Trends

NEXT STOP, SOUTH SUCCOTASH!

One of the most enduring arguments made against intercity bus deregulation is that without government interference, bus companies will serve only the lucrative routes between major cities, leaving rural areas without service. Enduring as that argument may be, there is more and more evidence that it is false.

In mid-December, syndicated consumer columnist Peter Weaver discussed the results of bus deregulation. "While it is true that deregulation has allowed the big operators, such as Greyhound and Trailways, to pull out of many small towns," he noted, "it is also true that the way is now open for small operators to move in."

And moving in, they are. When the large bus companies ended service in several small Nebraska towns last year, the Denver Coach Company of Scottsbluff, Nebraska, started serving a 400-mile route from Gering, Nebraska, to Denver—using vans instead of buses. And when Trailways terminated service to Williamsport, Pennsylvania, the Fullington Auto Bus Company began service from that town to Cleveland and Washington, with stops in small towns along the way.

The fundamental fallacy underlying the worry that "high-cost" rural areas will be left without service is the idea that the costs of products and services are fixed. But, as emphasized by the Austrian School of economics, costs are not fixed. In a relatively free market, where entrepreneurs have a natural incentive to employ ingenuity and common sense to lower costs, there's no way of predicting exactly what effect this creativity will have in expanding services or lowering prices.

Examples of this principle abound in the market in bus services. Instead of using large, uneconomical buses, for example, many small companies are using vans. As a spokesperson for Fullington told Weaver, "We can use smaller buses and, of course, have much smaller operating costs…all of which allows us to make money where the big company could not."

Yet another example is Trans State Trailways of Larned, Kansas, which operates with a fleet of vans and a station wagon. On one of its routes, the cost of service for Trans State is roughly 53 cents per mile, compared to approximately $1.75 per mile for Trailways.

Trans State first started operating buses in 1975, but owner C.M. Phinney, Jr., told Kansas Business News that it was only with the advent of intercity bus deregulation in 1982 that his company finally had a chance to build a viable regional bus system. The firm is relying on smaller buses, improved schedules, and reliable connections with major bus lines—analogous to the commuter airlines that have sprung up since airline deregulation—as a formula for success. Trans State revenues, $148,000 in fiscal year 1982, were expected to rise to $600,000 in fiscal year 1983.

In addition to companies such as Denver Coach, Fullington, and Trans State, deregulation has spawned a vast increase in inexpensive charter and package-tour services. "It's a lot easier now—no red tape," notes consumer columnist Weaver. For many older travelers especially, the door-to-door service, baggage handling, meals, hotel rooms, and sightseeing provided by package tours are ideal.

As Weaver writes of intercity bus deregulation, "Of course, there will be disruption of available transportation in some small cities and towns as the big companies move out. But, in most cases, some enterprising new business will pop up to fill the void." Such are the workings of the free market, widespread fears to the contrary notwithstanding.

TOWARD SANITY IN CRIMINAL LAW

A just legal system should incorporate the principle of individuals' responsibility for their own actions. But in recent years, the insanity defense in criminal trials has been expanded to such an extent that, according to many critics, it is too easily available to the accused, undermining the principle of individual responsibility. Now, it appears that the prospects for serious reform are growing.

An important sign of this came in December when the powerful American Medical Association for the first time went on record against use of the insanity defense in criminal trials. The AMA recommended that it be abolished and replaced with new laws "providing for acquittal when the defendant, as a result of mental disease or defect, lacked the state of mind (mens rea) required as an element of the offense charged." Mens rea is the legal term for "intent." The AMA's recommendation is thus that judgments of guilt be based on the defendants' intent to perform the criminal action, not on the defendants' sanity.

An AMA attorney told Science magazine that the organization took that position because insanity defense trials often degenerate into "three-ring circuses" with psychiatric experts battling one another. The attorney said that the AMA's proposed standard is designed to "take the medical decisions out of the courtroom."

The AMA is not alone in reacting to widely publicized uses of the insanity defense. Montana, Idaho, and Utah have abolished the insanity defense altogether. In addition, about 12 other states have adopted a "guilty but mentally ill" verdict, but Science reports that the results of this have been mixed. "A plea of mentally ill appears to have become a new plea bargaining tool for individuals, such as sex offenders, who would never get away with an insanity plea," says the magazine.

Meanwhile, the American Psychiatric Association and the American Bar Association have reached agreement on reforming the definition of insanity. Since the 1950s, the test of insanity has had two elements. The first has been a cognitive element, that the defendant not understand the nature of his act and that it was wrong. The two professional groups would keep that essentially intact. They hold that a person is "not responsible" if "as a result of mental disease or defect that person was unable to appreciate the wrongfulness of such conduct."

But the second part of the test has been a volitional element, which requires a determination that the defendant acted on an "irresistible impulse." The APA and ABA suggest that this standard should be eliminated. The psychiatrists' organization said in a statement two years ago, "The line between an irresistible impulse and an impulse not resisted is probably no sharper than that between twilight and dusk."

The ABA and APA contend that the problem of the insanity defense is actually not large. They point out that insanity is pleaded in fewer than 1 percent of felony cases and is the basis of verdicts in 0.1 percent of the total.

Even so, cases such as the trial of John Hinckley, Jr., who was found not guilty by reason of insanity of the attempted assassination of President Reagan, indicate that the need for reform exists. And reform may finally be in the cards.

A MATTER OF TRUST

In the last few years, free-market advocates have seen the substantial deregulation of several industries. Now, they are making the case that full deregulation should include freedom from the antitrust laws, as well.

This is not a new issue for the trucking industry. Starting in the late 1940s, as a quid pro quo for being regulated, the industry enjoyed antitrust immunity, whereby truckers could negotiate collective rate agreements through regional rate bureaus. With partial deregulation in 1980, that immunity was reduced. Now, the ICC is considering a petition to withdraw antitrust immunity involving small shipments in the trucking industry, and the Transportation Department and Sen. Robert Packwood (R–Ore.) want to end collective rate making by doing away with truckers' antitrust immunity completely.

This proposal is being contested, however, by organizations such as the Council for a Competitive Economy. Testifying before a Senate committee in November, CCE official Fred Smith dryly observed, "It may appear strange for the Council, a free market group, to suggest that the antitrust laws should not be extended to the trucking industry. After all, the conventional wisdom has been that antitrust laws promote competition." But "the risks of losing the Department of Justice on the trucking industry…are great. Antitrusters have seen conspiracy in almost every normal business practice—a wink of the eye is sufficient to infer anticompetitive behavior. Moreover, the Justice Department by necessity will be highly arbitrary in deciding which cases to try."

Subjecting the industry to antitrust laws, Smith noted, would provide the opportunity for some firms to use the laws, instead of better service or lower prices, against competitors. He quoted antitrust attorney James Calderwood's observation that already "some motor carriers are having difficulty adjusting to this more competitive business environment [since partial deregulation]. They appear to be the ones who are initiating the antitrust suits as they see their traditional customers utilize rival motor carriers and their normal markets become saturated with newly certified competitors."

If full antitrust immunity were restored, would the old regional rate bureaus continue to set shipping rates? Probably so, but "in the absence of Interstate Commerce Commission enforcement [that existed under the old arrangement]," said Smith, "the suggested rate bureau price is merely a list price. Individual firms have every incentive to consider discounts as appropriate. To argue that a uniform list price is equivalent to a uniform market price is naive. The history of efforts legal and illegal to fix prices has revealed few cases where prices were in fact 'fixed.'"

Soon after Smith's testimony, economist and REASON contributor Dom Armentano presented the case in the Wall Street Journal for permitting voluntary price agreements in the air-carrier industry, now illegal because of the Sherman Antitrust Act. He noted that air carriers "are at liberty to engage in price competition that can lead to bankruptcy, but they are not free to attempt to stabilize rates through voluntary agreements."

He suggested that fears of monopoly are groundless for several reasons: in open, unregulated markets, not every supplier will necessarily want to participate in voluntary price agreements; they aren't legally enforceable even on the firms that do participate; and the threat of potential competitors would keep prices down. "I maintain," concluded Armentano, "that we ought to let the open market, and not the government or the courts, decide the appropriate amount of competition."

The point for the air-carrier industry is as sound for the trucking industry—and, for that matter, all economic activity. And if this staunchly free-market position is tested in the newly deregulated industries, it may be the opening wedge in a rethinking of the antitrust laws.

REAL DEFENSE ON THE OFFENSIVE

Support for building defenses against nuclear attack—both earth-based and space-based—continues to grow. Strongly confirming the technical feasibility of such defense are recent reports by the Defensive Technologies Study group and the Future Security Strategy group. Both consisted of top-level defense scientists appointed by the president last April. According to articles this winter in Aviation Week and Science, both panels have concluded that there are no invincible technical obstacles to creation of effective defensive systems.

One of the major conclusions of the first group, headed by former NASA administrator James C. Fletcher, is that a defensive system must consist of several layers, going after enemy missiles at each stage of flight—boost, postboost, midcourse, and reentry. Of these, the boost phase is of greatest importance, for two reasons. The missile is most vulnerable during that phase and, perhaps more important, as Fletcher has noted, "for every booster killed, the number of objects to be handled by the remaining elements in a layered system is reduced by 10 to 100 or more." (Most Soviet missiles are armed with multiple warheads and decoys, which do not separate from their "bus" until the midcourse phase.)

A layered system, with each layer employing a different type of technology, greatly increases the overall success-rate of the system in stopping warheads. Even if each layer of a three-layer system is only 90 percent effective (that is, lets 10 percent of its targets get through to the next layer), then a system with three layers will have a "leakage" of just 0.1 percent—only one out of 1,000 will get through.

But the study panels' reports have also come under criticism from advocates of true defense. Their concern is that the focus of the recommendations is on high-tech, long-term technologies such as lasers, particle beams, and hypervelocity rail-guns. By calling only for 20 years' worth of expensive R&D on such systems, the panels seem to be accepting a continued reliance on defense-by-retaliation for two more decades, in contrast to the premise of President Reagan's "Star Wars" speech. That speech argued for repudiation of the morally odious doctrine of Mutual Assured Destruction (MAD), whereby the only real defense is the threat to destroy the other side's society by massive nuclear retaliation.

Writing in the Wall Street Journal last December, Gregory Fossedal pointed out that two other types of defensive systems are ready for immediate development: (1) ground-based systems using small nonnuclear rockets or projectiles for defense against warheads in their terminal phase and (2) low-tech space-based systems using heat-seeking missiles that could attack ICBMs (intercontinental ballistic missiles) in their boost and post-boost phases (such as that proposed by the High Frontier project).

Also faulting the Defense Department for continuing reliance on MAD was defense consultant C. Richard Whelan. In a Heritage Foundation report, Whelan called for making a clean break with the MAD doctrine by establishing a fourth branch of the military, the US Space Force. Its mission would be to protect US satellites and destroy attacking enemy missiles. Importantly, the Space Force would be equipped only with defensive weapons. Calling MAD "a morally corrupt concept," Heritage vice-president Burton Pines stated, "It is time for the American government to recognize that it has a responsibility to defend its people without making them hostages to nuclear holocaust. Then the U.S. can start thinking about building weapons of mass protection, not mass destruction."

CONSUMER ACTIVISTS, MEET PRIVATIZATION

Several recent developments in the privatization of public services are worth noting.

Last fall, Houston's chamber of commerce recommended to the city council that the city's municipal garbage-collection operation be turned over to the private sector. The savings, the chamber estimates, would be about 40 percent.

Though a Columbia University study has shown that on average private garbage collectors have costs 29 percent lower than do municipal collectors, the chamber concluded that because Houston's operation is especially inefficient, the savings there from privatization would be greater than average. Houston's garbage trucks last only five years, for instance, while the average lifetime is seven years. Moreover, the city's Solid Waste Department employees have an accident rate about double the national average. And while private garbage collectors use an average of 2.1 employees per truck, Houston uses three.

Currently, although Houston's Solid Waste Department picks up garbage at only 42 percent of the city's residences, the service is paid for out of the city's general funds—users do not pay a fee for the service. The chamber has calculated that it costs the city $10 per household per month to provide the service, whereas private haulers could do it for $6.

The chamber's proposed plan is to institute user fees immediately and then to phase in private garbage collection over a two-year period. Anticipating resistance from the 1,000 Solid Waste Department employees, the chamber cited the recent example of Oklahoma City's garbage-collection privatization. There, not a single employee lost his job. The chamber suggests that the two-year phase-in period would avoid employee displacement by allowing time for some employees to retire, others to fill vacancies in other city jobs, and still others to get jobs with the private firms taking over operation of the service.

In Cincinnati, meanwhile, the city council voted in late December to implement, for the first time, a user fee for the city's ambulance service. In addition, the transit authority has agreed to allow a pilot program for private jitneys (fixed-route taxis) in several Cincinnati neighborhoods and to consider a proposal to allow shared-ride taxis in the city.

Moreover, Cincinnati citizen Greg Newberry reports widespread support for his efforts to establish a privately funded privatization commission that would study and propose to city council specific privatization plans. Among those who have expressed interest are the city's mayor and city manager, the chamber of commerce, and the Cincinnati Business Council (a group of 24 of the area's major corporations).

The idea of privatization in general has been supported by Cincinnati Enquirer editorialist Robert Clerc, who has suggested in that newspaper that the privatization proposals of city council member Peter Strauss be given a chance. Among Strauss's specific proposals: the sale or lease to private firms of nearly all municipal parking garages, and contracting out the management of two municipal airports, city-garage services, and management and promotion of Riverfront Stadium and the Convention Center.

The last bit of news comes from Michigan. There, the state Department of Transportation has reported dramatically improved service and cost savings of $500,000 a year by having hired a private company, instead of using the city of Detroit, to maintain 5,000 freeway lights in the Detroit area. Writing in the consumer-affairs "Action!" column of the Detroit Free Press, Bill Laitner reported that nearly 30 percent of those lights were out while the city had been responsible for their maintenance; today, that figure is down to 1 percent.

What is particularly encouraging about this last item is that privatization, albeit in a small way, is beginning to be recognized as the consumer issue that it is. And that is a welcome state of affairs indeed.

THE MARKET RESUSCITATES

A common argument for government involvement in the medical marketplace is that this market is immune from the laws of supply and demand—even as the supply of health care increases, the argument goes, prices don't come down. But a rapidly increasing supply of doctors—up by 30.5 percent since 1975 and expected to continue rising at that pace for at least the next decade—is, in fact, infusing greater competition and cost consciousness into the health-care industry. The resulting benefits to consumers are multifold.

According to a recent study by the National Center for Policy Analysis, a Dallas-based think tank, the competition ensuing from the expanding doctor supply is encouraging more and more younger physicians to practice in underserved inner-city and rural areas. Reporting on the study in a Wall Street Journal op-ed piece, NCPA public affairs director Becci Breining noted, for example, that only a quarter of Arkansas's counties now consider themselves medically underserved, whereas three-quarters did only three years ago.

More convenient service is another aspect of a general trend toward more consumer-oriented health care; hence the emergence of various walk-in medical facilities, such as free-standing emergency (or "urgent care") centers, ambulatory surgical centers, and primary-care centers. The number of such clinics nationwide is now estimated at about 1,350, and they are increasing at a healthy pace. For instance, the number of urgent care centers—conveniently located facilities, typically open long hours and on weekends, where people can come in without an appointment—is now at 1,000 or so and is expected to double by year's end.

The emergence of such facilities is already having a competitive effect on conventional private practices. The American Medical Association reports that significant numbers of physicians are making more house calls, keeping their offices open longer, using more lower-cost nondoctor employees, and marketing their services more aggressively—all to the consumer's benefit.

And, just as in any other market, the increased competition in health care is forcing suppliers to become more cost-conscious and to lower prices. The walk-in clinics mentioned above, for example, generally charge less than do the standard alternatives—conventional private practices and hospital emergency-room or in-patient service. For instance, for the treatment of a broken arm, an emergency-care center charges on average 55 percent less than a hospital emergency room, according to a study by the National Association of Freestanding Emergency Centers.

Another example of price cutting is the emergence and growth of "preferred provider organizations" (PPOs), groups of doctors who contract with firms or their medical insurers to treat the firms' employees at discounted rates. According to a November Wall Street Journal report, "practically every major city has at least one PPO-like operation or will have one soon." For a monthly per-employee fee, a PPO will provide discounted, comprehensive medical treatment to employees, and typically, the employee pays nothing out of pocket. Thus, PPOs not only are popular with employers (who stand to significantly reduce—or contain—their employee-benefit costs), but the no-copayment feature also is attractive to employees. At one Cleveland company where employees were given a PPO option last summer, the Journal reported, 20 percent of them have since switched to the new plan.

The same sort of price competition—coupled with the federal government's and many insurance companies' stricter limits on medical reimbursements—also is forcing hospitals to cut their costs (see Trends, Oct. 1983, p. 12), and many are trying, for the first time, to determine just what their costs are. The results have often been surprising. For example, according to a December Wall Street Journal report, one Dayton, Ohio, hospital discovered that it could reduce its birth-delivery charge from $1,885 to $1,324 and still break even. And a Clearwater, Florida, hospital, the Journal reported, found that its surgeons were prescribing $230 of post-surgery antibiotics when $34 worth would have been adequate.

Many physicians and hospitals, disturbed by these reawakened market forces, are agitating for legislation and regulation that would stymie much of the new competition. Ohio authorities have temporarily banned the construction of new emergency centers to give state regulators a chance to devise new rules for these facilities. In Georgia, Rhode Island, and Tennessee, authorities are also itching to regulate the fast-growing walk-in centers, which presently do not fit into the standard regulatory categories.

On the federal level, physicians-group lobbyists are urging legal barriers to foreign-trained doctors practicing in the United States, hoping to cut off at least some of the annual increase in the number of medical providers. Such regulation might for a while ease the competitive heat for the established elements within the health-care field, but it is consumers who will ultimately pay for any such restrictions.

AN EDUCATION ABOUT A SUBSIDY

The typical community college student is a minority youth who works at a low-paying job during the day while attending school at night, right? Wrong—at least in California, the only remaining state with a tuition-free community-college system. There, it turns out, the typical student is a self-supporting, affluent, white woman who is pursuing a hobby or honing a job skill.

This was the finding of a recent study by a California state agency, the Postsecondary Education Commission. The commission discovered that of those students taking less than six credits per semester (about 40 percent of the system's entire 1.3-million enrollment last year), about 70 percent were white; 60 percent were female; nearly 30 percent had already attended four years of college; about one-fifth had been in graduate school; and two-thirds were self-supporting, with average yearly earnings of nearly $29,000.

Of those students taking 6–12 units per semester (accounting for about one-quarter of the system's total enrollment), 62 percent were white; more than half were women; one-tenth had undergraduate degrees; and 40 percent came from families with an annual income of $24,000 or more, while only 6 percent came from families earning $12,000 or less a year.

The demographics of the colleges' full time students (those taking 12 or more units per semester, accounting for about one-fourth of the total enrollment) were somewhat closer to the conventional image—40.7 percent from racial minorities, 52.2 percent male, less than 4 percent already having college degrees. But even among these students, about 30 percent were self-supporting (with average yearly earnings of $14,000); 42 percent came from families with yearly earnings of $24,000 or more; and 13.7 percent came from families earning $48,000 or more a year, while only 11.4 percent came from families whose yearly earnings were $12,000 or less.

Since passage of the tax-limiting Proposition 13 in 1978 (which especially squeezed budgets for largely locally funded programs—as the community colleges had been), California's "free" community-college system has been at the center of a fiery debate over how to fund the system. That debate flared up last year when Republican Gov. George Deukmejian proposed an annual tuition fee of $100. By comparison, fees in other states' community-college systems range from $260 per year in Texas to $1,075 in New York (these are 1982–83 figures). Guided by the conventional poverty image of community-college students, many California legislators railed against the governor's proposal. The subsidy-minded legislators prevailed, and no tuition was implemented. (As of 1983, the community-college system represented a $1-billion-plus state expense, the fifth-costliest item in the state's entire budget.)

The commission's study ought to open many eyes and reinitiate discussion of a community-college tuition fee. Moreover, citizens might want to take heed and start searching for other examples of large-scale government subsidization of the affluent. Our guess is that they won't have to look very far.

BINGO WINS PROGRESS FOR INDIANS

Anyone still laboring under the delusion that the joys of capitalism are available only to white Anglo-Saxon Protestants should know about a financial bonanza bringing employment and prosperity to more than 60 of the 290 American Indian tribes in the continental United States. It is high-stakes bingo and poker.

At the Cabazon Indian reservation in Indio, California, for example, as many as 500 players (most of them non-Indian) gather nightly in a large hall to win jackpots up to $13,000—a far cry from the toasters and canned hams awarded by Catholic churches and Veterans of Foreign Wars chapters. And next to the bingo hall, according to the Los Angeles Times, is a round-the-clock poker parlor decorated with paintings of ancestral warriors.

"This is just like Las Vegas," observed paleface gambler Jim Bass at the Cabazon bingo hall. "Only this is closer than Las Vegas." But the Cabazon reservation's jackpots are small stuff compared to the minimum of $20,000 given away each night and the new cars given away each week at the Morongo reservation in Riverside County, California.

The Times notes that high-stakes Indian bingo started six years ago on a Seminole reservation in Florida. The reservations are able to enter the gambling business because of treaties with the United States that make them legally exempt from state regulations, whose restrictions keep other groups from running high-stakes gambling operations.

The social and economic effects of the bingo industry on the Indians themselves have been very positive. The unemployment rate for the 755,000 Indians living on reservations is estimated to be as high as 75 percent—but on some reservations where bingo has been started, unemployment has been cut in half, according to bingo supporters.

At the Santa Inez Mission reservation near Solvang, California, where management of the gambling operation has been contracted out to a group of Orange County investors called the Associates and where some 40 Indians are on the payroll, tribal business council chairman Ed Olivas told the Times, "It's very gratifying to see the members of our tribe getting involved in complicated matters and catching on, taking responsibilities and becoming experts at their particular jobs. It's something they've never had a chance to experiment with before."

Charles Schlegel, an Associates partner, is obviously quite proud of the operation. "We didn't realize how competent our employees would be," he boasted to a Times reporter. "I'll put them up against anybody. They're so enthusiastic."

Not everyone is as enthusiastic as the Indians. In eastern San Diego County, Our Lady of Perpetual Help Catholic Church and the Lakeside VFW blame Barona Indian Reservation bingo for taking away much of their business. In Arizona, Atty. Gen. Robert Corbin complains that state government is "left defenseless because we have no court authority to monitor these activities." So what's to monitor? "It's like honey," Corbin explains. "Where you have big money, it's only a matter of time before you have organized crime."

Corbin's moral counterpart in California, Atty. Gen. John Van de Kamp, has intervened in a Riverside County court case there to try to end big-stakes reservation bingo in that state. At this writing, a decision is expected early in 1984.

The best result of the litigation would be letting the reservations continue making their profits unimpeded by state-government bluenoses. As Ed Olivas says, "There's a self-value that comes from working and earning whatever you have instead of waiting for a government handout or for programs that don't consider the dignity of the individual."

REFORMING PRICE-ANDERSON

The Nuclear Regulatory Commission (NRC)—the federal agency that regulates the nuclear-energy industry—in December advised Congress to substantially gut the Price-Anderson Act (which is due to expire in 1987). Passed in 1957 as an amendment to the Atomic Energy Act (and since twice renewed), Price-Anderson limits commercial nuclear-reactor operators' liability for any damages caused by nuclear-plant accidents.

In essence, Price-Anderson mandates governmental decree for deciding issues—namely, liability and damage awards—that are ordinarily settled in the courts. And by setting a limit on nuclear-plant operators' liability, Price-Anderson effectively removes a market incentive for high safety standards (substituting the judgment of government regulators who have no direct incentive to devise and implement safety standards that maximize safety and minimize the cost of achieving it).

The NRC proposals would set right some of these unfortunate circumstances. The commission recommended the abolition of a liability limit (presently $570 million for any one accident). Under Price-Anderson, each of the nation's licensed reactors (there are now 82) would be required to contribute up to $5 million a year to an insurance pool, with another $160 million coming from private insurance, in the event of an accident requiring the maximum compensation. (To date, the largest total in claims for an accident came to $29.5 million, following the 1979 Three Mile Island incident.) Instead, the NRC proposed in December that, in the same common-pool manner as specified under Price-Anderson, each plant contribute up to $10 million a year (for as many years as necessary) to compensate accident victims.

Moreover, the regulatory commission recommended extending from 20 years to 30 years the statute of limitations for making a claim for damages against a plant operator. The reason, the commission noted, is that latent, radiation-caused cancers may not be detectable until 30 years after exposure.

The subsidy to the industry provided by Price-Anderson, and the problem of dealing with long-term effects, have been major bones of contention for nuclear-power opponents.

MILESTONES

• Reasonable withdrawal Calling the United Nations Educational, Scientific and Cultural Organization (UNESCO) "a babel of words notable for their muddiness and dishonesty," the liberal-oriented New York Times in a December editorial backed the Reagan administration's intention to withdraw from the UN group. "A United States withdrawal," the Times stated, "would not harm any democratic cause or global understanding."

• Line-item veto upheld. Sixty-seven percent of the respondents to an October Gallup poll favored giving presidents the power to veto specific items of congressional bills. At present, presidents must either approve or veto an entire bill as it is passed by Congress. Proponents of line-item veto power suggest that it would enable presidents to put a check on special-interest and pork-barrel legislation.

• Space transport boosted. Federal Transportation Secretary Elizabeth Dole has urged a rapid end to NASA's federal monopoly on carrying satellites and other celestial fare into space. Dole has formed a study group to encourage private space-transport investment.

• Kidvid requirements nixed. The Federal Communications Commission in December vetoed a proposal to impose on TV broadcasters children's-programming quotas and guidelines. Noting that such requirements might be unconstitutional, the FCC also stated that a wide array of children's shows are already being provided on the free market.

• Tax revolt wins. Michigan's liberal political establishment received a big jolt in November when voters recalled two state senators—David Serotkin and Philip Mastin—mainly because they supported Gov. James Blanchard's 38 percent increase in the state income tax.

• High hand for poker law. By a margin of more than 7 percent, voters in Los Angeles County's Norwalk passed an ordinance in October legalizing poker parlors. Norwalk is the seventh L.A. County city to allow the card clubs. There are now about 325 such establishments in California.

• Free-market vision. Consumers may save up to one-third of the cost of contact lenses by going to commercial vision centers rather than licensed and heavily regulated optometrists—and with no loss in quality, according to a Federal Trade Commission report. "State restrictions may result in higher prices because consumers might have limited access to those who would provide the services at lower costs," it said.

• Moo question. In November, the Supreme Court announced that it will decide whether consumers may go to court to challenge the Agriculture Department's regulation of dairy prices. Worried Justice Department attorneys warned that lawsuits by consumers "could result in constant uncertainty about the validity of the [Agriculture Department's marketing] orders."

• Citi slicker. New York's Citicorp is dealing another blow to the antiquated laws against interstate banking by installing automatic teller machines in Safeway supermarkets in California and Publix supermarkets in Florida. Citicorp's customers with Mastercard, Visa, Carte Blanche, and Diners Club cards will have easy access to cash from the Citicorp machines.

• Follow the liter. The government of Canada has suspended compulsory use of the metric system in retail sales. The move came after a provincial judge backed two Toronto gas station owners who had been prosecuted for selling gas by the gallon instead of the government-mandated liter.

GLOBAL TRENDS

Here Comes the Zone

BELGIUM—Enterprise-zone legislation proposed by Reps. Jack Kemp and Robert Garcia may be stalled in the United States, but in Belgium, the government has been empowered to create six enterprise zones. Within these zones—each of 120 acres—the burdens of tax and government regulation of production will be considerably reduced. Most notably, the corporate tax on profits, dividends, interest, and landed property will be suspended for 10 years. And requests for government permits will have to be answered within four weeks.

The idea of enterprise zones has existed in some form since Roman days. Since the founding of the free port of Hamburg in 1880, however, virtually no zones were created in Europe until 1958, when the Irish government created an industrial free zone near Shannon.

In the Irish zone, companies manufacturing for export were given a 20-year holiday from the corporate tax; their employees were freed of the income tax; and customs duties were not imposed on goods for re-export. The Shannon model was so successful that some 23 non-European countries subsequently imitated it.

It was only in 1981 that another European nation, Great Britain, took up the idea again. In that year, the British created 11 enterprise zones and added another 13 the following year. A year later, the Socialist government of France promised to present a bill to parliament to make Marseilles an industrial free port, and in Belgium, the Enterprise Zone Act was published. By 1983, the West German province of Lower Saxony was studying the possibility of establishing a free port and enterprise zone; Communist Hungary had established an enterprise zone for joint ventures between foreign and domestic companies; and Turkey, Yugoslavia, and Tunisia were planning their own enterprise zones.

Belgium's Enterprise Zone Act, providing for six enterprise zones of 120 acres each by mid-1983, was a fine example of how the idea could work. Among its provisions were:

• abolition of seven different taxes on companies, including a 45 percent tax on profits and a 20 percent withholding tax on dividends and interest;
• reduction of government bureaucracy so that investors in the zones would have to deal with only one government agency for obtaining all their state permits;
• reduction of government regulation, including abolition of work permits for foreign managers and researchers, exemption for these employees from the nation's social security law, and freedom for companies to decide whether to hire trainees; and
• the opportunity for companies to seek contractual guarantees from the government that enterprise-zone concessions would not be eliminated.

It was sound legislation to begin with—but the Belgian government made the mistake of submitting it for comment to the European Economic Community, even though the Eurocrats' jurisdiction in the matter was highly questionable, at best. They gutted some of the best features of the legislation by restricting its benefits to companies active in high technology and with fewer than 200 employees. They also made the Belgian government give up its plan for an enterprise zone in Brussels, indicating that zones should be created only in distressed areas. The plan now exists in its scaled-down version.

The British enterprise zones are in some ways more modest than the Belgian plans. For example, while companies in the British zones pay no taxes, they must provide "redundancy pay" (unemployment compensation); and the national government reimburses local governments for lost tax revenues. But the British government made the wise decision of ignoring the EEC bureaucracy. Also, Sir Geoffrey Howe has announced plans for instituting free ports in Britain.

It is clear that enterprise zones are a firm fixture in the European economic terrain. They promise to bring in their wake the prosperity that freer markets provide, if the designs of governmental bureaucrats can be thwarted.

—Michael van Notten

Courting Risk-Takers

EUROPE—Last spring, France's Socialist government hurriedly amended a law—which permitted only institutions to manage venture-capital funds—to allow the formation of venture-capital partnerships like those in America. Since passage of the new law, at least 11 groups have requested permission to manage such funds. In addition, a stock market for small companies, the Second Marche (something like the US over-the-counter market), was formed in February 1983 and now trades shares in 36 companies. And about $100 million in venture capital has already been committed in France, Fortune recently reported.

Venture capitalism also is on the rise in the United Kingdom. There, the risk-money action has mounted to about $200 million. London's over-the-counter-like Unlisted Securities Market—operating only since 1980—now trades shares in about 150 companies. (Since 1979, British taxpayers have been permitted to write off against their personal income tax $7,500 worth of investments in unlisted companies.) Moreover, several American-based venture groups have recently set up shop in the island nation, and even the otherwise staid universities are getting into the entrepreneurial act—Cambridge's already-affluent Trinity College, for example, has developed a high-tech industrial park, from which the college now derives 8 percent of its income.

As in France, Sweden's Socialist government also is trying to nurture the Swedish entrepreneur. In November 1982 the Swedes started up an over-the-counter-like market, which now trades shares in about 15 companies. (But in typical Swedish style, the government has gotten into the risk-money business itself, having established a $15-million venture fund, although it is reportedly not as politically exploited as might be expected.)

All these fledging venture-capitalist efforts—both government and private—are aimed at cashing in on the fruit of entrepreneurs. The private venture capitalists, of course, want to realize big returns on their investments, while the governments hope that a surge of entrepreneurialism will revitalize their ailing national economies. The governments are particularly hopeful that entrepreneurial citizens will emulate their American counterparts and produce the high-growth, high-tech firms that have issued from small beginnings (such as Apple Computer and Atari).

A 1982 US government study documented the value of venture capitalism to the US economy. After five years of operation, 72 firms that had started up with $209 million in venture capital had sales of $6 billion, produced $450 million in taxes, created 130,000 jobs, and boosted exports by $900 million. Those results, even socialists can't ignore.

Reducing the Weight of the State

EUROPE—Italy's Socialist prime minister, Bettino Craxi, has proposed abolishing government disability and retirement payments for people above certain income levels. Portugal is quickly denationalizing its state industries. Sweden's Social Democratic prime minister, Olof Palme, introduced a budget reducing real wages by 4 percent. Other leaders in Belgium, Britain, Denmark, Greece, the Netherlands, and West Germany are similarly urging austerity budgets and spending cutbacks, along with reductions of state enterprises.

The problem common to all these nations is their oversize public sector and welfare programs. The fiscal burden threatens to stifle the Europeans' recovery from the recent world recession. In Denmark, for example—where taxes consume more than half of the nation's income—40 percent of this year's budget must be financed with borrowed money, thus choking off private investment. Belgium's government deficit equals 13 percent of the nation's GNP—in the United States, by comparison, the figure is 6.5 percent—and Italy's deficit, 15 percent of the country's GNP. Greek Finance Minister Gerassimos Arsenis, quoted in a December New York Times report, said, "The road to Socialism no longer passes through the welfare-statism of the 1950's and 60's. Today Socialist goals require restructuring the economy, improving competitiveness."

Perhaps the most aggressive reforms may come in the Netherlands, where the government's deficit approaches 12 percent of GNP. Prime Minister Ruud Lubbers was recently quoted in Business Week as having said that the nation is returning "from the welfare state to the free-market economy." Lubbers proposes to cut unemployment and disability rolls by 10 percent, terminate 11,000 government jobs, reduce minimum-wage levels, and lower the corporate income-tax rate from 48 to 40 percent. Also included in the Christian Democrat-Conservative government's supply-side approach is the intention to reduce regulation in general, such as relaxing stringent rules governing plant closures and layoffs.

Other nations' notable moves to contain the welfare state include Margaret Thatcher's cutting 8,000 jobs from Britain's National Health Service, the first such cuts in 30 years, and Craxi's proposal to shrink Italy's social programs by $6.3 billion next year as well as to remove more than 30,000 workers from money-losing state-owned industries. Spain's Socialist government is now admitting foreign banks and is promoting part-time labor. Helmut Kohl, chancellor of West Germany, has tightened up unemployment and disability benefits, limited civil-servant wage increases to 2 percent in 1984, and put a 1.5 percent cap on state-pension increases.

Whether or not the various reforms are enough to brake the plunge of the European states' economies, the lesson to be heeded on this side of the Atlantic is an old one: there ain't no such thing as a free lunch.