Trends

BUS COMPETITION IS JUST THE TICKET FOR CONSUMERS

Riders on the nation's bus lines are reaping the harvest of deregulation. Since last November, interstate bus companies have been allowed to enter what used to be the exclusive territories of other companies. That new freedom has sharpened a price war that began more than a year ago.

The opening shot was the challenge by Trailways, number two in the industry, that it would meet or beat any intercity fare—bus, plane, or train. Moreover, the maximum on any route would be $99. In May of last year, industry leader Greyhound began meeting the new Trailways fares on selected routes. Since many routes were protected from competition, the overall effect on prices was not very large. But since November, all restraints on competition have been off. Trailways is extending its meet-or-beat fares into Greyhound territory. Already, by year-end, most rates were 30 to 40 percent below what they had been a year earlier.

Even more competitive gambits are now being introduced. Trailways has joined forces with Delta Air Lines to offer a trip-extender fare. By purchasing a package deal, you can fly Delta between major cities, then connect to Trailways to your small-city destination (many of which have bus service but no regular airline service) for just $15 more. Over the Christmas holidays, competition spurred Greyhound to offer guaranteed seating, even if it meant adding an extra bus for just one passenger.

As consumer columnist Peter Weaver summed it up, if you're "cautious about spending money on travel, this surge of competition should come as good news."

NUCLEAR INSURANCE GOES PRIVATE

One of the ways in which the federal government has long subsidized nuclear power plants is by providing liability insurance. Under the 1957 Price-Anderson Act, the utilities' insurance policies covered only the first $160 million of possible claims. Anything above that—up to a government-imposed ceiling of $560 million per accident—would have been paid by the taxpayers.

In 1977, however, efforts to repeal Price-Anderson led, instead, to its modification, to provide for a gradual phase-out of the federal subsidy. To supplement the initial $160 million insurance coverage of each reactor, the utilities agreed to contribute $5 million for each reactor they operate into a common fund to meet larger liability claims. Once 80 reactors were in operation, there would thus be $400 million of additional coverage, entirely displacing the federal coverage. That point was reached last November 15, when San Onofre Unit 3, operated by Southern California Edison, went on line as the 80th US commercial reactor.

From now on, as each additional reactor comes into service, adding another $5 million to the pool, the total liability limit will increase above the old $560 million ceiling. Which is not to say that any limit on liability should be established by law. Still, in 25 years of reactor operation, there has yet to be a single claim that exceeded even the old $160 million limit, let alone the $560 million ceiling.

TRICKLE-DOWN TAXING AND SPENDING?

What effect does federal aid have on state and local government spending? Two recent studies reached opposite conclusions.

The first, by the Office of Management and Budget, looked at spending on state and local government facilities—roads, sewers, buildings, etc.—during the 1970s. Precisely as federal aid increased—by an average of 2.2 percent per year in real terms over that period—state and local spending on these facilities decreased by an average of 4.2 percent a year. What happened was that federal aid made it easier for local governments to divert resources to social programs. At the same time, voters rejected many bond increases and enacted tax-limitation measures. Concludes OMB: more federal aid for public works would probably lead to continued decreases in local taxing and spending.

The second study looked at one state, New Hampshire, and covered all federal grant programs, not just those for public facilities. Carried out by Dartmouth economists James R. Fries and Colin and Rosemary Campbell, it found that, overall, the state and local tax burden increased or decreased in direct proportion to the level of federal aid. In other words, as federal aid went up, New Hampshire taxing and spending went up, often to provide matching funds. They predict that as federal aid declines in the 1980s, therefore, New Hampshire taxing and spending will decrease proportionately.

The two studies' findings may not be as contradictory as they sound. New Hampshire is a low-tax, low-spending state. Its voters probably view federal grants as "free money," permitting projects to be undertaken that might not otherwise occur. Thus, when federal aid is cut back, they'll probably be content to do without those projects. Big-spending state governments, by contrast, see federal aid as a basic element of their total resources, committed to a panoply of spending programs. They would tend to behave more like the OMB study predicts. Large-scale federal aid cuts to those states would be more likely to lead to local tax increases.

DAY CARE CHAFES UNDER THE BURDEN OF BUREAUCRACY

Private households have been taking care of children for millennia, but when they do it for hire, government feels obliged to step in and tell them what to do. All too often, the effect has been to raise costs or reduce the number of providers.

Take the case of Susan Suddath, who'd been running a day-care center on her farm in Maryland for 17 years, according to the Wall Street Journal. When the bureaucrats discovered that she was caring for as many as 20 children, they invoked a state law forbidding a private home from taking in more than four children during the school day. Thus, Mrs. Suddath was forced to turn away most of the children. That painful experience led her to a successful effort to get the law amended to allow for "group care homes" that can take 7–12 children without having to meet stringent institutional requirements.

But the regulators' heavy hand is still being felt elsewhere. In California, where the addition of a seventh child makes a day care home subject to building codes designed for schools, the operator of one day care home found that she would have to have separate toilet facilities for boys and girls, and bathrooms accessible to wheelchairs, before she could increase her enrollment from six to seven. She withdrew her application.

But there's good news. A number of parents and professionals familiar with family day care service are beginning to question the worst excesses of government regulation. For example, Anne Bersinger, deputy director of California's Department of Social Services, has publicly expressed her preference for making state licensing of family day care providers (that is, day care facilities, usually in private homes, that care for six children or less) completely voluntary.

Bersinger reasons that since an estimated 90 percent of family day care services around the country don't currently have licenses, "there are obviously many parents for whom licensure is not very significant; one wonders if licensing is in sync with their wishes or needs." Moreover, California taxpayers currently pay $4.1 million annually for a licensing system that's something of a farce. The state has enough case workers to visit a day care site before its license is granted, and after that only once every few years on the average. "The level of oversight is minimal," Bersinger says. "It lulls parents into a false sense of security."

Her argument for making certification voluntary (a proposal made by then-Gov. Jerry Brown in 1981 but rejected by the state legislature) is that the state would no longer be trying to suppress unlicensed family day care; parents who feel that certification is important could choose a day care service that met that standard (and perhaps they would pay a slightly higher price), while other parents could freely use other criteria; and the program could be financially self-supporting, with certified providers paying a fee to keep the program alive.

Meanwhile, an important battle against home day care regulation is being waged in the courts. The California Health and Welfare Agency has had a policy of making unannounced visits to family day care providers—and if the inspector was refused entry, that would be sufficient cause for revoking the provider's state license. In Rush v. Obledo, however, a day care home operator and the San Mateo County Daycare Association claim that this policy mandates warrantless searches of homes and thus violates Fourth Amendment protection from unreasonable search and seizure. A team of lawyers with the San Francisco Lawyers Committee for Urban Affairs—which is providing legal representation for the plaintiffs—was victorious in the district court last year; but the state appealed, and at this writing, the final outcome of the case is still in doubt. REASON will keep you posted.

DAM PRIVATIZATION?

Will the world's largest hydroelectric plant be privatized? That's the question being asked in Pasco, Washington. The subject is the Grand Coulee dam, built by the Bureau of Reclamation in the 1930s. The dam is the centerpiece of the Columbia Basin Project, a New Deal irrigation and hydroelectric project.

Several months ago the bureau's regional office in Boise, Idaho, wrote to the three irrigation districts served by the project, asking if they'd be interested in taking title to any of the facilities. Russell Smith, director of the South Columbia Basin Irrigation District, responded that his district would like to take over the dam itself. Although the Bureau has been directed to divest itself of much of the irrigation network, Smith's offer took the regional office by surprise. L.W. Lloyd, regional director, told the Seattle Times that selling or giving the dam to the district would require congressional approval.

As a nonprofit entity, the district could issue tax-exempt bonds to cover the purchase price, Smith told REASON. Since the dam generates $700 million a year in power sales, there would be a steady stream of revenue to pay off the bondholders. The three irrigation districts are already involved in the electricity business, with six low-head hydro plants currently under construction. Thus, there's a precedent for a district to be the dam's operator.

If the Reagan administration gives a damn about the New Federalism, maybe it should "give" a dam to the South Columbia Irrigation District.

THE (PRIVATE) ROAD TO CHINA

The United States may not be ready for private-enterprise highways. But it now looks as if China—of all places—may be.

Business Week (Dec. 20, 1982) reports that Hong Kong property developer Gordon Wu has proposed building and operating a 145-mile, $500-million superhighway running from Hong Kong through Canton (Guangzhou) to Macao. Wu proposes raising the money by issuing bonds, to be paid off out of toll revenues. The average toll from Hong Kong to Macao would be $20, and Wu figures he could turn a reasonable profit with 20,000–25,000 cars per day. After 30 years, ownership of the road would revert to the Chinese government.

Wu says he got the idea for the project from the New Jersey Turnpike. Actually, the model for this quasi-private tollway is the superhighways of Italy and France, mostly built and operated by private firms but with ownership eventually reverting to the state. Well-funded by toll revenues, those roads are superbly maintained, in sharp contrast with America's often-decaying (but mostly toll-free) interstate highways.

Who knows—maybe once China authorizes private superhighways, the idea will no longer seem too radical in the land of free enterprise.

VOTERS DON'T AXE LIMITS ON TAX

Despite cries of alarm from politicians, voters continued to approve tax-cutting and tax-limitation measures last November. Alaska became the ninth state to amend its constitution to limit taxing and spending, enacting by a 61 percent margin a measure largely drafted by the National Tax Limitation Committee. Maine's voters approved, by 57 percent, a measure to prevent bracket creep by indexing the state's income-tax brackets to compensate for inflation. Tennessee voters approved a measure reducing property taxes for the elderly. And, as previously reported, Texas voters abolished the state property tax, by a 70 percent margin.

Even the bureaucratic heartland resists tax increases. Voters in affluent Prince George's County, Maryland—adjacent to the District of Columbia—rejected a measure that would have abolished a four-year-old freeze on property taxes.

BANKING ACROSS BORDERS

The 1927 McFadden Act still bans interstate banking—officially, that is. Still, interstate banking is rapidly becoming a reality in this country, thanks to creative exploitation of loopholes.

One such loophole is franchising, pioneered by Los Angeles-based First Interstate Bankcorp. Rather than acquiring banks in other states, the company simply makes a franchising arrangement, whereby the participating bank uses First Interstate's name and gains access to shared systems such as the automated-teller-machine network. First Interstate is already operating in 11 western states and is reportedly about to expand into Alaska.

As reported here last September, the 49th state last year became the first to allow out-of-state bank holding companies to acquire local banks—a McFadden Act loophole never before exercised. Critics feared the worst: voracious lower-48 banking giants would roar into Alaska and gobble up the local banks. Surprise, surprise! As the Wall Street Journal reported last November, it simply didn't happen. In the first five months, only two Seattle banks purchased Alaska banks. "The lesson of Alaska," noted First Interstate chairman Joseph Pinola, "is that banks are going to be very selective when choosing new areas in which to compete."

New England may become the next big opening for interstate banking. The Massachusetts and Maine legislatures enacted new laws permitting interstate bank mergers and acquisitions on a reciprocal basis with other states that enact similar laws. Similar legislation is expected this year in Connecticut, New Hampshire, Rhode Island, and Vermont. Legal experts are uncertain whether Congress would have to give its blessing to the idea, by exempting New England from the McFadden Act and the 1956 amendments to the Bank Holding Act.

Once before, Congress allowed New England banks to pioneer. In 1973 it permitted federally insured banks in Massachusetts and New Hampshire to offer what amounted to interest-bearing checking accounts—the so-called NOW accounts. Now New England could once again point the way to more commercial freedom.

SELF-DEFENSE GAINS DEFENDERS

The idea that this country's wealthy allies—NATO Europe and Japan—should start paying for their own defense is picking up support in those countries. Ironically, at the same time the Reagan administration is trying to increase the number of US troops in Europe by 18,900—and denouncing congressional opponents of the move by portraying them as advocates of a "cutback."

In December the Western European Union took up a French proposal to move toward European self-defense. French defense minister Charles Hernu called on European governments to develop more of their own weapons, rather than relying on US products. Hernu's position reflects the views of Jean-Paul Pigasse, director of the Paris-based Center for Defense and Strategy Studies, who has called for dissolving NATO in favor of an all-Europe defense alliance with its own nuclear deterrent.

The French defense budget, at 3.9 percent of gross national product, is among the highest in Western Europe. Although the French are holding down spending on conventional forces, spending on their nuclear forces increased 29 percent in 1982 and will go up another 22 percent this year. Moreover, the 1963 security treaty between France and Germany has finally been activated, and the two governments are discussing common defense problems.

Across the Pacific, meanwhile, the new government of Japanese prime minister Yasuhiro Nakasone has proposed only a modest 6.5 percent increase in defense spending for 1983. That increase would still keep Japanese defense outlays below 1 percent of GNP (actually 1.6 percent, if pensions are included, as they are in NATO defense budget figures), as they've been since 1976. But for the longer term, many defense analysts are optimistic that Nakasone, a former defense minister (1970–71), will be the one prime minister who can overcome Japanese (and Southeast Asian) opposition to a serious military buildup by that country. After all, as the Economist noted recently, West Germany has been able to rearm without a return to militarism. There's no reason to think that Japan could not do otherwise.

SPACE VENTURES TAKE OFF

Several more private enterprises have announced plans for developing launch vehicles or for marketing existing launch vehicles—all without government money. The age of commercial space enterprise has definitely arrived.

The latest launch vehicle company to be announced is Orbital Systems Corp. Started up with $500,000 in seed money from Texas oil and real estate investors, the company plans to develop a new upper stage designed for use with NASA's space shuttle. With the new SRM-1X upper stage, the shuttle will be able to place a 6,900-pound payload into geosynchronous orbit—a 38 percent increase. That will give the shuttle a strong advantage over the European Ariane 3 and 4 rockets. Unlike the latter (and the shuttle), the SRM-1X will be developed entirely with private money. Orbital Systems's chief technical consultant is rocket pioneer Krafft Ehricke, a former colleague of the late Wernher von Braun.

A second major development is the growing interest of private firms in purchasing and marketing existing boosters as commercial satellite launchers. Space Transportation Co., the firm that has been trying to fund a fifth shuttle orbiter, has signed an exclusive agreement with Martin Marietta to market and launch that company's Titan 34D booster. SpaceTran will market the Titans as a backup to the space shuttle for large communications satellite customers. Meanwhile, both Space Services, Inc. (developer of the Conestoga-I booster) and General Dynamics have expressed interest in marketing the latter firm's Atlas Centaur rocket. (We reported here in December that recently formed TranSpace Carriers is seeking to market the McDonnell Douglas Delta booster.)

At press time, NASA was reportedly near a decision on the future of the shuttle. The main alternatives appear to be either to set up a government corporation (like Amtrak) to operate and market the shuttle or to begin turning over the entire operation to the private sector. The first step in the latter case would be to contract out shuttle marketing operations. Besides SpaceTran, major aerospace firms—including Rockwell International, McDonnell Douglas, Grumman, and Boeing—have told NASA they're interested.

Boeing and Lockheed were among the four bidders for a three-year contract to operate the entire Kennedy Space Center. The winning firm, selected in December for the $193-million contract, was EG&G, which already operates under contract the Nevada Test Site and seven other military bases and Energy Department facilities. NASA expects to save 25 percent of the cost of launch operations at Kennedy due to efficiencies introduced by contracting out its operation.

SEX EDUCATION AND CARNAL KNOWLEDGE

Many parents and some political groups have opposed sex education in the schools, out of concern that teaching teenagers about sex would encourage them to participate in sexual activities. Defenders of sex education maintained that since many teenagers were going to have sex in any case, it would be foolish to deny them information. Both sides acknowledged that more and more teenagers have been engaging in sexual activity, over the same time period that sex education has become more widespread. But the question remained: Does sex education itself make sexual activity more likely?

The answer seems to be that, in general, it does not. The way to find out is to compare two statistically similar groups of teenagers, one exposed to sex education and one not, and compare the extent of their sexual activity. Just such a comparison has been carried out by two Johns Hopkins University professors of population dynamics, Melvin Zelnik and Young J. Kim. Their data sources were a 1979 survey of male and female teenagers in metropolitan areas and a 1976 nationwide study of teenage girls. As reported in the May/June 1982 issue of Family Planning Perspectives, the data showed no significant association between taking a course in sex education and being sexually active. The one significant effect of sex education seemed to be that among those teenage girls who are sexually active, those who had sex education were less likely to get pregnant.

The Zelnik/Kim study will not end the controversy over sex education. But it ought to set the record straight on what it does and does not lead to.

CALLING COMPETITION

The once-monopolistic local telephone business is increasingly turning into a competitive marketplace. The two major competitive technologies—cable and radio—are attracting more and more firms, in more and more cities.

MCI Communications Corp., which pioneered competitive long-distance service, has begun competing at the local level as well. In January it began operating a local communications service in Omaha, Nebraska, in cooperation with the local Cox Cable company. The service will enable Omaha businesses to connect their telephones to MCI's long-distance lines without having to use the local telephone company's lines—thereby avoiding high phone company access charges.

Other major cable companies are more extensively involved as local telephone competitors. The pioneer, Manhattan Cable TV, took in about $1.5 million from its commercial telephone customers last year, including such firms as Chase Manhattan, Manufacturers Hanover, and the New York City government. For data transmission, Manhattan Cable offers about 40 percent cost savings compared with New York Telephone's lines. The company is doing so well that it added 20 miles of cable just for telephone service last year.

Other cable companies moving into local telecommunications include American Television & Communications (ATC), Cablevision, Warner Amex Cable, and Group W Cable. ATC's systems are being developed in Denver, Kansas City, Memphis, San Diego, and San Francisco. Cablevision has a 23-mile business system under development in Boston to carry voice, data, text, and video. Warner Amex is adding such features to its Pittsburgh system and plans similar services in Chicago, Cincinnati, Dallas, Houston, and St. Louis. And Group W is building such systems in Dallas, Detroit, and southern California.

On the radio front, mobile telephone service will soon be coming to rural areas, not just big cities. NASA has asked the Federal Communications Commission to set aside UHF frequencies to permit satellite-relayed mobile telephone service in the countryside. The proposed frequency bands are adjacent to those already allocated for the cellular radio systems now being developed for urban mobile telephone services.

In addition, the FCC has begun allowing FM radio stations to utilize their subcarrier systems to transmit not just muzak but information. Dataspeed, Inc., sees a major opportunity to utilize FM broadcasting as an alternative to telephone lines. It's introducing a nationwide electronic mail service using a $300 hand-held terminal that can pick up messages coded for specific individuals. Telemet America offers a $299 portable stock-market data terminal, programmable to select up to 20 (out of 1,600) stocks. And other companies, such as Amway Corporation, are using FM subcarrier frequencies to communicate with their distributors and retailers.

Both cellular radio and two-way cable are about to appear in England, as well. The British department of industry is planning to emulate the FCC by licensing two competing mobilephone networks—one to state-owned British Telecom (which may be privatized within several years) and the other to a fully private firm. Unfortunately, the government intends to protect British Telecom's local telephone monopoly by forbidding cable TV operators from offering voice service (even though such systems will be required to have two-way capability). As the Economist lamented, "Cable lines could…carry telephone services. Their potential should not be stunted for the sake of an existing monopoly. Telephone systems used to be regarded as 'natural' monopolies. New technology, cellular radio as well as cable, has changed all that. Or should be allowed to."

MILESTONES

Seabed, rejection. Governments from 46 nations declined to sign the Law of the Sea Treaty at the signing festivities in Jamaica in December. None of the industrial countries signed except France. Neither did the Vatican or Peru or Venezuela or South Korea or several Middle Eastern nations.

Controller recall. Proceedings have begun to recall two county supervisors in Tehama County, California. The two opposed a ballot measure enacted last November abolishing all land-use controls in the county (see Trends, Feb.).

Bye-bye, blues. The Massachusetts legislature in December repealed the state's "blue laws," which prohibited retail stores from operating on Sundays. Exempted from the measure, however, were liquor stores.

Freer skies. As predicted here last month, the European Parliament in December loosened controls on regional airlines, permitting new service to begin. The first license granted under this partial deregulation authorizes service between Denmark and regional airports in Great Britain.

OSHA restrained. The US Court of Appeals has ruled that a search warrant does not give OSHA inspectors a blank check to snoop through company files. The court held that the agency must obtain a subpoena if companies won't reveal records voluntarily.

Timber profits. The British treasury has ordered the state-owned Forestry Commission (the equivalent of the National Forest Service in this country) to start turning a profit. For 60 years the agency has lost money and is currently costing the taxpayers about $140 million a year more than it brings in from timber revenues.

Tickets deregulated. As of year-end, the selling of airline tickets was opened to competition. By a 4-to-1 vote, the CAB allowed anyone—not just travel agents—to contract with airlines to sell their tickets. Ticketron was among the first to announce it would enter the business.

Friedman versus Fed. "I am in favor of abolishing the central bank," stated Nobel laureate Milton Friedman in a recent letter to Gold Standard Corporation, published in Gold Standard News (vol. 6, no. 11).

Gas okay. Utilities and other users of natural gas will no longer be forced to stop using the fuel by 1990. The Energy Department has abolished that silly provision of the Powerplant and Industrial Fuel Use Act.

Deregulate electricity. To save the electric utility industry from financial disaster, electricity generation should be removed from regulation. So says the Congressional Budget Office in a study released in December.