Government V. Private Operation; D. Babson

close to one-third of total economic activity against less than one tenth in 1929. Our Federal gov ernment is the biggest employer, borrower, lender, and spender in the world. One out of nearly every three dollars of personal and busi ness income now goes to a tax collector somewhere. Particularly disturbing is the fact that this speed-up in public spending has been taking place during a period of record economic prosperity. In the past decade, 84 THE FREEMAN February Proposed 1963 1958 1957 1947 1933 1932 nondefense outlays in the Federal budget have shot up by $37 billion or nearly 150 per cent while those of state and local entities have gone up another $59 billion or 135 per cent. Just in the past four years, total Federal expenditures have jumped $44 billion, or by nearly two fifths. Of this amount, $25 billion or more than one-half has been for nondefense activities. It seems incredible, but this increase in civilian outlays is over twice as much as the U. S. government paid out for all purposes in any year prior to World War II.

Moreover, Washington is con stantly pressing, or being urged, into new fields - education, hospi tal care, credit, housing. Problems that are essentially local in nature - such as mass transit, traffic, urban decay - are now being passed on to Federal bureaus. So the public sector grows and grows. A question that puzzles us is why anyone should think that such spheres of activity can be con ducted more effectively under pUb lic than private management. Does anyone conceive that Federal ad ministrators have greater talents than private business managers or local civic leaders? A good illustration of the strik ing differences in public vs. pri vate management is afforded by a comparison of the two giants of the communications field - the U. S. Post Office and American Telephone & Telegraph. It is in teresting to observe how these two organizations have affected us as consumers and taxpayers over the years. As a starting point let us take a look at the trend of postal rates since the early 1930's: FIRST CLASS POSTAGE, I-oz. LETTER Regular Air Mail 6¢ 10¢ 5¢ 8¢ 4¢ 7¢ 3¢ 6¢ 3¢ 5¢ 3¢ 6¢ 2¢ 5¢ In recent years various public commissions, congressional com mittees, and the White House have investigated and criticized the "in flationary" pricing policies of pri vate business. Yet, it is a matter of record that during the past ten years, while the cost of living has gone up about 20 per cent and the industrial price index has in creased 7 per cent, the Post Office has hiked its rates by 65 per cent to 100 per cent.

Now let's see how prices of the privately-operated telephone sys tem have fared over the past thirty years. The rates for three minute toll calls between Boston and other major cities are shown below: 1968 GOVERNMENT VS. PRIVATE OPERATION STATIONTO-STATIONTOLL RATES FROM BOSTON* 85 New York Chicago San Francisco Year Day Night Day Night Day Night Current $0.75 $0.55 $1.40 $0.70 $1.75 $1.00 1963 0.75 0.55 1.50 1.20 2.25 1.75 1955 0.75 0.55 1.60 1.30 2.50 2.00 1947 0.75 0.45 1.65 1.25 2.50 2.00 1939 0.80 0.50 2.50 1.50 6.75 4.50 1932 1.00 0.60 3.25 1.75 9.50 5.75 % Decline 1932-1967 -25% -8% -57% -60% - 82()!o -83% *Excludes Federal excise taxes Reduced tariffs for calls made after 12 P.M. went into effect this month as follows: Chicago, 60¢; San Francisco, 75¢. While toll rates have declined substantially over the years, the cost of local telephone service has been trend ing upward. But even here, the rise since 1932 has been less than half that of the consumer price in dex and only one-third as much as the increase in postal charges for regular mail over the same period.

Thus, it is obvious that as con sumers we have fared much bet ter pricewise with the privately operated organization than with the publicly-run one. This is large ly a reflection of the degree to which each of the two systems has been able to lift its efficiency or "productivity." Here again, the public operation makes an unfa vorable comparison: EMPLOYEES VOLUME HANDLED PER EMPLOYEE (In Thousands) Pieces Daily Con- (1930 = 100) Year P.O. Bell Co. of Mail versations P.O. Bell Co. 1966 675.4 650.8 75.6 Bil. 295.7 Mil. 136 225 1963 587.2 571.4 67.9 " 251.4 " 140 218 1962 588.5 563.9 66.5 " 242.4 " 137 214 1961 582.4 566.6 64.9 " 226.4 " 135 199 1957 521.2 640.9 59.1 " 188.3 " 137 146 1950 500.6 523.3 45.1 " 140.8 " 109 134 1940 353.2 275.3 27.7 " 79.3 " 95 141 1930 339.5 318.1 27.9 " 64.0 " 100 100 % Increase 1930-1966 + 99% +105% +171% +362% +36% +125% 86 THE FREEMAN February Note that over the past 36 years the postal service has managed to increase the number of pieces of mail handled per employee by 36 per cent, but the Bell System takes care of well over twice as many conversations per worker as it did then. Since 1957, the P. O. has added employees slightly faster than its volume has grown, where as the rising efficiency of the Bell System has permitted it to handle three-fifths more traffic with only 1 per cent more help.

Quality of service is, of course, much harder to measure than cost. But even without benefit of sta tistics, it is apparent that postal service has been going downhill for years despite the sharp in crease in its rates. In the early part of the period under review we received two daily postal de liveries at home, four at the of fice. Now we are supposed to get one at home and three at the office. Despite fast planes and express highways, business mail from New York frequently fails to ar ri ve here until the second day even though it is less than an hour's flight and a five-hour train or truck trip. In contrast, a dial connection to almost any station in the country takes but a few seconds - a fraction of the time it did thirty years ago. Now what effect have these two systems had upon us as taxpay ers? The following table shows the postal deficit and the taxes paid by the Bell Telephone Com panies, both annually and on a cumulative basis.

Public operation makes a strik ingly poor showing here. Even though as consumers we pay much higher postal rates than ever be fore, we are even worse off as tax payers. We now contribute nearly one billion dollars a year to make up the deficit between postal re ceipts and expenses, or fifteen times as much as when the letter rate was only 2 cents. DEFICIT OF POST OFFICE DEPT. TAXES PAID BY BELL COMPANIES (Millions) (Millions) Year Annual Cumulative from 1932 Annual Cumulative from 1932 1966 $943 $12,843 $2,718 $30,045 1963 819 10,454 2,246 22,301 1961 826 8,860 1,972 17,952 1958 891 6,832 1,483 12,442 1950 545 2,233 499 4,472 1940 41 687 185 1,090 1935 66 428 94 352 1968 GOVERNMENT VS. PRIVATE OPERATION 87 s In contrast, note that while the Post Office Department has drained off $13 billion from our tax rev enues since 1932, the Bell Com panies have, over the same period, put $30 billion into public coffers through tax payments. And this figure does not include the many billions in excise taxes paid by Bell customers ($753 million in 1966 alone).

Moreover, the Bell Companies have millions of stockholders American Telephone itself has 3.1 million, including colleges, church es, and other institutions as well as individuals. This week's increase in AT&T's dividend rate lifts its annual shareholder pay ments to $1,295 million vs. $248 million in 1950 and $39 million in 1930. These disbursements cre ate personal income taxes that help finance the postal deficit. Altogether the contrast in the results of these two organizations is a striking one. We wish some of those who are preaching the bigger "public service" doctrine would go a little slower in down grading the system whose merits are so clearly shown by the above comparisons. ~ Government in R,tsiness IT IS NOT the business of governments to go into business, and when they do, they do not do it well. Their proneness to display, and their comparative indifference to costs, markets, or innova tion, lead them to dissipate the energies of their peoples in spec tacular and comparatively unproductive ventures.

Many economically fastidious governments, for ideological or political reasons, mind the business of their citizens to a degree that cuts down energy in both national and international circuits. The efforts of "welfare" governments, in particular, to protect certain interests and discourage others, often work against the prosperity of both their own and other nations. H A RO L D F L E MIN G, States, Contra(·ts and Progr(','!s • or Selfish? Interest BEN MOREELL "POLITICAL CHARITY" is a contra diction in terms. "Charity" in the biblical sense means "love." "Polit ical charity" is coercive. It forces people to "do good" (as defined by political administrators) under threat of punishment for failure to comply. The great sums donated volun tarily to church and charitable in stitutions each year show that, if left free to make their own choices, our people need not be coerced to "love thy neighbor."