Could Savings Save Medicare?

It is ironic that Medicare, a health-care program, should be as financially sick as it is—and that the illness should be the result of its own extravagantly bad habits. Since Medicare, the part of the Social Security system left untouched in last year's "rescue," seems incapable of mending its ways on its own, some sensible remedies are being circulated.

David Swoap, the secretary of California's Health and Welfare Agency, has contended in a Wall Street Journal op-ed piece that Medicare's mounting budget problems cannot be solved without reforming the entire health-care system. He says that reforms should attack "the primary reason costs are out of control: a health-care industry in this country immune from the forces of the marketplace."

Among the reforms he proposes at the federal level are:

• revoking laws still on the books in about 40 states that stand in the way of insurance companies negotiating special rates with physicians and hospitals;

• gradually transforming Medicare's reimbursement system to a prepaid rate for the entire care of each beneficiary, similar to a private insurance plan (this would give the elderly the option of choosing any private plan that offered them the best mix of services);

• phasing out "archaic, cumbersome regulations" of the medical market such as California's "certificate of need" program that puts a lid on hospital construction; and, .

• granting waivers to states to experiment with new types of medical-service delivery models.

If Swoap's proposals are a shrewd sort of artificial resuscitation, a recent proposal by the National Center for Policy Analysis, a Dallas think-tank, is a kind of heart transplant. In a recently published study whose contributors included Richard Rahn from the federal government's Social Security Advisory Council, the NCPA recommended that workers be given tax credits for annual contributions to individual retirement accounts known as "Health Bank IRAs." Funds that would accumulate in these accounts would be used to pay for private health insurance and medical expenses during workers' retirement years.

The logic of the NCPA plan is clear enough. In 1983, the average American worker paid about $464 in payroll taxes for Medicare. If a 20-year-old worker were permitted to invest an equal amount of money in a private Health Bank IRA instead, his account would contain $476,519 by the time he was 65 and $575,419 by the time he was 67.

"Money put into Health Bank IRAs would be the private property of the owner," said NCPA president John Goodman. "This means it would be part of the worker's estate and could be passed on to his heirs."

Medicare is a system that has managed for years to live on snake oil and incantations. With an estimated deficit of $400 billion by 1995, its collapse may be imminent. Sensible proposals like Swoap's and NCPA's would minimize the damage.

Enterprising States

In Washington, enterprise-zone legislation has had rough sledding. It's been almost four years now since two congressmen proposed the designation of zones in which enterprise would be encouraged via tax and regulatory relief, on the theory that this will spur job creation and reinvestment in declining areas. But House Democrats are keeping a Senate-passed enterprise-zone bill bottled up in committee.

What has been stifled in Washington, however, has been blossoming in various states. As syndicated columnist Neal Peirce reported recently, "The exciting news is how fast, without a federal law, the states have already moved to set up enterprise zones." He cited a study by the Washington-based Sabre Foundation, which came up with a tally of 11 states that have created 200 active enterprise zones of their own, another 8 states that have passed enabling legislation, and 3 more states where passage of zone legislation seems imminent.

The Sabre study, Enterprise Zone Activity in the States, noted some of the results of enterprise zones. In Toledo, Ohio, a manufacturer of corrugated boxes, Owens-Illinois, hired virtually its entire new workforce from among a jobs-bank listing of a poor neighborhood's unemployed residents. In Louisville, Kentucky, a wood-products manufacturer in an enterprise zone hired 55 unemployed people to fill new jobs. Among other enterprise-zone ventures are a medical clinic in Capitol Heights, Maryland; a science park in a poor neighborhood near Yale University in New Haven, Connecticut; and a manufacturer of satellite communications dishes in Chanute, Kansas.

All told, the Sabre survey, based on questionnaires and follow-up phone interviews with local officials, identified 20,271 jobs saved, created, or planned, and $450 million in construction, expansion, and renovation in the zones—with local officials on average believing that zone incentives were a major factor in half of the new activity. And the study's authors note that these figures are conservative, because the average age of the zones surveyed was less than a year. Moreover, "states such as Kansas and Florida have made attempts to lighten paperwork requirements on zone-based companies, making it likely that the births of small, new enterprises in some instances have not been recorded by officials monitoring the enterprise zones," they said.

The Sabre study found that in some instances, incentives for enterprise-zone activity are broader than the reduced taxes and regulations envisioned in the federal legislation. Illinois's enterprise-zone statute encourages municipalities to transfer responsibility for delivery of public services within the zones to designated neighborhood organizations. In Norwalk, Connecticut, local governments have moved to involve neighborhood groups in activities such as block watches and fix-up programs.

And in Florida, the enterprise-zone legislation provides a tax credit for corporations and individuals donating funds or personnel to improvement projects in distressed areas. This has already resulted in more than $6 million in private contributions in Dade County alone for building or refurbishing public facilities.

State enterprise zones are thus showing that the claimed benefits can pan out. And as columnist Peirce concluded, since "no two states' tax and regulatory incentives are identical, in time, hard data will show just which systems produce the best results."

Gentrification Clarification

Some people believe that urban neighborhoods should welcome "gentrification" as enthusiastically as they would welcome bubonic plague. But a new study has been published offering persuasive evidence that the opposite is the case—that private renovation of declining neighborhoods is not as horrible as it's cracked up to be and is, on the whole, a positive development.

The mythology of gentrification revolves around the observation that when middle-and upper-income households move into depressed neighborhoods (the return of "the gentry") and renovate homes, property values in the neighborhoods go up and rents rise. Minority and elderly residents are thought to be thus victimized, because they can't afford the new rents and must move to crowded, less-desirable apartments elsewhere.

In various cities, this has been a rationale for rent-control ordinances, restrictions on condominium conversions, and taxes on property speculation.

Recently, however, Michael Schill and Richard P. Nathan have published a book, Revitalizing America's Cities: Neighborhood Reinvestment and Displacement, which documents quite a different story.

To begin with, they discovered that "remarkably little is known about neighborhood reinvestment and its displacement effects," as they wrote in the Wall Street Journal last December. "The controversy surrounding displacement of low-income households from inner-city neighborhoods is fueled not by objective, empirical evidence, but by anecdotes."

Schill and Nathan surveyed households that moved from nine neighborhoods in five cities—Boston, Cincinnati, Denver, Richmond, and Seattle—where "gentrification" was occurring. After interviews with more than 500 respondents, they concluded that "the households studied did not encounter serious hardship as a result of being forced to move."

For example, 23 percent of those who moved from the neighborhoods were "displaced"; that is, they moved because their rents increased, their houses were sold, or they were evicted so that landlords could renovate. Yet contrary to myth, elderly and non-white residents were no more likely than others to be displaced. The rent increases paid by the 23 percent after moving were moderate compared with increased rent paid by households that moved from the same areas for reasons other than displacement. And 67 percent of the displaced households indicated that their current homes were better than their prior ones; only 16 percent said their new homes were worse.

Schill and Nathan do not deny that displacement does cause hardship for some people. "Overall, however, the displacement survey's results show that significant and lasting hardship is the exception rather than the rule," they wrote.

They also pointed out that reinvestment is actually a blessing for those neighborhoods where it is occurring. Typically, the housing stock there improves, crime rates diminish, and businesses begin to thrive. Moreover, the alternative is continued disinvestment, which ultimately forces more people out of their homes than gentrification does.

Schill and Nathan's conclusions are that "policies adopted by many cities to minimize displacement may be misguided. Ordinances providing for rent control or condominium moratoria, aside from distorting the housing market, may well extinguish, rather than moderate neighborhood reinvestment." They recommend a radical reduction of municipal government interference in housing markets.

There are far fewer urban neighborhoods experiencing revitalization and gentrification, as they point out, than are declining dramatically. But where revitalization is occurring, the last thing local government should do is to squelch it.

Deregulation Puts Railroads Back on Track

Just as has happened in the trucking and airline industries, the railroads' new freedom to adapt to the market under deregulation is enabling them to revitalize themselves. Since passage of the Staggers Rail Act in 1980, which reduced much of the Interstate Commerce Commission's rate and service regulation of the railroads, the rail industry's share of the freight-hauling market has been on the rise. (Last year, for example, the rails hauled 14.2 percent of the nation's produce, while in 1979 that figure stood, after a steady decline, at 9.5 percent.)

According to National Journal reporter Michael Wines, the railroads' "bloated work force has been slashed by almost a third in the past three years. Excess track and equipment has been abandoned…in record amounts, and investment in new or modernized facilities has doubled from the past decade's levels."

By easing the rails' ability to drop unprofitable service and excess capacity, deregulation has allowed the lines to shake off much of the inefficiency fostered under 93 years of federal regulation (which was, ironically, originally designed to protect railroads from market forces). Among some of the major changes now coming over the industry are the move toward mergers—there are seven large railroads today, compared to 13 in 1978—and the rise of short-line haulers as the major rails cut back unprofitable short-run, rural service.

Indeed, this latter trend is developing strongly, with the American Short-Line Railroad Association now reporting 266 members, up from 215 in 1971. A short-haul line like Iowa Northern, for example, can make money by using slimmed-down, nonunion crews to run trains (carrying mostly grain) along its 127-mile route formerly serviced by the now-bankrupt Rock Island line. The experience parallels that of the regional airlines that have popped up since airline deregulation to run service where the major carriers have abandoned routes (as well as that of the small bus lines that are now picking up routes terminated by the major interstate carriers since that industry was deregulated).

While some fear that mergers will allow railroads to gain market dominance and thus charge high rates, most mergers have been between lines that meet end to end and do not overlap. Industry observers, Wines reported, "say those mergers have improved railroad efficiency by eliminating lengthy negotiations between roads over such issues as sharing of rail yards and divisions of revenues for jointly hauled freight." Moreover, the larger, merged lines can achieve economies of scale by doing more of what they do most profitably—hauling freight over long distances rather than loading and unloading cargo on short hauls, leaving those services to the short-run lines.

Recipes for Deficit-Slashing

As scandalously large as the federal deficit is, there are very practical ways to reduce it to a small and less unmanageable fraction of its current size. Two recent reports suggest some sensible reforms in that direction.

In January, the Heritage Foundation published a report, Slashing the Deficit, that describes how next year's federal deficit could be reduced by $119 billion (in contrast to President Reagan's proposed $8.4 billion). Stuart Butler, Heritage's director of domestic policy studies, pointed out that the study "examines alternative methods of delivering services now performed by the federal government" and looks at "ways of cutting spending by redefining the government role."

Basic themes of the study include shifting programs to lower levels of government, since "local politicians and residents have no incentive to economize when someone else is picking up the tab"; privatization of such programs as wastewater treatment, collection of debts owed the federal government, and the Legal Services Corporation; and restructuring of programs—for example, changing education for the handicapped to a voucher program, limiting student-loan support to truly needy students, and introducing more effective management of defense procurement.

Yet another theme of the Heritage report is user fees, and this reform is discussed more extensively in a study prepared last December by the prestigious Congressional Budget Office (CBO). Entitled Charging for Federal Services, the report examined the prospects for new or increased user fees in seven areas of federal service, several of which have been discussed in past Trends items in REASON.

To finance routine port construction and maintenance, for example, the CBO considered a system-wide, per-ton cargo fee levied on commercial shippers and additional fees levied on coal shippers to finance adaptation of harbors to the deep-draft needs of coal-carrying vessels. To recover $631 million spent annually on inland waterways by the US Army Corps of Engineers, the CBO outlined different methods for increasing the federal barge tax.

The Coast Guard's services for commercial mariners and recreational boaters such as search-and-rescue operations and navigational aids could be financed by assorted fees paid by the users of these services, the report noted. Similarly, some 95 percent of the Postal Service's annual tax subsidy of $760 million could be recovered by ending preferential mail rates for small-circulation newspapers and not-for-profit organizations. (Unfortunately, the report did not address the larger question of ending the Postal Service monopoly.)

The CBO predicted few immediate benefits by applying user-fee principles to federally provided irrigation water, because of long-term contracts between farmers and the Bureau of Reclamation. By the year 2000, however, the report stated that higher prices for water could substantially reduce federal subsidies and promote increased water conservation.

Although the CBO scrupulously avoids making formal recommendations in its reports, it did note in this case that "in each program area, new or increased fees to users appear to offer good prospects for improved cost effectiveness in federal investment and reduced federal borrowing. Their potential benefits seem to outweigh by far their administrative costs to the government—an essential criterion of an effective financial mechanism."

Altogether, the CBO identified $6 billion in 1984 federal subsidies alone that researchers consider eventually amenable to user-fee financing. And the report indicated that this only scratches the surface.

The CBO showed some sensitivity to the problem of cross-subsidization. If user fees are not set up appropriately, one group of users ends up paying "more than its share of program costs, while another group pays fees that reflect less than its share," the report noted. While this draws the subsidy from the high-paying user instead of the general taxpayer, "such cross-subsidies raise issues of efficiency and fairness among users."

Yet in at least one instance—aviation services—the CBO proposed reliance on a user-fee scheme that incorporates the very cross-subsidization warned against. It's proposed ten-fold increase in taxes on general-aviation jet fuel and gasoline would only compound serious inequities of existing fuel taxes. First, fuel taxes are imposed not only on the aircraft that use federal air-traffic control services but also on thousands of aircraft that do not use flight plans and use only small airports with no control towers. Moreover, fuel taxes force large planes indirectly to subsidize small planes that use large airports. An airport must provide virtually the same resources and manpower to a small corporate jet coming in for a landing as it provides to a Pan Am jet several times larger—but the small jet ultimately pays only a fraction of what the Pan Am jet does, since the smaller jet buys much less fuel.

Those problems would undoubtedly emerge in public debate. But they should not obscure the larger point: more people are recognizing the dangers of the runaway deficit, and respected institutions are proposing creative and useful ways to tighten Uncle Sam's belt.

The Environment's Worst Enemy

A recent study by the Interior and Agriculture departments reports that the federal government pays some farmers not to grow surplus crops that the farmers couldn't grow if not for the availability of federally subsidized water. And the Economist noted in a December report that US federal subsidies—including crop and disaster insurance, loans, and price supports—are encouraging "sodbusters" to buy up rangeland of marginal farming quality in the arid western United States and sow wheat on it. Trouble is, the thin layer of topsoil gets blown away when it is plowed, eventually leaving behind a dusty plain.

As the above items suggest, such instances of what John Baden, head of the Bozeman, Montana-based Political Economy Research Center, calls "subsidized destruction" are becoming more widely recognized, especially by environmentalists. For example, in a recent Los Angeles Times op-ed piece, Defenders of Wildlife representative Aubrey Stephen Johnson decried government policies that lead to overgrazing of federal rangeland in the West. "Recent estimates of the condition of arid Western lands that are administered by the Bureau of Land Management," wrote Johnson, "say that about 81% of those lands were in fair-to-poor condition, and that the trend for 71% of those lands was static or declining."

Responsible for "the high demand for grazing on land that is so unproductive that Missouri alone produces six times as many cattle as do Arizona, New Mexico, Nevada, and Utah combined," Johnson observed, "are the low grazing fees that are charged for federal land, the high level of federal subsidies that pay for 'range improvements,' such as fencing, wells, dams, pipelines and water tanks, and the high value of ranches with large amounts of federal land." Johnson recommended that grazing leases be auctioned each year to the highest bidder—with fees also determined by the market—and that federal subsidies encouraging grazing on marginal land be ended.

Writing in the Wall Street Journal recently, Baden identified government intervention in resource markets as "the major cause of both environmental and economic problems that surround resource policies," noting that "development of fragile ecosystems is often a bad economic investment" and is "almost always too expensive for the private sector without subsidies." And though it is "still a minority view within the environmental community," Baden observed, "a number of prominent environmentalists have recommended substituting property rights and the market process for governmental management, especially in the area of water development and allocation."

An example of this observation occurred recently when Zach Willey, an economist for the Environmental Defense Fund (and a REASON Spotlight subject in March), wrote in the Los Angeles Times, "It's a paradox that in the United States, the world's leading capitalist power, one of the most critical resources—water—is distributed according to socialist precepts. It is time to abandon the socialist for a more capitalist approach."

One encouraging legislative development was Senate passage in November of a bill to prohibit federal subsidies for crops grown on easily erodible land. However, the bill (which still must pass the House) would apply only to future instances of sod busting.

Letter Liberation

When economist Ian Senior wrote in Liberating the Letter, published last year by the London-based Institute of Economic Affairs, that "the dawning electronic revolution will soon pose a major competitive challenge to both the mail and counter services of the state-owned Post Office whether its paper letter monopoly is removed or not," he could just as well have been speaking about the United States Postal Service rather than Britain's postal monopoly.

Senior notes that the state mail monopoly is no longer the only game in town—as more businesses and households get computers, electronic mail services will grow apace. Indeed, in the United States, MCI Communications started up an electronic message-delivery service last year—MCI Mail—and Federal Express will start up in June what is projected to mount to a $1.3-billion electronic document-delivery service. The Federal Express system will relay information (including, eventually, computer data and teleconferencing) via satellite, using a network of ground stations (which will eventually number 50,000). And the firm has already applied to the Federal Communications Commission to launch two of its own communications satellites for the system.

In his proposal to privatize Britain's Post Office, Senior suggests that "the time is now ripe to separate its mail and counter services and sell both to the public—perhaps offering the staff shares at a discount—as two distinct private companies." A similar idea is being given an increasingly wider hearing in the United States. Postal Rate Commission member John Crutcher has proposed that the USPS auction off its local mail-processing and -delivery operations as private franchise businesses, a notion Crutcher has aired before a Harvard University seminar and San Francisco's influential Commonwealth Club of California.

The USPS, Crutcher maintains, has a lot of inefficiency in its operations, and the evidence is abundant: While from 1971 to 1982 the US cost of living rose 152 percent, postal costs rose 188 percent, and labor accounts for 84 percent of these costs. Postal workers receive an average wage-and-benefits package worth about $25,000 a year, while comparable private-sector workers make about one-third less. (While federal law mandates that postal workers' wages be set at a level based on those of comparable private-sector workers, postal-worker wages are in fact set primarily on the basis of high-paid union workers.)

Crutcher suggests that privatization would save society about $6 billion a year. (To help ease the plight of USPS workers—now at 670,000—displaced by privatization, it has been recommended that present employees be offered, in some form, the opportunity to own all or part of the local franchises.)

As intriguing as Crutcher's proposal is, privatizing the postal service is unlikely any time soon. But consumer relief continues from another direction—private postal operations competing with the USPS, in addition to the electronic services mentioned above. The Salt Lake City-based React, for example, is expanding its discount-mail service outside of Utah, offering to mail customers' letters to anywhere in the country for only 15 cents. By using various USPS discounts—such as those for presorting and bulk mailing—React is able to offer the lower mailing prices and still make a profit.

And World Mail Centers, a computerized counter service that finds its customers the cheapest and quickest ways to send packages through a variety of carriers (the Post Office, United Parcel Service, Purolator, Federal Express, and so on), is rapidly growing. Currently operating offices in three California cities, WMC plans to have centers in 26 major cities by year's end, and eventual franchise operations are planned for 64 areas nationwide. An indication of WMC's viability is the movement of its stock price: when its common shares went public in September, they sold for 25 cents; three months later, shares were selling for just under $1.50.

Bypass Operations Successful

In the last few months, there has been ever more progress toward a freer market in telecommunications.

On New Year's Day, long-distance telephone service in California went through substantial changes. AT&T spun off its Pacific Telephone and Telegraph subsidiary, which now offers local service in most of the state through its Pacific Bell unit. The same change occurred in other states, but California consumers also stand to benefit from accompanying deregulation of much of the market in long-distance phone service within the state. For the first time, customers will be able to select from several intrastate long-distance services, including MCI Communications and GTE Sprint, with lower toll charges the expected result. This brings to six the number of states with deregulated intrastate telephone markets.

The deregulation is not complete. The state's Public Utilities Commission divided the state into 10 Local Access and Transport Areas (LATAs). Pacific Bell will retain its old monopoly on long-distance calls made within each LATA—for example, between San Jose and San Francisco or between the metropolitan Los Angeles communities of Van Nuys and Compton. But all long-distance service between LATAs—for example, between San Francisco and Los Angeles—is deregulated. The inter-LATA market is worth an estimated $1.7 billion; the intra-LATA market, about $1.5 billion.

New technologies are dealing other blows to the old Bell monopolies' dominance. One potential threat is the new telecommunication systems being installed in office buildings by their landlords "to outdo the competition," according to the Wall Street Journal. It reports that "developers see a chance to act as telecommunications brokers: they buy the wiring, switches, and equipment, negotiate for long-distance services from AT&T and others, and sell the services to tenants."

In early 1983, there were "perhaps two" developer-owned shared telecommunications systems in the country. But by this January, 58 buildings were in the process of having such shared systems installed.

Yet another potential threat to the dominance of the monopolies is the teleport, described by National Journal as "a sort of electronic airport terminal through which information-hungry firms will 'book' flights of data and voice messages to places across town and around the world."

A teleport under construction in San Francisco, for example, will be able to carry 108 channels of video, data, and voice messages. In addition, it will include a network of personal computers, and it will have a field of antennae linking the system with overhead satellites. A microwave system will make the entire complex accessible to San Francisco's office towers, the Silicon Valley that lies south of the city, the University of California at Berkeley to the north, and Stanford University to the south. In other words, the local phone monopoly will be bypassed.

Teleport expert Joseph S. Kraemer of Touche Ross & Co. told REASON that besides the San Francisco teleport, financing or construction is already under way for four others (in New York, Chicago, Columbus, and Houston), and up to a dozen more in other cities are being considered.

"We've all lived with the restrictions of the monopoly," Ohio computer-firm executive George Minot told the National Journal. "We've had all these artificial barriers set up. With a teleport, we get around all of them."

The Journal pointed out that teleports are only one example of privately built communications networks to circumvent the local monopolies. For instance, Icom and Federal Express now have the authority to build microwave networks in 30 cities that will offer local and long-distance voice and data communications. And MCI and US Telephone are developing the technology to route toll calls to homes and businesses through cable-TV systems. Warner-Amex Cable intends to link four of its two-way cable systems by satellite, so that corporate customers can route data, video, and voice messages locally and nationally without using monopoly wires.

Indeed, future cable systems will be fully capable of competing with the local phone monopoly in offering both voice and data service. At December's Western Cable Show in Anaheim, California, Canadian cable consultant Israel Switzer pointed out that the cable system of the 1990s "will be switched, all digital, and all fiber optic." What that means is that it will have the ability to link up pairs of individual subscribers just like the phone company does. Already, MCI is offering local telephone service to businesses in Orange County, California, using the lines of a local cable company. And other cable systems with this capability are under development.

Unfortunately, while the cable companies seek to invade the phone monopolies' turf, they're adamantly opposed to having the phone companies return the compliment. Cable deregulation that is pending in Congress—with cable industry support—would prohibit phone companies from going into the cable business (although the Federal Communications Commission has always allowed them to do so, provided they operated as common carriers, subject to public-utility regulation). And the California Cable Television Association is lobbying against Pacific Telephone's bid to build a $17-million, 112-channel cable-TV system for Palo Alto, California. Thus the outlook for truly competitive local telecommunications remains clouded.

Court Lifts Mall-Squall Pall

Does a privately owned shopping mall have the right to bar groups from conducting political activity on its premises such as soliciting signatures on petitions, passing out leaflets, and demonstrating? If the mall is in Connecticut, its right to determine the use of its property is now respected, thanks to a recent ruling by that state's supreme court. In the case of NOW v. Westfarms Mall, the Connecticut Supreme Court ruled in January that the state constitution's free-speech provisions don't require one of the largest shopping malls in the state to allow NOW to solicit signatures in the mall.

This is a significant ruling on a property-rights issue that has been fiercely debated in state courts around the country. The reason for the brouhaha is that in 1980 the US Supreme Court ruled in Pruneyard Shopping Center v. Robins that the First Amendment to the federal Constitution does not require shopping centers to permit political activity—but the Court held that state constitutions' free-speech provisions might possibly require it. It left it up to state courts to decide whether to interpret their own constitutions in a way that would abridge the property rights of the owners of shopping centers and malls.

Before the Westfarms Mall case in Connecticut, four state supreme courts had issued decisions in such cases. Only one (North Carolina) had upheld the shopping mall owner's property rights, while three (California, Massachusetts, and Washington) had ruled against those rights. Moreover, a lower court in New York State had issued an anti-property-rights decision in a shopping-mall case, and New Jersey and Pennsylvania's highest courts have ruled against property rights in very similar cases involving private universities.

Against this background, the Connecticut decision presents a sharp contrast. It is interesting that the decision came after the state's residents had had an opportunity to see what can happen when property rights are abridged. Last May, Westfarms Mall's owners were unable to prevent a Ku Klux Klan demonstration at the mall, leading to a disturbance in which anti-Klan activists tangled with the police and several stores in the mall closed for a day. Although judges are purportedly not swayed by such occurrences, an attorney in the New York shopping-mall case who has been close to the Connecticut litigation told REASON that this incident probably had a big effect on the Connecticut court's decision.

It is too early to tell whether Westfarms Mall signals a change in direction for state courts hearing such cases. (The New York case, SHAD Alliance v. Smith Haven Mall, seems headed to that state's highest court.) But perhaps property rights will prevail; or, as Connecticut goes, so will go the nation.


• Rent control on trial. The owner of a San Francisco apartment building has filed suit against the city, claiming that its 1979 rent-control law violates federal antitrust laws that bar price fixing. The suit relies substantially on the US Supreme Court's 1982 Boulder decision, which ruled that cities do not have blanket immunity from the federal antitrust laws.

• Energy-policy volte-face? The Federal Energy Regulatory Commission approved in January an experiment allowing six southwestern electric utilities to trade bulk power and to set wholesale rates for electricity within broad FERC-established limits. (Federal regulators currently set wholesale rates.) If the experiment results in a trend toward lower wholesale rates and more-efficient generation and distribution, this form of deregulation could be made permanent.

• Smut bill vetoed. Minneapolis mayor Donald Fraser, a liberal Democrat, vetoed an ordinance amendment that would have defined illegal pornography as a form of sexual discrimination against women.

• Support for gas decontrol. A recent poll of business leaders, conducted by Nation's Business, found 80 percent of its respondents in favor of ending federal price controls on natural gas.

Global Trends

Councils of Despair

GREAT BRITAIN—There is a fierce battle raging here over Prime Minister Margaret Thatcher's plan to phase out an entire layer of local government, the metropolitan councils. The councils were created by the Conservative Heath government in the early 1970s when "strategic planning" was in vogue. All they have done, however, is sopped up tax pounds and hired huge staffs for wishy-washy local-government purposes, while all the actual public services are provided by the local borough governments.

William Waldegrave, a junior minister at the Department of the Environment, is in charge of the campaign for abolition of the councils. "Some people have suggested that we should take a few years to conduct another review of local government," he has noted. "But we can't wait. There is a national consensus on this issue. Our duty is to protect the citizen from institutions which in some cases are out of control."

Waldegrave caustically observed that in the battle to abolish the councils he has encountered what he calls the "Royal Marine syndrome." He said, "When the services are under heavy pressure to cut costs, they answer, 'We can only do it by abolishing the Royal Marines.'…In the same way with councils, when they are pressed to make cuts they announce that they can only do it by eliminating Home Helps or reducing services for the elderly. They are very powerful and big animals, with very strong unions. They have a lot of imperial ambitions to defend."

The second line of attack on big government by the Thatcher administration is the "Rates Bill," which was getting its reading in Parliament in early January. Its basic idea is simply to give the central government the power to put a lid on local tax increases. The bill is an interesting little beast, and it is the result of a spat between the central government and socialist city halls that have gone mad dealing out money to all and sundry. There have been lots of rumblings in Parliament about the "autonomy of local government," etc., but in January, it looked like the bill would scrape through Parliament by Easter.

It will be fascinating to see if someone now comes up with a bill to limit the tax-raising powers of the central government. The question in Britain is, Who would do it? The Queen?

—Eben Wilson

Liquidating the State

EUROPE—The world's biggest stock sale ever may come in October 1984, when Prime Minister Margaret Thatcher's government is expected to put 51 percent of state-owned British Telecommunications (Britain's phone company) on the market. The plan is part of the Thatcher administration's grand strategy of privatizing a large chunk of nationalized businesses, which have in recent years been especially draining of the public coffers.

Already, Britain has entirely unloaded one large state-owned firm (British Aerospace) and has hived off substantial portions of 11 other state enterprises. The Thatcher government has a hit list of about a dozen more state businesses, from steel to airways. And some British scholars have suggested that the denationalization drive ought to get even more radical, offering as targets the government's coal-mining, electricity, and postal operations.

While Britain is Europe's most visible and aggressive denationalizer, the move to sell off state enterprises is evident in other Western European nations as well, though on a much smaller scale. The Swedish government, for example, recently sold Luxor, the state TV maker, to a Finnish firm. West Germany's government has sold almost 14 percent of the energy and chemical company Veba—the country's largest industrial group—thus reducing its share of the firm to 30 percent.

Many German businessmen hope that the Veba sale, the first such transfer since 1961, is the beginning of a move to cut back the government's involvement in the hundreds of enterprises in which it has a substantial stake. One major objective announced by the government is the privatization of Salzgitter, a wholly state-owned steel and engineering concern with more than 500,000 workers.

In France, things are somewhat less encouraging. Albin Chalandon, a former minister in Giscard d'Estaing's cabinet who transformed the state-run Elf Aquitaine oil company into the country's most profitable enterprise, has been preaching denationalization of certain state industries to French business executives. Chalandon warns that the economy of France, where the government's share of national investment is 55 percent, will stagnate if public-sector growth is not turned around. Though Socialist President Francois Mitterrand is trying to maintain austerity measures as best his ideology allows him, it is unlikely that his government will embrace Chalandon's recommendations.

Reviewing the recent book Nationalized Companies, by R. Joseph Monsen and Kenneth Walters, in the Wall Street Journal, Johns Hopkins economist Steve Hanke states that the "most striking feature of nationalized enterprises is their politicization" and that "successful managers of nationalized enterprises resemble politicians rather than businessmen." The result is that "virtually all nationalized companies generate accounting losses." The high cost of politicizing businesses is a lesson that US advocates of a "national industrial policy" ought to take seriously.

Party of Freedom

NEW ZEALAND—In any democratic state, the odds are usually against success for a new political party. But here, the New Zealand Party—a generally pro-free-market party led by real-estate millionaire Robert Jones—may be defying the traditional odds.

When the New Zealand Party started last year, conservative Prime Minister Robert Muldoon reportedly called it a "hoax" and a "joke." He may have spoken too soon. After only two months in existence, the party could boast last November of 11 percent support in opinion polls, displacing the Social Credit Party to become the third most popular party in the country (the conservative National Party was pegged at 41 percent and the Labour Party at 38 percent). Moreover, the party's rallies were attracting huge, sometimes record-breaking crowds. A December report in the New Zealand Herald said the party "is more akin to a phenomenon than some flash-in-the-pan the political establishment had prophesied."

The commitment of Jones and his followers to free-market principles is not absolute, but it is a vast improvement over New Zealand's mainstream politicians. The Herald reports that the politics of the new party draw on both "right-wing" ideas (free-market economics, more law and order, less welfare) and "traditional liberal ideals" including small government, individual freedoms, and "more education but less defense."

A campaign speech by Jones in Ashburton was typical. The "South Pacific Poland-style command economy" must be ended, he said. "It doesn't work in Poland and it doesn't work here." Reintroduction of a private-enterprise system is what will save New Zealand's people, according to Jones. "We can make this nation a great society, not by Government schemes but by unshackling this nation and letting the people do it."

Much of the New Zealand Party's political support comes from former National Party adherents. According to the Herald, Jones's audiences tend to be made up largely of professional people—lawyers, doctors, accountants, academics, businessmen, and farmers. But despite (or perhaps because of) their old allegiances, they are most responsive to Jones at rallies when he criticizes the Muldoon regime as "dictatorial" and speaks about the erosion of freedoms in New Zealand.

Perhaps the biggest obstacle the New Zealand Party confronts is New Zealand's electoral system, similar to Britain's "first-past-the-post" arrangement. To win a parliamentary seat, the new party would have to capture a majority of the votes in a constituency. So to the extent that party supporters are concentrated in its best constituencies, it will probably do well—but if they are fairly evenly dispersed around the country, the party could face a debacle at the polls in November.

Jones himself is confident. "We are going to win first time up," he told a Herald interviewer. "I haven't got time to muck around—it has got to be quick."