Regulation And Privatization

REGULATION AND PRIVATIZATION

REGULATION

The essays in this part consider the effects of government regulations that distort the incentives of companies, consumers and employees. Religions thrive in a free market, too: Many people are distributed by the rising appeal of the religious appeal. But Becker does not believe there is reason to be concerned – so long as religion must compete for followers and no religion receives special treatment from the government. He says that, competition is good for religion, as it is for ordinary commodities, because religious groups are forced to learn how better to satisfy member’s needs than they do when they have a monopoly position. On their toes – Adam Smith argued forcefully that the only way to end church leader’s sloth and indifference was to remove their privileges and make the Church of England compete for members against the newer religions. Communist suppression – Both liberal and strict religious groups are more dynamic when they have to compete for members on a level playing field. Healthy competition requires open markets for religious beliefs where no religious organization receives special protection or privileges from the state.

How the disabilities act will cripple business: The Disabilities Act covers not only people with hearing, sight or mobility impairments but also those with emotional illness, dyslexia, AIDS and past drug or alcohol addictions. This is why some of the act’s supporters claim that it will help more than 40 million Americans. But it is a distortion of the meaning of “disability” to pass a law that may include almost 40% of the labor force. Discrimination is banned on the basis of characteristics that are usually easily determined, such as race, gender or religion. Shotgun approach – Under the 1991 Civil Rights Act, the disabled gained the right to sue for compensatory and punitive damages. So the additional provisions of the Disabilities Act can be expected to be a boon to litigation.

Mean-spirited – Becker believed that disability coverage should be limited to perhaps the 3 or 4 million people estimated to be seriously handicapped in vision, hearing or movement as outlined by objective definitions. This approach would place the burden directly on taxpayers and would concentrate help on the truly handicapped. The results are in - Overregulation kills growth: Growth is slowed when special-interest groups use their influence to obtain extensive political favors, such as large subsidies for exports or big quotas and tariffs on competing imports. When government regulation and control go too far, the engine of growth first sputters and then stops working altogether. Mediocre performers – The centrally planned economies in Summers and Heston’s sample of Communist countries did better than average. Several mediocre performers including China, North Korea, Albania and Cuba are not included because satisfactory data were unavailable. Golden years – Nor does the evidence indicate that richer countries grow more slowly than poorer ones. Growth rates differ greatly even among countries with similar incomes. The most reasonable conclusion from their data is that wealth was not a hindrance to growth – richer countries in 1950 grew just about as rapidly as poorer ones did. Rich countries that do not perform well should blame policies and behavior – not age and wealth. Their rate of growth will not slow if they avoid complacency and the perennial temptation to over regulate and control economic life.

PRIVATIZATION

Why Public enterprises belong in Private hands: Some people dismiss proposals to sell publicly owned enterprises as desperate attempts to help reduce budget deficits. Privatization is actually a world-wide movement. It is best known for what has happened in Britain, where Thatcher’s government has sold hundreds of thousands of public housing units as well as major publicly owned companies in aerospace, automobiles and telecommunications. Bold switch – China has taken the most decisive steps toward privatizing its economy. China is now also privatizing a portion of its services and manufacturing sectors and it is generally reducing the degree of central control over the economy. Becker is convinced that the intrusion of politics into economic decisions greatly handicaps public enterprises.

Susceptible to pressure – Political considerations also have a major impact on the employment and pricing policies of public enterprises. Political opposition to “scandalous” salaries means that the top managers of publicly owned companies receive substantially lower incomes than executives in private companies. At the same time, public enterprises cannot easily lay off workers. They also tend to yield to union demands for generous wage settlements and to consumer pressure for low prices. Public owed enterprises apparently are less efficient and less flexible than competitive private companies because they are unable to separate economic choices from political considerations.

LABOR MARKETS

It’s simple - Hike the minimum wage and you put people out of work: Higher labor costs reduce employment. During the past several decades, many studies found that raising the minimum wage does reduce the employment of teenagers and others with low skills. But minimum-wage laws have remained popular among trade unionists and many politicians. And periodically, some economists have contested the prevailing wisdom about harmful effects. Serious flaws – A recent widely cited challenge of this kind has come from several studies by two economists. One study finds that the change in employment after a minimum-wage hike is generally not bigger in states with a larger fraction of lowwage workers – the group that should be most affected by higher minimums. Another study is the argument that a higher minimum does not lower employment. Dueling studies – President Clinton justified the need for a higher rate of pay by noting that a family cannot live decently on minimum wage earnings. Raising the minimum is not as seen as an effective way to reduce poverty, since poor families typically get only a small fraction of their income from members whose wages are near the minimum. Higher minimums also discourage on-the-job training of workers with few skills since they spend their time learning rather than producing.

The long-term unemployed need long-term help: The present U.S. unemployment insurance system fails to protect workers against the risk of long-term joblessness. The segment of the unemployed without jobs for longer than 26 weeks has more than doubled since the late 1960s. Under present laws, benefits begin one week after a worker becomes unemployed. Eligible unemployed people then receive payments for up to 26 weeks usually collecting a little less than half of what they had been earning. Common sense suggests that the

long-term unemployed are less able to cope because they exhaust their savings and their credit with others. They don’t have the means to pay for basic needs, let alone anything else. Tax hike opposition – Clearly, the present system is not doing what it should do: protect the unemployed who need it most. Unemployment compensation is presently financed from a trust find in each state built up by a payroll tax on the first $7,000 of wages earned in the state. The present system, however, could generate the revenue needed to cover the long-term unemployed without imposing new taxes, if some of the short-term unemployed were made ineligible for benefits. Since those out of work for only a few weeks usually cope fairly well, the money would be better spent on those in greater need of assistance. Where to start – The fact that eligibility begins after just one week tends to encourage abuse of the system. Some companies more readily lay off workers who will be recalled in a few weeks because they know the trust fund is there to bear the burden. These abuses of the system would be greatly curtailed if eligibility for benefits did not begin until after several weeks of unemployment. Tax and budgetary pressures are forcing a reexamination of all government programs in the search for more effective policies. A good start can be made with the unemployment-compensation system by removing the shirt-term unemployment from coverage and extending assistance to those out of work for a long time. Let’s put deregulation to work in labor: The common law tradition advanced the principle of “at-will” labor contracts, under which workers could quit and employers could hire and fire without having to justify their actions. In the U.S., this principle was altered in the 1930s to require collective bargaining with certified labor unions. More recently, major modifications of this principle have taken place. Now, government regulations rather than workers and employers often determine conditions of employment. Also, most companies in the U.S. do not guarantee that employees will be able to return to their jobs after they take leave to care of their children. Shifting the burden – Supporters of regulations requiring business to provide such benefits point out that most European countries already have mandatory paid leaves. Supporters argue that mandatory paid leaves and child-care facilities at work would remove the disadvantage that mothers with young children have competing for jobs. The advocates of legislated leaves and child-care facilities, in effect, want to shift some of the burden of child-rearing from working parents to employers and taxpayers. This the burden of paying for leaves and child-care facilities would be partly transferred to all younger women, a consequence that surely is contrary to the intent of the proposals. A fairer way – It is by no means obvious that we should shift more of the burden of raising children from working parents to others. If we want to do so, however, it

would be more efficient and fairer to sift the burden to taxpayers and divorced fathers rather than to young working women through regulation og labor contracts.

IMMIGRATION

Illegal immigration – how to turn the tide: Given the yawning gap between the incomes of rich and poor countries, the issue will not simply go away – as long as it remains so easy to enter prosperous countries illegally or on tourist visas. Workers are attracted to rich countries because the jobs available there are much better-paying than anything they can find in their homelands. And that’s true even though they are usually employed as low-paid, unskilled labor in restaurants, households, agriculture or in a few cases, manufacturing industry. Since illegal aliens mainly take jobs shunned by native workers, some economists oppose punishing them. Instead, they advocate what amounts to “benign neglect” – especially if the immigrations are not eligible for tax-supported benefits. But democracies find it politically impossible to deny them health care, education for their children and other benefits paid for by the taxpayer. Seldom penalized – This is why democratic countries must take stronger steps than simply shipping illegal entrants who get caught back to where they come from. Entry cannot be reduced without effective punishment of either illegal aliens or their companies. Employers will not stop hiring illegal aliens on their own because they do not believe they are doing anything wrong. The reasons Becker gave for greater restrictions on illegal entrants should be distinguished from erroneous claims that they take jobs from native workers or that they are often exploited. Research has found that the employment prospects of native workers are only slightly reduced when immigrants enter a local labor market.