Trends

Rock Concerts Set Records for Private Charity

"This is your Woodstock," the middle-aged folksinger Joan Baez chided the 160,000 Live Aid fans assembled in Philadelphia and London in mid-July. An estimated 1.5 billion television viewers around the world got their chance, too.

Well, no, Joan—not exactly. The 1969 concert in the sleepy burg of Bethel, New York, was a three-day orgy of Aquarian love and bad acid trips, memorable chiefly for that transcendent moment when guitarist Pete Townshend of The Who threw radical pest Abbie Hoffman off the stage. When Woodstock was over, a nice small town had been destroyed.

The Live Aid production, by contrast, lasted one peaceful day and netted $40 million to help feed starving people in Africa. Not that the children of the '80s don't have their share of troublemakers—although some people find them in the oddest guises. The Los Angeles Times fretted that "despite the gospel of charity being preached from the stage, the spirit of free enterprise" reared its ugly head, and Philadelphia's finest confiscated truckloads of pretzels, kielbasa, and t-shirts being sold by unlicensed vendors.

All the media blather surrounding Live Aid's "cultural significance" has obscured its real lesson—that private charity is possible on a massive scale, particularly when business gets into the act. Live Aid had four corporate sponsors—Eastman Kodak, Pepsi, Chevrolet, and AT&T—each of which donated $750,000 to the event. In return, the corporations received lots of commercial time and, more importantly, some priceless image polishing. As Pepsi vice-president John Costello told the Wall Street Journal, "Live Aid demonstrates that you can quickly develop marketing events that are good for companies, artists, and the cause."

And it looks as though Live Aid is just the beginning. Michael Mitchell, who coordinated the affair, is planning a 12-hour Christmas "mega-event" to benefit children's charities. Mitchell is confident that corporations will embrace charity as the wave of the future. "This family of man trip is no hype," he told the Journal. "It's the ultimate way to do business."

He's on to something. Corporations reap good will, organizers make a few bucks, fans and performers enjoy an afternoon of good music, and tens of millions of dollars are sent to malnourished individuals half way 'round the world. In one year, three African famine relief projects conceived and run by rock musicians—Band Aid, USA for Africa, and Live Aid—have raised more than $70 million. Those who despair for the future of the human race should take note.

Treating Heroin Addicts in a Different Vein

As the trend toward privatization catches on, entrepreneurs are finding ways to provide services traditionally confined to the monopolistic domain of the government. Seattle's two major methadone clinics, which try to get addicts off heroin by substituting the less-damaging methadone, now face a new competitor: the Federal Way Clinic, the state's first for-profit methadone clinic.

"In less than seven months," the Seattle Times reported recently, "the Federal Way Clinic has become the state's largest methadone center." The clinic currently has about 430 clients, "twice what the clinic's founders estimated they would need to break even. They forecast a 10–15 percent profit margin in the not-too-distant future."

How does for-profit methadone treatment compare? Not surprisingly, the private clinic has chosen not to impose on its clients many of the rules that the state-subsidized clinics are obliged or choose to follow. (It does meet federal regulations governing such centers.) The goal is still for clients to work toward a drug-free life, but more responsibility falls on the clients themselves to decide when it's time to quit.

Counseling is available but not required (as it is in Seattle's other two clinics). Douglas Anglin, a psychology professor at UCLA who has studied the effectiveness of various methadone treatments in rehabilitating users, states that "rehabilitation, which is the most expensive part of methadone maintenance, has never been shown to produce any overall change for addicts as a group."

Critics claim that the private center lures users by simply dangling more methadone in front of them. But Anglin found that higher dosages and liberal rules are actually more effective than the restrictive dosages and tight rules favored by state-supported clinics. Furthermore, Bill Quick, chief of Washington state's Office of Drug Abuse Prevention, has monitored Federal Way Clinic and concluded that the program is well controlled. "We haven't found any evidence of inappropriate treatment, or inappropriate prescriptions of medication," he told the Seattle Times.

Clients like it better, too. Many have transferred from state clinics to Federal Way and now pay $130 a month for methadone they had previously been getting for free. As one client explained the switch, he gets "respect" at the private center that was missing at the government-subsidized clinic. And the for-profit center is open all day, not just in the morning.

The Federal Way Clinic is not an isolated case. Owner Galen Rogers and his partner run 13 other for-profit methadone centers in the West and Midwest, with two more scheduled to open soon in Chicago and Fort Worth.

Government-subsidized centers may have little choice but to take a feather from the private clinics' cap. One Seattle center's director admits that clinics like his must learn from their new competition, especially in marketing. "We should become more self-sufficient and less dependent on the public dollar." Treatment of clients will likely improve as well. Adds the director, "We ought to start treating them like adults."

Want to Drive Daniel Ortega Crazy?

Congressional and administration hawks keep trying to give taxpayers' money to the Contras battling the Marxist-Leninist government in Nicaragua. But now some Contra sympathizers in the United States are putting their money where their mouths are.

The Nicaraguan Democratic Force (FDN)—the largest Contra group, with some 15,000–20,000 troops in the field—has raised as much as $10 million in donations from private individuals in the United States. This private aid, coupled with assistance from foreign governments, has reportedly made the Contras a real threat to the Sandinista government for the first time since they took to the fields four years ago.

Though direct military aid from US citizens to foreign belligerents is prohibited by the Neutrality Acts, individuals can contribute money for ostensibly humanitarian purposes. One Contra supporter, Mrs. Ellen Garwood of Austin, Texas, recently put up $65,000 toward the purchase of a $100,000 medical evacuation helicopter for the FDN, according to the New York Times. The "Lady Ellen," as the helicopter was christened, is but one example of private support of these Central American rebels.

There are others. A dozen Soviet-supplied M-24 helicopter gunships (the scourge of the Afghan rebels, too) are now in the employ of the Sandinista army. But the hardy anticommunists at Soldier of Fortune magazine are offering a $1-million reward to any Nicaraguan pilot who defects with one of these high-tech choppers.

American fans of the Contras are proving that private citizens will respond to requests for assistance from democratic insurgents fighting oppressive governments. If only there weren't so many…

Court Programs First Amendment For Cable TV

First Amendment protection of cable TV was expanded by a recent federal-court ruling that calls into question fundamental areas of cable regulation. The decision, handed down by a US Court of Appeals, struck down a Federal Communications Commission rule that required cable operators to carry the programs of TV stations that broadcast in their areas and to do so without charging the stations.

The FCC's "must-carry" rule, the court judged, violated cable operators' First Amendment rights by in effect dictating their programming content. The decision reinforces an earlier ruling this year, also by a US Court of Appeals (the nation's second-highest level of courts) that upheld cable-TV operators' First Amendment rights, saying that cable businesses are like newspaper businesses and therefore should enjoy the same protections.

Removing government control of an important means of expression would in itself be cause to celebrate. But if cable's regulatory restraints are peeled away, consumers have another reason to cheer: the prospect of lower subscription fees. Attorney Clint Bolick of the Mountain States Legal Foundation has estimated that it costs cable operators, on average, about $6.00 per subscriber to comply with various regulations.

According to many analysts, the recent Appeals Court decision on the must-carry rule casts strong doubt on the validity of a wide range of cable regulation. "If the view that cable operators should enjoy the same First Amendment rights as newspaper publishers ultimately prevails," the New York Times's Stuart Taylor, Jr., wrote, "all governmental regulation of cable programming could be swept aside."

In fact, in court cases pending throughout the nation, local governments' routine practice of awarding exclusive (monopoly) cable franchises, and of exacting various fees and programming requirements from the franchisees in exchange, are being contested on First Amendment grounds. In January, for example, a federal court is slated to try a cable company's lawsuit against the city of Sacramento, California, on First Amendment grounds.

The company, Pacific West, is contesting the city's refusal to allow it to set up cable service without a franchise license. If Pacific West wins its suit, says Thomas W. Hazlett, an economist and an expert witness for the firm in the case, "cable monopolies throughout the country will literally be up for grabs."

The Road to Ethiopia Is Paved With Good Intentions

The reflexive response to the tragic and heartrending famine plaguing Africa is to call for more foreign aid to African governments. Yet this balm to troubled Western consciences is likely to have the opposite of its intended effect. Some courageous policy analysts from across the political spectrum are arguing that well-intentioned assistance actually enfeebles African economies and guarantees them an even bleaker future.

For example, a new report by Alan R. Waters, formerly a chief economist with the US Agency for International Development (AID), maintains that "aid may be a major culprit contributing to Africa's anguish." Building on the work of path-breaking development economist P.T. Bauer, Waters argues in a report for the Washington, D.C.–based Heritage Foundation that foreign aid is "inherently bad."

This may sound heartless, but Waters charts the effects: "It retards the process of economic growth and the accumulation of wealth; it weakens the coordinating effect of the market process; it pulls entrepreneurship and intellectual capital into nonproductive and administrative activities; it creates a moral ethical tone which denies the hard task of wealth creation."

Though emergency food assistance has a salutary effect (and can be provided privately—see "Rock Concerts" above), Waters charges that all other forms of foreign aid are insidious and allow African governments to postpone making necessary, radical economic reforms—abolition of agricultural price controls and state-sponsored monopolies, encouragement of African entrepreneurs, and decentralized political power.

A critique of foreign aid from a quite different perspective recently appeared in the Atlantic Monthly. Jack Shepherd, senior associate at the Carnegie Endowment for International Peace and a specialist on food aid in Africa, rejects the efforts by African bureaucrats to lay the blame for their continent's dire straits solely on Western shoulders.

Shepherd notes that a confluence of unfortunate events—including African government policies that have "promoted industrialization at the expense of food production" and harmful Western food aid—have placed Africa in its desperate position. (How desperate? Shepherd reports that 150 million Africans from 26 nations are in need of emergency food aid.)

Shepherd adduces some damning evidence. While the West poured $22.5 billion in development aid into sub-Saharan Africa in the 1970s, per capita food production in that region fell by an average of 1.2 percent a year during the decade. Much of this Western aid never reached those for whom it was intended—Shepherd notes that of the $7.5 billion given to eight West African nations during the '70s, only 12 percent reached rural areas. The preponderance of Western aid is spent foolishly by African governments on what the World Bank calls "white elephants"—large-scale projects that enhance politicians' prestige but have exceedingly low rates of return.

Shepherd is sharply critical of the US government's food aid policy, which, he notes, was actually "initiated to get rid of this nation's seemingly endless agricultural surpluses." And it's not emergency food aid that's at issue, he notes. Some 30 percent of all food aid to Africa is long-term, "project" food aid, which tends to "depress farm prices in the aid area, not reach those who need food most, promote shifts in food-consumption patterns away from local foods to imported foods, encourage dependence on make-work and food handouts, and reduce the incentive of recipient African nations to develop and carry out agricultural-policy reforms."

The US response to the crisis in Africa will have long-term effects on the future of that struggling continent. Waters and Shepherd articulate a growing recognition of past mistakes. Whether the designers or current policy will heed the warnings remains to be seen.

Power Stations: Some Like Them Competitive

For years, electric utilities have stood above the fray in the deregulation debate. No more.

The heavily regulated industry is "heading for a free-for-all," according to Business Week magazine. Many utility companies are generating far more power than their projected needs and have taken to selling this excess capacity outside their home markets, precipitating mini rate wars in the wholesale power field. In addition, Business Week notes, industries that once purchased power from these utilities will over the next 15 years double the amount they generate for themselves by "cogeneration"—and add the equivalent of 20 private nuclear power plants to the system.

As industries increase their self-generating power capacity, public electric utilities may become obsolete. In Maine, for instance, several industrial manufacturers are now selling excess self-generated electricity to Central Maine Power (CMP). According to Forbes magazine, by 1990 a full 20 percent of CMP's power may come from independent sources, eliminating the need to construct costly new power plants. In fact, Forbes speculates, utilities like CMP "may eventually (be) reduced to little more than a nonprofit distribution network."

For once, a federal regulatory agency seems determined not to stand in the way of competition. Business Week reports that Ray O'Connor, the market-minded chairman of the Federal Energy Regulatory Commission (FERC), is examining the deregulatory lessons provided by the transportation, telecommunications, and banking industries to see how they might be applied to electric power generation. O'Connor is pleased with the new infusion of competition into the utility field. "Risk and uncertainty now seem to be the new buzzwords" in the business, he notes approvingly.

Of course, most of the attention these days is focused on deregulating the generation of electric power, not its distribution. Yet as a REASON investigation way back in October 1981 showed ("Two Utilities Are Better Than One"), competition between electric utilities is no mere figment of some feverish free-market economist's imagination. It actually exists in (as of today) 32 communities. And as University of Illinois professor Walter J. Primeaux observes in a chapter of the Reason Foundation's new book, Unnatural Monopolies, "direct competition in electric utility markets leads to substantial benefits for consumers."

Slowly but steadily, market ideas are infiltrating even the electric utility industry. The ultimate winner in all of this, as in other deregulated industries, will be the nation's freemen.

If Info Is Needed, Is the Market Up to It?

Diverse examples put the lie to one of the standard rationales for government intervention in markets. It doesn't pay for anyone to provide some types of goods and services, the conventional thinking goes, so if they are essential to the smooth functioning of the market, the government must step in to provide them. Information is said to be a prime example. But a closer look is informative.

Take, for example, a case from broadcast television. In a major deregulatory move last year, the Federal Communications Commission (FCC) abolished rules governing the amount of news, local programming, and commercials carried by TV stations. So broadcasters are no longer required to keep a complete log of what they air.

This deregulation has, depending on how you look at it, left TV advertisers without a vital necessity—or opened up a great opportunity for entrepreneurs. TV advertisers used to be able to easily monitor the airing of their commercials by going through stations' programming logs—but no more.

What's an advertiser to do? Recognizing a market opportunity, Burton Greenberg, a director of TV commercials, has started up a service to monitor ad broadcasts and sell the service to advertisers. He plans for his TeleScan, Inc., to use a new method to monitor broadcasts: advertisers encode their TV ads with an electronic digital code, which is read by a computer when the ad is broadcast.

With advertisers paying TV stations $20 billion a year for some 130 million ad slots, Greenberg is certainly on to potential big business—and he won't be alone. According to Business Week magazine, at least two other firms are planning to start ad-monitoring services, including A.C. Nielsen, the marketing giant that rates TV programs.

Another example of how the market responds to information needs is the bank-rating business. Again, the average consumer isn't affected directly at all, but the information is needed for the market to function smoothly.

Investment institutions often lend money on a short-term basis to banks—but before they do, they like to know whether the banks are creditworthy. Enter bank-rating services, which function like services (such as Moody's) that rate corporate and municipal bonds.

Bank Watch, a service offered by the firm Keefe, Bruyette & Woods, rates the country's 300 largest banks and a number of savings-and-loans, as well as 100 foreign banks. Its 650 subscribers include money market funds, cash-rich corporations, and insurance companies.

Some people in the industry worry because Keefe also makes investments itself, raising conflict-of-interest questions. But the market is responding to that, too. Several of the more conventional credit-rating firms, which don't trade in securities, are getting into the business.

Can the market provide information? Hey—no problem!

A Developmental Approach to Child Care

As more and more women choosing to work outside their homes, concern over child care is taking a high place on the growing roster of "women's issues"—with increasing calls for government (that is, taxpayers) to step in and help provide such care. Against this approach, witness the workings of the market: a Florida developer is creating a whole project in Coconut Creek centered around and catering to the lifestyles of working parents and their children.

When it is entirely finished in two years, Cenvill Development Corp.'s $40-million, 820-unit Centura Parc townhouse project will include 10 child-care centers, offering day care, after-school care, and an evening baby-sitting service. A parents' council and an 11-member board of professionals will advise the centers' staffs.

Cenvill has conceived the 164-acre private community with both parent and child in mind. The townhouses' patios, for instance, are enclosed, and the kitchen counters have rounded corners. The overall layout is arranged so that children don't have to cross any streets to go to the closest playground or care center.

For parents, a whole range of courses for adults is planned, including, for example, parent education and aerobics. Such activities are to take place in a community "club house," a complex of meeting rooms, exercise facilities, bar, and other places for social gatherings.

As far as Centura Parc's developers know, the project—whose units are priced from $56,000 to $81,000—is the only one of its kind thus far, and it's viewed as a testing of the demand for such a package. Whether or not it catches on, it provides a small illustration of the way entrepreneurs in a market system search for ways to meet people's needs.

Free Market for Water: An Idea That's No Longer All Wet

In a move described by the Los Angeles Times as "a landmark turnaround," the L.A. Department of Water and Power has proposed to start raising water rates during the summer, when the demand for water is highest. Strongly backed by environmental groups, the seasonal-pricing plan is the government agency's first try at establishing a long-range water-conservation program.

The proposal must go through several rounds of hearings and a series of votes by various government authorities before the L.A. City Council decides its fate later this year. But it is one indication of a growing interest in a market approach to supplying water-short California with this much-needed resource.

Historically, water has been developed in California at federal and state government expense and supplied to users at hugely subsidized prices. The predictable results have been overuse of a scarce resource, lots of political logrolling, and evermore proposals for high-cost water projects.

Things have changed, though, ever since California's voters turned down the multi-billion-dollar Peripheral Canal project in 1982 (see "Billions Down the Drain," by William Tucker, REASON, June 1982). Much of the talk these days is about how a free market for water could alleviate many of the state's water problems.

And it isn't all just talk. Two Southern California water agencies, the Imperial Irrigation District and the Metropolitan Water District, have agreed to an annual arrangement for the MWD to pay Imperial $10 million for 100,000 acre-feet of water. And Colorado water authorities are now considering selling some of the water from the Colorado River to users in California, Arizona, and Nevada. Only a year ago, these officials were among those who had put the kibosh on a plan to sell Colorado River water to Californians.

Bolstering the case for market allocation of water was a recent report prepared for the California legislature by researchers at the University of California at Davis and the Hastings College of Law. The report demonstrated that (dry) southern California could purchase large amounts of water from (wet) northern California and thereby avoid the huge costs of new water projects. In one example, the researchers showed how farmers enjoying a water surplus in one county could sell water to farmers in another county and make $2.8 million on the deal, while the water-poor farmers would avoid having to develop new sources. Net savings: $2.4 million.

A 1982 state law permits such buying and selling of water, the report noted. But in a complex system governing the rights to subsidized water, individual users and water districts alike are reluctant to sell any. By doing so, they fear, they will give up their water entitlements, even though the new law specifically removes that risk. So many individuals and agencies with rights to water waste much of it—by growing marginal crops, for instance.

A contingent of lawmakers in the state assembly is working to publicize the ideas of the UC Davis–Hastings College report, "Water Trading: Free Market Benefits for Exporters and Importers." If the ideas seep into common practice, everybody—taxpayers and water users alike—stands to come out ahead.

Milestones

? Ban handguns? No. A recent Gallup poll showed that a majority of Americans opposes banning the sale and possession of handguns in their city or community. Fifty-six percent of those who responded to the poll oppose such measures.

? Buggier bests state. A federal-court judge ruled that the First Amendment religious-freedom clause protects the right of the Amish not to display bright-orange warning signs on their horse-drawn buggies. The judge sided with an Amish farmer in Kentucky who had been fined for not having the sign on his buggy. The buggier argued that his religion forbids adherents from displaying both bright colors and symbols of the state's authority.

Global Trends

Brazilian Jocks Get Private Support

BRAZIL—For as long as anyone can remember, amateur sports in Brazil have been promoted by the government, mainly the Ministry of Education and Culture and its local offices. Except for soccer and basketball, which are sponsored by professional ball clubs and social clubs, amateur sports have always been assumed to be a proper object of government handouts. The idea that they could be financed by private means was not credible.

The decades-long effort at state-sponsored sports has produced meager results, however. Brazilians have won only a few Olympic medals, mostly bronze, and these have been due more to outstanding individual achievements than to the effectiveness of government programs.

Meanwhile, generations of sports bureaucrats have grown fat on government funds. Predictably, as Brazilian sportsmen failed to become supermen, more money was appropriated, more staff hired, more office space rented or built, more regulations written, and new programs created. One Education Minister went so far as seriously to suggest that Brazil send a group of Amazon Indians to international track meets—he had heard that these people were adept at running quickly through the jungle; they should, therefore, run even faster on modern tracks.

Good athletes were never produced in the government's sports factories, nor were crowds attracted to sports arenas. Amateur sports were not taken seriously and, to make matters worse, tiny archrival Cuba regularly beat Brazilian teams in sports competitions.

Over the last eight years, all this has been changing, thanks to private-enterprise funding and support. Since 1977, several multinational corporations have been sponsoring teams and athletes in different sports, from men's and women's volleyball to boxing. Other businesses have followed suit, and the number of teams and athletes involved has skyrocketed. Crowds have flocked to the arenas, and almost overnight a whole new market has been created, especially for television networks and advertisers.

Amateur sports have made spectacular progress. For example, the men's volleyball team, previously considered "too slow," now regularly defeats the Cubans and has even downed the mighty Soviets on several occasions. And at last year's Olympic games in Los Angeles, the quick and elegant Brazilians beat the US squad in the quarterfinals before losing to the same American team in the gold medal game.

By virtue of their international successes, amateur sportsmen and sportswomen have become national celebrities who add to their incomes by advertising products on television.

The Olympic silver medal for men's volleyball won at Los Angeles in the summer of 1984 was the beginning of a Brazilian athletic renaissance. More significant, perhaps, is the public's perception that this bright future is due to private enterprise.

—José Italo Stelle

What Mitterrand Hath Wrought, the Right May Rend

PARIS—Just four years after President François Mitterrand and his Socialists nationalized much of France's industry and banking, the government appears to be on the verge of reversing itself and selling the businesses back to private investors. The nationalization binge of 1981 "has given France the largest state sector among industrialized countries outside the Communist world," noted a recent New York Times report. Caught in the state's grip is a wide array of industrial groups, including major producers of steel, computers, chemicals, and armaments. Banking, insurance, transportation, communication, and other service industries were nationalized as well.

The result? The nationalized sector's deficit shot up nearly 2,000 percent between 1980 and 1982, rising from 1.9 billion francs in 1980 to 39.1 billion francs in 1982 and dipping only slightly—to 36 billion francs—last year.

The frightening size and glaring inefficiency of state enterprises have forced the nationalization debate back into the political limelight. Confident that next spring's parliamentary elections will return them to power, the two largest right-wing opposition parties have committed themselves, in a joint economic platform, to a radical and far-reaching liberalization of France's economy: not only the sale of nationalized industries back to private investors, but extensive deregulation, annual tax cuts, and spending reductions. Other proposed reforms include removing wage and price controls, reducing the power of the civil service, and developing self-financed universities that—wonders!—would compete for students' francs.

The Socialists, meanwhile, are watching the polls, which indicate that the opposition may win easily in the 1986 elections. While the government looks the other way, nationalized companies are raising capital from private investors, buying and selling subsidiaries according to their own business strategies, and otherwise acting like profit-making entities.

The government, noted the Times, "can no longer afford to pay for the losses of state-owned companies or provide fresh capital." So Prime Minister Laurent Fabius has told heads of nationalized companies to get in the black or get fired. The Finance Ministry, meanwhile, is also scrambling to find ways to ease competition back into the financial markets.

The Communists, predictably, oppose all efforts to denationalize. But no one's listening. The opposition parties are sounding free-market themes in order to regain control of the French National Assembly; the Socialists are trying not to look like socialists. Next spring's election may well deliver a resounding thumbs-down verdict on nationalization.