Trends

FOWLER THE LEADER

If there were a Nobel Prize for government agencies that reduce their own powers, this year's award would have to go to the Federal Communications Commission. Under the leadership of chairman Mark Fowler, the commission has freed communications technologies from the shackles of commission regulation at a dizzying rate.

In July, for example, the commission voted to expand from 250 to 600 the number of channels available nationwide for private mobile communications and paging systems. This will probably revolutionize mobile communications for urban taxi operations and other transportation systems, not to mention police and fire departments. And because the channels can be reused at a new location every 70 miles, this will open up the possibility of service for hundreds of thousands of new users, according to the Wall Street Journal.

That hardly satisfied the FCC for July, however. The commissioners also tentatively endorsed a staff recommendation to enable private radio services to use 1,600 channels in low frequencies in addition to those currently being used, released more new channels for one-way paging systems, and for the first time authorized private-carrier paging systems to go into operation (this opens the way for independent entrepreneurs to design specially tailored paging systems for individual small- and medium-sized companies).

Thanks to the FCC, it is now possible to buy and sell more than 100 channels on communications satellites (before, it was possible only to lease time on the channels). The cost of leasing a satellite channel for a year had been about $1.5 million, and the cost of buying a channel is about $10–$15 million. The result of this, says the Los Angeles Times, is that satellite companies will be able to generate more capital for more satellites to meet the increase in demand for satellite usage. Indeed, Clay Whitehead of Hughes Communication says that there may well be a radical increase in demand from small businesses that can't afford to build their own systems but want to offer alternative telephone and data transmission services.

The FCC has also recently granted the first construction permit for a revolutionary broadcast service that will allow home television viewers to receive programs directly from orbiting satellites (homeowners will be able to use the service by purchasing a small roof-top dish antenna for about $200–$300 or leasing it for $14–$17 monthly). It has also taken the first steps toward letting companies buy and sell private international communications lines at a discount (this has angered state telecommunications monopolies in other countries but would permit customers to save enormous amounts over what they pay for direct-dial international phone calls).

All in all, the FCC is turning in a breathtaking performance and setting a fine example for its brethren throughout the length and breadth of Washington.

HOW FARES WORKFARE?

The government's welfare system (or, more precisely, the enormous accretion of state, local, and federal systems) is notable for its inefficiency, inhumanity to clients, perpetuation of poverty, and generous support of a middle-class bureaucracy. Still, it has mushroomed at an astounding rate in the last several years, to most people's dismay and no one's surprise. Unfortunately, there's little evidence that the system and its attendant bureaucracy will magically disintegrate anytime soon; but there are encouraging signs of reforms here and there.

Many of the reforms are new variations on "workfare"—the idea that able-bodied recipients of government benefits should be required to work as a condition of receiving those benefits. This idea isn't new. According to a Heritage Foundation report, Cincinnati has maintained an efficiently administered workfare program as part of its general relief for over 40 years; Utah has since 1974 had a statewide mandatory work program that extends to all AFDC (Aid to Families with Dependent Children) recipients (except for mothers with children under six years old); and California, at the instigation of then-Governor Reagan, had a three-year demonstration project involving employable AFDC recipients from 1971 to 1974.

The results of these and similar programs are not wholly consistent. On the one hand, there is evidence that the Cincinnati and Utah programs have substantially reduced their overall welfare costs by denying benefits to able-bodied recipients who refuse to work—but meanwhile have provided assistance and employment to others who are willing to work. On the other hand, the California project, whose stated goals were to accomplish just that, was by most accounts a failure. Heritage Foundation economist Peter Germanis concludes that "although not all experiences in workfare have met expectations, it does appear that a properly administered program could reduce significantly burgeoning welfare costs while helping many of the poor overcome the 'poverty wall' created by America's current welfare and tax systems."

Recently, interest in workfare has grown considerably. In September 1978, conservative San Diego County implemented a pilot program that had cut its general relief rolls by 42 percent as of July last year, simply by requiring that recipients verify their residency every 30 days (this was aimed at transients who collected similar benefits in other jurisdictions) and requiring work from the able-bodied. San Diego subsequently applied a work requirement to its food stamp program as well. In fiscal year 1981–82 alone, the program saved taxpayers $108,597 by denying benefits to those who could work but wouldn't and gained $147,961 in value (computed at the minimum wage) from those who worked for their food stamps. Small wonder that San Diego County has applied for and received exemption from state regulations so that it can go ahead with an expanded demonstration project.

San Francisco, markedly more liberal in its politics than San Diego, has followed suit. According to the San Francisco Chronicle, about a fourth of the able-bodied recipients of the city's $248-a-month general assistance grants are now required to work one day a week in city jobs, most of them as street sweepers. The program has been in effect only since the spring, so it's too early to draw conclusions regarding its success; but Social Services Department director Edwin Sarsfield is working on expanding and revising the program to include a wider range of tasks such as building rehabilitation and parks and recreation maintenance.

One of the most effective examples of workfare occurred in Bordentown, New Jersey, a blue-collar town of 5,000. Four years ago, the town government announced that welfare recipients would have to reregister for general assistance, and that able-bodied recipients would be required to work. Although 24 people had received assistance previously, only four reregistered; and of those, two were qualified for jobs. The New Jersey welfare director was reportedly incensed by Bordentown's new policy, and the state obtained a court restraining order stipulating that no work requirements be imposed; the town could only refer applicants to the New Jersey Employment Service.

Bordentown Mayor Joe Malone responded with an ingenious plan that circumvented the Trenton bureaucrats: he offered paying city jobs to assistance recipients. It worked. Bordentown's welfare costs, which had been $2,503 monthly, were reduced to $240.

ADAM SMITH PHONE HOME

On September 9, a new era of space exploration began, improbably enough in the middle of a cattle ranch on Matagorda Island, Texas. It was there that Space Services, Inc., a private corporation with a grand total of seven permanent employees, launched the first successful American privately owned spacecraft on a suborbital flight.

The spacecraft, called Conestoga I, with its mock payload of 40 gallons of water, soared into space and splashed down 10 minutes later in the Gulf of Mexico, some 32 miles from the launch site. "Obviously we are very happy with the results," mission director Donald K. Slayton exulted to reporters. "All systems worked exactly as they were designed to work."

The driving force behind the Conestoga I project has been David Hannah, Jr., a Texas real estate developer who raised about $6 million from 57 private investors for the project. Hannah considers privately owned and financed space ventures more than a spectacular hobby. He intends to sell market-oriented low-cost space services that are designed to meet the needs of oil companies and other customers needing satellite tracking and communications. Already, about a dozen companies have shown interest in SSI's services. The firm is negotiating to purchase a launch site at South Point, Hawaii, from which it would launch its first orbital flight in September 1984 and its first launch carrying a customer payload in early 1985, according to Aviation Week. By 1986–87, SSI hopes to be launching at a rate of once a month. In addition to its Conestoga rocket series, SSI is negotiating with NASA and the Air Force to take over the existing Atlas-Centaur launch vehicle program, with a target date of early 1985 to begin operations.

SSI is hardly alone, as readers of Trends know full well. Previous issues have reported on Princeton-based Space Transportation Co. (which hopes to operate a fifth space shuttle) and Robert Truax's Project Private Enterprise. In recent weeks four new private launch companies have announced their existence. Arc Technologies, Inc., of Redwood City, California, is already building a prototype rocket, with a first launch scheduled for early 1983 from a ship offshore. According to Commercial Space Report, the firm has raised money from a number of Silicon Valley sources, including Apple Computer Co. founder Steve Wozniak. Another Redwood City company is Phoenix Engineering, which tested its first rocket engine module in August. Key founders of both Arc and Phoenix come from G.C.H., Inc., the firm which built the predecessor of SSI's Conestoga rocket. The third new firm is Satellite Propulsion, Inc., of Beverly Hills, founded by Jack H. Vollbrecht, retired president of Aerojet-General Corp. SPI hopes to be launching 5,000-pound payloads into geosynchronous orbits by the mid-1980s. And Aviation Week (Oct. 4) reports the incorporation of TranSpace Carriers, Inc., which hopes to take over launching of the Delta rocket from NASA. The company's founder is David Grimes, previously NASA's Delta launch operations manager.

Altogether, there are now eight private US-based launch vehicle firms. Adding in the French firm Arianespace and the German firm Otrag, it looks as if private enterprise is firmly established on the threshold of space.

CLINCH, IN A PINCH, NO CINCH

If the virtuous budget slashers in the Reagan administration would ever pick a motto, they would do well not to choose, "What's sauce for a goose is sauce for a gander." In the White House kitchen, they have blithely—to their credit—spread the sauce of austerity over numerous cooked geese in the bureaucracy, but other favored Republican ganders that should have been axed are still very much in the swim.

One such pork barrel turkey (forgive the mixed metaphor) is the Clinch River Breeder Reactor in eastern Tennessee. Clinch River was first proposed a decade ago as a mammoth engineering project to be financed almost equally by government and a consortium of private backers. It was intended to produce plutonium fuel as a byproduct of its power generation (hence the name "breeder reactor").

Almost from the start, it was strenuously opposed by environmentalists suspicious of nuclear power generally but also by others because, as summarized by the Los Angeles Times, "It has raised deep concerns that plutonium would be produced in such quantities that nuclear weapons would proliferate wildly." Jimmy Carter in 1977 tried to halt development of Clinch River for the latter reason, but he was unsuccessful—largely because the project has a very powerful patron in Senate Majority Leader Howard Baker (R–Tenn.).

If Baker was powerful enough to keep Clinch River alive throughout a hostile Democratic administration, it would seem that passage in a friendly Republican administration would be easy. But while the White House has been steadfast with its Senate point man, there has been a growing disgust in Congress with Clinch River not only among its traditional opponents on the left but also among a number of rock-ribbed Republicans on the right.

The reason is Clinch River's price tag. Originally, it was projected to cost a scant (by Washington standards) $400 million, of which the private consortium was pledged to contribute $257 million. Now, however, the Energy Department projects the total cost at $3.6 billion; and the General Accounting Office, the congressional watchdog agency, has issued a report projecting a total cost of as much as $8.8 billion. But the consortium's financial commitment would be unchanged in any case. Rep. Claudia Schneider (R–R.I.) calls it "a multibillion dollar daydream."

Even some of the staunchest supporters of nuclear power are appalled. Sen. Gordon Humphrey (R–N.H.), a friend of the New Right, declared to the Los Angeles Times, "Some of us have watched liberals like Senator Kennedy vote against [Clinch River] in the past and said, 'Hey, if they're against it, then I must be for it.' The truth is that Clinch River is nothing but a plutonium pork barrel. It is totally inconsistent with the free market approach to energy development." The Heritage Foundation's energy analyst, Milton Copulos, told Business Week, "Performing technological miracles at the taxpayer's expense, just for the sake of doing them, is dubious at best."

At this writing, it is too early to tell whether the new coalition of liberals and conservatives opposed to Clinch River will overcome the might of Senator Baker.

ENTERPRISING PUBLIC BROADCASTING

As the money pipeline for numerous government agencies runs dry, well-placed bureaucrats and their acolytes have been warning us that funding cutbacks will mark the end of Western civilization as we know it. It is therefore a most pleasant surprise to see an agency that, instead of spending time moaning and gnashing teeth, is making a determined effort to provide services in the private sector and move off the government dole.

National Public Radio, under the leadership of liberal Democratic politico Frank Mankiewicz, is such an agency. Confronted with heavy reductions in its federal funding, NPR is planning in the next six years to use new technologies to offer a wide variety of income-generating services. According to the Wall Street Journal, it will begin transmitting commodity prices, news, and video games directly to computers and printers in offices and homes around the country; and it has entered a partnership with a private Virginia firm to begin a nationwide radio-paging service (so, beginning next fall, you will be able to subscribe to their paging service—which will cover most major cities in the country—for about $30 monthly).

Another of NPR's commercial ventures will be an overnight audio service through which subscribers will be able to tape programs while they sleep. For a fee, they'll get a monthly program guide and a toll-free number to call. Whenever they want to record a program, they'll simply have to slip a cassette into a special "black box" device.

Meanwhile, the Public Broadcasting System is responding to cutbacks in funding for public television, albeit in a more modest and diffident manner than NPR. Business Week reports that PBS has been discussing with AT&T the possibility of a $9-million grant to underwrite much of the cost of an expanded one-hour nightly edition of the MacNeil-Lehrer Report; and 10 local television stations in the PBS network have been permitted to run commercials on an experimental basis. There are signs that PBS is more reluctant than NPR to test the waters of free enterprise—Corporation for Public Broadcasting president Edward Pfister is adamantly opposed to allowing commercials. And a congressional commission on alternative financing for public communications recently argued that "there is no reasonable alternative to continued federal funding." But necessity may well be the mother of invention. As a Commerce Department position paper recently said, there is no reason to accept the assumption that "new media will essentially never be able to replace the present public broadcasting distributors or distributees."

NPR's Mankiewicz with his goal of "Off the Fix by '86" can undoubtedly appreciate that.

WITHDRAWING FROM THE PUBLIC EDUCATION FIX

Public education provides an unfortunate example of the disadvantages of government having a near-monopoly on the provision of an important service. Yet it has continued to be supported as an apple-pie issue. Because education is so heavily politicized in this country, it is encouraging to learn that the public school system's constituency in the electorate is now diminishing in two important respects.

First, the percentage of adults with youngsters in the public schools has declined dramatically, according to the New York Times. The newspaper quotes Gallup Poll data indicating that while 39 percent of adults had children in public schools in the early 1970s, only 27 percent do now. (This is because of an aging population, an increase in the percentage of young adults with fewer children or no children, and lower birth rates.) As the Times notes, "The demographic statistics could have dire consequences for public schools during the 1980s as they seek support for bond issues and budgets, as well as for programs generally"—although the results for education can be expected not to be dire, we might add.

A second and possibly more important factor in the shrinking of public education's constituency—also pointed out by the Times—is a shift in opinion about public schools. While Americans continue to have, as the Times puts it, "an overriding belief in the importance of education" (87 percent of parents with children in public school want at least one of their children to go to college), their confidence in the public school system is far lower. Only 47 percent of parents with children in public school said they would still send their children to public school if private schools were tuition-free; 45 percent would opt for the private schools. Moreover, the number of those who give schools an A rating has declined since 1974 from 18 to 8 percent, and the number who rate schools in the range from C to failing has grown from 32 to 52 percent. As the Times's education reporter Fred Hechinger asks, "Is there a move away from the century-old educational, social, and political belief in this country that the public schools as the predominant form of education are an essential ingredient of an effective American democracy?"

Possibly so. There are several reforms that could accommodate a transition from the public school monopoly to a reliance on private schools, with an attendant increase in economy, diversity, and excellence in education. One is education vouchers. They have never been tried on an extensive basis in this country, but the idea has been a splendid success across the Atlantic. In Holland, the Education Voucher Institute News reports that "as long as a private school fulfills certain regulations, it receives 100 percent of its operating funds from government sources." The Dutch system has fostered an impressive range of choices for Dutch families. EVI News notes that most private schools are affiliated with a religion (mainly Catholic and Dutch Reformed), but some are based on pedagogical principles (Montessori, Jena, Dalton, etc.).

State-supported vouchers are not a complete privatization of education, of course, but the Dutch experience shows that they introduce a valuable marketplace dynamic into schooling for children from all economic backgrounds: the revenue that Dutch private schools generate depends directly on how many students they attract, and any family that believes its children are not being educated competently can easily transfer the children elsewhere. Thus a voucher system gives all children—not just those from wealthy families, as is the case here—the option of a private education.

CREATIVITY COMES TO THE ARTS

Can a refined artistic sensibility survive in the hurly-burly of "cutthroat capitalism"? Possibly so.

Arts groups around the country, many of which did quite well in the sullied halls of the federal bureaucracy for more than a decade, are now confronting the fact that government arts funding has been cut back enormously. As a consequence, they have to look elsewhere for money. To their credit, some are extending their creative impulses to entrepreneurial activity.

New York's Dance Theatre Workshop is one such group. In a radical departure from genteel theatre tradition, the Workshop has choreographed commercials at its performances. The Wall Street Journal recently gave an account of one: " 'Will you die if you don't have a Brownie All The Way at four in the morning?' booms the announcer as a gyrating dancer draws his finger across his throat and plays dead. 'The Empire understands.' A Brownie All The Way? That's with ice cream, chocolate sauce, whipped cream, and a cherry." The commercial drew the loudest applause of the performance.

Drama also may have a splendid vehicle to prosperity—the medium of pay television. Ellen Krass, the executive producer for RKO-Nederlander Productions in Los Angeles, pointed out in a recent interview that cable television and pay-per-view could become "a financial arm of the theatre. There are enough homes that you can do plays by subscription. In the beginning of the year, you could pay $60 for four Broadway shows. You get opening night for $15. You can make it into a dinner party."

Krass's firm has already concluded agreements for 10 such productions. The first 5 will include Sweeney Todd, The Canterbury Tales, and Lena Horne: The Lady and Her Music. She also predicts opportunities for less-established dramatists, and her company is working with Playwright Horizons to encourage new young writers.

"There's no place for young playwrights to develop their work today except in small experimental theatres where you can do a show for $25,000," she says. Because of Krass and other inventive producers, that situation may be remedied.

CABLE'S CRUMBLING CASE AGAINST COMPETITION

Is cable TV a "natural monopoly"? That's what industry representatives claim, in their quest to receive exclusive franchises from local governments. But now a pair of respected Washington-based communications industry consultants, Harry Shooshan and Charles L. Jackson, have issued a report, prepared under contract to the National Cable Television Association, indicating that the much-vaunted "need" for cable monopolies has about as much basis in reality as the existence of the Easter bunny. As the report says, the concept of cable as monopoly "is no longer correct, if indeed it ever was."

The report notes that in the early 1970s, the conventional thinking about cable was that it was the "ultimate communications invention"—since technologists had done their job, society had to develop rules to regulate cable, and a communications paradise would flourish. But in fact the world has not been static. Technology has kept changing, and new alternatives have entered the local communications market.

This has meant that while cable is still of enormous importance, it is far from being a monopoly. So even if one assumes the validity of the traditional rationales for government regulation of monopolies (the existence of a natural monopoly, the provision of an essential service, and the dedication of a business to public use), the case for regulating cable as tightly as railroads and utilities still falls flat on its face.

In order to determine whether a natural monopoly exists, the report analyzes each of 22 services that cable can provide and finds that "cable faces competition in all of these submarkets" (emphasis in original). In the submarkets for all entertainment services, for example, the market is very competitive: cable competes with over-the-air television and radio, pay television, MDS, MATV, video discs and cassettes, movie theatres, and ultimately DBS. The same situation is true of the markets for security and alarm service, energy management service, videotex service, data, voice, and other wonders that people have claimed were unique to cable.

Shooshan and Jackson's point is underscored by the fact that head-to-head competition even exists in basic cable TV service, in cities where permissive licensing rather than de facto exclusive franchising is the rule. Such cities include Phoenix and Paradise Valley, Arizona; Vista, California; Bridgeview, Illinois; Paramus and Hillsdale, New Jersey; and Bethlehem, Pennsylvania. In addition, Dade County, Florida, has licensed five cable companies, though they have chosen not to compete head-on thus far.

So the next time your local alderman or cable company operator starts saying that cable is a "natural monopoly" and there isn't any alternative to strict government regulation in the public interest, start counting your silver spoons. The free market can work as well in communications technology as everywhere else if it's given half a chance.

BOOSTING EXPORTS WITHOUT BUSTING THE TAXPAYERS

If you're the ruler of an underdeveloped country and you conclude that the greater glory of your regime will be better enhanced by a fleet of shiny Boeing 727s for a national airline than by development of agriculture and industry, you might find that large Western banks these days are a bit skittish about granting you credit for your would-be airline. Not to worry. You have a friend at the Export-Import Bank.

Since 1934, this fine agency of the US government has been arranging credits for foreign customers of American corporations when the customers are considered to be too much of a risk by normal commercial lenders. And naturally, it's not just the bad credit risks who benefit—the corporations they patronize have come to see Ex-Im as an estimable plum.

Boeing Aircraft is a prime example. From 1975 to 1980, Ex-Im Bank helped finance some $77 billion worth of exports, and $14 billion of that amount was for airplanes. So it's little wonder that, with new sentiment in Congress and the Reagan administration to reduce Ex-Im's borrowing authority by nearly $1.8 billion, Boeing has published a cleverly written brochure emblazoned, "Attention! Just when we need it most, America's Export-Import Bank is in jeopardy." Festooned with tasteful maps and charts, it leaves the impression that tampering with the Ex-Im Bank is akin to spreading an epidemic of dysentery.

The fact is, however, that the marketplace may soon be providing a private alternative to Ex-Im. According to Business Week, the Wall Street brokerage house of Lehman Bros. Kuhn Loeb, Inc., is currently putting together a "cooperative export financing corporation" (CEFCO). It is intended that the coop will borrow money cheaply, possibly by obtaining funds in low-interest money markets abroad, then relend it to foreign buyers of American exports. The financing of CEFCO itself would consist of equity participation by member companies; but Robert M. Macy, Jr., of Lehman Bros. says that they are "looking at a whole phalanx of financing tools."

Macy emphasized in a letter to Business Week that CEFCO "is an entirely private effort…[and] has neither requested nor discussed government loans or guarantees." He added that they are seeking clarification of CEFCO's tax status from the government.

In an interview with REASON, Macy maintained a cautious attitude about CEFCO's future role. "Ex-Im Bank remains the cornerstone as you develop other means of financing," he said. "We're not out to try to replace them. They have shortfalls and we're just trying to fill in the gaps." But he did say that it is conceivable that CEFCO would eventually be involved in financing as much as 10 percent of American exports, which now amount to $125 billion annually. And, despite Macy's eagerness to have Ex-Im remain front and center, who knows…? Lehman Bros. may be just the precedent the private sector needs to develop a competitive alternative to politicized export financing.

MILESTONES

Banking securities. The Federal Deposit Insurance Corporation has announced that it is now legal for state-chartered banks that don't belong to the Federal Reserve System to have securities subsidiaries. Although the banking industry has to overcome other governmental barriers before it can enter the securities market on a large scale, the decision is considered a major victory.

Tax reform support, sort of…According to Business Week, a Harris poll has found 62 percent of Americans in support of a flat-rate 14-percent income tax. However, a majority favor keeping deductions for medical expenses, home mortgage interest, charitable contributions, state and local taxes, and casualty and theft losses. This is flat?

Trickle-trickle, splash-splash. A California Assembly research office report estimates that permitting Californians to sell surplus water they accumulate through conservation—giving people an economic incentive to conserve water—could eventually lead to savings of at least 172,000 acre-feet of water annually, or about one-half the amount of new water that Southern California was scheduled to get from the defeated Peripheral Canal project, at no public cost. In September, Gov. Jerry Brown signed a law that will lead to a partial free market in water.

Bible Belt loosened. In September, Oklahoma voters overwhelmingly endorsed a proposal that will permit parimutuel horse race betting. The landslide vote was a major defeat for the leadership of the Baptist and Methodist churches in the state, which had led the opposition to the proposal.

Privatizing NASA? Lee Scherer, the former director of the Kennedy Space Center in Florida and a member of the launch team for Conestoga I (see Trends, above), predicted in an Orlando Sentinel interview that NASA may start turning over launch operations to private business, "I would say, within three years, if you want to try to pin it down."

Children of Prop. 13. Since 1978, the year the California voters passed Proposition 13, 18 states have followed that lead and placed limits on local government spending. According to John Shannon of the Advisory Commission on Intergovernmental Relations, the result is that the size of state and local government as a percentage of the GNP has started to shrink.

Welfare state apostates. A coalition of Democrats in the House of Representatives has issued a report that abandons the principles of New Deal economics and calls for a balanced budget, lower tax rates, and long-term investments in national growth. True, it also calls for a Rohatynesque "Economic Cooperation Council" of government, business, and labor representatives to "marshal our resources," but some backsliding can be forgiven. Enlightenment is often an incremental process.