Trends

Election Roundup: Voters Show Some Initiative

While the Democrats were recapturing the Senate and many of you were scratching your heads in the voting booth, trying to decide between tweedledum and tweedledumber, voters in a number of states once again had the opportunity to bypass the pols and take government matters into their own hands through the initiative process. The results were mixed but not depressing.

Perhaps the most quixotic, radical initiatives to advance individual liberty were on the ballot in Oregon and Montana. Oregonians had a chance to legalize the private possession and use of marijuana. Despite an energetic and well-funded campaign based on "free choice and the principles of the Constitution," as one supporter put it, the Oregon Marijuana Initiative went down to a 3-to-1 defeat.

In Montana, an intrepid quartet of elderly sisters from the western town of Corvallis scared the daylights out of establishment politicians and sententious editorial writers with their campaign for Constitutional Initiative 27. The measure would have abolished all property taxes in the state and subjected all proposed income and sales-tax increases to a statewide vote. Alas, the Montana initiative, which the Wall Street Journal labeled perhaps "the nation's most radical tax initiative ever," lost by 56–44 percent. A much more cautious measure freezing property taxes did pass, though.

And in general the news on the tax-revolt front was upbeat. In three states, according to the Wall Street Journal, tax issues were decisive in gubernatorial races. In Texas and Wisconsin, incumbent Democratic governors were ousted by Republicans who promised to hold the line on taxes (Texas, in spite of a budget deficit) or to lower the property tax (Wisconsin). In New Hampshire, Republican Gov. John Sununu charged that his challenger would impose an income tax; his opponent didn't deny the charge, and Sununu carried the day.

Meanwhile, although no tax-cut initiatives passed in 1982 or 1984, in November's elections tax measures frequently carried the day. Fed-up residents of Taxachusetts, who slashed property taxes in 1980, this time repealed a 7 percent income-tax surcharge and adopted a state-spending cap. (Alaskans voted to keep their four-year-old spending limit.) Coloradans rejected a proposal to require voter approval of tax increases at all levels of state and local government, but their confreres in California supported a less-sweeping measure making some local taxes subject to popular vote. For the eighth time in 53 years Oregonians rejected a sales tax; on the other hand, they turned down a property-tax-slashing measure. And in West Virginia, tax raisers failed to win voter approval of a 1 percent increase in the sales tax.

Other individual-liberty issues fared well. In Kansas, voters approved constitutional amendments legalizing the sale of liquor by the drink and permitting betting on horse and dog races. Five new racetracks are now on the drawing board. (Nothin' beats takin' a belt of likker and playin' the greyhounds, eh boys?)

Voters in two states, Massachusetts and Nebraska, revolted against the latest fetish of our social engineers, mandatory seatbelt laws. The Nebraska vote was so close, winning by 561 votes out of more than 500,000 cast, that it was called the other way in early reports. (And who says money buys elections? Nebraskans for Safety, the group advocating the compulsory chaining of adults to their automobiles, spent $134,000 on advertising in a losing effort. Citizens Against Mandatory Seat Belts, by contrast, spent $700.)

Other highs and lows in America's annual exercise in democracy:

• Voters in New Mexico and West Virginia affirmed the right of citizens to keep and bear arms.

• State lotteries, which some claim are a promising method of "voluntary funding" of government, were approved in Montana, Kansas, Florida, Idaho, and South Dakota. North Dakotans said ixnay to any otterylay. (They also wouldn't take Sunday "blue laws" off the books.)

• Vermont voters rejected a state equal rights amendment by a close 52–48 percent.

• Idaho voters elected to retain that state's right-to-work law, which says that union membership may not be required as a condition of employment.

• Oregonians defeated attempts to make their state a "nuclear-free zone" and to shut down a nuclear-power plant.

• Californians rejected a demand by LaRouchies that AIDS victims be quarantined. But they approved a xenophobia-inspired initiative making English the state's official language.

As with life, two steps forward, one step back.

Red Model Driving Away Green Buyers

One of the more interesting political trends of the last decade has been the environmentalist movement's drift from its erstwhile socialist allies. The most dramatic example of this split is found in West Germany's Green Party, which is being riven by conflict between standard brand socialists and "eco-libertarians," who reject centrally controlled economies and espouse a communitarian individualism, or voluntarism.

American environmentalists, too, are taking a fresh look at socialism's deficiencies. The latest evidence that markets need not be Mother Earth's enemies comes from a report by William U. Chandler, a senior researcher at the Washington, D.C.–based Worldwatch Institute.

"The issue is not socialism versus capitalism," writes Chandler, but rather "how the irreplaceable resources—water, air, soil, and fish and wildlife—can be adequately conserved." He proceeds to compare the records of market economies with those of state-controlled economies and finds the former superior by those measures most important to environmentalists.

First off, agricultural efficiency: Market economies exceed planned economies in both land productivity and labor productivity. The United States, for instance, outperforms the Soviet Union in the latter category by 20 to 1. "Only one-third of the difference…is due to the greater resource endowment of the United States," asserts Chandler, who attributes the preponderance of the U.S. advantage to the incentives of a market pricing system. Productivity would be even higher, asserts Chandler, were it not for government interference. "In the West, resource efficiency…is frequently undermined by heavy farm production subsidies, both with trade barriers and direct budgetary expenditures."

The most efficient farm economy in the communist world is in Hungary, which has introduced decentralized market mechanisms into its agricultural sector. And China, which is lurching from its Maoist past down a market path, has increased output and efficiency such that rural incomes have grown as much over the last 8 years as they had the previous 30.

Chandler finds that the West is also far more energy-efficient. (Energy, the report notes, "not only reduces drudgery and makes inhospitable climates habitable, it substitutes for scarce resources.") Of the 16 nations surveyed, the eight market-oriented economies made the top 8 in energy efficiency. Instructively, Hungary, so efficient in its agricultural sector, is dead last in energy efficiency. Not coincidentally, its industrial sector is heavily planned.

Nations that depend on markets rather than managers have also coped better with the pollution threat. Chandler attributes part of the progress to Western regulatory mechanisms, but he acknowledges the role of prices in discouraging waste: "Markets…offer a self-administering check on resource waste: The resource user pays for inefficiency. Nonmarket systems lack this internal correction."

Chandler also notes that citizens of market-oriented nations enjoy higher life expectancies and lower infant-mortality rates than their brothers and sisters operating within controlled economies. And contrary to myth, income differences between rich and poor are no wider in the West than in the people's republics of the Soviet bloc.

"The century-long trend toward greater government control [of the economy] has ended," concludes Chandler, who refers favorably to deregulatory advances around the globe. Contrary to past environmentalist hostility to the market, he thinks this news ought to cheer friends of the environment, for "greater productive efficiency in market nations has reduced environmental pressures while inefficiency in centrally planned countries has increased them."

It's what some of us have been arguing for a long time.

Competition: A Boon in the Boondocks, Too

If you live in Viola, Wisconsin, or French Lick, Indiana, chances are pretty good that MCI hasn't been begging you to try its long-distance service. In fact, if all the naysayers about telephone deregulation are to be believed, you're lucky you even have long-distance service.

When skeptics predicted that deregulation and divestiture would leave rural phone customers with lousy and expensive service, they didn't count on the profit motive. It is driving nonBell phone companies to find ways to give rural customers access to the same long-distance companies as their city cousins.

Take Indiana Switch, a joint venture of U.S. Switch, of Longwood, Florida, and 27 independent Indiana phone companies. Over AT&T's objections, it has gotten regulatory approval to start offering customers a choice as soon as it can get its network up and running—as early as this summer, a spokesman told REASON. The network will route calls from rural areas into so-called secondary cities such as South Bend and then through a central hub in Indianapolis. Indiana Switch will sell intrastate long distance service over its own network; calls going out of state will meet up with national networks like MCl's through Indianapolis.

U.S. Switch, founded two-and-a-half years ago with this business plan in mind, has formed a similar joint venture with 22 Illinois independents and is "very close" in North Carolina, the spokesman told REASON; such ventures look feasible in at least a dozen more states.

Independent phone companies in Wisconsin have formed their own group to provide rural customers with a choice of long distance companies. The Wall Street Journal reports that Wisconsin Independent Telecommunications System Inc., or WITS, wants to build a fiber-optic network to carry calls to four central switches, where the calls would be transferred to national long-distance carriers. Unlike U.S. Switch, however, WITS isn't proposing to sell intrastate long distance services.

Long-distance companies would pay both WITS and U.S. Switch's ventures for access to customers. Isn't it amazing how the prospect of profit encourages creativity?

The King of C-Span Attacks a Sacred Cow

Are we dreaming? A politician—and one who absolutely oozes ambition—has come out in public and said we should abolish Social Security.

The times they are achangin'. And Congressman Newt Gingrich (R–Ga.), the guy who brought us the "Conservative Opportunity Society" and made headlines with his grandstanding on C-Span, is making a play for baby boomer votes by pushing a plan to reform Social Security more or less out of existence.

He wants to abolish the Social Security tax on employees, effective January 1, 1989. His proposal, which he says he'll introduce as a bill in this session of Congress, would also require employers to pay workers the 7 percent of wages and salaries that they now pay the government in Social Security taxes, thereby giving everybody a one-time raise. (The portion that workers now pay directly is also 7 percent.)

People over 40 would simply have their take-home pay increased by the 14 percent of their income that now disappears down the Social Security drain. And these workers could collect full Social Security benefits on retirement.

Workers under 40, however, wouldn't be eligible for benefits. Instead, they would be required to pay 10 percent of their salary into the individual retirement accounts of their choice, thereby relying on private investments instead of government promises to provide for retirement.

Don't run out and contribute to the Gingrich for President fund just yet, however. The plan has quite a few catches. Most notably, it proposes a national sales tax to fund Social Security benefits for current recipients and those promised full benefits under the plan and for future retirees who would otherwise fall below the poverty line. One would expect this tax to decline as today's over-40 group exits this world.

Attorney Peter J. Ferrara (see Spotlight, Dec. 1986), author of his own plan to privatize Social Security, warns, however, that such a tax "tends to be insidious and hidden. Once you put it in, it may be very difficult to phase it out. If there is a weakness in the proposal, that's the weakness." Also, the fashionably jingoistic Gingrich wants to apply the sales tax to imports and rebate it on exports, thereby distorting trade in favor of U.S. goods.

Paul S. Hewitt, president of Americans for Generational Equity (AGE), notes that the new proposal tends to "take it out on younger people." Gingrich, Hewitt told REASON, "doesn't want to cut back on the consumption of anybody who is currently a senior citizen. He, in fact, would increase benefits for many senior citizens" by guaranteeing every retiree an income above the poverty level.

"It is essentially doubling the cost for the younger generation," Hewitt says. "They will pay the lion's share of the cost of today's generation of retirees while funding their own retirement. It is designed to spare even the richest senior citizens from any kind of sacrifice."

Despite the plan's flaws, Ferrara told REASON, "the fact that a frontline politician such as Gingrich is going to introduce this in Congress with cosponsors means the whole issue gets a lot more consideration." And that is definitely better than the current nightmare (see "Wipe Out!" Reason, Dec. 1986).

Car Buyers Are Getting Taken for a $3-billion Ride

To car buyers unlucky enough to live in a state that restricts the opening of new car dealerships: did you know you're paying over $3 billion per year for the privilege of being regulated?

This startling fact is revealed in a recent report by the Federal Trade Commission's Bureau of Economics. The report details the effects of what are known as Retail Market Area (RMA) laws—laws that limit the establishment of new automobile dealerships in locations where dealers currently sell cars of the same make.

Under RMA laws, if a car manufacturer wants to open a new dealership, dealers in the vicinity can protest the potential competition by notifying a given state authority (the particular authority varies from state to state). When a protest has been made, the manufacturer must justify the proposed dealership on grounds of "public interest." The state authority (which in some states consists of special boards partially composed of car dealers) then decides the fate of the manufacturer—and consumers.

RMA laws may be swell for established car dealers who don't want any new kids on their block. But, as with other "market-entry restrictions," they're not so great for consumers. According to the report, which is based on a study of 1978 sales of Chevrolets in 13 states, RMA laws hurt car buyers in at least two ways: those who buy cars pay more for them, and others are priced out of the market altogether. These effects are especially strong in areas with growing populations.

For example, in places studied where the population had increased since passage of the law, buyers paid anywhere from 3.7 percent more for a Sport van to 16.8 percent more for a Corvette in 1978 than they would have without the law. Not surprisingly, Chevrolet sales fell by nearly 5 percent that year.

What is the total cost of these regulations to automobile consumers? The FTC researchers extrapolated their findings to all car makes and to all 36 states that had RMA laws in 1983 and estimated that consumers spend about $3.2 billion per year (in 1985 dollars) for current RMA laws.

Maybe the report will help put RMA laws on the road to repeal.

Earning to Breathe Free

John Palmisano makes money out of thin air.

As a regulator at the Environmental Protection Agency in both the Carter and Reagan administrations, he tried to promote market-oriented ways of cleaning up the environment. Now his company, AER*X, is helping to develop the growing market in "emission reduction credits," or ERCs.

An ERC is created when a manufacturer in an area that doesn't meet federal air-quality standards—Los Angeles, for example, or Northern Jersey—does something to reduce its output of air pollution. The company may, for instance, shut down a plant or install pollution control equipment that is better than what is required by law.

The market enters the picture when another company wants to build or expand a plant that will pour new pollution into the skies of a "dirty air" locale. Before this company can get a construction permit, it has to either reduce its own pollution at another factory or buy an ERC from another manufacturer. Rather than just forcing all companies to abide by the same pollution standards, as most regulations do, the ERC market rewards companies for reducing pollution while requiring plants that add to local pollution to bear the cost.

"If you're going to be emitting 100 new tons of pollution into the air, you have to get at least 100 tons from someone else," Palmisano told REASON. AER*X, founded in 1984, helps clients find and buy credits; it also keeps track of what prices ERCs are going for in different parts of the country and maintains a database of people who trade the credits.

For example, when Sundance Spas, a maker of fiberglass hot tubs in Chino, California, wants to expand production, it hires AER*X to locate the ERCs it needs. Last year it bought credits allowing it to emit an extra 204 pounds of pollution a day. The price: a steep $40,000. "I spend a lot of time shopping for ERCs," Sundance's president Ron Clark told Science 86. "For us, they are a matter of life and death."

For his part, Palmisano hopes the success of a market in pollution credits, which he says "have saved companies hundreds of millions of dollars," will encourage regulators to apply market techniques to controlling other forms of pollution. "Reasonable men who disagree can get together and work out a system that will save billions of dollars and still reduce pollution," he says. And that will let us all breathe a little freer.

Milestones

• Water pricing downpour. The World Resources Institute is calling for raising urban water rates, allowing farmers to sell water they don't use, and encouraging states' trading of water. The market-oriented suggestions closely follow a policy proposal recently adopted by the Western Governors Association (see Trends, Oct.).

• Freedom frontier. Congress has approved a bill extending privacy protection to our era's new forms of communication—electronic mail and cellular telephones. The legislation updates the landmark wiretapping law of 1968.

Global Trends

Falling Rocks Conk Statist Heads

LUGANO—Avalanches are common in Switzerland, and they are feared for the destruction they wreak on anyone unfortunate enough to lie in their often-unpredictable paths. Last fall, the Swiss people triggered three avalanches of a different kind, each largely unpredicted but, unlike their natural counterparts, wholly beneficial.

In a nationwide vote that the press promptly called a "massive front of refusal," the Swiss cheerfully buried under avalanches of Neins, nons, and nos a federal decree issued by the government and two public initiatives.

In the first instance, Swiss voters rejected a federal decree intended to expand, through subsidization, the production of indigenous sugar. The government's proposal was in line with a 30-year policy of protecting agriculture (and raising prices for consumers), because farmers are considered essential to the defense of the country in case of war.

This long-standing policy has made Switzerland's agricultural goods among the most expensive in the world. Awash in milk, to cite the most-egregious example of Swiss protectionism, the government subsidizes dairy products at considerable expense. The same holds true for meat and would have applied to the production of sugar from beets, as well, had a two-thirds majority of voters not rejected this call for further subsidy. The vote represents a clear break with past policy and is all the more important because no one had given serious consideration to the possibility of so overwhelming a rejection.

The other two rejections were no less indicative of the Swiss belief that enough is enough as far as the powers of the federal government is concerned. A proposal by the Socialist Workers' Party to have the government set up new centers for apprenticeships, job retraining, and continuing education was roundly trounced by more than 70 percent of the voters.

"Pragmatism Prevailed" was the telling headline in the Italian speaking minority's largest-circulation newspaper. The paper pointed out that not a single canton (state) of the confederation had accepted this proposal, which would have interfered with the current, highly decentralized and efficient practice of adjusting apprenticeships and job-training schemes according to local conditions.

A still firmer pronouncement against more government intervention greeted a proposal that taxpayers sponsor cultural programs at a funding level equal to at least 1 percent of government's annual expenditures. No less than 76 percent of the voters cast nays on this proposal, which would have flagrantly abrogated cantonal powers and obliterated the linguistic, cultural, and ethnic diversity that defines Switzerland.

The three avalanches of nays unleashed by the Swiss against the most recent attempts to transfer further powers to the federal government leave the field open for constructive regional solutions. The votes signal a refreshing return to common sense and a reaffirmation of federalist principles.

—Theo. E. Brenner

One Down, 188 to Go

JERUSALEM—Few countries as developed and democratic as Israel are structured such that their economic lives are as dependent on government action and direction. So it is quite refreshing these days to report that semisocialist Israel is going through a privatization phase. Certainly it is nowhere near as sweeping as that of the United Kingdom, but at least it is a beginning.

There are 189 government controlled corporations in Israel. The state has offered two for sale to private interests: Paz, the country's largest oil company; and Haifa Chemicals. Paz remains on the market but Haifa, despite bureaucratic hassles, was recently sold for $60 million to a group of American investors led by former Israeli Arie Ganger. One down, 188 to go.

Much more progress has been made in what was a totally controlled state sector, television. State-owned radio and television have been threatened recently by a flood of private cable-television stations. The Knesset has passed a law legalizing these stations, of which there are now nearly 700. The cable stations transmit videos and movies of all kinds for a standard fee of only $10 a month. Quite a bargain for the viewer, and much better programming than state-owned TV offers. Better competition is offered by Jordan's two channels and Christian Broadcasting Network's METV.

The Israeli government has discussed creating a second national channel and has invited private TV firms to participate with the state in such an endeavor. For now, only the U.K.'s Anglia Corporation has shown interest; Israeli firms know only too well what partnership with the government entails!

—Oded Yinon

Global Roundup

Might couldn't make right. Taiwan's government has announced that it will lift martial law for the first time in 37 years and replace it with less restrictive security measures. The Los Angeles Times has reported that sources within the ruling Nationalist Party say the military will lose its authority to ban or seize publications that print material it deems harmful to the country. The new rules will also abolish military trials of civilians accused of sedition or security violations and will permit the formation of new political parties.