Trends

Communications Freedom Advances in Europe What do West Germany, Poland, Sweden, Switzerland, Monaco, and Yugoslavia have in common that is not shared by Great Britain and Belgium? The answer is legal Citizen's Band radio. But that is no longer stopping British and Belgian CBers. Despite penalties of three months in jail and an $800 fine, an estimated 20,000 Britishers own and operate CB sets. A like number of Belgians are risking even more draconian penalties of up to a year in jail and a $2,700 fine.

There is agitation in both countries to legalize CB, and the CBers are arguing their case on freedom-of-speech grounds. "The issue is freedom of the airwaves and the people's right to talk to each other," states Patrick Wall, a Conservative member of the British Parliament. The organized opposition to legalization comes from Britain's Labor Party. Its main spokesman, Lord Wells-Pestell, puts the issue this way: "We have seriously to consider the enormous disadvantage of having a vast army of people who can communicate with each other very easily." The British Citizen's Band Association has put forth a legalization proposal that's expected to win support from the Thatcher government; a Belgian government promise to that effect got nowhere in the last parliament, but the Belgian CB Association is persevering.

Freedom in the regular broadcast portion of the spectrum is picking up some new support in Europe. In France, Socialist Party leader François Mitterand has been charged with radio piracy after twice having gone on the air in illegal broadcasts to advocate his party's views. Mitterand, while claiming to support a State monopoly on broadcasting, nonetheless was protesting the government's political control over broadcast information. In England the Spectator recently editorialized in favor of broadcast freedom. In criticizing BBC and (Ireland's) RTE commentators who protest State interference in program content, the editorialist wrote:

The broadcasters are in a weak moral position. Both are state-owned networks and, despite the more or less specious devices designed to disguise the fact, are in some degree state-controlled. The logical answer for libertarian broadcasters must be to do away with these networks and have only private enterprise broadcasting companies, as we have only private enterprise newspapers.

TIME for the Free Market One could be excused for blinking but there it was, the Time magazine cover story for August 27: "To Set the Economy Right: The rising rebel cry for less Government, more incentive and investment." And there, heralded by a cartoon of John Maynard Keynes being toppled, were full-color photos of economists Arthur Laffer, Martin Feldstein, and Michael Boskin—all advocates of tax cutting, money-supply limitation, and cutting back government.

The upbeat article represents the coming of age of today's free-market-oriented, post-Keynesian "supply-side economics." When even Time magazine has gotten the message that government has failed at managing the economy; that taxation and regulation are among our chief problems; that the key to beating inflation, restoring the dollar, and licking unemployment is to revitalize production by restoring incentives, for both employers and employees, by slashing away at taxes and regulations—well, then, can anybody seriously line up with the Galbraiths of the world who still advocate higher taxes, bigger deficits, and wage/price controls?

Consider, further, that among the ideas being advanced by this generation of economists lauded by Time are (1) abolition of the personal income tax (Boskin), (2) abolition of the corporate income tax (Thurow), (3) dismantling tariffs, subsidies, and farm price supports (Nordhaus), (4) abolishing the minimum wage for teenagers (Laffer)—and you'll get some idea how far the anti-big-government philosophy has come among economists. Government management of the economy still has its advocates—but the initiative has now passed to those whose emphasis is on the private sector.

Tax Revolt Continues Was Proposition 13 a flash in the pan? Don't you believe it. After California's pioneering grass-roots effort to cut back on government was voted in by a two-to-one margin, similar citizen-spawned property tax cuts passed in four states last fall, along with spending limit measures in five others (see Trends, February 1979). But that was only the prelude. Those elections apparently sent a message to state legislators that their constituents are serious about the tax revolt.

As a result, according to a New York Times poll, 37 state legislatures cut or limited taxes during their 1979 sessions. The government-cutting actions break down as follows:

• Twenty-two states have cut property taxes, ranging from reductions for the elderly to across-the-board cutbacks.

• Eighteen states have cut income taxes, either by reducing rates or increasing deductions and credits.

• Fifteen states have cut or narrowed sales taxes.

• Twelve states have reduced or repealed other taxes.

Despite all the legislative actions, further ballot measures are in the works. Colorado citizens are working to make statutory spending limits part of the state constitution. Other spending limits are scheduled for a vote this fall in California and Washington. An Ohio initiative would cut property taxes, as would a Florida measure to double homestead exemptions. California groups are seeking to qualify two tax-cutting measures. One, sponsored by Howard Jarvis, would cut the personal income tax in half and index it for inflation. The other, sponsored by Pablo Campos, would phase out the six percent sales tax over a three-year period.

Thus, as the Times headline put it, the "nationwide revolt on taxes show[s] no sign of abating."

Pacific Pullback Possible At long last it looks as if the Japanese government is getting ready to assume a larger role in its own defense. If current plans are translated into programs, the need for a major western Pacific deployment by US military forces should be substantially reduced.

For 34 years since the close of World War II, Japan has maintained a minuscule "self-defense force" that could readily be overwhelmed by a Soviet attack. Although not required by law, defense spending has been limited to less than one percent of Japan's gross national product. As a result, defense analysts have pointed out that:

• Japan's 155,000-man army has antiquated tanks and less than a month's supply of ammunition.

• Its 44,000-man air force has no hard shelters for its planes and little defense of its radar sites.

• The 41,000-man navy is considered ineffective against air attack. As a result, defense of the sea lanes supplying Japan's oil is entrusted to the US Navy.

Since 1977 the Defense Agency has been making the case for a build-up of its forces, and indications are now that the defense budget will be doubled—from $9.7 billion to $19.5 billion—between now and fiscal 1965. If carried out, the plan would add 39 warships, 100 F-15 fighter-bombers, 45 P-3C Orion antisubmarine patrol planes, eight E-2C early warning patrol planes, new tanks and other armor, and concrete shelters for at least two fighter plane squadrons. And all of that could be done within the one percent limit, if GNP expands as expected.

Opinion polls in Japan show a gradual increase in support for higher defense spending, and many defense analysts hope the one percent barrier can be broken through before many more years.

That could only be good news for Americans tired of paying for half the world's defense.

British Deserialization Proceeding In rapid succession Britain's new government led by Margaret Thatcher is moving to undo the socialist accomplishments of the postwar era. First to go will be the special legal privileges of labor unions, which have hamstrung British industry. If Parliament goes along this fall, the government will outlaw the closed shop, ban secondary picketing (i.e., picketing of firms not a party to a labor dispute), require secret ballots in union elections, and protect union members from arbitrary expulsion for their views.

The second initiative will involve partial denationalization. The bill to be offered will change the legal status of British Airways to an ordinary company, and offer up to 45 percent of its shares to the public—with special preference for the airline's 57,000 employees. The major aerospace firm, British Aircraft Corp. (only nationalized in 1977 by the Labor government)—will also be converted to a private firm, with about half the shares sold to the public. Former owners of the nationalized firms may get first preference in buying the shares. Both British Aerospace and British Airways will now be expected to raise the capital they need from commercial sources, rather than the government. Overall, the government hopes to raise $2.3 billion from the sale of these firms.

In addition, government subsidies to industry are to be cut. Shipping subsidies are to be scaled back from $195 million to $150 million next year, $125 million in 1981, and zero thereafter. The government's National Enterprise Board, set up to rescue ailing firms but recently acting as a venture capitalist, will be scaled back (by $230 million) to its original purpose—"a casualty clearing station and a temporary home for lame ducks." Minister of Industry Sir Keith Joseph has announced a 20 percent cut—$500 million—in the level of aid to regional industry over the next three years. Finally, the government has announced the abolition of its Price Control Board and stated that it has no intention of controlling wages and prices.

Unfortunately, the picture is not completely rosy. Economist Arthur Laffer has criticized the Thatcher government's tax policies, pointing out that the cut in income taxes will be more than made up for by the increase in value added (sales) taxes. Accordingly, he argues, there will be little real economic benefit from the income tax cuts—especially if consumers demand higher pay to cope with sales taxes and thereby get pushed into higher tax brackets. Thus, says Laffer, the new government "is repeating the conventional mistakes of conservative governments everywhere."

Education Alternatives in California Despite the continued decline in school-age population in California, enrollment in private schools has been steadily increasing. The San Francisco Chronicle has pointed out that while public school enrollment has sunk from 87,000 in 1970 to about 60,000 today, private school enrollment has stayed constant. And elsewhere in the Bay Area, "non-public school enrollment has increased steadily for the past five years." This growth is occurring despite the fact that parents choosing private schools have to pay twice—once for private tuition and again, in taxes, to support the public schools.

Next spring, Californians may have a chance to remedy that situation. Two petition drives are under way to place initiative measures on the ballot that would put the choice between public and private schools on a more equal footing. One is a voucher proposal, drafted by two liberal law professors—John Coons and Stephen D. Sugarman. Under their proposal today's public and private schools would continue undisturbed, but two new kinds of schools would be added: public scholarship schools and private scholarship schools. These nonprofit schools would be eligible for vouchers from the state, an idea first proposed by Milton Friedman, but extensively modified by Coons and Sugarman to be more egalitarian. Already, the public school establishment has mobilized to fight the proposal; the Los Angeles school board has even allocated $55,000 of the taxpayers' money to "attack" and "fight" the voucher proposal. "I want the best possible shot at defeating it," says Board president Roberta Weintraub. "We may all be out of work."

While the voucher plan is being pushed by a coalition of conservatives and liberals, a different group is promoting an educational tax credit initiative. Libertarians, taxpayer groups, and some private school groups hope to qualify a plan that would allow taxpayers a tuition tax credit of up to $1,200 per year for each student supported in a private school—kindergarten through college. It would also prohibit the state from adding any new restrictions on private schools beyond those in effect on June 1,1979.

Predictions about these two efforts are premature, since neither has yet qualified for the ballot. But if either or both gets on, June 1980 could see major attention focused on the schools of the Golden State.

Cable Adds Services—And Finds Competition The alternative TV industry continues to boom. Scarcely a month goes past without another new firm or service being announced. Over the summer two more cable services made their debuts, and Comsat announced plans for a powerfully competitive service.

The new cable offerings are sports and music—on a nationwide basis. The Entertainment and Sports Programming Network—a $10 million subsidiary of Getty Oil Co.—began operations on September 7. Offering its programming to cable systems at the bargain rate of 2.5 cents per subscriber per month (compared with 4 to 10 cents for most other program services), ESPN will feature Davis Cup tennis, women's professional golf, NCAA events not already under contract to the networks, and sports-oriented newscasts and interviews. ESPN is selling national advertising (with Anheuser-Busch the first to sign up) and reserving 20 to 30 percent of the commercial time for local advertisers.

For those who prefer music to sports, a nationwide classical music "super-station" is getting set to begin. Chicago's WFMT—an unconventional, highly profitable classical station, considered by some to be the finest in the country—has made a deal with United Video to transmit its signals via satellite to cable systems coast-to-coast. Cable subscribers will be able to hook it up to their FM receivers or TV sets or both.

Just when cable companies were starting to look fat and happy, along came Comsat, on August 2, and dropped its bombshell: by 1983 it plans to be offering direct satellite-to-home TV broadcasting, bypassing both the networks and cable systems. Comsat plans to offer four to six channels of programming, featuring first-run movies, sports, educational and cultural programs, news, and public affairs. A monthly fee of $15 to $22 would cover the programming, rooftop antenna, and a decoding device to unscramble the signal.

"All the technology is available now," said Comsat representative Judith Elnicki at a Washington press conference. The system would utilize a very large, high-powered satellite, to enable small, three-foot diameter rooftop antennas to pick up the signal. A single satellite would blanket the entire country. Cable system operators reacted to the Comsat announcement with caution. It will be interesting to see how these erstwhile advocates of competition (with the networks) deal with their first real competition.

Space Privatization Update Privatization of space exploitation, reported on here last month, is not limited to the United States. European space efforts show the same trend.

The European Space Agency's "Ariane" launch vehicle, a competitor to the US Space Shuttle, is now going to be privatized as well. European aerospace firms have set up a joint commercial satellite-launching company, with a capitalization of $70 million, to take over the Ariane program. According to Aviation Week, "the organizers of the new venture believe only a commercial entity will be able to build less costly launchers that can compete successfully against the US [NASA] Space Shuttle."

The new firm, not yet named, is not completely private, since the French national space agency, CNES, holds 34 percent of the shares, but it will operate as a strictly commercial enterprise. French firms hold 25.25 percent of the shares, German firms 19.6 percent, Belgian firms 4.4 percent, and companies in other countries the balance. From 6 to 10 European banks are expected to become shareholders eventually. The new corporation hopes to be able to start signing contracts in January 1980 for long-lead items for the second production run of Ariane launchers.

Health Care Incentives From California come two examples of how changed incentives can lead to reduced health care costs. Both concepts involve insurance programs.

In one case, the innovator is a health insurance company—Health Maintenance Life Insurance Co. of Long Beach. Their idea is to give patients an incentive to avoid unnecessary hospitalization. The carrot? If the patient obtains authorization from the company prior to entering the hospital, it will pay 100 percent of the bill. The stick? Without authorization, the company pays only 80 percent. The results, to date, have been quite impressive. Compared to the national average of 750 to 800 days in the hospital per 1,000 persons insured. Health Maintenance Life's average was 510 last year and down to 450 in the first quarter of this year.

The other story originates in the Mendocino County Office of Education. That agency's 150 employees are now covered by a new form of health insurance—"stay well" insurance—that promises significant cost savings. The office still obtains insurance from Blue Shield, but instead of first-dollar coverage, it buys $500 deductible and self-insures for minor expenses, by setting aside $500 per employee in a special account. But the new twist is that employees can receive a portion of that $500 (per year) back when they leave or retire, to the extent that they haven't used it by putting in minor claims. Over the next 10 years, the agency expects to save over half a million dollars with this plan. If applied to all two million government employees in California, the plan could save $6 billion over the next decade.

The point of both examples is that there is a lot of inefficiency in today's health insurance/health care system. Changing the incentives within that system can do a lot to save money—and perhaps stave off nationalization of health care.

Milestones • Bowing to Reality? Losing $2 million a month operating four Concorde jets, Air France is considering grounding the controversial planes. The supersonic Concorde uses 16 times as much fuel per passenger as the subsonic 747, and the subsidy is costing French taxpayers $1,000 for each passenger flown.

• Truck Deregulation. California is proceeding with deregulation of trucking within the state. In August the state Public Utilities Commission abolished rules fixing minimum rates for general freight operations, effective next January 31. The decision frees 9,200 general freight trucking companies to set their own rates competitively.

• Cancer Aid. To ease the suffering of cancer patients undergoing chemotherapy, California doctors may now use marijuana as part of the treatment process. California becomes the 14th state to enact such a measure.

• Stop Milking Consumers. New Jersey may join the ranks of states decontrolling milk prices. The Byrne administration is seeking to abolish the state's minimum retail price regulations, charging that they are unnecessary and against the interests of consumers. The state's Office on Policy and Planning estimates that prices could drop as much as 10 cents per gallon.

• Harassment Ending? A federal law requiring visitors from abroad to submit to examination by the Public Health Service before being allowed to enter the country—if they are suspected of being homosexuals—is being challenged in court in San Francisco. Pending resolution of the dispute, such persons are not being detained by immigration officials.

• Piggyback Deregulation. In the interest of conserving energy, the ICC wants to encourage more truck trailers and containers to ride the rails, piggyback on flatcars. So it has proposed deregulation of this segment of the railroad industry and asked for public comment.

• Costly Fuel Economy. A government study has concluded that the government's 1981-84 fuel economy rules for automobiles would cost more than they would save. Based on an average gasoline price of $1 per gallon, the Commerce Department study found that the cost of making the changes would exceed the value of gasoline savings by $2 billion. Moreover, the study said the fuel-economy program would give a competitive edge to the largest firms, like GM and Ford, which can afford the huge investment more readily than less-well-off Chrysler and American Motors.