Trends

Choice for the New Generation?

Fumbling around for new ideas that will differentiate him from Ronald Reagan, George Bush frequently declares that he wants to be "the education president." But education (fortunately) isn't really a federal matter, and state legislators—not presidential candidates—are the ones with the "new" ideas.

One of the hottest right now is the old-fashioned notion that parents ought to have some control over where their kids go to school. A host of legislative efforts and ballot initiatives are aiming to put some choice back in the educational system. "We are considering this one of our top education issues," says Bruce Hallman of the American Legislative Exchange Council (ALEC), an organization of state legislators. "This idea of parental choice is probably one of the fastest-growing concerns among state legislators."

In Minnesota, for instance, the legislature last year passed a law that lets students in participating public school districts go to school in other participating districts. Passed late in the session and by a narrow vote, the law had limited impact this year but promises more in the future.

"It's catching on," Ken Zastrow, director of district support services for the state Department of Education, told REASON. This year 95 of the state's 435 districts participated, with about 137 students opting to cross district lines. Next year, another 58 districts join the program and about 420 students are expected to switch. A bill now under consideration would require districts to give their students the right to get out—taking about $3,000 each in state education aid with them.

Despite its public school focus, the Minnesota plan is too radical for many—a similar bill recently crashed and burned in Colorado, thanks to overwhelming opposition from every educational establishment group. But efforts to extend parental choice to private, as well as public, schools are making headway in some states.

In a possible model for the federal government, Iowa now lets parents deduct private school tuition from their state income taxes. And Wyoming state Senator Kelly Mader is pushing legislation to reimburse parents $1,000 for each child attending private schools.

Finally, Montana voters will have the chance to vote on an initiative that would provide each student with a voucher equal to what the state would spend on him for public schooling. Parents could then use the voucher at the private or public school of their choice.

Hallman told REASON that ALEC plans to include educational-choice bills in its sourcebook of model legislation that "we feel is going to be on the cutting edge of legislative trends." If George Bush really wants to be the education president, maybe he should hop aboard the bandwagon.

A Stamp of Approval for Privatization

The price of mailing a letter has gone up to a quarter, and the Postal Service has cut back service to save money. Now for the good news: these developments—coming, coincidentally, at the same time as increasing calls for moving postal service into the private sector—may be the best advertisement yet for postal privatization.

Although the report of the President's Commission on Privatization, released on March 18, could have gone much further, it did call for repeal of the private express statutes, which give the USPS a monopoly on first- and third-class mail. The report also advocated deregulation of postal boxes, increased contracting-out of Postal Service functions, and a study of the possibility of selling all or part of the enterprise to its employees.

These proposals are sure to generate strong opposition from postal unions and management alike. Postal Rate Commissioner John Crutcher, a longtime advocate of postal reforms, testified before the commission in January and was followed by union and management representatives. "If I were blindfolded and they didn't otherwise identify themselves," Crutcher told REASON, "I couldn't have told a whit of difference, not one iota of difference, between what the union was saying and what management was saying. They all sing from the same piece of sheet music."

A more plaintive tune emerges from the USPS's biggest customers. A 15-month study by the Mailing List Users and Suppliers Association—the people who bring you "junk mail"—found that 10.9 percent of properly addressed third-class mail is never delivered. Observes Crutcher: "A significant segment of industry is vigorously calling for changes in the private express statutes to allow private carriage of third class mail and to shape up the Postal Service by contracting out segments of its functions.…When you have a very significant segment of the mailers demanding change, then management and the Board of Governors at some point are going to have to start listening to what they're saying."

Daniel Oliver, chairman of the Federal Trade Commission, is another longtime booster of postal privatization. He hopes the new postmaster general, Anthony Frank, will be more receptive to the idea than his predecessor, Preston Tisch—with whom Oliver frequently sparred.

"If he treats it as a management problem, he will not be successful, because you cannot manage a monopoly…and make it serve the consumers' needs," Oliver told REASON.

Meanwhile, in the printed version of his final State of the Union address, President Reagan promised to recommend, as part of the fiscal 1989 budget, a study of postal privatization. "What matters most is the cost and quality of the service provided, not who provides it," he said, making a pitch for privatization in general. "In addition, there is an important moral consideration—individual liberty would be enhanced and the debilitating effect of public sector growth on human freedom would be reduced."

Time to Relax the Capital Gains Tax?

Congress spends a lot of time shooting itself in the foot—like when it raised the capital gains tax in 1986. While complaining about the United States' lack of competitiveness in the global economy, our representatives increased a tax that directly hinders firms' ability to compete. Recently, however, a bipartisan group of legislators, along with President Reagan and Republican presidential candidate George Bush, say they want to take an ax to this tax.

Capital gains—increases in the value of assets such as stocks—are popular tax targets, largely because people think the tax is a good way to soak the rich. But by lowering the anticipated earnings from investments and thereby discouraging people from investing, the tax makes it harder for companies to raise the capital to innovate and expand and thus to effectively compete abroad.

The electronics industry is a case in point. Congress doubled the capital gains tax in 1968–69, causing "a precipitous drop in the formation of high-technology companies," wrote Michael S. Malone recently in a Wall Street Journal opinion-page article. U.S. firms were subsequently unable to meet the explosive demand for computers and video games in the early '70s, allowing the Japanese to dominate the market. Not until 1978–80 did Congress bring the rate down to 20 percent, and soon there was an explosion of new firms that "have generated thousands of patents, employed and trained tens of thousands of people, and made electronics the largest manufacturing employer in the U.S." But in 1986 Congress again raised the rate.

Nearly every other industrialized country lets people gain more from investing in their economies. At 33 percent, the United States has the highest maximum long-term capital gains tax. By contrast, the powerhouses of the Pacific Rim—Japan, Hong Kong, Singapore, South Korea, Taiwan, and Malaysia—as well as Belgium, Italy, and the Netherlands, have no capital gains tax, and West Germany taxes only short-term gains.

The irony is that a high capital gains tax doesn't even achieve the objective of its proponents—making "the rich" pay more. When the rate doubled in 1968–69, notes a Wall Street Journal editorial, "revenues plummeted. Five years later they were still below their 1969 levels." Conversely, when the rate was cut from 49 to 28 percent in 1978, revenues from capital gains surged from $8.1 billion to $11.7 billion, and "the bulk of those new revenues was paid by the rich," commented the Journal. Research by Harvard University's Larry Lindsey predicts a similar result if the tax is again lowered.

Congress is listening. Twenty-nine bills have been introduced to cut the tax. According to the Journal, at least five Democrats on the House Ways and Means Committee want to slash the rate from 28 percent to 15 percent. As economist Paul Craig Roberts recently observed, many members of Congress now "believe that the high tax rate is hurting U.S. investment, competitiveness and the value of the dollar, and they are prepared to do something about it."

Out of the Mouths of…

Robert S. Wolff, astrophysicist at NASA's Jet Propulsion Laboratory, on the billions spent on space exploration. Scientists get around to looking at only 10 percent of the data sent back—and they analyze closely a mere 1 percent:
"What are we doing spending all sorts of money on new equipment to produce this data when we have no way of handling it?"

A foreman on a Soviet cotton farm who increased his earnings last year under the new incentive system but complained to Izvestia about rationed consumer goods:
"Why should I, working 5 times, 10 times better than many people—why should I live like everyone else? Why make the effort?"

Chen Bingliang, winning bidder for the Home Cooking Shrimp Restaurant in Xiamen, China, under the government's program of auctioning off state enterprises. Asked if he is a capitalist, the 57-year-old entrepreneur's reply came with "a hearty laugh":
"Let's just say you could call me a red capitalist."

No Shortage of Resourcefulness

Fifteen years ago, the Club of Rome made the frightening prediction that the world would run out of major resources. Luckily, this group of prominent scientists and academics made a big mistake: they grossly underestimated technological progress. A recent article in Technology Review shows just how wrong they were.

Limits to Growth, a study commissioned by the club, projected that by the year 2000, the demand for major global resources would increase by five to ten times. Before Third World countries could develop the technologies to control their own futures, warned the study, the resources would run out.

But what's actually happening, according to Technology Review, is the reverse. "As the United States, Japan, and Europe develop new materials and adopt conservation-minded production methods, declining demand for mineral resources—not depletion—is threatening Third World economies."

Manufacturers have replaced raw materials with high-tech ones. Alloys, plastics, and resin-based composites, for example, are replacing metal in autos, meaning the average car will be 26 percent lighter in 1990 than it was in 1980. Five-hundred-pound satellites now do the work of 150,000-ton transoceanic telephone cables. Beverage-can makers are able to manufacture 7,000 more cans per ton of metal than they could a decade ago.

Recycling, too, has helped stretch the world's supply of resources. "In 1985," says Technology Review, "recycling provided the West with 48 percent of its lead, 38 percent of its copper, 25 percent of its aluminum, 24 percent of its zinc, and 21 percent of its tin."

The United Nations Centre for Science and Technology for Development recently cited several studies predicting that by the year 2000, the world will consume only two to three times the volume of raw materials it consumed in 1975. "That is still high," points out Technology Review, "but far below the Limits to Growth estimates and low enough to delay the depletion of resources significantly."

The increasingly efficient use of scarce resources could hurt countries that rely on the export of such resources, but many developing nations are already working on ways to adapt to new technologies. At any rate, it's good to know the doomsayers aren't always right.

Milestones

• Wrestling free. The Ways and Means Committee of the California State Assembly has voted to end state licensing for professional wrestlers and their agents, as well as wrestling referees, "whose main job," according to bill sponsor Richard Floyd, "is to never see the bad guy do bad things."

• Mighty decent of them. Action for Children's Television is heading a coalition of groups opposed to the FCC's new restrictions on "indecent" programming. Says ACTV's Peggy Charren, a sometime fan of government action against TV programming (see "Toys Will Be Toys," Reason, July 1987): "Violating freedom of speech isn't the way to protect children in this country. It's like burning books in a library."

• An eye-opener. The Federal Trade Commission has voted to overturn state restrictions on optometrists. Under a regulation now being drafted by the FTC, optometrists will be able to open branch offices, use trade names, and operate in shopping malls. The American Optometric Association objected.

• At the movies. Angelika Films has acquired worldwide distribution rights for a 1942 film version of Ayn Rand's novel We the Living. The Italian film, originally banned by Benito Mussolini, will be distributed with English subtitles.

GLOBAL TRENDS

Will Turkey Gobble Up the State?

Oded Yinon

JERUSALEM—Turkey's Prime Minister Turgut Ozal, reelected to a second term in December, is that country's equivalent of Maggie Thatcher: he's trying to move the country away from 60 years of statist policies.

When first elected in 1983, Ozal promised to move the country toward a free market. As he said to U.S. officials in 1986, "We don't want more aid, we want more trade." That seems to be the new spirit, and it works. Thanks partly to some of Ozal's reforms, which have opened Turkey to an avalanche of outside investments, much lower taxes, and the selling-off of state franchises, Turkey today enjoys the highest rate of growth in the OECD—7.8 percent (although inflation continues to run in the 30–40 percent range).

The state currently controls 263 companies, many of which are losing money. Under a new privatization law, at least 40 state-owned companies will be sold through the stock exchange, to the plants' own workers, and to foreigners. Some 22 companies' shares are already sold in the stock market. But for now there are no plans to sell any of the ancient state-controlled monopolies.

The Turkish-occupied part of Cyprus will also enjoy some liberalization as a result of Ozal's policy at home. Turkey cannot afford to continue subsidizing half the budget of its part of Cyprus—$99 million a year. So Turkey will try to get rid of some of its hold on the economy, which today extends to almost 77 percent of industry and 80 percent of the tourist business (both in very bad shape).

While Turkish Cyprus has 70 percent of the island resources, Greek Cyprus has most of the people and a GNP four times that of the Turkish part (as well as 10 times the tourist business). After 1974, the Greek Cypriots, without any foreign aid or help from the mother country, opened their economy to outside investment and made it one of the few free-market areas in this part of the world. Reality, even in their worst enemy's garden, is incentive enough for the Turks: they hope to do just as well as their neighbors.

Global Roundup

• Britain frees waves. Great Britain plans to end its government monopoly on nationwide radio stations and deregulate local broadcasting. By 1990, three national commercial stations will be able to compete with the BBC; the right to do so for up to eight years will be auctioned to the highest bidders. At the local level, existing pirate stations, which have captured an increasing share of the market with more music and less talk, will be able to apply for one of 300–400 new licenses. Last year, government officials raided illegal stations nearly 400 times.

• Radio revolt. In Greece, meanwhile, the mayor of Athens has started a subversive move to undercut the state's monopoly on broadcasting. His year-old pirate radio station, set up in a loft in city hall, provides such a contrast to the government's highly controlled programming on official radio and TV networks that it's drawing 63 percent of the capital's audience. The conservative mayor's successful formula—balanced news reports and commentaries from a range of viewpoints—is now being copied in several other cities, to the chagrin of the Socialist government.