible of Britain's airports to the private sector." But the government's current privatization plan envisions transfer of the airport system (or a good chunk of it) as a single entity to a single private operator. Such a scheme is flawed, Barrett argues, because it "would merely replace a public sector organization by a private sector one." Barrett instead proposes that airports be sold individually (or, in cases where an airport could not fetch a buyer, be contracted out to the lowest bidder), thus allowing for the possibility of multiple operators in the market.
Barrett points out that in Britain, airport charges (as a percentage of an airline's operating costs) are considerably higher than in the United States, where airports are run on a more commercial-like basis. He suggests, that under competitive pressures, these costs would be pushed downward, with the passenger enjoying the passed-on savings.
Barrett buttresses his case for competition with evidence from across the Atlantic. He notes that under US airline deregulation initiated in 1978, new carriers have developed separate operations in competition with main airports. In Chicago, for example, Midway Airlines operates out of the well-located Midway Airport rather than super-busy O'Hare, taking advantage of Midway Airport's lower congestion to offer briefer layovers for connecting flights. And People Express avoids the congestion of New York's La Guardia and JFK airports by operating out of Newark, instead, and the airline similarly avoids busy National and Dulles airports in the Washington, D.C., area by using the less-busy Baltimore-Washington International Airport.
It is ironic that in Britain, where the national government is considerably more involved in the airport business than is the US government, the focus of the debate over airport operation has already progressed to how best to privatize the nation's airports. Though US airports are increasingly recognized as viable commercial enterprises, full privatization has yet to be seriously considered within the mainstream debate.
A recent finding in the medical arena illustrates the danger of government regulations freezing in place information that can change as we gain more knowledge. The subject is salt.
For some years the wisdom of such authorities as the American Heart Association has been that people, especially people with high blood pressure (hypertension), should cut back on salt consumption. Self-styled consumer groups like the Center for Science in the Public Interest (CSPI) have in turn used this wisdom to argue for government action to change consumers' seasoning habits. So far they've been unsuccessful, and it looks like consumers are the better for it.
What those who are sour on salt now have to contend with is new data casting doubt on the wisdom that the path to cardiovascular disease is paved with potato chips, soy sauce, and canned anchovies. Scientists recently analyzed data collected on over 10,000 adults, charting the relation between their blood-pressure profiles and 17 nutrients. As the scientists reported in Science magazine (June 29), regardless of the definition of hypertension and the demographic variables controlled for, those with hypertension tended to consume less sodium than their counterparts with normal blood pressure. In fact, they noted, "Subjects reporting low-sodium diets are at two or three times greater risk of being hypertensive than those who report a high sodium intake."
The authors of the study cautioned that "these findings do not prove causality." But the findings certainly undermine the arguments of the CSPI, which should (but probably won't) be embarrassed. Elizabeth Whelan of the American Council for Science and Health told Reason that the CSPI's logic is that if people ingest more salt than they need, that's inherently bad. Their campaign has even resulted in the Agriculture Department and the Food and Drug Administration issuing publications warning about salt and moving to impose mandatory sodium-content labeling requirements on producers of packaged foods. "It's typical of the logic of the public-health establishment," she noted.
For individuals, the study's findings should mean two things. The first is a healthy skepticism of the government's capacity to offer true consumer protection-if salt regulations were now in place, history tells us it would be mighty difficult to undo them in the face of new data linking higher salt consumption with lower blood pressure. The second is relief that, as our knowledge grows in this area, individuals are still free, at least here, to make their own choices and come to their own conclusions without depending on the ostensible kindness of strangers in Washington.
STATES OFFERING SECURITIES DEREGULATION
Deregulation's breezes are blowing not only in Washington but in some state capitals, as well. One by one, some state governments are relaxing-and, in some cases, ending altogether-their regulation of new stock offerings.
According to a recent article in Business Week, the rationale for much state regulation is the so-called merit review. At the federal level, the Securities and Exchange Commission (SEC) bases its regulation on a disclosure process that assumes investors can make their own decisions if they have sufficient information. The architects of state merit review, however, have not taken so optimistic a view of investors' savvy. They have given state officials the authority to pass judgment on whether securities offerings are "fair and equitable" by looking at conflicts of interest, the securities' proposed price, management's experience, and other factors.
This paternalistic idea has a growing number of critics. Norman Fosback, editor of New Issues, pointed out to Business Week that merit review, if it actually offers any protection of investors, protects buyers of new offerings-but not investors who want to buy the stock "two minutes after an offering has taken place," when the stock price "is likely to be higher."
Moreover, Fosback contends that merit review doesn't do much good even for investors purchasing new offerings. On the contrary, it often deprives them of some very good opportunities. For example, Massachusetts authorities initially forbade the sale of shares of Apple Computer, Inc., when it first went public in 1980, even though it was already an operating company and it had a product, revenues, and earnings. As Edward O'Brien, president of the Securities Industry Association, wrote last year in a letter to Illinois state senators, merit review "unjustifiably increases the cost of raising capital and provides little, if any, increase in investor protection."
But change is in the air. Iowa has enacted new legislation that strikes at "the heart of merit review," the state's superintendent of securities says. Texas may do away with merit review in 1985. Colorado has not had merit review for years. And Wisconsin has ended merit review for securities offered to high-income investors.
But perhaps the most important recent victory against merit review occurred in Illinois, where the state has ended its authority to hold up a securities offering for alleged lack of merit. The Illinois deregulation has raised hopes that Chicago will become more important as a capital market for start-up companies. Already some brokers in Denver, which has been unhampered by merit review, are moving to the greener pastures of Chicago.
The demise of merit review in some states does not mean the end of consumer protection for investors therein.
But it does mean that the responsibility for that protection will be in the hands of the people most competent at, and interested in, the protection-the investors themselves.
MORE STATIC FOR CABLE REGULATION
Cable television is currently knee-deep in a kind of regulatory tug-of-war among four contestants: city and state governments, Congress, the Federal Communications Commission, and the cable operators themselves. And two recent decisions-one by the Supreme Court, the other by the FCC-not only frustrate cities' and states' regulatory designs but also throw a monkey wrench into an effort by Congress to devise "a national cable policy."
The Supreme Court ruling narrowed states' regulatory power over the content of cable programming. Specifically, the court held that the state of Oklahoma, which prohibits advertisements for liquor and wine statewide, could not require the state's cable operators to delete such ads from programs that are transmitted to cable systems from outside the state. In matters regarding cable-TV content, the court held, FCC regulatory authority preempts that of state and local governments.
Shortly thereafter, the FCC declared that cities cannot require cable operators to include nonlocal programs-such as the Entertainment and Sports Programming Network or the Cable News Network-in the package of "basic services" that is subject to local rate regulation. Thus, even where such services have been included in the basic package, cable operators may remove them no matter what the franchise contract requires.
The FCC and Supreme Court decisions have put cable operators in a stronger position vis-a-vis city and state governments, which have enjoyed control over cable systems sometimes to the point of virtual extortion (as documented by Tom Hazlett in "The Viewer Is the Loser," Reason, July 1982). With its position strengthened, the National Cable Television Association has now withdrawn its support for proposed compromise legislation that the cable-industry group had painstakingly drafted with the National League of Cities. The Senate had already passed legislation based on the NCTA-NLC compromise proposal, and the House had appeared on the verge of passing a parallel bill. Now, however, passage of the bill looks unlikely.
As long as the FCC retains its deregulation-minded disposition, the shift of cable regulation to FCC hands is welcome. But those who remain nervous about cable regulation per se-even if by an FCC that presently favors deregulation-cannot be blamed for their anxiety.
HOW TO CHANGE THE FACADE OF PUBLIC HOUSING
The problems of the public-housing boondoggle have become all too familiar-neighborhoods bulldozed, favored contractors enriched, and poor people warehoused in housing that quickly deteriorates, all at taxpayers' expense. A 50-year-old program intended to stabilize urban neighborhoods has done just the opposite. But economist Stuart Butler argues that there is a way out of this costly mess: selling public-housing units to the tenants.
British-born Butler, the Heritage Foundation's director of domestic policy studies, pointed out in a recent policy study that the idea has an attractive precedent. Since the Thatcher government came to power in Britain five years ago, it has set out to denationalize public housing through a "Right to Buy" program that allows public-housing tenants to purchase their housing units at a discount of as much as 60 percent off of the home's market value.
So far, tenants have bought more than 50,000 of Britain's total public-housing stock of seven million units. And as they switch from being tenants to homeowners, their attitudes toward their homes often change dramatically. "When residents acquire an equity stake in the future of their building, and hence their neighborhood," Butler noted, "they gain incentives to change their behavior from destructive to constructive and to urge their neighbors to do likewise.... Signs of home improvement activity, close attention to maintenance, and resident involvement in neighborhood issues have become evident in communities where tenants are buying."
Butler identifies features of the Right to Buy program that the US government could emulate or learn from. For example, in an effort to ensure that the more stable tenants will participate in the program, British buyers must have been public-housing tenants for at least two years, and their discount off market value is increased one percent for every year (up to 30 years) that they have been tenants.
Moreover, as Butler puts it, "A tenant-buyer cannot buy his unit one day with a 60 percent discount, sell it the next at the full market rate, and walk away with the difference." If the tenant resells his new home or cooperative apartment unit within a year, he must refund the entire discount. That penalty is gradually reduced so that it's only after five years that the homeowner can sell the home without having to refund any of the discount.
The US public-housing program has included various limited homeownership features designed to expand home ownership by low-income people. But they have been beset, says Butler, by various problems because of their conditions of sale. He suggests that a successful US program would include (1) a price discount instead of a token down payment, so that buyers have a sufficient stake to undertake maintenance, (2) interest-rate relief depending on a buyers' income and therefore ability to take advantage of the income-tax interest deduction, and (3) provisions for training tenants/owners in home management and maintenance.
Butler notes that local public-housing authorities now have the statutory authority to sell low-income projects to tenants. However, local housing-authority bureaucracies are rarely eager to divest themselves of any of their empire. Rep. Jack Kemp (R-N.Y.) is taking another tack: he's introducing legislation that would allow tenants of public housing for at least five years to purchase their housing units for 30 percent of market value, regardless of the wishes of the local public housing authority.
Butler emphasizes that the point of a program to sell public housing to its low-income tenants "is not to raise income but to promote ownership in poor communities." Such a move, he notes, "would utilize the strengths and ownership dreams of residents themselves to help overcome the debilitating problems of America's inner cities."
- Not for banks only. In 1983, 36 states passed laws loosening restrictions on credit unions. Consequently, many of the unions now offer additional services in competition with banks, such as money-market and checking-type accounts, low-interest credit cards, higher interest on savings accounts, and automated teller service.
- Some small praise. Among the nearly 300 (mostly burdensome) changes in the * tax code hammered out by the Congress in its $50-billion tax-hike bill are two that are relieving: church employees may opt out of the Social Security system, and the capital-gains holding period-the time it takes for an investment gain to qualify for the lower capital-gains tax rate-is cut from one year to six months.
- Underground video. It appears that the latest tool for evading the censors and thought police in some repressive countries is the videocassette recorder. In many Mideast Moslem nations, for example, where morals regulations ban most Western films from movie houses, citizens watch censored flicks on their home VCRs. According to a recent article in U.S. News & World Report, the Motion Picture Association of America claims that in some Mideast countries, almost every household has a VCR. And in the Soviet Union, the magazine reported, "a black market for foreign video equipment and tapes has sprung up in Moscow and other cities." Videocassettes ranging from Jane Fonda workout tapes to Russian-dubbed Bruce Lee movies circulate among Soviet subjects much as does the prohibited literature of the underground samizdat press. Government authorities are reportedly having much trouble controlling the video underground.
- Private evictors. Washington, D.C., has found an unusual function to contract out: the eviction of tenants who are behind on the rent. Private contractors, instead of US marshals, can now carry out evictions, in hopes of relieving a backlog of thousands. Some families lived rent-free for over a year because the marshals were carrying out only 12 percent of court-ordered evictions.
- Eminent decision. The California Supreme Court has ruled unanimously that a business owner whose property was condemned to make way for a new freeway is entitled to compensation for loss of business "good will." It is the first court interpretation of a 1976 California law requiring payment for loss of good will in eminent domain cases.
- Investing freely. New York State's savings banks were substantially deregulated in June. They may now use an unlimited percentage of their assets for commercial loans, have unrestricted powers to invest in stocks and bonds, may invest in real-estate development and ownership, and may engage directly in leasing activities. "These provisions would allow banks greater freedom to invest their funds where they please rather than in the communities from which they derive their assets," complained Community Service Society activist Peggy Kerry.
- Winning the number game. Alaska state agencies will no longer require that people provide their Social Security numbers on state forms. This is the result of a long legal battle conducted by Elder Lebert, a Fairbanks, Alaska, carpenter.