Trends

MESSAGE FOR UNCLE SAM: GET OFF YOUR ASSETS

If Chrysler Corporation has to sell off some of its assets to remain solvent, why shouldn't Uncle Sam do likewise? That commonsense notion seems to be picking up support in both the administration and Congress these days.

One trial balloon was hoisted by presidential counselor Edwin Meese III. At a Los Angeles press conference in October, Meese suggested that one way to reduce the national debt would be to sell off "capital assets that aren't needed by the federal government…—excess lands and so forth." The federal government is the nation's largest landowner, Meese noted, "and we have all kinds of military bases that are now abandoned, all kinds of surplus property where they bought land for buildings that never got built, for highways and other projects."

Indeed, the General Services Administration has compiled a list of surplus properties—including a luxury hotel on Waikiki formerly used by soldiers on leave from the Vietnam war and 30 unused acres on exclusive Nantucket Island. GSA figures the worth of these properties, at their acquisition costs, as $1.3 billion. But that includes valuing the Nantucket land at just $33 an acre. The market value of just these "surplus" properties is 50 to 100 times their book value. That estimate comes from Dexter MacBride, executive vice-president of the American Society of Appraisers. In December MacBride announced that selling off 546 surplus government properties could reduce the federal deficit by $100 billion.

Two members of Congress, Sen. Charles Percy (R–Ill.) and Rep. Larry Winn (R–Kan.), have introduced resolutions requiring the president to prepare a complete inventory of unneeded government properties and to develop a method for selling them off at market prices, with the proceeds going to reduce the national debt. And according to William Niskanen, a member of the Council of Economic Advisors, the CEA is looking into ways of privatizing various other portions of the federal domain.

The Sagebrush Rebels are lining up in favor of selling off federal lands, too. In September Steve Hanke, senior economist at the Council of Economic Advisors, addressed the Public Lands Council meeting in Reno, arguing that the Sagebrush Rebellion should shift its focus: instead of advocating the transfer of federal lands to state governments, the movement should attack government ownership per se and push for privatization. On December 7, a leading Sagebrush Rebellion group adopted that position. Meeting in Elko, Nevada, the States Rights Coordinating Council passed a resolution urging privatization of federal lands.

There's a solid precedent for using the sale of assets to pay off debt. In 1825 Sen. Daniel Webster proposed selling federal lands to reduce the Revolutionary War debt. Such a measure was enacted in 1830. Within six years the entire national debt had been paid off. Indeed, there was soon a surplus that Congress distributed as "loans" to the states (which were never repaid). Such grand results are too much to hope for this time around. But even less is worth pursuing.

UNTYING THE IRISH KNOT

A radical solution to the civil war in Northern Ireland has been proposed in the pages of National Review (Nov. 13). Instead of seeking some kind of political compromise between Catholics (loyal to Ireland) and Protestants (loyal to Britain), why not allow each individual to choose his own government, asks educator John P. Reidy? "My proposition, in short, is co-territoriality: one geographical area with two parallel governmental infrastructures."

Under Reidy's proposed system, people in Northern Ireland would choose either Irish or British citizenship and would receive passports, vote, and pay taxes accordingly. There would be separate school systems (as there already are, de facto), separate public services, and separate courts. To ensure fairness, suggests Reidy, criminal cases and civil suits would be conducted within the legal system of the defendant. He points out that during the Middle Ages "strong ecclesiastical courts flourished alongside civil courts." In the 16th and 17th centuries it was inconceivable to most Europeans that people living in the same state could have conflicting religious beliefs. Today we accept co-territoriality in the Church; why not learn to accept it in the State as well?

We can add only two points to Mr. Reidy's thoughtprovoking proposal. First, as pointed out in these pages seven years ago (Apr. 1975, p. 34), such a system of co-territoriality existed in the New Hebrides islands since 1914. Three separate legal systems—British, French, and native—operated in parallel, with a joint court for handling intersystem cases. It was cumbersome, but it worked, being abandoned only upon independence of the Condominium from Britain and France in 1980.

Second, the political and economic problems inherent in dual tax-funded public services (water systems, garbage collection, etc.) could be minimized by placing as many of these services as possible in the private sector, instead of having them run by Irish or British government bureaucracies. Northern Irelanders don't have any political problem being served by both IBM and Control Data; neither should they be troubled by dealing with Acme and O'Reilly's garbage service. You pays your money and you takes your choice. Privatizing public services would depoliticize them as well, to everyone's benefit.

OVERDOSE OF DRUG REGULATION

Attacks on the Food and Drug Administration (FDA)—for more reasons than one—have been mounting of late.

In a November 1981 editorial entitled "100,000 Killed," the Wall Street Journal launched a round of salvos at the FDA for its obstruction of the use of the drug propranolol, which has been shown effective in England since 1965 in preventing second heart attacks. The drug, which the FDA had not yet approved for this use, "could have prolonged more than 100,000 lives in the U.S. over the last 16 years," said the editorial. That figure is based on estimates by the National Heart, Lung and Blood Institute, which in October decided to cut short its tests of propranolol by nine months and report to the FDA in an attempt to win approval of the drug without further delay.

"The propranolol history raises a question, unthinkable a few years ago, about whether we should even have an FDA," noted the Journal editorial. The number of lives that could have been saved by drugs held up by FDA regulation would probably "far outweigh the number of lives likely to be lost or damaged if the responsibility for safety were returned to the drug makers and doctors." They too, noted the Journal, "have a vital interest in drug safety for their own protection."

Another recent attack on the FDA was provoked by the agency's obstruction of the use of a well-known drug for other than its approved purpose. This drug, diphenylhydantoin (DPH), commonly used to treat epilepsy, has also been found effective in the treatment of depression. One man who has used DPH with startling results is Jack Dreyfus, a broker and the author of a recent book about DPH, A Remarkable Medicine Has Been Overlooked.

Dreyfus attacks the FDA for imposing such stringent procedures for approval of a drug for specific uses that by the time the drug has actually been approved, half of its patent life has expired. And this discourages drug manufacturers from conducting the highly costly research the FDA requires.

A third attack on the FDA also concerns a book—one that the FDA has seized. Such actions by the FDA are not new—psychiatrist Wilhelm Reich and his work were the objects of an FDA inquisition in the 1950s (see REASON, Jan. 1980).

This time the book in question, written by Pat McGrady, a former American Cancer Society science editor who died in 1980, is entitled The Persecuted Drug: The Story of DMSO. It details numerous therapeutic uses of DMSO—dimethyl sulfoxide—a chemical the FDA has approved only for the treatment of bladder cysts.

DMSO is legally sold in stores as an industrial solvent. What the FDA objects to is the sale of McGrady's book "in proximity" to the medically nonapproved substance. This, claims the FDA, constitutes unlawful labeling of the substance.

Last summer, the FDA raided DMSO, Inc., in Buffalo and confiscated 75 copies of the book along with the supplier's stock of DMSO. The late author's family, with the aid of the New York Civil Liberties Union, has pressured the government to return the books; but the agency refuses to acknowledge any wrongdoing.

The McGradys and Ace Books, the publisher, fear that the FDA seizure may hurt the book's sales and have taken the case to court for a determination of the constitutionality of the agency's actions. They hold that the government's conduct violated the First Amendment.

GROWING COMPETITION IN THE MAIL MARKET

Alternatives to various services offered by the US Postal Service (USPS) are creeping further into the marketplace. A few such developments are worth noting.

Private postal centers—storefront operations that rent out postal boxes—are springing up in more areas and are enjoying a robust business, because the USPS just can't meet the demand for boxes. In Los Angeles, for example, United Postal Center now has four locations. Its 2,000 customers pay $8 per month for a box and can inquire by phone whether they have any mail waiting—a service unavailable from USPS offices.

On another front, Federal Express, specialist in overnight package and letter delivery, has found a way to expand profitably into markets of as few as 10,000 people. The company has opened convenience centers in four Texas "spur cities." All but the largest and steadiest customers in the area are required to drop off their packages at the centers, from which Federal Express delivers them to their destinations. Pleased with the volume of these centers to date—about 200 packages per night—Federal Express plans 16 more spur-city centers by August 1982 and even faster growth in 1983. So much for criticisms that private delivery firms serve only large markets, "skimming the cream" from lucrative operations.

And on the technological front, the USPS has indicated that it would agree to legislation limiting its participation in electronic mail systems. Private telecommunications firms had worried that the subsidized Postal Service would compete with them in sending messages directly from one computer terminal to another. The USPS, however, has agreed to limit itself to the operation of its Electronic-Computer Oriented Mail—or E-Com—system, which is scheduled for introduction this year at 25 post offices. Post Offices in the E-Com system will be equipped to receive electronic messages and print them as "hard copy"; the printed messages will then be delivered by USPS carriers. Private telecommunications firms will transmit the original electronic messages to the correct post offices.

Under this arrangement, the market for direct computer-to-computer message transmission would be open to competition among private firms but not the USPS. A similar service—called facsimile—transmits printed messages over telephone lines (by converting print into telephone signals at the point of origin and converting them back into print at the receiving end). All these services compete for the "overnight mail" market. Though the dollar estimates of the size of this market are rough, Federal Express has put it at about $1 billion annually (Trends, Aug. 1981).

FREEDOM TRAINS

The case against subsidies to various modes of transportation has long been accepted by economists. Subsidies give some users a break and artificially increase the profits of the subsidized mode. But the losers are many: the taxpayers who provide the subsidies, the users of nonsubsidized modes, and the operators of these modes, whose revenues are reduced when customers are lured away to the subsidized modes.

That has been the dilemma of the railroad industry in this country for decades. The federal government has lavished billions on highways and waterways, providing rights of way to heavy truck lines and barge lines at far less than their cost. Meanwhile, the railroads have been unable to generate enough business to maintain their (unsubsidized) rights of way and replace their equipment as it wears out.

None of this is news. What is news is that the major (Class I) railroads, through the Association of American Railroads, have embarked on an extensive campaign to end these subsidies, to restore "competitive equity." And unlike most big businesses, what they're after is not preserving their own subsidies or special favors. No, what the railroads are calling for is simply the end to all transportation subsidies—period.

Their basic campaign document is a handsome 72-page magazine-format book called "Competitive Equity: the Freight Railroads' Stake." It explains the case against subsidies in sound economic terms. And it provides a wealth of data on both past and present subsidies to all modes—including the question of railroad land grants. Overall, the document concludes, the railroads have paid back—through rate reductions and transportation taxes—some seven times the value of all the federal aid (including land grants) they've received over the years. By contrast, trucks and barge lines have received vastly more in subsidies than they've paid in transportation taxes.

But the AAR position is to let bygones be bygones. Never mind past subsidies, they say. Just end all future subsidies and let all modes compete in the free market. It's not what we expect to hear from big business. But it's mighty refreshing to hear it.

TRUCK DEREGULATION ON THE ROAD AGAIN?

The efforts of Interstate Commerce Commissioner Reese Taylor to slow the momentum of truck deregulation (see "Regulation Retread," Dec.) has come under strong attack. And Taylor himself seems to be backtracking somewhat.

At hearings before the Joint Economic Committee in November, Taylor's policies were assailed by economist Thomas Gale Moore (author of the REASON article) and former Civil Aeronautics Board chairman Alfred Kahn, orchestrator of airline deregulation. Recent ICC decisions provide "clear evidence of retreat from free market principles," said Kahn. And Moore pointed out that the market now perceives that entry control has been reestablished, as indicated by the fact that ICC operating certificates once again have a market price. (Their value had fallen to zero a year ago thanks to deregulation.)

Attempting to counter his critics, Taylor told the JEC that he is simply enforcing the 1980 legislation as Congress wrote it and said he plans to propose an amendment that would eliminate the "public need" standard as a factor in granting trucking licenses. (Prior to Taylor, the ICC had been liberally interpreting that provision; putting the ball back in Congress's court would give unionized truckers a chance to lobby it to defeat.) Taylor has also come out for deregulating intercity bus transportation.

Further pressure on Taylor has come from President Reagan's next two nominees to the ICC: Frederic Andre and Malcolm Sterrett. At their confirmation hearing before the Senate Commerce Committee, both came out strongly for deregulation.

Whether trucking deregulation continues or not is no mere academic matter. In the initial year of the 1980 deregulation act (prior to Taylor), the number of regulated trucking firms grew from 17,580 to 19,000. About 50 firms gained the right to haul any cargo in all 48 contiguous states—something no trucker could do during the entire history of trucking regulation from 1935 to mid-1980. According to the Transportation Bureau of Baltimore, Inc., a consulting firm, most trucking firms have reduced their rates at least 10 percent since mid-1980. And Business Week reports that as of November some 27 large trucking firms had won concessions on wages or work rules from their unions. They've had to in order to remain competitive.

True, some small shippers have experienced rate increases. And some poorly managed trucking firms have gone under. But that's what competition is all about.

Both Transportation Secretary Drew Lewis and presidential advisor Edwin Meese are on record as favoring abolition of the ICC. It will be interesting to see whether the remaining appointees to the commission reflect that point of view.

BRITAIN BUSTS A (STATE) MONOPOLY

Britain's Thatcher administration has announced the biggest denationalization program of its term so far. Its object: North Sea oil and gas.

The public is being offered a majority stake in the production interests of the British National Oil Corporation (BNOC), which was set up to tap the North Sea reserves that have made Britain self-sufficient in oil since last year. In addition, oil companies will no longer have to sell all their gas through Britain's nationalized monopoly supplier of gas, British Gas Corporation (BGC). Now they will be allowed to sell directly to industry. British Energy Secretary Nigel Lawson said that breaking the State monopoly on the sale and purchase of gas would result in more North Sea fuel for Britain.

Opposition to the sale of BNOC assets has come from various quarters, such as the Labour Party and the trade unions. The sales are "anti-public enterprise," they say, and a "scandalous waste of public assets" (forgetting that historically most public assets in Britain have been a scandalous waste of private income in the form of high prices and excess taxation to subsidize their losses).

In fact, however, the government has hedged its bets over the changes. Only a majority stake in BNOC will be sold, with the government maintaining a minority holding; and a plan to sell BGC's chain of retail outlets, which has a monopoly in the sales and service of gas appliances, has been shelved with the rationale that unraveling the legislation that set up the monopoly is very difficult and "shouldn't be rushed."

The new moves nevertheless represent an attempt to reduce the size of the public sector and introduce competition among nationalized industries. They also will provide 1,600 million pounds to the treasury coffers, which are suffering from an overrun in spending that threatens to blow Mrs. Thatcher's money-supply targets off the map. A fight already is brewing within the cabinet between the treasury—which wants to cut public spending further—and the departmental ministers, who will fight tooth and nail to preserve their budgets. The debate within the government tends to focus on paring budgets rather than chopping entire unnecessary functions of government.

One other piece of privatization announced is the sale of the National Freight Company (NFC) to its 26,000 employees. This move will divest the government of another index-linked state pension commitment that was worth its weight in gold to those working in NFC jobs but weighed like a financial millstone on those who had to pay for it through taxes.

GOLD GAINS

Writing in the September 1981 issue of REASON, economist Joe Cobb took a look at recent progress of the movement toward a revitalized gold standard ("Going for Solid Gold") and noted that "many of those who have long counseled the anti-inflationary virtues of a gold-based monetary system have high hopes." The conditions seemed auspicious: Reagan's favorable attitude toward the matter, the establishment of a Gold Commission to investigate the issue, and the introduction of a goodlooking House bill that counters many of the standard objections to a traditional gold standard—the Free Market Gold Coinage Act—in June by Rep. Daniel Crane (R–Ill.).

Since then, circumstances have become even more favorable. In late September, a member of the US Gold Commission proposed a new US gold coinage that would compete in the US market with the Kruggerand. The proposal was supported by a diverse array of individuals, among them Rep. Chalmers Wylie (R–Oh.), Charles Partee of the Federal Reserve, and Treasury undersecretary Beryl Sprinkel.

Then in October, Senators Steve Symms (R–Id.), James McClure (R–Id.), Jesse Helms (D–N.C.), and Barry Goldwater (R–Ariz.) introduced into the Senate an improved version of Crane's Free Market Gold Coinage bill. The Senate bill reflects the advice of the American Institute of Economic Research, which analyzed the earlier House version and recommended that transactions in gold be exempt from discriminatory taxation and that the monopoly of paper dollars as legal tender be lifted.

And in an article appearing in an October issue of the Wall Street Journal, Richard Rahn, vice president and chief economist for the US Chamber of Commerce, endorsed the idea of competing currencies. Rahn pointed out that current laws already go a long way in providing a basis for competing currencies, including gold, but for one needed law: "remove all capital gains taxes from changes in the price of gold."

In addition to these developments, it has been reported that a bill soon will be introduced into Congress—the Free Market Silver Dollar Act—closely following the Senate's gold bill; if enacted, these bills would allow Americans to use foreign currencies and to keep checking and savings accounts in any currency or in ounces and grams of gold and silver. In short, they would allow Americans to freely choose the money they wish to use.

WHO SAYS ONLY GOVERNMENT CAN…

More and more functions that people assume only government can do are now being supplied by the private sector. Many such functions concern the provision of information. Take economic indicators like the Consumer Price Index (CPI), for example. While many people have been complaining about that indicator's deficiencies, Wisconsin-based Runzheimer & Co. has gone ahead and done something about it. The firm has developed its own cost-of-living figures for each major city in the United States. It sells this information to national firms, such as General Mills, IBM, and Monsanto, which transfer employees from place to place and want to adjust compensation accordingly.

Weather service, too, is being invaded by the private sector (see Trends, May 1978). Firms such as AccuWeather are a major supplier of weather forecasts to the broadcast media and to shipping firms. Now comes word from Washington (Aviation Week, Nov. 2) that the government is studying the possibility of privatizing the operation of civilian weather satellites. At present these satellites are operated by the National Oceanographic and Atmospheric Administration's National Earth Satellite Service, while military weather satellites are run by the Defense Department.

Even the CIA is coming in for competition! Government Research Corporation, publisher of National Journal, has announced the formation of IRIS—International Reporting and Information Systems, based in Crystal City, Virginia. The company will provide worldwide intelligence service for business and government with capabilities it claims will rival those of the Central Intelligence Agency. Funding is being provided by a group of large European financial institutions.

Finally, the Space Shuttle is moving a step closer to private-sector operation. NASA has sent out requests for bids from companies interested in refurbishing the Shuttle between launches. At present, 25 separate contractors handle various aspects of the job, with NASA managing the process. Under the new approach, a single firm will do the whole thing, saving an estimated 20 percent of the cost. Seven aerospace firms and United Airlines have responded to a NASA request to study the current refurbishing cycle in detail prior to submitting bids. Kennedy Space Center director Richard G. Smith considers the contract a milestone on the way toward full privatization of Shuttle operations. When commercialization takes place, Smith told Aviation Week, "space will really have come of age."

ALTERNATIVE TRANSIT RIDES AGAIN

Why does public transportation cost so much? Economist Charles Lave, who has studied the matter (Trends, Sept. 1981), points out that because mass-transit systems are run as government monopolies, transit employees have been able to get wages far above free-market levels and have been able to block the implementation of sound business measures—especially the use of part-time drivers for rush-hour service needs and turning to supplemental services (for example, jitney buses) to relieve costly peak loads on the system.

Two years ago, a World Bank study, "Ownership and Efficiency in Urban Buses," identified three major Third World cities where private-sector minibus lines are allowed to complement public-transit operations. In all three cities—Bangkok, Istanbul, and Calcutta—the private lines were able to operate at a profit while the public systems could only cover a percentage of their costs.

What's more, in Bangkok, where the minibuses are allowed to offer rush-hour service in direct competition with the public system and at whatever prices they want to charge, they ease the public system's rush-hour burden, which causes the greatest portion of deficits in public systems. The result: Bangkok's transit system covers 70 percent of its costs, while the public systems of Istanbul and Calcutta, where the minis are not allowed to compete for the center-city rush-hour traffic, cover only 37 and 60 percent of their costs, respectively.

Despite these revelations, however, America's mass-transit systems continue their attempt at business-as-usual. Chicago transit riders were hit with two fare hikes in 1981 and by year's end were paying 90¢ a ride with the not unlikely prospect of $1 fares in the near future. To boot, Mayor Jane Byrne managed to pass two new taxes—a 1 percent sales tax and a 1 percent professional services tax—to raise more revenues to pour into the failing transit system.

So what do commuters who are fed up with service of generally declining quality and escalating prices do? Some of them are finding that the lessons of the Third World apply just as well here at home. In Chicago, a rash of new private operators offering no-frills service between the city and suburbs find that they can make a profit. Commuters subscribe to the service at a monthly fee less than what they would pay on the public lines. (The subscription nature of the service allows it to evade the general prohibition on competing with the transit monopoly.) The private lines operate only at peak hours and use their vehicles for other purposes during the rest of the day.

Such subscription services are springing up in cities throughout the country: in Baltimore, Washington, Atlanta, Philadelphia, New York, and Houston, to name only a few. In some places the services are deluxe: subscribers pay a little more for reclining seats, air conditioning, and the privilege of smoking and drinking (which is not allowed on public carriers).

In some cases, commuters have banded together to arrange their own bus service. In Toms River, New Jersey, 46 residents who took this course found that they could get better—and less expensive—service by chartering a private bus. With a guaranteed seat each morning and evening, the commuters make their way into and out of New York City each working day right on schedule. And complaints about the heat or air conditioning not working have been put to an end.

UPS AND DOWNS FOR VOUCHERS, TAX CREDITS

Last October, writer Neal Pierce, in his syndicated column, urged Americans "to give [educational] vouchers a serious try in our most aggrieved urban school districts." Citing startling statistics concerning the inefficiency of the public schools and the actual cost of public education—$3,400 a year per pupil in Philadelphia, between $5,300 and $6,400 in Boston—Pierce said that "the time is ripe" to see if vouchers would, as claimed by advocates, in fact bring about "higher quality education."

Shortly thereafter, an initiative to institute an educational tax-credit, similar to vouchers in its intended results, appeared on the Washington, D.C., November ballot and was defeated by a ratio of 8-to-1. Apparently the citizens of Washington did not think the time was ripe for an educational tax credit.

Despite the crushing defeat of this tax-credit initiative, the movement for alternatives to the government education system is still very much alive. Last fall a major organization within the movement—the Center for Independent Education—merged into another major organization, the Education Voucher Institute (EVI). The union of these forces brings together under a single aegis many highly regarded proponents of various educational alternatives. Among EVI's board members, for example, are Milton Friedman, James Coleman, and John Coons. Frank Fortkamp, long involved with these issues, is EVI's director. This assembly of individuals may have a significant impact on future efforts to institute both tax credits and voucher plans.

On the West coast, Berkeley law professors John Coons and Stephen Sugarman have decided not to push their voucher plan for the 1982 California ballot. In 1979, the initiative was blocked from qualifying for the ballot by the well-funded California Teachers Association, one of California's largest sources of political contributors. The same fate appeared unavoidable in 1982, due to difficulties in raising funds to support the voucher plan. Unnamed private school interests, however, have promised financial support to place the initiative on the state ballot in 1984.

MILESTONES

OTRAG Leaves Libya. The private rocket-launcher development firm has abandoned its controversial launch site in the Libyan desert, reports Aviation Week (Dec. 14). OTRAG is negotiating with several governments, including some in Latin America, for a new site.

Balancing Act. In late October last year, the "Tax Limitation-Balanced Budget Amendment" was introduced into the house, cosponsored by 85 members of Congress. The amendment, which requires a balanced budget as "a norm of Federal policy" and prohibits increasing taxes faster than the growth of national income, has picked up substantial support since June, when it was approved by the Senate Judiciary Committee. Then, the amendment had 51 senatorial cosponsors.

Rent Control Controlled. Voters in San Bernardino and San Rafael, California, and in Ventnor, New Jersey recently defeated rent-control proposals by wide margins. But the biggest surprise came in Minneapolis, traditionally a liberal leader on public-policy issues: 70 percent of its voters came out against rent control and a moratorium on condominium conversions.

Enterprise Zones Popularity. A Gallup poll conducted for the Community Effectiveness Institute reveals that 70 percent of people who live in communities of 50,000 or more favor establishing enterprise zones in decaying urban areas. The unemployed and those in the lowest income groups show the greatest support.