Trends

Maybe the Postman Should Only Ring Once

You'd think that any business that loses over $1 million a day, and stands to lose as much as $500 million in 1985 alone, would be in big trouble. Alas, the US Postal Service is in no danger of folding, but US Snail's consistently pathetic performance is encouraging policy analysts to give respectful attention to an alternative long advanced by free-market economists—postal competition.

A new report by the Norwalk, Connecticut-based market research firm International Research Development (IRD) predicts that "by the mid-1990s, the US Postal Service may be restructured along the lines of the post-divestiture AT&T and privatized à la British Telecom." The IRD study sees the increasingly popular "teleprinting" services such as MCI Mail and ZapMail as the catalysts for change. As the teleprinting market becomes more lucrative, the USPS—which terminated its E-COM electronic mail service in September because of poor business—will redouble its efforts to compete in that market.

"The line between public and private postal enterprise" will disappear, predicts IRD, as a federal agency competes head-to-head with private enterprises. The solution: "The USPS will be privatized in the interest of competition, as it should allay [the private companies'] fears of facing seemingly unlimited US government funds."

Meanwhile, partisans of postal competition have gained an important friend in a very high place—the new director of the Office of Management and Budget, James C. Miller III. No sooner did the president send Miller's name to the Senate for its advice and consent than the Cato Journal published a Miller paper arguing for the repeal of the private express statutes, which forbid private competition in the delivery of first-class mail. "The burden of showing that the postal monopoly is necessary or desirable has not been met," asserted Miller. "All the available evidence suggests that competition in the market for first-class letter delivery would create substantial benefits."

Miller has company. In a recent three-part series entitled "The Last Monopoly," the Christian Science Monitor noted that the Postal Service is entering "the most perplexing and difficult decades of its existence." Burdened with 746,000 employees making an average wage of $29,000—which is at least 30 percent more than their private-sector counterparts earn—USPS costs are "out of control," notes Washington, D.C., consultant Michael F. Cavanaugh. Cavanaugh predicts that within the next decade the American people "are going to…recognize that these costs are out of control and demand that the private express statutes be repealed." (Attention trivia fans: Last year the Postal Service purchased 6,145,850 pounds of rubber bands.)

Dissatisfaction with postal monopolies knows no national boundaries. Friday Report newsletter speculates that our neighbors to the north may "turn to privatization, turning Canada Post over to [a] private corporation." And the influential London-based Adam Smith Institute reports that Britain's Post Office, which the Thatcher government is splitting into four separate sections, "is next in line for privatization," probably within the next 18 months.

Stripping monopoly power from a hidebound dinosaur like the US Postal Service will be no mean feat. But as former Postal Rate Commission chairman and Brookings Institution scholar A. Lee Fritschler told the Christian Science Monitor, "The handwriting is on the wall. It's the last national monopoly."

Transforming a Ghetto "a Different Way"

The centerpiece of the American Dream—owning your own home—remains out of reach for most poor and even middle-income city dwellers. But a community in Brooklyn, New York, is reviving the dream for hundreds of grateful families.

Five years ago, the East Brooklyn neighborhood of Brownsville was just another desolate urban wasteland; if you were lucky, the city placed you in a rat-infested, crime-ridden public housing project. Home ownership was simply not a realistic goal for most residents—until a retired builder with a vision and a neighborhood organization with clout and a heart stepped in.

The builder is I.D. Robbins, a septuagenarian who believes that our devastated inner cities can be rebuilt—and stay rebuilt—if private property ownership were widely dispersed (a Jeffersonian notion, we might add). The organization is East Brooklyn Churches (EBC), a coalition of 50 area parishes that lured Robbins out of retirement with a chance to build his dream community.

EBC quickly put together an $8-million revolving construction fund, raised primarily from member churches. The City of New York donated 200 acres of abandoned land and threw in $10,000 toward the cost of each house, reducing its price to buyers to just $41,000. The city is also deferring property taxes for 10 years, and the state mortgage authority is providing a special 9.9 percent mortgage to the new home buyers.

The Nehemiah project, as it is called, now consists of over 400 two- and three-bedroom homes, built for $51,000 and sold to families with average incomes of less than $25,000. (In fact, 40 percent of these new homeowners move in from public housing.) When finished, Nehemiah will consist of 1,500 homes gracing those 200 donated acres of land. Two more Nehemiah projects, totaling over 4,000 homes, are in the planning stage.

The upshot of all this? "This community was considered a graveyard," Rev. Johnny Ray Youngblood of the St. Paul Community Baptist Church told the Washington Post. "Nehemiah saved it."

Though there is an element of government involvement in the project, by and large this is a community enterprise. New York Times editorial writers, who can usually be counted on to draw the wrong lesson from the simplest stories, have pointed to Nehemiah's success and called for a $150-million federal program modeled on it. But the Reverend Youngblood sees things a bit differently. He told the Post, "We're saying to government, 'Let's do it a different way.' Let's not plan housing for Brooklyn from Washington. Let's plan it from Brooklyn."

Righting the Wrong Way to Achieve Civil Rights

One of the most tragic political developments of the last decades is the civil rights movement's abandonment of its goal of securing individual rights under the law and its embrace of big government as the solution to all problems. But the social engineers have hit a few roadblocks lately.

In a recent comparable-worth suit, a federal court rejected statophiles' attempts to saddle the government with responsibility for accomplishing equal pay for jobs of equal worth. The US 9th Circuit Court of Appeals reversed the nation's first comparable-worth suit, which could have cost Washington State taxpayers up to $1 billion and embroiled individual workers of both sexes in bureaucratic nightmares.

The appellate court unanimously overturned a 1983 ruling in which US District Judge Jack Tanner had accused Washington State of discriminating in its pay scales on the basis of sex. Judge Anthony Kennedy, who wrote the appeals court's decision, noted that a salary gap between men and women is not proof of discrimination. Judge Kennedy added that the court found "nothing in the language of Title VII (of the Civil Rights Act) or its legislative history to indicate Congress intended to abrogate fundamental economic principles, such as the laws of supply and demand, or to prevent employers from competing in the labor market."

The Reagan administration agrees. In this case (unlike a lot of other areas) supporting its avowed free-market ideals, the administration insists that the price of labor, like the price of other goods and services, should be left to individuals and groups in the marketplace. The anti-individualist conclusion of comparable-worth theory—that some central planning commission should overrule the signals of marketplace pricing—has prompted Reagan to call comparable worth "a cockamamie idea…(that) would destroy the basis of free enterprise." His assistant attorney general, William Bradford Reynolds, adds that comparable worth "makes a mockery of the ideal of pay equity, advancing instead the thesis that equal pay should be provided to men and women in remarkably different jobs on the basis of a subjective evaluation by some 'expert' that the two jobs can be called 'comparable.'"

Individual merit also won a couple of rounds in the communications field. A federal appeals court recently ruled that the Federal Communications Commission (FCC) has no authority to favor women when deciding who will receive FM radio licenses. Since 1978, the FCC has been giving preference to applications in which women have agreed to be part of the daily management of the station. But no more. The FCC, wrote Judge Edward Tamm, does not have a "license to conduct experiments in social engineering."

The court's conclusion is apparently shared by the commission itself. Several weeks before the ruling, the FCC had decided not to favor women in awarding licenses for low-power television stations and TV distribution systems. FCC Chairman Mark Fowler has spoken out against such discrimination several times in the past, and Mimi Dawson, the only woman on the commission, says she is "not a fan of preferences of any type."

Finally, a recent change in policy at Disneyland shows that, in a free market, private enterprises have ample incentive not to discriminate. The Los Angeles Times reports that Disneyland administrators have reversed a 28-year-old policy prohibiting members of the same sex from dancing together in Videopolis, the park's teen dance club. Patrons, especially young girls, had been expressing their objections to the policy. "We have always said no (to same-sex dance partners)," explained Disneyland spokesman Al Flores, "but we changed our minds.…We try to be responsive to feedback we get from our guests."

Not surprisingly, customer dissatisfaction was the strongest factor in reshaping Disneyland's policy. So the customers, not civil-rights bureaucrats, determined what "fair" policy would be. A small example, but not without a moral for civil-rights advocates.

Launching Competition into International Orbit

The first real blow fell on the international telecommunications cartel when a US government agency recently gave the go-ahead for several communications satellites to compete with those of the International Telecommunications Satellite Organization (Intelsat).

Under a 20-year-old agreement, Intelsat's consortium of 109 members—national telecommunications systems, mostly state-owned—operates a network of satellites for international communications. Part of that agreement had been that no member nation would allow its citizenry to put up private satellites to compete in this market. But last year, President Reagan determined that this policy was not in the national interest and ordered that Intelsat's market be opened—if just by a crack—to competition.

The Federal Communications Commission (FCC), not one to blanch at the prospect of competition, in August approved three private operators' applications to serve the international market—RCA, International Satellite, and Pan American Satellite. "[This] limited injection of satellite facilities competition into international telecommunications," noted the FCC, "should bring to the world some of the dynamism that characterizes the U.S. domestic data processing and telecommunications sector." So far, the private operators are limited to providing communications services that do not interconnect with the national phone systems of Intelsat member nations. This restricts them primarily to transmitting data (rather than voice), electronic document facsimiles, video images, and teleconferences for large corporate users.

As the New York Times noted in an editorial supporting the move toward competition, it can be expected to bring down the prices faced by international communications users and to "stimulate the development of new technology and new services." Even the Times is getting with it on the benefits of the market. The new move is "only a small first step," observed the editors, and the encore should be a "broad deregulation strategy" to force other national governments—most of which remain adamantly opposed to the US deregulatory move—to get in line with the competitive spirit.

With the wedge of competition now driven into the international market, they may have no choice.

For-Profit Hospitals Running the Doomsayers Ragged

Some critics of private enterprise are never satisfied. And so it is that for-profit hospitals are now under fire for doing precisely what skeptics a few years ago charged they'd never do. But, reading between the lines of a spate of recent newspaper reports, one can gain a less-than-dismal prognosis for the new breed of hospitals.

When for-profit hospitals began shaking the medical and political establishment a few years ago with a rash of acquisitions and construction, critics raised a hue and cry. If the privatization went too far, they complained, the health-care system would be in deep trouble. For surely profit-hungry hospitals wouldn't take on the high-cost but vital work of running teaching hospitals. Such hospitals have high costs because they train doctors, take on the most difficult and complex cases, and treat many poor patients. But for-profits, went the argument, would maximize their profits by concentrating on low-cost patients.

This cream-skimming argument has gone sour. The most dramatic counterexample is the work of one of the leading for-profit chains, Humana, Inc., in Louisville, where the firm is underwriting experimental use of the now-famous Jarvik artificial heart. But this is not an isolated case. The for-profits are getting into the business of running teaching hospitals to such an extent that the Los Angeles Times recently identified it as a new trend.

The University of Louisville leased its teaching hospital to Humana, Inc. In Wichita, Oklahoma City, Denver, and Omaha, teaching hospitals have been sold to private chains, and negotiations for similar sales are under way for two hospitals in Washington, D.C. Meanwhile, construction of a new for-profit teaching hospital is planned as a joint enterprise by the University of Southern California and National Medical Enterprises.

Interestingly, in view of the original worry, it seems that profit-seeking entrepreneurs are often attracted to teaching hospitals because they can actually have a good bottom-line performance. A Johns Hopkins University study published in the New England Journal of Medicine noted that two recently sold or leased teaching hospitals had reported a $30-million surplus in 1984, and this money was used to improve medical education and other programs.

The same study—and this part was widely reported in the media—worried that the new takeovers of teaching hospitals is a threat to the future of their traditional functions. But as Martin Tolchin noted in the New York Times, "another study reported in the same journal concluded that the takeovers reflected the hospital chains' commitment to teaching, research, and indigent care [and] a third study found that any conclusions on the effects of the takeovers were premature."

One prevalent criticism is that the private teaching hospitals will refuse to treat poor people who, according to other widely heralded reports, are increasingly being "dumped" on teaching hospitals. Critics acknowledge that when a profit-seeking company buys a teaching hospital, the previous owners' profit from the sale is placed in an endowment fund used to finance "traditional social responsibilities." But they claim the endowments will run dry in 10 or 15 years.

Michael Bromberg, executive director of the Federation of American Hospitals, which represents private hospitals, offers a solution. As he pointed out to Tolchin, "eighty-five percent of our profits are plowed back into these hospitals." In addition, he noted, hospital trustees who choose to sell to a private firm can guarantee that their hospitals continue to fund care for the poor, research, and other activities by specifying this in the sales contract.

Concluded Bromberg, "These teaching hospitals are our flagships. We're buying them to attract the best doctors."

It'll be interesting to see what the skeptics come up with next.

Hello. This Is Competition. We're on the Line Now, Monopoly

How many phone companies does New York City have? Well, the de jure monopoly provider is New York Telephone, but de facto competition is bringing the city many more phone-service operators. They're called "shared communications" providers, and typically they operate private phone systems in large office buildings and complexes. Throughout the United States, these private phone companies are growing in number—and the threat of competition from them has the local phone monopolies up in arms.

In a shared communications system, the various phones, or extensions, in the building or complex are connected to a central switchboard, which is in turn connected to a number of outside phone lines. Such a system needs fewer outside phone lines than internal extensions, because only some of the phones are being used at any one time. Customers save money by sharing the cost of the outside lines. It can cut the basic monthly service fee by as much as 30 percent compared to the local phone company's rate.

The New York Times recently reported that shared communications are planned or in place in 150 big office buildings, including 12 in New York City. The telecommunications consulting firm Telestrategies, Inc., of McLean, Virginia, the Times noted, predicts that by 1995 "the figure will rise to 15,000, and the industry itself will be a $10 billion business."

Local phone monopolies are so worried that in Florida, for example, they have already persuaded the government to ban such arrangements in that state. And in Arkansas, the Times reported, anyone who installs such a system "must register as a phone company and be subject to regulation." But 11 states—including New York—have opted for the consumer benefits of competition and are permitting shared systems without regulation. The remaining 37 states have not yet ruled on the matter.

Shared systems are just one of a growing number of innovations in the increasingly deregulated communications industry. Another recent development that we're certain to hear more about is car-phone answering service. With more and more US towns and cities getting cellular phone systems—the newest form of mobile telecommunicating, only recently approved by the federal government though the technology has been around for more than a decade—many cellular customers will be needing an answering service for their car phones. Wang Laboratories, the computer manufacturer, has developed the technology for this service and is offering it to customers of the Boston-area Cellular One system. Unattended car phones can answer calls, store messages, and automatically notify the customer—on a beeper or at another telephone—and the customer can retrieve messages remotely via any pushbutton phone.

In the new communications industry, innovations such as these are certain to proliferate. If the regulators stay out of the way, it means that more and more phone consumers needn't be at the mercy of a monopoly.

Milestones

? Fortunate ruling. The California Supreme Court has struck down several city ordinances that prohibited fortune-telling. Crystal-ball gazers are "communicating opinions which, however dubious, are unquestionably protected by the Constitution," observed Justice Stanley Mosk. The good judge pointed out that laws against fraudulent fortune-telling remain in effect. Hmm.

? Teaching freedom in Iowa. Two small church schools in Des Moines, Iowa, have filed a lawsuit charging that state educational standards violate their freedom of religion.