POSTAL COMPETITION PROGRESS
New competition for the government's Postal Service is emerging every month, making further inroads into delivery of magazines and newspapers (second-class mail, where competition is legal) and chipping away at delivery of first-class mail (where competition is still outlawed by the private express statutes). From its headquarters in Riverside, CA, Inland Carriers has been providing same-day delivery of the Wall Street Journal in Southern California and parts of Arizona and Nevada since 1972. In November 1974 it began delivering The Reader's Digest, with volume now approaching 100,000 copies and expected to reach 200,000 per month by next summer. Inland has just begun delivering Time, Newsweek, and U.S. News & World Report in the Fullerton, CA area. The company keeps costs low by using relatively unskilled labor at $3/hour for adults and $2.35/hour for teenagers.
One of the growing invasions of the first-class mail market is utility bill delivery. Peoples Gas Co. of Chicago now delivers over 1.5 million utility bills each year, using its own force of high school age delivery boys, many of whom are from low-income neighborhoods. Deliveries average 9¢ each, compared with 13¢ for first-class mail. The Georgia Power Co. estimates it will save $400,000 this year by delivering a portion of its bills itself.
But the boldest challenge to date is shaping up in the small city of Pittsburg, KS. There, since March 9, a company known as Alternate Systems Inc. has been openly competing with the Postal Service in delivering first-class mail. It guarantees that any local mail brought in by 9 A.M. will be delivered by that same afternoon. Further, Alternate Systems charges only 6.5¢ per letter (5¢ each in quantities of 100 or more). So far the company has 12 delivery employees, plus the owner, Robert Black, and his wife and mother-in-law, who run the office. Black's lawyer, Lou Barney, says he is convinced that the private express statutes are unconstitutional, and the company is prepared to challenge the Postal Service in court. Such a battle may not be long in coming, since the postal authorities have already concluded an investigation and turned the results over to the U.S. Attorney's office for prosecution.
• "Mail Service Competition Rising," New York
Two proposals aimed at resisting the ever-growing dominance of government bureaucracies have been enacted into law, one in Florida and the other in Colorado. The Florida law is the Economic Impact Disclosure Act, drafted by three libertarian economists at the University of Miami's Law and Economics Center (see "Spotlight," May 1976, p. 40). The law requires that every state agency justifies by established cost-benefit methods any action that might have "substantial economic impact on any person." It requires that the action be shown to be legal, to be the least-cost method for achieving the stated purpose, to be more cost-effective than the alternative of no action, and to represent the most efficient use of public and private resources. The Act was passed by the 1975 legislature, vetoed by Gov. Reuben Askew, and resurrected this year by legislative over-ride of the veto. A 48-page monograph tracing the history and effects of government regulation and containing both the text of the Florida law and an improved model law is available from the Center (see below).
In Colorado, the proposed Sunset Law (see "Trends," May 1976, p. 34) has been passed by the Legislature and signed into law by Gov. Richard Lamm. The law limits every agency or program to a life of six years, after which it will be abolished if its functions and effectiveness cannot be established. The first set of agencies coming up for review, in 1977, will include those licensing and regulating barbers, cosmetologists, and shorthand reporters. The Colorado Legislature has already abolished agencies which licensed midwives and ore buyers.
• "Legal and Economic Evaluation of Impact Statement Requirements for Regulatory Agencies," Roger LeRoy Miller and James S. Mofsky, Law and Economics Center, University of Miami, April 1976 (P.O. Box 248087, Coral Gables, FL 33124: $2.00).
• "Colorado Reigns in Bureaucracy," AP (Denver), April 23, 1976.
Vermonters have won new freedom from the near-monopoly of public schools and the state's Education Department, thanks to an April ruling of the state Supreme Court. The court ruled that children who attend an "alternate" school cannot be judged truant, even though the school in question has not been approved by the Department of Education. Essentially, the court clarified the meaning of Vermont's truancy law (which requires children to be provided with an education "equivalent" to that of the public schools). The Supreme Court made it clear that equivalency is not synonymous with approval by the Education Department. Since truancy is a criminal matter, the burden of proof is on the prosecution to prove that a private school is not offering equivalent education. It is not sufficient merely to cite non-approval by the Department of Education.
The ruling has raised howls of protest from the Department, which considers the state's truancy law "thoroughly confused and compromised" by the ruling. But it has caused much rejoicing among parents, children, and operators of private schools, who now need not worry about going through the lengthy, nit-picky, bureaucratic approval process (unless they wish to qualify for state aid programs).
• "Court Ruling Jars Board of Education," Rutland Herald, April 7, 1976.
• "Supreme Court Ruling Opens Up Truancy Issue," ibid.
REFORM IN THE AIR
Each month brings further progress toward deregulating commercial aviation, and April offered a number of significant developments. The forum was the Senate Commerce subcommittee on aviation. During April the subcommittee heard testimony from a parade of witnesses, with all those from the Federal government favoring increased competition and reduced regulation, while those from the airline industry ranged from defense of the status quo to half-hearted pleas to go slow on making changes.
Leading off the witnesses were two cabinet officers: Transportation Secretary William Coleman and Treasury Secretary William Simon. Both urged Congress to adopt the administration's phased deregulation proposal, so as to allow aviation to enter the competitive world. But the surprising testimony came from the Civil Aeronautics Board's own chairman, John Robson. Agreeing with CAB critics, Robson admitted that his agency's regulations had forced up airfares unnecessarily, and asked Congress to cut the agency's powers. In an attempt to retain some CAB control during deregulation, Robson offered the CAB's own plan for introducing pricing flexibility and liberalized entry and exit from the market. Robson also agreed that the present Federal Aviation Act "represented a major exception to the general principle of competitive freedom," and that in the CAB's view, "reliance on natural market forces for air transport is achievable and holds out the best long-term possibilities for continued fulfillment of the public's need for air travel." Robson's testimony, supported unanimously by the CAB board, so impressed the subcommittee's chairman, Sen. Howard Cannon, that he announced plans to push for regulatory reform during the present session of Congress. It had previously been thought unlikely that any bill would be enacted prior to the November elections.
In an interesting footnote to the Senate hearings, further evidence of the viability of competition was provided in Texas. Southwest Airlines, an aggressive intrastate carrier not regulated by the CAB, has filed an application with the Texas Aeronautics Commission to extend service to the cities of Austin, Corpus Christi, El Paso, and Midland/Odessa, at fares up to 42 percent less than the regular coach fares of CAB-regulated carriers (and up to 65 percent off evening and weekend fares). Southwest would be competing with five CAB-regulated airlines in offering the new service.
• "Airlines' Plight Blamed on Regulations," AP (Washington), April 8, 1976.
• "CAB Asks Congress to Cut Its Powers," Ibid. April 9, 1976.
• "Airlines May Lose Some Protective Cover," Business Week, April 26, 1976, p. 35.
• "Key Senator to Push Regulatory Reform," Aviation Week, April 19, 1976, p. 33.
• "Southwest Airlines Pushing Expansion," Ibid., April 12, 1976, p. 32.
In 1972, 320,000 more teenagers would have had jobs, had it not been for the 1966 amendments to the Federal minimum wage laws. And the overall youth unemployment rate would have been 12.4 percent instead of 16.2 percent in that year. Thus concludes James F. Ragan in his doctoral dissertation on the effects of minimum wage legislation on teenage unemployment.
Ragan used data on employment, age, race, sex, and school enrollment status over the 1963-72 period to analyze the effects of the 1966 amendments, which raised the Federal minimum wage from $1.25 to $1.40 and expanded coverage by 25 percent. Ragan's statistical analysis shows that the increased rate and coverage are strongly correlated with the increase in teenage unemployment which then occurred, much as economic theory would predict. Forcing employers to pay them higher relative wages simply leads to a reduced number of jobs for teenagers. Any gain in employment in the remainder of the labor force is far more than offset by the loss of jobs by those who are directly affected by the minimum wage laws.
• "Minimum Wage Legislation and the Youth Labor Market," James F. Ragan, Jr., Center for the Study of American Business, Jan. 1976 (Washington University, St. Louis, MO).
FREE TRADE: ONE STEP FORWARD, ONE STEP BACK
In an important trade development. President Ford has rejected the 5-1 recommendation of the International Trade Commission that higher tariffs be imposed on foreign shoes. The decision is expected to save consumers up to $1 billion a year. Ford's ruling was the first major tariff case in which the interests of U.S. consumers was the deciding factor. Now the domestic shoe industry, characterized by outmoded, labor-intensive methods, will have to adapt to foreign competition or switch to other fields of endeavor.
Unfortunately, Ford's earlier decision regarding stainless steels left much to be desired. Although rejecting an increase in steel tariffs. Ford proposed "voluntary" agreements with the Japanese and Common Market governments to limit imports, touching off fears of protectionism and trade wars. The shoe decision is expected to counteract at least some of those fears.
Two other important free trade issues surfaced recently: sugar and beef. A study prepared by the White House Council on International Economic Policy recommended against a return to government intervention in the sugar market. Since January 1975 sugar imports have been essentially free of controls, after 40 years of country-by-country import quotas. Meanwhile, many cattle producers are calling for increased restrictions on imported beef, and a bill to this effect has been introduced by Sen. Dewey Bartlett. But vocal opposition to such moves is developing. Instead of increasing import restrictions, the complete repeal of meat import controls has been called for by David Steinburg, president of the U.S. Council for an Open World Economy. "Quotas hurt consumers, particularly low-income consumers who can least afford them, and do not provide constructive, responsible answers to the real difficulties of the cattle industry," Steinburg has stated.
• "Shoe Quotas: Walking on Air," Los Angeles Times, April 21, 1976.
• "Shift in U.S. Sugar Policy Unlikely, Study Indicates," UPI (Washington), Mar. 31, 1976.
• "Cattlemen Seek Tighter Curbs on Imports of Beef," AP (Washington), Mar. 16, 1976.
EFFECTS OF AD BAN
"The regulation of prescription drug price advertising, promulgated and defended by organizations representing retail pharmacists, appears to benefit pharmacists only." So begins the concluding section of Prof. John F. Cady's recent study of the effects of bans on such advertising in 34 of the nation's 50 states. The regulation of prescription drug advertising is a classic example of a legalized and government-enforced cartel, concluded Prof. Cady. And it may be costing consumers as much as $380 million per year.
Cady examined both the average retail price level and the extent of service provided by pharmacies in the regulated and unregulated states. No significant differences were found in the proportion of pharmacies offering delivery service, credit accounts, or waiting areas for prescription customers. The only service offered more frequently by regulated pharmacies was the keeping of family monitoring prescription records, but this service can also be used by the pharmacist as a means of keeping customers and discouraging price shopping. Interestingly, 76 percent of the unregulated pharmacies offered emergency prescription service, compared with only 68 percent of the regulated ones.
Comparing price levels, Cady found that prices in the regulated states were 5.2 percent higher (a difference which was statistically significant at the one percent level). Thus, in 1970 (the year from which the data were taken) consumers would have saved between $134 and $152 million if the regulations had not been in effect. Since prescription drug sales volume has increased 150 percent since 1970, the present cost to consumers could be as high as $380 million. The Federal Trade Commission has published for comment proposed rules that would abolish these price advertising restrictions as "unfair trade practices."
• "Restricted Advertising and Competition: The Case of Retail Drugs," John F. Cady, American Enterprise Institute, 1976 (1150 17th Street, NW, Washington, DC 20036: $1.00).
• Deficits. A large majority of the American public favors a constitutional amendment which would require Congress to balance the Federal budget every year. Such a measure got the support of 78 percent of those polled by the Gallup organization this spring, including 84 percent of Republicans, 78 percent of Democrats, and 77 percent of independents. (Source: "Voters' Bicentennial Mood Is Fiscally Conservative," Santa Barbara News-Press, April 11, 1976.)