Private Eyes—a Chance to Watch

If you want to know about secret laser-weapon bases in the Soviet Union, you won't get the information from the Pentagon. In fact, you're better off sidestepping the government altogether and going to a private satellite operator.

These companies, which have had U.S. security watchers in an uproar, have become the general public's eye in the sky—revealing so far not American secrets but those of the Soviet Union and other closed societies. Currently, commercial satellites can produce images of objects on the ground as small as 10 meters wide. Media organizations are excited about the possibilities of the satellites and have become eager early customers.

And would-be censors in the United States have given up in light of mounting foreign competition. Last fall, the French SPOT satellite took a look at two Soviet Star Wars facilities, capturing images of antiballistic missile and laser-weapon test sites.

And Space Media Network, a private Swedish company, announced that it had taken pictures of another laser-weapon facility—this time at the Sanglok observatory in one of the USSR's central Asian republics. Pravda vigorously denied the report, claiming the observatory "is intended for optical observation of celestial bodies, including artificial Earth satellites. All the facility has is a one-meter telescope."

Ironically, the Soviets have started their own service, which sells photos from a military space camera and can see objects as small as five meters wide. But the new service, called Soyuz Karta, won't sell pictures of the Soviet Union or "other socialist countries."

Potential customers aren't enthralled with the Soviet satellite, however. As Mark Brender of ABC News told Science, "The Soviets are not known for their business flair; they are like reluctant vendors with their hands tied by political and institutional restraints."

Meanwhile, a few U.S. firms are taking advantage of the new market. Kodak has formed a subsidiary to process satellite images. And EOSAT, the company that privatized Landsat, says it wants to launch a new eye in the sky called STAR that could resolve five-meter images. STAR's services would be sold by subscription, rather than per photo, mainly to the media.

Thanks to the U.S. government's recent decision to accept the inevitable and loosen controls on what information American-owned satellites can give the public, we can expect many more such private eyes. Which proves, once again, that there's nothing like a little foreign competition.

Out of the Mouths of…

Francisco Fley, a first lieutenant in the Sandinista army, extending a welcome to Contra rebels who might lay down their arms:

"We understand that the Contras are fighting against a revolutionary project, not against the people. They have been manipulated by the Reagan administration.…When their dollars disappear, they will see how they have been used. They can come home and help the revolution."

Luis Adan Fley, "Comandante Johnson" in the Contra army and Francisco's brother:"

"They tried everything to convince us that the peace agreement made it pointless to keep fighting. But our fighters were not impressed. Many of my men saw that their fathers, their uncles were still in prison."

Debunking the Debtor Nation Myth

It made for a pretty scary news story: at the end of 1986, according to the Commerce Department, the United States was the world's largest debtor, with a net negative balance of $264 billion in international assets and liabilities. It wasn't long before pundits were raising alarums about the United States defaulting on loans like a Third World country. A recent opinion piece in the Wall Street Journal, however, has a different story to tell.

The Commerce Department didn't properly value the assets and liabilities of the United States, argue Charles Wolf, Jr., director of the Rand Corporation's research on international economic policy, and Sarah Hooker, a Rand consultant. When its balance sheet is calculated correctly, they say, the United States was actually a $50-billion creditor in 1986.

The problem is that the Commerce Department records assets at their book values—the original price of a building, the dollar amount of a loan to a foreign government, etc.—rather than their current market worth. For example, U.S. companies built plants overseas decades ago; the market values of these plants have increased, but Commerce hasn't compensated for that in its calculations. So U.S. investments abroad are greatly underestimated.

In contrast, foreigners have bought U.S. property more recently, at nominally higher prices. When converted from book values into 1986 dollars, U.S. holdings in other countries are about $260 billion more than foreign holdings in the United States.

The Commerce Department's skewed accounting also overestimates the value of loans owed to U.S. institutions by developing countries and underestimates the worth of U.S. gold reserves, pegging the latter at the "official" price of $42 an ounce. These two figures, when readjusted, increase 1986 U.S. assets by $129 billion.

These recalculations are consistent with the fact that in 1986 profits, dividends, and interest from U.S. holdings abroad were $21 billion higher than the corresponding earnings from foreign holdings in the United States. Clearing the smoke surrounding these numbers is useful, conclude Wolf and Hooker, "especially where the erroneous beliefs have been as widely held and as highly publicized as those relating to the so-called debtor status of the U.S."

Getting Heads Out of Clouds

Since deregulation, U.S. air travel has become safer and cheaper," wrote Gregg Easterbrook in The New Republic toward the end of last year. He's right, but for some reason the public doesn't believe it—even though air fatalities per passenger-mile have declined along with air fares since deregulation. Perhaps several recent studies that approach the safety/deregulation question from new angles will change some minds.

Airlines' insurance rates should tell us something about the safety of air travel, figured Brookings Institution senior fellow Clifford Winston and Northeastern University associate professor of economics Steven Morrison. In a recent article in the Brookings Review, they analyzed deregulation's effect on airlines' insurance rates.

The researchers compare insurance rates from the period 1970–78 (before deregulation) to the period 1978–86 (after deregulation) and find that "deregulation lowered airline insurance expenses by roughly 22 percent over what they would have been had regulation continued." Evidently, air travel has gotten safer in the eyes of those who assume the risks.

Morrison and Winston also studied the factors that contribute to commercial air accidents (excluding commuter flights) involving fatalities. They found that the relative importance of these factors hasn't changed since deregulation. In both the 1965–75 and the 1976–86 periods, pilot error and weather were the top two causes. Contrary to popular wisdom, inadequate air traffic control, defective aircraft, bad maintenance, and unsatisfactory airport facilities are not frequent contributors to fatal accidents.

Another myth-buster: The average pilot involved in accidents is not younger or less experienced now than before deregulation. This flies in the face of the claim that competitive airlines hire young, inexperienced pilots in order to save money.

In another study, published by the Center for the Study of American Business at Washington University in St. Louis, economists Richard B. McKenzie and John T. Warner suggested that reregulation of the airlines could be hazardous to the health of travelers. Looking at how airline deregulation has affected highway safety, the researchers found that more travelers are choosing to fly rather than drive, thanks to the lower fares and more frequent flights brought about by deregulation.

"Between 1979 and 1985," they write, "airline deregulation appears to have significantly reduced miles driven in passenger cars on America's highways and streets." Since driving is so much more dangerous than flying (the death rate for driving is up to 100 times higher), this substitution of flying for driving has saved many lives.

McKenzie and Warner estimated that if deregulation was responsible for this substitution, 660,000 accidents a year were avoided between 1979 and 1985; as many as 1,700 lives a year on average were saved; and economic losses from accidents were reduced by $1.9 billion a year. "Even if the decrease in car travel has only half the impact of our estimate," concluded the economists, "300,000 fewer accidents and 800 fewer deaths are substantial figures."

As Easterbrook's article was titled, "The Sky Isn't Falling."

Just What the Doctor Ordered

In what the White House deemed a "trial balloon," the Office of Management and Budget has proposed privatizing the National Institutes of Health by turning them into a university. The new institution would be modeled on Rockefeller University in New York, which has graduate programs and conducts research but does not admit undergraduates. Like other universities, it would compete for government grants and could also accept money from private foundations, industry, or individuals.

The negative reaction has bordered on the hysterical, but no one can deny that NIH has ailments that might be cured by a dose of free-market medicine. In fact, OMB's plan isn't designed so much to save the government money as to make it easier for NIH to hang on to talented scientists, who can command much higher salaries, better facilities, and more research assistance elsewhere.

NIH, which includes 11 institutes such as the National Cancer Institute, has an annual budget of $6.2 billion. Two-thirds of the money is given out as research grants to scientists at other institutions, and such grants would continue under the OMB proposal. About $657 million, however, now goes to fund "intramural" work by NIH researchers. For example, NIH scientists have gained attention recently for their AIDS research.

But Robert C. Gallo, the Institutes' top AIDS researcher, has announced that he may leave to found a virus research lab at a private institution, with funding from a biotechnology company. (As a part of the government, the NIH can't, of course, accept funds from the burgeoning biotech industry.) By spinning off the intramural research into a private institution, OMB hopes to stem the NIH's brain drain.


• This is a private call. All but four states have decided to allow the use of private pay phones for calls within their borders. (In 1984 the FCC approved the use of private pay phones for interstate calls.) Marc Ostrofsky, publisher of Payphone Magazine, estimates that coin calls and credit card and other operator-assisted calls from pay phones generate about $9 billion a year.

• The right to refuse. A California Court of Appeal has ruled that mental patients involuntarily committed to health facilities can't be forced to take antipsychotic drugs except in emergencies or when a judge (not just a doctor) finds them incapable of making an informed choice. "Treatment with anti-psychotic drugs…affects…the patient's mind, the 'quintessential zone of human privacy,'" wrote Appellate Justice J. Anthony Kline.

• Home on the range. Like two of his brothers, Reed Colfax has been accepted to Harvard—and he's never been to school. All three of the Boonville, California, boys have been home-schooled by their parents.

For Your Information

Groups or individuals mentioned in this month's Trends:

Debtor Nation

Charles Wolf, Jr.
Sarah Hooker
Rand Corporation
1700 Main St.
Santa Monica, CA 90406
(213) 393-0411

Air Safety

Steven A. Morrison
Clifford Winston
Brookings Institution
1775 Mass. Ave., N.W.
Washington, DC 20036
(202) 797-6105

Kenneth W. Chilton
CSAB, Washington Univ.
St. Louis, MO 63130
(313) 889-5697

Global Trends

First of 400 Blows Against Swedish State?

LINKOPING—Reality has caught up with ideology in Sweden. In 1969, the minister of industry launched a grand plan for government control of industry. The main vehicle of the offensive was the formation of Statsforetag, a holding company for state-owned enterprises. A number of private-lame ducks fell into Statsforetag's hands, and by the late 1970s the government controlled between 8 and 9 percent of Swedish manufacturing.

In the early '80s the nonsocialist government began tentative steps away from state control, and the socialist government elected in 1982 agreed. The new minister of industry brought on a new president for Statsforetag, Soren Gyll, a well-known industrialist. He closed down the shipyards—huge money-losers—and changed Statsforetag ("government enterprise") to the neutral Procordia (no one knows what it means).

Also at Gyll's suggestion, the government is issuing shares in the company. This first issue has put 20 percent of Procordia's stock on the open market—a small first step toward privatization, but a potent symbol.
—Carl G. Holm

Global Roundup

• Freedom sells. Hernando de Soto's book, The Other Path: The Informal Revolution, is making waves from Mexico to Argentina. The book, which indicts onerous bureaucratic systems for Latin economic woes, has hit number two on the Argentine bestseller list and helped spark popular opposition to Peru's bank nationalization. An English excerpt is to appear soon in Reader's Digest.

• Santa Monica next? Rents on government-owned housing are going up in China, in line with General Secretary Zhao Ziyang's goal, to "energetically develop the building industry by commercializing housing."