Milking the Consumer

Free-market advocates have long known that consumers pay through the nose for milk and milk products because of the federal government's dairy price supports. Lately, however, free marketeers have been joined by some unlikely allies in opposition to subsidizing dairy farmers.

In October, that pillar of the liberal establishment the New York Times published an editorial lambasting dairy price supports. "They are costing the taxpayers close to $3 billion a year, and Government warehouses are bulging with billions of pounds of surplus cheese, butter and powdered milk," the paper fumed.

The Times rarely supports measures as radical as immediately doing away with a bad program. In this case, the paper was in favor of a proposal to reduce the price support level gradually from $13.10 per hundred pounds to $11.60. "All dairy farmers would lose some money and some would be forced out of business," conceded the editorial. "But that has to happen if the Government is ever to get rid of these subsidies. As a group, dairy farmers are not more deserving of welfare payments than, say, architects or hardware store owners."

The same month as the Times editorial, the Atlantic published a detailed account of the dairy boondoggle, "The Political Economy of Milk," written by John Donahue, a doctoral fellow at Harvard University's John F. Kennedy School of Government. Donahue pointed out that the price-support program costs $2.4 billion this fiscal year alone—which averages out to about $10,000 for every dairy farmer in America—plus an estimated "couple of billion dollars a year" in higher supermarket prices.

A standard defense of price supports is that they provide consumers with stable prices. The trouble is, noted Donahue, that "farmers like prices stable and high while consumers like them stable and low. The present system resolves the issue by making consumers pay high prices all of the time in order to spare them from paying high prices some of the time."

Donahue might also have mentioned the absurdly large amounts of dairy products stored by the government solely to prop up dairy prices. REASON pointed out in "How to Get Out of the Food Stamp Trap" (Aug.) that the feds were hoarding 11.4 billion pounds of nonfat dry milk in early 1983 and 1.5 billion pounds of other dairy products.

Still, Donahue did conclude that dairy price-support policies are extremely inefficient ("marketing orders are pure Rube Goldberg economics"). They "shackle American efforts to liberalize world trade in farm goods." And they redistribute wealth "to benefit farmers who are able-bodied, competent, and often a good deal wealthier than the average American."

Meanwhile, three liberal citizens' organizations—a Hispanic veterans group called the American GI Forum, the Gray Panthers, and the League of Latin American Citizens—have also voiced strong opposition to the dairy boondoggle. Their representative, a San Francisco public-interest lawyer named Robert Gnaizda, testified before the President's Task Force on Food Assistance that American cheese sells for about twice the world market price because of the subsidies. He also noted that ending dairy price supports would reduce cheese prices to 83 cents per pound.

Gnaizda condemned agricultural subsidies as "America's largest welfare system." As for dairy price supports, "Ending the subsidy will finally make cheese affordable to the poor," he said to the task force. "This is the way to solve hunger consistent with free-market principles and dignity for all."

Taking Issue with Land Regulators

When landowners' rights are violated by a governmental body that imposes regulations restricting the use of the land, are the owners entitled to compensation by the government? The courts have answered in the negative in the recent past, but now a decision in a major federal court case may indicate a trend in the other direction.

Joseph Gughemetti, attorney for Bruno and Eugenia Martino, told REASON that the case began in 1975 when the Martinos applied to local authorities in Morgan Hill, California, to subdivide their commercial property there and lease one acre to a fast-food restaurant. They were told that the local water district required them to dedicate 21,000 square feet of land to the district for free and to reserve another 36,000 square feet that the district required for a planned flood-control project and would condemn and pay for under eminent domain.

The Martinos waited for the condemnation proceedings on the 36,000 square feet so that they could proceed with development—and waited some more. Then in 1980, when they asked the water district when the property would be condemned, they were informed that 108,000 square feet—two-thirds of the acre that the Martinos wanted to lease out, plus some adjacent property—had been slated for public acquisition since 1968. Moreover, they were told that they would have to wait at least six more years for the condemnation proceedings, and if they tried to develop their property before that time, they would have to dedicate the 108,000 square feet to the water district for free.

At this point, the Martinos had had enough. Their attorney brought a suit arguing that the city government and the water district had violated the Martinos' property rights under the 1964 Civil Rights Act and asking for compensation.

The Martinos were issuing a head-on challenge to a precedent set in 1979 in Agins v. City of Tiburon. In Agins, the California Supreme Court had held that landowners are not necessarily entitled to compensation from government agencies for the "de facto taking" of their property. The Agins decision said that the most a property owner can hope for—even after years of litigation against an agency—is a formal hearing conducted by the very agency that took the property in the first place.

In the Martinos' case, a US district court held that the Agins precedent applied, precluding compensation for the Martinos. But last May, the Ninth Circuit Court of Appeals said that Agins is not a binding opinion and that citizens do have a right to recover damages from government entities for "unreasonable land use regulations." The Martinos' case was remanded to the district court for trial.

The attorneys for the city and water district applied to the Supreme Court to reconsider the case, but in October the Court refused. So the case will go to trial in a lower court this June—but this time around, the Martinos' property rights under the law will be far stronger than when their troubles started nine years ago.

Of course the case is significant for the Martinos personally. But it also establishes a precedent in the nine western states of the Ninth Circuit. In California alone, the difference could well be enormous, since property owners will be far less vulnerable to the depredations of ambitious planning agencies like the Coastal Commission, which have, via land-use regulation, been able in effect to confiscate property almost with impunity. If land-planning bureaucrats have to put money on the line, this could provide an effective restraint on their grand designs for other people's property.

Getting the Message Straight

It would take the US Postal Service to botch the operation of one of the most promising telecommunications services—the delivery of messages via computer. And botch it it did.

When the USPS started up E-COM—for electronic computer-originated message delivery—in January 1982, the Postal Service predicted that the $40-million E-COM system would handle 45 million messages by the end of September 1983. In fact, by that date, E-COM had delivered less than 18 million messages in all. And that at a loss of $16.7 million in fiscal 1982 alone.

To use E-COM, a sender transmits his message via computer to a terminal located in one of 25 specially equipped US post offices. There, the message is printed out, stuffed in an envelope, and hand-delivered by a USPS mail carrier. Although the system sounds good, there are a number of drawbacks that account for its poor performance.

For one, the service's availability is limited, and its two-day delivery time is not a particularly compelling reason for businesses to use E-COM. Also, a minimum of 200 messages is required each time the service is used, and there is a two-page limit on each message sent. Moreover, reply envelopes cannot be used with E-COM, although these are essential for the billing or mail-order applications for which electronic mail is particularly well suited.

E-COM's critics—which include the Justice Department, the Federal Trade Commission, various members of the Postal Rate Commission and of the USPS board of governors, and the private telecommunications industry—have repeatedly warned against USPS involvement in electronic communications, fearing that the Postal Service could underprice electronic services by subsidizing them through revenues from its monopoly on the delivery of first-class letters. And indeed, the House Republican Research Committee in July reported that, thus far, "the actual cost of handling an E-COM message is $5.51," while the USPS charges only 31 cents for a two-page message.

But even cross-subsidies might not save E-COM from competition from private electronic-delivery services, to which MCI Communications Corp. added a new contender in September with its MCI Mail. Taking on E-COM—as well as other similar services from Western Union, GTE Corp., and Tymshare, Inc.—MCI Mail offers four different types of services, ranging from computer-to-computer message relay to laser-printed letters delivered to the final destination by courier just four hours after the letter has been transmitted.

Basing their predictions on MCl's past success and on the fact that the company has an extensive communications network—including a computer center near Chicago that can interconnect a variety of otherwise incompatible equipment—industry analysts see a bright future for MCI in the document-delivery field. And with that market estimated at $8 billion a year, other new competitors cannot be far off. It just goes to show you what a little dose of entrepreneurship will do.

Meaningless Measures

Industrial-policy advocates—Harvard 's Robert Reich, for example, or New York investment-banker Felix Rohatyn—like to believe that government planners would have the wisdom to steer the nation's economy toward prosperity for all. Primary among their roadmaps are the various data collectively known as "economic indicators"—things like the Consumer Price Index, Gross National Product, and the many other aggregate statistics generated by both government bureaucracies and private research companies.

Critics of central planning—especially Austrian School economists like the late Ludwig von Mises and Friedrich Hayek—have long argued that these econometric measures and analyses cannot accurately represent a large, dynamic economy. And of late, skepticism about these efforts to amass statistics and create models of the economy based upon them has been growing.

In a recent article discussing the failure of economic indicators to reflect the economy accurately, Business Week cited "the rapid structural change in the economy" as a major reason. Not only is the fast-changing economy outpacing statisticians' efforts to compile the relevant data, but the categories of data themselves are outdated. "Decisions about what constitutes a major industry," the magazine observed, "were made in the 1930s." Thus, for example, the government's Standard Industrial Classification Manual has no separate category for microprocessors, while the tobacco and leather industries—which, combined, account for less than one-half of one percent of total US output—are each listed as major industrial groups by government data collectors.

The use of outmoded categories and concepts explains why the government regularly understates economic measures such as the real value of GNP (by as much as 5 percent), industrial-capacity utilization, and productivity growth. And while updating the classifications to reflect the current weight of the various economic components would seem the obvious solution, there are several problems with that. It takes time to revamp the indicators, during which the economy may have changed so much that the "new" indicators would have become obsolete. But in addition, statisticians would no longer be able to compare data from time period to time period even if the categories could be adjusted often enough to keep up with the pace of economic change.

These inherent flaws may well explain the findings of a recent report issued by the Washington-based Cato Institute, in which analyst Randolph Boehm examined presidential economic and budget forecasts over a recent 10-year period to determine their accuracy. Boehm's study dramatically illustrates the failure of such forecasts. The average error of predictions of the next-year federal deficit, for example, was 529 percent. Forecasts of change in federal receipts from one year to the next were off by an average 87 percent, and those for change in GNP by 24 percent. The average error of forecasts of changes in the next year's Consumer Price Index has been 63 percent.

Indeed, so unreliable are these aggregate statistics that noted econometrician Wassily Leontief, long-time advocate of government planning, has acknowledged their inability to provide sound predictions. Quoted in an October 1983 Los Angeles Times op-ed piece by Times science-writer Lee Dembart, Leontief noted that "the average econometric models give 50-50 accuracy, meaning as much accuracy as you can get if you toss a quarter." Leontief said that when natural scientists are asked why they don't use the econometricians' "fancy statistical methodology," their response is that if they "'had to use those tools, we would chuck the whole business and get more facts.'"

The Subsidy vs. Self-Support Show

The final results of a 15-month test, concluded in June, in which nine Public Broadcasting Service TV stations aired paid commercials, show the experiment to have been a success. Advertisers, it appears, are eager to reach PBS's upscale audience: the nine stations earned a total of $4 million from the ads. And to the surprise of many, contributions from viewers actually increased during the experiment.

For the nation's 300 PBS stations, which face a 1984 budget of $130 million—down from $137 million in 1983—commercial advertising represents an attractive revenue source. Congress is expected to pass legislation next year on public-broadcasting funding. But if the legislators follow the recommendation of the Temporary Commission on Alternative Financing for Public Telecommunications, which oversaw the advertising experiment, PBS stations' path to that revenue source could be cut off.

The commission, composed of 11 individuals from government and PBS, recommended in September that PBS stations not be allowed to air traditional hard-sell commercials but only "expanded" messages by corporate underwriters of PBS shows. Its rationale: the stations might not be able to handle the new costs associated with going commercial (unions might up their wage and benefit demands, for example, and owners of properties aired on PBS might increase their copyright fees).

But several of the stations that participated in the experiment have attacked the commission's recommendation to prohibit commercials. One station's general manager, quoted in the Los Angeles Times, called it "absolutely ridiculous," noting that there had not been "a single bit of negative data from the experience." And another station executive, also quoted in the Times, said that other stations' choice not to air commercials "should not preclude those of us who wish to from testing this in the marketplace."

Air Safety Riddle

Regulation by the Federal Aviation Administration has virtually no effect on aviation safety, concludes a recent Ph.D. dissertation by Andrew John Chalk. Yet flying is the safest mode of transportation. What accounts for this seeming paradox?

To begin with, the Washington University graduate student demonstrated the FAA's apparent irrelevance to safety. First of all, the agency's efforts to improve safety are not based on analyses of which projects might produce the greatest increase in safety for a given level of spending. Rather, Chalk shows that its priorities are determined by pressures from Congress and various interest groups.

Second, the FAA's level of enforcement of its regulations is "minuscule." For the entire airline industry, the total amount of fines assessed by the FAA is only about $100,000 a year. The average offense leads to a fine of just $1,000—hardly adequate to deter misconduct by firms grossing billions a year. Furthermore, most airlines significantly exceed safety regulations in areas over which they have discretion.

Chalk figured that something other than FAA regulation of airlines must account for aviation's high level of safety. He decided to test the hypothesis that aircraft manufacturers have a high stake in protecting their reputations by producing safe aircraft—accidents that damage reputation would decrease the value of the company's stock.

So Chalk examined a sample of 72 crashes between 1966 and 1979. In 23 of them, there were indications at the outset that the involved planes' designs may have been at fault; the other 49 crashes were used as a control group. Examining the post-crash behavior of the aircraft manufacturers' stock prices, Chalk found no effect for the control group, but a very significant drop in value following those crashes in which the design might have been at fault. In those cases, the average loss in shareholder wealth was $57 million per crash. In the case of the 1979 Chicago DC-10 crash, McDonnell Douglas stockholders lost around $200 million.

Thus, Chalk concludes, reputation plays the major role in promoting safety, while the FAA continues to go through the motions of making rules and assessing token penalties.

Working Behind (Private) Bars

Nationwide, about 300 prison inmates—of a total of more than 400,000—are employees of private businesses, performing work ranging from operating telephone switchboards to manufacturing computer components. Private employers' contracting with inmates as workers had been illegal from the 1920s until 1979, when Congress passed a bill allowing seven experimental inmate-labor projects.

In one of the projects, the Minneapolis-based Control Data Corp. has hired 42 Minnesota inmates to assemble computer disk drives. In another project, 30 women prisoners in Phoenix are working as telephone reservation operators for Best Western International. Fifty inmates at the Kansas State Penitentiary are manufacturing various sorts of metal products for a private firm. Some 40 inmates in Nevada are producing brooms for a company, while 20 others are making satellite dish antennas for another firm. And about 150 inmates in other facilities around the country are producing various commodities for sale to private companies.

Most of the inmate workers are paid the minimum wage, and in some states—Kansas, for one—deductions are taken to reimburse the state for at least part of the expense of maintaining that prisoner. A major impediment to such programs spreading to other of the nation's prisons, however, are federal and state laws—backed by organized labor, which doesn't like competition from inmates—that restrict or prohibit the hiring of inmates as well as the sale of prison-made goods.

In an article in a recent issue of Nation's Business, Supreme Court Chief Justice Warren Burger suggested that such laws be repealed so that the nation can turn its prisons into "factories with fences around them." (Legislators in Michigan and California are now considering revising their state laws to allow inmates to sell their labor.) Not only would prison factories teach inmates the skills to support themselves legitimately outside of prison, Warren noted, but having prisoners pay for their keep also relieves taxpayers of a considerable burden (the average cost of keeping an inmate in prison for one year: $17,000).

While the idea of inmates working for private employers increasingly appears to be taking hold, another innovative notion is emerging as well: private prisons. Already, a number of federal and state correctional bureaus are contracting with private firms and agencies to operate some of their detention facilities and halfway houses. The Federal Bureau of Prisons, for instance, contracts out the operation of all of its 300 or so halfway houses, as does Connecticut's Department of Corrections.

And one recently formed firm—Corrections Corp. of America, some of whose backers are affiliated with Hospital Corp. of America, the nation's largest for-profit hospital company—is seeking contracts with state governments to operate entire systems of minimum-security prisons. At this writing, no contracts had yet been announced.

Of particular interest, however, is the possibility of private firms financing, constructing, and operating their own correctional facilities. One firm, South-West Detention Facilities, has actually done this. It has its own jail in Johnson County, Wyoming, and the firm has built at least two other jails, in Rio Grande County, Texas, and in Weston County, Wyoming. And the El Paso County (Colorado) Jail Task Force has recently recommended to the county commissioners that the county contract with South-West to finance the construction of a new jail and to operate the facility. After 10 years, the county would have an option to buy the jail from the firm. At press time, the county commissioners had not yet made a decision.

One obstacle standing in the way of such arrangements is that regulations in some states may prohibit local governments from contracting with private firms to operate jails. Texas passed a bill in 1983 to allow such contract arrangements, and parties in Colorado are reportedly now drafting similar legislation. If Colorado's El Paso County decides to go ahead with the private jail plan, it will have to wait for a change in state law, which is likely to be some time in coming.

The day when all correctional facilities are built, owned, and operated by private firms—who compete in the business of caring for and rehabilitating prisoners—is a long way off. But there are signs pointing in that direction.

Shot in the Arm for Hospitals

A tangle of bureaucratic regulation in California came to an end recently when the legislature passed and Gov. George Deukmejian signed legislation that removes a significant amount of the state government's regulation of hospital construction.

The scope of the regulation had been broad and deep. Before hospitals could begin construction or remodeling, they had to make their way through a labyrinth of red tape to receive a state license. The purpose of such a system, not unique to California, is to avoid the building of "unnecessary facilities" and to make sure that the ones that are built are efficiently sized and located.

The state license is called a "certificate of need." To determine need, California had devised a formula based on the number of hospital beds it deemed appropriate for its arbitrarily established "health planning districts." Also, it somehow figured "community support" for a new hospital into its calculations.

The entire idea was silly from the start. As the Orange County Register noted, it is presumptuous for state bureaucrats to be deciding for private investors whether a hospital should be built or expanded. "Given the immense capital investment a hospital entails these days," noted the Register, "it is inconceivable that such factors as need and efficient use of resources can be ignored by the private hospital developer.…Why cannot the market be trusted to establish the need? Why is it that state bureaucrats can do a better job?"

Fortunately, the powers that be in Sacramento have agreed, to some extent. The new legislation provides that nearly all projects in certain categories are exempt from state review, including: capital expenditures for existing health facilities; projects for remodeling, replacing, or modernizing of existing health facilities on the same or adjacent sites; and acquisitions of diagnostic and therapeutic equipment.

Moreover, in those instances where certificates of need are still required, such as the construction of new hospitals, they will be much easier to obtain, Derek Pogson of the Statewide Health Planning and Development Office told REASON. Before the new law, both a local hearing and Sacramento hearing were required, but only the Sacramento hearing is necessary now. And there is now a maximum waiting period of 90 days before developers are informed whether the state approves their project.

State regulation of hospitals has not ended completely. Much of the regulatory machinery is still intact. But it appears that the Deukmejian administration considers the new law the first step toward deregulation of the hospital industry. As Larry Meeks, director of the health planning office, told the Los Angeles Times, "The administration believes that we should deregulate and let market forces work in the health care environment."

New Market in Satellite Services?

The days of Intelsat's 18-year governmental monopoly in transatlantic communications satellites may well be numbered. The consortium of 109 nations, which operates 16 satellites, has been challenged in recent months by two private companies—International Satellite, Inc., and Orion Satellite Corp. Each firm wants to launch two communications satellites in 1985 or 1986 to relay signals between the United States and Europe, and they have asked the Federal Communications Commission for permission to do so.

It's no secret that Intelsat does not welcome the new private-sector competition. It's easy to see why. Intelsat's satellites brought in $310 million in 1982, and revenues are expected to skyrocket to $600 million by next year.

Of all the Intelsat members, none has a greater stake in maintaining monopoly revenues than Comsat, the American representative. It owns 24 percent of Intelsat and, according to Business Week, derived $250 million of its $409 million operating revenues in 1982 from resale of Intelsat's phone circuits. Such are the little blessings of state-sanctioned monopoly.

Intelsat and Comsat are jealously guarding their turf. An article in Aviation Week noted that Intelsat has determined that regional satellite networks would threaten its viability if international or transoceanic traffic is diverted from its present system. Already, Comsat has filed a petition with the FCC to deny upstart Orion's application.

At this writing, it's too early to tell whether the FCC will grant the applications of International Satellite and Orion or be deflected by the Intelsat and Comsat monopolists. Christopher Vizas, an attorney and co-owner of Orion, told REASON that the FCC will pay close attention to the Reagan administration's position, currently being developed by the State and Commerce departments—but that isn't expected to be announced until late January or February at the earliest.

In any event, there are already benefits to the private-sector challenge. A nervous Intelsat is going so far as to offer new kinds of service. For example, customers can now install their own antennas and beam messages directly to an Intelsat satellite.

Perhaps the monopoly sees the writing on the wall.

Less Waste with Private Collection

Garbage pick-up by Canadian municipal crews is an average of 51 percent more costly than collection by private crews. Even when factors such as service levels, environment, and technology are controlled for, the municipal service still costs 35 percent more. Those are two of the findings of a Canada-wide study recently concluded by Jim McDavid, a professor at the University of Victoria's School of Public Administration in British Columbia.

Part of the reason for private crews' lower costs: they are more productive. Even with smaller crew sizes, found McDavid, private haulers collect more tons of waste per crew-hour than do the municipally employed crews. Private companies' superior technology—the use of newer, more-efficient equipment—and built-in incentive systems in part account for the private firms' better performance, but McDavid plans further research to give more-precise reasons.

Private garbage collection appears to be a growing trend in Canada. For example, 91 percent of Montreal's waste-collection services are provided by private firms, and recently two communities in the Vancouver area contracted out their garbage collection to private companies.

McDavid, in follow-up research to his study, is examining the cases of three Canadian cities that within the last two years switched from municipal to private garbage collection. The results, we expect, will add yet another layer of evidence in the case for privatization of municipal services.


Pipeline plugged. By a 53-vote margin, the House of Representatives in September defeated a bill that would have given builders of coal-slurry pipelines eminent-domain power to acquire rights of way for the pipelines.

Phone rules relaxed. Since mid-October, long-distance phone-service rivals of AT&T no longer need permission from the Federal Communications Commission to change their rates, nor do they have to justify rate increases any longer. AT&T, which is still subject to the rate-filing and -justification rules—until the FCC figures out what to do about deregulating the phone giant—called the FCC's exempting it from the rule changes "an incredible action."

Clinch nuked. The Senate has dealt a death blow to the controversial Clinch River Breeder Reactor. By a vote of 56 to 40 in October, it voted to cease further subsidies for the multi-billion-dollar project, thereby giving it the coup de grace (approval by both houses was required).

Merit, not race. The B'nai B'rith Anti-Defamation League has released a survey indicating that 73 percent of Americans believe that hiring should be based on merit, not race or ethnicity.

Consenting sex deregulated. Wisconsin has enacted the "Clarenbach bill," legislation sponsored by Rep. David Clarenbach that eliminates criminal penalties for cohabitation, fornication, homosexual acts, and other sexual behavior between (or among) consenting adults in private.

Se habla ingles. Criticizing much "bilingual" education as lacking "any genuine effort to help [children] function in English as soon as possible," the editors of the New York Times in September endorsed a Reagan-administration proposal to allow local school districts to determine how best to teach English to non-English-speaking children. The editorial referred to a Twentieth Century Fund study urging an end to federal support of bilingual instruction.

Global Trends

Twists and Turns Along Britain's Private Route

GREAT BRITAIN—One of the most important positive developments in Great Britain is a genuine debate about the welfare state. Even the BBC used its flagship current-affairs program, Panorama, to analyze the future of government spending and taxation given present statutory commitments to entitlements, as they are called in the United States.

In one sense, the Tories are being very brave in attacking the sanctity of the welfare state. They have, for example, actually lopped off administrators from the National Health Service. In another sense, the party's commitments are a load of talk and not much go. Lord Carrington, the former foreign minister, came out and suggested that perhaps it is time for government to reduce its welfare functions. The thought was absorbed, sagely accepted as perhaps an inevitability, and nothing has happened since.

The Tories have pinned their flag to lower taxes but haven't been able to actually do much to cut spending. There is, however, a genuine review of spending options going on inside the civil service. One of the main targets is local governments. Already there's a planned statute to limit the taxes they can impose. Although the act has no provision for reducing the functions of local governments, it would at least put a ceiling on local tax increases.

The trend toward privatization continues. Proceeds from denationalized state-owned industries and real estate are forecast to bring in about $12 billion in the next three to four years, up from $3 billion brought in during the first Thatcher term. Slated for privatization soon are 51 percent of British Telecom, the telecommunications monopoly; the British Airports Authority; the Royal Ordnance factories; and British Airways.

There is much discussion of selling government-owned real estate. Michael Osborne, an analyst with a London stock brokerage, estimates that real estate sales alone could bring in some $405 billion—enough to finance the government's deficit through the year 2010.

Meanwhile, the Economist has been urging that the Tories "have the courage of their radical-right convictions" when it comes to privatization. A British Airports Authority memorandum recently argued for selling its seven airports as a single unit, because this would preserve crosssubsidization of unprofitable airports by the profitable ones. But "crosssubsidization is exactly what recompetitioning in Britain should not tolerate," argued the Economist.

Likewise, the magazine warned against merely selling shares in government-owned enterprises. "A British Gas or British Telecom with half its shares held by the public, will merely be a partly state-owned public monopoly.…Britain would be reinventing the sort of public utility concept that Americans have been trying to bury since 1940." For the benefit of consumers, urged the Economist, state monopolies should be broken up and barriers to entry into a market, such as telecommunications, removed.

Similarly, local governments should not keep barriers to entry in place when they privatize garbage collection and hospital laundry service by awarding exclusive franchises, thus installing a private monopoly in place of a government one. "It should be made as easy for households to pick their own rubbish-collector as it is to pick their milkman," the magazine said.

So the political sea-change is not free of problems, but it's become an established option in the British mind to go the private route on many things.

—Eben Wilson

Capitalist by Any Other Name…

HUNGARY—Issuance of corporate bonds, proposals for stock markets, political elections with competing candidates, and widespread small-business entrepreneurship are not terribly unusual—except that they're cropping up in Hungary.

After coordinating the Soviet invasion that crushed the popular Hungarian uprising in 1956, Yuri Andropov, the wily Soviet ambassador to Budapest at the time, engineered the installation of Janos Kadar as Communist party chief. It was an inspired choice. Kadar was and still is absolutely loyal to Moscow, but he is also a little more temperate than other Eastern European dictators.

Under Kadar, there have been no more large-scale revolts, and Hungary has remained a steadfast member of the Warsaw Pact. But from Moscow's standpoint, there is a price for this stability—a series of Hungarian deviations from Communist orthodoxy.

A recent Los Angeles Times article reviewed some of the capitalist-like reforms firmly in place or under serious discussion in Hungary. For instance, an estimated 300,000 Hungarians are in business for themselves or in partnership with friends. Some 50 enterprises are being run, on an experimental basis, by "boards of directors" made up mainly of employees. Under study are several proposals for what amounts to a stock market. A proposed constitutional tribunal would permit some institutions to challenge government decisions. And in the next parliamentary and local elections, the Communist Party will run (typically, by decree) at least two candidates for every office.

As an example of the special economic atmosphere in Hungary, the Times described what happened when the Vineyards Agricultural Cooperative in rural Nagyrede recently ran short of cash for expansion and modernization. It couldn't get government money because of an austerity program, and bank loans would require 14 percent interest—so the cooperative issued what Westerners call bonds. About 500 townspeople and members of the cooperative bought $230,000 worth of the bonds for a promise of 9 percent interest and full repayment by the end of 1988.

In the face of all the evidence to the contrary, Hungary's leaders go out of their way to declare the nation's continuing allegiance to socialism. "The Hungarian national economy is socialist," Kadar declaimed in a radio address last spring. "The methods applied in economic life promote the building of socialism and serve its interests. The party as well as our allies should have a clear picture of this."

Kadar and his underlings are in fact on a tightrope. There has been grumbling over the reforms from more-orthodox Communists in Eastern Europe. Moreover, Hungary has serious economic problems, including a foreign debt per capita that even exceeds Poland's.

Yet according to the Times, the Hungarian Communist leadership doesn't see any alternative to the path they've turned down. They've progressed to a point where, as party economist Ferenc Havasi said in an interview, a return to the old centralized system "is as inconceivable as going back to the Stone Age."

Radio-Freeing Europe

FRANCE—The French government recently authorized the use of the FM radio band for broadcast by nongovernment stations, which breaks with the longtime policy of a state radio (as well as TV) monopoly. About 800 newly authorized radio stations will broadcast in this spectrum. Though the stations are prohibited from airing commercials and are under some public-interest restrictions, they are free to fashion their own fare.

By authorizing the new stations, France effectively obviated a problem that has been a headache to many European governments set on monopolization of the air waves—so-called pirate stations, or illicit broadcasters. The number of pirate stations varies from country to country—largely depending on how strongly the government monopoly is enforced. In Holland, for example, there are an estimated 10,000 pirate stations, while in Britain, where the government is cracking down hard on pirates, there are perhaps 45 of the illicit broadcasters.

In the Republic of Ireland, where some 70 or so pirate stations operate, the government has taken a course between France's liberal policy and Britain's get-tough stance: it has provided for the licensing of 30 nongovernment stations, but licenses are limited to five-year periods. And though the stations will be required to help fund certain public-interest activities in the communities where they operate, and more-lucrative stations will be required to subsidize poorer ones, the "free" stations will be allowed to sell commercial air time.