Letters

BIG BUSINESS: CHALLENGE

Someday, somebody should tell R.A. Childs that words have meanings. In "Big Business and the Rise of American Statism" (February 1971, Vol. 2, No. 11), Childs talks about organized crime but insists on calling it "Big Business" throughout the article. Socialist slogans to the contrary, business and crime are not synonymous. A businessman is a man who earns wealth by organizing the production, distribution, and voluntary exchange of values. A man who obtains things by initiating force, either directly or through hired thugs, is properly called a criminal. A criminal is no less a criminal when he lets the taxpayers hire his thugs for him.

The laws under which American businessmen were subjected to prior restraint and to the presumption of guilt were not made solely by disinterested "progressives" or "liberals." In Ayn Rand's novel Atlas Shrugged most oppressive legislation is passed at the behest of men like James Taggart and Orren Boyle. James Taggart is the president of a major railroad, and Boyle owns a steel company, but no one who has read the book would call either of them a businessman. The laws which make businessmen a persecuted minority in America were pushed through, in part, by criminals who were afraid of competition from (real) businessmen. Some of these criminals were railroad presidents and steel tycoons. Did we really need Childs to point that out?

Adam Reed
Eugene, Oregon

"HIGH-JACKING THE TAXPAYER" RESPONSE

In his article (January 1971, Vol. 2 No. 10), Robert Poole was clearly arguing against public subsidies for the airline industry, particularly with regard to aircraft insurance costs. These costs have spiraled upward with the introduction of the 747 jumbo jets, together with costs to provide armed guards in aircraft to prevent high-jacking. The government in so doing has responded to cries for help from the major affected airlines to put an end to aircraft high-jacking. Rather than having the costs for these guards borne by the general public, as they are now, Robert Poole seems implicitly in favor of such costs being borne by the airlines. Unfortunately, he did not go into the reasons for this view in the short space he devoted to this topic in his article. This omission is a pity, as a very important issue is raised: "What are these armed guards supposed to do—prevent high-jacking or apprehend high-jackers?" In the broader sense, "What should the proper role of law enforcement be—prevention or apprehension (enforcement of the law)?" I submit that settling who should rightly pay for armed guards on aircraft depends on the answer to this question.

According to the mandate given law enforcement agencies, their overriding mission is to enforce the law. The fact that they also have other obligations implicit in their charters or imposed upon them by society in general complicates the issue, giving rise to the principal dilemma faced by police agencies today. James Q. Wilson summarizes this point well when he analyzes the contradiction between enforcing the law and maintaining order. In many instances (breaking up a barroom brawl, for example), maintaining order is required even though the law is technically broken and an arrest may be made.

The dilemma is faced by the officer on the beat who is forced to make an on-the-spot decision, often with weighty consequences. The same dilemma follows the fact that the police are technically obliged and empowered to enforce laws which may be unpopular to the populace, despite the fact that the police have no hand in formulating laws. Selective enforcement of the law that inevitably results only serves to deepen the impasse in the relations existing between the police and the community.

But what would happen if the community could take on the role of order maintenance for itself? What if a mechanism could be developed for self-protection? How would this affect the role of the police in the community? Mounting evidence supports the fact that this impromptu order-maintenance role is being handled by private security forces all over the country. A recent article in FORBES (included in REASON, Trends, Vol. 2, No. 10), reports a security industry estimate that two-thirds of all patron forces in the U.S. are employed by private organizations for security and protective purposes. Further evidence, cited in the Wall Street Journal, says that the electronic burglar alarm industry is mushrooming—the demand from corporate and individual clients seems to grow along with the increased sophistication of these devices.

Again, much of police public relations deals with the problem of imploring the public to cooperate with them by making it more difficult for someone to commit a crime. Help us to help you, they say. Lock your car, lock your house, cancel the milk and newspaper deliveries when on vacation, leave your home lights burning at night when away, telephone the police when you see something suspicious, and so on. Thus, the public is being urged to assume more of the responsibility for self-protection. Several small groups have even taken it upon themselves to provide such protection formally, as witness the Bel Air Patrol in West Los Angeles. The underlying principle here is that the benefits are worth the costs.

Judging from available crime statistics for robberies, for example, there is little the police can do to prevent such crimes—the damage has already been done by the time the crime is discovered. Given this rather sad circumstance, what does one do? Two courses are possible: either pay more taxes for more police service (which may or may not reduce the frequency of robberies) or pay for specific localized protection independently of other police services. The answer very much depends on an individual or group decision based on what risk is involved or, more simply, how much one stands to lose.

Let's extend this line of thought to an airline company that desires protection for both itself and its passengers. Not only does the airline stand to lose a great deal were an aircraft to be diverted or damaged, but a parallel risk is incurred by the passengers who fly with the airline (not to mention risk of loss or delay of freight). This risk is implicit in the price for a trip charged by the airline or would be in a truly competitive market. As things stand now, where interstate and international fares are regulated, it is impossible to determine what proportion of the ticket price is used to assure the passenger that his trip will be completed on time and in safety. Whatever the airline has to spend in excess of normal operating costs to make the passengers' trip risk-free is a measure of the responsibility of the airline toward its passengers. Thus, this cost is actually or implicitly a part of the price for the flight. Examples of these kinds of costs include such items as the following: advanced training programs for the airline pilots; improved programs for engine failure detection, preventive maintenance, and overhaul; engine emission control to reduce air pollution; and development of improved navigational aids which, at present, is subsidized by the FAA. It seems to me that the provision of armed guards to prevent high-jacking of the aircraft logically falls into this category.

All this is well and good, but the present system does not always follow logical thinking toward rational solutions. Taxpayers' costs are out of proportion to the benefits they receive. Costs to the airlines may rise, yet they are not allowed by law to raise their fare schedules. A Federal law outlaws high-jacking, punishable in certain instances by death, and the FBI, in their role as enforcers of the Federal law, see that their (publicly financed) duty to enforce this law by their presence on aircraft. The system is self-sustaining. Bureaucracies out of touch with economic reality behave predictably. Is there no way out? Consider the situation which might exist were regulation of the airlines to cease and competitive conditions restored. Economic theory, in terms of behavior and individual preference, says that the price for a service offered will settle at a value which people are willing to pay and which also enables that service to continue. As the costs of doing business increase, if a company is to stay in business, so must its prices increase. I assume here, of course, that some margin is maintained, however small, as an incentive for a firm to stay in business. If prices increase beyond those charged by its competitors in a free market, the company will lose business. If a particular airline, therefore, continually experiences high-jacking, or even a high frequency of mechanical problems that increases the passengers' risk, business will also be lost. Free competition, as Robert Poole stresses in most of his articles in REASON, is designed to get rid of the inefficient, the ineffective, and more recently, the irresponsible firms in the marketplace, unless they shape up.

In conclusion, armed guards perform a preventive function. Such guards are a legitimate cost of doing business which should be borne by the airline. Only flights that produce arrests can be considered to entail apprehension. Because there is no way, by definition, of knowing how to identify a potential high-jacker prior to a flight—else he would be barred from entering the plane—the police, or FBI, in their role of enforcers of the law have no business to be on the planes. While there is little doubt that the presence of security officers on these planes has been responsible for the dramatic reduction of aircraft high-jacking incidences, the airlines have been spared this expense. Airlines have been receiving a free guard service, because the costs for such service never show up in their financial statements. The implications for law enforcement in general, which I have here alluded to only briefly, are profound, and deserve careful consideration.

Stanley C. Abraham
Los Angeles, California

BIG BUSINESS: RESPONSE

The February issue of Reason contains a number of points which call for comment.

Roy Childs' article, "Big Business and the Rise of American Statism," is, despite certain statements about which I have reservations, a fine one, and I eagerly anticipate its conclusion. However Mr. Childs says, in rejecting both Marx's slogan that "capitalism needs war" and Miss Rand's assertion that the reverse is true, while socialism (read 'statism') needs war, "An economic system is not an entity, holds no ideas, takes no actions, in short, is not the metaphysical kind of entity which can have needs." I cannot agree with his conclusion. The Random House Dictionary of the American Language lists as one of the definitions of the word 'need': "A requirement, a lack of something…deemed necessary." Now, if entities (not abstractions) are the only things which can have needs, or requirements, then it follows that there are no prerequisites for the existence of any abstraction. Examples would be 'life,' 'profit,' 'freedom, 'happiness,' etc. By Mr. Childs' exclusion of any of these concepts from having requirements or necessary pre-conditions, the absurdity of his position can be seen, for this is no less than the denial of the law of cause and effect. Can he maintain that life does not require an input of energy? that profit has no need of (at the very least) some method of accounting? that freedom requires no absence of compulsion? that happiness needs no goals, no achievement? Surely no one can point his finger at and thereby give an ostensive definition of any of these abstractions, just as one cannot point to 'capitalism,' as such; yet they have sine qua non requirements, or needs. Miss Rand's point is that the existence of laissez-faire capitalism (or even a mixed economy, so long as the mixture is strongly weighted on the side of freedom) does not depend on war, since wars are always counter-productive. A capitalistic economy is productive, and depends on free trade, not on looting. On the other hand, socialism is by its very nature dependent on coercion, either against its own citizens or against its neighbor states, or both, since human life requires the production of the things needed for its sustenance, and somebody must produce them, or the society will collapse, from malnutrition of its members if nothing else. To hold, therefore, that statism needs war and capitalism does not is to hold that parasitism requires a host organism, whereas a productive, self sustaining system requires only the achievement of its members and the freedom to trade. The fact that some men may think capitalism needs war does not make it so.

Further, I think that Mr. Childs' attribution of a blanket moral endorsement of all businessmen and industrialists to Miss Rand is improper. Although the statements in the literature have perhaps been understressed (for Mr. Childs at least), Miss Rand has consistently condemned the 'businessmen' who advocate and seek to implement governmental controls. In "Notes on the History of American Free Enterprise" (in Capitalism, the Unknown Ideal, the same book which Mr. Childs quotes in support of his contention of her unqualified endorsement of businessmen), Miss Rand states, in relation to the monopoly practices engaged in by California's Big Four, with the help of the legislature (another point, Mr. Childs: Coercive monopoly—yet another abstraction—requires legislative action of some sort), "Yet the Big Four were not free enterprisers; they were not businessmen who had achieved power by means of unregulated trade. They were typical representatives of what is now called a mixed economy. They achieved power by legislative intervention in business; none of their abuses would have been possible in a free, unregulated economy."

One further inaccuracy in your latest issue (a minor one) that I should like to call attention to occurs in Robert Poole's excellent "The Power Crisis." The charge assessed (at government-controlled rates) by one railroad against another for the use of its equipment is known as a 'per diem' charge, not a demurrage charge. Demurrage is what is assessed (also at government-fixed rates) against shippers and receivers of cars for detention while loading or unloading, or awaiting loading or unloading, or while being held enroute at the request of the shipper or receiver, beyond tariff-defined free time. For instance, on lumber, a charge of $5.00 is made for each of the first four days after the expiration of free time, once a car has arrived at its destination and the consignee has been notified and a specified free period of time has elapsed, usually 24 hours, without instructions having been received to place the car for unloading. The per diem charge, on the other hand, varies with the value of the car (although it is still unrealistically low) and is assessed for every day the car is on the tracks of a non-owner railroad (with certain specific exemptions), whether it is moving or not. The arbitrary holding of this charge to below-market rates by the ICC is the cause, not only of temporary shortages of certain types of equipment (as in Mr. Poole's example) but of practically all types of equipment, and is responsible for the decades-long decline in boxcar ownership of nearly all the eastern railroads—it is much cheaper to rent boxcars at a nominal charge per diem than it is to invest the money in the acquisition of new cars (which most of the eastern lines are in no financial position to do anyway, since the ICC imposes the rates all railroads must charge for the transportation of goods themselves in all cases, thereby limiting the amount of profit that can be made, or as it works out in the case of some railroads, e.g., the Penn Central, specifying the loss that must by borne by the stockholders).

If there ever was a case for the complete abolition of governmental regulation, the railroad industry certainly provides one.

Jon R. Skinner
Portland, Oregon