Trends

RESEARCHING PRIVATELY

You may remember synfuels and the Clinch River breeder reactor, and possibly even the gasification of chicken guano. These are only three of a multitude of shaky energy-research projects on which the government has squandered billions of taxpayers' dollars in the last few years.

In a recent Heritage Foundation study, Milton Copulos reviewed problems in government-sponsored research—such as indifference to cost-effectiveness. He concluded, "The systematic transfer of federal [energy research] activities to the private sector is indeed the proper direction to take."

But as desirable as this is, it's not casually accomplished. Energy research often requires heavy expenditures and long periods of time between a project's start and the creation of a commercially viable technology. This can make it very difficult for a single company to sponsor major research projects. But, as Copulos pointed out, solutions are available relying on private-sector mechanisms.

One already in existence is the Electric Power Research Institute, an organization that pools the resources of numerous companies. It's "been at the forefront of the search for new methods to generate electricity and…made major contributions to pollution control, power plant safety, and energy efficiency," Copulos wrote. With a $250-million annual budget, it has resources far greater than the R&D budgets of most utility companies.

EPRI's funding comes from voluntary contributions from roughly 80 percent of the nation's electric utility companies. Its research results are available to both members and nonmembers, but there's no question that contributing companies benefit enormously from the research.

Copulos's study suggested EPRI as a model for other industries—but others have already followed its lead, including the natural-gas industry's Gas Research Institute. And in 1982, 15 large users and makers of semiconductors formed an organization called the Semiconductor Research Corporation (SRC).

Like EPRI, SRC is a nonprofit corporation; it avoids product development; and it makes no attempt to keep the fruits of its research secret, according to the National Journal. Thus, it has circumvented a huge obstacle to joint R&D ventures—the antitrust laws.

In contrast, another new venture, the Microelectronics and Computer Technology Corporation (MCC), is "a genuine antitrust gamble," the Journal says. MCC's 12 member firms make no bones about their competitive goals. Its research is oriented toward development of new products; MCC will own any new patented discoveries; and new knowledge that MCC generates must be kept within the MCC membership for three years.

The risk MCC takes is substantial: if a competitor can prove in court that he has been "injured" by MCC, he can collect triple damages under present law. As antitrust lawyer Steve Olson told the Journal, "If and when MCC is successful in its research, there are a hundred thousand potential plaintiffs out there."

So can any for-profit joint R&D venture survive? Maybe. It could depend on the fate of legislation, such as that introduced by Sen. Charles Mathias (R–Md.) and Rep. Richard Gephardt (D–Mo.), that would give some form of antitrust immunity to joint R&D ventures. As of this writing, chances of passage this year are slim but still alive. REASON will keep you posted.

A HEALTHY DOSE OF COMPETITION

Do not be surprised if one day soon a white-coated person with a reassuring voice urges you in a TV ad to come on down to Hippocrates Hospital and have that hernia operation you've been putting off for so long, because, to your delight, Hippocrates is now offering a half-off special on hernia treatments.

Though the foregoing is a bit on the preposterous side—for now, at least—there does seem to be a glut of hospital capacity on the market. And competition in medicine, generally, appears to be on the rise, with consumers standing to gain. Among the signs of this growing trend are the emergence of new services in the medical marketplace, hospital and physician advertising, and cost competition.

In Las Vegas, for instance, after one major hospital recently cut its baby-delivery rates by 46 percent to help stem a steeply declining demand for that service, another area hospital soon followed suit. And several hospitals in Akron, Ohio, cut their emergency-room fees after some doctors in the area opened free-standing emergency-care centers that charged less than the hospitals.

Indeed, the rise of emergency-care centers, most of which specialize in serving urgent but noncritical cases, has been responsible for introducing and spurring much competition in the health-care field. While there were 400 or so of these facilities nationwide last year, there will be about 1,100 operating at year's end. Most are profit-oriented enterprises, established by doctors taking heed of the fact that 75 to 80 percent of hospital emergency-room cases involve noncritical conditions.

And why are doctors zeroing in on such opportunities? Because in the last 10 years the number of physicians in this country has shot up nearly 40 percent.

Another emerging service is the primary-care clinic, of which Humana, the nation's second-largest hospital chain—and, according to Business Week, a "model of success" in the medical marketplace—is a pioneer. By the end of the year, Humana alone plans to operate nearly 100 of its "MedFirst" centers, promoting them through full-page ads and mailings. Each facility leases space to several family-practice physicians who want to establish a group practice, and Humana provides them with administrative support, such as personnel and supply-purchasing services.

Competition always has interesting effects, and a recent one is the re-emergence of the house call—with a new twist. SOS Doctor, a southern California company founded by a French physician, employs a staff of 35 doctors, who, in logo-bedecked automobiles, are on call 24 hours a day to make house calls. At charges of $60 for a day call and $100 for a night visit, SOS Doctor now averages 20 calls a day and soon hopes to increase that number to 100.

Also responding to the new competitive pressures are nonprofit hospitals, which are increasingly acting like for-profit operations. The most visible indication of this is the formation and growth of nonprofit chains, such as Voluntary Hospitals of America, a 52-member cooperative. The larger entities are better able both to diversify and to achieve certain economies of scale, especially through bulk purchasing and cross-utilization of staff.

Even several of the professional societies, erstwhile eschewers of medical commercialism, have entered the competitive fracas. The American Academy of Family Physicians, for example, now gives its members a marketing kit called "Honing the Competitive Edge." And the American College of Surgeons has run full-page national ads promoting the virtues of board-certified surgeons.

The upshot of all this heady entrepreneurship is that the aggressive players, with their lower prices and more-efficient business practices, are pressuring others to upgrade their performance as well. And with the costs of health care—a $360-billion-a-year industry—rising at three times the rate of inflation, a strong dose of competition may be just what is needed to send that cancer into remission.

PAC-MAN PEDAGOGY

For parents and local pols fearful that video games like Space Invaders and Pac-Man are destroying kids' cognitive capacities, a recent conference sponsored by the Harvard Graduate School of Education might well alleviate their worries. According to participants in "Video Games and Human Development: A Research Agenda for the '80's," the effect of video games has been the exact opposite of what has often been claimed, indicating that the efforts of some citizens to restrict or ban them are misguided.

UCLA psychology professor Patricia Greenfield noted that the games' complexity encourages players to sharpen their ability at inductive reasoning. A child capable of dealing competently with the many variables in a video game is exercising complex cognitive skills, she argued.

It was also reported that video games can aid those with mental difficulties. Stephen Leff of Harvard Medical School reported findings indicating that the "mentally ill" are helped by the games' "massive capacity for eliciting attention." Such findings cast doubt on allegations that video games turn the insides of players' skulls into mush.

And David Brooks of the University of Southern California observed that arcades are probably not the corrupting drugs-and-alcohol havens often feared. On the contrary, the games encourage dryheadedness, he found after surveying almost 1,000 kids in arcades. He figures the reason is that those who play with sotted brains are likely to fumble and lose, rather than win.

MISSILE DEFENSE ON THE MARCH

In midsummer, the popular press was headlining reports of the successful intercept of five Sidewinder missiles by an Air Force airborne laser. Meanwhile, Aviation Week was reporting on more-fundamental progress in research on beam weapons.

Lawrence Livermore National Laboratory recently completed a second successful test of its X-ray laser device, powered by a low-yield nuclear warhead. Physicist Hans Bethe, long a skeptic on antiballistic missiles (ABMS), after a recent tour of Livermore had to admit that the X-ray laser weapon proposal "scientifically makes sense." And research breakthroughs on other laser systems include new ways to compensate for atmospheric turbulence, a new technology called a "Raman cell" that will permit scaling up of chemical lasers to very high power levels, and research on free-electron lasers of much higher conversion efficiency than other lasers.

What will all of this mean for the country's defense capability? Lawrence Livermore's Edward Teller has suggested that X-ray laser weapons not be based in space, where they might be vulnerable to attack, but instead be mounted on mobile Midgetman missiles in place of the offensive warhead. Upon warning of a nuclear attack, the missiles would be launched, placing the X-ray lasers in space, positioned to attack the enemy boosters.

Presidential science adviser George Keyworth also prefers ground-based systems, to reduce vulnerability and permit use of much larger power sources (without concern for their weight). Keyworth and other scientists envision hundreds of powerful ground-based lasers, aiming their beams at orbiting mirrors for redirection at enemy boosters and warheads. The mirrors would be launched into orbit on warning of attack.

These and other defensive system concepts are being reviewed by a presidentially appointed Defensive Technologies Study Organization, whose report is due in October. In addition to developing a long-term plan, the group is also examining near-term steps such as the High Frontier proposal (based on off-the-shelf, nonlaser technology) and a Lockheed-TRW proposal for a 5-megawatt, chemical laser system that could be tested in orbit against ballistic missiles by 1987.

According to Keyworth, the most important breakthrough has already been made—data-processing rates "that were inconceivable a few years ago, brought about by micro and integrated circuits." All that's needed in this area are "evolutionary" advances to apply this technology to ABM command and control, he told Aviation Week.

TUNING IN ON TV DEREGULATION

Federal regulations presently require network TV stations to set aside at least 10 percent of their programming for nonentertainment fare, such as news, public affairs, and educational instruction. And stations are limited to airing only 16 minutes of commercials each hour. But in June, the Federal Communications Commission proposed repealing these rules to allow broadcast TV more freedom to compete with fast-growing cable and other pay-TV services. FCC Chairman Mark Fowler called the long-standing program-content and advertising rules "censorship."

The FCC proposal would also free TV stations from the laborious task of surveying residents in their service areas to determine the community's programming "needs." In addition, stations would no longer have to keep detailed records of all aired programming.

In urging this latest TV-deregulation proposal, Fowler noted that most Americans now have access to almost any kind of programming they want, which further weakens the case for regulation. For example, 65 percent of all households can receive at least seven broadcast-TV signals, while only 26 percent could 20 years ago. And 70 percent of all US households now can receive cable TV, with half of those actually subscribing to cable.

Furthermore, as TV technologies develop, competition may come in markets where it hasn't been expected. One example is the possibility of directbroadcast satellite (DBS) services entering areas already wired for cable. DBS service—in which subscribers, via a home dish-antenna, receive three to six channels from satellite broadcast—is mainly targeted at uncabled areas, many of them rural. But at least one DBS operator—Satellite Television Corp., which will start up service next year—sees an opportunity to compete with both cable and over-the-air pay-TV services.

The edge for DBS is that with a subscribership area that spans a continent, the satellite service can economically cater to smaller segments within cabled markets. Cable operators, because they are limited to local markets, generally try to attract the largest segment of viewers, leaving those with narrower interests underserved. But for DBS, all these minority interest viewers, on a national or regional scale, can add up to a profitable market.

Indeed, with innovative technology and aggressive marketing, the TV industry is rapidly diversifying. And the resulting competition enforces its own style of regulation in the "public interest": in order to get and keep viewers, TV programmers simply must provide fare that interests the public.

POPPING AIR-BAG CLAIMS

The US Supreme Court seems to think that air bags are the way to go in "passive restraint" auto-safety systems. Recently the Court handed down a unanimous decision rejecting a Department of Transportation (DOT) decision to scuttle a pending regulation requiring air bags in many cars. But elsewhere, there is still a lot of doubt about air bags as the system of choice if government is to mandate passive restraints (protective systems such as air bags and automatic seatbelts that do not have to be activated by passengers).

Sam Kazman, in an op-ed piece in the Wall Street Journal in July, pointed out that DOT's National Highway Traffic Safety Administration (NHTSA) has frequently made misleading claims and relied on inadequate and questionable statistics. Until the Reagan administration came to town, NHTSA was an ardent defender of air bags.

Kazman, an attorney with the Pacific Legal Foundation, complained that in 1977, for instance, NHTSA published a brochure describing air bags as "systems that protect automobile occupants from collision injuries automatically, without the need to fasten belts or to take any other action." Yet, noted Kazman, "the agency has long known that air bags alone don't offer full occupant protection but must be used together with manually buckled lap belts." And air bags by themselves (without a lap belt) offer little or no aid to a person in a side, rear, or rollover collision.

Kazman also reported that the agency was able to conceal for more than two years a 1976 study, A Statistical Analysis of Air Bag Deaths, that raised doubts about the value of air bags in preventing fatalities. It came to light only during Pacific Legal Foundation litigation against the passive-restraint rule.

NHTSA's most recent study of accident data concerning air bags was published in 1980. It analyzed crash data on 10,281 General Motors cars equipped with air bags and sold in the mid-1970s. The report assumed that NHTSA "knows of every fatality that has occurred in an airbag car," Kazman pointed out. The agency may indeed know of most airbag-equipped cars involved in frontal collisions, where air bags can be effective. But it is likely that nonfrontal accident fatalities are missed by NHTSA's reporting system, because if the air bags were not deployed during the accident, it's entirely possible that the car involved could be mistaken for a conventional vehicle without an air bag.

According to NHTSA's 1980 records, there had been six fatalities in air-bag cars, all in frontal collisions. But when dealing in single-digit numbers, even a single fatality more than those included in NHTSA figures would reduce the air-bag "effectiveness figures" by one-quarter, noted Kazman. And in fact, he reported two fatal air-bag accidents not counted by NHTSA.

So what is the lesson in NHTSA's misleading advertising, concealed studies, and "conveniently incomplete data"? It is that when a government agency is wedded to a cause, there's little to hold it back. In this case, Kazman observed, NHTSA—unlike the auto manufacturers—is "restrained by neither competition nor product liability." The air-bag issue, he concluded, can't be entrusted to NHTSA.

WASTE: A WAY

There's no question that the safe disposal of hazardous waste is an important environmental problem: Americans generate over 250 million tons of it annually. Conventional wisdom has it that the best way to deal with it is to add a layer to the sediment of government regulation. But analyst Paul Langerman points out in a recent Heritage Foundation study that there is another way—reliance on the private sector.

Langerman suggests that private-sector solutions "offer the best hope for effective and economical hazardous waste disposal." In support of this claim, he discusses several privately developed technologies that promise to make (or are already making) a big dent in the hazardous-waste problem.

For instance, Sybron Biochemical, a Virginia company, has developed a mutant strain of bacterial bugs that gobble up some of the most dangerous organic chemicals and digest them down into harmless components. Other bacteria have been isolated that can turn even highly toxic PCBs into carbon and energy sources.

Columbia University has developed a method called "toxiflex" that facilitates the conversion of toxic heavy-metal slag into valuable building materials. Batelle Columbus Laboratories in Ohio has developed an incineration process for burning wastes with low heat content. It can be used with chemical waste liquids, used oils, carbon black gas, and pulping-process clarifier sludge.

Some enterprises are recovering byproducts of hazardous waste, reprocessing them, and reusing them. For example, a Monsanto plant in Pensacola, Florida, is blending limestone with acidic chemical factory wastes, then putting the mixture in exhaust stacks where it removes up to 95 percent of the sulphur from the stack gases.

As Langerman concludes, "Congress must remember…that the goal should be to clean up waste, not to create a hazardous waste bureaucracy.…Washington, unlike Father, does not necessarily know best."

The vitality and innovation of private entrepreneurs working with the hazardous-waste problem is persuasive evidence of where solutions to environmental questions can best be found—and it's not in government regulation.

DELIVERING REFORM?

For champions of waste, mismanagement, and inefficiency, the Postal Service must be a source of comfort. Despite extensive unpopularity, the Postal Service manages year after almost every year to lose money, provide lousy service, and stave off virtually all challenges to its legal monopoly status.

In the last few years, there have been some proposals for reform, but naturally, nearly all have come from outside the Postal Service. So it was a surprise to see an op-ed piece in the Washington Times in early June, "The Privatization of the Postal Service," written by John Crutcher—a commissioner of the Postal Rate Commission.

Crutcher pointed out that the Postal Service's operation is currently "stodgy and barnacle-encrusted, encased in reams of regulations and work rules, making it so unwieldy that it is probably incapable of responding to the challenges ahead." He added that "recent comparisons with industry tend to show [the Postal Service] is unnecessarily costly in terms of employee wages."

Crutcher contended that one of the most practical remedies for these problems would be to "privatize large segments" of the USPS "by contracting out a big part of its routine activities and services." Crutcher would start with bidding out rural carrier routes to private entrepreneurs: the lowest bidder meeting Postal Service criteria would get the route.

Although Crutcher suggested that this process take place incrementally, he says, "I see no reason why the entire rural delivery system could not be bid off to private individuals or companies over a period of years. The present framework of postal delivery in rural areas would in no way be jeopardized." From there, he would introduce limited competition to mail delivery elsewhere by privatizing the Postal Service's processing, delivery, and retail functions in all areas of the country.

Crutcher's proposals may have sounded a bit exotic to Washington Times readers unfamiliar with privatization. Not to worry, Crutcher assured them; limited privatization is already taking place. "[The Postal Service] already contract[s] out nearly all intercity transportation and even contract[s] with the private sector to provide some limited retail service, so the precedent is well-established," he said.

In fact, however, Crutcher's suggestions don't really go far enough. He would retain the private-express statutes—which give the Postal Service a monopoly on first-class mail—and he thinks a scaled-down Postal Service is necessary to "provide logistical analyses for routing the mail, enforce service standards, and periodically solicit bids." Moreover, Crutcher would be content to have rates set as they are now, by a quasi-governmental commission.

It would be wonderful if a Postal Rate Commission member publicly advocated an authentically free market in postal service. But Crutcher's piece in the Washington Times is at least a crack in the bureaucracy's facade. In Samuel Johnson's words, it's "like a dog's walking on his hinder legs. It is not done well, but you are surprised to find it done at all."

DO UNTO OTHERS' PROPERTY RIGHTS AS YOU WOULD…

If personal liberty means anything, it means that individuals and private institutions should be free to be racist and sexist—or tolerant and open-minded—so long as they don't coerce others or infringe on their rights to life and property. Two recent court decisions pay heed to this principle.

The first was from New York State's highest court, the Court of Appeals. Turning away a charge of unconstitutional discrimination, the court ruled that a private charitable trust in that state may award scholarships only to men. Judge Lawrence H. Cooke argued that these trusts are engaging in completely private acts of discrimination, and this is permissible under state law.

It's unfortunate that one of the challengers of the private trusts was the National Organization for Women. It's also ironic, since any restriction on gender-based scholarships would be a two-edged sword: Cooke himself pointed out that such restriction would "operate with equal force toward trusts whose benefits are bestowed exclusively on women." And if that sword cut a wide enough swath, it's not hard to imagine the effect it could have on frankly discriminatory scholarships awarded by such organizations as the United Negro College Fund, the Aid Association for Lutherans, and the Mexican-American Legal Defense and Educational Fund.

The second decision came only a couple days later. In Los Angeles, Superior Court Judge Bruce R. Geernaert decided that the restaurant Papa Choux could, at least temporarily, continue to exclude couples of the same sex from six curtained booths designed for "a romantic evening." He refused to grant a temporary injunction against Papa Choux, and the case will now go to trial.

Zandra Rolon, one of the two women denied access to the booth, warned, "Today, it is two women who can't sit together. Tomorrow, a heavy-set person could be prohibited from sitting with a thin one." (Perhaps so. And in a truly free-market milieu, the victims of the discrimination would be free to take their business elsewhere and organize a boycott of the discriminatory restaurant.)

An ambivalent Judge Geernaert carefully avoided the property-rights issue when he denied Rolon and her friend, Debbie Johnson, the temporary injunction they sought. He did say that this was a "very, very close case," unprecedented in civil-rights law. But even if there's no telling what the ultimate result will be when the case goes to trial, there was at least a temporary victory for the restaurant owner's property rights.

MILESTONES

Marijuana libertad. In July, Spain's Socialist government legalized the use of pot and other "soft drugs," making it the first European nation to do so. Punishment for selling the herbal intoxicant was reduced to six months' imprisonment, but penalties for the use and sale of hard drugs like heroin and cocaine remain severe.

Arming a constitution. The California Senate voted in July to write into the state constitution the right to "acquire, own, possess, use, keep and bear arms." Similar measures are included in the constitutions of 39 other states.

Simmering tax revolts. Florida voters will have the chance to vote in November 1984 on a proposition that, says Tax Action Report, "rivals California's Proposition 13 in its scope." And Michigan pols admit that a current petition drive to place a tax-slashing measure on the ballot will probably succeed. If so, voters could elect to roll back state income, property, gasoline, and "sin" taxes.

GLOBAL TRENDS

FREEDOM NETWORK

ROME—Free-market centers are burgeoning in Europe, and the latest evidence was the broad participation in a recent conference in Rome. The Washington, D.C.-based Center for International Relations organized the conference to bring together representatives of the mostly new European free-market think tanks and of American groups who have had long experience.

With names like Centro Ricerche Economiche Applicate and Fondation Europeanne pour l'Economie, institutes from all over Europe were represented: West Germany, Italy, Spain, Greece, Belgium, England, France, Austria, Norway, and the Netherlands. Among the participants were several of REASON's foreign correspondents—Henri Lepage, representing the Institut Economique de Paris (Lepage, the author of Tomorrow, Capitalism, was interviewed in REASON's October 1982 issue); Joachim Maitre, a vice-president of Axel Springer Publications and a principal dinner speaker at the meetings; and Michael van Notten, of the Institutum Europaeum in Brussels.

The most important discussions revolved around the appropriateness of a thoroughly free-market critique of the welfare state versus a "social-market" perspective (that the welfare state needs a freer economy to generate the wealth for welfare). Insisting on the free-market perspective were Americans such as Steve Pejovich, Jim Bennett, and Leonard Liggio, Englishmen such as John Wood and Michael Ivens, Italians such as Antonio Martino, Frenchmen such as Henri Lepage and Guy Plunier, and Michael van Notten of Belgium. Advocacy of the social market came mainly from organizations closely associated with the Christian Democratic/Christian Social parties in West Germany. They criticized the Hayekian perspective of the free-market proponents as not politically feasible.

This debate pointed up a strong difference between the institutes representing the Anglo-American free-market tradition (ironically strengthened by the market analysis of Austrian School economists Ludwig von Mises and F.A. Hayek) and the Europeans influenced by that tradition, and the German social-market groups with strong ties to political parties. (This contrast was evident earlier at the Mont Pelerin Society meeting held in Berlin in September 1982.)

The contradictions of European politics were evident shortly before the free-market conference, too, when Italy's Young Liberals proclaimed a coalition with the Socialists against the clerical Christian Democrats. The Liberal Party is Italy's voice of the free market, the counterpart of the Democratic Union in France and the Free Democratic Party in Germany. Nothing was more convincing of the contradictions of political fundamentals than the willingness of free-market advocates to link up with Marxists—religious opposition to Christian Democrats placed market economics behind theology.

—LEONARD LIGGIO

CRACK IN THE PRETORIAN GUARD?

SOUTH AFRICA—For South Africa's blacks suffering the oppression of apartheid, a recent court decision has significantly weakened the state's official racist policy. South Africa's highest court ruled in May that black migrant worker Mehlolo Tom Rikhoto is entitled to live as a permanent resident in a black township adjacent to a white urban community. And although South Africa's all-white parliament can enact legislation to nullify the court's ruling, the government has announced it will not do so.

Prior to the ruling, the South African government had finagled matters so that even if black migrant workers had the 10 to 15 consecutive years of work in the country required to qualify for urban residency, they would nevertheless be unable to do so. Another rule required them to return to their nominally independent homelands each year to reapply for work in South Africa. Thus, the authorities could claim that because of the government-imposed leave-taking, the workers' years of service were not consecutive, and the blacks could be denied permanent urban residency. The court ruled, however, that such leave-taking is not an actual interruption of service.

Only one quarter of South Africa's 23 million blacks presently have urban-residency status. The court's recent ruling is reported to affect anywhere from 30,000 to 266,000 more blacks. Only those with status as permanent urban residents are entitled to bring their families to live with them and to acquire long-term property leases. And a recent government decision to partially denationalize, and ease the standards of, low-cost-housing construction may further strengthen blacks' attempts to become South African residents.