Trends

A NEW NUMBER FOR PHONE COMPETITION

It may just be a matter of time before the last stronghold of telephone monopoly—local exchange service—comes tumbling down. The next-to-last barrier—intrastate long-distance service—took a mighty blow recently when Virginia became the first state to completely deregulate toll calls within the state. As reported earlier in these pages (Trends, Nov. 1983, p. 18), several states have partially deregulated intrastate toll service, but none had gone as far as Virginia, where controls on both entry into the telephone business and on rates have been virtually eliminated—even for AT&T.

Until deregulation, AT&T had been the sole licensed provider of intrastate toll service in Virginia, its rates controlled by the state's regulatory commission—but no more. And following the Virginia deregulation, the Wall Street Journal reported, both Mississippi and Illinois are now considering deregulating their intrastate toll service.

That even local service may now be teetering on the verge of decontrol is evident from local phone companies' nervousness about the security of their exclusive franchises. Earlier this year, Southwestern Bell Telephone (SBT) formally petitioned regulators in Kansas, Arkansas, and Oklahoma to reaffirm SBT's status as sole provider of local service in its franchise areas. And the company sought similar reassurance from regulators in Missouri and Texas, as well.

Writing in SBT's in-house periodical, Management Report, SBT Vice-President John Hayes recently expressed the company's alarm at "developers, universities, government agencies themselves and others" who are installing systems to resell local exchange service or "bypass the local exchange network entirely."

In Oklahoma, SBT's jitters were set off by three instances of private phone systems designed to bypass SBT's monopoly on local service (at a downtown Oklahoma City office building, at a property development in Edmond, and at Oklahoma University in Norman). In Kansas, SBT challenged the legality of the Wichita Airport Authority providing bypass phone service to businesses in the airport complex.

But at the same time that the phone company sought reaffirmation of its monopoly status, SBT seemed to be preparing itself for eventual deregulation of local service. In its petition to Oklahoma regulators for such reaffirmation, SBT added: "If Bell is not the exclusive provider…then Bell should be relieved of both its duty to serve and the attendant economic and regulatory constraints." Furthermore, the company declared, "Like its competitors, Bell should be free to serve only those it desires to serve, whomever it wishes, at whatever rate levels it deems appropriate and for the sole purpose of profit maximization." Revolutionary language indeed.

And, according to telecommunications analyst Milton Mueller, such a revolution is precisely what is needed to infuse cost-reducing and service-improving innovation into local phone service. "Protected monopolies have little incentive to introduce new service and none at all to lower rates significantly," Mueller recently wrote. For precisely that reason, he noted, the Federal Communications Commission deregulated the long-distance and terminal-equipment markets (as well as, most recently, the interstate pay-phone market). The subsequent "competition has led to lower prices and innovative services in these areas; there's no reason to believe that it would not do the same for local exchange service." The real test of Mueller's forecast just may be on the horizon.

A LITTLE FREEDOM HERE, A LITTLE FREEDOM THERE

Even if many candidates for office look unsavory come election day, many voters will at least have the chance to vote on initiatives and referenda that may materially affect their personal and economic freedom. Their concerns range from erotic movies to the price of milk.

Some of the most important measures involve taxes and government spending. David D. Schmidt, editor of the Washington-based Initiative News Report, told REASON that at least five states will have ballot measures for reducing taxes. Evidently, one of the most-effective strategies against higher taxes is allowing voters to decide on taxing proposals. A measure in Michigan—once a high temple of New Frontier-Great Society liberalism—would rescind all taxes enacted since January 1982 and require that future increases in state tax rates and any new taxes be approved by a majority of Michigan's voters.

In California, Howard Jarvis has won ballot status for his "Save Proposition 13" measure. He has charged that court decisions have eviscerated much of his original Proposition 13, which limited property taxes; so the current measure would require a two-thirds majority of local voters or state legislators to raise taxes and fees for government services.

Also in the West, Nevadans will decide whether to limit property-tax increases to five percent and require a two-thirds vote by the legislature or a local body even for those increases. The Oregon ballot will include a measure to establish a 1½ percent ceiling on property taxes, thereby reducing property taxes by an average of one-fourth. Arizonans will decide whether to lower their constitution's limit on state spending, now pegged at 6½ percent of their total personal income. And on Guam, voters will decide on a measure to cut government spending five percent annually until a balanced budget is achieved, as well as another initiative that would put an upper limit on the number of days the legislature there may stay in session.

Montanans (but not Californians, courtesy of a court decision denying ballot status to an initiative) will vote on endorsing a constitutional convention to draft an amendment requiring a balanced federal budget. A convention call requires endorsement of 34 states, and according to the National Taxpayers Union, 32 are already on record supporting it.

Meanwhile, there are two measures this November that would loosen states' economic controls. Alaskans will be voting on a proposal to deregulate intrastate transportation and abolish the Alaska Transportation Commission, while Montanans vote on whether to decontrol milk prices in that state.

A handful of individual-liberties issues have also made their way to the ballot box. North Dakotans will decide whether to add to their constitution a statement of the right to keep and bear arms. And in Utah, voters will have a chance to defeat a proposal to ban sex-oriented films on cable television, although the effect would be chiefly symbolic at this point. Initiative News Report's David Schmidt points out that Utah's legislature has already passed a similar law, and in any event, the US Supreme Court has recently curtailed local governments' prerogative to enact such restrictions.

In Oregon, where marijuana is reportedly one of the largest cash crops, a team of lawyers in the state solicitor general's office have fought with all their might to keep off the ballot a proposal to decriminalize the personal use of marijuana. They are alleging insufficient petition signatures—but the state refused to recount invalidated signatures even when a group called Oregon Marijuana Initiative investigated and charged that many of the signatures were perfectly valid.

But the pro-initiative group, with the help of the American Civil Liberties Union's Oregon affiliate, just won a battle in the state supreme court ordering the secretary of state to recount the invalidated petition signatures. At this writing, she is reportedly conceding defeat and will place the initiative on the ballot.

Sometimes, struggles for liberty depend on such nuts and bolts.

A SONG OF DEREGULATION

Simon Geller, the owner of a one-person radio station in Gloucester, Massachusetts, may be an unlikely soldier for the First Amendment. But this summer, he won a legal victory that promises to undermine a noxious restriction on freedom of expression—regulation of the content of broadcasts by the Federal Communications Commission (FCC).

The only thing Geller originally wanted was to run his little radio station in peace. It was not to be. His is the only broadcast station in history whose license was revoked by the FCC because of the content of broadcasts. But Geller was not broadcasting hard-core pornography. Nor was he inciting his listeners to violent overthrow of the government. Rather, he had an all-classical music format. Rachmaninoff and Vivaldi may soothe the soul, but, alas, they're not enough to satisfy the FCC's public-interest standard, which requires every station to offer such things as news and public-affairs programming, as well.

Therefore, the tone-deaf commissioners voted to strip Geller of his license—and give it to a corporation owned by former Massachusetts Republican chairman Josiah Spaulding and his business partners (Spaulding subsequently died, but the corporation lives on). Spaulding and his cronies had alleged that since Geller did not broadcast radio's usual mishmash of superficial news and misnamed "public-interest" programming, the poor benighted town of Gloucester was an "information wasteland."

Geller, not a pillar of the Republican establishment, could not afford his own lawyer, so the Washington-based Capital Legal Foundation took his case. In June, they won a big victory. A three-judge federal appeals court threw out the FCC's decision and sent the case back to the commission to reconsider—but this time, on grounds that would not transgress Geller's rights. The court took the opportunity to scold the FCC: "The Commission's approach here raises serious First Amendment concerns," the court said, and "the commission's analysis is simply too cursory and vague to be upheld."

Geller's victory redounds not only to his benefit but also to that of all broadcasters. The court decision "sets forth in great detail" the law that the FCC must now use for broadcasters applying for license renewal, Capital Legal Foundation attorney Jim Moody told REASON.

He also pointed out that Geller v. FCC could even be used by the commission as a vehicle for doing away with all content regulation. That's because a few days after the Geller decision, the Supreme Court said in a footnote in another case: "We are not prepared, however, to reconsider our longstanding approval [of FCC regulation of content] without some signal from Congress or the FCC that technological developments have advanced so far that some revision of the system of broadcast regulation may be required" (emphasis added). Moody construes this as the Supreme Court saying to the FCC and Congress, in effect, "Send us the signal on deregulation of content—but it has to start with you."

Will a chastened FCC mend its ways and use the Geller case to send that signal? It's too early to tell, and it will be at least a few months before the commission acts. Its record in the Geller case so far has been shabby, but it's not too late for it to sing a different tune.

THIRD WORLD: BANKING ON THE MARKET?

Which is a greater burden on a developing country's economy: a high population-growth rate or price distortions from trade restrictions? If you were on the staff of the International Monetary Fund (IMF), you'd probably subscribe to conventional development economics and instantly pipe up, "Why, population growth, of course." But a staff member at the World Bank these days just might answer more accurately; for as economist Paul Craig Roberts wrote in a recent Business Week column, "Good sense has been creeping into the World Bank for the past four years, and it has just about taken over."

As an example of that creeping good sense, Roberts quoted the bank's 1984 World Development Report: "The rising trends in unemployment and inflation were the manifestation of increasingly inflexible arrangements [read: government policies] for setting wages and prices and for managing public finances." And in the bank's report of the year before, an analysis of data from 31 developing countries showed that price distortions, attributable to controls, "account for the difference between countries that average 3% annual real economic growth and those that average 7%." The upshot, Roberts noted, is that "market pricing is a far more important factor in per capita income growth than population-control programs can be."

The editors of the Wall Street Journal also rejoiced at the World Bank's emerging strain of free-market thinking as evidenced in its 1984 report, citing in particular the report's identification of the economically depressing effects of high taxation—"one of the main girders of supply-side economic theory," the Journal noted. And supply-side advice is what the World Bank has to offer to developed, as well as developing, nations. As the National Journal recently noted, the World Bank's 1984 report forecasts sustained economic growth worldwide if developed nations cut their budgets, decrease subsidies, and reduce trade restrictions (and if developing countries follow similar advice).

In contrast to the World Bank's newfound wisdom, the IMF remains out in the economic cold. Wall Street Journal writer Gregory Fossedal recently reported that "the fund considers government tax levels per se to have no effect on growth." To the IMF, "taxes are just one, economically neutral means" of reducing trade and budget deficits. Hence, Fossedal noted, an IMF rescue package for Jamaica calls for raising taxes on imports and basic consumption items—though "such items are already taxed at more than 50%."

Meanwhile, Turkey may provide the real-world evidence of how market-oriented policies can boost a developing nation's economy. There, Turgut Ozal, approaching the end of his first year as premier, has initiated a number of measures that fly in the face of typical IMF austerity programs. He has removed import restrictions for many items, eased investment rules for foreigners, held down expansion of the money supply, and slashed taxes on personal income, corporate earnings, and interest. At least one early result bodes well: savings are up sharply, the Wall Street Journal reported, "helping to attract several American and Arab banks." And Ozal predicts a healthy GNP growth rate of 5.7 percent for 1984 and, by the second half of 1985, a reduction in inflation from the present 45 percent annually to 25 percent.

Turkey is perhaps not entirely alone in its defiance of development-economics orthodoxy, but it hasn't many allies, either. And as Paul Craig Roberts warned, "Antimarket ideology remains a powerful force and, unless combated successfully, may yet impoverish the world." Thankfully, it seems the influential World Bank is now moving toward the market side in that battle.

UNEMPLOYMENT AND THE DOLE

What happens when unemployment benefits are cut? For one thing, as economic theory would predict, people tend to stay unemployed for shorter periods of time. University of Michigan economist Gary Solon, in a paper prepared for the National Bureau of Economic Research, documented this effect in analyzing data on Georgia's unemployment-benefit recipients for 1978 and 1979 (1979 was the first year that unemployment benefits were subject to federal income tax, thus reducing after-tax benefits for some recipients). According to a Business Week report, Solon found that the period of unemployment among those affected by the tax change dropped by about one week in 1979.

European policymakers might do well to heed Solon's findings: the Economist reports that Europe's official unemployment tally of 19 million is certain to rise next year, unwelcome news for the economically beleaguered Europeans. In a recent editorial, the British weekly criticized many proposed policies—popularly touted as job-creating measures—that, the magazine worried, "will actually make things worse." Among those policies are mandating a shorter work week (with no pay cuts) and forced early retirement. In that same issue, the Economist published an article, based on the work of Dutch economist Max Geldens, analyzing both American and European employment and discussing a number of "market-sensitive measures that would promote a higher demand for labour."

Corroborating Solon's findings about unemployment in the United States, the Economist article noted that "there is a disturbing correlation between unemployment benefits and the length of time the unemployed remain inactive." Comparisons of these factors among a number of North American and European nations bear this out: in Holland and France, for example, the unemployed receive comparatively higher benefits than their counterparts in the United States and Sweden, and the length of unemployment in the former countries is considerably greater than that in the latter nations.

The correlation between unemployment-benefit levels—which are now determined primarily by government decree rather than by market forces—and how long the unemployed remain without work is convincingly consistent. Admittedly, unemployment is a complex phenomenon, probably with many causes, but unsound government policy on unemployment benefits certainly appears to be one of them.

BUSTING A TRUSTED BELIEF

According to a widely held belief, the more "concentrated" an industry, with the market dominated by a few firms, the lower must be the industry's productivity and the higher the prices for its products. Those who promote this theory assume that such concentration is the product of collusion—sometimes tacit, sometimes explicit—among a few firms that seek to limit supply and thereby command monopoly-high prices. Trust-busting legislation and legal proceedings have been largely based on this theory.

Over the years, however, various economists have produced studies refuting the collusion theory of concentration. Now, in a recent study published by the American Enterprise Institute, economist Steven Lustgarten of Baruch College in New York offers powerful evidence for an alternative explanation of how concentration arises. According to the "efficiency theory" suggested by Lustgarten, "concentration arises out of a competitive process in which more-efficient firms grow large and less-efficient firms withdraw or fail." And this superior efficiency of large firms results in lower, not higher, product prices.

In his study, Lustgarten examined Census Bureau manufacturing-industry data for the periods 1947–72 and 1954–72. He found that throughout both periods, productivity gains were higher and price increases lower for industries in which concentration increased, compared to all other industries generally. Moreover, this differential was even greater between industries showing significantly increased concentration over time (more than 12 percent) and those in which concentration decreased.

Deeply entrenched beliefs are difficult to eradicate. But the next time regulators, legislators, or self-appointed do-gooders feel the trust-busting impulse, they might better heed Lustgarten's cautionary conclusion: "Government policies designed to restructure concentrated industries would lead to less-efficient production and higher prices for consumers."

EXPOSING TRUCKERS' ROAD TO RUIN

When Washington divvies up pork-barrel subsidies, one of the biggest goes to truckers. It doesn't take the form of an outright welfare check. Instead, operators of heavy trucks that use the federal highway system are charged (via fuel taxes) for repairing only a fraction of the damage that they cause to the government-owned roads. Automobile drivers, meanwhile, have to pick up far more than their share of the expense. The truckers' lobbies in Washington regularly squawk that their clients don't cause any more significant damage to highway pavements than do automobiles, but a new study seriously undermines that claim.

What is at issue is pavement deterioration. The trucking industry claims that parkways (roadways limited to cars) deteriorate as fast as highways with truck traffic. But the Austin-based ARE Engineering Consultants recently issued a report that tells a different story.

ARE found that two of the parkways often cited by the truckers and their apologists—the Baltimore-Washington in Maryland and the Merritt in Connecticut—are indeed in bad shape, but they deteriorated for reasons very different from those marshaled by the truckers. The Maryland parkway has deteriorated because of inferior design and construction materials, and the Connecticut parkway is crumbling because of the use of studded snow-tires over a long period of time.

For a better indication of trucks' effect on highways, the authors of the study looked—for contrast—at car-only parkways that were well-designed and -constructed. All of the roads they examined were between 31 and 57 years old, but what the engineers found was impressive. "Although various segments of the parkways at both locations showed some distress," they noted, "there were no signs of fatigue cracking, faulting, edge drop-offs, subbase pumping or other damage normally found on truck trafficked roads." They also discovered that maintenance efforts were "relatively low."

The ARE report was commissioned by the Association of American Railroads, a major competitor of the trucking industry. But it should not be dismissed out-of-hand. Abundant studies from disinterested sources also indicate that heavy trucks do cause considerable damage to highways. A study conducted by the state of Mississippi, for example, compared roadways at the approach to, adjacent to, and leaving truck weigh stations. On the pavement adjacent to the stations where no large trucks passed (they were driving into the weigh stations, instead), the pavement was far smoother than where the trucks entered and left.

Despite all this, truckers tenaciously fight every effort to make them pay anything close to a proportionate share of highways' maintenance costs. In 1982 they supported a compromise bill in Congress that permitted 80,000-pound trucks on all interstate highways (thus overriding three states' prohibitions on trucks over 73,000 pounds). In exchange, truckers agreed that the annual federal "registration fee" on trucks (intended to charge users for some of the cost of roads) was to be increased beginning on July 1 of this year. But in June, only weeks before that was to happen, the truckers' friends in Congress rammed through a bill that slashes the registration fee from a maximum of $1,600 for the largest trucks to $500. Instead, the federal tax on diesel fuel was increased by 6 cents per gallon.

Truckers and their friends in the administration piously claim that the June change is "revenue-neutral"—the same amount of tax money will be coming in. But as Harriet Parcells of the Environmental Policy Institute explained to REASON, the diesel tax actually subsidizes heavy trucks at the expense of lighter trucks, since the damage that heavy trucks inflict on roads is far out of proportion to their fuel consumption. Moreover, all trucks are still subsidized at the expense of other drivers, since all federal taxes paid by truckers are far from compensatory for damages caused by their rigs.

Fortunately, some states may have hit on a partial solution. They are charging trucks for road use according to both their weight (and the resulting damage to roads) and the distance they travel on those roads. Truckers complain that such a weight-distance formula is unworkable. But according to Parcells, Oregon has had such a tax since 1947, and "it's administratively feasible and not expensive to administer." Indeed, its administrative costs are only 6 percent of the revenues collected. Eight other states have subsequently followed suit.

The trucking industry may defend its special treatment at the federal level with an array of distortions and half-truths. But from time to time, reliable studies manage to expose the holes in such a case, and innovative state governments are showing that more price-like alternatives can work.

MARKET METHODS NOT PIE IN THE SKY

The marketplace has always been a highly efficient way to allocate scarce resources anywhere in the world, ranging from Matisse paintings in Paris to artichokes in New Hampshire. It is no wonder that a market economy should be useful in the heavens as well—and the realization has come recently from a surprising quarter.

In a recent letter to Science magazine, two scientists with Resources for the Future—Molly Macauley and Paul Portney—suggested a shift toward a market-oriented allocation of communications satellites. Specifically, in the geostationary arc in space where such satellites operate, there is a prime portion with a view of the entire United States. This area is as valuable to satellites as Beverly Hills and midtown Manhattan are to people. Yet as Macauley and Portney pointed out, the Federal Communications Commission (FCC) currently has the "mind-boggling responsibility of ranking applicants for arc space on the basis of increasingly diverse—and nebulous—characteristics."

But Macauley and Portney believe there is a solution—auctioning the right to locate a satellite in the arc's prime portion. Among the advantages of this or a similar market-based scheme: the FCC bureaucracy would no longer be devising criteria for allocating arc space—the criterion would instead be how much value the private firms themselves place on the space. And, noted the researchers, if an auction scheme were adopted internationally, it could be a boon to a less-developed country that cannot now afford the full cost of communications satellites of its own. The country could buy a slot and lease the space to others until it had the wherewithal to finance a satellite.

Macauley told REASON that in their letter to Science, she and Portney were expressing their opinions and not speaking on behalf of Resources for the Future, a Washington-based environmental group. Still, it's significant that market allocation of arc space should be endorsed by scientists with Macauley and Portney's institutional affiliation. Macauley noted that she and Portney will be developing the idea further in an article to be published in an upcoming issue of Regulation, a magazine of the American Enterprise Institute.

Frequently, when limited resources are allocated by some artificial formula, scarcity and irrational use of the resource results. In light of the current system, Macauley and Portney themselves ask, "Will there be room in the arc?" Their answer: "Certainly, if this resource is treated as the valuable commodity it is."

MILESTONES

• Delaware axes taxes. In July, Delaware enacted an across-the-board 10 percent cut in the state personal income tax, effective January 1, 1985. It was the state's second such tax cut in the last four years. Gov. Pierre du Pont said that the cut was made possible by the state's "constitutional restraints on government spending."

• Bible Belt victory. A seven-year battle between Nebraska authorities and private church schools was resolved in August when the state's board of education conceded the right of church schools to hire teachers who don't have state certification.

GLOBAL TRENDS

BRITISH FREEDOM TAKES WING

GREAT BRITAIN—Britain is at a transition stage. As optimism rises about the end of the recession, pressures are bubbling up for changes in the welfare state, in the amount of state ownership, and in the whole attitude toward how individuals should be looking after themselves instead of relying on the state. Moreover, government spending this year fell as a proportion of the Gross Domestic Product for the first time in a long time. That must mean something. Britain is not going to pop out suddenly into Valhalla, and there's an enormously long way to go, not least because the educational establishment is so backward. But at least the right questions are being asked.

It is interesting to see how the politicians deal with the so-called privatization of state industries. The Thatcher government has been passing out bits of British This and That for a while, and there is more to come. But the process is far from perfect. The existing statutory institutions sometimes manage to survive the privatization process and effectively bottle it into a quasi-governmental industry.

At the same time, there is a tendency for the market, once released, to show its strengths where enough freedom has been given. Opticians, the National Freight Corporation, and telephone manufacturers come to mind as examples of where we now have choices and not a tax load to pay—where privatization has in fact been forgotten as an issue and the freed industries are just seen as normal services like any other.

There are signs that even the socialist Labour Party may be tacitly accommodating itself to the inevitable. No longer are they saying that they would automatically renationalize all the industries that have been privatized under Thatcher. Instead, according to the London Times, they're admitting that "a blanket policy of renationalization will be neither feasible nor desirable when the party next comes to power"—whenever that might be. Even the hallowed, decades-old Clause IV of the party's constitution, which calls for "common ownership" of the means of production, distribution, and exchange, is being judiciously reinterpreted. Now, the party says that Clause IV can mean worker and consumer cooperatives and local enterprise boards invested in by local government.

Meanwhile, the edifice of government-regulated air fares is crumbling. Deals have now been made between Amsterdam and London on a bilateral basis that have brought fares down from just under 100 pounds (about $130) to 46 pounds (about $60). There's a gain here for both countries. Schipol International Airport in Amsterdam is trying to make itself the great rival to London's Heathrow Airport and so had a great interest in a cheap connecting flight to London for intercontinental connections.

But the Amsterdam-London arrangement is only one hole in the dike. There have been discussions about other such agreements, and apparently even the Eurocrats in Brussels are beginning to see the light, not least because the parliamentarians who fly into Strasbourg for Europe's lame-duck parliament always complain about the cost of flights. It only needs a congressman to say boo, and the goose will run.

The massive cuts in airline fares represent but one of the little cracks appearing all the time throughout Europe. Recently, German-French border officials stopped checking papers and now pass people through with a nod, conducting spot checks for illegal smuggling only. Once this nonbarrier mentality spreads, we may be able to get air flights from country A through B and C and back to country A—all on a country A carrier. Slow work, but it will come.

—EBEN WILSON

PRIVATE DOINGS IN GERMANY

WEST GERMANY—The idea of privatizing government-owned services and property is not new here. In the 1950s, the Christian Democratic government of Konrad Adenauer experimented with privatization. Lately, though, the idea has gained considerable momentum, even outdoing the British in at least one respect.

Specifically, Britain so far has nothing like Germany's "privatization exchange," as reported recently in Urban Innovation Abroad, the newsletter of the Council for International Urban Liaison. The German Chamber of Industry and Commerce started the exchange in order to match government agencies with private-sector suppliers of services, at no charge to either. Within a month after it started operation, the exchange had registered 130 private firms willing to provide computer centers, bus systems, tourist offices, janitorial services, and more.

But much is already under way. Germany's Junior Chamber of Commerce published a report late last year documenting 600 successful instances of privatization. For example, the city of Essen transferred to a private operator a 75-year-old school of municipal administration and business, thus relieving taxpayers of the burden of subsidizing the school by 440,000 marks annually. (In private hands, it is now operating without a loss.)

Where the costs of private and government-run institutions can be compared, private institutions seem to be doing quite well. For example, a private hospital in Dortmund with two beds per room offers care considerably cheaper than the government-run clinic with three beds per room. And when the town of Warstein privatized one of the municipal swimming pools in 1981, saving taxpayers some 50,000 marks annually, it required that the private operator not raise the admission price above that of the pools still owned by the city. Not only did the new owners comply with that rule, but they improved quality—their pool is now open all the time, unlike the city's pools, and it offers more services.

Because of privatization, enterprises that were losing money hand over fist are on the road to solvency. A municipal slaughterhouse(!) in Cologne was losing 810,000 marks annually before it was bought by a consortium of 105 private firms. Now, its operation has been improved dramatically, and the enterprise is actually turning a profit.

In the wake of these experiences, the Konrad Adenauer Foundation's Institute for Local Politics has published a report by Eberhard Hamer calling for extensive privatization at both local and national levels of government. Hamer wrote favorably of privatizing the German Federal Railroads, the postal service, government-owned forests and arable land, public housing, airports, hospitals, and many other enterprises currently under state control. He also cited his 1981 empirical study showing how much more expensive German state enterprises are than their private counterparts—motor-vehicle repair, 100 percent; printing services, 50 percent; laundry services, 90 percent; and office cleaning, 150 percent.

Hamer noted that one of the biggest obstacles to efficient privatization is a national law providing extensive job protection for permanent civil servants. In most cases, he pointed out, "they could not be dismissed in the case of privatization." But he also notes that while many civil servants have opposed privatization, some—including air traffic controllers—have supported the idea "because in the private economy they would receive a higher net income than in public service."