Trends

THE ERODING TELEPHONE MONOPOLY

Two recent announcements serve to highlight the erosion of the legal monopoly long held by franchised telephone companies:

• In January, Satellite Business Systems (SBS), a consortium of IBM, Comsat, and Aetna Life & Casualty, announced a plan for a radically new coast-to-coast satellite communications network that for the first time would completely eliminate dependence on local telephone companies, by using antennas on the roofs of plants and office buildings.

• In March, the Federal Communications Commission approved a plan whereby any telephone user can purchase and install any type of telephone equipment, so long as it meets FCC interconnect standards, without having to pay the telephone company monthly charges for a "protective" device.

These developments follow hard on the heels of the rapid growth of competitive long-distance service using microwave equipment, by such aggressive companies as Datran, Southern Pacific Communications, and MCI Telecommunications (see "Trends," Jan., p.35).

The response of AT&T and the other major telephone companies has been sadly predictable; they are gearing up "an all-out political effort on Capitol Hill" to reverse recent moves allowing competition. AT&T chairman John deButts wants Congress to pass a law that would stop competition in long-distance service, permit AT&T or other "traditional" carriers to acquire the companies that would be forced out of business, and revoke the FCC's jurisdiction over setting standards for interconnect equipment. The industry hopes to line up "at least 50" cosponsors to work for passage of its proposed act of legal plunder.

What do consumers stand to lose if the telephone monopolies have their way? According to the telephone industry, individual customers will end up paying more for basic telephone service because the companies will no longer be able to subsidize it out of revenues from high-volume business service and from monthly charges for optional gadgets. In the short run that might be true (though some experts dispute the telephone company cost accounting that leads to that prediction). But what would also be lost would be the proliferation of new and better services that the competitors are introducing. These include:

• Automatic answering machines (Phone-Mate, Dictaphone, etc.),
• Computerized PBX systems with a variety of sophisticated features (many interconnect companies),
• Secure, encrypted voice and data transmission (SBS),
• Data transfer rates at computer-compatible speeds (SBS),
• Transmission accuracy increased a thousand-fold (SBS),
• Long-distance price cuts of 15-60 percent (MCI).

John Eger, acting director of the Office of Telecommunications Policy (and one of the prime movers behind FCC encouragement of competition), faults the telephone industry for looking backward. He points out that the second century of the telephone industry will be very different from its first 100 years. It will be a time of developing a host of new services, now that the basic telephone network has been completed. And that, says Eger, "is a job for which market competition is better suited than monopoly."

SOURCES
• "A Satellite Network that Bypasses AT&T," Business Week, Jan. 12, 1976, p. 26.
• "FCC's Ruling Is a Milestone," Santa Barbara News-Press, Mar. 31, 1976.
• "AT&T's Bold Bid to Stifle Competition," Business Week, Mar. 15, 1976, p. 82.

SOCIAL SECURITY DROPOUTS

The only groups of workers (other than the Amish) allowed by law to opt out of the Social Security system are state and local government employees. What began as a trickle of opting-out in 1959 seems about to become a torrent. Any public agency wishing to withdraw its employees from SS must give two years notice; as of early this year there were 207 withdrawals pending, in addition to the 322 cities, states, and counties that have already quit. Since January 1 of this year, 17 agencies in California alone have given notice, bringing that state's total of pending withdrawals to 47. Los Angeles County supervisors are studying withdrawal, while the City of Los Angeles never joined in the first place.

The leading proposed dropout is, of course, New York City. Its reason, like that of the others, is economic. Columbia University Prof. Raymond Horton estimates that the city can provide the same retirement benefits via private insurance for $183 million per year less money. San Bernardino County, CA, which left SS on January 1, expects to save $1.5 million this year. San Jose, CA workers now pay three percent less to a private plan, while reaping retirement benefits 25 percent higher.

Perhaps now that public employees are making it fashionable to opt out of Social Security, someone will seriously question why the rest of us are denied the same privilege.

SOURCES:
• "N.Y. City Plans to Drop Out of Social Security," Los Angeles Times, Mar. 23, 1976.
• "County to Study Dropping Out of Social Security," Ibid., Mar. 24, 1976
• "Big Apple Bye-Bye," Time, Apr. 5, 1976.

CURBING OSHA

Six years ago Congress created the Occupational Safety and Health Administration (OSHA) and armed it with the statutory authority to issue voluminous safety regulations, to be enforced by unannounced, warrantless searches of places of business. Last year OSHA's 1234 inspectors visited 88,800 businesses, finding 66,000 of them to be in violation of OSHA standards (averaging five violations apiece), and fining them a total of $9.5 million. OSHA's arbitrary, bureaucratic regulations and intrusive inspections have led to increasing amounts of resentment, which is now being translated into action.

• OSHA's power to levy fines without affording the opportunity for a jury trial will be challenged this year in the U.S. Supreme Court. A Pennsylvania contractor, aided by the American Subcontractors Association, is appealing a 6-4 U.S. Circuit Court of Appeals ruling that upheld OSHA's present authority, the 7th Amendment notwithstanding.

• OSHA's authority to conduct inspections without a warrant was ruled unconstitutional by the U.S. District Court in Sherman, TX last January. Judge Thomas Gee ruled that "administrative expedience" could not overcome the 4th Amendment. OSHA, its entire inspection program in jeopardy, plans an appeal to the Supreme Court.

• Rapid City, SD garage owner Ray Godfrey was upheld in U.S. District Court on his insistence that a purported OSHA inspector fill out a detailed "Public Servant's Questionnaire" before being allowed access to his place of business. Some 125 other area employers have held meetings at Godfrey's garage to discuss anti-OSHA tactics.

Finally, the effectiveness of OSHA's inspection program has been called into question in a study by Dr. Robert Stewart Smith of Cornell. Smith points out that OSHA's standards "are so unrelated to the major causes of occupational injury that even perfect compliance would have a limited effect on injuries." Smith suggests that OSHA could do more good by publicizing occupational health problems and what to do about them, rather than harassing businesses.

SOURCES:
• "OSHA to Be Challenged in Supreme Court," Civil Engineering, Nov. 1975, p. 91.
• "A Hobbled OSHA Seeks Relief," Business Week, Apr. 12, 1976, p. 95.
• "Two Battling the Bureaucrats," James J. Kilpatrick column, Feb. 16, 1976.
• "Two In the Win Column," Ibid., Mar. 2, 1976.
• The Occupational Safety and Health Act: Its Goals and Its Achievements, Robert Stewart Smith, American Enterprise Institute, Feb. 1976.

DEREGULATION IN THE AIR

The push for airline deregulation gets stronger with each passing month. February saw the release of the long-awaited study of the CAB by the Senate Subcommittee on Administrative Practices (headed by Sen. Edward Kennedy). The report blasted the CAB for having blocked "significantly lower prices"—up to 40 percent—for a large segment of the traveling public, through unfair, biased, secretive, and possibly illegal procedures. It purposely prevented the creation of new airlines, kept fares high, and refused to grant any new routes even to existing airlines. The report called for 30 specific reforms, including price competition, freer entry and exit, liberalization of charter rules, and allowing supplemental carriers to engage in scheduled service. In April, Sen. Kennedy submitted an airline deregulation bill that goes further than the Administration's proposal in easing restrictions on pricing and on entering and abandoning markets.

Earlier, the Transportation Department released results of a consultant study which examined differences between airline regulation by the CAB and by state regulators in Texas and California. The study found that fares per seat mile ranged from 39 percent to 93 percent lower in the intrastate markets than for comparable markets regulated by the CAB. The major difference between state and Federal regulation, the study found, is "the ability of management of air carriers under state regulation to increase their productivity significantly, with the result of substantially lowering fares." The lack of initiative showed by interstate airlines is probably due to the "highly structured regulatory environment" of the CAB, the study noted.

Even the major airlines, though still fighting deregulation, see the handwriting on the wall. In a recent speech projecting the airlines of the future, United Airlines' vice president for planning, Andrew M. de Voursney, stated, "We will have a different airline industry in 2026. The CAB will have been abolished, as Congress will have deregulated the industry." He went on to paint a generally favorable picture of unrestricted domestic and international service by (he guesses) three trunk lines and 50 short-haul, commuter airlines. Not exactly the kind of chaos predicted by the Air Transport Association!

SOURCES:
• "CAB Blamed for High Air Fares," Los Angeles Times, Feb. 22, 1976
• "Study Cites Problems of Deregulation," Aviation Week, Mar. 8, 1976, p. 25
• "The Future Airline," Ibid., Feb. 16, 1976, p. 7.
• "Bill to Deregulate Airlines Offered," AP (Washington), Apr. 6, 1976.

DRUG DECRIMINALIZATION GAINS

In the face of new evidence that attempts to enforce prohibition of drugs are failing, increasing numbers of public officials are speaking out for decriminalization. Recent studies by the National Institute of Drug Abuse (NIDA) indicate that heroin use continues to rise, despite a plethora of Federal programs. "I would say that the epidemic is continuing, that it never ended," admits Robert DuPont, NIDA's director, adding that heroin abuse has now become a national problem, affecting all groups and all parts of society. The latest public figure to call for decriminalizing heroin is Dr. Jerome Lackner, director of the California Health Department. Such a move must be made on a national basis, notes Lackner, since "if one state did it, we would attract all the junkies out of all the other states."

The less radical position favoring marijuana decriminalization has also picked up new support, including:

• The board of governors of the California State Bar.
• The Wisconsin Special Committee on Criminal Justice Standards and Goals, and
• Boston University's Center for Criminal Justice.

In addition, a Harris poll conducted for NIDA found that 43 percent of the public favors Oregon-style decriminalization (up from 36 percent a year earlier), while only 45 percent are now opposed. Majority support for such legislation is found in all regions except the South. It is also favored by a majority of those under 30, those with college education, those in white-collar and professional jobs, and those living in cities and suburbs.

SOURCES:
• "Heroin Use in U.S. Reported on Rise," AP (Washington), Mar. 17, 1976.
• "State Health Chief Favors Heroin Decriminalization," Los Angeles Times, Mar. 19, 1976.
• "Wisconsin Standards and Goals Proposal," Criminal Justice Newsletter, Nov. 24, 1975
• "Right to Counsel Decision Largely Ignored," Ibid.
• "A Lenient Attitude on Pot Fines," Louis Harris, Chicago Tribune, Jan. 26, 1976.

PRIVATIZATION MARCHES ON

News continues to accumulate on the cost-effectiveness of private enterprise providing formerly "public" services. In Utica, NY Mayor Edward Hanna has abolished the entire public works department and contracted out its services—garbage collection, street cleaning, snow removal, and road repair—to private companies. Hanna was reelected to a second two-year term after reducing city payrolls by one-third and cutting taxes twice.

Columbia University has completed its nationwide study of public versus private garbage collection. The survey of 2060 cities with a total population of 52 million confirmed the expected: private firms now collect refuse in more cities than do municipal departments, and do it at less cost. Municipal departments tend to be inefficient as measured by higher employee absentee rates, use of larger crews to do the same job, serving fewer households per shift, and using fewer incentives for good performance. This comparison is being illustrated in Atlanta by a pair of housewives who have gone into the garbage collection business. Angered by a recent city garbage rate hike and service reduction, Mrs. Frankie Van Cleave and Mrs. Sherrie Johnson started Backyard Team Inc. They serve 300 households and charge $50 per household less than the city; even so, they expect to clear $10-20,000 this year.

Reports from Germany indicate that privatization is sweeping the country. Cities such as Cologne, Dortmund, and Hamburg are contracting out such operations as cleaning public buildings, operating public parks and swimming pools, and picking up garbage. Reiner Schreiber, a Bonn City Council member, makes the case, "We must seriously consider getting out of the service industry business where that would make sense in money terms. We could sell community service sectors complete to private firms or lease them concessions to operate them." The German Taxpayers' Association has demanded that city councils put all community services out to bid on a competitive basis. Similar views are put forth by the Federation of German Craftsmen and the Federal Audit Office. Privatization is being looked on as the only way to prevent German cities from going bankrupt.

SOURCES:
• Utica's Drastic Solution," Time, Mar 1, 1976, p. 8.
• "Private Refuse Firms Cheaper," AP (New York), Nov. 21, 1975
• "To Victor Goes Spoils," Goleta Valley Today, Mar. 19, 1976.
• "Cure for Costly Public Services?" Auckland Star, Jan. 23, 1976.

MILESTONES

Mail. New competition for the decaying Postal Service is represented by the expansion of Greyhound's "Next Bus Out" package express service to a fully nationwide basis. Defying the "cream-skimming" argument put forth by defenders of postal monopoly, Greyhound now provides expedited small-package service to every community it serves in the 48 contiguous states, much as United Parcel Service does. (Source: Greyhound Package Express advertisement, Business Week, Mar. 15, 1976)

Rent Control. New York's infamous rent control law has been declared unconstitutional. Brooklyn Civil Court Judge Bernard Klieger ruled that the 21-year-old law was responsible for "wholesale deprivation of property without due process, as well as denial of equal protection." He pointed out that rent controls have "in large measure become responsible for exacerbation of the (housing) crisis they were designed to correct…rent control has been a prime cause of the decline" of New York City. (Source: "NY Landlords Win In Court," San Diego Union, Sept. 21, 1975)

Commerce. Blue laws in Alabama, which prohibit doing business on Sunday, are archaic and unconstitutional. So ruled a state circuit court in a case brought by Huntsville district attorney Fred Simpson. In order to get rid of the laws, Simpson filed suit against S.S. Kresge Co. for operating on Sunday, then acted as both prosecutor and chief witness for the defense in arguing against the validity of the laws. (Source: "Marketing Observer," Business Week, Jan 19, 1976)

Psychiatry. A group of former mental patients has organized a group to fight coercive, involuntary psychiatric treatment. The Network Against Psychiatric Assault (NAPA) has been formed to oppose "psychiatric attack" throughout the legal system. Its goal is the elimination of all forms of involuntary psychiatry—e.g., drugging, shock treatment, and psychosurgery—when done without the patient's informed consent. NAPA is headquartered in San Francisco. (Source: "Ex-Patients Declare War on Psychiatry," UPI (San Francisco), Jan. 11, 1976)

Government Finance: In response to the recent Arthur Andersen study of Federal financial reporting (see "New Light on Federal Bookkeeping," Trends, Jan. 1976), Treasury Secretary William Simon has announced that the Treasury is planning to switch to accrual accounting. The new system will provide a businesslike disclosure of the government's overall financial condition, including total Federal liabilities and all "off-budget" agencies. First publication of reports in the new format will be in 1978. (Source: "Treasury Plans Fuller Method of Accounting," Washington Post, Jan. 28, 1976.)