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HOME-GROWN PROTECTIONISM EXPOSED

The US Constitution prohibits barriers to free trade among the states of the Union. The first of the burdensome federal regulatory agencies, the Interstate Commerce Commission, was established ostensibly to facilitate interstate commerce. A host of other federal regulations have been passed in the name of free trade. And yet, interstate protectionism is rampant throughout the land—a fact now brought to light by two University of Houston economists.

Steven Craig and Joel Sailors of the University of Houston's Center for Public Policy figure that barriers to interstate commerce cost consumers as much as $150 billion a year in higher prices, all because the legal minds who inhabit state capitals have found ways around the constitutional prohibition.

The two economists found some 1,500 restrictions on interstate agricultural trade alone in 11 Western states. For example, in their home state of Texas, where grapefruit agribusiness is a powerful special interest, the state government cannot legally placate the grapefruit growers with import quotas on out-of-state grapefruit. Instead, the philosopher-kings in Austin impose "maturity standards" requiring that grapefruit sold in the state must be nine parts of sugar to one part acid. Just by coincidence, Florida grapefruit averages only 7.5 parts sugar—so in the Lone Star State, it is forbidden fruit.

Power-drunk state governments occasionally impose taxes, marketing regulations, and licensing requirements on out-of-state wine but not on wine produced within their states. And virtually every state has extensive laws protecting home-based banks from out-of-state and foreign banks' competition.

One of the most extensive protectionist measures, even though it's not often recognized as such, is state licensing and certification of professionals—doctors, cosmetologists, attorneys, dentists, teachers, psychologists, etc. There are more than 2,800 such state laws, according to one study cited by Craig and Sailors. Their effect is to restrict the interstate mobility of more than seven million workers and to inflate artificially the wages of state-licensed workers (dentists' incomes, for example, are an estimated 12 percent higher than they would be in a free market, according to one study cited by Craig and Sailors).

The study of interstate protectionism was the subject of a recent article in the Christian Science Monitor, and Craig told REASON that he and Sailors have gotten a number of requests for copies of the study. He also noted that they are currently working on a follow-up study of states' "purchasing preference laws." These provide that when a state solicits bids for products or services, out-of-state bidders operate under a handicap, such as submitting a bid at least five percent lower than the lowest in-state bid in order to get the contract. (The five percent figure is typical, but New York State actually specifies a 20 percent handicap for a few of its contracts.)

Because of this scheme, taxpayers pay through the nose for products and services that could be obtained more cheaply from out-of-state sources. In 1977, 20 states had purchasing preference laws, and Craig and Sailors calculate that they spent an extra $3 billion that year alone because of it.

There are a few glimmers of hope in all this. In at least two cases, the Supreme Court has declared protectionist measures unconstitutional—once in North Carolina when it tried to restrict the importing of soft drinks with tax and administrative burdens, and again in Louisiana, which tried to tax oil-field equipment manufactured elsewhere.

And the Craig-Sailors study is itself an encouraging sign. The two economists have performed the substantial public service of defining and publicizing the problem.

TUNING IN ON RADIO DIVERSITY

If the Chicken Littles who have spent years clucking about the dangers of broadcast deregulation were right, then radio—the medium in which deregulation has been most substantial—should by now be a monotonous wasteland, dominated by a few big corporations, with the interests of listeners ill-served. Instead, thanks to the feared deregulation, radio today is chock-full of dazzling and innovative things.

Take Dr. Demento, a disc jockey described by the Los Angeles Times as "offbeat." For some years, Demento has been an institution in the Los Angeles area, playing such sedate tunes as "The Homecoming Queen's Got a Gun," "99 Dead Baboons," and "The Boa Constrictor Ate My Wife Last Night." Ten years ago, in the stodgy days before deregulation, the good "doctor" tried to get his program syndicated nationally by the five major radio networks, but each turned him down. In those arid times, universal acceptability was what networks looked for, so the Dementos of this world had little hope.

But in the Carter administration, things began to change. Charles Ferris, then the chief at the Federal Communications Commission (FCC), successfully pushed a measure that broke a monopoly on communications satellites held by Comsat. The result was dramatic. As satellite technology advanced by leaps and bounds, the cost of renting signal relay time on a satellite fell tremendously. And more was to come.

In the Reagan administration, Mark Fowler succeeded Ferris at the FCC and proceeded to do away with most regulation of broadcast content. Now, it's not only economically feasible for almost anyone to get into the business, but in addition radio stations are no longer hindered by cumbersome "public-service broadcasting" requirements and the like. The result: scores of broadcast entrepreneurs have sprung up to peddle all sorts of shows to radio stations across the land, satisfying an amazing variety of listeners' preferences.

Westwood One, which operates out of a converted warehouse in Los Angeles, is such a company. Using satellite technology, they syndicate Demento's show every Sunday night to 175 stations across the country. No longer is Demento at the mercy of the five big networks. As New York consultant Jim Cameron exultantly told the Los Angeles Times, "Anybody can be a network."

Deregulation's critics who yearn for diversity should note that Westwood One also produces a country-music series, Live from Gilley's; a rock star talk show, Off the Record; and several rhythm-and-blues programs. Other companies are selling shows ranging from exclusive film reviews by the president's son, Ron Reagan, to an advice show featuring a New York sex counselor named Dr. Ruth Westheimer.

Diversity is also flowing from another FCC move—deregulation of Subsidiary Communications Authorization channels (SCAs). These subchannels are superimposed on a standard FM broadcast signal and are generally leased by FM stations to third parties (for office Muzak, readings for the blind, etc.). In the past, FCC regulations specified that an FM station could use only one subchannel, even though more were technically feasible; with few exceptions, the information on the subchannel had to be voice or music; and an SCA could be on the air only while the station was using its main audio.

Now, those rules are out the window. A station can broadcast as many SCAs within its spectrum range as it wants, and it can broadcast any kind of information it chooses. Within a period of months, this has opened up a cornucopia of possibilities. A New York firm is renting time on a local FM station's SCA to send stock information and wire-service reports, in text form, to subscribers. Banks are reportedly using SCAs to exchange financial data. A German company is developing a traffic-bulletin system. Utility companies are using SCAs to prevent overloads by remotely switching off customers' air conditioners, outdoor lighting displays, and large appliances. And some companies are working on an SCA-based paging system that can locate a subscriber anywhere in the country via an FM network.

Meanwhile, the stolid Chicken Littles are agitating against further deregulation of television. But the evidence from radio deregulation argues against their baleful predictions.

FLY ME, I'M DEREGULATION

Just as surely as the sun rose in the east and set in the west, flying on planes used to be expensive and taking a bus was cheap—back in the days before transportation was largely deregulated. How times change. Today, air fares are so low that flying is within reach of many people who never could have afforded it previously. Indeed, on many routes, it is actually cheaper to take the more-convenient airplane that to ride the bus. It's one more boon to consumers from the long-fought deregulation.

Recently, the Wall Street Journal reported on the phenomenon. It noted that traveling from Norfolk, Virginia, to Newark costs $50.55 on Greyhound and $56 on Trailways—but only $27 on some People Express Airlines flights. And on Greyhound, the fare between Newark and Syracuse is $36.10 for a trip that takes about 5½ hours, while People Express charges $27 for a Newark-Syracuse flight that takes an hour and 20 minutes. "It's just easier to fly," said Sarah Fein, a 21-year-old Syracuse University student who had taken the Newark-Syracuse bus for three years but now flies People Express.

People Express operates mainly on East Coast routes. The same phenomenon, however, is to be seen in the West and Southwest with Southwest and Pacific Southwest airlines.

Bus-company officials are alarmed by the new threat to their hegemony in the low-cost travel market. "There's a lot of competition with the airlines, but it's not freely admitted," Terry Underwood of Greyhound Lines, Inc., told the Journal. Robert Buschner of Trailways noted, "The degree to which they have seats available is the degree to which they'll hurt us." From 1980 to 1983, intercity bus ridership dropped from 370 million to 365 million, while air ridership climbed from 296.6 million to 317.9 million.

In response to the new freer climate, the major bus companies are taking countermeasures to improve their image and make their service more appealing to travelers who might ordinarily take to the air. The bus companies are also sensitive to price differences between them and the airlines. When Southwest Airlines started a Dallas-Little Rock route that matched the Trailways bus fare of $47 and $32 on weekends, Trailways lowered its fare to $30.

Can the bus companies meet the new competition? It's too early to tell, says the Journal, whether they can hold their own on major routes or will shift to cities too small for the low-cost air carriers to serve profitably. In any event, one thing is clear: air travel is far more accessible for Sarah Fein and thousands of other travelers like her. They have deregulation, and the competition it engendered, to thank. It's hard to imagine more effective consumer protection—the ostensible rationale for the now-grounded regulatory scheme.

IMPROVING DE-BASING

Pork-barrel politics has made it nearly impossible to close obsolete military bases, but a recent article in Industry Week offers hope.

Frequently, a military base affects a nearby town's economic life the way heroin affects an addict: it spawns glorious fantasies, it's outrageously expensive, it saps any natural vitality that was there before, and people are falsely convinced they can't live without it. So when the federal government contemplates closing a base as an economizing measure, local pols and community leaders usually put pressure on their representatives in Washington to urge that the base be kept open to preserve local jobs attendant upon the base's location there. But now comes news that it is possible for a town to kick its base habit and survive—by privatizing the military site and converting it into a factory or industrial park.

The advantages of these "ghost towns," noted Industry Week, are extensive existing facilities (buildings, paved roads, water and sewer systems, and often runways), additional undeveloped land, and a skilled labor force. According to the federal Office of Economic Adjustment (OEA), 94 communities that it monitors have lost 88,000 jobs as a result of base closings—but these same communities have gained 124,000 new jobs in the private sector.

Industry Week reports that some 200 former military installations are undergoing conversion to civilian use. One example is in Chippewa County on Michigan's Upper Peninsula. When the Kincheloe Air Force Base there closed eight years ago, the area suffered a loss of 700 jobs and $36 million in payroll and related revenues. But a local economic-development authority was set up to work with the OEA and local investors to convert the base into an industrial park. Low-interest loans to businesses and bargain-priced leases on space have brought almost 30 companies into the industrial park. And over 1,000 new jobs have been created, more than compensating for the loss of the Kincheloe Base jobs. And 200 more are in the offing when a firm purchases an explosion-proof facility for $1.2 million (a bargain compared to constructing anew).

Not all communities have dealt with a base closing nearly as well as Chippewa County. Industry Week noted that not enough business executives are aware of the potential at closed bases.

If the awareness spreads, it could go a long way toward alleviating the scandalous waste of taxpayers' money involved in maintaining unnecessary bases in the first place. (A few of the most egregious examples—Fort Douglas in Utah, built to protect the stage route to the West in the last century; and Fort Monroe in Virginia, complete with a medieval moat—were detailed in REASON in "Hill Bent on Spending," Nov. 1984.)

In her recent book Cities and the Wealth of Nations, Jane Jacobs points out how such bases are a drain on the overall economy. She describes a scene at one base in North Carolina: "loaded trucks rumble through the gates, bumper to bumper, throughout the cargo receiving hours of the day, bringing in their freights of peanut butter, business machines, dental drills, mattresses, chain-link fencing, shoes, file folders, light bulbs, detergents, cooking ware, spaghetti." All this production is "irretrievably useless," she notes, "owing to its destination."

Thus, conversion from unnecessary military installations to productive, private-sector uses—getting off the government dole—is not only quite feasible but very desirable. It gives the Biblical injunction to make swords into plowshares a whole new meaning.

SMALL BANKS SURVIVE BIG CHANGES

Mention banking deregulation in some circles, and you're likely to hear defenders of the old order warning that deregulation will be the death of small-town and rural banks. According to this prediction, rapacious big-city banks will steal customers from their country cousins by offering high-interest accounts. The doomsayers warn that the small-town bank, that stolid bulwark of republican virtue, will then be headed for the same fate as the dodo bird. So it's interesting to note that although deposit deregulation has been a fact of life for two years now, many small-town banks are prospering.

For example, Joseph Reed of Grant County Bank in Medford, Oklahoma, told the Wall Street Journal recently, "I worried a lot about deregulation before it came," but "the public hasn't swarmed on these high-paying accounts like we thought they would." Reed's bank is evidently not unusual. As the Journal noted, "many small-town banks have remained among the most profitable in the country because their customers—whether through loyalty, torpidity or a lack of handy alternatives—have left billions of dollars in low- or no-interest accounts."

The Journal asked some residents of Matador, Texas, about their local bank, First State Bank, which has a policy of paying no interest on deposits yet holds $7 million of Matadorans' money. Rancher John Russell, noting that the bank offers him and other small ranchers loans at two to four percentage points less than the competition, said, "They've been good to me, so why shouldn't I be good to them?"

Grocer William Wason recalled that First State Bank made a loan with only six percent interest to the First Methodist Church when its roof fell in. And one elderly Matadoran kept "a substantial sum" in First State rather than putting it in interest-bearing accounts elsewhere, because she wanted her money "close by where she could get at it if she needed it."

Customers' preferences combine with other factors. Federal Reserve Board economist Stephen A. Rhoades noted last July that small banks are nearly as efficient as large banks and usually better capitalized and more profitable. Even though a variety of high-interest accounts and money-market funds are available, there is now an estimated $307 billion sitting in low-yield passbook savings accounts, one of the pillars of small-town banks. This is only $56 billion less than when deposits were deregulated.

Deregulation is not always a rose garden. It tends to weed out the most inefficient providers of services. But the record of the last two years strongly indicates that small-town banks aren't about to be crowded out by big banking concerns.

HOW TO CLEAN UP SUPERFUND

If there were a Pulitzer Prize for euphemisms, "Superfund" would deserve special mention. Former Environmental Protection Agency (EPA) analyst Fred Smith, Jr., describes the billion-dollar toxic-waste cleanup program as "a classic public-works program enacted as a political response to the safety concerns of the American public." In a recent Wall Street Journal article, Smith pointed out some of the most glaring flaws in the program—and suggested market-based alternatives.

Smith, who now heads the Competitive Enterprise Institute in Washington, points out that Superfund, set up in 1980, is structured to be a "free good." The EPA-run program pays 90 percent of the cleanup costs for toxic-waste sites, so local politicians have an enormous incentive to lobby for sites to be placed on the Superfund cleanup list—regardless of how much or little danger the site actually poses to the community. "If funding permits, we may find ourselves 'gold plating' all 22,000 potential sites," Smith notes. "That, according to General Accounting Office estimates, might cost about $26 billion."

Another big flaw in Superfund is the senseless way it is financed. Much of its money comes from a special tax levied on petroleum and certain chemicals. This is completely contrary to the idea of restitution for actual damages, or as Smith calls it, the Polluter Pays Principle. The companies that pay into Superfund have no say in how hazardous sites are managed, Smith notes, and "even if a company did reduce these risks [of toxic waste], its tax burden would remain unchanged." Thus, he concludes that Superfund "creates no incentives for anyone to reduce the risks associated with dumps—existing or future."

But there is a better way of doing things. Smith recommends a market-based, property-rights approach to the problem. For one thing, he suggests that environmental resources such as aquifers and surface waters should be recognized as property and owned privately. The owners would naturally have an incentive to protect their property. He also suggests that in some cases, a better alternative to restoring a polluted site would be to compensate individuals and property owners for damages.

Smith also argues that the marketplace already has a mechanism to help guard against toxic-waste problems in the future—insurance. He suggests that the EPA with its Superfund might withdraw from the cleanup business and instead require the parties responsible for the waste problem "either to clean up the site or purchase insurance to safeguard those individuals and property owners in the exposure region."

Would insurance companies in that case sit by passively, waiting for hazardous waste to cripple and kill hundreds of people so it could compensate the widows and orphans? Hardly. It would be in the interest of insurance companies to investigate hazardous-waste sites closely, assess their risks, and require their clients to take protective steps.

Smith is correct in suggesting that the Superfund is an expensive political monstrosity whose fundamental premises make little sense. However, that doesn't mean that its vaunted goals of managing and cleaning up hazardous waste are bad—only that a free-market framework would allow them to be met far better.

LENDING ADVICE FOR UNCLE SAM

The federal government's fantastic borrowing binge is well known, its debt soaring to ever-dizzier heights by the second. Uncle Sam's lending habit, however, is a less-publicized matter, though by the end of fiscal year 1985 federal loan liability will exceed $1 trillion. But recently submitted legislation, based on a government study of federal credit activity, may put some checks on the loan-happy feds—and help reduce the national debt by billions, as well.

The government's extensive credit activity includes direct loans (such as to farmers and small businesses), guaranteeing of loans (such as housing and student loans), and loans by government-sponsored enterprises. Only a fraction of this activity shows up in the federal budget, so the true cost is not readily evident to taxpayers. A March 1984 study by the Congressional Budget Office (CBO) estimated that budget understatement to average about $20 billion a year.

In its study of federal lending activity, the CBO documented the government's mushrooming credit programs—Congress has created more than 350 over the last two decades—and suggested ways to reform the system. One proposal is particularly noteworthy: privatize federal lending. Specifically, under the CBO's "market plan" the government's direct loans would be sold to private purchasers (just as banks sell mortgages to investors). And federally guaranteed loans—private loans, such as student loans, on which the government guarantees to pay back the principal and interest if the borrower defaults—would be reinsured by private carriers.

Writing in a recent issue of Business Week, Clifford Hardin and Arthur Denzau, both of Washington University's Center for the Study of American Business, called attention to the CBO proposal, noting that it "would make the true costs of federal loans visible to taxpayers and hold the promise of saving the federal government billions of dollars." According to the CBO study, the sale of outstanding direct federal loans, with a face value of $225 billion, over a two-year period would net $95 billion. That onetime revenue, the CBO suggests, could go to reduce the public debt, thereby permanently lowering federal interest payments by about $10 billion annually.

Hardin, a former secretary of agriculture in the Nixon administration, told REASON that he and Denzau have had a "continuing conversation" with the staff of Sen. Paul Trible (R–Va.) and Rep. Willis Gradison, Jr. (R–Ohio), who have submitted legislation incorporating the CBO proposal and requiring that all costs of federal credit assistance would have to be recorded as such in the budget. Hearings on the Trible-Gradison proposal were held during the summer congressional session, and the bill could come up in the first session of 1985.

Though the legislation would not put Uncle Sam out of the credit business—the government would still extend loans (that it would later have to sell) and would purchase insurance to guarantee others—the legislation would put the true costs of these activities before taxpayers' eyes. And that, at least, might awaken some to what Harding and Denzau call the "nightmarish tangle of uncontrolled federal lending."

MILESTONES

• Three beeps for deregulation. In September, the City Commission of Wichita, Kansas, substantially deregulated the town's cabs and limousines. It's now much easier to enter the cab business, and for the first time taxis may offer shared rides, fixed routes, and discount prices.

• Daft draft shafted. Gillam Kerley, a draft-registration resister in Madison, Wisconsin, won a dismissal of his indictment for failing to register with the Selective Service-and he did it without a lawyer. He said he wanted to "speak with the jury person-to-person…so that they could see I was a real human being."

GLOBAL TRENDS

CONTRAS DO BETTER WITHOUT THE CIA

JINOTEGA PROVINCE, NICARAGUA—When I first went on patrol inside Nicaragua with a group of "Contras" from the Nicaraguan Democratic Force (FDN) in late 1983 (see "Fighting the Soviet Imperialists: The Contras in Nicaragua," June–July 1984), the guerrillas were limited to hit-and-run raids launched into northern Nicaragua from Honduras. They were undergoing the birth pangs of a newly formed liberation movement, high on enthusiasm and committed to ridding their country of Soviet Marxist tyranny—but low on experience, training, and military competence.

Upon my return in the fall of 1984 to spend a few days at the FDN Strategic Command in Jinotega Province, I witnessed a very different situation—and a strikingly improved guerrilla army.

In the interim, the US Congress had cut off CIA support to the guerrillas. But Enrique Bermudez, the FDN's director of military operations, told me that "in many ways, it has helped us." He reported that although they are running low on certain types of ammunition, "because of the cut-off we have discovered how many friends we have around the world. And we don't have to worry about the penguinos [Spanish for 'penguins,' the Contras' nickname for CIA agents, who are always dressed in suits and ties] telling us what to do anymore."

The FDN guerrillas said that they have over 12,000 armed members fighting inside Nicaragua, with a permanent presence in eight provinces. In addition, the Miskito Indian guerrillas of MISURA, an allied group led by Steadman Fagoth, have some 1,500 fighters in northern Zelaya province. No more hit-and-run raids. Now the Contras are staying and fighting.

Top FDN commanders stopping over at Jinotega headquarters talked of their growing support among the Nicaraguan people. "Many people are calling us los muchachos," one of them observed. ("The boys" is a term of affection that many Nicaraguans applied to the Sandinistas when they were guerrillas themselves fighting Somoza.) "More and more," he went on, "people are beginning to lose their fear of the Sandinistas as they see we are growing stronger and the Sandinistas more on the defensive."

According to another commander, "It's much easier for us to fight the piricuacos [rabid dogs] now, as they have so many new draftees with no experience and a complete lack of desire to fight us. On the other hand, my men are battle-tested. They are becoming extremely good jungle fighters, and their morale is higher than ever."

The chief of the military training center, famous for his escape from Tipitapa Prison near Managua in 1983, talked of how recruits are pouring into the camp—mostly small, peasant farmers and students escaping the Sandinista draft. "The turbas [Sandinista gangs] are so desperate they are raiding high-school classrooms right in session and movie theatres, grabbing young boys and forcing them into the army. We have so many wanting to fight with us now, that if we had the supplies and equipment we could have a force of 20,000 in the field within six months, and 50,000 within a year."

The Contras said that in the first nine months of 1984 they had taken 630,000 pounds of equipment and supplies inside Nicaragua to their forces. I also heard reports that more weapons and ammunition are being captured ("Most of our AKs now are captured," according to one commander) and that some Sandinista militia units are so demoralized that they are starting to sell ammunition and supplies to the guerrillas.

The Contras' strategy as of early fall: to expand their area of control from northern Jinotega and cut off the Pan American Highway and this key area from the rest of the country. They talked about a program called RIC (Clandestine Internal Resistance) being in place in Nicaragua's principal cities with 7,000 collaborators and sympathizers. "The Sandinistas have 83 RIC members in jail," one Contra acknowledged. "But since the RIC is organized in discrete cells, no one person can betray more than two or three others."

Alongside their optimism, the guerrillas admitted to a need for materiél—light arms, grenades, mines, boots, medicines, and money for paying organizers and informers. Yet, responding to the early October appearance of Daniel Ortega at the UN and his charge that the US government was planning to invade Nicaragua, one Contra told me, "We do not want and we do not need the Americans to fight for us."

—JACK WHEELER

FREEDOM SOCIETY MEETING

CAMBRIDGE, ENGLAND—Classical liberal ideas are making great progress in Europe, especially among scholars. Many of the new generation of individualists were in attendance at 1984's biannual international meeting of that now-venerable institution among classical liberals, the Mont Pelerin Society, founded in 1947 by F.A. Hayek and other leading defenders of the free society.

The 1984 meeting, held the first week of September at Cambridge University, built its opening session around two anniversaries—the publication of Hayek's The Road to Serfdom in 1944, and George Orwell's Nineteen Eighty-Four. Philosopher John Gray (Oxford University) presented a very good study of The Road to Serfdom based on the extensive work he has been doing on Hayek. Gray urged participants to "be ready to accept the view that, within the history of our own intellectual tradition, there may be weaknesses which have contributed to the rise and domination of socialist ideas." Henri Lepage (Paris) presented an insightful comment on the intellectual roots of The Road to Serfdom: he asked if there might not be a built-in philosophical bias in the constructivist rationalism that Hayek sees as the basis of socialist and interventionist thinking.

The sessions "The Clash of Security and Progress" and "Private Resistance to Private Property" brought out lively discussions. Craig Stubblebine and Rodney Smith (Claremont McKenna College) analyzed the intellectual and political obstacles to increased popular pressure for free markets and greater recognition of private property rights. John O'Sullivan (Daily Telegraph, London) noted the growing constituencies for property rights and markets in the United Kingdom created by the sale of "council housing" to tenants at large discounts (see REASON, Trends, Oct. 1984). Henry Manne (Law and Economics Center, Emory University) examined three privately organized institutions in capitalist countries that are generally hostile to libertarian economic policies: organized churches, private universities, and private grant-making foundations.

A debate between monetarist and Austrian economists has become a tradition at Mont Pelerin Society meetings, and the latest gathering was no exception. Some of the debate this time focused on Milton Friedman (Hoover Institution), who presented a paper titled "The Economic Contributions of John Maynard Keynes." Friedman's comments on money indicated much less distance than might be assumed between monetarists and Austrians. To everyone's pleasure, one of the most important Austrian economists, William Hutt (University of Dallas), was able to attend at the age of 85 and to make his usual insightful contributions. John Greenwood (Asian Monetary Monitor, Hong Kong) also lent valuable analysis on monetary questions.

Important perspectives on the economics of public choice were presented by James Buchanan (George Mason University) and Pascal Salin (University of Paris). Lord Bauer (London School of Economics) and Roland Vaubel (University of Mannheim) analyzed international economic crises.

But the most animated discussion occurred around the paper of Shirley Robin Letwin (Cambridge University), "Moral Agreement in a Free Society." She argued that a free society entails the acceptance of definite limits on what is arguable in thought and tolerable in behavior. Finally, there were a number of interesting sessions on themes such as labor unions, socialist economies, science and public policy, religion, and South African enterprise zones. It all added up to a stimulating meeting, with issues that are sure to come up again at the next biannual meeting in Turin, Italy.

—LEONARD LIGGIO,
Institute for Humane Studies,
Menlo Park, CA

CAUTIOUS OPTIMISM FOR BRAZIL

RIO DE JANEIRO—From the time it became a Portuguese colony in the early 16th century, Brazil has been mired in political and economic crises. The last 20 years have been no exception.

The military coup of 1964, which was to put an end to the socialist advance of that time, has actually managed to push the country so quickly along the statist path as to leave the more-perceptive socialists cheering on the sidelines. "We are pleased to see that Brazil is well on the way to full socialism; it's only a matter of time now," Cuba's foreign minister told a visiting group of Brazilian businessmen early last year.

The military regime's interventionist policies are legion. They include government-induced inflation in the name of pumping up the economy, quasi-central economic planning, and New Deal–style development projects—giant state-owned utilities, gargantuan dams whose turbines now stand idle, subsidized and state-owned steel mills, unnecessary highways through the jungle, and other massive "investments" in "infrastructure." The result is that the economy has indeed been made largely dependent on the state.

Worse, perhaps, the generals' "anticommunist" repressive policies have weakened what remained of liberal institutions and the law. Predictably, socialism has blossomed in this favorable environment.

But everything is not necessarily lost as far as freedom is concerned. For one thing, corruption and disobedience can be tools of freedom, and Brazilians use them regularly to make authoritarian policies somewhat inoperative. For another, 20 years of military government have made almost everyone more suspicious of statist promises. In fact, government control of the private sector and state-owned companies' share of GNP grew to such proportions in the late 1970s that fear of totalitarianism became a serious question, commonly debated in newspapers and classrooms.

Such apprehension finally led to a policy of gradual "decompression" toward free elections and democratic government. The last military president is to step down in March, and power will be transferred to a civilian affiliated with a party and chosen by an electoral college.

A wave of cautious optimism is sweeping the country. Among the optimists is 34-year-old Paulo Guedes, who has a Ph.D. in economics from the University of Chicago. Guedes is executive vice-president of the Brazilian Capital Market Institute, a free-market think tank, and teaches at Rio's Catholic University.

In a recent interview with Senhor, a left-leaning business magazine, Guedes predicted that the political decompression will lead to "decentralization at all levels of government activity" and "a profound restructuring of the industrial sector." Guedes noted that the government is already making an effort to "debureaucratize" and is studying a policy of freeing small businesses from a stifling tax and regulatory burden.

Guedes might also have mentioned the selling of several state enterprises and the creation of small-claims courts. It is hoped that the new institution will free up the present court system.

These are admittedly minor developments, with tentative implications for individual freedom and economic liberty. But in a country that has an authoritarian past and until recently was haunted by the specter of totalitarianism, such slim pickings may well be the harbinger of better days.

—JOSE ITALO STELLE

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