Trends

Savimbi to Western Supporters: Lick Me

Angolan nationalist Jonas Savimbi's UNITA guerrillas have opened a new front in their battle to overthrow Angola's Marxist government—the wonderful world of stamps. Savimbi has authorized the Inter-Governmental Philatelic Corporation, based in New York City, to design a series of limited-issue stamps that can be used on letters mailed from UNITA headquarters in Jamba, Angola.

The first set of four stamps depicting Savimbi and various UNITA symbols was issued in February. A new set is to be issued each month. Sets sell for $15, or 1,500 Kuansas for those of you who prefer to use Angolan currency. Letters mailed from Jamba to an Angolan post need one stamp; international mail from Jamba requires all four stamps.

The largest market for UNITA stamps is expected to be composed of non-Angolans, according to Marc Rousso, chairman of the Florida-based Resistance Stamp Agency that is orchestrating the stamp program. Rousso told REASON that stamp collectors and UNITA supporters in the United States are likely to make the majority of stamp purchases. The first issue of 45,000 sets sold out during the month of March—bought largely, says Rousso, by stateside UNITA sympathizers. He believes, though, that "every month more and more collectors" will want to add the stamps to their collections.

Those wanting more information on how to purchase UNITA stamps should contact Marc Rousso, International Stamp Exchange Corporation, 310 Arthur Godfrey Road, Miami Beach, FL 33140 (305/672-7047). Rousso hopes that UNITA will raise "millions and millions" of dollars through its stamp program. If so, it would certainly disprove the old adage that philately will get you nowhere.

The FCC Dishes up a Morsel of Competition

In a ruling that largely preempts local zoning authority, the Federal Communications Commission has told the nation's cities that they cannot ban backyard satellite receiving dishes in an attempt to protect the cable television industry. Many cities and historical districts have tried to outlaw the dishes, ostensibly as eyesores. But some of these bans were a response to pressure from local cable TV operators who want to maintain their monopoly on pay television.

The FCC's 3–1 vote follows a complaint over one such Chicago ordinance alleged to favor the city's cable industry. As the Wall Street Journal reported, Chicagoans who want to install satellite dishes have had to get "the same government clearances needed to develop a hospital, airport or subdivision: a public hearing, approvals from three government agencies and payment of a $100 fee." The FCC ruling says that cities cannot use their zoning authority in this way to help the growth of cable TV.

Although the commission claims it will still support local restrictions based on "a reasonable and clearly defined health, safety or aesthetic objective," it will not allow restrictions that treat satellite receiving dishes less favorably than other kinds of antennas. Specifically, cities can't impose "unreasonable" limitations on or prevent reception of signals by satellite dishes, nor can they charge excessive fees to satellite dish owners.

Frederick W. Finn, a lawyer for the Society for Private and Commercial Earth Stations (SPACE), says his group is pleased with the FCC decision. Although home reception of satellite signals was legalized only a year ago, there are already nearly 2 million dish owners, who pick up programs being transmitted to cable viewers without having to pay the subscription fee.

Meanwhile, while local cable franchises have been trying to deploy zoning laws against the competition, cable programming services, with Home Box Office and Cinemax leading the way, have been figuring out how to protect their own property. Even as the FCC decision was announced, they were starting to scramble their signals to prevent unpaid-for use.

Chalk one up against zoning and one for private property.

Blowing the Whistle on the Feds' Fixing the Books

In matters financial, the federal government is a lot like the parent who, with cigarette in hand, tells his kids not to smoke. The government requires publicly held companies to prepare financial statements in accordance with generally accepted accounting principles (GAAP), which are designed to accurately reflect a company's financial situation. In return for its financial assistance, the federal government has directed New York City and other local and state governments to adopt GAAP for financial reporting and budgeting. But the government itself abjures such upright accounting.

Now, Arthur Andersen & Co., one of the Big Eight accounting firms, is blowing the whistle. In a hard-hitting report released earlier this year, the firm pointed out that the feds' nonstandard accounting system "hides the costs of current programs and results in misinformation and misunderstanding." The policy implications, the report notes, are substantial. Government's obligation-oriented, cash-basis accounting obscures the true cost of programs that promise benefits now but are not funded until later. With this accounting method, it's easy for politicians to court today's voters at the expense of tomorrow's taxpayers. It's therefore not surprising that, as the report reveals, "excluding interest expense, nearly all growth in Government spending as a percentage of GNP since World War II is related to programs that involve promises to make future payments."

GAAP, in contrast, recognizes costs when they are incurred. Expenses are recorded when promises are made, not simply when money is paid. For 10 years, the US Treasury has been using GAAP to prepare prototype financial statements for the federal government. But in its budgeting and related reports to the public, the government continues to shun GAAP in favor of the deceptive cash-based accounting.

One of the things the current accounting system hides is a larger deficit than is reported. For example, the cash-basis deficit of $185 billion for fiscal year 1984 does not fully reflect the costs of pensions, Social Security, and other obligations. Tallied by GAAP, the same deficit is a hefty $333 billion, which was more than the total personal savings of Americans that year. As the report points out, this figure represents "a claim upon the future standard of living of the American people."

The government's books also substantially understate the true value of government-owned assets—and thus fail to indicate the potential benefits of various privatization moves proposed in the light of the budget crunch. All of the government's public-domain land, as well as the outer continental shelf and related mineral rights, is excluded "pending study on appropriate valuation methods." What land is included on the books is valued at acquisition cost. The same for government inventories. The government's gold reserves have been pegged at $42.22 an ounce for more than 10 years, while the market price of gold exceeded $800 for a time and even now is more than seven times the $42.22 figure.

Arthur Andersen & Co. isn't the first to see the need for financial reform. Back in 1950, Congress passed legislation requiring US government agencies to prepare GAAP-based financial reports like those required of private businesses. But succeeding Congresses and administrations have largely ignored these laws. And the government is not required to publish its own financial statements.

So while the debate over a balanced budget rages on, the feds persist in making it difficult even to define a balanced budget. "The current system," concludes the Arthur Andersen study, "neither reports costs nor provides other information that citizens need to determine whether they have received value for their money."

Washington and Dulles: Will the Government Sell Itself Short?

Rothschild and Sons investment-banking firm is forming a consortium to bid on purchasing the Washington, D.C.–area National and Dulles airports from their present owner—Uncle Sam. Working with privatization consultants at The Services Group and Free Zone Authority, both based in Arlington, Virginia, Rothschild's expects the consortium to put together a bid of $500 million to $1 billion for full ownership of both airports.

The privatization proposal comes at a time when the Department of Transportation, which operates the federally owned airports, is finally moving to divest the government of the facilities. However, DOT now favors a plan to sell both airports to the state government of Virginia for only $47 million. There is some opposition to the DOT plan in Congress, which must approve the proposal. A number of legislators think that the debt-ridden federal government can get much more than the fire-sale price that DOT recommends. And at least one—Sen. Gordon Humphrey (R–N.H.)—thinks that privatization, instead of a government-to-government transfer, is the sensible route.

Why the Transportation Department has settled on the absurdly low figure of $47 million is nearly impossible to figure out. Analyst Paul Feldman, who proposed privatization of the airports three years ago in REASON ("Free the D.C. Two," Sept. 1983), figures that National Airport's 680 acres of land alone is worth some $1.2 billion. Of course, the only way to determine the airports' market value is to auction them, selling each to the highest bidder. The Rothschild plan shows that private parties are indeed seriously interested. The question is: will government officials and politicians take Rothschild's seriously? We'll keep you posted.

Unclogging the Drains on Prosperity

"State-owned enterprises are draining Third World economies dry, to cover their huge operating losses. The only sensible solution is privatization."

The preachment of a free-market ideologue? In fact, that was the central theme of a two-and-a-half-day conference in February sponsored by the US Agency for International Development (AID) in Washington. Over 500 people spent that time not debating whether to privatize but exploring how best to carry it out.

Workshop sessions covered such topics as the politics of privatization, financing mechanisms, legal and tax considerations, and marketing of divested enterprises. Discussion leaders included the Reason Foundation's Robert Poole, the World Bank's Gabriel Roth, the Adam Smith Institute's Madsen Pirie, and Johns Hopkins University's Steve Hanke (all familiar to REASON readers for their articles on privatization in these pages in recent years).

As significant as the subject matter was the composition of the conferees. About one-third were officials from Third World countries (including the director of privatization of Turkey's housing authority!); another third were AID staff and officials; and the remaining third consisted of journalists, federal employees, and, significantly, dozens of representatives of major investment-banking firms (Morgan Guaranty, E.F. Hutton, Lazard Frères, Rothschild's, etc.). Apparently, the word is out that there is much work to be done, and money to be made, arranging stock offerings and other forms of divestiture now that governments around the world are taking privatization seriously. Also notable for their presence were a number of consulting firms offering expertise in privatization.

To symbolize the importance of privatization to AID, Secretary of State George Shultz gave a luncheon address in which he termed privatization "central to the solution of a lot of the problems we see around the world." AID administrator Peter McPherson stressed that privatization could "liberate developing countries' economies from slow growth or stagnation" by substituting entrepreneurship for bureaucracy. And the director of AID's Bureau for Private Enterprise says privatization is "simply an idea whose time has come."

Whether action will follow all the talk remains to be seen. World Bank privatization consultant Elliot Berg has identified 30 instances of divestiture of state-owned enterprises in Africa, 165 in Latin America (the majority in Chile), and 250 in Asia (mostly in Bangladesh)—out of many thousands of white-elephant enterprises in government hands. But with AID now linking some of its assistance to progress in privatization, those numbers may begin to grow.

Milestones

? CHIPS get wise, ruffle feds. The handsome men of the California Highway Patrol (CHP) have recommended that the speed limit on hundreds of miles of California's freeways be increased to 65 miles per hour. A CHP spokesman called the federally mandated 55 mph law "a laughingstock." Meanwhile, according to state reports, more and more of the nation's drivers are ignoring the double nickel, with increasing signs that the police know there's not much they can do about it.

? Something for Volcker's pipe. The Reagan administration has changed its tune on nonbank banks—institutions that either don't take deposits or don't make loans, thereby avoiding burdensome federal regulation. Despite the vocal opposition to such banks by Federal Reserve Board Chairman Paul Volcker, Treasury Undersecretary George Gould says the administration has decided that there is "no reason" to close the nonbank-bank loophole.

? The crumbling telephone monopoly. McGraw-Hill is test-marketing X*Press, an electronic information system that delivers stock-market and other data over cable television instead of telephone lines. Stock brokers and traders in Boulder, Colorado, pay $19.95 a month for the service, compared to $1,000 a month for a phone-based system. McGraw-Hill plans to test X*Press in four more cities next year.

Global Trends

Japan's Great Railway Bazaar

In voting earlier this year to denationalize the country's debt-ridden railway system, the Japanese government committed itself to the world's largest privatization project to date. With 276,000 workers, Japan National Railways (JNR) is the nation's second-largest employer—and has debts of $207.2 billion. The move dwarfs Britain's $4.8-billion sale of its national telecommunications system last November, heretofore the world's biggest privatization.

The government plans to transfer JNR to private hands in two stages. First, the system will be divided among seven "special corporations," six for passenger service and one for freight, that the government plans to set up by next April. The government will hold all shares in the corporations until they are fully operational. The second stage is then to sell all shares to the public (with, by the way, no limitation on foreigners' stock purchases).

As always, mixed with good news there's some not-so-good news, as well. While the seven new companies will take over $63.3 billion of JNR's debts, the government will remain responsible for disposing of the rest of the red ink, $143.9 billion of it. The sale of government lands worth some $28 billion will help—but taxpayers will have to make good for at least $90 billion of the railway's bad IOUs. And while the new companies' prospects are aided by a provision that allows them to engage in nonrailway businesses to help boost their revenues (likely prospects are hotels, parcel delivery service, and real estate development), there are limits: Japan's small-business lobby pushed through a law that empowers the transportation minister to set off-limits any venture seen as threatening other businesses.

Still, the size and scope of the privatization plan is indeed impressive—and sets another precedent for such large-scale affronts on big government everywhere.

Gaels of Change

WASHINGTON, D.C.—A radical realignment of political forces is under way in Ireland—one that could lead to greater respect for individual preferences in social policy and greater appreciation for private enterprise in government economic policy.

Though it will not be settled until the next parliamentary elections (due in 1987), the balance of power by then is likely to rest in the hands of one Desmond O'Malley of Limerick, who in December launched a new political party. The Progressive Democrats' still-sketchy party program calls for greater economic freedoms for individuals and corporations, reductions in taxes and government spending, and secularization of policy on social issues such as divorce and contraception (still banned in staunchly Catholic Ireland).

Polls indicate that O'Malley and his party have caught the public's attention. In February, 25 percent said they would vote PD—which in the Irish system would translate almost directly into a quarter of the seats in parliament. Whether they will feel that way come election day, however, is another matter.

Few people remain as loyal to tradition as do the Irish, and in politics this may be doubly so. Through virtually the entire history of its independence, Ireland's politics has been dominated by two parties whose principal distinction remains to this day the side on which one's family fought in the civil war of 1921–23. Sons and daughters (and grandchildren) of those who supported the treaty of independence from Britain are members of Fine Gael ("tribe of Gael"). Descendants of those who refused to accept independence without inclusion of the six counties of Northern Ireland—and who made war on the treaty signers because of the omission—today belong mostly to Fianna Fail ("soldiers of destiny").

Over the years, basic policy disputes between the two parties have grown smaller and fewer. Meanwhile, the state has grown. Between 1975 and 1985, public spending rose from 45 percent of GNP to 54 percent (accumulating $16 billion in additional government debt along the way, for a total today of $25 billion in a nation of only 3 million people).

O'Malley's principal objective, he has made clear, is the creation of an environment that is attractive for private enterprise. "The ideal, in general terms, that we should aim at," he says, "is the sort of economic climate in the United States."

—Thomas O. Melia