16. DECENTRALIZATION OF GOVERNMENT The term “devolution,” meaning decentralization of government (turning over decision-making to smaller governmental units), has been in use in Europe for some time. A similar movement in the United States has sometimes been called “states’ rights.” By whatever name, the principle of shifting public responsibilities from the national government to the states and municipalities has been strongly advocated by the same people who favor privatization (turning over government functions to the private sector). They say that the federal government should do only those things that can’t be done better by the states or the private sector.
Is it true that states are more efficient than U.S. agencies? Many functions handled at thefederal level got there only after the states failed to meet a need. The idea behind the movement to shift power from the federal level to the states is that local officials, being closer to the people and their problems, can make better decisions about what needs to be done while avoiding the waste often found in huge federal bureaucracies. Sometimes it is also thought that local officials are less subject to pressure groups and corruption than those in Washington.
The fact is that the federal civil service uses a merit system of appointment and promotion that is rather effective in keeping politics out of the day-to-day operations of federal agencies, while the progress of the states in this direction has been uneven. To all appearances, the lobbying of legislative bodies and elected officials is just as intense at state capitals as it is in Washington, and there is no shortage of political scandals at the state level.
As for operating efficiency, state motor vehicle offices (where the public most often sees state government at work) have functioned so poorly that they have long been an easy target for
comedians. Members of the public who have to deal with municipal agencies for building permits, business licenses, etc., don’t usually seem impressed with the efficiency of city hall.
In state after state examples of corruption, nepotism, and favoritism are exposed with such frequency that the efficiency of state government in serving the interests of the general public becomes quite suspect. Still, proponents of devolution claim that the states are less wasteful than the federal government, partly because they must live within their income.
Public and private borrowing
It is often said that households and local governments must balance their budgets, but the federal government just keeps going deeper into debt. That statement, if it ever was true, no longer applies. Marketing pressure has induced consumers to run up huge credit card debt, and one consequence is that non-business bankruptcies rose from 473,000 in 1987 to 788,509 in 1994 (at the same time that business bankruptcies slightly declined from 88,278 to 56,748).110 By 1996, personal bankruptcies increased to over a million.111
As for excessive borrowing by state and local governments, New York State and New York City provide good examples. In the state capital, Albany, a vast expanse of government buildings grew up that rivalled Washington, D.C., also housing a huge bureaucracy. Governor Nelson Rockefeller used tricks devised by John Mitchell (the municipal bonds attorney who later became U. S. Attorney General and went to jail for lying about Watergate) to circumvent the New York constitution. The result was a huge debt that created the financial crises of New York City in the 1970s and New York State in the early 1990s.112 These are far from being the only state and municipality where debt and high taxes have been problems. For example, voters in California and elsewhere have rejected proposed bond issues and set property tax limits by initiative and referendum.
Apart from efficiency, another argument for devolution is that conditions vary from one state to another. The solutions that work in one state may not be the most appropriate for another state. If the states are allowed to experiment along different lines, each state becomes a laboratory for testing solutions to social problems. Results can be compared and used to guide choices in other states so that all can benefit from each other’s experience.
Students of political science have found merit in this concept, and it would not be hard to find examples of good results. California’s pioneering efforts to control automobile emissions because of the notorious smog conditions in Los Angeles are a case in point. As another example, the number of states outlawing racial barriers to employment grew rapidly after World War II, as the federal government was slow to establish a peacetime equivalent to its wartime Fair Employment Practices Commission.
On the other hand, the rallying cry of segregationists was “States’ Rights,” meaning they wanted states with a tradition of segregation by race to continue withholding rights and opportunities according to skin color. Clearly good or bad can result from independent state actions, and a particular practice may be regarded as good by some people and bad by others, as in the case of local differences in liquor laws at the state, county, or municipal level that have existed since the federal prohibition of alcoholic beverages was repealed in the 1930s.
One problem with devolution is that some states have more resources than others, making it possible for some to afford better programs to meet public needs than others can manage. It was partly for this reason that the federal government started some programs that many states felt unable to finance. The states’ combined resources, of course, are the same as those of the nation, but the difference is that the nation can use revenues from individual and corporate income taxes, drawn according to ability
to pay (in theory at least), to meet public needs wherever they exist throughout the states.
The most common method for turning federal programs over to the states has been the use of “block grants.” This is similar to the method states use, in varying degrees, to make school resources more equal among counties and cities which differ in their ability to support schools from local property taxes. In neither case are funds distributed completely without strings. It is very questionable whether the separate administration of 50 different state programs plus the federal oversight of compliance with the rules for block grants can result in less total bureaucratic cost than a direct federal program.
The race to the bottom
Block grants almost always add up to less than the cost of the federal program they replace, because they are supposed to save money in the federal budget. States then find that they must supplement these funds from their own revenues if they are going to deliver anything like the services previously provided. Federal support for social services reached a peak in 1978, when almost 27% of state and local funding came from federal grants. As the federal government began shifting greater responsibility to local jurisdictions during the 1980s, federal funding declined until it was only 17% in 1988.113
The result has been a more rapid increase in state and local taxes than in federal taxes since the federal government started shifting its responsibilities to the states. In fact, after adjustment for inflation, there was a 30% rise in state and local taxes per capita from 1980 to 1992 while federal taxes per capita dropped 2%.114 Taxes at lower levels of government, such as state sales and local property taxes, tend to be regressive (harder on the less prosperous) in contrast to progressive rates in the federal income tax.
As taxpayers resist state and local tax increases, pressure develops for states to cut benefits, whether for unemployment, job
training, day care, help for the handicapped, medical treatment, school lunches, or other programs. This tendency is aggravated by the risk that a more generous state will draw poor people from states with lower benefits, while some of its employing corporations may move to a state which has lower taxes.
The logical consequence is for states to compete with each other in cutting services for public needs that were previously handled by federal programs. At the same time, in the absence of prohibitions against local subsidies, states and localities have set up development agencies and used public funds to underwrite private profits as they compete with each other for corporate plants, offices, and headquarters.
Incentives for development
For example, in 1993, South Carolina made a successful bid for a new BMW auto plant. The company chose the location for cheap labor, low taxes, public subsidies, and limits on union activity. The state spent $36.6 million to buy a 1,000-acre tract on which a large number of middle-class homes were located, and leased the site back to the company at $1 a year. The state also paid for recruiting, screening, and training workers for the new plant. In all, it will cost the state $130 million over thirty years. Incentives to corporations often include partial exemption from taxes. In 1957, corporations in the U.S. provided 45% of local property tax revenues. By 1987, their share had dropped to about 16%.115
Economist Timothy Bartik, in the December 1994 issue of the NationalTaxJournal, pleaded for federal action to discourage states from competing for jobs with tax and financial incentives, which he declared “are not a free lunch for a state or metropolitan area” because they do not create enough jobs and new tax revenue to offset the cost of the incentives.
Editor Bill Bishop agreed, in an article syndicated by Knight-Ridder, citing tax breaks of $116 million per year for 10 years awarded by Tennessee to Columbia/HCA Healthcare Corp. for moving 600 jobs from Kentucky to Nashville, more than $3
billion in future taxes Kentucky traded for a mixed bag of warehouse, office and apparel plant jobs and $150 million for a few thousand jobs plucking chickens, as well as $500 million from New York, $270 million from Louisiana, and $150 million from Michigan each year in deals with business.
Pointing out that the Wall Street Journal, the Corporation for Enterprise Development, labor unions, and the National Governors Association all concluded states harm themselves by trading taxes for jobs, Bishop found irony in proposals to give more responsibilities to the states for welfare, health care, housing, etc. “Why?” he asked. “Because the states have proven themselves such conservative stewards of the public good. Yeah, right.”116
As will be further detailed in discussing monopolies, states and cities have been pushovers for professional sports franchise owners, including the tragic consequence for Cleveland, whose school system lost $32 million in revenues and went into receivership in March 1995, after stadium building cost nearly three times the $275 million that voters had approved.
The case against devolution has been no more effectively stated than in the following excerpt from The Judas Economy by William Wolman (Chief Economist at Business Week) and Anne Colamosca:
“Measures to improve education, rebuild the public infrastructure, and accelerate R&D will depend for their success not just on government, but on the federal government....The fact is that concentrating power in the federal government increases efficiency. The parallel functions of state and federal government are inherently wasteful, leading to a bloated legal system and the duplication of spending in many areas, including education and law enforcement.
“In the economies of our major competitors, the trend has been toward centralization, not decentralization. Passing power to the states also virtually guarantees that capital will prosper, compared to work: competition for capital among the states is certain to lead to special concessions for American and foreign corporations.
“Alexander Hamilton, a hero of the political Right in his time but a man who understood the advantages of centralized power, would have aggressively resisted devolution....”117
It has become an article of faith to some that free markets solve all economic problems, and it is a faith they cling to despite much contrary evidence. Markets are not actually free, of course, when their participants engage in monopolistic restraints, and self-regulation is seldom as good for the public as objective, independent umpiring. The trend toward deregulation since the 1970s started from a legitimate concern about the needlessly complicated bureaucratic rules that are so burdensome to small business. However, it played into the hands of those big businesses that violate the laws intended to protect the public.
Industries that are regulated tend to have a history of abuse that explains why government action was necessary. One of the earliest examples involved the railroads, which set their rates according to “what the traffic will bear.” Lower rates applied between major cities, such as New York and Chicago, where more than one railroad served the route, but farmers and others dependent on only one carrier were subjected to extortionate rates.
Remedies on the state level were impossible, partly because the railroads had bought legislators, and partly because laws of some states attempting to restrain the companies were struck down by the U.S. Supreme Court. In 1887 the rails were placed under federal regulation by the Interstate Commerce Commission (ICC). It overcame many abuses, but eventually developed an excess of bureaucracy and paperwork that fueled demands for deregulation. When the trucking industry came along, it was also placed under the ICC and chafed mightily under its regulations.
As the airplane became commercially successful the Civil Aeronautics Board (CAB) was created on the model of the ICC with jurisdiction over routes, schedules, and fares. Critics complained that its regulations were interfering with competition and making flying more expensive.
The bipartisan deregulation movement
Deregulation of airlines in the late 1970s is one of the achievements President Carter claimed for his administration. It set off intense competition among airlines and led to the formation of several new airlines. For a time the new competition brought rates down, at least on some routes, and that is what fans of deregulation cite as evidence for their position. They seldom mention that passengers were packed like sardines with fewer meals or amenities and that people not living in hub cities lost the direct flights they previously enjoyed.
Residents of smaller cities found themselves in a situation similar to that of farmers before railroad regulation. While bargain rates applied between major cities served by more than one airline, hub-and-spoke route systems made it necessary for travelers to reach a hub by driving long distances or to pay high commuter airline fares to the hub and then waste time waiting for the connecting flight. The result for them was longer total time and higher cost for the trip.
Passengers were further inconvenienced by a mind-boggling pricing system varying not only by seating class but also by carrier, day of week, length of stay, advance reservation, etc., and changing so rapidly even travel agents had trouble following the rate changes. A coach passenger on a trip of a few hundred miles within the U.S. could be charged more than the fare for a transatlantic flight. Meanwhile, breaches of maintenance and safety standards were revealed in investigations of airline crashes. A notorious example was ValuJet (since allowed by the FAA to change its name to AirTran), whose plane crashed in the Florida Everglades in May 1996 killing all 110 passengers when illegally transported oxygen canisters burst into flame moments after takeoff.
America’s major airlines were able to run their new competitors out of business despite the fact that the new airlines had lower operating costs, and then the airlines that remained raised their rates. The deregulated jungle of air commerce also enabled corporate raiders to plunder and destroy several major airlines, further reducing competition. By 1991 four airlines
(United, American, Delta, and Northwest) accounted for 66% of U.S. revenue passenger miles.118
Although President Carter approved deregulation of the airlines, he was not ready to shut down all government regulation. Following the second OPEC oil shock, he recognized the need for action to solve the energy crisis and reduce American dependence on foreign oil. His address to the nation on April 18, 1977, was well received according to opinion surveys and by August 5 the House had finished its work on the omnibus bill.
He recalled in his memoirs, however, that “we encountered far more serious difficulties in the Senate, where the energy industry lobbies chose to concentrate their attention. They launched a media campaign to convince the public that there really was no problem [while] their spokesmen in the Senate were forming a quiet coalition with some of the liberals, who...did not want any deregulation of oil or gas prices; the producers wanted instant and complete decontrol.... For a variety of conflicting reasons...powerful groups rejected the balanced legislation we introduced....Congress adjourned [in 1977] without passing any of the bills....”119
As the Democratic administration of Jimmy Carter deregulated the airlines, the Republican administration of Ronald Reagan deregulated the trucking industry, and the Democratic administration of Bill Clinton formalized the end of rail and truck rate regulation under the ICC by abolishing the 108-year-old agency at the end of 1995. The business-friendly climate of the 1980s speeded up deregulation, and not only in regard to transportation. The public was not told in 1980 that the whole package of reforms introduced by Franklin D. Roosevelt was to be dismantled by Republican administrations, but that objective was nearly accomplished in 12 years.
FDR’s banking reforms protected depositors and virtually eliminated bank failures until deregulation in the 1980s encouraged the wheeling and dealing that led to record numbers of failures and the costly bailout of savings and loans by the taxpayers. Also FDR’s securities reforms, establishing the Securities and Exchange Commission (SEC), brought under control the stock manipulations that caused the Wall Street crash
of 1929, but laxness in the 1980s allowed junk bonds, takeovers, golden parachutes, and leveraged buyouts to build fortunes for insiders and speculators at the expense of legitimate investment.
Scuttling the SEC
When John Shad was appointed chairman of the SEC in 1981, for the first time in history a Wall Street executive was brought in to head the agency created to regulate Wall Street. A believer in deregulation, he cut the SEC’s staff and during seven years he kept total employment at about or below its 1981 level.
Shad changed the SEC’s top priority from corporate practices to individual cheating, and reduced restraints on stock trading and the new speculative stock-index futures. In a series of articles that won a Pulitzer Prize, Washington Post reporters David A. Vise and Steve Coll wrote: “Without the SEC peering as closely over their shoulders, some of the biggest investment firms witnessed a breakdown of discipline among their stockbrokers, especially in the area of fraudulent sales practices.”
Although Shad had warned the New York Financial Writers Association in June 1984, “the more leveraged takeovers and buyouts today, the more bankruptcies tomorrow,” Vise and Coll wrote that several conservative economists in the administration lobbied Shad steadily to make sure he did not push for takeover restrictions.120
Commercializing the publicairwaves
Just as the head of the SEC in the 1980s had a philosophy counter to the agency’s mission, Mark S. Fowler, a former lawyer for broadcasters and a strong proponent of deregulation, was appointed to head the Federal Communications Commission (FCC). “Television is just another appliance,” said Fowler. “It’s a toaster with pictures.” He took the position that it was time to “move away from thinking about broadcasters as trustees. It was time to treat them the way almost everyone else in society does—that is, as business.”
He defined his mission as “pruning, chopping, slashing, eliminating, burning and deep-sixing” as many as he could of the FCC regulations. He abandoned the rules requiring a minimum portion of airtime to be devoted to news and public service programs (actual commercial TV program time for children dropped from 11.3 hours per week in 1979 to 4.4 in 1983), increased the amount of advertising a station could run in each hour, abolished a log-keeping requirement that was helpful for checking on programming offered, and got Congress to raise the limit on the number of TV stations a company could own from five to twelve.
Fowler gave every possible assistance to Rupert Murdoch, the Australian-born media mogul, in acquiring stations beyond legal limits to build the Fox Broadcasting network. Between 1982 and 1984 the average of price of a television station doubled from $12 million to $24 million, and the total price for all stations sold in 1983 and 1984 reached $5 billion, or 60% more than the previous two years. This was good for station owners, but their financial interest was clearly put ahead of public trust.121
The “Fairness Doctrine,” in effect since 1949, had required broadcasters, as a condition of their licenses from the FCC, to cover some controversial issues in their community, and to do so by offering some balancing views, allowing equal time for each side of a controversial issue or political campaign. It was abolished in 1987 with the result that only the two major parties now get a chance to present their views, and biased broadcasters can push a one-sided viewpoint for hours at a time. President Reagan vetoed, and President Bush killed by threatening to veto, subsequent congressional measures to restore the Fairness Doctrine.
Wealthy station owners quickly moved to push their conservative political views, especially through talk radio. Rush Limbaugh is the prime example with an open mike three and a half hours every weekday on 660 radio and 250 television stations to blast those he considers too liberal. In 1993 Limbaugh’s daily on-air crusade generated thousands of calls to Washington and helped derail congressional action to restore fairness.122
Meanwhile, the courts, in what former FCC Chairman Newton Minow later called “a moment of madness,” overturned the standards for children’s TV that the National Association of Broadcasters had developed in 1952. The 1982 decision held ironically that the antitrust laws, which were not preventing the epidemic of broadcasting mergers, somehow prohibited the code’s limits on commercial time in children’s programs. In a 1998 interview, Minow declared television programming, particularly for children, even bleaker than in 1961, when he described it as a “vast wasteland.” He added, “There is more violence, more sex, more unpleasantness than ever before.”123
Broadcasters are quick to invoke freedom of speech and of the press, but broadcasting differs from print media because of the limitations of the radio spectrum that make television and radio stations government-sanctioned private monopolies. Throughout the world broadcast frequencies are controlled and allocated by governments—which is necessary to prevent transmissions from jamming each other. In the United States each station was granted the exclusive use of a particular frequency or channel at a specified power and geographical location, a privilege subject to compliance with public interest requirements under regulation by the Federal Communications Commission (FCC).
Periodically stations come up for license renewal and are supposed to show that they are using their monopoly for the benefit of the public. This has become a meaningless ritual with renewal a foregone conclusion, especially in the mania for “deregulation.” This has created enormous profits for the monopolists, who have sold for millions of dollars the licenses that were originally awarded for nominal amounts. It reminds me of New York City taxicab medallions for which the city received a few dollars, but which are sold privately for $50,000 or more.
Law enforcement ignored in other agencies
The Federal Trade Commission (FTC) and the Antitrust Division of the Justice Department, which are the principal agencies for enforcing the antitrust laws, have done little to stop mergers, either during the 1980s or since then. Attorney General Robert Abrams of New York, explaining why he and colleagues from the other 49 states criticized the Reagan administration’s antitrust policies, said, “Most of these massive combinations—in oil, steel, airlines, and other basic industries—would never have passed muster under any other administration, be it Democrat or Republican.”
A commissioner of the Federal Trade Commission testified that a combination of severe budget cuts and the more permissive regulatory climate had left that agency “gaunt and bloodied” and that in the Reagan period merger filings jumped to more than 320% of their fiscal 1980 level. Similar laxity at the Federal Home Loan Bank Board, charged with overseeing regulation of the nation’s savings and loan industry, was behind the crisis and bailout described in another chapter.124
Despite such failures of the market as described above, proponents of further deregulation kept proclaiming that government regulation was the problem and that a free market would make the economy well. Correctly seeing that unnecessary regulation by government is wasteful and stifles progress, they were reluctant to admit that some control is beneficial to maintain a level playing field among large and small entrepreneurs and to prevent the profit motive from running roughshod over the best interests of the public.
When regulations become overgrown and too complex they need to be pruned back and simplified. On the other hand, there is need for an umpire to make sure there is fair play. Where public health and safety are involved, or a natural monopoly (public utility) situation exists, or people trust their money to financial institutions, market forces cannot be relied on to make companies do what is right.
Deregulation regardless of party in power
The deregulation rush did not end with the change to a Democratic administration, as business obtained further deregulation even when President Clinton had a Democratic majority in Congress. Antitrust enforcement remained weak as huge mergers continued, including Lockheed and Martin Marietta which formed the largest U.S. defense contractor.
The election of a Republican Congress in 1994 was interpreted by its leaders as a mandate to speed up deregulation. The candidates had posed on the Capitol steps and publicly issued a “contract” promising to pass certain bills if the Republicans won a majority of seats. Although polls showed few voters were familiar with this agenda, the new House Speaker, Newt Gingrich, attempted to bring to a vote each of the ten items in the Contract, including “No. 8: Cut taxes on capital gains and further deregulate business.” Deregulation sounded good, as everyone hates senseless regulations that hamstring business, but what about sensible and necessary regulations?
Incredibly, the new Congress actually invited industry representatives and lobbyists to come into the Capitol and draw up the deregulation laws. The resulting bills were introduced by House members who, in some cases, were demonstrated to be unfamiliar with the contents of the proposed legislation.
The new laws being inserted into the budget or designated “Contract” bills included weakening Truth in Lending and Truth in Savings, limiting recourse against securities fraud, removing federal protection of nursing home residents, allowing corporations to take reserves out of worker pension funds, penalizing ordinary persons for pursuing justice in the courts, cutting services that enable the elderly to live independently, and expanding the giveaway of public lands to big lumber and oil companies.
Congress made it easier for polluters to get away with violating laws by cutting the Environmental Protection Agency‘s fiscal 1995 budget by 10%, with further cuts for 1996 and forbidding various EPA actions on such matters as carcinogenic radon in tap water and information required from chemical manufacturers about release of toxins into the environment.
While key administration officials and environmentalists were excluded from the a House committee’s deliberations on amending the Clean Water Act, a group of corporate representatives, the “Clean Water Task Force,” including Allied Signal, General Motors, the Chemical Manufacturers Association, and the American Petroleum Institute, were allowed to set up an office adjacent to the House floor to write amendments during the floor debate.
They produced a bill that would require federal agencies to base all public health and environmental protection primarily on economic issues, resulting in a 223-step review of every new regulation and federal cleanup, including toxic waste sites and oil spills. It would provide endless opportunities for delay in the courts with 60 new bases for judicial challenge, according to the Natural Resources Defense Council.125
Attached to a disaster assistance bill passed by Congress in August 1995 and signed by President Clinton (who later said he didn’t realize what its effect would be) was the Clearcut Rider, which for 18 months suspended environmental laws and barred citizens from enforcing them in court. Although the rider was only supposed to be for the logging of dead and diseased trees, it was used as a loophole to clearcut healthy trees from Alaska to Alabama.126 According to the Sierra Club, there are 377,000 miles of logging roads in our National Forests, all paid for by the taxpayers for the benefit of logging companies to whom government agencies sell timber at cut-rate prices and at a loss to the taxpayers.
The logging rider provided that any procedures followed by federal agencies for timber sales under these programs automatically satisfied the requirements of federal environmental and natural resource laws—regardless of how inadequate these procedures might be and despite any conflict with important provisions of the Clean Water Act, the Endangered Species Act, the National Forest Management Act and the National Environmental Policy Act.127 After the 18 months open season expired, lobbyists were hard at work trying to get it renewed. Just as the clearcut rider was camouflaged by its attachment to a disaster assistance bill, other bills in 1995 masqueraded under high-sounding titles.
Deregulating guns and police terror
Under the misleading name of the “Taking Back Our Streets Act” Congressional leaders proposed to remove the ban on assault weapons (contrary to the wishes of 69% of the public) and to allow police to enter and search homes without warrants. In a published letter at the time, I suggested, “perhaps we’ll need assault weapons to defend our homes against SWAT teams that come to the wrong address by mistake.”
Although allowing manufacture and sale of assault weapons to all comers could be considered deregulation, it is hard to see how expanding police powers would fit the declared objective of “getting the government off our backs.”
Protecting the guilty
Under the imaginative title of the “Job Creation and Wage Enhancement Act,” a bill that also included a capital gains tax cut provided a redefinition of the Constitutional provision against taking private property without compensation. It introduced the weird concept, called “takings,” that polluters and violators of health and safety rules, among other commercial interests, must be paid by the government for their inconvenience.
Distorting common sense, the “Common Sense Legal Reform Act” would have sheltered corporations and doctors from responsibility for their faulty products or negligence, as the tobacco industry later tried to gain immunity from lawsuits in 1998 by Congressional ratification of proposed settlements of state lawsuits.
The “Private Securities Litigation Reform Act,” which Congress passed over President Clinton’s veto, made it even more difficult to sue corporate management, their accountants and other consultants in federal courts for defrauding investors. It is now harder to collect from securities cheats, such as those involved in the great S&L debacle—a strange sort of reform.128
Undermining worker safety
A lobbying campaign against the Occupational Safety and Health Administration (OSHA) earned United Parcel Service (UPS) a place in Multinational Monitor’s “1995 Lobbying Hall of Shame.” With the highest injury rate among trucking and delivery companies, 15 lost-time injuries per 100 full-time workers, UPS has been cited by OSHA for more than 1,300 safety violations in the 1990s. Naturally, UPS joined the deregulation movement by lobbying Congress to cut OSHA’s budget and bar the Agency from developing a long-anticipated ergonomics rule intended to protect workers from repetitive stress injuries and heavy lifting.
The UPS political action committee spent the maximum legal contribution of $5,000 on each member of Congress coming to its “meet and greet” sessions in 1995, consisting of food, drink, and a donation of $4,550. It led the corporate pack with outlays of $3 million in three years.129
Other deregulation measures in 1995 aimed to repeal laws that protect nursing home patients from abuse, to undercut health and safety (such as meat inspection), and to allow domination of TV by cartels and foreign interests. Not all these efforts succeeded, of course, but a considerable start was made on deregulation, weakening the capability of the federal government to act as umpire between corporate power and the public welfare. Efforts were made to extend the start already made to have strong state and local control of monopolies preempted by weaker federal regulation, as had been done when federal action in the 1980s blocked local rate limits on cable television.
Wholesale deregulation of communications
Unlike many other deregulation bills, where the Republican-controlled Congress faced the opposition and possible veto of a Democratic president, communications legislation turned into a lovefest. Upstaging Republican deregulation plans, President Clinton and, especially, Vice President Al Gore, enthused about the “information revolution” and building a communications network “for the Twenty-first Century.” It was February 1996 when the Telecommunications Reform Act was
passed by Congress and signed by the President. (Notice how often legislation is self-described as reform!) Most of the media attention was devoted to the V-chip, a device that may be somewhat useful for parents to control TV watching but did nothing to improve the quality of programs.
Some more significant parts of the bill, obtained by the communications industry that had donated over $50 million to politicians in the previous 10 years, got less attention. They included:
Allowing mega-corporations to dominate the communications and entertainment industries.
Permitting the “Baby Bell” phone companies to recombine and to enter the long-distance telephone business.
Overriding state and local regulation, even to the extent that cellular telephone towers can be erected in neighborhoods in defiance of local zoning laws.
Many people think commercial radio and television in America are free, unlike countries where license fees are charged to receive programs from a government-controlled source. Not true. The cost for us is in the many commercial messages that interrupt the programs. Economists generally agree that there is no “free lunch” and this is a good example of their point that there are always strings attached.
Old-timers remember that early radio had few commercials, but they gradually increased, then FM at first was almost commercial-free, and the early days of television had long programs with a single sponsor whose commercials came at the beginning and the end. The big increase occurred after the Reagan administration in its enthusiasm for deregulation had the FCC remove the already generous limit on the number of commercials, saying it was not necessary because broadcasters were using less than the limit.
Further increases continued in the 1990s, according to an April 29, 1998, Associated Press report of a study commissioned by two advertising groups. It found that prime time TV in November 1997 had over 11 minutes of commercials per hour,
compared with about 9 1/2 minutes six years earlier, and network promotions plus public service announcements brought the total clutter to more than 15 minutes per hour. The ads had grown shorter but there were more of them. In daytime television there were nearly 20 minutes of interruptions per hour.
An agency spokesman said the networks had to increase the advertising carried to keep up their revenues because of a decrease in viewers. The industry has discussed many theories to explain the loss of viewers, but seems unwilling to think it could be at least partly due to advertising saturation and/or the decline in quality of programming.
Less news and more ads
I had begun doing my own count of the ads and promotional spots on the early evening half-hour news shows of three networks in February 1995, which I repeated at the same time of the year in 1996, 1998, and 1999. I found that the viewer had to endure more than one ad for each minute of news. In 1995 and 1996 these ads and announcements averaged 29% of the total time, which grew to 37% in 1998 and 1999, leaving only 63% for actual news.
The average number of such interruptions in each half hour grew from 23 in 1995 to 26 in 1999, and the time devoted to ads and promos increased from about 9 minutes per news show to more than 11 minutes, leaving less than 19 minutes for news. Generally, there was little difference among ABC, CBS, and NBC, but February 6, 1998, was a special case. CBS spent slightly less time on ads than ABC and NBC in that day’s news program, but devoted over 6 minutes of news time to an Olympics preview, promoting their start of Olympics coverage later that night, which in turn was fractured and saturated with commercials.
Over these years, not only was less time left for news, but its quality also suffered. Some evidence of the deterioration of TV news was tallied by Media Monitor in Washington during the month of January 1998, which found that the story about White House intern Monica Lewinsky and President Clinton (56% of the
time from unnamed sources) took up 34% of total airtime on the newscasts of ABC, CBS and NBC. This was more time than they devoted altogether to the Iraq crisis, the winter Olympics, the Pope’s visit to Cuba, and the disasters attributed to El Nino!130 This was before the impeachment of the president by the House of Representatives later in 1998 and his acquittal by the Senate in 1999.
The ultimate in commercial saturation, of course, would be 100%, and that is what is called an “infomercial,” typically a half hour or more of paid sales pitch disguised to look like a regular program (something not allowed before the 1980s deregulation). Then there are the home shopping stations, totally commercial, which the FCC ruled on July 2, 1993, cable TV operators must carry if the local stations request it. Commissioner Ervin Duggan dissented: “Has our concept of the public interest become so denatured—so attenuated that virtually anything goes?” The home shopping channel operator, QVC Inc., even attempted to take over the CBS network.
Should the market regulate public utilities?
When an industry tends toward monopoly, two possible remedies exist. Either the government can enforce antitrust laws to restore competition, or it can decide that the business is a natural monopoly and regulate it as a public utility, such as telephone and electric power utilities. When Ma Bell was broken up, it was wisecracked that the courts targeted the only monopoly that was working well. AT&T kept introducing improvements and long-distance rates kept coming down because federal regulation prevented overcharging.
The pressure to break up AT&T came from large corporations who wanted faster introduction of sophisticated services. It is uncertain whether rates would have come down as much from scientific progress without competition from MCI, Sprint, and others. Many consumers have found the conflicting claims, deceptive promotional gimmicks, and barrage of advertising an unnecessary addition to the confusion of modern life. After AT&T’s monopoly of telephone service was broken, a
competitive war broke out for the long-distance telephone business. Although MCI and Sprint offered the biggest challenge to AT&T, many small companies vied for a piece of the business.
One outcome was an annoying snarl in the routing of calls. As numbers became depleted in various area codes, due to demand for cellular phone and fax lines as well as population growth, parts of each area had to be switched to a new area code. Some long distance calls were not getting through to the new codes.
For example, the North Carolina Piedmont Triad (Greensboro, Winston-Salem, and High Point) had to change from area code 919 to 910 in 1993 and change again to 336 at the end of 1997. Both times residents found that calls directed to the new area code were resulting in such messages as “Your call cannot be completed as dialed.” A BellSouth spokesman explained in a newspaper interview that multiple phone companies are involved and each must reprogram its computers to recognize the new area code. He gave the example of a New York City call first handled by NYNEX, passed to a long-distance company, and then relayed to BellSouth in Greensboro. If any company in the chain had not reprogrammed its equipment, the call would not go through.
There were 34 new area codes created in North America in 1997, requiring adjustments by the hundreds of local, long-distance, and cellular companies, as well as thousands of private telephone systems. There is a grace period of several months when the old area code will still work. The assurance given by a telephone company spokesman sounded a little weak: “Experience has been that the vast majority of telephone companies will take care of the matter before the end of the grace period.”131
Another result of long-distance telephone deregulation was the onslaught of dinner-time telemarketing calls urging patrons to change their long-distance carrier. Even worse, sometimes the change was fraudulently made without the subscriber’s approval, and spurious, misleadingly-described charges appeared on phone bills. These practices became so widespread they gave rise to such terms as “slamming” and “cramming” in the trade and the popular media, but corrective action by government seemed slow to come.
Whose electricity do you want to buy?
State legislatures have been urged by business interests to undercut public utility regulation on the theory that the market can do a better job of allocating resources. That argument is a good one against some kinds of government regulation, but not in cases involving a natural monopoly.
Electric power is a prime example of a natural monopoly because power lines can be run to users only through rights of way controlled by local government. It would not be feasible for numerous competing power companies to string multiple sets of wires. State public utilities commissions have been created to prevent the one power company serving a given area from using monopoly power to charge unreasonable rates.
Bills offered in many states would require local electric utilities to route power over their lines from various generating companies and make consumers choose a power source, as they now choose a long-distance telephone company. The electricity would still travel over the same wires (which don’t know or care where the power originated), so only a bookkeeping change would be involved. Pressure for deregulation of electric power comes from large industrial users with great bargaining power to get preferential rates. Individuals and families would have little influence, but the same marketing confusion as telephone service.
Proponents of deregulation claim great benefits from deregulation of long-distance telephone service, airlines (where rates may be cheaper between major hubs but sky-high elsewhere, and passenger safety has come into question), broadcasting (now dominated by trash, reruns and commercials), and financial institutions (one result of which was the huge taxpayer bailout of savings and loans). They have urged Congress to leave electricity to the states, some 46 of which, at this writing, are considering changes. While the public may be able to follow, to some extent, what Congress is doing, private interests have the organization and political leverage to get their way at the state level before voters know what’s happening.
The “Electric Consumers Resource Council,” for example, sounds as if it stands up for the general public, but the “consumers” are big industrial users of electricity, such as General Motors, Texaco and Procter & Gamble. The “Edison Electric Institute” is backed by the profit-making utilities. One university study touting the benefits of electricity deregulation was financed by Enron, a giant energy company based in Texas.132
Opponents of deregulation point out that it might increase air pollution. The market would encourage companies to keep producing power from old, but inexpensive, generating plants, which are allowed not to clean up under a “grandfather” exemption.133 A further problem is that of “stranded assets,” the generating plants of existing electric utility companies (including some for which municipalities still have outstanding bonds that will need to be paid off). The taxpayers are in danger of being made to pay these costs, while industrial customers (but not private homes) get the benefit of lower rates from power companies with cheaper but more polluting generators.
Believers in the superiority of private enterprise and free markets go too far when they insist that the private sector is better than government at everything. Their ideas received great acceptance in recent years and have been tried out in many areas where one might have predicted the failures that occurred.
The term “privatization” was frequently heard in the eighteen years of Conservative party rule in Great Britain under Prime Ministers Margaret Thatcher and John Major. Previous governments had made public enterprises of such productive facilities as coal mines and automotive plants, whose recurring deficits imposed a drain on the national treasury. After these enterprises were privatized (sold off to private companies), other public properties were also sold to the private sector.
Shortly before the Conservatives (or Tories) lost in the 1997 landslide to the Labour Party under Tony Blair, British Rail (BR), the public corporation originally established to reform troubled rail operations of private railroads, was sold off in pieces to private companies that would operate portions of the rail network.
Somewhat earlier, public water and gas systems had been privatized, rates went up and top management got big raises. To recapture windfalls that occurred, the new Labour government promptly enacted a special tax to be used for education. Still, in its new image that won the election, “New Labour” promised not to return to public ownership the enterprises privatized by the Tories, and was even open to further privatization.
In America, as in Britain, many politicians and economists friendly to the business community began to preach the doctrine that private enterprise is always more efficient than government. The push in the U.S. at first was for deregulation rather than privatization, as the government had already quasi-privatized the Post Office and had never become involved in
running businesses to the same extent as Britain (with its money-losing coal mines and British Leyland motor cars and trucks).
As a corollary to the mania for budget balancing, it became fashionable to advocate reducing the size of government. Even Democratic president Bill Clinton in a State of the Union speech announced the “end of big government,” while Republicans complained he had stolen their issue. Commissions, committees, politicians, and journalists have all compiled evidence of the waste and inefficiency of government bureaucracy, and elections have been won on promises to cut back overgrown agencies.
Most of the attention has been on the federal government, although similar horror stories are easy to find at the state and local level. On the federal level, the administration of Medicare had, for many years, been divided into regions that were contracted out to various insurance companies, and there is a strong movement to privatize Social Security to some degree. In some localities private companies were being given contracts to collect the garbage, operate prisons, and/or run public schools.
Despite all the oratory, there has so far been little evidence of improvement in efficiency, and the size of government has continued to grow, as measured by combined per capita expenditures of all levels of government, which grew in percentage of GDP and in dollars (even after adjustment for inflation) from 1980 to 1995 as shown in the following table (totals for later years are slow in coming).