Local Telephones: Goodbye Monopoly
Ever since the establishment of state public utility commissions in the early 1900s, local telephone service has been assumed—and forced—to be a monopoly. While long-distance telephone has been opened to some competition over the past decade, even most of those now shaping the telephone deregulation bill in Congress make an exception for local service. That, they presume, must remain a monopoly.
Yet that hoary assumption is even now being demolished by entrepreneurs in the marketplace. The past year has seen the initiation of competitive local telephone service in New York City and Minneapolis. And plans are under way to set up such service in scores of other cities within the next year or two.
The forcing function is the growth of computerized data systems. These systems deal with digital data transmitted at extremely high rates of speed—within buildings and over long-distance digital networks (for example, microwave). Yet most of the Bell System's telephone network, especially its local service, is designed to handle slow-moving analog (not digital) signals of the type inherent in voice communications. Hence, the connection of computer systems to long-distance communications links via the local (analog) phone system has become a real bottleneck.
To the rescue have come new communications entrepreneurs. One of the first was Minneapolis-based ShareCom, which had been offering discount long-distance voice and data service. In October 1980 ShareCom began offering its Minneapolis customers local service, as well, bypassing the local telephone company. International Telephone and Telegraph has begun offering its long-distance customers a similar service in New York City.
Both ShareCom and ITT install their own wire and cable network. But there are alternatives to this costly approach. Manhattan Cable TV has found a secondary (and profitable) use for its cable-TV lines: providing local telephone links to computer users. Among its customers are the city government and Chase Manhattan Bank. Besides one-third lower costs, the cable service provides a five-times faster data rate. A third way to bypass local phone lines is to set up a local radio system using microwave frequencies, as authorized last January by the Federal Communications Commission. Tymnet, Inc., plans to spend $65 million setting up such systems in 50 cities to connect up its data-system customers without using local telephone services. Boston-based MACOM is developing a similar radio-based service, as is giant Satellite Business Systems, a joint venture of IBM, Aetna Insurance, and Comsat.
At present these alternative phone services must operate as "private" networks, due to state laws granting monopoly franchises to local telephone companies (which offer their services to everyone). But if those monopolies were voided, nearly everyone—not just well-heeled business computer users—would soon have a choice of phone services. With most other telephone service being deregulated, cross-subsidies are being phased out, meaning that local service will finally have to pay its own way. That is already leading to large hikes in local phone rates and complaints from consumers.
But if Congress could see through the myths of local-telephone-service-as-monopoly, it would include rather than exclude local service in the pending deregulation bill. That would offer consumers relief, thanks to competition, and would solve the knotty problem of the Bell System being tempted to siphon off monopoly profits from its local service to undercut rivals in deregulated long-distance markets.
Private Pensions Coming of Age?
As the Social Security system rapidly slides toward the brink of its demise, the public's confidence in the system is falling sharply. According to a Sindlinger survey conducted for the Heritage Foundation in the late summer of 1981, nearly two-thirds of those surveyed were by then in favor of Social Security becoming voluntary. And a full two-thirds of the survey respondents consider "private pension alternatives more efficient in providing retirement benefits than the Social Security system." Only one-quarter prefer Social Security to other alternatives.
With growing public dissatisfaction with Social Security, alternative plans are being issued from many quarters. Some are merely proposals to patch up the system, but these by and large involve instituting publicly unpopular measures—increasing Social Security "contributions," cutting benefits, tightening eligibility requirements, etc.. The severity of the situation has sparked more radical suggestions from normally conventional quarters.
One such proposal—abolishing the Social Security system and replacing it with private individual retirement accounts—was advocated by the Burlington (Vermont) Free Press in an October 1981 editorial and seconded three days later by another Vermont paper, the Caledonian-Record. That proposal may sound familiar to REASON readers: the Free Press plan is essentially that developed by Peter Ferrara and reported here some months ago (Trends, Feb. 1981). Such a system, the editors note, "would be handled without government intervention."
Though this plan is not fully voluntary—contributions to these accounts by both employer and employee would be mandatory—it would be a move in the right direction.
TV Reaches Out
Two emerging developments in the television industry—one in programming, the other in technology—make evident just how embryonic this industry is and how unlimited its future and profits may be.
When cable-TV came into being, it was discovered that out there in the general American TV-viewing audience there were many smaller—yet sizable—audiences waiting for all sorts of specialized entertainment. And so cable responded with all-movie networks, all-sports networks, all-news networks.
One of the latest trends in specialized cable programming is theater—Broadway and off-Broadway shows. Major cable companies like Home Box Office, Showtime, and RCTV are buying up the rights to the taped versions of theatrical productions, and these shows are increasingly being scheduled on the pay-TV services. Home Box Office, for instance, is reported to have negotiated for the rights to the revived Camelot—for about $1.2 million. RCTV has paid $600,000 for cable rights to Pippin. And after the cable screenings of the shows, there will be revenues from the sales of videodiscs and cassettes.
Perhaps one of the hottest potential specialty markets in cable is pornography. And sure enough, cable programmers are responding. As yet, however, only about a half-dozen systems offer erotic entertainment, reaching perhaps fewer than a million viewers. The response is slow not because there isn't high demand—the majority of prerecorded video tapes sold are X-rated—but because X-rated programming is a controversial subject in many communities. Since most cable companies are given an exclusive franchise by the municipality, the company has to play by the local government's rules—and this often includes: no X-rated programs.
In communities where cable companies have offered an optional service of sexually explicit films, at least 50 percent, and as many as 95 percent, of the cable customers have been willing to pay the extra fee for this service. It is expected that with the advent of technology—such as a "lock box"—by which such programming can be made inaccessible to those for whom it is not intended (children, especially), erotic entertainment options will be offered by more and more cable companies.
On the technological front, the development of TV satellites has sparked intense competition among programmers for satellite broadcast time—and not exclusively among entertainment programmers. Orbiting satellites house transponders that transmit TV signals to receivers on earth. Currently, there are only nine such domestic satellites in orbit, most of them housing 24 transponders each. And all positions are occupied.
Such transponders are valuable to TV companies because satellite transmission of programming can reach larger audiences than if broadcast from the ground. Though it is estimated that TV satellite capacity will triple by 1984, this is not expected to meet the spiraling demand for satellite space. The scarcity of satellite services is enforced by the Federal Communications Commission, which controls the number of satellites that can be launched into orbit and how and at what price space on the satellites can be sold.
Meanwhile, the development of satellite networks serving specialized audiences continues apace. The US Chamber of Commerce, for example, is now building Biznet—the Business Advocate Satellite Network—to transmit programs and news to corporations and to local chapters of its organization throughout the country. Carl Grant, vice-president of communications for the chamber, expects Biznet to be able to bring the views of public officials and candidates to its audience without worrying about "equal-time" regulations—because it will be a private network. Labor unions, political organizations, and other groups also have plans to develop satellite networks to reach their own members and the public with specialized information and their own points of view.
Cleaning Up the Clean Air Act
Who could be against the general goal of "cleaning up the environment"? But when it comes to specific legislation to achieve those goals, people are not confronted with the costs of doing this much or that much cleaning up or doing it this way or that.
Now, Kenneth Chilton and Ronald Penoyer, researchers at the Center for the Study of American Business at Washington University (St. Louis), have made a study of the cost-effectiveness of the 1970 Clean Air Act. Their conclusion: "While the Clean Air Act has demonstrated a beneficial effect on air quality, it has done so at a high price."
How high? In 1979 alone (the most recent year for which there are estimates), the costs of the act totaled $22.3 billion. This means that a family of four, in 1979, paid a $400 "hidden sales tax" in the form of higher utility rates and higher prices for nearly all manufactured goods. The researchers project that for the 1979–1988 period, nearly $300 billion more (in 1979 dollars) will have to be spent to meet the requirements of the act; by 1988, the annual bill to a four-person family for air-pollution control is expected to exceed $630 (in 1979 dollars).
Chilton and Penoyer also point out many other ways—not included in the total cost estimates—in which clean-air regulations affect the nation's economy: permit delays that add to construction costs; lags in initiating new projects due to potential environmental challenges; and conflicts between goals to decrease US energy dependence and to reach clean-air objectives.
But the act could be made more cost-effective, suggest the researchers. They recommend changes aimed at reaching the same quality objectives but with a lighter burden on the economy. Among their recommendations are the following:
• Base air quality standards on data compiled by an independent scientific body, since the Environmental Protection Agency's data are open to criticism.
• Allow the states to set their own "secondary" air-quality standards, which are not related to human health.
• Streamline the various complicated forms of control technology that businesses must install under several confusing designations.
Chilton and Penoyer emphasize that such changes in the act would not trade lives for dollars. "It is impossible," the researchers note, "to create the zero-risk society that is implied in many of the current provisions of the Clean Air Act." But if their recommendations are implemented, they say, "these changes will provide…the same level of benefits at a greatly reduced cost to the American consumer."
Meeting Needs in the Medical Market
It appears that entrepreneurs are forging inroads even into one of the nation's most highly regulated service industries: health care. One of the most visible signs of this development is the growing number—and popularity—of free-standing emergency centers (FECs), run for profit by private physicians. More than 150 and possibly as many as 200 FECs have sprung up in numerous cities and towns from coast to coast since the early 1970s, when they first appeared in Delaware and Rhode Island.
Though the services offered at some FECs include treatment of full medical emergencies—heart attack and automobile accident victims, for example—most are directed at simple medical problems such as sore throats, sprained ankles, and uncomplicated bone fractures. Because they are open longer than private physicians' offices and are generally 50 percent less expensive than hospital emergency rooms, FECs have found a profitable niche in the healthcare business. And the potential demand for their limited services is high: 30 to 70 percent of an annual 90 million emergency-room cases are nonurgent.
Critics of these facilities doubt the quality of medicine that is dispensed. Others contend that by taking the bulk of private patients away from hospital emergency rooms, hospitals will be even more fiscally drained by having to absorb the costs of uninsured and charity patients, many of whom use the emergency room in lieu of a family doctor.
The answer to this last concern may be to make the move that some Los Angeles County hospitals are now studying—turning over their own emergency rooms to private contractors. Like many other public services, hospitals are facing serious fiscal difficulties that are pressing administrators to considering other methods of running the system to keep costs down. In addition to studying the possibilities of privately run emergency rooms, the hospitals also are considering contracting out their food service, laundry, and billing and collections departments.
In response to charges of less-than-standard care, the experience of one FEC firm, MedStop, speaks loudly. Medical director Dr. David Carlyle reports that MedStop's three clinics, one in Dallas and two in Houston, have treated 135,000 patients since 1978—without once being sued for malpractice.
Capital Gains and Gaining Capital
In one of his recent syndicated columns, National Review editor William F. Buckley, Jr., turned the tables on the media. Buckley first quoted the New York Times on what it gleefully called the panic within the Republican Party after the market reacted negatively to the prospect of larger deficits—this, Buckley noted, when "the record of the Reagan administration still has to be made." What is on public record, he noted, is the New York Times's economic recommendations and prophecies.
When the Steiger capital gains tax cut passed in 1978, lowering the top rate from 50 percent to 28 percent, the Times strongly opposed the measure. A year later, it ran an editorial flatly claiming that the tax cut "didn't work." Claimed the Times: "The proportion of America's resources devoted to investment has not increased during 1979, and it is expected to decline in the coming recession."
And now should we worry because the effective maximum tax on capital gains has been yet again lowered (as of June 9) to 20 percent? Certainly not, Buckley says, because the Times is very wrong. Here are the figures he provided on capital raised by small firms via stock offerings:
1977 (old law)
equity capital = $42.6 million
public offerings = 13 companies
1979 (new law)
equity capital = $183.0 million
public offerings = 46 companies
equity capital = $821.0 million
public offerings = 135 companies
equity capital = $2.2 billion
public offerings = 348 companies
And firms with less than 20 employees, Buckley points out, provide 66 percent of all new jobs. (Firms with 100 or fewer employees provide 81.5 percent of all new jobs.)
As to the market's reaction to the Reagan program, Buckley wrote, the Reagan budget cut of 5 percent is just too small, especially combined with a tax "cut" of $80 billion. The market has simply concluded that the two figures just don't add up.
New Prospects for Sea Prospectors
While seabed manganese nodules have been talked about for a decade, within recent months geologists have discovered immense new deposits of ore—rich in copper, silver, zinc, iron, lead and other minerals—in various places on the bottom of the Pacific Ocean. What's interesting about these particular deposits, worth billions of dollars, is that they are clustered on the ocean floor around volcanic vents, and "mining" them would consist merely of scooping them up. The deposits are located 7,000 to 8,500 feet underwater, but the technology to recover the ore now exists.
American industries can be expected to start looking at the deposits as possible resources, but the situation is complicated by the fact that the ore rests in international waters. And if the world's nations agree to the Law of the Sea treaty that 154 of them have been negotiating since 1973, the free market may never be able to benefit from these newly discovered deposits. (See "The Seabed Power Struggle," REASON, July 1974.)
Treaty talks are to resume in March in New York, and if the treaty as currently drafted is accepted, seabed mining in international waters will fall under the jurisdiction of a supranational body, the International Seabed Authority (ISA). Under ISA supervision, the oceans' floor would be regarded as the common property of the world. Seabed resources would be regulated by the ISA, which would have sole authority to issue licenses to companies wishing to mine the oceans for minerals. In addition, the ISA could impose taxes on these companies for the benefit of Third World nations—which would have majority representation in the one-nation, one-vote system—and could require a transfer of knowledge and mining technology from the industrialized nations to the developing nations.
High-ranking authorities in the current administration continue to voice concerns over the treaty, however, precisely because of such provisions. Secretary of State Alexander Haig has called for a thorough review of the treaty, and the US delegation to the treaty talks has been ordered to proceed no further until the review is complete. More recently, Navy Secretary John Lehman, Jr., has warned that the proposed treaty may be very detrimental to the interests of the United States—a major shift, since until recently the Navy has supported the treaty because it guarantees access to various straits.
In light of the newly discovered ore deposits and the concomitant reassessment of free-market potential for seabed minerals, the current administration's hesitance to enter into such a lopsided treaty seems well-advised.
Banishing Some Gold Bug-a-boos
Any proposal to return American currency to a gold standard invariably collides with a popular fear that the Soviets could wreck our monetary system by flooding the international markets with vast amounts of gold. Could the USSR successfully pull off such a coup? Roy Jastram, a professor at Berkeley's School of Business Administration and author of a September 1981 study on the gold standard commissioned by the Joint Economic Committee's subcommittee on monetary and fiscal policy, has demonstrated that such a feared Soviet stranglehold over a gold-based currency is entirely fictional.
Jastram, in an August 1981 Wall Street Journal article, argues that the Soviets, even if they were so inclined, just do not have enough gold to do damage to an American gold-based currency. Against US government holdings of 8,227 tons of gold (in bullion in Fort Knox), the Soviets have about 1,900 tons—or less than one fourth of US holdings. Furthermore, this amounts to only 7 percent of the gold held by all Western countries. And, Jastram continues, even if the highly speculative figure of Soviet unmined reserves—about 7,900 tons—proved true, this would still be less than what the US government already has mined, refined, and in safe keeping.
The last time the Soviets "flooded" the market, they poured out an amount of gold that totaled 1.2 percent of the holdings of the free-world governments. As Jastram calculates it—and his figures are based on International Monetary Fund statistics—the USSR could produce at its upper limit of about 280 to 350 tons annually for an entire century and just match the amount of gold already held in the free world's central banks. And what would it take to do even that? Even if the USSR could match South Africa's remarkable efficiency in mining gold, it would have to mine more than four tons of ore for every ounce of gold it could extract.
As Jastram concludes after revealing these telling statistics, "Russia is not likely to be able to swamp the world with gold even if it dared divert its sorely tried industrial sources to such a dubious venture."
In his study for the Joint Economic Committee entitled "The Gold Standard: Its History and Record against Inflation," Jastram counters other misconceptions about a gold-based currency, including, for instance, the notion that interest rates and the price of gold always move against each other. "In the long run," Jastram states, "interest and the price of gold move together." The study also provides further evidence of the price-stabilizing effect of a gold-based currency. It is a strong case for a return to some form of a gold standard.
Unjamming the Judicial System
California, perhaps more than any other state, is taking bigger and bolder strides in the direction of privatizing the dispensation of justice (Trends, Jan. 1981). Although such movement is not without opposition, support for it has now come from an official body.
In a report released this past fall, a 12-member task force of the Los Angeles County Economy and Efficiency Commission observed the workings of justice there and came to some hard-nosed conclusions about how to improve the court system. The commission report called for instituting user fees to cover more of the costs of civil court services, including the costs of process-serving, of reporters' services, and of providing a panel of 30 to 40 prospective jurors. The report also recommended encouraging the use of arbitration, private adjudication ("rent-a-judges"), and neighborhood justice centers, all of which are currently being used in California.
The report details how these measures would both control demand for service, thus relieving some of the burden on a court system that has over a four-year backlog of cases, and save taxpayer money. Currently, taxpayers in Los Angeles County are shouldering 85 percent of the costs of operating the civil court system.
Although the task force report received praise from several ranking members of the Los Angeles judiciary, other influential parties have criticized attempts to improve upon the delivery of justice by letting the private sector have a hand in it. The New York Times, for instance, has labeled the rent-a-judge alternative "repugnant" (see "When Everything's Private…," REASON, Nov. 1981). California Chief Justice Rose Bird concurs, calling it "a long step backward." And most currently, heavy lobbying by the Los Angeles County Bar Association led county officials to withdraw for further study a county plan to contract with private firms to provide public defender services for some indigent criminal defendants. Provision of such services in the cases at issue is expected to cost Los Angeles County $18 million this year. An experiment with private contracting in Pomona, California, has cut costs by 34 percent, but Los Angeles County Bar spokesmen raised fears of a decline in the quality of public defense.
Despite objections to cost-cutting and privatizing measures, the report from the Economy and Efficiency Commission warns that drastic measures must be instituted or the situation will worsen. Thomas Kranz, chairman of the task force, noted that "the judicial system is in danger of breaking down because of monumental congestion." Indeed, the real danger appears to be that the public system of justice is becoming more and more inaccessible to those whom it is supposed to serve. Private alternatives arise as a response to that situation.
The Perils of Planning
Centralized planning is taking a heavy toll on the economies of many of the major socialist nations, and American observers are taking note. Articles appearing in two fall (1981) issues of Business Week have detailed the reasons for the sharp decline in the economies of the Soviet Union and in five nations in its sphere of influence: North Korea, Poland, East Germany, Hungary, and Cuba. In each case, it is the failure of central planning—its inability to adapt and respond quickly to economic forces—that is identified as the cause of the problem.
In Poland, for example, where annual growth in real GNP fell from higher than six percent in the period 1970–75 to less than two percent in the period 1975–80, the central-planning authorities invested in inappropriate, energy-intensive industries requiring great amounts of imported materials; when the Poles ran out of hard currency and could get no further credit, these industries were squeezed.
Furthermore, a distorted price system discourages production and encourages misallocation of resources. One telling example of this distortion comes out in the price of coal in Poland, which is kept below the international price by government fiat. Consequently, the Poles use a lot of coal to produce goods that are exported at cheap prices, but in some cases they would be better off simply by exporting the coal itself.
Such difficulties are replicated throughout the economies of the socialist nations. The Soviet economy in particular is facing turbulent times. While the USSR continues to divert 12–14 percent of its GNP to military spending, its citizens are suffering from shortages of basic goods such as food. Indeed, the Soviets plan to buy $6 billion worth of grain from US sources to cover their own inadequate harvest. The fundamental problem is central planning: the absence of market prices and profitability criteria lead to inefficient use of resources and less than maximum return on investment.
Some sectors of the socialist economies have evolved into subeconomies that operate in ways resembling the free market. In the Soviet Union, for instance, many farm workers put little effort into the large collectives where they are employed but work hard on their own small plots to produce goods that they either use themselves or sell in markets where the prices they get are higher than the official Soviet prices. Such incentives, however, are absent from the official workplaces, so production—not to mention innovation—suffers.
On some beaches in Los Angeles County, bright yellow trash cans stick prominently out of the sand. What's so unusual about this? It's what's painted on the cans: the slogan "Tan, don't litter" and the Coppertone logo. Coppertone gets to display its logo to about 65 million beach-goers because it provides the receptacles to the county free of charge and replaces them when needed. For the county's Department of Beaches, its deal with Coppertone is just one of several new ways it has found to cut costs—in this case, about $30,000.
Only a short time ago, such "creeping commercialism" on the county's beaches would have been unthinkable. Now, however, with rising costs and shrinking budgets, many municipal recreational facilities have been forced to consider various ways to exploit the private sector in order to maintain services. For the first time ever, for instance, Los Angeles' Griffith Park is charging entrance fees to private vehicles. And the Department of Recreation and Parks of Los Angeles County is considering granting long-term leases on parklands to hotels, restaurants, office buildings, and condominiums. These leases would bring the department revenue needed to maintain its level of service.
The county's Department of Beaches has allowed companies to advertise for a fee on beach tide boards and on its official vehicles. And it too is considering leasing land to business concerns such as restaurants. And Seven-Up has organized a litter patrol of children—decked out in Seven-Up litter patrol uniforms—who are paid to comb the beaches for litter during the summer months. While this arrangement does not bring the department revenue, it offers a way to reduce the budget and avoid higher user fees.
If fiscal pressures keep up, however, and public systems can't respond, some municipalities may resort to what Long Beach, California, did more than a year ago: lease an entire major public recreational facility—the Queen Mary luxury liner—to a private management company. After having lost more than $70 million on the liner without ever showing a profit, Long Beach granted a 40-year lease to the Wrather Corporation, which has invested at least $25 million into renovating the vessel to bolster business. Though revenue figures haven't yet reached what the corporation had expected, tourist attendance for the first part of 1981 was up 6 percent over the same period of the previous year when the liner was still managed by the city. And by August 1981, the corporation has reported, the enterprise was indeed turning a profit.
Abolish the ICC? Perhaps Reagan is feeling the pressure from raised eyebrows over the apparent backtracking on deregulation by his appointees at the Interstate Commerce Commission (see "Regulation Retread," REASON, Dec.). Drew Lewis, Secretary of Transportation, now says that he would favor abolishing the ICC by the end of 1984 if it could be done without disrupting commerce.
Costly Cleaning. The General Services Administration (GSA) may be spending 50 percent more than necessary by using federal employees to clean government office buildings, says a General Accounting Office report. The report recommends that GSA contract with private firms to provide custodial services. But it could take 15 years to switch over, the GAO report says, costing taxpayers $250 million.
Unscrambling Pay-TV. The Federal Communications Commission (FCC) may drop a rule limiting pay-TV to areas served by at least five commercial stations. Currently one million customers subscribe to one of two dozen pay-TV services, which have been limited by the FCC rule to operating in 74 out of a potential 213 US markets. Pay-TV programs are broadcast over the air in scrambled signals, which are decoded by a special device on the customer's TV set. The FCC may also drop a rule that prevents subscribers from owning their own decoding devices and one that requires pay-TV stations to carry a minimum of 28 hours of programming per week free of charge.
Private Addresses. One of the little-noticed but vital functions thought to be doable only by government is the assignment of house numbers. But now the phone company, Mountain Bell, has stepped in on sparsely populated rural areas in the West. Although local governments had never bothered, Mountain Bell needed house numbers, and so it devised a system. It has been implemented in 49 counties in Colorado and 10 in Wyoming, and now the company is eyeing 5 more western states. Mountain Bell usually absorbs the costs—$130,000 for 5,000-population Laramie County, Wyoming, for example.
Ad Ban Abandoned. The Federal Trade Commission (FTC) has dropped a plan to regulate television commercials directed at children. Proposed restrictions included a ban on commercials aimed at children "too young to understand" the nature of the ads. The FTC, whose staff had initiated these proposals in 1978 under pressure from consumer groups, explained that it could no longer justify "sacrificing other important enforcement priorities" to continue with lengthy proceedings on the issue.
Supersonic Express. Federal Express Corp., which specializes in overnight package delivery, may soon go supersonic. The company has approached Air France and British Airways about leasing two of their Concorde supersonic transports (SSTs) to fly high priority packages across the Atlantic. Frederick Smith, head of Federal Express, believes that this will finally make the SSTs profitable—something that neither the French nor British have yet been able to do.
Solidarity Comes West. Solidarity, the independent Polish trade union, has branched out. In September of last year, the union opened an office in New York City—its first office outside of Poland—and held a news conference with the American press to inaugurate the event.
Rent Control Ruled Out. The Sonoma County Superior Court has ruled that the northern California city of Cotati's rent-control ordinance is confiscatory. In 1979, Cotati voters approved a "rent-stabilization" ordinance that established a rent-control board, froze rents, and set a ceiling on allowable rates. When a local landlord was denied a rent increase in 1980, he appealed, and the Pacific Legal Foundation (PLF) entered the case as a friend of the court, arguing that the ordinance was confiscatory and pointing out its adverse social and economic consequences.