Trends

IF CRIMINALS PAY, CRIME WON'T

Restitution—making criminals compensate the victims of their crimes—has been almost completely absent from the American criminal-justice system. So when the highest legal officer of the nation's second-most populous state calls for making restitution part of the penal system, it is an event worth noting.

Robert Abrams, attorney general of New York, recently argued for restitution in a New York Times opinion piece. Not only would the prospect of facing "economic sanctions" help deter criminal activity, Abrams contended, but "restitution also supports the rehabilitative aims of modern penology by encouraging the offender to acknowledge and assume responsibility for his act."

Indeed, the notion of individual responsibility is a fundamental pillar of a free society, in which the rights of individuals are held inviolable. What follows from the application of this principle to true criminal acts—acts where someone's rights have been violated—is the requirement of restitution. But in the American legal system, crimes are conceived of as offenses against the state, so the government monopolizes criminal prosecution. Victims, if they seek restitution, must sue for it in civil courts. And for a variety of reasons—time and expense, fear of reprisal from their victimizers, reluctance to go through a second trial, etc.—this option is often rejected.

"Several states now mandate victim restitution where feasible," Abrams reported. "In Arizona," he noted, "courts may allocate all or part of criminal fines as restitution to the victim." And in New York, recent legislation now enables authorities to confiscate and sell a criminal's property, with the proceeds "distributed first to the victim as restitution or damages."

A perennial argument against restitution is that most criminals are destitute, so restitution would be applied differently for rich and poor offenders. Abrams specifically engaged this argument, suggesting that through "expanded work-release programs and prison-based industries," criminals might earn the means to pay back their victims.

In a later letter to the Times, anthropologist Rolando Alum, Jr., noted that restitution is an old idea that has been incorporated into the penal systems of many societies, both ancient and modern. He called Abrams's proposals "plausible options for our penal system." Indeed, Alum wrote, they "should be quite effective in an open society."

Not only effective—but just, as well.

FLOWING WITH THE MARKET

You didn't have to see the movie Chinatown to know that one of the big problems in California has been and continues to be water—who gets it, and for how much, and at whose expense. Because of substantial government intervention via heavily subsidized water development projects, price and usage controls, and occasional corruption over the years, a true statewide market in California water hasn't had a ghost of a chance. But the idea is gaining more and more currency.

A sign of the times was a recent opinion piece in the Los Angeles Times by Nancy Moore and Timothy Quinn, two researchers at the Santa Monica, California-based Rand Corporation. "The idea of a statewide water market seems like nothing less than heresy to many Californians, including most of those who make or try to influence statewide water policy," they drily noted. Yet they argued that a market framework, in which water could be freely traded, would be the best available solution to problems of water allocation.

Quinn told REASON that to a limited extent, water is already bought and sold in California in about a half-dozen "adjudicated basins." In these groundwater basins, state courts from the mid-1950s to the mid-1970s allocated fairly clear-cut property rights to municipalities and some individuals; together, they now sell an estimated 14 billion gallons of water annually. But that is an exception to the rule. Also, there is no chance of the practice spreading further, since the state supreme court nine years ago made the creation of additional adjudicated basins virtually impossible.

Quinn noted that in his and Moore's view, what is lacking in the current scheme for most of the state is the equivalent of a "pink slip" (property title) for auto owners. If Joe Smith has a pink slip saying that he owns a 1980 Toyota, he not only has the option of using the Toyota to his best advantage but he may sell it nearly anywhere he chooses at the best price he can get. Most users of California water, in contrast, have the option only of using water but no right to sell any they don't use. So they have virtually no economic incentive to conserve and use sensibly available water. "The voluntary exchange of a market generates strong pressure for stretching available supplies," Moore and Quinn noted.

In addition to the incentive to conserve, there are other, related, advantages of a market system, Quinn and Moore wrote. One is a more rational allocation of water among users. The irrationality of the present system is evident in the enormous disparity in water prices around the state, ranging from $2 per acre-foot in "water-rich" areas to more than $200 in "water-poor" areas. In a market situation, owners of the cheaper water would have an incentive to sell their water to users in water-poor areas, to the advantage of buyer and seller.

Yet another advantage of a market system would probably be a reduced need for expensive new water projects. "We would expect fewer projects to be built as water-poor areas discover that statewide conservation is much cheaper than construction of new dams," Quinn and Moore noted. Quinn pointed out to REASON that environmental disruption would be reduced accordingly.

The researchers are quite optimistic about the chances for "some form of a statewide water market" in the next 20 years, for two reasons. The first is economic: "strong pressures exist to find low-cost ways to allocate California's scarce water." The second is political: they believe that "more than any other policy option, a market has the potential to achieve a consensus of farmers, urban dwellers and environmentalists, in both water-poor and water-rich areas."

FIGHTING CLOTHES-MINDED BUREAUCRATS

Sometimes trade protectionism seems like a shabby inevitability. Limiting or taxing foreign-made goods rewards the beneficiaries of such policies, US producers, in giant chunks but penalizes individual consumers in tiny dribs and drabs. So the beneficiaries have a powerful incentive to lobby for protectionist measures, while it rarely makes sense for consumers to spend much time or energy lobbying against them. Recently, however, this pattern has been broken by an industry lobby that aims to relax certain protectionist measures.

The Retail Industry Trade Action Coalition is the new phenomenon. It was formed to fight import restrictions on textiles and clothing imports. They have their work cut out for them.

The supposedly free-trade Reagan administration has dramatically stepped up the government's use of temporary embargoes on imports, called "quota calls." Even when an import is not otherwise subject to trade restraints, it is vulnerable to these quota calls whenever the angels of mercy in the Commerce Department decide that domestic businesses are being hurt by the import. At that point, the quota call may be slapped on, often without any notice.

Another Reagan-administration indignity—and one that the coalition is sinking its teeth into—is a change in the "rules of origin" regulation. The change is designed to crack down on a way that foreign producers have devised to get around quotas, called "island hopping" or "quota engineering." Every country has a quota restricting the quantity of textile products it can import into the United States. Take sweaters. Business Week reports that after China has filled its sweater quota, it ships more sweaters to New Zealand, where a small portion of the production is completed and the sweaters are then imported to the United States under New Zealand's quota. Other sweaters may go to Hong Kong (in fact as much as 90 percent of the sweaters imported from Hong Kong may originate in China).

But in a display of protectionist zeal, the Reagan administration took it upon itself to put the kibosh on island hopping. Earlier this year, it announced a whole range of new technical requirements for ascertaining an import's country of origin, some of which involve a determination of "substantial transformation" in the official country of origin. All told, these rules were "bizarre enough to match the most creative fashions of the rag trade itself," the Wall Street Journal editorialized recently.

But the retail industry trade group has fought back. Although the new regulations took effect as scheduled, the coalition took part in a suit trying to get the federal government to stop their enforcement. Coalition spokesperson Robert Brouse told REASON that the group has filed comments with the Customs Service strongly opposing the regulations and has had representatives testifying before the Senate Foreign Relations Committee in the same vein.

So far, the coalition hasn't scored any major victories. Despite its best efforts, the Reagan-administration rules went into effect on September 7, just in time to have a crippling effect on a big part of the Christmas custom. But the coalition's very existence is an encouraging sign for consumers.

WORKFARE PAYING OFF

Since the welfare state seems unlikely to evaporate anytime soon, are there any good ways to reform it and reduce its size? One proposed reform is "workfare"—requiring that all welfare recipients work in order to receive benefits. Results are trickling in on experimental workfare programs, allowed since 1981. And they indicate that "when properly administered and monitored, such programs can be reasonably effective," as a New York Times editorial put it.

One of the areas where workfare has been tested is San Diego County, in California. Two years ago, then-Gov. Jerry Brown authorized the San Diego experiment for recipients of Aid to Families with Dependent Children (AFDC). Included in the experiment were welfare mothers with children at least six years old. The recipients become eligible for workfare only after they've completed a two-week session training them to look for work in the private sector. After the training and a one-month period in which they are supposed to look for jobs on their own, the workfare actually starts, with the recipients performing community service work.

Joan Zinser, the head of workfare in San Diego, told the Los Angeles Times that in the first 18 months of the program's operation 3,230 welfare recipients were in the program. About a sixth of them—536—subsequently found permanent jobs, and 384 others refused to participate and were denied all or part of their benefits for up to three months.

Workfare has its opponents. For example, Rep. Tom Bates, who chairs the Human Services Committee of California's state assembly, says, "Even though it's beneficial for some, I think they should have a voluntary component rather than forcing them to do something that may or may not help them in the long run."

But much of the response has been enthusiastic—including, interestingly enough, among many of the participants themselves. Jane Barnes, the mother of three teenage children, told the Los Angeles Times that she initially resented it when the workfare program assigned her to work as a clerk for the Fire Department. But now, she says, "I love the program. I'm glad they made me do it. It gave me the opportunity to be something I wanted to be. It gave me the confidence to do it."

A preliminary assessment of the San Diego program by the Manpower Demonstration Research Corporation (MDRC) found this sentiment widespread among participants. "It was clear from the survey that the worksite positions were not considered 'make work' and that the great majority of participants expressed satisfaction with their jobs." The "great majority" also thought the work requirement is "fair."

Workfare wins praise even from some participants who have refused to work and had their benefits cut. Welfare mother Kathy Carson, assigned to wash city buses, walked off her job because of conflicts with her supervisor. But she commented to the Los Angeles Times, "Just because I didn't get along with one guy doesn't mean the program is bad. If I had to go through it again I think I'd do it the right way.…I think it's a good program."

In addition to looking at the San Diego experiment, the MDRC also investigated two Maryland workfare programs. Both studies included cautions that there is insufficient evidence to know how many workfare participants will hold down permanent jobs in the private sector, but the MDRC did conclude that a mix of training programs and workfare can be beneficial.

Meanwhile, New York City has implemented a workfare program that dwarfs California's. The New York Times recently reported that about 15,000 welfare recipients are reporting for work in 65 government and private agencies as part of the city's Public Works Program. They "work at jobs that range from cleaning toilets to bookkeeping and translating," according to the Times—and, not incidentally, are supplementing the highly paid, unionized city government work force at far less cost than public employees.

"It's slave labor," groused Eileen Maloney, a workfare participant doing clerical work in a welfare office in Brooklyn. Mayor Edward Koch disagrees. "Even if they are not learning skills that are transferable, they're working—and that's a work skill," he said.

WORDS OF PEACE ON THE DRUG WAR

It's a sign of changing times indeed: Florida's 4-H Club, in a recent mock legislative session of 200 teenage members, overwhelmingly passed an amendment to legalize marijuana as a cash crop. The farm youth club may have acted only from self-interest—rather than out of principle—but its action may be indicative of a widening strain of rethinking drug prohibition.

An especially noteworthy instance of this was the recent publication of Arnold Trebach's essay "Time to Declare a Drug Truce"—in the Wall Street Journal. Trebach, director of the Institute on Drugs, Crime and Justice at American University and author of the 1983 book The Heroin Solution (Yale University Press), announced that "we have had enough of drug wars" and that "we can rationally coexist with a good deal of drug use in our society." In any case, "we do not have the power to make it go away," noted Trebach. Calling President Reagan's "War on Drugs" a failure, he urged the establishment of "some form of 'drug peace.'"

Trebach pointed out various irrationalities about drug prohibition in addition to its obvious unenforceability. For example, while abuse of (legal) tobacco causes some 300,000 deaths a year, there were only about 1,800 deaths from overdoses of (illegal) heroin and cocaine, and "deaths from marijuana overdose are not estimated because they are virtually nonexistent." Moreover, studies have shown that for alcohol, heroin, and cocaine, only about 1 of 10 users of these substances becomes dependent on them, while 8.5 out of 10 tobacco users develop a dependence. And Trebach also noted that the number of Americans using tobacco has dropped from nearly 43 percent in 1965 to 32 percent last year—without tobacco prohibition.

Trebach proposed that national drug prohibition be repealed in favor of a "states-rights model"—whereby each state would set its own policy on drugs. He suggested that drugs be dispensed under a government-regulated system, as are tobacco, alcohol, and pharmaceutical drugs.

That certainly falls short of an "individual rights-free market model," whereby individuals would set their policy on drug use, and market forces, including consumer preferences, would "regulate" purchasing conditions, availability, distribution, etc. But Trebach's specific proposal is perhaps less important than the unconventional wisdom that lies beneath it: the recognition that the war on drugs—which, for federal drug-enforcement efforts, alone, will consume $1.22 billion of taxpayers' money in fiscal year 1985—is not only futile but counterproductive. With decriminalization, Trebach contended, "the drug scene might be characterized only by the natural, usually peaceful, disorders of a democracy and not by terrorizing levels of crime and a war against the sometimes destructive personal habits of our neighbors that we cannot control."

DERAILING A BOONDOGGLE

Local politicians love rail mass-transit. From Los Angeles and Dallas to Detroit, Buffalo, and St. Louis, they are scrambling for federal money to build new rail systems. Goodness knows why. The last few years have seen the debut of several new systems, and without exception they, like their older counterparts, are disasters—a fact that is finally gaining recognition, if not among politicos and local newspapers, then at least in the national media.

In late August, Business Week published a cover story on the extravagant fashion in mass-transit systems—and extravagant it is. Consider the Metro system in Washington, D.C. "President Lyndon B. Johnson wanted the system to serve as an example for the rest of the country," Business Week sardonically noted. Metro was originally supposed to cost $2.5 billion, hardly a paltry sum; but it has already gobbled up about $6 billion, and only half the system has been completed. The Urban Mass Transportation Administration, which hands out taxpayers' money to these boondoggles, now estimates that the Washington Metro will cost another $6 billion to finish. And on top of capital costs, the system's annual operating deficit has doubled in five years, reaching $190 million in fiscal 1984.

Washington is not alone. Professor Jose A. Gomez-Ibañez of Harvard University found that the cost of a ride on Metro and two other highly touted rail systems of its generation—San Francisco and Atlanta—is four times greater than had been predicted. "If you look at the history of the systems built in the 1970s," he told Business Week, "they consistently overestimated patronage and underestimated both capital and operating costs."

It might ease the pain a bit if a lot of people rode the new systems, but typically they don't. Miami's Metrorail, for example, which began operation this summer, was supposed to have 100,000 riders a day by the end of its first year. After 3½ months of operation, the system had a grand total of 9,000 riders daily. And in San Francisco, reports Melvin Webber of the University of California, the rail system has drawn most of its passengers from bus lines that were eliminated when the subway came on the line.

One would think that with such an abominable record, new rail systems would be anathema to cities not already cursed with them. But no. There is a federal trust after which they lust. When Washington increased gasoline taxes two years ago, it devoted one cent of the five-cent-per-gallon tax to the trust fund that underwrites urban mass-transit programs. This year, the trust fund will get about $1.2 billion, and local governments are drooling to get their hands in the till.

To some extent, their motivation seems to be a Rotarian booster mentality gone mad. Typically, Minnesota governor Rudy Perpich told Business Week that a rail system would transform Minneapolis and St. Paul—which are tasteful, livable cities already—into "world-class cities." But there are apparently more-venal considerations, as well. As Gerald Miller of the Urban Institute put it to Business Week, "If you can get $2 billion from Uncle Sam, why not?"

A recent editorial in the Wall Street Journal, however, pointed out a good reason for cities to avoid the subway siren song. While the federal government puts up enormous amounts for construction costs for rail systems, it is not nearly so generous when it comes to operating costs. For example, the feds pick up the tab for 6.7 percent of the cost of running New York's subways, and in general federal handouts account for less than 10 percent of major rail systems' operating costs. The subsidies to run the things—because no politician in his or her right mind would endorse full-cost pricing of subway rides—must come from local taxpayers' pockets. Washington, D.C.'s white-elephant system now consumes 15 percent of the local government's revenues. And because of their rail system, three San Francisco–area counties now pay a half-a-percent sales tax.

Clearly, rail mass-transit systems aren't an easy ride, as the Wall Street Journal and Business Week indicate. Politicians at the local and federal levels would do well to heed their reports.

BLACKOUT OF A BAILOUT

It's not unusual for government pork-barrel programs to spend wildly until they approach insolvency. Nor is it unusual for them to beg for a bailout, wailing all the while about how national well-being hinges on their continued service (that is, spending). Unfortunately, it is unusual when a program doesn't get what it wants. But that may be the fate of the Rural Electrification Administration (REA), which since 1935 has been making loans to rural and other small utilities to bring electricity to rural areas.

The REA's purpose may seem noble. "Rural electrification" evokes images of benighted Alabama dirt farmers finally able to read their Bibles in the evening by an unshaded light bulb. The truth of the matter is often rather different. Only one percent of rural America does not have electrical service. And, as revealed in a recent article in Reader's Digest, the REA actually subsidizes electricity in some of the wealthiest suburbs in the country. Among the indirect beneficiaries are shopping malls, airports, country clubs, resort hotels, and in Nevada, as the scandalized Reader's Digest put it, "an infamous house of ill repute."

Because the REA's Rural Electrification & Telephone Loan Fund borrows money from the US Treasury at a market interest rate, currently about 12 percent, and then loans the money to utility coops at 5 percent interest, it's not much wonder that it is "in danger of having its interest payments to the Treasury exceed its interest collections from the utilities," as the Wall Street Journal recently noted. The paper added, "Such a situation, which could occur in a few years, would mark a first step toward insolvency."

What's a poor bureaucracy to do? Last year the REA went to Congress asking for a bailout—among other things, forgiveness of $7.9 billion in 40-year notes that the agency is required to start paying in nine years. Even though the Congressional Budget Office (CBO) warned that the total bailout package would increase the federal deficit by $10–15 billion, the rescue plan glided through the House last spring. Its path was undoubtedly greased by more than a half-million dollars that utility co-ops (some of the REA's biggest beneficiaries) contributed to congressional campaigns over the last five years via a "political action fund."

The REA bailout was expected to have just as easy a time in the Senate. Sen. Jesse Helms (R–N.C.), the taxpayer's friend, artfully shepherded the pork-barrel measure through the Agriculture Committee, which he chairs. But before the legislation could come to the Senate floor for a vote, a coalition of interests formed to oppose its passage.

Fred Smith of the Washington-based Competitive Enterprise Institute, who actively fought the bailout, told REASON that other bailout opponents included conservative senators such as Alan Simpson (R–Wyo.) and at least one staunch liberal, Howard Metzenbaum (D–Ohio). Among the outside groups lobbying vigorously against the bailout were the conservative US Chamber of Commerce (even though some of its outraged local affiliates called for resignation from the national body in protest), the libertarian National Taxpayers Union, and the liberal Environmental Policy Institute.

The opposition paid off when the bailout measure died for this year for lack of action in the Senate before Congress recessed for the November election. This is not a final victory. "It's likely to come up next year," Smith told REASON. "These battles go on and on and on." But he and his colleagues have already accomplished more than anyone might have expected earlier.

MILESTONES

• One-stop victory. The Interstate Commerce Commission recently approved for the first time the merger of a railroad (CSX Corporation) and a barge line (American Commercial Lines). The Wall Street Journal hailed this as "an important step" for efficient one-stop shipping—one company offering a variety of transportation routes and modes.

• Thumbs down on industrial policy. When readers of the Small Business Service Bureau Bulletin were recently asked for their position on a national industrial policy, 80 percent of those who responded opposed the idea. The Bulletin goes to 50,000 small-business people throughout the nation, about 35,000 of whom are members of the private trade association. Some 950 readers responded to the survey.

• Rebate liberation. In the past, competition among insurance agents has been hindered by prohibitions in all 50 states against insurance agents rebating any of their commissions to customers. But in August, a Florida court ruled that the antirebate law there is unconstitutional, marking the first time such a state law has been struck down.

GLOBAL TRENDS

SPREADING LIBERTY AROUND

LONDON—That a strong revival of classical liberal (libertarian) ideas is taking place in Europe was made quite evident by the Second World Libertarian Convention, which met in this city in mid-August. This gathering drew a larger attendance than its predecessor two years earlier in Zürich (about 130 compared with 85 or so).

Unlike both the United States and Canada, where the most-visible aspect of each libertarian movement is a political party, European devotees of liberty have chosen other ways to spread their ideas. The British movement, for example, includes three major organizations, two of which (the Adam Smith Institute and the Institute of Economic Affairs) are think tanks, and the third is the Libertarian Alliance, which operates a bookstore, issues pamphlets, and sponsors lectures. All three have been quite effective in getting free-market, individualist ideas before the public and into the public-policy debate.

Similar, but newer, organizations exist in Belgium, Holland, and Norway. The European movement now holds European libertarian conventions in the years in between world conventions, with last year's event bringing over 100 of the continent's young writers and thinkers together to compare notes and exchange ideas on what does and doesn't work in spreading ideas.

Besides Europe and the United States, representatives were also present from Australia, Canada, and South Africa. Among the latter was REASON correspondent Leon Louw, who heads South Africa's Free Market Foundation. Louw and other foundation staff have recently been serving as consultants to the governments of Bophutatswana and Ciskei, two of the independent black homelands surrounded by South Africa. Louw and his cohorts are trying to figure out how, by means of deregulation and privatization on the Hong Kong model, to turn these barren, desperately poor countries into viable free societies.

Another libertarian think tank being consulted by a government seeking economic success is the European Institute, headed up by REASON correspondent Michael van Notten. He reported that he has become a consultant to the government of Aruba, one of the Dutch West Indies. The island is gaining independence in less than 18 months, and its political leadership is intent on making it into the Hong Kong or Switzerland of the Caribbean.

Such consulting assignments are a sign of growing acceptance of free-market ideas. And while there were lively discussions at the convention about the possible pitfalls of getting too closely involved with governments, in general the participants displayed a welcome degree of realism about the good that can be (and in the case of Ciskei, already has been) accomplished by such activity—tangible, meaningful increases in human freedom.

—ROBERT W. POOLE, JR.

ROUTING TV MONOPOLIES

EUROPE—The idea is foreign to Americans, but exclusive state control of TV and radio is the norm throughout Europe. Lately, however, chinks have been appearing in the state's monopoly armor.

The most significant progress so far has occurred in Italy, where the constitutional court ruled in 1976 that independent local stations can legally coexist with the state's broadcast monopoly (RAI). Since then, Italian TV has turned into "a first-come, first-served, grab-your-frequency free-for-all offering viewers here one of the widest ranges of TV choices in the world," Rome-based writer Sari Gilbert reported recently in the Wall Street Journal.

Perhaps typically of Italy, the government doesn't bother to enforce a licensing requirement, so some 5,000 private TV stations—most of them technically illegal because they are unlicensed—compete heartily with the government's RAI 1 and RAI 2 networks. While "many of these stations are very local," Gilbert wrote, "there are three quasi-national networks—Channel 5, Italy 1 and Network 4." The Channel 5 network—27 affiliated stations reaching nearly 95 percent of the country—"is regularly No. 2 in the national prime-time ratings," Gilbert reported. And all three private networks are ahead of the government's RAI 2.

Now West Germany's state-controlled TV stations have lost their broadcast monopoly, and private firms are jumping in on the action. One consortium of a West German and six American entertainment companies is launching a German-language pay-TV service for viewers in Austria, Switzerland, and West Germany. Another American-German consortium also plans a pay-TV service. And pay-TV services have already been set up in Great Britain.

But the real battle may come in the area of broadcast satellite TV. Enticed by Europe's fast-growing TV advertising market—potentially worth billions—the government of tiny Luxembourg, with backing from US investors, is planning to offer Europe's first direct-to-home satellite-broadcast commercial TV with its $200-million Coronet system. The Coronet satellite, whose signal will reach as far as London and Stockholm to the north and Rome and Madrid to the south, will broadcast as many as 16 channels and in four languages.

Though it's not due to start operating before 1986, Luxembourg's satellite-TV venture already has virtually every other European government foaming at the mouth, for the Coronet system threatens to undermine state television monopolies—including some governments' plans to launch their own satellite-TV systems within the next decade. "Nearly 30 countries, including Russia and its East bloc allies," Business Week recently reported, have "protested Coronet's plans to the International Telecommunication Union in Geneva." Especially riled by the Coronet venture is the French government, which plans to start its own satellite-TV service in 1986.

The Coronet system is certainly in for a whole lot more pressure from national governments before it even begins operation. But if it succeeds, it could strike a powerful blow to state domination of European television.