Trends

DEREGULATING TRUCKS AND BUSES

The long-awaited Motor Carrier Reform Act was submitted to Congress in November. It would significantly reduce ICC controls on interstate trucking and bus line operations (see "Deregulating Trucking," REASON, July 1975). If passed, the bill would accomplish the following:

• End the prohibition on carrying cargo on return trips, thereby eliminating wasteful "empty backhauls."
• End the antitrust immunity of the trucking cartel's rate-making bureaus.
• Adopt a widening "zone of reasonableness" within which truckers would be free to set rates without ICC approval: up or down by 7 percent the first year, 12 percent the second year, and 15 percent the third year. Thereafter rates could be raised up to 15 percent each year and lowered without limit.
• Remove many restrictions on areas of service and on private carriers.
• Allow new carriers to enter the market without having to show that existing service was inadequate.

As with the recent Aviation Act of 1975 proposal (see "Trends," Jan. 1976), reaction to the deregulation bill was largely predictable. The American Trucking Associations, Inc. called it "the ultimate in governmental irresponsibility" and claimed it would destroy industry stability and lead to economic chaos. Similar views were expressed by the Teamsters Union. Support for the bill is strong, however, among conservative Republicans and liberal Democrats, both of whom are increasingly sensitive to the cost of government regulation to consumers. (Thomas Gale Moore of Stanford University estimates the cost of ICC trucking regulations as from $4 to $16 billion per year.) The Motor Carrier Reform Act was strongly supported by Business Week, which called it "a rational approach to an area where rationality is badly needed." The magazine's only criticism of the bill was that it does not go far enough, pointing out that "unrestricted entry would be a still better answer" to the problem of insufficient competition.

Like the CAB, the ICC has been attempting to stave off deregulation by quietly easing some of its regulations. It has proposed new rate flexibility, made some changes to reduce gateway restrictions, and limited the power of rate bureaus. Hopefully, Congress will not be dissuaded by these cosmetic efforts and will proceed to pass the proposed Act, or abolish the ICC altogether.

SOURCES:
• "Ford Calls for Deregulation of Truck Industry," AP (Washington), Nov. 14, 1975.
• "The Brakes Are Dragging," Business Week, Dec. 1, 1975, p. 80.
• "The ICC Unbends a Little," Ibid., June 30, 1975.

CONTRACT PUBLIC SERVICES

In the wake of New York's fiscal breakdown and exposure of that city's grossly inefficient public services, increased attention is being focused on the idea of contracting with private companies for public services. A recent U.S. News & World Report interview with management consultant John Diebold highlighted a number of areas in which this approach is successfully being applied. Deputy editor Norman Macrae of The Economist recently urged the use of performance contracts, by means of which citizens can regularly vote for the private contractors that best deliver the various public services. He also called for entire local governments run on contracts by businesses, as one of a variety of new types of communities which should be available to people.

Among the areas in which private enterprise is currently active are the following: Police: Lexington, KY hires private companies to patrol such difficult, high-crime areas as housing projects on a 24-hour basis; in one such case the company received a merit award because crimes dropped to zero after it took over the policing. St. Petersburg, FL has used a private firm to patrol city parks. In such cities as New York, the number of private guards is larger than the number of city police. Hired private police forces are also booming in Bavaria. The city of Munich has hired private firms to patrol such high- crime areas as the subway stations, Olympic Park grounds, university sports arenas, and a huge suburban mental hospital.

Fire: The Rural/Metro Fire Department, Inc. provides fire protection for 13 Arizona communities and will soon be expanding its operations into California. The company's services cost less than one-third the national average (see "Spotlight," REASON, Oct. 1975).

Paramedic: A number of California cities and counties contract with private ambulance firms for paramedic services, including Santa Barbara County. Recently the city of Glendale decided to drop its government-run paramedics (operated by the Fire Department) in favor of a contract with two private companies. Under the Fire Department's plan, the net annual cost for citywide service would have been $408,000, compared with a total contract cost of $96,000.

Schools: There have been 40 different experiments in educational performance contracts over the past year, according to Diebold. Three companies are competing in Grand Rapids, MI under a contract in which they do not get paid unless they can demonstrate improvement in student achievement. At present, the companies are making 50 to 75 percent of the maximum possible under the contract.

Garbage: Many cities use private companies to collect garbage, instead of costly, inefficient government monopolies. There are 40 to 50 such companies in St. Paul, MN, 50 in Minneapolis, and 80 in Wichita.

The conclusion from all such cases is inescapable: private enterprise has the profit incentive to figure out how to perform public services efficiently. No city administration that seriously wants to cut costs can afford to ignore this lesson.

SOURCES:
• "Ways Private Firms Can Save Money for Burdened Cities," U.S. News & World Report, Nov. 17, 1975, p. 82.
• "Economist: Democracy's Go-Getters," Time, Nov. 10, 1975, p. 17.
• "Cops for Hire," San Francisco Chronicle, Nov. 13, 1975.
• "Paramedic Cost Savings Told," Glendale Ledger, Sept. 7, 1975.

COSTLY GOVERNMENT MEDICINE

Some indication of how costly a national health insurance scheme could be has been provided by a General Accounting Office (GAO) study of Medicare costs. GAO compared the performance of government employees and private insurance companies in processing Medicare forms. The results are devastating to those who think that the government is more efficient because it need not make a profit. It costs the government almost twice as much ($12.39 vs. $6.45) to process the average claim. This is due to two factors. First, the Federal workers process only 2500 claims per year, while private workers process from 3900 to 6600. Second, for doing their meager amount of work, the Federal workers receive substantially higher pay. For example, Federal claims examiners make $11,600 compared with the private firms' average of $7900. And government registered nurses make $13,600 compared with $11,700 in the private firms. Once again, we have a dramatic example of the superior efficiency of private enterprise over government. Is anybody in the national health insurance debate listening?

SOURCE:
• "GAO Study: Government Health Care Inefficient," Human Events, Nov. 22, 1975.

COMPETITION FOR LAWYERS

The various laws by which groups terming themselves "professions" restrict the number of their members and reduce or eliminate competition are coming under increasing attack. The type of restriction undergoing the strongest attack is the ban on advertising, especially price advertising. In two landmark cases last June, the U.S. Supreme Court ruled (1) that the "learned professions" are not exempt from such antitrust laws as those banning price-fixing (Goldfarb v. Virginia State Bar), and (2) that the First Amendment prohibits laws banning advertising of "matters of clear public interest" such as the availability of abortions (Bigelow v. Virginia). These cases provide the basis for a number of attacks on the ban on lawyer advertising.

Suits challenging state bans on advertising by lawyers have been filed in Virginia, New York, and California. The Virginia suit contends that the state's ban discourages competition, keeps prices so high that many people cannot afford lawyers, and discriminates against small firms and in favor of attorney/politicians (who, of course, advertise extensively). The California suit is based squarely on the First Amendment protection of free speech and free press. The suit was filed just ten days after two Los Angeles lawyers were told by a committee of the State Bar that their "legal clinic" operation had violated professional conduct rules by advertising itself, soliciting business, and using a "misleading" name, and was therefore illegal. The state's Court of Appeals had also just overturned a lower court ruling allowing ads for "divorce clinics," 50 of which already exist in California. Both types of clinics use a combination of lawyers and paralegal personnel in order to reduce costs so that lower and middle income people can more easily afford their services. The American Bar Association itself is being sued by Consumers Union, which contends that the ABA's code of professional responsibility, which bans advertising, is anti-consumer and unconstitutional.

Due to all this ferment, newspapers and advertising agencies are looking seriously at the dollar potential of this new market. Foote, Cone, and Belding recently prepared a series of hard-hitting sample ads for an article in the ABA Journal, to show how such advertising could work. The Newspaper Advertising Bureau estimates that total lawyer advertising in the United States could amount to $250 million per year if the legal bans are lifted. Thanks to last year's Supreme Court rulings, that looks like a good bet.

SOURCES:
• "Ban on Ads by Lawyers Under Siege," Los Angeles Times, Sept. 15, 1975.
• "Suit Challenges Ad Ban for State Lawyers," AP (Alexandria), Sept. 2, 1975.
• "Ruling Allowing 'Divorce Clinic' Ads Overturned," Los Angeles Times, Nov. 4, 1975.
• "Two Lawyers Lose Round in Battle Over 'Legal Clinic,'" Ibid.
• "Suit Challenges Ban on Ads by Lawyers," Ibid., Nov. 14, 1975.
• "Closing In on the Professions," Business Week, Oct. 27, 1975, p. 106.

AIRLINE DEREGULATION SUPPORT

According to Aviation Week, editorial opinion regarding airline deregulation is running somewhere between 2:1 and 100:1 in favor of the idea. The magazine notes: "Liberal appetites are whetted for lower fares. Businessmen, fed up with government agency incursion into their affairs, believe it's time to cut loose the airlines from Federal apron strings." The magazine editorially chides airline managements for their total hostility to deregulation, urging them to work for a reasonable loosening of CAB regulations—a stance it calls "reregulation."

Meanwhile, an advisory committee set up by the Senate Government Operations Committee to provide expert advice on Federal regulatory reform has concluded that strong arguments can be made to get the government out of economic regulation of competitive industry, and that congressional priority should be given to reform of regulations governing airlines, railroads, trucking, and natural gas.

Most significant of all is an editorial in Business Week charging that the administration's deregulation bill does not go far enough. Stated the magazine:

The answer therefore should be deregulation—not the halfway relaxation President Ford has proposed but complete removal of government controls on everything except safety. The government should abolish the CAB and allow each airline to set its own fares, serve the cities it chooses, drop others it does not want, and offer a level of service it can justify.…(emphasis added)

Are you listening. Congress?

SOURCES:
• "Airline Observer" and "Washington Roundup," Aviation Week, Nov. 3, 1975, pp. 13 and 29.
• "Reregulation, Not Deregulation," Ibid., Nov. 17, 1975, p. 9.
• "Deregulate the Airlines," Business Week, Nov. 17, 1975, p. 162.

MARIJUANA UPDATE

While the trend towards decriminalization of marijuana possession continues, the latest FBI figures show that not only are marijuana arrests still increasing, they are becoming an ever-greater percentage of all drug arrests—up from 45 percent in 1970 to 69 percent in 1974. Total marijuana arrests reached an all-time high of 446,000 in 1974, compared with 189,000 in 1970 and 19,000 in 1965. Thus, despite all the rhetoric about shifts in priorities toward hard drugs, more and more resources are being spent on pot busts, while real crime continues to soar out of control.

The new FBI figures do not include 1975, the year in which all but one of six state decriminalization actions took place, so it is too early to gauge their effects on law enforcement resource allocation. One California city has made an explicit shift in its police procedures manual; under new regulations which take effect early this year, San Francisco's explicit police priorities will be violent crimes first, followed in order by property crimes, organized crime, and finally "vice, drugs, and other social problems."

Meanwhile, the National Organization for Reform of Marijuana Laws (NORML) has filed suit in Los Angeles and San Francisco seeking to have the state's laws on possession, cultivation, and use of marijuana declared unconstitutional. NORML's case is based on the right to privacy argument put forth by the Alaska Supreme Court last year in declaring that state's pot laws unconstitutional.

SOURCES:
• "National Marijuana Arrests Up Again," NORML press release, Nov. 18, 1975.
• "Victimless Crimes Deemphasized Under New San Francisco Policy," The Police Chief, Oct. 1975, p. 7.
• "Suits to Overturn State's Marijuana Laws Filed," Los Angeles Times, Nov. 1, 1975.

MILESTONES

• Bonds. November's elections provided a solid indication of the extent to which taxpayers are fed up with bloated government budgets. Voters across the country turned down $5.87 out of $6.33 billion in bond proposals—93 percent of the requested amounts. The biggest taxpayer victory occurred in Ohio, where a heavily-promoted $4.5 billion bond package failed to carry a single county and lost by as much as four to one in some counties. Major bond issues were also defeated in New York and New Jersey. (Source: "Tough Off-Year Voters Say No." Time, Nov. 17, 1975.)

• Energy. Members of the public are ahead of their Congressmen in understanding key energy issues, according to a recent Harris poll. Some 55 percent recognize that natural gas is in short supply, as do 65 percent regarding oil. Some 61 percent think that decontrol of oil and gas prices would "give oil companies an incentive to develop new oil and natural gas production," while only 17 percent disagree. And by a 44 to 26 percent margin they do in fact favor decontrol of domestic oil and natural gas prices over a three-year period. (Source: "Poll Says Oil Decontrol Favored," AP (New York), Nov. 21, 1975)

• Ocean Mining. The Federal government's highest level advisory committee on ocean affairs has reversed its longstanding opposition to unilateral action by U.S. companies to mine the deep seabed. The National Advisory Committee on Oceans and Atmosphere (NACOA) has gotten fed up with the inability of the U.N. Law of the Sea conferences to reach any agreement over the issue (see "The Seabed Power Struggle," REASON, July 1974). NACOA now recommends passage of a bill ensuring the right of U.S. companies to stake claims and mine deep sea minerals, despite U.N. opposition. (Source: "NACOA Backs Industry Ocean Bills," Science, Oct. 17, 1975)

• Competition. One of the most anticompetitive Federal laws, the Robinson-Patman Act, is coming under strong criticism within the administration. The 1936 statute prohibits manufacturers and wholesalers from offering quantity discounts, and has been shown to substantially reduce price competition. The White House Domestic Council therefore invited a group of economists, lawyers, and businessmen to attend an intensive review of the law's effects on Dec. 8-10. The reconsideration of Robinson-Patman is part of the administration's ongoing drive to reduce costly government regulation. (Source: "Debate Building Over Price Law," AP (Washington), Nov. 25, 1975)