Thomas Moore has a plan. He would like Amtrak to sell stock at a deep discount to its employees, and then have the entire system turned into a private railroad serving only the Washington-New York-Boston corridor.
Selling stock to Amtrak`s highly paid workers would give them a stake in its operation, inducing them to support conversion of the national railroad passenger service into a limited yet self-sufficient private business, he reasoned. The employees then could sell the stock at a profit. Meanwhile, the rest of Amtrak would be sold or abandoned.
Thomas Moore is no crank with just another wild idea. He is a member of President Reagan`s Council of Economic Advisers and head of the
administration`s interagency task force on privatization.
It is not Moore`s only proposal for co-opting the opposition to Reagan`s plans to turn many government functions and operations over to the private sector. Moore believes, for instance, that offering cheaply priced stock to the users of the Bonneville Power Administration`s power would achieve the same purpose of turning around the opposition.
He also is cooking up a plan for ending the U.S. Postal Service`s monopoly on first-class mail, first by allowing anyone to stuff material in private mailboxes and then by gradually eliminating the laws that created the monopoly.
Privatization is the big new code word in town. It coalesced from several conservative strains–the tax-limitation movement in the 1970s, the deregulation movement of the 1980s, the balanced budget movement of both decades and Margaret Thatcher`s efforts to denationalize Britain`s troubled state industries.
But now that it is here, it is in trouble, and not only because it is a new and strange idea. It is challenging an old concept of government that holds that many subsidized government operations serve desirable national purposes, such as postal delivery to rural areas, subsidized power in the Northwest or subsidized railroad passenger service.
Organized labor views it as a union-busting idea designed to slash jobs and trim the costly wages and fringe benefits enjoyed by federal workers, and it is in part designed to do just that. Users of the subsidized services view it as a way to force them to pay higher costs, and it is in part designed to do that, too.
Privatization is a jaw-breaking word that entered the lexicon years ago. Although it essentially means letting the private sector do things that government now is doing, it takes many forms. It can mean hiring private contractors to do government`s work. It can mean selling government agencies or government assets, such as student loans or loans covering foreign military sales. It can mean ending a government monopoly in a particular area such as the Postal Service. It can mean providing vouchers to poor people for housing or education.
A month after Reagan`s budget message drove the concept of privatization into the national consciousness, his lieutenants are busy developing a strategy for achieving his objectives that relies on an old principle: divide and conquer.
”It`s better to buy out the constituency,” said Stuart Butler, analyst for the Heritage Foundation who has written and spoken extensively on privatization. For example, Butler believes that one way to end opposition to turning over public lands to the private sector is simply to hand them over to environmental interests.
Many privatization ideas may seem like pie-in-the-sky to some, but there are a number of practical reasons for this push. One is that many private firms have developed a profitable business doing many of the same lines of work the government does. Private mortgage insurance has developed alongside federal housing insurance. Private mail carriers are giving the Postal Service a run for its money in the delivery of parcels.
But the euphoria within the administration that accompanied the introduction of Reagan`s proposals a month ago has given way to a more sober, realistic outlook. Officials recognize that privatization will be a long, difficult process, both administratively and politically.
Congress is treating Reagan`s proposals as semi-serious ideas that were introduced only because they served a short-term political purpose. The projected savings from the sale of government assets helped him meet the deficit targets under the Gramm-Rudman-Hollings balanced-budget law without initiating deeper spending cuts.
Few members of Congress give the proposals much chance of passage. ”Over my dead body,” Sen. Daniel Evans (R., Wash.), said when learning of Reagan`s plan to sell off the Bonneville Power Administration and other power marketing authorities that offer users, including the aluminum industry, subsidized electrical power.
”Selling Conrail has taken over three years, and it hasn`t happened yet,” said William Niskanen, a former Reagan administration economist. ”I don`t see a lack of commitment toward privatization on the part of the administration, but this is a very complex process.”
The administration and its supporters do not believe that a smashing victory is needed this year to keep the movement alive in the future. Moore said the push behind it is still strong and noted that it is a worldwide movement, with even the socialist French government moving to denationalize some industries.
”What we`ve got to do is to set practical limits as to what we can achieve over the next few years, see what we can do with Bonneville Power or selling off the Naval Petroleum Reserve, things like that, and see where we go from there,” he said. ”There`s not going to be a mass sell-off of the federal government.”
The major question is whether the current momentum for privatization will be sustained when Reagan leaves office. Many believe the current zeal will die. Much of the intellectual and political impetus for the movement is coming from groups such as the Heritage Foundation and the CATO Institute, both close to this administration but maybe not to the next one.
”One of the happy days for us is when Reagan leaves the White House,”
said Gerald McEntee, president of the American Federation of State, County and Municipal Employees (AFSCME), the largest public employee union. ”Using the bully pulpit is somewhat difficult to compete with. I would hope the next president believes in the public sector.”
Supporters of privatization argue that the federal government has too many commercial ventures that could be done more efficiently and cheaply by private business. They say numerous studies back up their point of view. The resulting leaner government would help solve the deficit problem, keep tax rates low and promote economic efficiency, they believe.
Opponents counter that behind each public subsidy is a public good that would not necessarily be performed privately if the government abandoned or sold off the business. ”It is almost always cheaper to produce a service in the private sector,” said Anthony Downs of the Brookings Institution. ”But the private sector always has narrower objectives–in some cases good, in some cases not so good. The public sector has many more constituents to please. You can put down its costs on paper, but you can`t really measure its achievement.”
Evans, for example, said that if Bonneville Power`s output were put on the auction block, the highest bidder undoubtedly would be outside the Northwest, which he said would mean the region would pay more for power and could suffer an actual power shortage.
Because of this, the only political solution may be to sell Bonneville Power to utilities within the region, which would limit the amount of money the government would make from any sale. But Evans opposes this idea, too.
Other regions of the country have better access to markets or low-cost gas and oil, Evans said. ”We have the asset of low-cost electricity,” he said. ”During the last 50 years, it has attracted the metal industries. Our whole economy is built on low-cost Bonneville power.”
The Heritage Foundation, however, said it has been a bad deal for taxpayers. Bonneville Power customers pay only about 30 percent of the national average price of electricity, it said. In addition, the power administration has repaid only 8 percent of the taxpayers` investment in its facilities.
Reagan`s budget for fiscal 1987 said that selling Bonneville Power and four other power-marketing associations would cut the deficit by $12.7 billion over the next five years. The Heritage Foundation said it could make much more.
Evans said that, despite the proposal, ”it just isn`t going to happen. As a matter of fact, we ought to prevent for an entire decade a study of privatization of Bonneville Power.” Already, he said, the uncertainty is making potential investors highly nervous about putting money into the Northwest.
Arguments over whether taxpayers in one region should subsidize those in another also apply in proposals to end the Postal Service`s monopoly on the delivery of first-class mail, now contained in a law called the private express statutes.
Reagan`s annual economic report to Congress called for an end to the monopoly, but the President`s budget did not include it as a formal proposal because of the political upheaval it would have caused. Moore said proposals may follow and that they may start with a plan to abolish the law that prevents anyone except the Postal Service from putting material in mailboxes. The economic report said that if the monopoly on first-class mail were ended, it would cost more to mail a letter to longer distances or to rural areas than it would in urban areas. But it added that because postal rates overall would drop significantly, ”it is not clear, on balance, whether rural rates will increase.”
That conclusion is widely disputed. Downs said that if the monopoly were ended, many private entrepreneurs would move in to cream off the profitable urban and suburban routes and leave the Postal Service ”with all the routes that lose revenue.” It would cost much more to mail letters across long distances and to smaller towns, he said.
John Crutcher, a member of the Postal Rate Commission, is a dedicated believer in privatization, but he believes that doing away with the monopoly goes too far.
”I think the country needs a uniform hard-copy delivery system,” he said. If the monopoly ended, farmers in western Kansas, remote parts of the Northwest and ”people in Chicago`s South Side ghettos would pay an enormous cost for delivery. It would be an irregular, unsatisfying service.”
David Harris, secretary of the Postal Service`s Board of Governors, said that not only would rates rise but residential deliveries would be cut to two or three times a week and businesses no longer would get two deliveries a day. He said he doubts whether ”you could find three senators or 15 representatives to put their name on a bill to abolish the private express statutes.”
But Crutcher said the government could save enormous sums for the taxpayer if it simply began contracting out many Postal Service operations to private businesses. This would include delivery and sorting of the mail, and almost everything but management, including the local postmasters, he said.
Crutcher said the aim is clearly to cut labor costs. He said the average postal worker earns $25,000 plus generous benefits. The Postal Service already contracts for about 10,500 routes nationwide, he said, and the average pay of private delivery workers is $15,000 annually.
Moe Biller, president of the American Postal Workers Union, said privatization proposals are going nowhere. He ascribed interest in the idea to ”greed, greed, greed, and a hunk of the action in a $30 billion industry that will rip off the consumer.”
The Postal Service`s Board of Governors so far has remained aloof from the privatization battle, but in recent weeks the chairman, John McKean, has indicated the board may take more active interest in privatization to cut costs. The Postal Service still receives a subsidy of more than $3 billion annually, a large part of it ”hidden” in the sense that it is not part of the budget.
The administration`s most controversial privatization move, the sale of Conrail, remains the one great hope of privatization supporters for a victory this year. The Senate has approved the proposed sale of the railroad–an amalgam of bankrupt lines that were taken over by the government–to Norfolk & Southern Railroad, but the legislation is in trouble in the House.
Privatization of Amtrak has been a long-term goal of the administration, but so far it has made no dent. Amtrak has one of the strongest, best-paid unions around, and many Amtrak lines go into congressional districts that win it valuable political support.
The economic arguments for selling Amtrak seem more compelling than in other instances. The Congressional Budget Office said Amtrak`s cost per mile is three times greater than bus travel and 50 percent higher than airline travel. ”I don`t think of it as a public good,” said a White House official. ”It`s more expensive to ride Amtrak than to ride an airline.”
Critics cite the high cost of labor and work rules that drive up the cost of operation. They say the only potentially profitable line is the Northeast corridor, and it is no sure thing. One administration transportation expert said that ”given the current baggage, Amtrak wouldn`t be viable even in the Northeast corridor.”
If Amtrak were sold, the government would have to make a hefty payoff to the unions, the official said. Or it could just end the subsidy and let the service go into bankruptcy in the hope that some private railroad would pick up what it considered the profitable pieces, he said.
Ridership would rise if the government could improve the track bed so the trains could run faster, he said, but the capital required to lay the track would be so expensive that no private firm would attempt it.
The Heritage Foundation`s Butler said that considering all the costs,
”it would be in the best interests of the taxpayers to give away the system to anyone willing to take it.”
But W. Graham Claytor, president and board chairman of Amtrak, said Amtrak now carries so many people between Washington and New York that to shut it down ”would not simply strain the capacity of airlines and airports to handle this traffic, it would overwhelm them.”
The administration official scoffed at this statement. He said Claytor has been making the same statement for years ”and it just hasn`t happened yet.”
MONDAY: How privatization affects traditional state and city services.
