Courts to State: You Want It, You Pay for It

Tehama County, California, planners had a vision of the good life. So, like planners everywhere, they decided to make their vision law.

They dictated exactly what direction new homes could face. And how many windows they could have. What sort of paint could be used. And which homeowners could have wood stoves. They decreed that every home should have a water meter. And they made the citizens of Tehama County very mad.

So mad, in fact, that the citizens decided to put a stop to all that planning. A small group of property owners wrote a ballot initiative forbidding the county to impose any land-use restrictions other than those already established by state and federal law. Even more notably, the initiative required the county to pay for any drop in property values caused by restrictions for historical, archaeological, or "open space" reasons.

The initiative passed, but the county board of supervisors refused to obey it. The property owners sued and, after a ferocious legal battle, won on appeal. The victory "could be the spark of a bonfire," says Ronald Zumbrun, president of the Pacific Legal Foundation, which represented the initiative's supporters. Especially if combined with other sparks.

In another California case argued by Zumbrun's organization, a federal appeals court has paved the way for the owners of Santa Barbara mobile-home parks to demand compensation for property rights lost because of a very restrictive rent-control ordinance. Judge Alex Kozinski (see Spotlight, Aug./Sept. 1986) wrote the decision for the Ninth Circuit Court of Appeals, one of the most influential federal courts.

The city's mobile-home rent control, he ruled, amounted to a "physical invasion" of property by city authority and therefore could be subject to compensation claims as in eminent-domain cases. Until now, rent control and other use restrictions on property rights have been considered "regulatory" taking, which almost never requires compensation, according to the courts. Mobile-home park owners would still have to bring suit specifically to claim compensation.

Legal theorists, most notably Richard Epstein of the University of Chicago, have been arguing for some time that land-use restrictions amount to legal "taking" by the state and should therefore be paid for. In these recent decisions, the courts have taken tentative steps toward acceptance of this philosophy in practice. The Santa Barbara case, Zumbrun told REASON, "sets us up with a precedent to make the argument" in future cases.

"At the Pacific Legal Foundation, we're looking for straws in the property-rights field—and that's a big one."

Profiting from Postal Service Imperfections

Ingenuity can't be squelched by the state. Even though the U.S. Postal Service is the only entity allowed by law to provide nonexpress letter delivery, entrepreneurs keep finding ways of getting in on the act. In the process, they're filling in the cracks—and gaping holes—in Uncle Sam's service.

Reed Watkins, for example, has devised a simple way to make a buck in the postal business.

He collects household mail in and around Salt Lake City, hands it over to the Post Office for delivery, and turns a profit. How? By using the Postal Service's bulk rates.

Through market research, Watkins discovered that 90 percent of household mail is bills, most of which go to the same places—utility companies, phone companies, credit card companies, etc. So he put his finding to good use by starting Mail America.

Mail America sells its own cut-rate postage stamps: 20 cents for a personal letter, 15 cents for a bill. The company collects mail from 100 Mail America boxes located in grocery stores and shopping malls. After sorting it by destination, the company then puts all the mail going to the same address—Visa, for example—in one big envelope, applies the Post Office's bulk-rate postage, and drops the envelope in the mail. The bulk rate costs Mail America only a fraction of what the company receives from selling its own postage. Although the company takes a 2-cent loss on personal letters and other items mailed singly, it makes up for this through the bulk-rate savings. And households save money compared to USPS rates.

Predictably, Watkins's cleverness earned him the wrath of the American Postal Workers Union. Soon after Mail America began operating five years ago, the union brought a suit against it, claiming the company violated federal laws that give the Postal Service a monopoly on nonexpress letter delivery. "This is the first company we've found going after the household market, and we were afraid of the precedent," union lawyer Anton G. Hajjar admitted to the Washington Post. "When these minimum-wage operations come in and start sorting mail, that leaves less work for our employees."

But Mail America has gone right on doing its thing. Although a district court ruled against Watkins in 1984, a circuit court of appeals reversed the ruling last summer and declared his business legal. Mail America now processes about 6,000 pieces of mail a day. With the lawsuit behind him, Watkins expects finally to break into the black and then to expand his operations to Denver, Phoenix, and eventually every city in the country.

While Mail America reduces the costs of using the Postal Service, the Pak-Wrap Mail Center, in Arabi, Louisiana, extends its services. Pak-Wrap, like the Postal Service, mails packages. But it does more: it wraps them. And like most of the 3,000 commercial mailing services operating today, Pak-Wrap also offers mail boxes for rent, provides a call-in service for checking for mail by phone, and sends and receives packages through the Postal Service and private carriers.

The business of improving upon the Postal Service can be lucrative. Consolidated Services Corp., a commercial mailing service based in Las Vegas, Nevada, grossed $3 million in its first nine months of operation and is now establishing up to a dozen new locations in Utah.

It's true that private enterprises are still prohibited from offering the most basic service of all: delivering mail. Still, the existence of so many companies in the business of making postal service cheaper, more convenient, and just plain better must make the mail monopolists pretty uncomfortable.

Taxpayers Rate with Washington's Newest Raters

Each year dozens of special interest groups, from the American Association of University Women to Zero Population Growth, rate members of Congress on how well they hew to some ideological line. Indeed, the handy compendium How They Rate, which compiles such measures, checked in at a bulky 1,013 pages last year.

So when an organization announces that it's joining the ratings game, we usually try to stifle our yawns. But the latest kid on the grading block—the Washington, D.C.-based Competitive Enterprise Institute—is different. The CEI is scoring members of Congress on how well their votes reflect support for a free market.

The CEl's first index (it promises to be annual) assigned ratings to members of the 99th Congress on the basis of 57 Senate votes and 55 House votes. Votes for free trade, deregulation, privatization, elimination of subsidies, lower tax rates, and less federal intervention in the economy constituted the CEI's criteria.

Going to the head of the class, perhaps not surprisingly, were a pair of former economics professors: Sen. Phil Gramm (R–Tex.) at 96 percent and Rep. Richard Armey (R–Tex.) with 98 percent. Other notable House scores: Ed Zschau (R–Calif.)—96 percent, Jack Kemp (R–N.Y.)—73 percent, Newt Gingrich (R–Ga.)—74 percent, and, on the other end, Jim Wright (D–Tex.)—13 percent, and Les Aspin (D–Wis.)—18 percent.

Senate heavyweights and how they rate: Jesse Helms (D–N.C.)—91 percent, Bob Dole (R–Kans.)—81 percent, William Proxmire (D–Wis.)—54 percent, and old reliable Ted Kennedy (D-Mass.)—34 percent. The average grade in the Senate, 50 percent, was slightly higher than the House's average 42 percent.

It is important to note that the CEI did not include votes on defense and foreign-policy-related spending, which accounts for about one-third of the federal budget. Nor did it include noneconomic issues on which members of Congress have an opportunity to display their commitment or lack thereof to individual freedom.

Still, how refreshing to see economic common sense being rewarded and to know that taxpayers at least rate with someone in Washington.

Take Two Aspirin and Call Us When the Regulation Fails

It seemed like such a simple, no-fail solution to the problem of child poisonings: require aspirin makers to put safety caps on their bottles. Children wouldn't be able to open the bottles, poisonings would decrease, and everyone would be happier. What could go wrong?

According to a study in The Journal of Law and Economics by W. Kip Viscusi, professor of economics at Northwestern University, almost everything went wrong. The regulation failed to improve the safety of aspirin; in fact, after safety caps were introduced, the number of child poisonings actually increased.

For starters, the caps didn't keep kids from overdosing on aspirin. Viscusi found that from the advent of safety caps in 1972 to 1978, the fraction of all aspirin sold in safety-cap bottles remained constant, but the relative share of poisonings from these bottles rose from 40 to 73 percent.

Why didn't the caps work? Viscusi offers two possible explanations. First, consumers might think the caps are child-proof rather than child-resistant and thus are less careful about keeping safety-capped products away from kids. Second, as anyone who's ever struggled with his Bayers would easily believe, the caps are so darn hard to get off that once the consumers succeed they may simply leave the caps off.

What about the overall rate of safety-cap poisonings? In his analysis of 19 products (including aspirin) that use safety caps, Viscusi found no significant decrease in poisonings. In fact, after safety caps came into use, poisonings from non-safety capped analgesics increased. An additional 3,500 children under the age of five suffered analgesic poisonings between 1971 and 1980. Viscusi attributes this to a spillover effect: safety caps on some medicines made consumers more careless with the other medicines stored with them.

Summarizing his findings in the journal Regulation, Viscusi concludes that "government regulations…may have unintended effects to the extent they lull consumers into a false sense of security and thus lead them to reduce their own precautions. This lulling effect may diminish or offset any beneficial effects of the regulation and ultimately may lead to net adverse consequences for consumer health and safety."

We hope this gives the regulation-happy crowd a big headache.

Global Trends

Sweden No Eden, but Strange Exchange Laws in for Change

LlNKOPlNG—Swedish foreign-exchange restrictions, introduced at the outbreak of World War II in 1939, seem to be on their way out. Swedish Treasury officials have hinted that most of the restrictions may be axed in the near future.

There are numerous restrictions on foreign currency here, making the system a pain for everyone except exemption granting bureaucrats. Until a few years ago, Swedes traveling abroad were not allowed to take more than 6,000 crowns ($850) out of the country. But you could always just take your credit card, which is free from restrictions. Then the 6,000-crown limit was doubled—but the increase was valid only in foreign currency.

Customs angered many Swedes by conducting a national shakedown of travelers in February 1982, searching 15,000 people crossing the border. Several were found to have in excess of 6,000 crowns in the wrong currency mix. What a severe violation of the law! The director general of the customs office refused to apologize to the 15,000 travelers who were inconvenienced.

Swedish companies making investments abroad have been forced to borrow all the money for their investments in the international capital market. Thus Swedish subsidiaries abroad generally have weak balance sheets, with very high debt-to-equity ratios, and the parent Swedish companies pile up excess liquidity at home. And the economy suffers.

Restrictions on foreign investment have prevented Swedish businesses from making profitable deals and Swedish investors from making profitable investments. It seems that the only people who have benefited from the exchange restrictions have been the well-paid bureaucrats who administer them. Now that repeal of the laws is being proposed, finding the bureaucrats new jobs looks like the only thing standing between Sweden and more freedom, at least on this issue.

—Carl G. Holm

Mexico Slows Rate of State to Offset Debt

MEXICO CITY—Mexico's problems are nobody's secret: over 100 percent inflation, a $110-billion foreign debt, chronic unemployment for one-quarter of its population, falling oil prices, a collapse of its exchange rate, and an economy dominated by a huge, inefficient, and very expensive public sector. Nevertheless, there are signs of hope.

Since 1985, the Mexican government has sold, transferred, or closed more than 100 state-owned concerns. Price controls have been eliminated. A spending freeze has helped reduce the deficit from 20 percent of revenue to 10 percent. (Tax increases have had the same objective.) Inflation, though very high, has remained stable.

Mexico's principal problem continues to be its foreign debt. Yet the realistic and innovative approaches that President Miguel de la Madrid has taken to ease the debt crisis are providing foreign creditors with a hopeful respite.

For example, when Nissan Motor Co. wanted to expand its Mexican operations, it first bought $60 million worth of Mexican government debt from a U.S. bank, paying only $40 million for it because of the risk of Mexican default. Nissan then resold the debt to the Mexican government for $54 million in local currency, which it promptly invested in its automotive plants. So Nissan obtained its investment money at a bargain, the Mexican government liquidated its debt for less than it had to without hard currency loss, and an American bank rescued a bad loan without help from the U.S. taxpayers.

There have been 23 such debt-for-equity swaps in the last two years, ridding Mexico of $350 million of international obligations, and plans are under way for an additional $1.2 billion. Though these numbers may seem small when compared to the total debt, specialists estimate that within 10 years a full 20 percent may be paid this way. "It is very exciting," says Pedro Kuczynski, a Latin specialist at First Boston Corp. "Debt-for-equity swaps reduce the interest bill of the country, and they bring in significant amounts of foreign exchange."

Even greater debt could be swapped through a recent Mexican proposal to the World Bank: the sale of partial ownership in some of the country's state-owned companies. Interested creditors might receive stock in profit-prone companies and thus get the opportunity to influence managerial decisions. These ventures would presumably be streamlined and modernized, though the government would retain majority control.

The project is not as unattractive as it might seem at first sight. With an ever-growing population (80 million and counting), an industrial plant that is among the largest in Latin America, an elaborate transportation and communications network, and a next door neighbor that is the largest free society and market in the world, Mexico could occupy a leading position among the world's economic powers in a matter of years. Private ownership of important industries, whether foreign or domestic, could very well be the key.

At any rate, President de la Madrid is running out of options. He got a taste of the popular mood when he was jeered in front of a worldwide audience at the opening of the World Cup last year, and the papers are more critical than ever before. The government has silenced a national news magazine and a few local papers, but censorship will create more problems than it will solve. New and creative approaches to the foreign debt, as well as to privatization and the size of government, will determine whether Mexico's future is one of sound growth or political debacle.

—Julio A. Marquez

Cory, Cory, Hallelujah

MANILA—In an effort to reduce the budget deficit, raise cash, and minimize competition with the private sector, Philippine President Corazon Aquino has approved the sale of 87 of the 214 nonfinancial government corporations recommended by a government body, the Committee on Privatization.

Heading the list are Philippine Airlines, the National Steel Corporation, the National Oil Company, Metro Manila Transit, and the Manila Hotel (site of the failed coup attempt by former President Marcos's running mate, Arturo Tolentino).

Government corporations had grown from 75 in 1970 to 250 in 1985; by the end of 1984, their combined assets were more than $14 billion. The sale of these 87 is reportedly the beginning of a program to promote "private enterprise with a conscience." Says Finance Minister Jaime Ongpin: "The government should get out of business completely—privatize."

Mrs. Aquino's administration has also announced a program for the conversion of Philippine external debt into equity investments. The Philippine government suffers from a $26-billion debt inherited from the Marcos regime. It is also saddled with hundreds of companies taken over because of loan defaults. These companies were usually troubled firms run by Marcos cronies.

In an effort to turn these companies into productive private enterprises, as well as trim debt obligations (now consuming nearly 50 percent of foreign-export earnings), Mrs. Aquino's government has established a debt-for-equity program similar to those in Chile, Argentina, and Mexico.

Foreign creditors and individual investors can take advantage of the program. Firms availing themselves of the new Philippine program so far include American Express, Abbot Enterprises, and Ciba Geigy AG, a Swiss pharmaceutical concern that turned a $3-million loan into new equity in a Manila manufacturing plant.

—Daniel L. O'Neal

Pole Poll on State's Role

The heavily Catholic population of Poland is experiencing a crisis of faith—its young people are abandoning belief in socialism.

University of Warsaw sociologist Stefan Nowak has, for several years, kept his finger on the pulse of Poland's youth. His most recent study, published in the samizdat publication Kontakty, reveals that Polish students no longer believe overwhelmingly that government control of the economy is desirable.

Nowak's findings, reported in The Chronicle of Higher Education, include:

• Only 4 percent of Warsaw college students surveyed want the world to move toward "the kind of socialism existing in Poland." That's one-seventh of the 28 percent who endorsed Polish socialism in 1978. And although 43 percent today wish the world would "develop toward some kind of socialism," the corresponding figure in Nowak's 1978 survey was 66 percent.

• In 1978, only 16 percent of the students supported private initiative in large-scale agriculture; that figure is now 62 percent.

• Even the cornerstone of industrial socialism, heavy industry, is being reexamined. Now, 12 percent support private enterprise in that area, a significant increase over the measly 2 percent in 1978.

It seems that Poland's socialism is casting a pall over life in general. Large numbers of students have lost hope in their own and their country's future. Just 29 percent believe they will get good jobs upon graduation, and only 63 percent—compared to more than 80 percent in earlier surveys—would "most like to live permanently" in Poland.

The report says, in language perhaps stolen from Sylvia Plath, that increasing numbers of young Poles suffer from "existential neurosis rooted in the sense of life's meaningless." A more damning indictment of the effects of socialism on the soul has seldom been heard.