Trends

Prince of Patriots

Some guys just can't get a break. Flamboyant rock star Prince, whose provocative lyrics and stage show have earned him the wrath of right-wing preachers and meddlesome moral crusaders, is feeling the heat from the left these days. His sin: anti-communism.

The superstar sybarite's new psychedelic album, Around the World in a Day, boasts an infectious, patriotic dance tune entitled "America." The song denounces communism—"Communism is just a word/But if the government turns over/It'll be the only word that's heard"—and implores, "America, America/God shed his grace on thee/America, America/Keep the children free."

Well, no sooner did the album hit the charts than the notoriously hip New Republic ridiculed Prince as a "neocon punk." Next to weigh in was Rolling Stone, the entertainment Bible for graying yuppies obsessed with purchasing stereo equipment. "Ugly," sniffed the tabloid, which lamented Prince's fall into "wacko anti-communism."

What Prince understands, and his detractors apparently don't, is that rock and roll (or any form of artistic expression) can only flourish in a free society. The poets languishing in Castro's jails and Gorbachev's gulag are grim reminders of the fate of artists in communist nations.

Prince's pro-liberty stance may displease the critics, but it's sure music to our ears. He can play at REASON parties any time he wants to.

Economic Growth Is a Woman's Best Friend

That women hold a far greater percentage of top-level jobs in the Reagan administration than they did during Jimmy Carter's years in office is just one aspect of a much broader social trend: women's participation in the labor market has increased remarkably over the last few years.

University of Chicago economist Gary Becker recently noted in a Business Week column that "between 1979 and 1984, the earnings of women compared to men rose at probably the most rapid rate in our history"—this despite the Reagan administration's opposition to all sorts of proposed legislation and programs intended to better the economic lot of women. "The fact that such opposition failed to impede the economic gains of women," Becker wrote, "suggests that largely silent market forces, not the political activity that captures so much publicity, have mainly determined the economic position of women in our society."

The increased proportion of women in the nation's work force—from 15 percent in 1890 to an estimated 50 percent in 1990—is mainly the result of economic growth, pure and simple. "Indeed," Becker reported, "women stepped up their participation in the labor force in all countries that experienced strong economic growth" in this century. As economies expanded, so did the demand for workers, and women responded by taking jobs outside the home in greater numbers.

Moreover, Becker noted, "the growing commitment of women to the labor force, especially during the last few decades, [has] reduced the difference in earnings between men and women." Recent research by Stanford University professor Victor Fuchs shows that women's earnings have "been rising at a rapid pace during the 1980s," as far more women have entered highly skilled occupations such as medicine, law, and accounting.

Just how much have civil-rights legislation and affirmative-action programs contributed to the phenomenon? Not much, concluded Becker. "Such programs can hardly explain the steady growth in the employment of women prior to 1950, or its accelerated growth during the 1950s and 1960s," he wrote, because such programs were either nonexistent or not widespread. "Nor can equal-pay-for-equal-work legislation alone explain the narrowing in the earnings gap between men and women in the past 15 years," Becker claimed. "For one thing, this gap also narrowed in countries, such as Italy and Japan, that did not introduce legislation."

It is women's own choices, not government programs, Becker concluded, that have fueled a great improvement in their economic well-being.

The Twilight for Zones?

There ain't no such thing as a free zoning law: like other governmental intervention in the functioning of the free market, zoning laws that restrict the development of housing ultimately extract a price from someone, and it's very likely to be the renter and the home buyer. That idea, along with strategies for reform, was developed at a recent conference held at the University of California at San Diego on the theme "Affordable Housing for the '80s."

The insight that zoning artificially inflates housing costs is hardly new. Free-market economists have understood it for some time, and the case for radically cutting back on zoning restrictions got a much-needed boost in 1982 in the report of President Reagan's Commission on Housing. As Samuel Pierce, secretary of the Department of Housing and Urban Development (HUD), said at the California conference, "Agreement is growing that over-regulation of home building drives up costs unnecessarily, and that regulatory requirements should be limited." Local government regulations, he noted, "account for a significant portion of the cost of new housing. And, by limiting possibilities for new housing construction, those same regulations force up the prices of existing housing as well."

According to the Los Angeles Times, there was some disagreement at the conference over just how much local regulations raise housing costs. Washington University law professor Daniel Mandelker speculated that "if we repealed every land-use law and zoning ordinance in the country, we'd probably not save more than 5%," the Times reported. Others, however, estimate potential savings as high as 20 and even 30 percent.

What happens without zoning? In the past, planner Dick Bjornseth has described the experience of Houston, where zoning regulations are virtually nonexistent ("Houston Defies the Planners and Survives," REASON, February 1978). At the San Diego conference, countering the common belief that a city can't get along without zoning, he commented, "A city without zoning is like a fish without a bicycle."

And HUD secretary Pierce told of some modest experimental programs in which HUD is working with local governments to show that minor changes in local regulations and speeding up the building-permit process can reduce costs without affecting safety or quality. Pierce said that HUD is trying to start affordable-housing programs of this sort in all 50 states by the end of the year.

There is widespread agreement that change must come at the local level. The Commission on Housing recommended that to reduce housing costs, state and local legislatures should eliminate zoning restrictions that limit housing development unless they are "necessary to achieve a vital and pressing governmental interest." A model statute in accord with the commission's recommendation has been drafted by Douglas Kmiec, a University of Notre Dame law professor. And keynote speaker Bernard Siegan, a University of San Diego law professor and member of the 1982 housing commission, told the conference that California Assemblyman Gil Ferguson (R), who was participating there, would be introducing a bill in the state legislature based on the "vital and pressing" standard.

Noting that not everyone agrees with this standard, Siegan is hopeful that it is a move in the right direction. "With other deregulation—airline, trucking, and broadcasting—who knows where this might go?" he said. "One area that has not been deregulated is land use. Maybe its time is coming."

Fowler & Co. Loosen the Strings on Cable TV

Even people who don't often praise government bureaucrats—and who does?—can't help but be pleased by the strongly deregulatory direction the Federal Communications Commission (FCC) continues to take under Chairman Mark Fowler.

Cable television is one notable recent beneficiary of the FCC's free-market good will. In what FCC commissioner James Quello heralded as a "regulatory emancipation proclamation" for the cable industry, the FCC is now interpreting legislation passed by Congress such that more than 75 percent of the nation's cable systems, serving more than 90 percent of the nation's cable subscribers, will soon be free to set their own payment rates.

The legislation in question is the Cable Communications Policy Act of 1984, a mixed bag of reforms setting federal policy toward the cable industry. The act permits the regulation of basic-cable-service rates by franchising authorities (usually cities) only in those areas in which cable television is not subject to "effective competition"—and it left the job of defining effective competition to market-happy Mark Fowler's FCC.

The FCC proceeded to define "effective competition" as a situation in which a cable system serves a community that is within the range of three or more over-the-air broadcast stations. This loose standard will liberate many cable systems from local rate controls effective December 29, 1986, giving cable operators the same pricing freedom as shoe stores, newspapers, and most other businesses.

Reaction to the FCC ruling was swift and utterly predictable. National League of Cities executive director Alan Beals bemoaned the FCC's failure "to recognize the interests of cities and American consumers." National Cable Television Association president Thomas V. Mooney, on the other hand, lauded the commission for doing "a very good job" in carrying out the deregulatory intent of Congress.

Now if Congress only had the guts to completely deregulate the cable-television industry. A nice start might be to strip local officials of their power to grant monopoly cable franchises. Then we'd see some real free enterprise.

Banking Deregulation Shows Up as Asset on Many Accounts

De facto nationwide banking competition is becoming more and more inevitable in spite of federal laws prohibiting interstate banking except when a state government explicitly chooses to allow out-of-state banks within its borders. In the last few months these restrictions, first devised during the New Deal, have been tottering.

Part of the change has come because state governments have been doing lately what they could have done all along, which is to permit entry by out-of-state banks. The American Bankers Association recently counted 20 states that have taken the plunge and permit some interstate banking.

For several states, it's a matter of regional cooperation. Three New England states permit a bank in any one state to buy or start a bank in the other two, and a handful of similar arrangements have been devised in the Southeast and West.

There's a growing realization of the potential benefits of allowing banks to compete more effectively with non-bank financial institutions such as Sears, Roebuck & Co. and Merrill Lynch & Co., which offer low-cost financial services nationwide. In addition to predictable benefits for consumers—higher interest rates on savings, more loans at lower rates, and better service—there is potential for more stability in the banking industry.

Despite promises that government regulation would protect banks from folding, there were 79 bank failures last year—a post-Depression record. As the bad news has piled up and state governments search frantically for a deus ex machina, interstate banking looks increasingly attractive when out-of-state banks offer to purchase the wreckage of failed institutions. For example, in the wake of the recent run on savings and loan institutions in Ohio, New York banks stepped in to buy two savings banks and Home State—according to Business Week, "the most severely wounded of the state's thrifts."

Yet there are still fears that with unrestricted interstate banking, giant New York and California banks will overwhelm their small-town competitors. Indeed, that kind of fear was an impetus for interstate-banking restrictions originally, and today, it is a big reason for the regional interstate compacts that are careful to exclude California and New York. Citicorp recently brought a suit challenging regional compacts as unconstitutionally discriminatory, but in June the Supreme Court ruled against Citicorp and let regional interstate banking stand.

In fact, however, there is evidence that the fear of big-city banks is misplaced. There are potential advantages for large and small banks with freer interstate banking. As Chemical Bank chairman Walter Shipley recently noted in an essay in Business Week, freer interstate banking would mean that all banks could "diversify risks in their loan and deposit portfolios to best advantage," without having to fret about state borders. Smaller banks, especially, he noted, tend now to "concentrate loans in the industries of their particular region." Hence the rippling financial disruption when, for example, the Texas oil industry slumped. At a time when the banking system needs all the stability it can get, interstate banking would be a big plus.

Moreover, interstate banking appears not to be the threat to small banks that opponents of deregulation fear. Via the back door of establishing "nonbank banks" and by moving into states that have relaxed their rules, the big banks are going interstate in spite of federal law. But this hasn't kept new small banks from proliferating. In fact, deregulation may be having the opposite effect. The Wall Street Journal recently reported that 455 new banks across the country opened their doors last year, almost double the 1979 figure.

Meanwhile, interstate banking may be on the way toward official recognition by the feds. After the Citicorp defeat in the Supreme Court, the House Banking Committee voted in favor of "full interstate trigger" legislation. This would let states preserve the regional arrangements they have crafted—but beginning in 1990, a state that had permitted banks from some states to do business within its borders would have to let in banks from any state.

This is good news, but there's a wrinkle. In June, the US Court of Appeals in Atlanta ruled that it is illegal for non-bank banks to collect deposits across state lines—but Business Week reported that "ironically, the Atlanta decision seems to have turned up the heat in Washington" for Congress to liberalize interstate banking.

It's a sign of the times that Federal Reserve chairman Paul Volcker, who has heretofore opposed interstate banking, recently came out publicly in favor of the "full interstate trigger" approach. In congressional testimony, he declared that "the Federal Reserve Board believes the time has come for Congress…to authorize some interstate banking." And after reviewing some of the developments that make Depression-era restrictions obsolete, he noted, "Markets will continue to respond and change will take place." No free-market devotee could have put it more eloquently.

Defusing the Population Bomb

Remember the population bomb? The ominous predictions of an overcrowded earth, replete with suffocating, starving masses? This doomsday worry, and the coercive population-control efforts it spawned, is now being countered by a more realistic, humane, and, not incidentally, market-oriented view—"supply-side demographics."

Supply-side demographics is explained in a new book that grew out of a symposium held recently at the Washington, D.C.-based American Enterprise Institute (AEI), Are World Population Trends a Problem? Editors Ben Wattenberg and Karl Zinsmeister summarize this new approach to population: "Every baby…comes equipped with two hands and a brain as well as a mouth. People not only consume, they produce—food, capital, even resources.…Population growth need not be bad; in some cases, it may even be good (as for instance in large stretches of Africa, where the sparseness of population prevents the erection of modern communications and transportation infrastructure)."

The leading exponents of this view are Lord P.T. Bauer of the London School of Economics and Julian Simon of the University of Maryland, both of whom participated in the AEI conference. Lord Bauer points out that a number of less-developed countries—Taiwan, Hong Kong, Kenya, the Ivory Coast, and Colombia, for instance—"have combined rapid population increase with rapid, even spectacular economic growth for decades on end." By contrast, the horrible famines besetting the Third World are occurring in sparsely populated regions where land is certainly no less fertile than in, say, Taiwan or Hong Kong.

If overpopulation is not the culprit in Third World misery, what is? Lord Bauer places much of the blame on heavy-handed government intervention—the "suppression of private trade;….expulsion of productive groups, especially ethnic minorities; large scale confiscation of property; forcible collectivisation; restriction on the inflow of capital…and of consumer goods"; and other foolish and harmful policies.

Supply-side demographers focus on the creative, resourceful potential of individuals, who generally will produce wealth and provide for themselves if governments have the good sense to leave them alone. "The central benefit of more people in a more developed world," observes Julian Simon, "is that there are more ingenious people to invent new ideas." Former Ambassador Clare Booth Luce adds that the lack of capitalism and democracy, not an abundance of people, is the real tragedy in the Third World.

A recurring theme in Are World Population Trends a Problem? is that family planning is a decision that must be left to individuals, not governments. Several conference participants condemn state-sponsored barbarism in China (where infanticide and late-term abortions are common responses to the official "one child per family" rule). And Lord Bauer argues against any government role in population control, noting that in many poor nations, "advice, education, and persuasion in practice shade into coercion."

The gloom-and-doomers are still with us, praising state intervention in reproductive decisions and predicting that more people means fewer resources and a diminished standard of living. But the intellectual tide is turning. Supply-side demographers and free-market economists are articulating a hopeful, pro-freedom alternative to the lugubrious declamations of the people-are-bad population bombers.

Soaring toward Fare Markets

Calls for reregulating the airlines never seem to diminish, even though consumers have benefited enormously from airline deregulation. But the evidence of benefits continues to mount. Recently, an airline analyst discovered that deregulation has had a previously unnoticed effect on air fares—a decline in discriminatory pricing.

Although most flyers may not have heard the term "discriminatory pricing," their favorite travel agents have told them many a time about various ways they can lower their air fares—advance purchase of tickets, round-trip travel, minimum stays, red-eye flights, and the like. The fewer of these provisions that passengers can use, the more they pay.

Generally, these mechanisms have little or nothing to do with the actual cost to the airlines of transporting passengers. Rather, they were devised by the airlines to increase revenues by segmenting the passenger market according to "demand elasticity," or how flexible passengers are in their travel plans. The passengers who are least flexible—such as business travelers—pay more, while those who jump the contrived hurdles pay less.

Discriminatory pricing was born in the days when regulation was in full force. But in a study prepared for presentation in August at the Atlantic Economics Society, United Airlines economic analyst Joseph Schwieterman (reflecting his own views and not necessarily the airline's) noted that according to economic theory, "if a firm attempts to practice price discrimination [in a perfectly competitive marketplace], it is likely to lose market share: well-informed buyers simply will buy from other sellers in that market." That's the theory. And when deregulation actually came about, experience tended to bear it out.

Schwieterman looked at 75 airline markets, 25 of which were oligopolistic (served by three or more airlines), 25 duopolistic markets (served by two airlines), and 25 monopolistic markets (served by only one airline). He found that in the oligopolistic markets, where competition was most intense, the airlines scrambling for passengers have been hard put to keep the comfortable old discriminatory pricing intact. From 1979 to 1984, the disadvantage in fares suffered by the least flexible passengers (Schwieterman calls them "nondiscretionary passengers") declined markedly from 40 percent to only 28 percent. "While the evidence suggests that all consumers have benefited from deregulation," Schwieterman concluded, "the non-discretionary…markets appear to have benefited the most."

Part of the decline in discriminatory pricing Schwieterman attributed to the advent of discount airlines like People Express, which operate chiefly in oligopolistic markets. "Despite the apparent advantages offered by full-service carriers," Schwieterman wrote, "most major carriers have been unable to maintain their multi-tiered price structures in these markets [with low-price competition]."

And how about markets where there's not as much competition? In duopolistic markets, the difference between fares paid by the most flexible and least flexible passengers declined somewhat from 37 percent in 1979 to 33 percent in 1984. Even in the uncompetitive monopolistic markets, where deregulation's critics had predicted an air-fare Armageddon in the wake of the 1978 Airline Deregulation Act, Schwieterman reports that the differentials in discriminatory pricing "remained roughly the same since 1979." Perhaps the airlines in monopolistic markets temper their affection for discriminatory pricing with the knowledge that if they start overcharging too much, competition may well be lurking around the corner.

There's a useful lesson in Schwieterman's statistics. It's that the federal government's old scheme of airline regulation—ostensibly the great protector of the passenger—actually gave rise to pricing structures that artificially overcharged certain groups of passengers. And now that the feds have largely withdrawn from the picture, market competition is gently and inexorably nudging much of the old discriminatory-pricing system toward oblivion.

Milestones

? Bigotry unprofitable? The Los Angeles Times reports that KTTL-FM, the Kansas radio station that won national notoriety two years ago by broadcasting racist and anti-Semitic preachers, is not what it once was (without regulatory intervention, we might add). After falling on hard economic times, the station's call letters were changed to KMCS, its format was switched from country to rock—and it's been more than a year since it last aired bigoted ministers.

? States resist booze blackmail. Five Western states—Wyoming, Colorado, Idaho, Montana, and South Dakota—are fiercely resisting federal pressure to raise their legal drinking ages to 21. Legislation enacted last year threatens to reduce a state's federal highway grant unless its legal drinking age is 21 by October 1, 1986. "It's blackmail," complained Wyoming Governor Ed Herschler to USA Today. Three of the states—South Dakota, Wyoming, and Idaho—have sued, charging that the feds' dictate is unconstitutional.

? Grace not under pressure. In May, a California superior court judge dismissed a "clergy malpractice" suit. A couple sued Grace Community Church of the Valley, alleging that incompetent counseling by four ministers had been a factor in the suicide of their 24-year-old son. But Judge Joseph Kalin observed, "There is no compelling state interest to climb the walls of the separation of church and state and plunge into the pit on the other side, which certainly has no bottom."

? Sensible positions. In a recent congressional briefing, a spokesperson for the National Opinion Research Center noted that New Right efforts notwithstanding, "there has been no reversal of liberal positions on sexual and reproductive practices." A majority of Americans favor wide dissemination of birth-control information (including to teenagers) and legal abortion, and they believe that sexual relations before marriage are not necessarily unacceptable.

? Bureaucracy bypass. Tired of waiting in line at the Department of Motor Vehicles? If you live in Los Angeles, there's an alternative. For an average fee of $25, California Automobile Registration Service (CARS) will stand in line for you at the DMV and take care of things like registering your car or transferring its ownership. For 10 years CARS has handled DMV paperwork for car dealers and recently began serving individuals, as well.

? Letter perfect? United Parcel Service has announced that it will deliver overnight letters for $8.50, which is more than 25 percent below its competitors' rates. And despite the myth that only the Postal Service is capable of providing universal delivery, the company announced that it is expanding its letter- and package-delivery service from 88 percent of the population to every hamlet in the United States.

Global Trends

Fighting the Good Fight

TORONTO, CANADA—Dolly Foran is a grandmother who runs Arlington Crane, a family business in Hamilton, Ontario, just 40 miles west of Toronto. Last summer, she tried to hire her 18-year-old grandson for the school-vacation period, but since he was not "certified" by the union, she was not "allowed" by the government to hire whom she chose.

Ms. Foran had had many years of problems dealing with unions, but this was the straw that broke the camel's back. She decided to fight the cause of those who did not wish to join unions or have anything to do with them. At the outset she made it quite clear that she was not opposed to the absolute right of those who wished voluntarily to join collective associations to do so. She would, however, oppose unions that insist on "closed shop" arrangements, thus trampling on the rights of those who want to work without being forced to join unions.

She began quietly sending letters to businessmen, sometimes as many as 2,000 in one week. Contributions began to come in; they were put in trust for legal bills, currently estimated at a half-million dollars.

Using the three-year-old constitution, Canada's Charter of Rights, as her ally, Foran wants labor laws changed to outlaw closed shops, so that every worker is free to choose to join a union or not. Though 21 states in the United States have adopted right-to-work laws, no province in Canada has yet done so.

Foran points out that Ontario's Labor Board, for example, grants free choice to citizens who voluntarily wish to be members of trade unions but simultaneously denies the same right of choice to those who wish not to be members. For workers who on principle do not wish to join a union, this often means an automatic loss of livelihood, since they may well be denied the right to earn a living in a specifically chosen trade or profession. Moreover, union members have very little, if any, say regarding how their union dues are spent.

Until very recently, Dolly Foran has been fighting her battle almost singlehandedly. Not long ago, however, she joined forces with freedom-of-choice-oriented workers at Eaton's, a department-store chain in Canada that was struck by a minority of its work force earlier this year. And if necessary, she will carry her advocacy of freedom of choice to the Supreme Court of Canada.

—Bruce Evoy

Shearing the Welfare State Down Under

NEW ZEALAND—While conservative governments chip away at Western welfare states, a Labour government—that's right, Labour—is leading an "exhilarating dash for economic freedom" in New Zealand, reports The Economist.

The architect of this stunning reversal of form is Prime Minister David Lange. Lange took office in July 1984 and inherited an economy in shambles after two years of wage, price, and interest-rate controls imposed by Conservative Prime Minister Robert "Piggy" Muldoon. Piggy complemented the controls with large subsidies to inefficient industries and wasteful pork-barrel projects.

Since assuming power, Lange and the Labour government have abolished the panoply of price controls, slashed corporate subsidies, ended exchange controls, reduced agricultural and export subsidies, and taken pensions away from the wealthiest elderly New Zealanders. And there's more. Lange is proposing tax cuts (the top marginal income-tax rate would be reduced from 66 percent to 45 percent) and a liberalization of New Zealand's rigidly protectionist trade policy.

New Zealand stumbled into the thicket of protectionism and subsidies partly in response to the protectionist policies of other governments. The Economist explained that New Zealand's highly efficient dairy industry has almost no foreign markets open to it—93 percent of the world's butter eaters are prevented from buying inexpensive New Zealand butter by restrictive trade policies. New Zealand foolishly retaliated by erecting its own trade barriers and subsidizing its own industries, a wonderful example of blowing your brains out to spite your enemy.

Lange has begun a long and necessary trek back toward economic common sense. Businessmen are ecstatic. The Economist quotes one banker, "We now have a nominally socialist government which is saving us with almost Singaporean policies, where previously we had a conservative government which was ruining us with very socialist ones."

The Economist speculates that Lange has adopted a near-pacifist foreign policy—New Zealand refuses to allow nuclear-armed American warships to use its ports—in order to deflect the left's attention from his bold economic moves. Nevertheless, trade-union and conservative opposition to the liberation of New Zealand's economy persists. Time will tell if a Labour government has the moxie to advance the cause of freedom down under.

Global Roundup

? Brussels privatization sprouts. The Belgian government is preparing to sell off Sabena, the national airline. Free World Chronicle reports that the sale "could be the first step toward a major reduction in public-sector involvement in the economy."

? Rendering unto Caesar. In June, the Italian government and the Vatican concluded an agreement that ended Roman Catholicism's status as the state religion of Italy. Socialist Prime Minister Bettino Craxi said the new arrangement "exalts religious freedom and the freedom of the church."