Reversals for Socialism

All around the world, both developed and developing nations are backing off from socialism and taking steps toward a freer economy. Recent examples run the gamut, from North and South America to Europe and the Middle East.

Denationalization is the word in Argentina and Chile, as military regimes attempt to undo the socialistic debacles of their predecessors. In September the Argentine government announced it will be selling off its 370 State-owned enterprises and its minority interest in 400 others. All State businesses, other than public utilities, will be on the market by the end of the year. Subsidies to money-losing State companies have been costing taxpayers hundreds of millions of dollars each year, becoming the largest factor in the government's massive budget deficit.

Chile's government has already sold off large numbers of nationalized companies. It is now focusing on other measures to free the economy. Tariffs and duties are being reduced, to end protection of inefficient domestic industries and allow the consumer's peso to go farther. The US Commerce Department now ranks Chile as the freest trading country in South America. With its foreign debt substantially reduced and inflation cut from the four-digit level to only 70 percent, the Chilean government now has one of the world's best credit ratings.

Two Canadian provinces have turned away from socialism. In December 1975 British Columbia voters ousted their socialist government. This year Manitoba voters did likewise, booting out the eight-year-old government of the socialist New Democratic Party. The new Progressive Conservative government favors the return of free enterprise.

In the Middle East Israel's Likud government has embarked on a major program to reduce the State's role in the economy. So far it has reduced subsidies for basic commodities, cut the government budget, frozen government hiring, and reduced the rate of monetary growth. Finance Minister Simcha Ehrlich is seeking buyers for many of the 200 State-owned firms, including several banks, the domestic airline, and the telephone system. Currency controls have been virtually abolished, as have restrictions on travelers and foreign investment. Israelis will no longer pay a tax on foreign travel or special levies on imports. Subsidies to exporters are also out, as are most sales taxes. And the government has floated the value of the Israeli pound. Ehrlich hopes the changes will make Israel a Middle Eastern financial center and attract large amounts of foreign investment. (Not to be outdone, the Shah of Iran has announced a cutback in his government's role. State-owned agribusinesses and hotels will be sold to private investors, as a first step toward a government retreat from the nonoil sector of the economy.)

Similar changes are under way in Europe. The socialist government of Portugal has backed off from its hold on 60 percent of the country's industry. Although "key industries" such as banking, insurance, petrochemicals, and oil will remain nationalized, most others will be auctioned off or returned to their original owners. And the shareholders of those that will remain State-owned will be compensated, to the tune of $2.5 billion. The government is taking steps to lure back owners, executives, and managers, including the passage of more realistic labor laws.

Even England and France show signs of hope. The British Conservative Party, virtually assured of victory in the next election, has now promised to lower income taxes, reduce government spending, sell public housing to the tenants, end subsidies to money-losing State industries, reform labor laws, and remove restrictions on small business and the self-employed. And in France the alliance between Socialists and the Communists is gradually coming apart. The split arose over Communist demands to nationalize vast amounts of industry—far more than the Socialists will support. Although the coalition has not been dissolved, its future is now in doubt and its support slipping in public opinion polls. What will happen between now and the March election remains to be seen, but a leftist victory appears much less likely than it did several months ago.

• "Setback for Socialists," Business Week, Oct. 24, 1977, p. 46.
• "Argentina Setting Denationalization of State Concerns," New York Times, Sept. 15, 1977.
• "Free Trade for Chile," David Belnap, Los Angeles Times, Aug. 8, 1977.
• "Reforming the Mixed Economy," Wall Street Journal, Sept. 29, 1977.
• "Israel Frees Economy to Spur Growth," AP (Jerusalem), Oct. 28, 1977.
• "World Roundup: Iran," Business Week, Aug. 29, 1977.
• "Portugal: The Old Guard Returns," Ibid., p. 36.
• "British Opposition Party Closes Ranks," William Tuohy, Los Angeles Times, Oct. 15, 1977.
• "From Fete to Fiasco," Time, Sept. 26, 1977, p. 32.

More Telephone Competition

The near-monopoly on telephone service long held by AT&T and the other franchised telephone companies continues to be chipped away. Two recent court decisions have substantiated this trend—one concerning telephones themselves, the other dealing with long-distance service.

In October the US Supreme Court let stand a federal appeals court ruling upholding the right of consumers to purchase their own terminal equipment and plug it into the telephone network. The court's decision upheld a program by the Federal Communications Commission under which such equipment must meet certain technical specifications to ensure compatibility with the phone system. The FCC's program, announced in June 1976 but tied up in court until now, replaces the previous arrangement under which customer-owned equipment was permitted only if connected to the system by a "protective device" supplied by the telephone company for a sizeable monthly rental. The protective device concept, favored by the franchised telephone companies and most state regulatory commissions, was the means by which the companies had blunted the impact of the FCC's 1968 decision permitting customer ownership of equipment for the first time. Only large firms found it economical to buy terminal equipment (PBX's, specialized phone systems, etc.), after paying the monthly protective device rental. Now, thanks to the Supreme Court's decision, interconnect companies predict doubled sales within a year. And AT&T has announced that it, too, will now offer phones and other equipment for sale.

The other decision occurred in federal appeals court in Washington. That court ruled that MCI Telecommunications Corp. has the right to market its Execunet long-distance service (transmitted by microwave) in competition with AT&T. The decision reversed an FCC ruling of June 1976 that found Execunet too threatening to AT&T's revenues to be consistent with the "public interest." While the case has been on appeal, MCI's customer base has been frozen at the 10,000 who had signed up as of the FCC's decision.

Perhaps more significant than the outcome of the ruling was the appeals court's rationale. The court asserted that the Bell System's monopoly is only a de-facto one. It already existed when Congress set up the FCC in 1934, and therefore the 1934 Communications Act did not give the monopoly the force of law, as most people (including AT&T) have long maintained. If this rationale is sustained, it will clear the way for other competitors to enter the long-distance field, without having to engage in costly legal battles.

"Consumer Can Use Own Phones, High Court Rules," AP (Washington), Oct. 4, 1977.
• "FCC Order Making It Easier to Buy Phones Opens a New Market," Wall Street Journal, Oct. 14, 1977.
• "Ruling Confronts AT&T with Threat to Monopoly in Long-Distance Services," Ibid., Oct. 4, 1977.

Private Enterprise in Space

A West German firm plans to be the first private company to launch commercial satellites. Headed by former NASA official Kurt H. Debus, the company, OTRAG, is funded by 600 private investors. It is developing an extremely simple modular launch vehicle, based largely on mass-produced, commercially available off-the-shelf components.

OTRAG's design is more than just talk and drawings. The initial module of the booster, with a 400 lb. payload capability, was launched on May 17 on a suborbital test flight. The company plans a series of ever-larger tests, with the first orbital flight in 1979 and a fully-qualified commercial launch vehicle flight in 1981. The latter would be able to put 3300 lbs. into a geostationary orbit, or 22,000 lbs. into low-earth orbit.

In order to avoid government interference, OTRAG has leased a huge launch site on the equator. It has signed a 25-year lease on 100,000 sq. km. of land in Zaire; payments are deferred until 1980, after which the Zaire government will get five percent of the company's sales revenue each year. The firm expects to launch an average of 10 vehicles a year between 1981 and 1990, mostly orbiting communications, reconnaissance, and earth resources satellites.

The market for satellites and other space activities is likely to be quite large, if the 23rd annual meeting of the American Astronautical Society is any indication. Held in San Francisco in mid-October, its theme was "The Industrialization of Space." Some 500 people from aerospace and other industries heard papers on the myriad prospects for profiting from the exploiting of space. Most speakers appeared to agree that space exploration and development is at a major turning point, from an era dominated by government (NASA) to one in which the major role shifts to private industry. OTRAG, then, is not an isolated phenomenon.

"Low-Cost Satellite Launcher Developed," Robert R. Ropelewski, Aviation Week, Sept. 12, 1977, p. 42.
• "The Industrialization of Space," AAS 23rd Annual Meeting program, Oct. 18-20, 1977.

Medical Advertising Battle

A battle royal is shaping up between the federal government and organized medicine over the issue of whether doctors may advertise. The issue is complicated due to the many links between medical organizations and the State.

In September, after two years of pretrial maneuvering, the Federal Trade Commission suit against the American Medical Association proceeded to trial. The FTC charges that the AMA's code of ethics, which prohibits physician advertising, is an illegal restraint of trade which leads to price fixing, limits competition, and denies consumers needed information. The AMA responds that it is a voluntary organization to which only 50 percent of all physicians belong, and that its advertising bans protect the public from fraudulent and misleading ads.

On the surface, it sounds like a typical case of government harassment of independent business people. Unfortunately, it's more complicated than that. It's true that AMA membership is not required by law, so that physicians need not come under the organization's code of ethics. And it's also true that it is state laws, not AMA ethics, that actually forbid medical advertising. Ten states have absolute bans on such ads, while only four (Indiana, Montana, New Hamshire, and West Virginia) have no restrictions. But over the years the AMA has actively promoted the legislative bans, supported stiff licensing requirements, and imposed strict admissions standards on medical schools—all measures that restrict the supply of physicians and tend to cartelize the industry, with government assistance. Thus, the AMA, though technically correct, is so thoroughly in league with the State that its protestations have a hypocritical ring.

Given the trend of recent court decisions, the AMA is likely to lose to the FTC on this issue. While in one sense that would be a defeat for voluntary associations, it would nonetheless be a victory for the free market, by restoring some measure of competition to a largely cartelized industry.

"Medical Advertising Argued," AP (Washington), Sept. 11, 1977.
• "FTC Sues AMA Over Code of Ethics," Science, Sept. 30, 1977, p. 1346.

Seabed Mining Progress

As recommended in REASON ("Torpedo the Floating OPEC," November) the Carter administration has come out in favor of a US law to provide for seabed mining by US companies. And wisely, it has opposed the mining industry's plea that the taxpayer insure the firms against losses arising out of future UN action. The administration's action represents a major shift in policy; up till now it has argued against domestic legislation in favor of the ongoing UN Law of the Sea efforts.

Congress remains divided on the issue. The House Merchant Marine Committee has endorsed the industry bill, which would provide up to $350 million in government insurance for seabed mining companies. But the Senate Energy Committee has approved a bill to merely issue mining licenses and register claims, leaving out the insurance plan. The steel industry, meanwhile, as the world's largest user of manganese, has started campaigning for passage of some form of seabed mining law. "The preservation of the United States' present right of access to deep-seas [manganese] nodules is of tremendous importance to our country," says U.S. Steel vice president Phillips Hawkins. "If we're concerned today that we rely on OPEC for 45 percent of our oil, we should be equally concerned with having to rely on South Africa for 100 percent of our manganese requirements."

"Seabed Mining Bill Receives a Go-Ahead from Carter," Wall Street Journal, Oct. 5, 1977.
• "Senate Unit Shelves Proposal to Insure Deep-Sea Miners Against Treaty Rules," Ibid., Oct. 19, 1977.
• "Ocean Mining Is Big Issue; Steel Firms Need Manganese," AP (Washington), Oct. 28, 1977.

Shooting Down a Boondoggle

In recent years some astronomers and other scientists, fascinated by the idea of contact with extraterrestrial civilizations, have urged the federal government to fund construction of a very-large-aperture radio telescope to be used exclusively in listening for signals from such civilizations. Fortunately, two leading scientists have undercut the case for this particular boondoggle.

What Drs. T.B.H. Kuiper of Jet Propulsion Laboratory and M. Morris of the Owens Valley Radio Observatory have done is to apply the principle of Occam's razor to the problem—analyzing it with the minimum number of assumptions. By simple logical analysis they conclude that either (1) the galaxy is essentially empty of technological civilizations, or (2) it is extensively colonized. If the former is true, there is little point in searching for radio signals. If the latter is true, there are several alternative possibilities.

First, extraterrestrials may choose not to contact us, in which case there would be no signals. Alternatively, if they are seeking contact and the galaxy is extensively colonized (as assumed), then the signals would probably be coming from relatively nearby (e.g. within 10 light years), so that no great sensitivity would be required to detect them. Another possibility is that sophisticated beacons have been placed in our vicinity, whose presence or signals we cannot detect until we reach a more advanced technological level. In this case, our present methods of searching would be of no value. Or finally, there may be extraterrestrial signals passing through our solar system but not intended for us—merely part of some ongoing intragalactic communications net. In this case, detection would depend on how the signals were coded—but if detectable at all, present radio telescopes could do the job.

That list exhausts the likely possibilities, say Kuiper and Morris. And none of them requires a multi-million dollar very-large-aperture radio telescope. The radio telescopes already in existence will do the job quite adequately. Score one for the taxpayers.

"Searching for Extraterrestrial Civilizations," T.B.H. Kuiper and M. Morris, Science, May 6, 1977, p. 616.


Eyeglass Ads OK. Another victory for commercial speech being protected under the First Amendment occurred in September. The US 2nd District Court of Appeals ruled that state laws prohibiting price advertising of eyeglasses and contact lenses are unconstitutional. The ruling stemmed from a hard-fought case brought by Opti-Cal, a pioneering California eyeglass firm. Glasses now join pharmaceuticals and legal services as formerly taboo subjects of advertising. (Source: Los Angeles Times, Oct. 5, 1977.)

Patenting Life. Research with recombinant DNA received new impetus in October, thanks to the US Court of Customs and Patent Appeals. In a 3-2 ruling the court held that new life forms developed via genetic engineering may be patented and owned by private industry. The case was brought by Upjohn Co., a large pharmaceutical house in Kalamazoo, MI. (Source: AP (Washington), Oct. 12, 1977.)

Cable Censorship. The Federal Communications Commission's rule requiring cable TV operators to prescreen and censor any possible "obscene or indecent matter" has been ordered suspended by the US Court of Appeals for the District of Columbia. The FCC's general counsel admitted that the rule, under challenge by the American Civil Liberties Union on First Amendment grounds, probably represented "a system of prior restraint" that would be illegal. Since the agency is expected to try again with a modified rule, the ACLU plans to seek further relief in the courts. (Source: Wall Street Journal, Sept. 2, 1977.)