Trends

|

BAILING OUT (OF) SOCIAL SECURITY

For years Congress has been ducking the issue of the Social Security system's fiscal unsoundness. Most recently, President Reagan backed off from even a modest adjustment of future benefits, instead appointing a National Commission on Social Security Reform to study the problem and report back (after the November elections).

Yet nearly two years ago Peter Ferrara put his finger on the problem. In his book, Social Security: The Inherent Contradiction, Ferrara explained that the system attempts to combine both welfare and insurance and does both badly. As the system matures, and the ratio of workers to retirees shrinks from three-to-one down to two-to-one, the system will go broke unless the contradiction is resolved.

What Ferrara proposed is to separate the two functions, funding the welfare portion from general revenues and privatizing the retirement insurance function. The latter—already being done in Chile (see "Chile's Economic Revolution," REASON, April)—would allow people to opt out of Social Security, choosing expanded IRA plans rather than government payments. Generally, those under 40 would fare far better choosing the private option.

Interestingly enough, this approach is finally starting to receive consideration. At a breakfast with reporters in August, Sen. John Glenn (D–Ohio) suggested that younger workers might be given a choice between Social Security and a voluntary program in which private insurers would be involved. Pretty much the same idea had been aired several weeks earlier in California by GOP senatorial hopeful Pete Wilson. Arguing that if Social Security is not changed it will go bankrupt, he told the California Broadcasters Association that for people under 45, a voluntary investment program is the way to go.

Even the president's commission is looking into the idea. According to Business Week, Commission chairman Alan Greenspan is evaluating a variant proposed by economists Michael Boskin, John Shoven, and Laurence Kotlikoff that would create "personal security accounts" for people up to age 55, converting the system into a fully funded pension program.

Ferrara himself has come up with a new phase-in proposal. His Social Security Reform: The Family Plan, recently released by the Heritage Foundation, would phase in the private system over a 25-year period by allowing increasing amounts of IRA contributions to be deducted from Social Security tax liabilities. Over the short term, the phase-in would cost tens of billions a year in general tax revenues, to pay off outstanding claims. But over the longer run, it would permanently cut federal spending by more than one-fourth and denationalize a large portion of the insurance industry. That seems like a reasonable trade-off.

COMPETITION IS STEALING THE CABLE SHOW

As Tom Hazlett's July cover story ("The Viewer Is the Loser") pointed out, cable TV is hardly a "natural monopoly," as claimed by those seeking government-granted monopoly franchises. Indeed, two new technologies—MDS and SMATV—are starting to give cable companies a real run for their money.

MDS stands for Multipoint Distribution System. An MDS company receives programming from a satellite earth station and retransmits it on microwave frequencies to individual subscribers. Each subscriber must have a special antenna and signal decoder. The major limitation on MDS growth has been the Federal Communications Commission. Present FCC rules allow MDS companies to provide only one pay-TV channel. Yet lots of unused frequencies are available—allocated to educational uses—that could permit 5- to 10-channel MDS operations.

The other technique is Satellite Master Antenna TV (SMATV). The typical SMATV operator installs an earth station on apartment buildings, then wires up the individual apartments for the service, paying the building owner a small percentage of the revenues. The typical SMATV system provides three to five channels, including superstations and pay services.

The major advantage of both MDS and SMATV is that they don't use city streets for running cables and are therefore exempt from city franchising control. Since the cost of complying with franchising regulations is quite high—the National Cable Television Association estimates that 22 percent of the subscribers' monthly fee goes for compliance costs like "free" public access channels—the unregulated competitors start off with a large advantage. Predictably, many have had to fight legal battles, inspired by entrenched cable interests, in order to remain in operation.

The biggest news on the MDS front is the entry of CBS. In August the TV giant announced an agreement to supply programming to MDS operator Contemporary Communications Corporation. CCC has asked the FCC to allow it to operate eight-channel MDS services. Under the deal with CBS, the new services would be offered in the cities where CBS has broadcast stations: Chicago, Los Angeles, New York, Philadelphia, and St. Louis. In all five cities, political constraints have held back the growth of cable—only six percent of all TV homes in Chicago currently receive cable TV, for example.

SMATV operators nationwide thus far serve only half a million homes, compared with cable's 27.5 million. But their ranks are growing rapidly. Six are operating in Tucson, competing with a Cox Cable franchise; and Private Satellite Television is taking on 11 cable firms that are franchised in various portions of Atlanta. Cable Dallas, Inc., is giving Warner Amex Cable a real run for its money in that Texas metropolis. The company has combined SMATV and MDS technologies, providing some 25 channels of programming via microwave. Warner is fighting back by offering its own microwave services to areas that it has not yet wired for cable.

The evidence is clear-cut—competition in video services is booming. "Natural monopoly" is a self-serving myth.

HOW NOT TO ENSURE BANK FAILURES

A few months ago, Oklahoma City's hapless Penn Square Bank drew far more national attention than it ever had in its years of operation when it declared itself insolvent. One of the positive consequences of the well-publicized fiasco is that a number of people are taking a hard look at the Federal Deposit Insurance Corporation.

There's no disputing that the FDIC averted financial disaster for most of Penn Square's depositors by reimbursing them for their losses. But the entire episode has raised questions of the soundness of FDIC policy and whether it in fact aggravates the danger of more such bank failures in the future.

Catherine England of the Heritage Foundation, for one, suggests that the FDIC indirectly fostered Penn Square's wild-eyed investment portfolio (the cause of its downfall) and that the agency is paving the way for more Penn Squares. Specifically, she notes that FDIC insurance premiums are calculated as a flat percentage of a participating bank's total deposits. The FDIC thereby effectively subsidizes risky portfolios such as Penn Square's (80 percent of its portfolio was concentrated in energy-related speculations that collapsed when drilling activity and energy prices fell last autumn).

Any private insurance firm—if it were allowed to insure bank deposits—would calculate premiums based on an evaluation of the prudence of the insured bank's investment portfolio, the degree of risk the bank took in its loan policies, the bank's management practices, and so on. The FDIC blithely ignores these factors, charging the stablest banks on the same schedule as the most foolhardy. Hence, good banking practices are in effect penalized and bad practices rewarded.

England points out an additional disadvantage of the present system. One of the most compelling restraints on financial hotdogging by banks should be the bank's customers. In theory, depositors should have the right and responsibility to examine closely their bank's behavior and, if it plays fast and loose with their money or even denies them information, to withdraw their funds and put them in another, more cautious institution. Because most depositors' funds are insured by the FDIC, however, there is no reason for customers to bother monitoring their bank, so this restraint on bank management is lost.

Since neither the FDIC nor banks' customers have the resources or incentive to keep tabs on banks under the current arrangements, England suggests that a better solution might be privatizing deposit insurance. A private insurer of bank deposits would have a powerful incentive (greater likelihood of profit) to set up a variable insurance premium structure based on actual risk.

In the case of Penn Square, England says, this would have helped prevent bank failure. "A private insurer could have seen that Penn Square was taking on too much risk. Fearing that the bank might fail, the insurance company, seeking to minimize loss claims, could have raised the bank's insurance premiums. This would have…limited Penn Square's willingness to take on risky loans…and thus, would have stopped Penn Square's aggressive behavior before it reached the critical stage."

Harvard Law School Professor Douglas Ginsburg in a letter to the Wall Street Journal recently made a parallel case for private deposit insurance. "There is no obvious reason for a governmental monopoly on deposit insurance," he wrote. "Even if deposit insurance is to be required, banks could be allowed to obtain insurance from any adequate source. Large insurance companies would be perfectly capable of insuring the vast majority of the almost 15,000 commercial banks in the United States. Those few banks that were too large for any one insurance company to handle would be insurable through a syndicate of insurance companies, each purchasing a share of the risk."

As attractive as nongovernmental deposit insurance may be, it is possible that it will first see the light of day not in this country but in Switzerland. According to the Swiss Embassy in Washington, some private concerns in that country are now informally discussing the feasibility of private deposit insurance. Trends will keep you posted.

LAND SALES DEBATE HEATS UP

First aired in REASON's February issue ("Message to Uncle Sam: Get Off Your Assets," p. 11), the idea of selling off some federal lands to reduce the national debt made the cover of Time the week of August 23. That story quoted REASON's article on privatizing grazing lands by Steve Hanke ("Grazing for Dollars," July) and generally did a good job of explaining the issue.

But the backlash continues to develop, from traditionalists of various sorts. The Agriculture Department's announcement that it will study about 10 percent of national forest lands for possible sale drew cries of alarm from the Wilderness Society. And similar opposition has already killed a plan by which the Department of Interior would have traded 70,000 acres of Bureau of Land Management timber land to Louisiana Pacific Corp. to settle a government debt to the company. (When Redwood National Park was expanded in 1978, the government seized land from the company and still owes it $248 million.) The plan had been denounced by Rep. Phillip Burton (D–Calif.) and California resources secretary Huey Johnson.

But it isn't just environmental traditionalists who can't abide federal land sales. Tory conservative columnist George Will can't handle the idea either. In a mid-August syndicated column, Will denounced the land sales idea and spoke approvingly of a "national consensus for governmental activism concerning environmental protection."

But what makes Mr. Will and others think that government has protected or could protect the lands from careless exploitation? As Steve Hanke, John Baden, and other economists have demonstrated in these pages and elsewhere, stewardship by owners who have a personal stake in the outcome is of far higher quality than stewardship by bureaucrats who make decisions with an eye to politics. Sad to say, that's an insight that not even learned conservative columnists seem to have grasped.

DENATIONALIZATION ROLLS ON

While the French government continues its program of taking over private firms, the trend in Britain and Japan is just the opposite. Both of those governments are embarking on major programs of denationalization.

The British are farther along. Over the past two years, four major enterprises have been "privatized" (as the British call denationalization): 51 percent of British Aerospace (the major defense contractor) has been sold to investors, as has 49 percent of telecommunications giant Cable & Wireless, all of radiochemical products maker Amersham International, and all of National Freight Company. Overall, these sales have brought in $2.4 billion.

Over the summer, major new steps were taken. In July, British Gas Corp. put its 50 percent share of Britain's largest onshore oil field on the market. And in August, the production and exploration arm of British National Oil Corp.—Britoil, Ltd.—was separated from BNOC's marketing arm. A majority of Britoil shares will be offered to the public (for an expected $1.2 billion). British Airways, the money-losing state airline, has been reorganized into three divisions and severely pruned back, prior to 51 percent of it being put on the block next year. And giant British Telecom, which operates the phone system, will also offer 51 percent of itself to investors, probably in 1984 or 1985, after the next election.

In Japan, meanwhile, major denationalization has just been recommended by a high-level commission. A 17-month study by a panel of respected business executives has urged the government to sell off Japan National Railways, Nippon Telephone & Telegraph, and Japan Tobacco & Salt Public Corp. According to the Christian Science Monitor, the railway firm, which is $25 billion in debt, "has become symbolic of government waste and ineptitude" and would have been declared bankrupt years ago if it were a private company. The report recommends formal bankruptcy, with the salvageable portions being sold off in several chunks. At present, only its two 140-mph "bullet trains" make a profit, although Japan's many private railroads are doing well—and generally charge lower rates. Similarly, Nippon Telephone & Telegraph has become so bureaucratized that even its own management realizes that it cannot respond promptly to changing technology.

As in England, more and more Japanese leaders realize that resources wasted propping up inefficient state-owned monopolies are unavailable for other things. Putting those firms into the competitive marketplace will give everyone more bang for the buck.

FCC: BIG BROTHER OR TRAFFIC COP?

Last May the Federal Communications Commission voted to not renew the license of Simon Geller, a one-man FM broadcaster in Gloucester, Mass. The grounds? As noted by his well-heeled challengers, Geller's station didn't provide any news or public affairs programming; it simply gave its listeners what they wanted—classical music. But since the law says the FCC must judge the "adequacy" of program content, and FCC rules say that all stations must provide news, public affairs, and religious programming, poor Simon Geller had his frequency taken away. (He is petitioning the FCC for reconsideration, with the help of supportive listeners and legal counsel from the Capitol Legal Foundation—see Spotlight, July.)

That could not have happened if frequencies were private property, like the other scarce resources used to operate a radio station (land, buildings, antennas, records and tapes, etc.)—or print a newspaper. Only the fiction of public ownership of the frequency spectrum keeps the FCC in business as a Big Brother agency, deciding on the details of who uses which frequencies for what purposes. As Ida Walters pointed out last year in Instead of Regulation, the lack of transferable property rights in frequencies has held back progress in both telecommunications and broadcasting. While mobile radio users were begging for more frequencies during the 1960s, for instance, much of the UHF band was unoccupied, reserved for UHF television stations that nobody wanted to build. If those frequencies could have been bought and sold, they would have been put to productive use.

Increasingly, however, communications specialists are coming around to the view that frequencies, in fact, are just like any other resource and should be owned, bought, and sold. That would leave the FCC with a greatly reduced role. Henry Baumann, deputy director of the FCC's Broadcast Bureau, puts the point succinctly. "Ultimately, I think the FCC should be [just] a policer of interference," he told National Journal's Michael Wines. "We should authorize service and make sure that services aren't mutually destructive." Chairman Mark Fowler apparently agrees. "I think, ideally, what we should do is go back to being what we were originally, and that is a traffic cop. Make sure everyone's on the right frequency; no protectionist philosophy. Let the marketplace decide what goes out over the airwaves."

In fact, that is pretty much how things are being done already in the 4–6 Ghz band, used for satellite uplinks and downlinks. As Milton Mueller points out in a Cato Institute Policy Analysis (June 3, 1982), de facto property rights have evolved in this portion of the spectrum. Private firms like Compucon and Spectrum Planning, Inc., assist satellite users in "frequency coordination"—working out solutions to potential interference problems. Among the solutions are shielding or relocation of antennas and paying for a change to another frequency. A study by the firm Mathtech, Inc., indicated that similar techniques could be extended to other frequency bands.

In short, we already have evidence, as well as theory, that transferable private property rights in the frequency spectrum will work. Since that would get the FCC out of the business of deciding who gets what frequency and what uses are acceptable, those to whom First Amendment considerations are important should take notice.

BUS COMPETITION: OPENING THE DOORS

Airline deregulation has garnered the glamour and the publicity, but there's also afoot a quiet, steady move to deregulate buses on both the intrastate and interstate levels. The expected consequences of bus deregulation are not unlike those of airline deregulation: as the Wall Street Journal pointed out in a recent article, "Bus deregulation gives operators far greater freedom to start serving new markets, dump old routes that don't pay, and revise fares. [Deregulation] advocates say increased competition could bring lower fares and improved service, at least on the heavily traveled routes."

If there is a national testing ground for bus deregulation, it is Florida, which has had deregulated bus service for over two years now. One of the most striking changes there has been the influx of new companies into the industry, many of them newcomers with relatively little capital and overhead.

For example, former Greyhound driver David Spencer opened his own company in Clearwater and has prospered because he charges 10 to 15 percent less than the competition. "My equipment isn't new, so my cost factor isn't as high," he says. He now has three buses and concludes, "Competition is always good." And after 23 years of driving buses for others in New Jersey, Frank Surace quit his job, moved south, and opened his own bus company in Orlando. He has one bus, which he drives himself, and his wife, Barbara, runs the office out of the family living room. "It's been great for us," she says. "It's a great feeling working for yourself."

In fairness, not everyone is pleased with deregulation. Some small and middle-sized companies that were in existence before the change have had a difficult time adjusting to the new competition. A Florida Motor Transport Association official says that numerous members of his organization are "in some kind of financial trouble." There have also been complaints from senior citizens in very small towns and rural areas that no longer have scheduled bus service. A woman in Bushnell told the Journal, "We used to take Greyhound to visit old friends and family. Now we're stuck here. I guess it really isn't too bad—we have television and the chickens out back. But we feel so much more alone now."

It is true that some small towns may lose bus service altogether as a result of deregulation, but it is also true that deregulation has in some cases resulted in a number of new bus routes. In Arizona, which deregulated intrastate buses on July 1, Trailways Incorporated has already announced 14 new routes in the state, including one between Phoenix and Tucson. Moreover, even sparsely traveled bus routes abandoned after deregulation may well present opportunities for entrepreneurs with vans or other modes of transportation. The demand for such service certainly exists.

In addition to Florida and Arizona, intrastate deregulation has been enacted in Ohio and Wisconsin, and interstate deregulation is imminent. Both houses of Congress have already passed deregulation bills. At this writing, they are in conference committee where the minor differences between the two bills should be ironed out.

MORE NIXES FOR NATO

The once-impregnable consensus that US taxpayers must continue to pay the lion's share of our allies' defense continues to unravel. It has now come under attack from conservatives, neoconservatives, and the Defense Department itself.

On August 1, the Defense Department submitted a report to Congress highlighting the unfairness of present arrangements. The "Report on Allied Contributions to the Common Defense" notes that the United States provides 53 percent of the total military budgets of the allies—and the US share is growing larger each year. And less than two weeks after the report noted that "Congress and the general public would not tolerate" a solely US effort to protect the Persian Gulf, the House Appropriations Committee refused to approve $179 million to expand the Ras Banas base in Egypt for use by the Rapid Deployment Force. The committee decision pointed out that Japan and the NATO countries import 70 percent of their oil from the Persian Gulf but have done nothing to defend the area. It would be "incongruous" to spend US taxpayers' money there, the committee report said, when we only get 10 percent of our oil from that source.

From the conservative side comes Jeffrey Record, former national security aide to Sen. Sam Nunn (D–Ga.). In a paper entitled "Beyond NATO: New Military Directions for the United States," published by the Institute for Foreign Policy Analysis, Record advocates withdrawing US ground forces from Europe and shifting to a largely sea-based military posture.

Shortly after Record's paper appeared, neoconservative intellectual Irving Kristol weighed in with "Reconstructing NATO: A New Role for Europe" on the Wall Street Journal's editorial page. Kristol believes that NATO has outlived its usefulness and become counterproductive, indeed, even dangerous, to US security. So he urges that it be reconstituted as a European defense alliance, with all US troops brought home. The 6,000 US tactical nuclear weapons "could simply be left behind," he says, leaving it up to the Europeans to decide how—or whether—to use them.

The question whether to use them is getting serious consideration in Europe these days—and not just from peaceniks. The deputy leader of the conservative Christian Democratic Union parliamentary group in West Germany, Manfred Worner, has proposed a major buildup of nonnuclear technology so as to reduce the need to use tactical nuclear weapons. Worner's plan relies on much greater use of remotely piloted surveillance drones, precision munitions ("smart" antitank weapons), and nonnuclear short-range ballistic missiles aimed at rear echelons. Such weaponry could give the defender a significant advantage over the attacker, Worner believes.

In its July 31 issue the Economist analyzed what it would take to beef up NATO forces to the point where the "edge" provided by nuclear weapons would no longer be needed. The finding was that another 1.5 percent of GNP would do the trick. And that, as the magazine's editors note, ought to be a small price to pay to prevent the nuclear destruction of the very lands the defense forces are in existence to protect.

NEW LEASE ON LIFE FOR THE PILL

Perhaps it goes without saying that sensible individuals will be alert to the consequences, both positive and negative, of the diet and drugs they rely on and will accordingly make decisions to protect their health in a careful manner. In the last few years, however, there's been an unfortunate (and widespread) predisposition against the products of new medical technologies as such, some of which have received undeservedly bad reputations. An important example of this has evidently been the birth control pill.

The New York Times now reports that there is considerable research by the Centers for Disease Control in Atlanta, the Royal College of General Practitioners in Britain, the Mayo Clinic, and other respected institutions contradicting earlier fears that the birth control pill causes cancer. Indeed, there is evidence that it may even protect women from some cancers, especially cancer of the ovaries and the lining of the uterus. These findings, according to the Times, indicate "an extraordinary instance in which a drug appears to prevent cancer, [and they] are only part of the evidence suggesting that the pill, although not entirely free of hazard, has wide-ranging health benefits."

Some of these benefits include reduced incidence of iron-deficiency anemia, pelvic inflammation, and perhaps rheumatoid arthritis. And the cancer protection, "while less than perfect, is substantial." The pill does carry some health risks, mainly of heart attacks and strokes, but the "overwhelming percentage" of those problems occur among women who also smoke.

Experts consider these data on the effects of the pill preliminary. But Population Reports, published by Johns Hopkins University, notes in a recent issue, "Given the extensive research on the pill, it is less and less likely that any significant risk of cancer remains undetected."

TRASHING CITY MONOPOLIES

You may remember that in REASON's July cover story, "The Viewer Is the Loser," there was mention of a Supreme Court case, Community Communications Company v. City of Boulder, in which the Court held that cities and towns risk liability under the federal antitrust laws when they regulate economic activity in the absence of explicit direction from their state governments. The case involved Boulder, Colorado's denial of a request by Community Communications Company to expand its existing cable services in that city; but at the time of the decision, legal commentators were speculating that, as the National Law Journal put it, "a wide range of municipal activities—from zoning ordinances to garbage collection franchises to setting taxi fares—will [now] be subject to antitrust scrutiny."

Now the Chicago Sun-Times reports a case in which just this is happening. In the small Chicago suburb of Markham, the town government decided in 1978 to go into the garbage collection business. This put it in competition with a private company called Environmental Waste Disposal (EWD), which was already picking up, for a fee, many of the residents' trash. After a period, it was clear that EWD's service was generally more popular than the city government's (partly because the city's pickup required use of a heavy 90-gallon garbage can, three times the size of normal cans). The city responded this spring by passing an ordinance making it illegal for any residences in Markham to have private garbage pickup.

Because of the Boulder decision, EWD (and, not incidentally, a group of EWD's customers) concluded that they were able to sue the city for violation of the Sherman Antitrust Act and proceeded to do so. From their standpoint, it is a case of the city government entering the marketplace, providing service inferior to the privately owned competitors, then—instead of improving their own service—using a law barring the efficient firm from the marketplace.

The case is now in federal court before Judge James Parsons. EWD's attorney, Randall Mitchell, predicts a decision by mid-November.

GETTING THE DIRT ON ALIENS SWEEP

Early this year, the federal government in its wisdom hit on a surefire method of creating employment: during the last week of April, the Immigration and Naturalization Service (INS) organized a highly publicized sweep of 5,635 suspected illegal aliens in factories located in nine cities around the country, with the stated objective of making higher-paying jobs available to unemployed Americans and legal residents. True, the INS was criticized by civil libertarians for its tactics (Sen. Alan Cranston of California went so far as to call the raids "terroristic"), but the agency was unmoved.

INS officials subsequently pronounced "Operation Jobs," as it was called, a success. "Our target was to open up a substantial number of jobs to American citizens and lawful residents," said Omer G. Sewell of the INS Los Angeles office. "Judging from reports about large numbers of job applicants seeking those jobs, we believe it's been very successful, and we're very, very proud."

In August, three months after the raids, the Los Angeles Times investigated just how successful "Operation Jobs" really was. The findings contrast rather sharply with Sewell's boasts. The Times found that in Los Angeles and Orange counties, about 80 percent of the suspected illegal aliens who were apprehended had quietly been rehired in their old jobs.

Surveying union leaders, management, and employees of the companies that were subjected to the INS crusade, the Times learned that many of the Americans and legal residents who were hired to fill vacancies after the raids did not stay on the job, either because of the wage levels (an average of $4.80 per hour in the Los Angeles–Orange County area) or because of working conditions. When 10 arrested workers returned to West American Rubber Company in Orange, personnel manager Hal Takier declared, "I was just glad to get 'em back." And Manuel Barbosa, the business representative of Teamsters' Local 389 at Price Pfister, where 67 of the 83 arrested workers were rehired, said the union filed grievances to get the company to rehire the remaining 16 workers. "I'm not in the INS," Barbosa said. "I just represent my members. It's not a condition of union membership that you have to be a U.S. citizen."

Even ineffective hare-brained schemes cost good money, of course. In this instance, taxpayers throughout the land put up $500,000 of their money to shut down production lines and violate civil liberties of both employers and employees. Naturally, the INS is toying with the idea of more such raids in the future. Keep your fingers crossed.

NO MERRY TIME FOR MARITIMERS

If there were a special Olympics for freeloading on the American taxpayer, the maritime industry would probably win at least a couple of gold medals. Since 1789, the ocean shipping industry has been marvelously adept at winning special considerations and subsidies of every sort from the federal government.

Currently, the Maritime Administration offers federal loan guarantees to private lenders who finance US shipbuilding projects; traffic between US ports since 1817 has been restricted to US flagships; and until 1980, shipbuilders received direct subsidies from the Maritime Administration to lower the cost of US-built ships to levels competitive with foreign shipyards (in fact, construction subsidies have consistently run as high as the federal limit of 50 percent of a ship's total cost). And that's not all. There are laws requiring that 50 percent of most federal government cargo, and 100 percent of military cargo, sail under the US flag—a windfall for the shipping industry that, according to a Brookings Institution study, has added at least $5 billion to the government's shipping costs.

One would think that with all these goodies being doled out by the government—some $10 billion since 1936—the maritime industry would be prospering. But it's not. National Journal reports that from 1950 to 1981, the proportion of oceanborne US imports and exports carried by US-flag ships shrank from 42.6 percent to just 3.7 percent. The size of the American fleet dwindled from a post–World War II high of 1,170 ships to 577 last year (although the fleet's overall capacity has been boosted somewhat because of new and larger vessels).

From time to time, politicians have concocted plans to mitigate this decline. The Reagan administration is one of the most recent entrants in the save-the-maritime industry sweepstakes with a series of proposals announced in May and August. They employ generous dosages of free-market rhetoric (Transportation Secretary Drew Lewis is quoted in one release as saying that "the U.S. fleet must become competitive to the extent possible without further subsidy"), but their consistency with free-market principles is spotty, at best.

For example, the administration is authorizing an increase in the FY 1983 ceiling on ship financing guarantees from $600 million to $900 million; and it's seriously considering a radical reversal in policy that would lead to the federal government making bilateral "cargo reservation" pacts with other nations. Under such a pact, the shipping lines of the two signatory nations get most of the cargo shipped between the two countries.

One of the most controversial proposals floating around Washington and one that the administration has fortunately endorsed, is to grant immunity from antitrust prosecution to international shipping cartels called "conferences." In most countries, the shipping industry is governed extensively by conference decisions. In the United States, antitrust laws have permitted shippers to participate in conferences only for some purposes (such as setting shipping rates) but barred them from participating for other purposes (such as dividing up cargo and trade routes and pooling revenues).

A bill sponsored in the Senate by Slade Gorton (R–Wash.) and in the House by Mario Biaggi (D–N.Y.) would relax nearly all the restrictions on conference participation by US shippers. To deflect charges that their bills would set the stage for a government-mandated cartel, however, Gorton and Biaggi would require that the conferences be "open," which means that individual carriers could join or quit the conferences at will and that conference nonparticipants would have almost complete freedom to set their own prices.

The Gorton-Biaggi proposals have won no support from staunch supporters of antitrust laws such as the Wall Street Journal and New York Times. In an editorial entitled "Torpedo the Maritime Bills!" the Journal said, "Cartels are bad. Our laws don't allow microchip makers or lumber distributors or pizza parlor operators to fix prices or divvy up markets.…There is absolutely no reason to make an exception of cargo liners. Liner conferences, if they work, only raise freight prices." And the Times attacked antitrust immunity for conferences as "reform in the wrong direction."

Austrian free-market economists would no doubt be less pessimistic than that. Even though the Gorton and Biaggi bills would give antitrust immunity to the conferences, they would deprive the conferences of their most powerful weapon—the power to enforce rate and shipping route decisions—and would thus put them ultimately at the mercy of the marketplace. Thus, the conferences that the Journal and Times warn against would in fact be launched on the same path as such other once-fearsome cartels as OPEC—to fragmentation and oblivion. A cartel without the iron hand of state enforcement is no match for the free market.

MILESTONES

Sink or swim. A Louis Harris poll shows that public opposition to corporate bailouts by the government is increasing. In November 1980, 48 percent of those surveyed were opposed to bailouts. Now, some 56 percent are opposed.

Arms supermarket. In the last 10 years the Soviet Union was the leading supplier of major weapons to the Third World, transferring nearly twice the conventional arms furnished by the US government. Moscow's offerings include supersonic combat aircraft, surface-to-air missiles, guided missile patrol boats, tanks, and self-propelled guns and artillery.

Free the pipelines. The White House is supporting legislation that would end federal price controls on most interstate oil pipelines, as part of the administration's market-oriented energy program. While some companies favor decontrol, there is some concern in the oil industry that it would lead to antitrust problems for the companies involved, especially with the Alaska oil pipeline.

Do-gooders doing badly. According to a new book, The East Asian Edge, the nations of Japan, Taiwan, China, South Korea, Hong Kong, and Singapore are showing high economic growth rates and low inflation. What their economic policies have in common is relatively low government spending (about one-fifth of their gross national products, compared to one-third in the United States) and nearly balanced budgets. In contrast, the Organization for Economic Cooperation and Development (OECD) reports that many of Western Europe's economic problems, notably unemployment, are due to government intrusion in the private sector in ways that substantially increase labor costs, stymie the mobility of labor, and reduce the shares of national income going to profits.

Radio Free Norway. A free-market Norwegian organization called Moderat Ungdom (Moderate Youth) has taken the unheard-of step of bringing suit to challenge the government monopoly on broadcast radio there. They want to start their own station and take advertising. Stay tuned.

Alaskans back guns. The Alaska legislature approved a bill sponsored by Libertarian Rep. Ken Fanning that bars cities there from regulating or taxing firearms. "Guns are not out of control.…people who use them criminally are out of control," said Fanning.

From the editorial page…In August, Business Week took a stand editorially for decontrol of natural gas prices. "Reduced demand and falling oil prices have now produced an oversupply of gas," said the pillar of the business establishment, "but [current] regulation effectively prevents prices from falling in response." And in an editorial on airport congestion, the New York Times suggested that one of several solutions to the problem might be allowing airlines to buy and sell landing and takeoff slots, since "slot sales would let airlines—and travelers—get the service they most value."

Indian givers' benefits. The Treasury and Interior Departments have announced their support for a bill sponsored by Sen. Malcolm Wallop (R–Wyo.) that would treat Indian tribes and their subdivisions that "exercise substantial government functions" the same as state and local governments for tax purposes. This would (among other things) make interest on tribal industrial development bonds and other obligations tax-exempt, and tribal taxes and charitable gifts to tribes would be deductible.

Privatizing the Pentagon. The Defense Department has ordered the military services to move as many uniformed employees as possible out of jobs that civilians can do as well and to shift civilian jobs to outside contractors. The Chamber of Commerce has publicly supported the move: it says that competition can cut costs for a number of services 25–50 percent. Meanwhile, the American Federation of Government Employees and its supporters in Congress are fighting the order tooth and nail and have even proposed a one-year moratorium on the Pentagon engaging private contractors.

Advertisement