Trends
Don't Harm Us To Help Us, Say South African Blacks
Many US liberals and conservatives are calling for a federal ban on American investment in South Africa. Why? They contend that the withdrawal of economic support by American businesses would pressure the South African government into ending apartheid, the country's official racist policy. But many South African blacks, it appears, do not agree with this thinking.
In a recent poll of black production workers, a South African law professor, Prof. Lawrence Schlemmer of Natal University, found that a 75 percent majority supports foreign investment and rejects "disinvestment," claiming that disinvestment would harm blacks economically and thus set them back in their struggle to win political equality.
Lucy Mvubelo, general secretary of the National Union of Clothing Workers of South Africa (the nation's largest union), articulated that position in a recent Washington Times op-ed piece. She noted that "foreign investment has created jobs for thousands of African workers who would otherwise be unemployed." She further observed that "the vitality of South Africa's economy offers more hope to South African blacks than destructive forms of pressure from abroad." The labor leader urged US legislators not to pass a disinvestment law, such as one that Sen. William Proxmire (D–Wis.) has proposed.
Mangosuthu Buthelezi, who chairs the South African Black Alliance, also opposes disinvestment. The head of the largest tribal group in South Africa, the Zulus, Buthelezi told a group of British businessmen visiting South Africa last year that disinvestment is "a wrong strategy, a misguided strategy, a strategy which does not aid the struggle for liberation."
Noted black American economist and syndicated columnist Walter Williams recently addressed the disinvestment issue, too, pointing out the bad logic of such a policy. "The more growth in the South African economy," he wrote, "the better for its black population." Williams asked the thought-provoking question, "Could the gains American blacks made during the boom years of the 1960s have been made during the Depression of the 1930s?"
Forcing American businesses to curb their South African investments would not only worsen blacks' situation by adversely affecting the South African economy. It might also reverse certain workplace reforms these businesses have initiated, ranging from abolition of segregation in the workplace to programs to improve housing, schooling, and other facilities for their workers.
Just months ago, 119 of these companies signed an agreement to actively seek an end to apartheid. American Rev. Leon Sullivan drafted the pledge, a refinement of his 8-year-old anti-apartheid code of conduct that 130 US firms support. Praising the companies' commitment to the new agreement, a Los Angeles Times editorial suggested that such action by US firms could be an important source of influence and pressure on the South African government.
Some analysts note that placing South Africa in economic isolation, as the Proxmire proposal would hope to do, might push South African apartheidists into an even more intransigent position. A US government specialist on Africa recently told the Wall Street Journal that South African whites "don't want to be isolated from the West, but once they believe they can't prevent it, there is no question that they'll tell the rest of the world to go to hell." Journal reporter Robert Greenberger noted that "signs of this siege mentality surfaced recently when South Africa's president, P.W. Botha, made clear that Pretoria's domestic policies wouldn't be influenced by outsiders."
Given such a mentality, it may be that peaceful political change is more likely to come as a result of an increasingly prosperous black population asserting its rights than through an attempt by well-intentioned American politicians to force South Africa into economic isolation.
Slot Sale Idea Gaining Altitude
Support is growing for the idea of selling airplane landing and take-off "slots" to reduce flight delays at busy airports. William Niskanen, as a member of the President's Council of Economic Advisers, urged the Transportation Department to permit airlines to buy and sell slots at busy airports. And Cornell University economist Alfred Kahn, who as head of the now-defunct Civil Aeronautics Board in the Carter administration spearheaded airline deregulation, also supports the idea, as do the Justice Department and the Office of Management and Budget. Moreover, the Air Transport Association, a major airline-industry group, says that most airlines—both large and small—favor the slot-sale idea over a proposal that the Federal Aviation Administration regulate airline schedules.
The buying and selling of slots is being posed as a solution to the problem of flight delays caused by congestion. This is becoming increasingly worse at the nation's busiest airports, especially New York City's LaGuardia and JFK, Chicago's O'Hare, and Washington, D.C.'s National. Such congestion occurs primarily because airlines crowd their flights at popular times (at 9:00 A.M., for instance). Because airlines generally pay no more for landing and take-off rights at more-popular than less-popular hours, they all want to schedule as many flights as possible during "peak" hours.
The Transportation Department is reviewing a number of proposed solutions to the problem. Niskanen urged that slots that are not yet allocated be auctioned to the highest bidders and that airlines then be permitted to buy and sell slots among themselves. "The airlines that would be selling their slots would be getting cash for their space, and the airlines buying the slots would get the space for cash," Niskanen explained. "Now, everybody in a transaction of this nature is better off." He further noted that such an arrangement is "most likely to lead to a reduction of fares."
Frequently, market-style reforms are given a big political boost by reality. As the current system becomes more and more untenable, the buying and selling of slots becomes more and more attractive.
Lawyers' Ads Courting Consumers' Favor
Since 1977, when the Supreme Court struck down state laws prohibiting lawyers from advertising, more and more attorneys have taken to hawking their services through ads—and consumers are benefiting. In a recent survey of 3,200 lawyers in 17 states, the Federal Trade Commission (FTC) compared fees for five legal services. The commission found that in states where fewer restrictions on ads have led more lawyers to advertise, fees for uncontested divorces, simple wills, wills with trust provisions, personal bankruptcies, and ordinary personal-injury cases are 5–13 percent lower than in states with tougher restrictions. Where restrictions are more severe, for example, lawyers' fees for a personal-bankruptcy case averaged $44 above the average fee of $460.
Although states may not prohibit lawyers from advertising, they do regulate lawyers' ads, and the rules vary widely from state to state. Many states, for instance, require that ads be "dignified." Many also restrict the geographical area in which a lawyer may advertise, and 12 states don't allow lawyers to advertise on TV. The FTC study found that the fewer restrictions there are, the more lawyers choose to advertise. Moreover, the study discovered, attorneys who advertise a specific service generally charge less for the service than attorneys who don't advertise.
Consumer groups, such as Americans for Legal Reform, welcome the growing trend toward lawyers' advertising, a phenomenon largely attributable to the doubling of the supply of lawyers over the last two decades or so. And though the trend is in its infancy, it appears to be here to stay. According to a recent survey by the ABA Journal (published by the American Bar Association), only 13 percent of lawyers have tried advertising, but 82 percent of those said they'll advertise again.
Many lawyers, too, are now awaiting a Supreme Court decision that will affect the manner and extent of their advertising. The Court has already heard the case, and a decision is due at any time.
In the case, an Ohio attorney named Philip Zauderer is contesting his conviction for violating state regulations when he took out ads in newspapers throughout Ohio soliciting clients to sue a manufacturer of a hazardous intrauterine contraceptive device, the Dalkon Shield. Among the charges of which Zauderer was convicted was the use of an unpermitted illustration in the ad (a depiction of the device) and the failure to specify fee arrangements in the ad.
If Zauderer wins his appeal, lawyers' latitude in advertising will have been significantly expanded. If he loses, however, it may have a dampening effect on the trend, and, as the FTC study suggests, consumers would be the biggest losers.
Making a Few Corrections in the Prison Business
It's always a pleasure to watch as a good idea, once dismissed as "impractical" or "dangerous" or "pie in the sky," finally takes hold. Currently, there is just such an excellent public policy idea whose time is arriving. It is privatizing prisons.
Even 10 years ago, the thought that management or ownership of prisons could be shifted to the private sector would have been dismissed out of hand. No longer. REASON has reported in the past on firms such as Corrections Corporation of America that are running penal institutions efficiently, humanely, cheaply—and at a profit. And recently there's been evidence that the most powerful councils of the public policy establishment are taking notice.
One example is the National Institute of Justice, which acts as the federal government's research unit in the area of criminal justice. In February, NIJ director James K. Stewart released a preliminary survey on privatization of corrections. According to the Los Angeles Times, the survey pointed out that Alaska and Ohio already have arrangements for the lease or purchase of prisoner housing from private providers, six other states are "in various stages of considering such arrangements," and three others are studying the advantages of private operation of jail facilities.
Not only did the NIJ chronicle how privatization has grown, however. Stewart himself commented, "When we have opportunities to do things more efficiently and more flexibly without in any way harming the public interest, we would be foolish not to explore them to the fullest." He stopped short of an explicit endorsement of prison privatization—he said he has "both deep reservations and high expectations"—but he did call for "a thoroughgoing analysis."
Another sign that prison privatization is staking a claim on the public-policy landscape is an article in the New York Times, mainly about Corrections Corporation of America. It noted that a CCA-owned facility, recently opened in Houston under contract to the Immigration and Naturalization Service (INS), is "a one-story model of spaciousness and cleanliness." A wistful INS official, Paul O'Brien, told the Times, "Our facilities don't begin to approach this one." The article pointed out that while the federal government spends $26.45 daily for each resident at its immigrant-detention centers, CCA charges Uncle Sam only $23.84.
Yet another harbinger of private prisons' new respectability was a recent feature on the MacNeil-Lehrer News Hour TV show. "The existing prisons are often overcrowded, and new ones are expensive," a reporter on the show noted. "So there is no lack of potential business for CCA and the handful of other companies that want to run prisons for profit." Finally, at least three congressional subcommittees—two in the House, one in the Senate—have announced that they will hold hearings this year on prison privatization.
Not everyone is pleased by the trend. Some seem to be opposed to any devolution of government powers, no matter what its advantages might be. For example, Rep. William Hughes (D–N.J.), who chairs one of the subcommittees that will be holding hearings, recently said in a speech, "Abdicating government responsibility for incarceration to the private sector is an unacceptable solution to a complicated problem."
Other criticisms are not quite so insubstantial. For example, a Houston priest trying to get a library for aliens who are incarcerated in a CCA-run detention center complained to the New York Times, "Whenever we have a problem, I.N.S. tells us to go to C.C.A., and C.C.A. tells us to go to I.N.S." And ACLU executive director Ira Glasser has called for a moratorium on more private prisons, arguing that "the dangers [of a loss of constitutional rights for prisoners] are large enough so that this movement ought to go nowhere until these questions are explored."
By and large, however, such objections can be (and, in many cases, already have been) solved via contracts between government agencies and private contractors. The real obstacle to successful prison privatization has been lack of public understanding and acceptance. Fortunately, as the issue gets more and more scrutiny from policymakers and journalists, that should change for the better.
Ascending Competition May Eclipse Satellite Cartel
Cartels, like tragic characters, seal their own fates. And the cartel that calls itself the International Telecommunications Satellite Organization (Intelsat) is no exception to this cosmic rule. For more than two decades, this consortium controlled by national governments—now with 109 member countries—has monopolized the international telecommunications satellite market among non-Soviet bloc nations. (These latter have their own monopolist, Intersputnik.) Now five US firms are seeking to compete with Intelsat.
Orion Satellite Corp. started things moving two years ago when it asked the Federal Communications Commission (FCC) for permission to send up its own satellites and provide telecommunications services on transatlantic connections—a potentially lucrative market. Four other firms followed Orion's lead and are requesting similar permission.
In the United States, these firms would compete with the Communications Satellite Corp. (Comsat), the US component of Intelsat. (Unlike other nations' Intelsat members, Comsat is an unsubsidized corporation, owned by its stockholders.) According to the 1962 agreement that initiated Intelsat, the US government is committed to routing all American international telecommunications satellite services through Intelsat, via Comsat. The US firms now bidding to compete with Comsat are challenging that commitment.
These firms see an entrepreneurial opportunity in this market primarily because of the way Intelsat bases its rates. The cartel operates as a cooperative, charging all members the same rate for like services despite what it actually costs to provide service. Hence, users of high-volume connections—New York–London, say—subsidize customers of less-used circuits (La Paz–Bamako, for instance). So just as US phone-service entrepreneurs like MCI Telecommunications saw an opportunity a few years ago in AT&T's cross-subsidization of toll-call rates, the satellite entrepreneurs now see a similar opportunity to compete against Intelsat's artificially high rates on high-volume connections.
Intelsat and its proponents are trotting out the same arguments against competition once used by AT&T and other defenders of the former US toll-call monopoly: competitors will "skim the cream" off the market—that is, they'll win away the heaviest users of telecommunications on high-volume circuits through discount pricing—and this will force Intelsat to raise rates to customers of less-used routes, primarily among poorer, less-developed nations, thus pricing some users out of the market.
Apart from harboring the objectionable notion that governments may abridge individuals' rights to offer services in a free market, this argument also ignores how competition benefits users by fostering innovations that lead to lower costs and more-varied services for everyone. The US toll-call market these days provides abundant evidence.
As expected, Intelsat bureaucrats are nervous about the situation, and critics of competition have begun to paint dismal scenarios of a competitive international telecommunications market. The left-liberal weekly The Nation, for example, recently noted the fear of Intelsat officials that under competition the cartel may "soon be transformed from a progressive global communications cooperative into one of several regional satellite companies increasingly forced to cater to the 'have-not' countries of the world."
But anticipating what seems to be the inevitable, the cartel already is altering some of its ways in order to stay competitive. For instance, "Intelsat has expanded its video and data transmission facilities," Fortune magazine recently noted. And Aviation Week reported that Intelsat director Richard Colino announced that if the cartel is to remain competitive with new entrants, it will have to abandon its uniform-price system in favor of differential rates more closely based on actual costs of services.
The FCC is soliciting comments and replies on the issue of competition with Intelsat, and it will not rule on the five firms' petitions to compete until June at the earliest. President Reagan declared last year that competition in this market is "in the national interest," and he has endorsed a plan that would allow for limited entry of private providers. So some competition is almost certain, though initially it will likely be restricted to only a small segment of Intelsat's market. But the cartel will have been nudged toward its downfall and the entrepreneurial drama set in motion.
The New States of Grace
For years, state governments have hardly been oases of public virtue. In many instances, their reputation for corruption and incompetence was richly deserved. Moreover, precious few showed the slightest reticence in acquiring and spending taxpayers' money.
Thus, it is a most welcome surprise that some among the current batch of governors actually seem to be mending their spending ways. Many are actually singing the merits of less federal spending and, mirabile dictu, even talking about cutting taxes in their own states.
In February, the National Governors Association (which is more than 2-to-1 Democratic) endorsed a freeze on most federal spending, including politically sensitive cost-of-living adjustments in Social Security payouts. The governors also expressed support for a balanced-budget amendment, line-item veto authority for the president, and a modified flat tax. They said that military spending should be limited to current levels in real terms, and they asked Congress to "restrain the growth" of Medicare and farm-price supports.
What is even more impressive is that some governors are moving to cut taxes in their own bailiwicks. According to a recent report in Business Week, Connecticut Gov. William O'Neill (D) has already announced that he would move up the planned date for a sales-tax decrease, and tax cuts are said to be likely in Minnesota, Michigan, Wisconsin, North Carolina, and Ohio. New York's Mario Cuomo, often touted as a conventional New Deal liberal, is proposing a $1.2-billion tax cut in his state. Business Week said that "business lobbyists and even Republicans [are] smiling."
A big reason for the move towards tax cuts is that several of the larger state governments are enjoying nice surpluses. Tax revenues generated by the economic recovery, new taxes imposed years ago, and spending lids are all responsible for the surpluses. Many state governments clearly have much more than they need, and they know it. One analyst with the National Conference of State Legislatures calculates that by the end of the year, state legislatures will have voted $2 billion worth of tax cuts around the country, a wonderful contrast to the $8 billion of tax increases they voted in 1983.
Business Week noted that some states are taking advantage of the situation to improve their business climate. Even "Democrats this year are outdoing themselves in adapting to Reaganomics," the magazine reported. For example, Minnesota's Rudy Perpich, a Humphrey-Mondale Democrat if there ever was one, has devised an economic-development program with fiscal reforms and tax cuts (his aim is to cut personal income-tax rates in his state from 16 percent to 9.9 percent).
The governors' more-responsible fiscal behavior is almost reason to kill a fatted calf and celebrate.
The Education of Business, the Business of Education
According to conventional wisdom, capitalism is a perfectly fine system if you want skyscrapers, cauliflower, bicycles, asthma medicine, or goldfish—but not necessarily if you want an education. Somehow, many people assume that higher learning is far too exquisite to survive the maneuvers of the marketplace, a view that partly accounts for such unsavory phenomena as state universities. Yet while these people weren't looking, some of the biggest businesses in the nation have been quietly building and running their own education systems that now educate almost 8 million people.
A recent report from the Carnegie Foundation called Corporate Classrooms: The Learning Business surveyed these corporate-education programs. Its author, Nell Eurich, found "sophisticated and growing alternative systems of education with roots firmly planted in the American business community and branches spreading to countries around the world." Altogether, Eurich estimated that businesses such as IBM, Xerox, and Digital Equipment spend some $60 billion annually to educate their employees, virtually as much as all of the four-year colleges and universities in the nation are spending. The corporations teach remedial English, nuclear engineering, and almost everything in between.
Does all this mean that Texas Instruments is trying to compete with Oral Roberts University or Berkeley? Not really. The companies just want personnel who can do their jobs better (or hold down better jobs), and universities generally don't (and maybe can't) meet that need. Time quoted a Texas Instruments executive's observation: "As technology changes, universities tend to lag one to three years behind what's happening in the workplace."
There's not much question that companies that have applied entrepreneurial talent to making computers and running hotels have often done as well at training their own people. Indeed, the Carnegie study found that the quality of corporate education "surpass[es] many universities." At least 18 corporate programs are accredited to grant degrees, including Ph.D.s in some cases.
One of the reasons for their success is that the business programs are oriented toward achieving results, not observing academic tradition. Digital Equipment's faculty members, for example, are on contract and their performance is monitored, a far cry from conventional tenure systems that give faculty members more job security than General Pinochet—or even union plumbers—could ever dream of. Similarly, Digital Equipment designs its study periods and program lengths to vary according to what's most efficient, rather than squeezing subjects into the mold of 50-minute classes and 4-month semesters.
Many university people, accustomed to a virtual monopoly on the education of grownups, aren't all that pleased to see others doing their work in efficient, innovative ways. In a recent interview with Time, Emory University Business School dean George Parks complained about letting "technology drive the educational process instead of the other way around."
Even in the introduction to the generally favorable report, Carnegie president Ernest Boyer expressed his fears that corporate education raises "vital public policy" questions. There is, of course, no vital public-policy question on God's green earth that can't be answered by a prestigious bipartisan business-labor-education-government commission. Thus, the report concluded that a creature called the Strategic Council for Educational Development should be created in order to analyze the situation and make recommendations.
Such lapses in taste can be overlooked. As Time reports, the Carnegie report "has a tendency to stand in awe of the whole phenomenon of corporate learning." And with good reason. After all, the corporate education programs are an impressive demonstration that enlightenment and profits do mix.
Global Trends
Recognizing Peruvian Reality
LIMA, PERU—Late last year, Peru became the only country in Latin America to have a full-scale program of economic deregulation in operation. It was then that civilian President Fernando Belaunde, who will be leaving office later this year, sponsored a law creating a National Commission of Economic Rights (CODE), in charge of promoting deregulation throughout Peru's economy.
The context in which CODE is operating is quite different from the United States. The Peruvian legal system—and therefore the government's control of the economy—is based on civil law rather than common law. As a result, there is a strong tradition of the civil service being much more powerful than the legislature. For example, out of every 20 government regulations promulgated in 1983, only one was created by the legislature while 19 were created by the bureaucracy, which is unrestrained by democratic control or participation in decisionmaking.
Since the Belaunde initiative, the government has already taken two concrete steps to rein in bureaucratic power. First, administrative agencies now have an obligation to publish all proposals for new rules before they take effect, in order to provide a period of notice and public comment. Second, when the bureaucracy proposes a new regulation, it must now justify it with an economic-impact statement. Both reforms are unprecedented in Latin America.
In a sense, these moves to tame administrative power, along with Belaunde's effort to deregulate, are actually a concession to economic reality. Peruvians have a bustling underground economy that has ignored virtually all of the administrative rules handed down by the Lima bureaucracy in the past. The underground economy includes as much as two-thirds of the population, and it is dominant in important areas of the economy such as housing, transportation, retail, and even part of the industrial sector. It is attractive enough that the majority of people who immigrate from the countryside to Lima and other cities make their livelihood in the underground economy rather than in any of the state-endorsed mercantile or collectivist enterprises. Thus, Peruvian law has come to have little legitimacy or relevance to economic life here. The system of legal dictatorship, with its array of special privileges, redistribution of wealth, and protectionism, has been a dramatic failure.
The CODE'S deregulation should have great impact in two ways: reducing the costs of access to the above-ground market, known as "cost of legalization," and reducing the cost of remaining in the above-ground market once legalization has been obtained, known as the "cost of legality." Because of the Belaunde initiative, the government will be looking closely at where the disadvantages of enforcing regulations most heavily outweigh any benefits. Those will be prime targets for deregulation.
The value of these reforms extends beyond Peru's borders, because throughout Latin America large numbers of people bypass the formal mercantilist economy in favor of an informal and popular market economy. This disproves the commonly held belief that the people of Latin America are somehow incapable of functioning in a free market. Millions of Latin Americans do quite well in a market economy every day, and deregulation here is the first step in recognizing its popularity and importance.
—Enrique Ghersi
Taking the Measure of Freedom
NEW YORK CITY—Just how much freedom is there in the world? More than you might think, according to a New York–based human-rights organization called Freedom House. Every year, it publishes a "Comparative Survey of Freedom" that assesses political rights and civil liberties in every nation. The most recent survey came to the interesting conclusion that 1984 was actually "a good year for freedom."
Most of the world, of course, still isn't very free. Freedom House calculated that only 35 percent of the world's population lives in free countries and territories, while 23 percent lives in partly-free areas and 42 percent in areas that are not free. The level of freedom declined substantially in several nations last year, with the "most depressing setbacks" in Africa. For example, Nigeria reverted from a short-lived democracy to military rule, the government of Sudan tried to institute "a particularly harsh version of Islamic law," and the Liberian powers-that-be were dealing with political opponents by murdering them.
But the Freedom House survey turned up very good news elsewhere, notably in Latin America. Perhaps the biggest success stories are Argentina, Brazil, and Uruguay. Argentina had been under military rule for years, but in the wake of its election of centrist Raul Alfonsín as president, Freedom House noted that it "moved very rapidly and [more] courageously…than expected to remove the military incubus from the political system." The report continued, "The independence of the media, of intellectual life, and of the judiciary seem again well established." By year's end, both Brazil and Uruguay—also under military control—were firmly on the path toward democracy and a restoration of civil liberties. Indeed, elections were held in Brazil and Uruguay early in 1985 and civilian rule returned.
Other advances in freedom last year included relatively free elections in Egypt, which also enjoys a somewhat more open press and freer political discussion than in the past. Italy's judiciary was made stronger and more independent. Turkey gained a new prime minister, Turgut Ozal, via "a limited electoral process," as the survey put it, but because of his political and popular success, Ozal's government achieved more legitimacy than it originally had.
The Freedom House report moved Communist-ruled Hungary from a "not free" to a "partly free" rating for 1984, noting "persistent reports that the atmosphere in Hungary is much freer than that in the other 'not free' societies of Eastern Europe." The Hungarian broadcasting media are described as "surprisingly fair-minded," and the elimination of fear in the public arena—though not institutionalized—is now a "de facto achievement in many aspects of the society."
The scope of Freedom House's concern includes political and civil rights, but not economic rights. "Clearly capitalism does not cause nations to be politically free," the report maintained, "nor does socialism cause them to be politically unfree."
Arguably. But when Freedom House compiled a table indicating both the levels of freedom in various nations and their economic structures, socialist nations were certainly overrepresented in the "not-free" category. It was something of an understatement for the report to observe that "socialists must be concerned by the empirical relationship between the rating of 'not free' and socialism that is found in tables such as this." And it's worth noting that the only three Communist nations to earn a "partly free" rating—based solely on political and civil rights—are also the only ones to permit the rudiments of free enterprise and private property: Hungary, Poland, and Yugoslavia.
On the whole, the Freedom House survey certainly confirms what any casual newspaper reader knows—that governments all over the world regularly deny their citizens the most fundamental rights. Yet it is also a useful reminder that freedom is alive and well in some places, and in others it's slowly getting a bit healthier.