Trends

Voices from Space

New technology and new forms of service continue to proliferate in the burgeoning field of communications satellites. Among the most recent developments are satellite-based radiotelephone service, the first cable-TV-only satellite, and a plethora of direct broadcast satellite companies.

For the past five years NASA has been experimenting with satellites as relays for rural mobile radio services—for police cars, ambulances, forest-fire crews, and oil-platform operators, among others. Now, however, NASA thinks it's time to commercialize the service, moving it into the private sector. So it has hired Citibank to put together a financial analysis assessing such a service's probable costs and revenues. The contract marks the first time that NASA has hired a private financial advisor for such a task, according to the Wall Street Journal.

Out in California, meanwhile, Hughes Communications has come up with a new approach to communications satellites. Up till now all such satellites have been operated as common carriers, with transponders leased out on a first-come, first-served basis to any and all customers. But the Hughes Galaxy I will be different. According to president Clay T. Whitehead, it will be set up more like a shopping center. Hughes, as the center owner, will sell transponders to a compatible set of customers, all of them serving the fast-growing cable-TV market. Home Box Office has already signed up to purchase six of Galaxy's 24 transponders. Whitehead hopes to have all of them sold prior to the satellite's scheduled May 1983 launch.

Cable will be coming in for lots of competition, however, from direct broadcast satellites, which will bypass local cable operators, beaming TV signals directly to individual rooftop antennas. Fourteen companies had filed applications with the Federal Communications Commission by its July 16 deadline, seeking to reserve orbital slots for such satellites. Besides Comsat's Satellite Television Corp., the applicants included CBS, RCA, Western Union Telegraph, Graphic Scanning Corporation, National Christian Network, Inc., and eight new firms. Some of the firms plan to distribute teletext as well as video, and some plan to serve local TV stations (and in one case, movie theaters) in addition to homes.

Finally, the rooftop dish antenna seems to have arrived already. Equatorial Communications Co. announced in July that it will begin selling a two-foot-diameter antenna weighing just 15 lbs. The price? Just $2,500, about half the lowest price previously available. Stay tuned.

Alternative Medicine

As Dallas Cooley, M.D., pointed out in these pages ("How Do You Know Your Doctor's Not a Quack?" August 1980), the present system of medical licensing offers the appearance of protecting consumers while actually doing little to weed out incompetents. Frequently the system seems to be used as much to prohibit competition from unorthodox practitioners as it is to screen out genuine quacks. The alternative to government licensing, as Milton Friedman long ago suggested, is voluntary certification—by consumer groups or professional organizations, akin to the Underwriters Laboratory seal of approval on electrical appliances.

Although the idea is frequently dismissed as politically infeasible, a version of it is now being considered seriously in California. The basic concept is to retain the present state licensing system only for existing medical titles: doctors, nurses, chiropractors, osteopaths, podiatrists, etc. No one could use such a title without having the appropriate state license. But no longer would it be illegal for anyone else to practice medicine.

Lay midwives, herbalists, foot reflexologists, vitamin therapists, and other practitioners of alternative approaches to health care would be free from legal harassment by organized medicine and the state. People would pay their money and take their choice. Certification systems for the alternative fields would presumably develop in the marketplace, to identify those practitioners meeting various standards.

The new approach, called "title licensing," was proposed by the Public Affairs Research Group. The consulting firm was hired by California's licensing body—the Board of Medical Quality Assurance (BMQA)—to make an 18-month study of the present licensing system. After gathering data from all 50 states and hearing expert testimony from all quarters, the consultants defined six policy alternatives, ranging from complete deregulation (abolition of all licensing) to greatly increased regulation. After further review and hearings the alternatives boiled down to three: retain the status quo, increase licensing controls, or adopt title licensing.

Predictably, the California Medical Association opposes the latter alternative, considering it a license for quackery. But the BMQA's executive director, Robert Rowland, thinks the idea is worth trying. The present system, he maintains, does not screen out quacks very well, and it "has some major consequences in terms of limitations on freedom." Sometime this fall the board will decide whether to urge the legislature to adopt title licensing.

The idea has already been introduced in one state legislature. In July a consumer group urged enactment of title licensing by a special session of the Texas legislature, called to consider what to do about the pending expiration of the state's medical licensing under a "sunset law." The measure failed, under heavy opposition from organized medicine. Perhaps in California's laid-back, holistic atmosphere, this step toward deregulation will fare better.

Where Does Cancer Come From?

About 80 to 90 percent of all cancers are caused by factors in our environment. Right? Well, yes and no. The common impression of what this statement means—that chemicals in the workplace and carcinogens in the air and water are the leading causes of cancer—is just plain wrong. Such factors actually have been shown to account for only about six percent of all cancer in males and two to three percent in females.

The source of these numbers is the man who first made the calculations leading to the 80-90 percent figure: Dr. John Higginson, director of the World Health Organization's International Agency for Research on Cancer. When Dr. Higginson used the word environmental along with the 80-90 percent figure, what he had in mind was people's "personal environment"—principally smoking, alcohol intake, diet, and exposure to sunlight. It was Higginson's detailed, cross-cultural epidemiological studies in the 1950s that led him to conclude that such "environmental" factors were implicated in at least two-thirds of all cancer incidence.

The good news about this finding is that such factors are largely under the control of individuals. Each person can control his own diet, drinking, smoking, and sun-tanning.

In recent years Higginson has had to devote a lot of effort to correcting widespread misinterpretation of his findings. Many in the environmental movement have assumed that his work confirmed their fears about our air, water, and workplaces being laden with deadly carcinogens. So they castigated industry and demanded stringent controls. In fact, the best hope for reducing cancer incidence is self-control.

Freedom in the Skies

How well is airline deregulation working? There are several important indicators. The majority of fares are lower than they would have been under regulation. New airlines are sprouting up left and right. Aggressive competitors are making money. And deregulation is spreading to Europe.

A recent study by the Civil Aeronautics Board compared actual fare levels with those that would have prevailed under the CAB's previous ground rules. In the 100 largest markets, today's fares are 87 percent what they would have been under regulation; in the second 100 markets, the figure is 90 percent. Only in the smaller markets (which account for 43 percent of domestic revenue passenger miles) are fares higher, at 112 percent of prederegulation levels. The reason is that airlines no longer subsidize low-traffic routes out of profits on long hauls.

For the first time since creation of the CAB in 1938, totally new interstate airlines have come into being. Midway, Air Florida, New York Air, People Express, and Muse Air are already in operation, and the first three are already making money. Former intrastate carriers PSA and Southwest have gone interstate and are also profitable. And the preexisting regional carriers—Piedmont, Ozark, USAir (formerly Allegheny), Republic (which includes the former Hughes Airwest), Frontier, and Texas International are all making money as well, thanks to the freedom to restructure their route systems for more efficient operation. And the well-managed major trunk airlines, such as Delta, American, and Northwest, are also doing well in the free-market climate. The carriers that are losing money are the poorly managed ones—Pan Am (which includes the former National system), Braniff, Continental, and Western—which are having trouble coping without the protections of the CAB.

Pan Am, however, has come up with an idea that may enable it to compete more effectively with the lean new airlines. It's considering selling four excess DC-10s to its pilots and leasing them back to operate as a low-cost subsidiary. The new subsidiary would operate with new work rules and pay scales more like those of its nonunion competitors. The pilot-owners would receive depreciation tax breaks to compensate them for lower wage levels.

The success of US deregulation, and of Freddie Laker's low-cost transatlantic service, has inspired a British move toward deregulation. Called the Freedom of the Skies Campaign, it's headed by Nicholas Bethell, a member of the European Parliament. Pointing out that intercity fares per mile in Europe average three times those in the United States and that cross-Channel fares average nine times as much per mile as transatlantic fares, Lord Bethell has succeeded in getting the European Economic Community Commission to investigate whether member governments are operating an illegal cartel by setting air fares. Because official EEC action may take several years, he is also suing the EEC in the European Court of Justice, all the while conducting a campaign to build public support for deregulation.

The Daily Telegraph, for one, agrees. In an August 6 editorial, it lauded the success of US deregulation, commenting: "We could all do with similar freedom here."

Driving Energy Costs Down

What's the most cost-effective way to reduce energy use in transportation? Build urban rapid transit rail lines? Use electric bus systems? Send more highway trucks by piggyback? Each of these popular remedies would take billions of dollars in capital investment to save a few billion gallons of gasoline each year. Yet there is a way to save 30 billion gallons of gasoline a year without any significant investment of capital. How? By a shift to more fuel-efficient private automobiles.

That's the startling conclusion from a study by Carnegie Mellon University's Richard A. Rice, reported in Technology Review (Aug./Sept.). Comparing the potential fuel savings and investment cost of a number of alternatives, Rice found that evolutionary changes in automobile use, already taking place due to market forces, "dwarf…all other conceivably available energy savings by a factor of 10 to 20." The automobile holds such great promise because

• it is so widespread; a modest change (for example, downsizing) affects virtually all drivers within a decade or so (due to rapid turnover), and

• the changes in design—and required investment—take place anyway, in periodic model changes and product improvement.

By contrast, a program to build subway lines in 20 more cities would affect only a small fraction of the population and would require new capital investment that would otherwise not take place.

The much-maligned private auto wins again!

Banking Formula: Free Competition

The banking industry is hobbled by Depression-era rules and regulations that prevent it from coping with a host of competitors—foreign banks, credit card firms, retail credit operations, stock brokerages, and money market funds. Getting rid of the obsolete regulations is not merely a sensible course of action; it's a matter of survival for banking.

That, at least, is the point of view put forth by the Washington-based Council for a Competitive Economy. In a recent issue paper, CCE pointed out that the traditional barriers separating banking, insurance, consumer credit, and investment management are dissolving, thanks to new technology, high interest rates, and international competition. Unable to attract and hold depositors under these conditions, thrift institutions lost over $43 billion in the first half of 1981.

The much-discussed Deregulation and Monetary Control Act of 1980 made only token moves toward deregulation (phasing out interest rate ceilings over six years and allowing interest-bearing checking accounts). But its major provisions provided for further centralization of control in the Federal Reserve Board. And this, says CCE, will hurt rather than help the thrifts' attempts to survive. That's because the present system of centralized bank regulation ignores the real world, making it almost impossible for the thrifts to compete against their unregulated competitors.

A January 1981 Treasury Department study ("Geographic Restrictions on Commercial Banking in the United States") found that true deregulation would yield many benefits, both for consumers (who would enjoy a greater variety of banking services) and for the institutions themselves (which would be able to meet the challenges of competitors). Evidence of such benefits includes the success of statewide branching, introduced in New York State several years ago without causing the destruction of local banks; the free banking system in Canada during the 19th century; and the competitive banking system in New England under the Suffolk Clearing System.

CCE's points were seconded recently at the annual summer meeting of the Committee for Monetary Research and Education. Economist Pedro Schwartz of the Instituto de Economica de Mercado gave a history of free banking, pointing out its advantages. And economist Alan Reynolds of Polyconomics, Inc., argued that competition in banking is coming anyway, as foreign banks and commercial firms find ways to make end runs around the banking regulations. "In short," he concluded, "I think that the power of the marketplace can and will undermine financial regulations, but the process would be far more orderly, less messy, and more efficient if the regulations were simply scrapped."

Defending Themselves

Increasingly, people are becoming aware of how much the defense of other countries costs American taxpayers. The price includes not merely upwards of one-half the defense budget but also the loss of sales to Japanese and German firms, whose production costs are lower because they don't pay the high levels of taxes for military spending that American firms do. Consequently, most Americans will welcome moves in Japan and Europe to take on increased self-defense responsibilities.

An important development on this front comes from Japan. Despite a post-World War II history of pacifism and a defense budget of less than one percent of gross national product, more and more Japanese are adopting the view that their government must reduce its dependence on the US military and take a more active role in defending their country. The New York Times reported in July that Japanese military leaders are thoroughly convinced of these points; their problem is to persuade the politicians and the public.

These concerns were spelled out in a study prepared last year by the Japan Center for Strategic Studies, a Tokyo-based think tank headed by former defense minister Shin Kanemaru. It set forth a detailed plan for doubling the country's defense capabilities over the next several years, to enable the country to withstand a Soviet invasion and to protect the sea lanes within a 1,000-kilometer range of the Japanese coast.

Though the report's proposals were repudiated by the Japanese government when it was released in mid-February, it has nonetheless raised the level of discussion of these issues both within and outside of the government. The Japan Center for Strategic Studies has set up a liaison program with the Washington-based Heritage Foundation to exchange information on a regular basis.

In Europe, meanwhile, the US-Soviet shared monopoly on military reconnaissance satellites will soon be broken by the entry of a third party—France. The French government is planning the development of such a satellite, to be called SAMRO, according to Aviation Week (Aug. 10). It is to be based on the civilian Spot earth resources observation satellite, similar to the US Landsat. Spot has a maximum resolution of 10 meters, a figure that would be improved upon in the military version. An independent reconnaissance satellite would free the French government from dependence on US (or Soviet) satellites for vital military information.

There are indications that the desire to preserve the US-Soviet shared monopoly on reconnaissance data lies behind some of the official hostility to the independent West German rocket-launcher firm, OTRAG (see "African Deception," REASON, July 1978). Independent sources of reconnaissance data will lead to a multipolar rather than a bipolar focus in the world of big-power interactions.

Caring the Private Way

Without tax-funded welfare and mandatory Social Security, says the popular wisdom, the sick and needy will not be cared for because human beings won't voluntarily give help. What this cynical attitude does not take into account, however, are the countless examples of people pitching in to help the less fortunate.

Take the Shriners, for example, a private group of volunteers devoted to philanthropy. Since 1932, when the members of this international fraternal organization took a look at the philanthropic horizons and decided to put their resources into alleviating the plight of crippled children, thousands of children with birth defects have been helped. Today, there are 18 Shriners Hospitals, as well as three Burns Institutes (in 1966, the Shriners decided to take burn victims under their charitable wing).

All costs are paid through the dues and contributions of members, proceeds from Shrine-sponsored events, and donations. Since most of the administrative work is done by volunteers, an astounding 98 percent of contributions goes to patient care, with only 2 percent covering administrative costs.

The services offered by the Shriners Hospitals do not require payment, so that no one has ever been turned away for lack of funds. Most are affiliated with a local general hospital or medical college. The Boston Burns Institute, for instance, is associated with the Massachusetts General Hospital and Harvard Medical School. Together with these two institutions and the Massachusetts Institute of Technology, the Burns Institute recently developed a process for making artificial skin, for use in severe burn cases involving large areas.

The Shriners example highlights two obvious benefits of private philanthropy. One is the benefit to the recipient, who knows that he or she is receiving aid that is freely given. A second is the elimination of layers of bureaucracy, saving both time and money, both so essential when lives are at stake.

Shaky Security

Two recent surveys confirm that people are losing confidence in the Social Security system. An April poll conducted by V. Lance Tarrington & Associates for the National Federation of Independent Business found that 68 percent recognize that the program is in financial trouble, and 60 percent feel it should be "changed in basic ways." While 81 percent are counting on Social Security for some part of their retirement income, only 15 percent of young adults expect it to be their major source (compared with 46 percent of older adults). And a 58 percent majority think they would get a better return on their money in a bank.

A New York Times/CBS News survey in July found similar results. Fully 54 percent doubt that Social Security will be able to pay them, by the time they retire, the full benefits promised; among those between the ages of 25 and 34, the doubters total 75 percent. Only among those age 55 and above is there majority confidence in the system. The lack of confidence is greatest among those with higher incomes and higher education.

Increasingly, people are saying publicly what economists have known since the system's inception. As Thomas Sowell put it recently in a Los Angeles Times op-ed article: "Social Security is the longest-running fraud in America." Continuing, he stated, "Any insurance company that had the same benefits, premiums, and reserves as the Social Security system would be shut down by court order and its managers led away in handcuffs to face charges of fraud." Sowell likened the system to a pyramid club, an analogy picked up by Sen. Steve Symms (R-Idaho), who recently compared the system to a chain letter: "If you live long enough to get your name at the top of the letter, you might get something out of it."

Economist Walter Williams welcomes the debate over Social Security as long overdue. In his syndicated column, Williams argued recently that the goal of the system could better be met simply by requiring people to have their own retirement program, rather than forcing them to participate in an unsound government scheme. If we don't make fundamental changes, Williams warned, we'll eventually pay a high price: "It is estimated by some that by the year 2020 A.D. in order to maintain the existing benefit levels, young people in the workforce will have to pay a Social Security tax of 40 percent. With such a tax, I suspect that young people are going to get ideas about what to do with old people. I, for one, get more and more concerned about their probable thoughts as the years go by."

Dissecting Medical Costs

Since the federal government got into the business of financing medical care in a big way, it has devoted increasing attention to controlling costs. Unfortunately, these very efforts have proved quite costly. According to Dr. Michael DeBakey, of Baylor College of Medicine, 10-12 percent of the $85 billion that Americans spent on hospital care last year went to comply with regulations and sustain government bureaucracies. That's $8.5 to $10 billion! And now it turns out, not only are these efforts very costly—they're ineffective, as well.

Last December in the New England Journal of Medicine, William B. Schwartz and Paul L. Joskow (of Tufts University and the Massachusetts Institute of Technology, respectively) reported on their study of four of the principal controls aimed at eliminating "unnecessary duplication" of equipment and bed space among hospitals. These are the types of regulations enforced by local Health Systems Agencies (HSAs) under the federally mandated "certificate of need" program.

When the feds first set up this program, they claimed it could save $10 billion a year. Not so, concluded the professors. The gross savings are somewhere between $650 million and $2 billion, with a probable figure of $1 billion. But that's before counting up the costs. In 1978 the federal and state governments spent $250 million administering the regulations, hospitals spent at least an equal amount, and patients and families incurred an undetermined amount of additional costs (because of having to drive further and having their care delayed). Quite possibly, the net savings were zero.

One of the specific areas studied by Schwartz and Joskow was the sharing of CAT scanners among hospitals. But according to another study in the New England Journal of Medicine (June 4), scanners "cannot be effectively shared by large, acute-care hospitals." Efforts to impose such sharing have created backlogs that deprive patients, especially poor patients, of needed care, concluded Dr. John C.M. Brust. In a case study of Harlem Hospital Center in New York, Brust found that only 252 out of 1,876 patients for whom CAT scans were recommended were actually able to receive them under a shared-use arrangement. Lack of a scanner at Harlem Hospital "led to prolonged hospitalization, discharge without adequate diagnosis, and probably in some cases morbidity and mortality."

Another key idea behind the certificate-of-need process is the claim that excess hospital beds result in higher costs. It has been claimed that excess beds boost hospital costs by as much as 16-20 percent. Once again, the facts are otherwise. A detailed study of 18 hospitals in Orange County, California—an area with higher-than-average overbedding—found that maintenance of excess beds accounts for only two percent of total hospital costs. The study, by the accounting firm of Ernst & Whinney, is the first actually based on audited financial records rather than simply "macro estimates." The study was released in August by the Hospital Council of Southern California.

These studies lend support to the idea that bureaucratically imposed, top-down cost controls, as exemplified in HSAs and Professional Standards Review Organizations (PSROs), do not work. That's why the Reagan administration is attempting to phase them out over the next two years, despite the lobbying of big-business groups that fear even higher health insurance costs as a result. Some 200 large corporations organized as the Washington Business Group on Health are pushing to retain both PSROs and HSAs, which David Stockman has vowed to eliminate.

As an alternative way of controlling costs, Stockman proposes making the medical care market more competitive. That will be no easy task. But the evidence seems clear that existing regulations simply aren't doing the job—and are depriving both patients and providers of freedom to choose.

Moving up in the World

A recent Business Week report (July 20) shows the extent to which the proponents of socialism and state capitalism who have taken over the United Nations are willing to go in their effort to browbeat the rest of the world—mainly the United States—into going along. The report on the United Nations lamented its promotion of the "new international economic order" (a plan, fostered by the Soviet bloc and the less-developed countries, to redress an imbalance of wealth between rich and poor countries) and exposed the data tampering that goes on when economic studies don't come to quite the "correct" conclusions.

Among the examples of economic tampering: an attempt by members of the Statistical Commission of the UN Economic and Social Council to end progress on a research project indicating that people in most less-developed countries, as measured by their purchasing power, are twice as well off as past UN figures have led us to believe. Another study contained a section that showed the structural problems in the steel industry; that section was removed because it was "too negative" for producers in less-developed countries. A 1977 staff report prepared for the Law of the Sea Conference was suppressed when it showed that copper-producing countries would not lose as much of the market share (to ocean miners) as they were claiming they would.

The United Nations' economic misrepresentations, unfortunately, also form the basis for its new releases on the economic needs of the less-developed countries. Now we'll know to take such things with a grain of salt.

New Age Budget Biting

As noted here last March, the "New Age" movement, an alliance of decentralists and former counterculturists, often adopts surprisingly libertarian positions. A recent issue of the New Age newsletter Renewal provides a case in point.

Criticizing both Republicans and Democrats for their positions on cutting the federal budget, Renewal pointed out that neither party's position called for actual budget cuts—merely for reductions in the rate of increase in federal spending. By contrast, the newsletter called for real spending cuts—$120 billion worth—to produce a budget surplus and reduce the national debt.

Some of the cuts are in defense spending—$15 billion in military waste and $50 billion in programmatic changes aimed at greater cost-effectiveness. Some $33 billion more are not really tax cuts but would come from reducing "tax expenditures"—existing exemptions from taxes (for example, a portion of mortgage interest deductibility; travel and entertainment expenses). But another $20 billion would be unambiguous cuts in federal spending: dumping the synfuels subsidies ($5 billion), more effective collection of debts ($5 billion), modifying Social Security's cost-of-living formula ($4 billion), etc.

It's refreshing to see the New Age movement sound the call for paring big government.

Milestones

Dump Corporate Tax? Writes Nicholas von Hoffman in a September column, "The best thing liberals can now do is work for the total and complete repeal of the federal corporation tax. Abolish it and with its burial goes all the tax incentive nonsense, all the phony bookkeeping, all the odious tax lawyers and tax lobbyists, the whole smelly system."

Don't Want "Protection." American consumers, according to the Wall Street Journal, are strongly opposed to quotas, tariffs, and other restrictions on imports. Columnist Art Pine reports from Washington (Aug. 17) that mail to Congressmen ran nine-to-one against any bill to limit shipments of Japanese autos to this country.

Postal Ads. The USPS seems ready to take Rep. Barry Goldwater Jr.'s (R-Calif.) advertising-on-stamps plan seriously. To cut the postal deficit, the agency has announced it will consider selling ad space on postal vehicles, mail boxes, and the backs of stamps. The 1980 postal deficit was $306 million. Goldwater has estimated that his plan (which involved only stamps) could generate $1.2 billion a year in revenue.

Postal Competition. Backed by TV commercials contrasting its speed and reliability with the postal service's slowness, Federal Express's Overnight Letter service was delivering up to 10,000 letters a day by the end of its second month. Analyst Michael Derchin of Oppenheimer and Co. projects that the service could account for between one-third and one-half of the company's revenues by the mid-1980s.

Draft Declines. Support for reviving conscription has dropped sharply in the past year, according to the Gallup Poll. In mid-1980 the draft was supported by 58 percent and opposed by only 34 percent. But by mid-1981 support had dropped to 48 percent, with 45 percent opposed. And a large majority (59 percent) agree with the Supreme Court's ruling that women not be drafted.

Free to Risk. According to a poll reported in the FDA Consumer (Oct. 1980), a majority of the public thinks that people should be able to decide for themselves whether to use potentially cancer-causing substances, rather than having the products banned by government.

Hill People's Victory. Builders of rural homes that do not conform to standard building codes (see "Housing: Tangled in Red Tape," REASON, Oct. 1980) have won a partial victory. The boards of supervisors in California's Mendocino and Sonoma counties passed ordinances this summer legalizing such homes, provided they meet minimal safety, sanitation, and lot-size requirements.

No Coffee-Cancer Link? Several scientists and physicians have questioned the methods and conclusions of a study published in the March New England Journal of Medicine. The study posited a statistical link between coffee drinking and cancer of the pancreas. Some of the doubters pointed out possible unintentional bias and the existence of other health habits related to coffee drinking (such as the use of nondairy creamers); others questioned the accuracy of judging coffee consumption.